American Eagle Outfitters (AEO +0.88%) has been one of 2025's retail standouts, with shares climbing more than 45% this year as its business regains momentum. Fresh third-quarter results added fuel, showing revenue back to healthy growth and prompting management to lift its outlook for the important holiday period.
The company operates the namesake denim-focused American Eagle chain along with Aerie and Offline, intimate and activewear concepts that have turned into powerful traffic drivers. Third-quarter comparable sales improved across the three brands, led by double-digit gains at Aerie and a return to positive territory for the legacy American Eagle stores.
With better trends and growing marketing buzz heading into 2026, optimism around the stock is understandable.
But is it too late to buy into this growth story?
Image source: Getty Images.
A reinvigorated business
American Eagle's third-quarter revenue rose 6% year over year to $1.36 billion -- a quarterly record for the business, as comparable sales increased 4%. Aerie impressively delivered an 11% comparable-sales gain in the period, while the core American Eagle banner managed a 1% increase. Total comparable sales had been negative earlier in 2025, so this pivot back to growth represents a meaningful inflection.
Profitability also looked solid despite heavier tariff headwinds. Third-quarter gross profit grew 5% year over year to $552 million. Though American Eagle's gross margin slipped 40 basis points year over year to 40.5% -- in large part because of $20 million of tariffs. Operating income reached $113 million, better than the company's earlier guidance of $95 million to $100 million, and operating margin stayed near 8%. Earnings per share came in at $0.53, up 29% from a year earlier, while adjusted earnings per share increased about 10%.
Importantly, American Eagle CEO Jay Schottenstein said in the company's third-quarter earnings release that its momentum "has continued into the fourth quarter, including an excellent start to the holiday season."
Reflecting this momentum, management raised fourth-quarter operating income guidance to between $155 million and $160 million, based on expected comparable sales growth of 8% to 9%. It also boosted its full-year adjusted operating income guidance to a range of $303 million to $308 million -- up from prior guidance of $255 million to $265 million.
Key catalysts
Underneath the surface, there's a lot to be optimistic about.
Much of the company's current momentum rests on Aerie and its newer concepts. On the earnings call, management noted that Aerie is approaching $2 billion in annual revenue and still holds less than 5% market share in its core categories, leaving ample room for expansion as the brand gains awareness.
Additionally, marketing has become a key lever. Recent campaigns featuring Sydney Sweeney and Travis Kelce have generated more than 44 billion impressions. And a holiday push with Martha Stewart is extending its positive marketing momentum into the peak shopping period.
That kind of buzz is driving near-term traffic, but it can be costly to maintain. Selling, general, and administrative expenses (SG&A) rose 10% year over year in Q3, driven by advertising. Still, management seems pleased with the reach of its advertising campaigns, noting in its third-quarter earnings call that its fall season campaigns have been the company's "most impactful advertising campaigns ever, which are delivering results."
NYSE: AEO
Key Data Points
With the company's accelerated business momentum and its strong advertising results in mind, the stock's valuation looks reasonable even after its run-up. As of this writing, shares trade at 21 times earnings and 16 times forward earnings. These metrics are well below the S&P 500's price-to-earnings ratio of 25. In addition, American Eagle investors get access to an attractive dividend yield of 2.1%.
But even though the valuation is reasonable, I would keep any position in the stock small. Fashion is a fickle and difficult-to-predict business, with trends shifting quickly. The risks of sales trends reversing in an unexpected way, therefore, is always high. Overall, though, I do think the stock is attractive today given American Eagle's incredible business momentum and the visibility management has into the holiday season.
