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American Eagle (AEO) Down Ahead Of Tomorrow's Earnings Report

NEW YORK (TheStreet) -- American Eagle (AEO) is down 2.6% in trading Monday, one day before it is expected to release its fourth-quarter earnings report.

Though American Eagle had a better-than-expected fiscal third quarter with a 5.6% increase in revenue from third quarter 2012, the retailer expects a 7% decline in sales from the previous year during the holiday season according to a business report provided by the company in January.

Many retailers suffered during the holiday season slump which saw consumer foot traffic down 17.7% in December compared to last year despite industry wide promotional discounting.

The sudden departure of American Eagle CEO Robert Hanson in January along with the bleak earnings report hasnt helped shore up confidence in the company whose EPS is down 53% to $0.26 according to Yahoo! Finance.

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Whether tomorrow's report addresses the leadership vacuum left by Hanson's departure will be an important indicator of what American Eagle has planned to make it competitive in the teen apparel space once again.

Despite the rough final quarter, American Eagle's stock has preformed well with the stock gaining a volume of 3.2 million shares while having a volume average of 4.72 million shares.

TheStreet Ratings team rates AMERN EAGLE OUTFITTERS INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

"We rate AMERN EAGLE OUTFITTERS INC (AEO) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, poor profit margins and weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • AEO has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.77 is somewhat weak and could be cause for future problems.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 7.8%. Since the same quarter one year prior, revenues slightly dropped by 5.8%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • Net operating cash flow has decreased to $82.71 million or 47.02% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Specialty Retail industry. The net income has significantly decreased by 68.3% when compared to the same quarter one year ago, falling from $78.61 million to $24.90 million.
  • You can view the full analysis from the report here: AEO Ratings Report
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