Today I will take a look at American Eagle Outfitters Inc’s (NYSE:AEO) most recent earnings update (29 July 2017) and compare these latest figures against its performance over the past few years, as well as how the rest of the specialty retail industry performed. As an investor, I find it beneficial to assess AEO’s trend over the short-to-medium term in order to gauge whether or not the company is able to meet its goals, and ultimately sustainably grow over time. See our latest analysis for AEO
Was AEO’s recent earnings decline indicative of a tough track record?
I like to use the ‘latest twelve-month’ data, which annualizes the most recent half-year data, or in some cases, the latest annual report is already the most recent financial year data. This allows me to examine various companies in a uniform manner using the latest information. For American Eagle Outfitters, the most recent twelve-month earnings is $176.9M, which, in comparison to the prior year’s level, has plunged by -24.08%. Given that these figures may be fairly myopic, I have determined an annualized five-year value for American Eagle Outfitters’s net income, which stands at $174.6M. This means that while earnings declined from the previous year, over the long run, American Eagle Outfitters’s earnings have been increasing on average.
What’s enabled this growth? Let’s take a look at whether it is solely due to industry tailwinds, or if American Eagle Outfitters has seen some company-specific growth. In the last few years, American Eagle Outfitters top-line expansion has overtaken earnings and the growth rate of expenses. Though this has led to a margin contraction, it has cushioned American Eagle Outfitters’s earnings contraction. Inspecting growth from a sector-level, the US specialty retail industry has been growing, albeit, at a muted single-digit rate of 8.04% over the previous twelve months, and 5.81% over the past couple of years. This suggests that any uplift the industry is benefiting from, American Eagle Outfitters has not been able to gain as much as its average peer.
What does this mean?
Though American Eagle Outfitters’s past data is helpful, it is only one aspect of my investment thesis. Companies are profitable, but have capricious earnings, can have many factors affecting its business. I suggest you continue to research American Eagle Outfitters to get a better picture of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for AEO’s future growth? Take a look at our free research report of analyst consensus for AEO’s outlook.