American Eagle (AEO 2.52%) shareholders lost ground to the market on Monday as shares fell as much as 6% by 10 a.m. ET before recovering to a 2.5% drop by 1:15 p.m. The broader S&P 500 was up nearly 2% in that time.
Shares fell due to a downgrade of the stock by an investment firm.
An analyst at Citigroup lowered American Eagle's stock rating to the equivalent of a hold while lowering the stock price target to $14 per share from its previous $39 per share. The analyst downgraded several other apparel retailers, due to implications from recent earnings reports from major peers, including Walmart and Target.
These companies both reported shifting shopper behavior and rising costs last week. The combination of these trends convinced Walmart and Target to each lower their earnings outlook for 2022.
American Eagle's business would be sensitive to any demand swing away from consumer discretionary categories like apparel, and that fact has investors more worried about its short-term growth prospects in today's inflationary environment.
Investors won't have to wait long for answers to these growth questions, as American Eagle is set to announce its fiscal first-quarter results on Thursday, May 26. The company's previous update in early March predicted an earnings decline in the first half of 2022, with profits and sales trends likely rebounding in the second half of the year.
CEO Jay Schottenstein and his team this week will add detail around that forecast and explain whether the same trends that have hurt other retailers' earnings outlooks in recent reports are also impacting its business.
The main concern is that American Eagle could face inventory risks if changes in consumer shopping patterns surprise the management team, leading to price cuts aimed at keeping merchandise moving through the supply chain.