Broadcom named strategic vendor for Walmart virtualization solutions
On Friday, Citi analyst Paul Lejuez adjusted the price target for American Eagle Outfitters (NYSE:AEO) stock, reducing it to $11.00 from the previous $12.00 while maintaining a Neutral rating on the shares. According to InvestingPro data, the stock appears undervalued despite trading at a modest P/E ratio of 6.5x, with analyst targets ranging from $9 to $19. The revision follows a challenging first quarter for the retailer, with sales declining by 5% due to weaker performance at both American Eagle and Aerie brands, which led to increased promotions and a substantial $75 million inventory writedown.
Lejuez highlighted that management absorbed most of the markdown impact in the first quarter but still faces the challenge of selling through the written-down inventory in the second quarter. The goal is to clear inventory at both brands by the back-to-school season, although visibility remains low due to continued demand weakness. Despite these challenges, InvestingPro analysis shows the company maintains a healthy financial position with a current ratio of 1.53 and a solid gross profit margin of 39.2%. The analyst noted that after suspending its Fiscal 2025 guidance on May 13, the company’s second-quarter guidance indicates ongoing challenges, with comparable sales for both American Eagle and Aerie expected to fall by 3% and gross margin projected to decline by approximately 300 basis points, exacerbated by higher promotions.
The company’s difficulties are compounded by a looming tariff burden estimated at around $40 million in the second half of the year, which may further pressure the brands. With both American Eagle and Aerie struggling and lacking in pricing power, the analyst anticipates the stock to exhibit weakness, as indicated by pre-market trading showing a mid-single-digit percentage decline.
Lejuez’s commentary reflects concerns over the retailer’s near-term prospects, as the company navigates through a period marked by inventory challenges and competitive pressures. The updated price target and maintained rating suggest a cautious outlook for American Eagle Outfitters’ stock performance in the foreseeable future.
In other recent news, American Eagle Outfitters reported a first-quarter adjusted loss per share of $0.29, significantly missing the analyst forecast of $0.11. However, the company’s revenue slightly exceeded expectations, reaching $1.1 billion compared to the projected $1.08 billion. Despite this revenue beat, the earnings miss has raised concerns among investors. The company experienced a 5% decline in consolidated revenue year-over-year, with comparable sales dropping by 3%. American Eagle Outfitters also reported a gross profit of $322 million and a gross margin of 29.6%. The company has paused its full-year guidance due to market uncertainties, including tariffs and competitive pressures. Analysts from various firms have noted these challenges, and the company’s future performance remains under scrutiny. CEO Jay Schottenstein emphasized efforts to improve performance, particularly in preparation for the back-to-school season.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.