Teen clothing retailer American Eagle (AEO, Financial) was previously a high-flying stock, however increasing competition turned around the company’s fortunes in 2012. The organization, which competes in the extremely swarmed and competitive teenager space, saw its earnings and sales growth tank due to the appalling growth in competition in the teen clothing space. Evidently, American Eagle’s earnings and revenue moved downwards.
Along with American Eagle, other teen apparel retailers have suffered as well. Over the past few years, teen retailers like American Eagle, and Abercombie & Fitch (ANF, Financial) have had a tough time, mainly because the logo-centric appeal lost its charm with teen shoppers. However, it looks like American Eagle’s struggle is ending as the company reported a strong quarter with good growth.
For the latest reported quarter, both American Eagle and Aerie brands performed nicely, with comps. As a result, American Eagle’s net sales jumped 8.3% y-o-y to $699.5 million, comfortably surpassing the consensus estimate by $7.41 million. In addition, profit surged 16% to $262 million and gross margin expanded 260 basis points to 37.5%. The good news doesn’t end there as the company has many growth drivers going forward.
Global expansion will drive growth
American Eagle Outfitters is continuing with its plans for global expansion. The company’s new license agreements in South Korea with SK Networks, in Singapore with Trendz 360, , and in Greece with Notos Com Holdings are aimed to propel long-term growth. The company will begin opening new stores in mid-2015. By the end of fiscal 2015, American Eagle expects to operate 141 international licensed stores across 22 countries versus 109 international licensed stores across 17 countries at the end of the first quarter.
Many other firms have benefited from expanding their wings over the global market and this looks like a step in the right direction for American Eagle as well. The company’s primary market is maturing, hence its global expansion efforts should reward the investors in the coming years. The company is confident about its expansion plans and I think it can maneuver a turnaround thanks to its expansion efforts.
Dividend hike
American Eagle’s recent dividend hike makes it an even more attractive buy. Investors should add the stocks to their portfolio and enjoy the dividend while waiting for the stock to rise. American Eagle Outfitters announced a quarterly cash dividend of $0.125 per share recently, marking the company’s 44th consecutive quarterly dividend. The $0.125 dividend was declared on June 4, 2015 and is payable on July 20, 2015 to stockholders of record at the close of business on July 6, 2015. American Eagle’s current dividend yield stands at over 3.10%, which makes it an attractive buy.
Conclusion
American Eagle, like other teen retailers, has struggled in the past few years. However, it looks like the company is back from the dead. American Eagle’s global expansion plans will drive long-term growth while its increasing dividend is a big vote of confidence for investors. The company outperformed its peers in the latest reported quarter and looks prime for long-term growth. Thus, I think investors should consider buying America Eagle at the current prices.
