JP Morgan analyst Matthew R. Boss reiterated the Neutral rating on American Eagle Outfitters, Inc. AEO, lowering the price forecast from $10 to $9.
American Eagle shares fell nearly 15% in after-hours trading Tuesday. The company reported preliminary first-quarter results that revealed disappointing sales and a significant inventory write-down.
The retailer said it expects first-quarter revenue of $1.1 billion, a 5% decline from the prior year.
According to Boss, American Eagle Outfitters is positioned to achieve long-term growth across both the AE and Aerie brands, with expected consolidated revenue growth of 3% to 5% and potential operating margin expansion driven by fixed cost leverage.
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However, the analyst cautions that recent softening in sales and unpredictable consumer behavior over the past six months could lead to uneven performance and pose execution risks.
Boss also highlights markdowns as a possible concern if demand volatility persists.
The analyst points out that for the first quarter, they are modeling a 1.0% year-over-year increase in SG&A expenses, slightly above management’s prior guidance for flat growth.
Boss attributes this minor difference to timing shifts in advertising investments, which appear to have caused a temporary uptick in spending compared to the company’s flat expense plan.
The analyst revised the FY25 forecast downward, now expecting a 3.1% year-over-year revenue decline, compared to their earlier estimate of a 2.4% drop.
This reflects a low-single-digit percentage decline in revenue during the second half of FY25, as opposed to the analyst’s previous assumption of flat growth.
Additionally, Boss adjusted the FY25 gross margin estimate to 36.0%, down 320 basis points from the prior 38.1% forecast, while maintaining the same tariff impact assumption based on management’s earlier $5–10 million guidance from March 12.
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