Tuesday, March 11, 2014

American Eagle Outfitters (AEO): Weathering the storm

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The weather is largely to blame, but not totally, for AEO’s underwhelming earnings report and gloomy forward guidance.  A move by trendy teens towards cheaper chain stores (eg:  H&M, Zara) also took a bite out of earnings.  This left AEO with higher than expected inventory levels, tighter margins and higher promotional costs.  A bad combo!
That said, the price of the stock, which had already been lagging especially since the departure of the CEO in January and anticipating a bad ‘weather’ related earnings report, is down today over 7%.  The optimists, among which I count myself, think that the company will pare down their inventories, control costs and continue to gain from expansion efforts especially in overseas markets.   

Perhaps hardened by the tough NorthEast winter, at this point I’m still ready to weather the AEO storm.  I added to our position on the selloff. 
The upcoming warmer seasons should be telling.

Will keep you posted.

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(Please note: This article is solely meant to be thought provoking and is not in any way meant to be personal investment advice. Each investor is obligated to opine and decide for themselves as to the appropriateness of anything said in this article to their unique financial profile, risk tolerances and portfolio goals).
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Additional Disclaimer: currently long many stocks/ETFs incl. AEO.  Positions may change at any time without notice.