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Why American Eagle Outfitters Stock Popped This Morning

By Rich Smith - Updated Mar 4, 2021 at 10:27AM

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AE beat estimates last quarter -- and looks likely to beat 'em again this quarter.

What happened

Shares of retail clothier American Eagle Outfitters (AEO -4.25%) jumped out of the gate Thursday, racing ahead 7.7% by 9:45 a.m. EST after the company reported an earnings beat last night.

Expected to report pro forma profits of $0.36 per share on sales of $1.28 billion, American Eagle edged out both numbers with a report of $0.39 per share pro forma profit, and $1.29 billion in sales.  

Green stock arrow shooting up among the numerals 2021

Image source: Getty Images.

So what

Despite beating estimates, sales for American Eagle's fiscal fourth quarter 2020 declined 2% year over year, with same-store sales declining 1%, hurt by a 20% decline in in-store sales. Sales of Aerie lingerie, however, jumped 25%, and the company's online sales surged 35%.  

Profits-wise, gross margin climbed 300 basis points and gross profits were up 8%. Higher operating costs, however, sapped those gains, with the result that on the bottom line, AE earned only $0.02 per share when profits were calculated according to generally accepted accounting principles (GAAP) -- much less than the pro forma figure, and also down from $0.03 a year ago. The large difference between AE's GAAP number and its pro forma number was attributed to "$0.36 of impairment charges and expenses related to COVID-19 protocols and $0.01 of non-cash interest expense on the company's convertible notes."

Now what

Nevertheless, investors were pleased with the earnings beat, and here's something else that should keep them smiling: AE CEO Jay Schottenstein says the company has "entered 2021 with momentum," and management is forecasting that both its revenue and operating profit in the first quarter of 2021 will exceed levels set in Q1 2020 -- and the pre-pandemic Q1 2019 as well.

When you consider that Q1 2019 revenue, for example, was $886.3 million, and that Wall Street analysts are forecasting only $790.4 million for this quarter, it sure sounds like AE just promised to follow up its Q4 beat with another beat in Q1 2021.  

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