American Eagle Outfitters, Inc. AEO has seen a notable 5.9% increase in its stock price following the release of its fourth-quarter 2025 results on March 12. This positive movement in share price can be attributed to the company beating its revenue and earnings expectations. The earnings beat highlighted the brand's robust performance, signaling its effective strategies in a competitive retail landscape.
In addition, the company's decision to initiate a $200-million share repurchase program bolstered investor confidence. This strategic move reflects American Eagle's commitment to delivering value to its shareholders and returning capital generated through business growth.
The company has not only outperformed the broader market but also surpassed the performance of its peers in the retail sector. Since releasing its fourth-quarter 2025 earnings, the company’s stock has risen 5.9%, while the broader industry saw a modest decline of 1%. In comparison, the retail sector posted a slight rise of 0.2% and the S&P 500 advanced 1.1%.
AEO Stock's Price Performace
Image Source: Zacks Investment Research
AEO’s Q4 Performance: Key Takeaways
Despite the surge in its shares following its fourth-quarter fiscal 2025 earnings report, American Eagle’s financial results reflected some challenges. Net revenues marked a 4% year-over-year decline, though they aligned with the Zacks Consensus Estimate. The revenue drop was mainly due to an $85 million impact from a change in the retail calendar. However, the company's comparable sales (comps) held up well, rising by 3%. This growth was slower than the 8% increase in the same quarter last year.
Brandwise, American Eagle's revenues fell 9.1% year over year, though comps increased 1%. In contrast, the Aerie brand continued its growth trajectory, with revenues inching up 0.4% and comps climbing 6%.
Margin performance weakened, with gross profit declining 2.5% year over year. However, the gross margin remained stable at 37.3% on an adjusted basis, thanks to higher freight and product costs, offset by reduced markdowns. On the other hand, SG&A expenses fell 6% year over year, or 25% of sales, down 40 basis points. The decline was driven by lower compensation costs, partially offset by higher advertising to support long-term growth.
AEO’s Bleak Outlook
Following the soft fourth-quarter results, AEO management issued a cautious outlook for fiscal 2025, citing near-term headwinds from the consumer and macroeconomic landscape. Proactive measures are being taken to strengthen the top line and reduce expenses, but challenges such as retail calendar shifts and increased markdowns remain.
For fiscal 2025, the company forecasts a low-single-digit revenue decline and a year-over-year gross margin reduction. Operating income is projected to be between $360 million and $375 million, factoring in about $20 million from the stronger U.S. dollar and a $5-$10 million negative impact from U.S. tariffs on China, after considering mitigation efforts. Management anticipates a mid-single-digit revenue decrease in the first half of fiscal 2025, with declining profits.
What is the Best Approach for AEO?
Reflecting the near-term headwinds from the company’s cautious guidance, investors remain skeptical about growth in the near term. For now, investors may want to wait for signs of stabilization before considering a position in AEO. American Eagle carries a Zacks Rank #4 (Sell).
Three Picks You Can't Miss
We have highlighted three better-ranked stocks, namely Nordstrom JWN, Gap GAP and Urban Outfitters URBN.
Nordstrom, a key fashion specialty retailer, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for JWN’s current financial-year sales indicates growth of 1.9% from the year-ago figure. The company has delivered an earnings surprise of 22.2% in the last reported quarter.
Gap, a specialty retailer of clothing and accessories, presently flaunts a Zacks Rank of 1. GAP delivered an average earnings surprise of 77.5% in the trailing four quarters.
The Zacks Consensus Estimate for Gap’s current financial-year sales indicates growth of 1.6% from the year-ago figure.
Urban Outfitters, a fashion lifestyle specialty retailer, currently carries a Zacks Rank #2 (Buy). URBN delivered an average earnings surprise of 28.4% in the trailing four quarters.
The consensus estimate for Urban Outfitters’ current financial-year sales indicates growth of 6.6% from the year-ago figure.
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American Eagle Outfitters, Inc. (AEO): Free Stock Analysis Report
Nordstrom, Inc. (JWN): Free Stock Analysis Report
Urban Outfitters, Inc. (URBN): Free Stock Analysis Report
The Gap, Inc. (GAP): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
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