Earnings Beat Doesn't Keep American Eagle Outfitters (NYSE:AEO) Off the Hot Seat

By all measures, it's been a pretty lousy year for retail, and mall-facing retail like clothing shops have had it especially rough. Between a string of closures and reduced-capacity shopping and the rush to get a useful online presence going, retailers have been behind the eight-ball, and some have suffered accordingly. American Eagle Outfitters (NYSE:AEO) should have been on that particular chopping block itself, but its earnings report suggests otherwise. Investor sentiment, though, seems to be working against the company despite its gains herein as the company lost 3.6% of its value in pre-market trading.

Sometimes a Beat Just Isn't Enough

The numbers came out positively for American Eagle, if only just. The company posted quarterly earnings of $0.35 per share, which does compare nicely—if not very—to the Zacks consensus which looked for the company to post $0.33. It compares much less nicely against earnings from this time last year, which featured an EPS figure of $0.48.

Revenue numbers, however, didn't fare quite so well. The company brought in $1.03 billion, but that was 2.08% short of what the Zacks consensus was looking for. Reports suggest that that $1.03 billion was sufficient to beat a different consensus expectation, however, so this may not be as bad of news as it looks at first glance. It compares poorly against this time last year, when the company brought in $1.07 billion—about a $40 million shortfall—but given that the company has beaten estimates twice in the last four quarters, there's something to be said here.

Interestingly, it also demonstrates what looks like a recovery in progress. Last quarter, American Eagle was expected to post a loss of $0.14 per share. The loss it actually posted was just $0.03, and this was not the first time American Eagle had beaten the estimates. In fact, reports suggest that American Eagle has beaten consensus figures three times in the last four quarters, which should give investors serious pause when considering abandoning their stakes.

A Wider Consensus Looks for Gain

Our latest research, meanwhile, offers up a different consensus, as the analyst community remains at a “buy” for American Eagle Outfitters, as it has for the last month. The proportions haven't changed in the last month—eight “hold” ratings mesh against 10 “buy” ratings—but they're a step up from three months ago, where the company had one “sell”, seven “hold” and nine “buy” ratings.

The consensus price target, meanwhile, has also been on an upward cant for months, though it's starting to look like some adjustments may be in order. Currently, the consensus price target is sitting at $16.61, which is about 10% or so shy of where it's trading as of this writing. In fact, several analysts have hiked their price targets only recently; just today, five different analysts—Jefferies Financial Group, B. Riley, UBS Group, Raymond James, and Barclays—all hiked their price targets. Three of the five went to $22 per share, while two more conservative outlooks called for just $20 per share.

A Changing Apparel Retail Environment

While there are some making some downright bearish calls on American Eagle Outfitters going forward, there are also positive signs emerging. American Eagle's propensity to beat estimates suggests that either the company is doing better than people think, or people are in a hurry to count this company out. Quite possibly the answer is both at once. At any rate, word out of the company suggests that, so far, it's pretty pleased with how things are shaping up ahead of the holiday shopping season. Especially since it will likely feature plenty of American Eagle wear going into boxes under the world's Christmas trees, or at least gift cards for same.

American Eagle made its share of changes coming out of the pandemic days. We've long since known that a robust online presence is a smart idea for any clothing shop, especially those that focus on brick-and-mortar operations. While advice to bolster an online shopping system often fell on deaf ears, the former nice-to-have feature has now become an absolute, company-saving necessity.

Even if stores reopen fully, with the coronavirus pushed back by multiple available vaccines and therapeutics along with a growing move toward herd immunity, the ability to shop at any time and receive product accordingly won't stop being useful. Online shopping hasn't exactly been around long—it was just eight years ago that eBay (NASDAQ:EBAY) got together with Bliss Spa to offer free Black Friday pampering and a chance to shop while enjoying such treatment—but it's made a huge impact in that short a length of time. Now, it's become downright crucial, and clothing retailers like American Eagle have the opportunity to fully demonstrate how vital online shopping really is.