American Eagle Outfitters better measure up

American Eagle outfitters will announce its third-quarter figures on Thursday 4 December.

American Eagle Outfitters store
Source: Bloomberg

Shares in the teen-fashion house have been sliding for most of this year, although there has been two bouts of good news in the past three months which are steering the price back to flat on the year. In August, the second-quarter figures well exceeded estimates, especially on the earnings front. The revenue for the period was $710 million, and dealers were expecting $689 million.

The earnings per share came in at 3 cents and the market was expecting it to break-even. Beating estimates helped boost the share price but a decline in revenue of 2% and a 70% slump in EPS are nothing to be proud of. Both reflect crippling price competition and weak footfall at shopping malls. Earlier in the year, the Pittsburgh-headquartered company outlined plans to close 150 stores over the next three years, and another 300 stores have been earmarked for potential closures as there is little time remaining on their leases.

This month, American Eagle Outfitters upped its third-quarter guidance. The increase in forecast was largely driven by cutting back on promotions, and trader’s reacted well to the announcement but they seemed to ignore the cautious outlook ahead of the shopping season which kicks off with Black Friday.

American Eagle Outfitters is expected to reveal its final-year numbers in March 2015. The consensus is as follows: full-year revenue of $3.23 billion and EPS of 62 cents. These forecasts represent a 2% and 16% decline, respectively, on last year’s annual numbers. We recently had the third-quarter guidance increased but will we get a reassurance of the yearly outlook? 

Equity analysts are moderately bullish on American Eagle Outfitters. Out of the 31 recommendations, eights are buys, 18 are holds and five are sells with the average target price of $14.11, which is only marginally higher than the current price. Market analysts are more bullish on Abercrombie & Fitch. The buy, hold, and sell breakdown is 11, 23 and two, and the average target price is $34.22. This is a 14% premium to the current price.

Short positions on American Eagle Outfitters have increased by 15% between the second-quarter results being announced and the end of October. The number of short positions on Abercrombie & Fitch is now at its highest level for this year.

Traders are expecting third-quarter revenues to be $845 million and EPS to 22 cents. The share price is getting support from the 50-day moving average at $13.76, and if that level is punctured support is likely to kick in at $13. To the upside, the initial target is $14 and then traders will be looking to $14.40.

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