Will AEO's Innovation & Cost Discipline Drive a Stronger Second Half?

American Eagle Outfitters, Inc. AEO entered the second half of fiscal 2025 with renewed optimism, following a solid second quarter marked by stronger brand momentum, improved profitability and strategic execution. The company’s efforts to refine assortments, lean into proven categories and engage consumers through high-impact marketing campaigns are beginning to yield tangible results. Despite a dynamic retail backdrop and the headwinds of higher tariffs, AEO demonstrated its ability to balance creativity with operational rigor — an approach that positions it well to capture growth as the year progresses.

Innovation has been a key driver of AEO’s recent resurgence. The company’s high-profile collaborations with celebrities Sydney Sweeney and Travis Kelce have reignited excitement around its core American Eagle brand, generating record-breaking customer acquisition and more than 40 billion media impressions. These campaigns not only boosted denim and men’s categories but also enhanced brand relevance among younger and more diverse audiences. Aerie, meanwhile, delivered a meaningful rebound, driven by fresh collections in intimates, sleepwear and soft apparel. The combination of creative storytelling, product innovation and brand differentiation continues to strengthen customer engagement across channels.

Equally important has been AEO’s disciplined approach to financial management and cost control. Through focused SG&A reductions, improved inventory management and supply chain optimization, the company achieved operating income growth despite a modest revenue decline. The proactive measures, including vendor negotiations, sourcing diversification and tariff mitigation, helped protect margins and offset inflationary pressures. AEO’s capital allocation also reflects prudence, balancing strategic investments with shareholder returns through dividends and buybacks. This disciplined execution underscores management’s commitment to sustainable, profitable growth.

Looking ahead, AEO’s fiscal third quarter is off to a strong start with mid-single-digit comparable sales growth, suggesting continued momentum across both brands. The company’s focus on product innovation, marketing agility and operational efficiency provides a solid foundation for the remainder of 2025. With Aerie’s growth accelerating, American Eagle (AE)’s denim leadership reinforced and cost initiatives firmly in place, American Eagle appears well-positioned to deliver a stronger second half — one defined not just by short-term recovery but by long-term brand resilience and profitability.

AEO’s Zacks Rank & Share Price Performance

Shares of this Zacks Rank #2 (Buy) company have rallied 49.9% in the past three months, outperforming the industry’s 1.1% fall.

AEO Stock's Past Three-Month Performance

Is AEO a Value Play Stock?

AEO currently trades at a forward 12-month P/E ratio of 11.60X, which is lower than the industry average of 17.55X and the sector average of 24.70X. This valuation positions the stock at a modest discount relative to both its direct peers and the broader consumer staples sector.

AEO P/E Ratio (Forward 12 Months)

Other Stocks to Consider

Some other top-ranked stocks are Genesco Inc. GCO, Sally Beauty Holdings, Inc. SBH and The TJX Companies, Inc. TJX.

Genesco is a Nashville-based specialty retail and branded company that sells footwear and accessories in retail stores. It currently flaunts a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for GCO’s fiscal 2026 earnings and sales implies growth of 71.3% and 3.7%, respectively, from the year-ago actuals. Genesco delivered a trailing four-quarter average earnings surprise of 28.1%.

Sally Beauty operates as a specialty retailer and distributor of professional beauty supplies. It currently flaunts a Zacks Rank of 1. SBH delivered a trailing four-quarter average earnings surprise of 8.3%.

The Zacks Consensus Estimate for Sally Beauty’s current fiscal-year earnings indicates growth of 8.9% from the year-ago actuals.

The TJX Companies is a leading off-price retailer of apparel and home fashions. It carries a Zacks Rank #2 at present.

The Zacks Consensus Estimate for The TJX Companies’ current fiscal-year earnings and sales indicates growth of 8.9% and 7%, respectively, from the year-ago actuals. TJX delivered a trailing four-quarter average earnings surprise of 5.4%.

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This article originally published on Zacks Investment Research (zacks.com).

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