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Why American Eagle Stock Dropped 6.5% Today

By Rich Smith – Jan 10, 2022 at 7:40AM

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A warning from Lululemon is dragging down American Eagle as well.

What happened

Shares of teen-focused fashion chain American Eagle Outfitters (AEO 0.30%) were down by 6.5% as of 11:20 a.m. ET Monday. Don't blame the company for that, though.

Instead, blame Lululemon Athletica (LULU -0.82%).

Red stock arrow breaking up and showering down in pieces over a city below.

Image source: Getty Images.

So what

You see, bright and early Monday morning, Lululemon sounded an alarm for the consumer goods sector, warning that when it reports sales and earnings for its fourth fiscal quarter, both of these metrics will land near the low end of its previous guidance ranges. Specifically, Lululemon's revenues will be closer to $2.125 billion than to $2.165 billion, and GAAP earnings will be closer to $3.24 per share than to $3.31 per share.  

That's bad news for Lululemon, obviously, and the apparel seller's stock was down by about 5% because of it. But why is this (potentially) bad news for American Eagle?

According to management, Lululemon "started the holiday season in a strong position but [has] since experienced several consequences of the Omicron variant, including increased capacity constraints, more limited staff availability, and reduced operating hours in certain locations."

It seems logical that if Lululemon's supply chains were snarled in the quarter, if it had trouble finding workers for its store, and if it had to contend with pandemic restrictions on operating hours ... then American Eagle might have suffered these same difficulties. And if that's the case, then it's possible we'll see a similar earnings warning -- or just plain a bad earnings report -- from American Eagle as well.

Now what

On the plus side, despite all these difficulties, Lululemon still described its fourth quarter as "strong" -- indeed, if earnings were even just $3.24 per share, that would still work out to an impressive 25% growth rate in profits. American Eagle shareholders can at least cling to the hope that that will prove true for their company as well.

For the record: When American Eagle's Q4 earnings do come out in March, analysts are forecasting 23% profits growth to $0.48 per share and a 21.5% increase in sales to $1.6 billion.  

Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns and recommends Lululemon Athletica. The Motley Fool has a disclosure policy.

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