American Eagle Outfitters Inc.’s (AEO) comparable-store sales for September increased 4% as against flat growth in the year-earlier period. Total sales for the five weeks ended October 2, 2010, upped 4% to $251 million from $241 million for the five weeks ended October 3, 2009.
Women’s comparable-store sales increased in the high single digits in September, while men’s comparable-store sales were flat year over year.
Average unit retail (AUR) improved in the low single digits on a year-over-year basis, owing to less promotional activity and fewer markdowns, as well as an easy comparison as AUR was down mid-single digits in September 2009.
Categories that performed well included denim, accessories and women’s sweaters. In the first three weeks of the month, business was robust attributable to back-to-school (BTS) selling and moderated in the last two weeks due to less appointment shopping.
Additionally, the company pointed out that inventory management initiatives are working well and is expected to drive some merchandise margin improvement. Inventories per foot were down in the mid-single digits and going forward the company expects less promotions and lower markdowns.
Most importantly, American Eagle expects its third quarter earnings from continuing operations to be between 27 cents and 28 cents per share versus its prior expectation of 23 cents to 26 cents. The increased expectation reflects flat to slightly positive third quarter comparable-store sales growth, reflecting conservative traffic expectations for the post BTS period in October.
We remain impressed with the company’s continued momentum in denim along with improved merchandise assortments in the women’s business segment, which will likely lead to a turnaround in top-line momentum as well as a rebound in gross margin.
However, given concerns surrounding market share gains as the overall retail environment has recently become increasingly promotional, we prefer to maintain our long-term Neutral recommendation.
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