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Investing.com -- JP Morgan downgraded American Eagle Outfitters (NYSE:AEO) to Underweight with a price target of $9, citing weak product performance, sustained margin pressure, and a lack of near-term catalysts.
The firm models Q2 EPS of $0.18, slightly below Street at $0.20, driven by continued same-store sales declines and heavier-than-expected margin compression.
Gross margin is expected to fall 270 basis points from last year, hurt by foreign exchange and tariff headwinds, higher markdowns to clear inventory, and deleverage from negative comps.
Seasonal weakness in categories like shorts and swim persisted throughout the quarter, with management now pinning hopes on an improved August assortment led by denim.
JPM is also modeling Q3 EPS of $0.36, or 12% below consensus, citing increased SG&A spend from advertising campaigns and continued pressure on gross margins.
For the full year, JPM expects EPS of $0.75, below consensus at $0.78, and sees downside risk continuing into FY26, where its EPS estimate stands 15% below the Street.
The price target is based on 3x JPM’s FY27 EBITDA forecast, well below AEO’s pre-pandemic average, as both margins and growth lag historical norms.