American Eagle Set for Q3 Earnings: What Surprise Awaits Investors?

American Eagle Outfitters, Inc. AEO is expected to register top-line growth when it reports third-quarter fiscal 2025 results on Dec. 2, after market close. The Zacks Consensus Estimate for revenues is pegged at $1.32 billion, which indicates a rise of 2.3% from the year-ago figure.

The consensus estimate for quarterly earnings is pegged at 43 cents per share, indicating a 10.4% drop from the year-ago quarter's number. However, the consensus estimate for earnings has moved up a penny in the past 30 days.

The company’s earnings beat the consensus estimate by 125% in the last reported quarter. AEO delivered an earnings surprise of 30.3% in the trailing four quarters, on average.

Key Factors Likely to Impact AEO’s Q3 Results

American Eagle’s fiscal third-quarter sales performance is expected to have benefited from brand strength, particularly at Aerie, and positive demand across categories like intimates, soft dressing, sleepwear and activewear collections at offline. AEO’s compelling products, expansion into new markets and exciting marketing campaigns have been favoring. Investments in digital, automation and supply chain diversification, coupled with Aerie’s strong momentum, category expansion, and fresh assortments have been driving growth.

AEO has been prioritizing investments in its digital channels, making foundational improvements to enrich the overall shopping experience. The company is also focused on optimizing its store fleet to ensure locations align with customer demand and deliver a best-in-class in-store experience. Innovations, solid omnichannel capabilities and inventory-optimization efforts are likely to have boosted the company’s top-line performance. For the third quarter of fiscal 2025, management had predicted comparable sales (comps) to rise in the low single digits compared with our model anticipation of 1.1% growth.

However, a tough operating landscape, including weak consumer sentiment and inflation, is concerning. The company has been witnessing challenges in its shorts category for a while. In addition, higher costs, including selling, general and administrative (SG&A) expenses and elevated advertising spending, are likely to  have acted as deterrents. Although the company has been making mitigation efforts, higher costs with respect to tariffs have also been concerns. These expenses are likely to have weighed on the company’s profitability in the to-be-reported quarter.

On its last earnings call, management had expected gross margin to decline year over year, while SG&A dollars are likely to rise in the high single digits, mainly owing to investments in advertising. It estimated operating income to be $95-$100 million, including nearly $20 million of higher tariff costs. AEO had forecast buying, occupancy and warehousing costs to increase owing to new store growth for Aerie and offline, and higher digital penetration leading to slight deleverage. We project SG&A costs to rise 7.3% for the fiscal third quarter.

What the Zacks Model Unveils for AEO

Our proven model conclusively predicts an earnings beat for American Eagle this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks before they’re reported with our Earnings ESP Filter.

American Eagle currently has an Earnings ESP of +1.55% and a Zacks Rank of 2.

AEO’s Valuation Picture & Price Performance

With a forward 12-month price-to-earnings ratio of 15.27X, below the high level of 18.22X and the Retail - Apparel and Shoes industry’s average of 16.62X, the stock offers compelling value for investors seeking exposure to the sector. Additionally, the stock currently has a Value Score of A, further validating its appeal.

AEO stock has surged 82.6% in the past six months, outperforming the industry’s 0.7% drop.

Other Stocks With the Favorable Combination

Here are a few more companies, which according to our model, have the right combination of elements to post an earnings beat this season:

Dollar General DG currently has an Earnings ESP of +5.45% and a Zacks Rank of 3. The company is likely to register growth in the top line when it reports third-quarter fiscal 2025 results. You can see the complete list of today’s Zacks #1 Rank stocks here.

The consensus mark for DG’s quarterly revenues is pegged at $10.61 billion, which indicates a 4.2% rise from the figure reported in the prior-year quarter. The consensus mark for Dollar General’s quarterly earnings has fallen a penny in the past 30 days to 92 cents per share. The consensus estimate indicates a rise of 3.4% from the year-ago quarter’s actual. DG has an average trailing four-quarter earnings surprise of 11.3%.

Dollar Tree DLTR currently has an Earnings ESP of +0.30% and a Zacks Rank of 3. The company is likely to register top and bottom-line declines when it reports third-quarter fiscal 2025 results. The consensus mark for DLTR’s quarterly revenues is pegged at $4.74 billion, which indicates a decline of 37.3% from the figure reported in the prior-year quarter.

The Zacks Consensus Estimate for Dollar Tree’s earnings has moved up a penny to $1.09 per share in the past 30 days. The consensus estimate indicates a drop of 2.7% from the year-ago quarter’s actual. DLTR has an average trailing four-quarter earnings surprise of 27.5%.

lululemon athletica LULU currently has an Earnings ESP of +0.17% and a Zacks Rank of 3. LULU is likely to register top-line growth when it reports third-quarter fiscal 2025 results. The Zacks Consensus Estimate for its quarterly revenues is pegged at $2.49 billion, which indicates 3.7% growth from the prior-year quarter.

The consensus estimate for earnings has been stable in the past 30 days at $2.22 per share, which implies a 22.7% decrease from the year-ago quarter's actual. LULU has an average trailing four-quarter earnings surprise of 5.3%.

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

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