Can American Eagle Earnings Catch Up With Urban Outfitters and Gap?

American Eagle Outfitters (AEO 4.97%) will release its quarterly report on Friday, and the teen retailer is bracing for another tough quarter ahead. Fickle young shoppers have largely chosen to head to Urban Outfitters (URBN 2.58%) and other popular store brands like Forever 21, and even once-unfashionable Gap (GPS 3.59%) has reenergized itself to solid gains. Can American Eagle's coming earnings report get the retailer back on the road to recovery?

Teen retail has always been a tough business to crack, and American Eagle Outfitters used to be one of the best at it. Throughout much of the 2000s, the retailer produced incredible growth, using its vast popularity among teens to produce strong results. But even though it bounced back from its recessionary setback during the financial crisis, American Eagle hasn't managed to produce the gains that Gap and Urban Outfitters have seen over the past couple of years. Will this earnings report mark American Eagle's low-water point? Let's take an early look at what's been happening with American Eagle Outfitters over the past quarter and what we're likely to see in its report.

Stats on American Eagle Outfitters

Source: Yahoo! Finance.

Can American Eagle earnings surprise investors this quarter?
Analysts have had mixed views on American Eagle earnings in recent months, boosting their October-quarter estimates by $0.03 per share but cutting back on their views for the current and next fiscal years. The stock has bounced off its summer lows, gaining 12% since late August.

American Eagle kept seeing poor performance in its July quarter, with the retailer posting a 7% plunge in same-store sales. Even after warning that the quarter would be ugly, American Eagle's shares dropped more considerably as earnings guidance for the October quarter came in at less than half what investors were expecting prior to the report. Concerns about poor traffic indicated that the back-to-school season likely didn't produce the positive results that shareholders have come to rely on in teen retail.

Yet American Eagle's early preview on its October quarter looked a little healthier. The company projected a 6% drop in sales, but it raised its earnings guidance for the quarter and pointed to discipline in managing inventory as a key contributor to its solid results.

American Eagle isn't alone in its challenges, as teen-oriented peers Abercrombie & Fitch and Aeropostale have also had their share of setbacks. But Urban Outfitters once again proved its dominance last month, reporting positive same-store sales growth of 7% based largely on the success of its Anthropologie and Free People chains. Even sluggishness at its namesake Urban Outfitters stores, where comps fell 1%, wasn't enough to outweigh gains in gross profit margins. Still, Urban Outfitters was cautious about its future, pointing to a particularly competitive holiday season. Similarly, Gap saw 6% sales growth in October, warning about promotional activity but remaining generally upbeat about its earnings prospects.

One interesting question is whether American Eagle might get bought out. With shares at inexpensive levels, some analysts have speculated that private-equity firms might be interested in buying certain players in the teen retail space, including American Eagle. Given the challenges in finding lucrative private-equity-oriented investment opportunities lately, it's possible that the prospect could help keep American Eagle's stock higher than it might otherwise trade without that speculation.

In the American Eagle earnings report, watch closely for early guidance on the holiday quarter. With many reporting a disappointing holiday season so far, American Eagle desperately needs a solid performance in order to reassure investors that the retailer will never be able to match the better results that Gap and Urban Outfitters have managed recently.

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