American Eagle Turns in Beats, Recovery In Progress?

For anyone who thought the mall-facing retailer was in a state of hopeless decline, American Eagle (NYSE:AEO) has a real surprise for you. Actually, it has two surprises: beats in both earnings and revenue. It's been a rough year for the mall-facing retailer, but there are signs that it's coming back from the brink of disaster, propelled by surprising successes in one of its largest imprints.

Surprising Wins All Around

American Eagle turned in a quarter that proved marvelously solid. The company turned in earnings of $0.39 per share, against an expected earnings figure of $0.36 per share. Perhaps better news, though, is that the company's earnings per share figure from the same time last year came in at $0.37, which means that American Eagle is actually doing better now, in the midst of a pandemic, than it did the same time last year when shopping malls were wide open.

Revenue, meanwhile, managed to come in over expectations as well, as the company brought in $1.29 billion for the quarter. That was a bit softer than last year's performance—which came in at $1.31 billion—but with comparable store sales down 1%, reasons why are evident. The numbers overall reflect a combination of factors, including ongoing lockdown issues in response to COVID-19, as well as significantly improved online sales. The company also benefited from decreased rent expenses, fewer promotions, and improvements in inventory optimization.

Unquestionably, however, the biggest winner in the entire American Eagle operation was Aerie, the loungewear and lingerie operation that turned in some downright staggering numbers. Aerie's revenue was up 25%, reports note, hitting a new level of $337 million, or around a quarter of American Eagle's total revenue. 

Analysts are Riding the Eagle Straight Up

Meanwhile, the word out of the broader analyst pool—as revealed by our latest research—finds that the analyst community is very much behind American Eagle. In fact, they're so far behind it that sentiment has been increasingly bullish for the last six months.

Six months ago, the company had a consensus rating of “hold”, with one “sell” rating, seven “hold” and nine “buy” making up the ratios. That slipped into a “buy” consensus starting three months ago, as the company lost the “sell” rating, and picked up a new “hold” and a new “buy” besides. A month ago, another shift hit as the company went to seven “hold” and 11 “buy.” Today, we have another shift taking place, and the company stands at six “hold” and 12 “buy” ratings.

The price target, meanwhile, has also been slanting upward. Six months ago, the price target stood at $13.18 per share. That increased to $17.11 per share three months ago, then to $22 even a month ago. Today, we stand at $23.11 per share. Adjustments in price target have arrived frequently so far this year, and every adjustment made so far this year has been upward.

Is Mall-Facing Retail Making a Real Comeback?

It would be easy to suggest that mall-facing retail is making a comeback here. After all, malls are actually open again, in at least some capacity, and an open shopping mall will, all else being equal, bring at least some shoppers. Such a point is borne out by others in the market; Burlington Stores (NYSE:BURL) turned in a fourth-quarter that was also above estimates. Indeed, foot traffic returning to shopping malls could be part of the equation, but there's more than that at work here. American Eagle appears to have embraced the online shopping concept with the fervor of the proverbial drowning man clutching at a life preserver. Not only have we seen its online shopping operations take off, but American Eagle recently rolled out the “Jeans Are Forever” campaign, a Snapchat-connected augmented reality (AR) shopping guide that will allow potential jeans buyers to get a better look at any pair the company can offer up.

Counting out the mall side of mall-facing retail is likely a bad idea. There are undoubtedly plenty of shoppers dying for the normalcy of a day out of the house, picking up clothes and trying them on. The results from American Eagle, though, are proving that online shopping is now a vital part of any retail operation, no longer just a “nice-to-have” that can be quietly ignored or paid lip service to. Many of the changes American Eagle has made recently are starting to really bear fruit.

Regardless of the ultimate mix, though, it's clear that American Eagle is making its comeback felt, and getting in accordingly may be a good idea.