AEO Pulls Out FY25 View & Issues Soft Q1 Preliminary on Macro Volatility

Shares of American Eagle Outfitters, Inc. AEO tumbled nearly 15% in after-hours trading yesterday, after the apparel and accessories retailer withdrew its earlier-issued guidance for fiscal 2025, citing that macro volatility and management reviews forward plans in light of first-quarter results. Management issued bleak preliminary first-quarter fiscal 2025 results.

For the discussed quarter, revenues are likely to be $1.1 billion, which indicates a drop of almost 5% compared with the year-ago quarter. Analysts polled by Zacks expect revenues of about $1.1 billion for the first quarter. Comparable sales, which are a crucial indicator of the retailers’ health, are expected to decline nearly 3%, with American Eagle decreasing 2% and Aerie falling 4%. The adjusted operating loss includes greater-than-planned promotional activity and an inventory charge of almost $75 million with respect to a write-down of spring and summer merchandise. 

Management now expects a GAAP operating loss of about $85 million and an adjusted operating loss of $68 million for the first quarter. The GAAP operating loss reflects an additional asset impairment and restructuring charge of roughly $17 million, mainly associated with the closing of two fulfillment centers in the context of its supply-chain network optimization project.

Management feels disappointed with the execution of the company’s first-quarter results. It further notified that merchandising actions did not work as expected, instead leading to increased promotions and excess inventory. Consequently, the company made an inventory charge write-down on spring and summer goods.

On a positive note, AEO has entered the fiscal second quarter in a better position, with inventory greatly aligned to the sales trends. The company has been strategically evaluating its forward plans to boost product performance. Hence, AEO looks forward to releasing its final first-quarter 2025 results on May 29, 2025, after the closing bell.

What Else for AEO Stock?

American Eagle’s shares have lost 25.9% in the past six months, wider than the industry’s 0.4% decline. This downturn is owing to its soft performance for a while. We note that investors remain cautious about challenges stemming from the retail calendar shifts, higher markdowns and a tough operating backdrop, including evolving consumer spending patterns. 

AEO is grappling with headwinds related to the consumer and macroeconomic landscape. During the last reported quarter, both earnings and revenues fell from their respective figures reported in the year-earlier quarter.

Nevertheless, American Eagle is focused on its Powering Profitable Growth Plan, driving operating income gains through disciplined cost management, digital investments and supply-chain improvements. This Zacks Rank #3 (Hold) company continues to grow the Aerie brand through market expansion, innovation and an expanding customer base, supporting long-term revenue and margin goals.

Eye These Solid Picks in Retail

We have highlighted three better-ranked stocks, namely Nordstrom JWN, Canada Goose GOOS and Gap GAP.

Nordstrom, a key fashion specialty retailer, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. 

The Zacks Consensus Estimate for JWN’s current financial-year sales indicates growth of 2.2% from the year-ago figure. The company has delivered an earnings surprise of 22.2% in the last reported quarter.

Canada Goose, a designer and retailer of premium outerwear, currently carries a Zacks Rank #2 (Buy). GOOS delivered an average earnings surprise of 71.3% in the trailing four quarters.

The consensus estimate for Canada Goose’s current financial-year sales indicates a drop of 4.9% from the year-ago figure.

Gap, a specialty retailer of clothing and accessories, currently carries a Zacks Rank of 2. GAP delivered an average earnings surprise of 77.5% in the trailing four quarters.

The Zacks Consensus Estimate for Gap’s current financial-year sales indicates growth of 1.4% from the year-ago figure. 

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

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