There is no doubt that American Eagle Outfitters (AEO) is living a good moment, thanks to the strong momentum of its Aerie brand. Nonetheless, I see the stock close to its 5-year highs and I’m a bit perplexed by the market’s enthusiasm. I have been a vocal bull for many retailers in the past year, and while AEO was not among my favorite picks, it surely fell into the category of cheap retailers when it was trading at EPS multiples around 10. With the stock up almost 100% in just two months and EPS multiples back above 15, it seems that most of what could be taken from this investment has been taken.
The recent performance has been outstanding, at least in terms of sales and comps growth. In Q4, sales accelerated (+12% YoY) and comp sales increased 8%. Adj. EBIT grew 10.3% and adjusted EPS grew 13%. This basic information already tells us something important – EBIT margin compressed 20bps to 9.6% despite the very high sales and comps growth.
