MW American Eagle's stock drops as warm fall weather bites into clothing sales

By Steve Gelsi

Retailer's stock falls 13%, and J.P. Morgan analyst cuts its rating to neutral

American Eagle Outfitters Inc.'s stock fell 13% on Thursday as the retailer cut its outlook for its business and said warm fall temperatures dampened consumer demand for clothing.

While the company outperformed in August, its September and October results faced "external traffic headwinds tied to abnormal heat" from the third-hottest autumn in 30 years, J.P. Morgan analyst Matthew Boss said in a research note.

The chain may be forced to mark down the prices of its merchandise in a move that could affect profits, he said.

American Eagle has also faced lower demand outside of key spending times, such as the height of the back-to-school season, Boss said.

American Eagle $(AEO)$ warned it expects to report a fourth-quarter profit of about 48 cents a share, below the FactSet consensus estimate of 59 cents prior to the company's latest update.

The retailer also said its fourth-quarter revenue will fall about 4%, which would miss the consensus estimate for a drop of 1.5%.

Boss downgraded American Eagle to neutral from overweight and cut his price target on the stock to $23 a share from $27 a share.

"While long-term, we see [American Eagle] driving growth across the brand portfolio across both American Eagle and Aerie and operating margin expansion on fixed expense leverage, we see recent moderating sales and consumer 'choppiness' experienced over the trailing six months contributing to inconsistent results and execution risk (with markdowns a notable potential risk on demand choppiness)," Boss said.

Including Thursday's moves, American Eagle's stock is down about 16.7% so far in 2024, while the S&P 500 SPX has risen 27.5%.

-Steve Gelsi

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December 05, 2024 11:36 ET (16:36 GMT)

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