Title: Why American Eagle's Shares Tanked Today
American Eagle Outfitters' (AEO) shares took a dive on Thursday, following the company's release of its fiscal third quarter 2024 financial results. The apparel giant reported a less-than-desirable performance, causing a 14% plunge in its stock price by 1:20 p.m. ET.
The Spooky Skeleton in the Closet
Despite a 3% increase in adjusted revenues, Q3 sales numbers for American Eagle Outfitters fell slightly, totaling nearly $1.3 billion. Although same-store sales saw a rise for both the company's flagship store and its sister brand, Aerie, a decline in margins was a cause for concern. Management cited markdowns as the primary reason, a phrase investors aren't fond of hearing in this sector.
Balancing inventory is crucial for apparel companies. They must have an adequate stock, but inventory inevitably becomes outdated. Selling off outdated stock at a lower price to make room for the new is necessary, but it meals lower profits.
Q4 predictions from the apparel sector have been promising, and American Eagle Outfitters' need to lower prices, even if modestly, was a causes for investor alarm.
Is American Eagle Stock a Hidden Gem?
Although the stock market wasn't thrilled with American Eagle Outfitters' performance, the company's financial health suggests a potential bargain. By the end of Q3, AEO boasted a strong balance sheet, sitting on $160 million in cash and no long-term debt. Their year-to-date operating income stood at an impressive $125 million, with expectations of $125 million more in Q4. This substantial annual profit far outweighs its market cap of $3.4 billion.
Furthermore, AEO's Aerie brand has been performing well, and management plans to expand the brand extensively in 2025. With a planned 45 new store openings, the brand is set to double its current number of 317 stores. Given that Aerie contributes approximately one-third of the company's total revenue, its growth could become a significant catalyst for American Eagle Outfitters as a whole.
Investors may be hesitant, but American Eagle Outfitters' stock appears to be a promising option for those seeking value hunting opportunities.
In light of the financial results, some investors might be wary about further investments in American Eagle Outfitters, given their decision to lower prices to clear out inventory.
Addressing markdowns and focusing on profitability should be key strategies for American Eagle Outfitters as they move forward in the finance sector, particularly in the upcoming quarters.
