American Eagle Lifts Q4 Outlook as Holiday Momentum Powers Sales

American Eagle Outfitters, Inc. AEO is expected to close the fourth quarter of fiscal 2025 on a strong note, buoyed by a better-than-expected holiday season and broad-based demand across brands and channels. Encouraging sales trends and resilient margins have prompted management to raise its operating income outlook, reinforcing confidence in the company’s brand strength and execution despite ongoing cost pressures.

A Glimpse of AEO’s Latest Update

The company reported that comparable sales increased by high-single digits from the start of the fiscal fourth quarter through Jan. 3, 2026, reflecting healthy consumer engagement through the peak holiday period. Performance was balanced across channels, with both stores and digital contributing to the upside. The results point to sustained demand for AEO’s core assortments and successful merchandising strategies.

Brand-level performance remained a key highlight. The American Eagle brand continued to post steady gains, while Aerie once again stood out with robust growth, supported by strong traction at Offline by Aerie. Management noted that momentum built sequentially through the quarter, with record December sales and continued strength after the holidays.

On the back of these trends, American Eagle raised its fiscal fourth-quarter operating income guidance to be nearly $167-$170 million, up from the earlier guidance of $155-$160 million. The increase reflects better-than-expected margin performance and assumes consolidated comps growth of 8-9% for the fiscal fourth quarter. Notably, the updated operating income guidance continues to factor in roughly $50 million in tariff-related pressure, as previously disclosed.

Leadership emphasized that new product collections and refreshed marketing initiatives resonated well with customers. According to management, the combination of relevant product, brand authenticity and targeted messaging helped drive traffic and conversion, positioning the company well as it enters the new fiscal year.

What’s More?

Despite a robust view and holiday period, shares of the company fell nearly 3.5% yesterday as investor focus shifted from strong operating performance to rising cost pressures. While American Eagle delivered an upbeat business update and raised its fourth-quarter operating income outlook, the inclusion of sizable tariff-related headwinds appeared to dampen market enthusiasm.

The pullback reflects broader concerns across the specialty apparel space, where higher input and sourcing costs are expected to compress margins despite healthy demand trends. Similar declines in peers’ stocks suggest that investors are increasingly cautious about how tariffs may affect profitability, even for retailers showing solid sales momentum and improving fundamentals.

The market reaction suggests that near-term macro and policy-related uncertainties are outweighing company-specific positives. Even with evidence of brand strength, disciplined execution and resilient demand, investors appear to be taking a cautious stance until there is greater clarity on cost inflation and its potential impact on earnings sustainability across the retail sector.

Wrapping Up

In a nutshell, American Eagle outlined a positive fiscal fourth-quarter update, backed by record holiday sales, healthy brand momentum and improved margins, prompting management to raise its operating income outlook. However, investor sentiment remains cautious as tariff-related cost pressures and broader industry concerns continue to weigh on apparel stocks. While the company’s fundamentals and brand execution appear solid, near-term share performance may hinge on how effectively it navigates external cost headwinds and sustains demand momentum in a challenging retail environment.

In the past year, shares of this Zacks Rank #1 (Strong Buy) company have surged 62.5% compared with the industry’s 4.1% growth.

AEO Stock's Share Performance

Other Stocks to Consider

Some other top-ranked stocks are FIGS Inc. FIGS, The Gap, Inc. GAP and Stitch Fix SFIX.

FIGS is a direct-to-consumer healthcare apparel and lifestyle brand. It flaunts a Zacks Rank #1 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for FIGS’ current financial-year earnings and sales suggests growth of 450% and 7%, respectively, from the year-ago actuals. FIGS delivered a trailing four-quarter average earnings surprise of 87.5%.

Gap, one of the largest specialty apparel companies, currently sports a Zacks Rank #1. GAP has a trailing four-quarter earnings surprise of 19.1%, on average. 

The Zacks Consensus Estimate for Gap’s current financial-year sales implies growth of 1.8% from the year-ago reported numbers.

Stitch Fix engages in the provision of clothing and accessories in the United States, and currently carries a Zacks Rank of 2 (Buy). SFIX delivered an average earnings surprise of 37.7% in the last four quarters.

The Zacks Consensus Estimate for Stitch Fix’s current financial-year sales and EPS indicates a growth of 6.4% and 9.1%, respectively, from the year-ago figure.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

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

Zacks Investment Research