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Can American Eagle Outfitters Keep Soaring After Last Week's 15% Pop?

By Rick Munarriz - May 23, 2016 at 8:05AM

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The apparel retailer moves higher after posting strong quarterly results.

We may be all but done with the traditional earnings season, but this is the time of year that finds retailers with fiscal years ending in January chiming in on their April quarters. Some mall outfits are having a hard time standing out in this golden age of e-tail and folks using mobile gadgetry to double-check purchase prices against what's available somewhere else, but that wasn't the case with American Eagle Outfitters (AEO 2.24%). It was one of last week's biggest winners, soaring 15% after posting encouraging financial results

It was just the kind of quarter you like to see out of an apparel retailer after the peak holiday quarter. American Eagle Outfitters saw net revenue climb 7% to $749 million since the prior year's fiscal first quarter, and it was largely the handiwork of a 6% spike in comparable-store sales. That's stacked on top of a 7% uptick in comps a year earlier. You won't find too many retailers where the average store is ringing up more than 13% in sales than it was two years earlier.

Gross, operating, and net margins all expanded, culminating in a 47% surge in earnings per share to $0.22. That's well ahead of both the $0.15 a share it posted a year earlier and the $0.18 a share that analysts were expecting. This is the second time over the past four quarters that the clothing chain has landed at least 20% ahead of Wall Street's profit target.

American Eagle Outfitters is gaining market share, a necessary step for growth in a time of weakening mall traffic. This doesn't mean that the chain is hitting on all cylinders. Its AE and aerie brands posted robust growth, but some brands went the wrong way. It also experienced a year-over-year decline in comps on the men's side of its business, more than offset by a spike in the high single digits for its women's apparel.

This is why American Eagle Outfitters isn't settling with its mixed success. It's working on a new marketing campaign, and this summer it will roll out what it feels will be the next generation of fabric technologies across AE jeans -- just in time for the critical back-to-school shopping season. It also opened its first new Tailgate store earlier this month. American Eagle Outfitters had acquired the Tailgate brand late last year.

The rising retailer can afford to think big. Unlike many of its leveraged peers, American Eagle Outfitters runs with a clean balance sheet. It closed out last month with $239 million in cash and no debt. Its empire of 1,046 stores and 145 international licensed locations is clicking with consumers, and that's special in this otherwise iffy mall climate.

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