It's been clear for some time that American Eagle Outfitters' (NYSE:AEO) best-performing business is its Aerie lingerie chain, and though revenue for the brand was down slightly in the first quarter due to store closures necessitated by the COVID-19 pandemic, demand remained strong and far outstripped that for the American Eagle brand itself.
That sort of dynamic has persuaded at least one analyst that Aerie could become a $3 billion business over the next five years for the apparel retailer.
Potent growth potential
Jefferies analyst Janine Stichter says Aerie will continue to take market share from intimate apparel rivals, particularly L Brands' (NYSE:LB) ailing Victoria Secret label, which is being prepared for a spinoff.
According to TheFly.com, the analyst says American Eagle's lingerie division can become a major industry player. She sees its growth accelerating, with double-digit-percentage comparable-store sales growth and mid-teen increases in store expansion.
Of course, $3 billion, while sizable, would still be less than half of the $6.8 billion in total global revenue Victoria's Secret generated last year. Yet Victoria's Secret has been around for decades while Aerie, a relative newcomer, was founded in 2006.
In the years since, though, it has become a particular favorite among young women ages 15 to 25, and while the brand's revenue dropped 2% due to store closures last quarter -- compared to the 45% drop at American Eagle -- its digital sales during the pandemic surged 75% from last year, versus a 15% e-commerce rise at its sibling.
Aerie seems to be hitting its stride for the retailer, which may be why Stichter maintains her buy rating on American Eagle and a $20 price target on its stock, some 73% above where shares currently trade.