American Eagle Outfitters got a huge boost from their new marketing campaigns.
The best performing stock on Thursday was American Eagle Outfitters (NYSE:AEO), which soared 35% thanks to a boost from two entertainment industry superstars.
New ad campaigns featuring actress Sydney Sweeney and NFL star Travis Kelce helped raise the clothing retailer’s visibility, customer awareness, and comparable sales in the second quarter, said Jay Schottenstein, American Eagle executive chairman and CEO.
“The iconic fall denim campaign with Sydney Sweeney affirms we are the American jeans brand,” Schottenstein said on the Q2 earnings call. “We saw record breaking new customer acquisition and brand awareness, cutting across age demographics and genders. The most recent collaboration with True Colors by Travis Kelce has kept the momentum going.”
Jennifer Foyle, AE’s president and executive creative director, said the campaigns have generated a lot of buzz – and sales.
“Sweeney’s signature jeans sold out within a week and some products within one day,” Foyle said. “Demand for her curated online shop of Syd’s Picks has been very strong. Similarly, AE in True Colors by Travis Kelce has received tremendous engagement, fueling higher traffic and new customers. Product sell throughs have been strong.”
Earnings crush estimates
While it was the second best Q2 ever for American Eagle, sales were down 1% year-over-year as Q2 2024 was the best ever. However, the Q2 results beat estimates.
- Revenue of $1.28B, down 1% year-over-year, but better than estimates of $1.23B.
- Comparable store sales dropped 1%.
- Earnings rose 15% to 45 cents per share, which crushed estimates of 20 cents per share.
A main reason that revenue was down was that the average unit retail (AUR) price was lower year-over-year by about 5%, which hurt revenue. Units per transaction (UPT) were up, but not enough to offset the lower prices. Also, while comparable sales for the American Eagle brand were down, sales for the Aerie brand were up 3%.
Earnings were boosted by lower expenses and reduced inventory. Ther gross margin increased by 30 basis points to 38.9%.
American Eagle expects to see take a $20 million hit from tariffs in Q3 and a $40M to $50M impact in Q4. It anticipates its gross margin to be down year-over-year in fiscal 2025.
What does Wall Street think?
Further, comparable sales are anticipated to rise in Q3 and Q4 but will be flat for the full fiscal year. Also, the “Sydney Sweeney has Great Jeans” campaign is “not going anywhere,” said Craig Brommers, chief marketing officer, as new elements will be added to the campaign.
American Eagle stock had been in the red up until Thursday’s surge; now it is up 9% YTD.
It got several price target upgrades on Thursday, based mainly on its spending discipline and marketing campaigns. Most notably, UBS raised its target to $21.50 per share and gave it a buy rating. After Thursday’s surge, it is trading at $18 per share.
The stock is still very cheap with a P/E of 13 and a price-to-sales ratio of just 0.49, suggesting it is undervalued.
