What happened
American Eagle Outfitters (AEO 1.37%) shareholders lost ground to a rising market this week. The stock fell 10% through Thursday trading compared to a 1.3% rally in the S&P 500, according to data provided by S&P Global Market Intelligence.
The slump added to significant short-term losses for owners of the apparel retailer, as shares are down about 30% so far in 2022. Declines can be tied to the fact that investors are growing more concerned about its short-term growth and earnings outlook.
Image source: Getty Images.
So what
This week's stock price drop appears to be a continuation of the trend that started in reaction to American Eagle Outfitters' holiday season earnings announcement. That report in early March showed solid sales trends compared to a year earlier and to 2019, before the pandemic began disrupting the retailing industry. Yet there were a few warnings signs in that announcement.
American Eagle noted soaring costs on freight, supply chain disruptions in its Vietnam factories, and rising inventory levels.
CEO Jay Schottenstein and his team said they felt "extremely confident" about the brand's strength in the upcoming spring selling season, but the retailer is facing a tough comparison with soaring results a year ago as costs rise. These factors make it likely that American Eagle will report weaker results for the next two quarters, and investors don't like that prospect.
Now what
A few quarters of weak results don't threaten an investing thesis. In fact, even American Eagle's conservative outlook reflects significantly higher sales and earnings compared to 2019.
Yet investors had hopes for bigger gains on both the top and bottom lines in 2022. It's no surprise, then, that the stock has come down a bit as those short-term expectations adjust to new developments.
