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AEO
American Eagle Outfitters (NYSE:AEO) surprised investors with its June same stores sales growth of 8%, which beat expectations as well as AE's competitors. So, what are some of the factors that are driving this performance? Will they be sustainable?
Coolest Brand
One way a retailer can achieve high operating margins is increasing popularity with its target customers. In this case, the AE brand is one of the "coolest brands" for 12 to 19 year olds, second only to Nike Inc. (NYSE:NKE) according to Teen Research Unlimited (see Figure 1 below). What is particularly noteworthy is the popularity of AE with teenage girls.
This positioning of the AE brand is significant because it will help drive future sales. And, higher sales represents a key component in any company's future success. (To read more about consumer habits, see Using Consumer Spending As A Market Indicator and Analyzing Retail Stocks.)
Operating Margin Leader
For all of 2006, American Eagle's operating margin was 21%, nicely above that of its competitors as shown in Figure 2. AE's higher operating margin gives it additional pricing flexibility to help management grow revenues and invest in ways to become more efficient.
In the first quarter of 2007, AE continued to generate high operating margins, again beating its competitors (as shown in the Figure 3 below).
Expect AE to continue generating higher operating margins in the quarters to come, as it takes advantage of its growing sales and market position.
Remodeling of Stores
American Eagle has been remodeling its stores recently, which is producing excellent positive results. Mature stores are highly productive at $550 sales per foot and a 33% four-wall profit. In fact, all 911 AE stores generate a four-wall profit. After a remodeling is completed, stores achieve a 33% increase in store sales and a 46% increase in store profitability in the first year. On average, the company is making stores 40% larger, where it is able to display product in a more appealing format. AE also often attempts to relocate stores to better locations within the same mall. This store upgrade helps the company to continue to beat its competitors in sales growth and profitability.
Entering Peak Selling Season
As we enter the back-to-school and holiday gift-purchasing seasons, American Eagle may continue to see good sales growth to go along with its solid operating margin. This could be a good time to enter into a position with American Eagle to take advantage of the potential upward move company's stock price as the market realizes AE's potential.
Looking to cook up a market-stomping stock portfolio? Check out our FREE report "7 Ingredients to Market Beating Stocks" and get started right now!
Coolest Brand
One way a retailer can achieve high operating margins is increasing popularity with its target customers. In this case, the AE brand is one of the "coolest brands" for 12 to 19 year olds, second only to Nike Inc. (NYSE:NKE) according to Teen Research Unlimited (see Figure 1 below). What is particularly noteworthy is the popularity of AE with teenage girls.
 |
| Figure 1 |
This positioning of the AE brand is significant because it will help drive future sales. And, higher sales represents a key component in any company's future success. (To read more about consumer habits, see Using Consumer Spending As A Market Indicator and Analyzing Retail Stocks.)
Operating Margin Leader
For all of 2006, American Eagle's operating margin was 21%, nicely above that of its competitors as shown in Figure 2. AE's higher operating margin gives it additional pricing flexibility to help management grow revenues and invest in ways to become more efficient.
 |
| Figure 2 |
In the first quarter of 2007, AE continued to generate high operating margins, again beating its competitors (as shown in the Figure 3 below).
 |
| Figure 3 |
Expect AE to continue generating higher operating margins in the quarters to come, as it takes advantage of its growing sales and market position.
Remodeling of Stores
American Eagle has been remodeling its stores recently, which is producing excellent positive results. Mature stores are highly productive at $550 sales per foot and a 33% four-wall profit. In fact, all 911 AE stores generate a four-wall profit. After a remodeling is completed, stores achieve a 33% increase in store sales and a 46% increase in store profitability in the first year. On average, the company is making stores 40% larger, where it is able to display product in a more appealing format. AE also often attempts to relocate stores to better locations within the same mall. This store upgrade helps the company to continue to beat its competitors in sales growth and profitability.
Entering Peak Selling Season
As we enter the back-to-school and holiday gift-purchasing seasons, American Eagle may continue to see good sales growth to go along with its solid operating margin. This could be a good time to enter into a position with American Eagle to take advantage of the potential upward move company's stock price as the market realizes AE's potential.
Looking to cook up a market-stomping stock portfolio? Check out our FREE report "7 Ingredients to Market Beating Stocks" and get started right now!
by
Hans Wagner
As a long time investor, Hans Wagner was able to retire at 55 by following a disciplined process using sound investment principles. After his children and their friends graduated from college, Hans began helping them to invest in the stock market. Soon, friends and acquaintances also began to seek advice, so Hans created a website, Trading Online Markets, which provides information on investing topics, along with sample portfolios.
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