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Why American Eagle Outfitters Stock Popped Today

By Jeremy Bowman – Updated Jun 3, 2020 at 11:48AM

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Shares of the teen apparel retailer were up following its first-quarter earnings release.

What happened

Shares of American Eagle Outfitters (AEO 3.55%) were moving higher today after investors overlooked an ugly first-quarter earnings report and focused instead on signs of a recovery and strong online demand.

The stock was up 15.7% as of 10:32 a.m. EDT on Wednesday.

So what

Like other brick-and-mortar apparel retailers , the teen-focused brand saw sales plunge during the quarter with its stores closed for roughly half the period. Revenue in the quarter fell 38% to $552 million, well below estimates at $634.3 million.  By segment, sales at American Eagle fell 45%, but declined just 2% at Aerie, its fast-growing brand of intimate apparel for women.

An American Eagle Outfitters storefront

Image source: American Eagle.

Digital demand, which is a reflection of ordered sales, was encouraging, rising 33% in the quarter, up 75% at Aerie and 15% at American Eagle. But due to supply chain constraints, digital revenue was up just 9% overall in the quarter, though management said it has reduced backlogs since the mid-April peak. Nonetheless, it shows customers have remained loyal to the company during the crisis.  

On the bottom line, the retailer reported an adjusted loss of $0.84 per share compared with a $0.24 per-share profit a year ago, and worse than estimates of a $0.29 per-share loss.

Looking ahead to the recovery, CEO Jay Schottenstein said, "I'm very pleased to see stores reopening strong, supported by industry-leading health and sanitization measures to ensure safe and secure stores for our associates and customers. American Eagle and Aerie will be well positioned for the back-to-school and fall seasons."

Now what

As a teen retailer, American Eagle makes most of its profit during the second half of the year from the back-to-school and holiday shopping seasons, so it's key that the company is ready for them. The retailer successfully reduced its inventory by 8% to adapt to the changing climate, which management said positions it well for the back-to-school season.

With stores now reopening, the worst of the crisis has likely passed for American Eagle. The company has a solid balance sheet with $856 million in cash after raising debt and tapping a line of credit. And with fast growth at Aerie, it should be able to outperform its peers during the recovery.

Jeremy Bowman 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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