Shares of American Eagle Outfitters (AEO) are up 18% in 2016. The company turned the corner last year and should continue to soar. American Eagle reports earnings Wednesday.
Teen retail has been a brutal business, but American Eagle Outfitters seems to have figured it out. Last year, the company started reporting positive same-store sales, margin growth and earnings leverage.
The company reports earnings for its third quarter on Wednesday. Analysts are looking for a total same-store sales increase of 3.6%. Same-store comps are being driven by the Aerie brand. In fact, Aerie is knocking it out the park. Aerie ended 2015 with same-store sales of 20%. The brand did a 32% comp in the first quarter and a 24% comp in the second quarter. Analysts are looking for at least 20% on Wednesday. If Aerie stays on track, it could beat last year's same-store sales figure.
With Aerie dragging the entire company higher, gross margins are jumping. The company ended 2015 with a gross margin of 37% and an operating income of 9.1%. This year, gross margins could be up 120 basis points and operating margins up 128 points.
With huge operating leverage, American Eagle should see earnings growth of 20% to 22% this year on top of last year's 73% earnings growth. And next year, earnings could grow by double digits too. American Eagle has done all this without growing the store base. The company will end the year with 1,046 stores, flat with last year.