Shares of American Eagle Outfitters (NYSE:AEO) gained roughly 5% in the first half of trading on Thursday, and was up by 4.5% as of 2:13 p.m. EST. The driving force behind that rise was a pair of company news releases and a presentation about management's plans. If all goes according to expectations, the future could be bright for this fashion retailer.
American Eagle Outfitters has decided to start breaking out the results of its Aerie nameplate. That was a pretty important decision, and the fourth quarter shows why. According to the update management provided, American Eagle expects Q4 adjusted operating income to be around $95 million, up from just $77 million in the prior-year quarter, Lower advertising costs and higher selling prices helped that along.
The bulk of the positives here, however, came from Aerie, where sales rose in the high-20% range, and its e-commerce channels, which should show double-digit percentage growth across both of the company's nameplates. But, notably, the company expects to report a sales decline in the low-double-digit percentage range for its namesake American Eagle stores. So investors can anticipate something of a mixed bag when the retailer delivers the final report on March 3.
That, however, is that past. Management also laid out its plans for the next three years. The American Eagle brand is expected to tread water, which isn't great. The company is basically looking to optimize its profitability. Aerie, meanwhile, is projected to increase its full-year operating income at a compound annual rate of 46% as it grows revenues from 2019's $800 million to $2 billion in 2023. That will take this brand from around 18% of the business to 36% or so, and account for virtually all of American Eagle's growth. Investors appear to have liked that outlook.
It's not easy to find a retail concept that's ready to push the envelope on growth, but American Eagle seems to possess one. Its namesake brand may be mature, but investors looking for options in the retail sector might want to do a deep dive here with a focus on Aerie and its exciting growth prospects.