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Why American Eagle Outfitters Stock Fell 38.3% in March

By Adria Cimino - Apr 6, 2020 at 8:03AM

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Its shares suffered as the apparel retailer withdrew guidance and shuttered stores.

What happened

Shares of American Eagle Outfitters (AEO -0.27%) dropped 38.3% in March, according to data provided by S&P Global Market Intelligence, as the apparel retailer withdrew first-quarter guidance and temporarily shuttered stores amid the coronavirus outbreak.

American Eagle Outfitters closed stores across the U.S. and Canada as the coronavirus crisis deepened, with cases now totaling 1.14 million worldwide. The company withdrew guidance for the first quarter of 2020, saying store closures and other impact from the public health crisis will have a "material adverse impact on financial results." It also drew down $330 million on its revolving credit facility, though the company said it started the year in a strong financial position with $417 million in cash and short-term investments and no debt.

Jeans and other pants hanging on a store rack.

Image source: Getty Images.

So what

The coronavirus outbreak has hit retailers particularly hard. When the crisis started in China earlier this year, retailers suffered from supply chain disruptions. Many retailers, including American Eagle Outfitters, source at least some of their goods there. As the outbreak became a pandemic and reached the U.S., American Eagle Outfitters and its peers suffered as consumers stayed home to adhere to quarantine rules. Now, with shops closed, revenue prospects have worsened. Though shoppers may continue to order apparel online through American Eagle Outfitters' e-commerce site, most consumers have been focused on shopping for food and other essentials during the crisis.

Now what

In an update at the start of April, the retailer said it had furloughed employees, suspended its share repurchase program, and deferred payment of its first-quarter dividend. Prior to the crisis, American Eagle Outfitters had reported record fourth-quarter revenue, posting 20 consecutive quarters of growth. Still, diluted earnings per share came in at only $0.03 a share for the quarter compared with $0.43 in the year-ago period. And while sales of its Aerie brand surged 26% year over year, the American Eagle brand fell 3% after a 3% gain a year ago.

The extent of the coronavirus outbreak's damage to earnings at American Eagle Outfitters will be determined by the length of the crisis as well as the state of the economy afterward. Weekly unemployment claims reached a record high last month. That may result in a near-term slowdown in spending, especially on nonessential items. So, investors in consumer discretionary stocks like American Eagle Outfitters will have to be patient. After the crisis has passed, investors should focus on whether the company can boost sales of its American Eagle brand while maintaining the momentum we've seen in Aerie.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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