Why American Eagle Outfitters (AEO) Stock Is Down

NEW YORK (TheStreet) -- Shares of American Eagle Outfitters Inc  (AEO) are down -1.27% to $14.01 in afternoon trading as the retailer was downgraded by analysts at Standpoint Research to "hold" from "buy" this morning.

Similar teen retailer chains like Abercrombie & Fitch (ANF) and Aeropostale (ARO) have both struggled in recent years.

Abercrombie & Fitch reported that overall comparable store sales fell -7% in its second quarter earnings report this morning, primarily due to a -5% drop in the U.S. and a -9% fall in international stores.

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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. Among the primary strengths of the company is its solid financial position based on a variety of debt and liquidity measures that we have evaluated. At the same time, however, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity."

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 0.70 is somewhat weak and could be cause for future problems.
  • AEO, with its decline in revenue, slightly underperformed the industry average of 0.6%. Since the same quarter one year prior, revenues slightly dropped by 2.3%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • AMERN EAGLE OUTFITTERS INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, AMERN EAGLE OUTFITTERS INC reported lower earnings of $0.42 versus $1.31 in the prior year. This year, the market expects an improvement in earnings ($0.57 versus $0.42).
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Specialty Retail industry and the overall market, AMERN EAGLE OUTFITTERS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for AMERN EAGLE OUTFITTERS INC is currently lower than what is desirable, coming in at 33.43%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 0.81% trails that of the industry average.
  • You can view the full analysis from the report here: AEO Ratings Report

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