What happened
Shares of basics apparel retailer American Eagle Outfitters (AEO 2.75%) fell as much as 5% on Thursday. The market was down materially in early trading as well, so that was clearly part of the equation. But the bigger picture needs to be considered to put this stock's drop in its full context.
So what
American Eagle Outfitters, like most other apparel retailers, was forced to close the vast majority of its stores in 2020 due to the pandemic. With vaccines starting to gain more traction, and COVID-19 cases falling well below their peak levels, stores have been reopened and consumers have gone back out shopping again. To put a number on that, first-quarter 2021 revenue was up roughly 88% year over year.
And the company gave a decidedly upbeat view -- though perhaps vague ("We remain poised for success, and our brands are stronger than ever.") -- in its earnings release.
Image source: Getty Images.
That outlook, however, likely relies heavily on the expectation that the worst of the coronavirus pandemic is over. With a new variant starting to spread quickly in the United States and vaccination rates stalling, there's a renewed concern that more drastic actions could be required again. Notably, younger adults, the primary target for American Eagle Outfitters' wares, are among the least-vaccinated population in the country, and the new variant is even more contagious than previous variants.
So the impact could be extra bad for American Eagle Outfitters if consumers hunker down anew. Investors appear to be reacting to this potential -- though at this point, purely hypothetical -- negative outlook.
Now what
One day does not make a trend, so investors should take today's move with a grain of salt. It's also worth noting that American Eagle Outfitters' first-quarter sales were up about 17% versus the first quarter of 2019, which suggests that the company's growth isn't just a bounce back from an abysmal 2020.
Indeed, while there's a lot of uncertainty in the air lately, the two-year look back paints a picture of a brand that is resonating with consumers. In what has been a difficult retail environment (something that was true even before the pandemic), that's a noteworthy positive.
