American Eagle’s Financial Struggles and Uncertain Outlook Justify Hold Rating

Analyst Matthew Boss of J.P. Morgan maintained a Hold rating on American Eagle (AEO – Research Report), retaining the price target of $9.00.

Matthew Boss has given his Hold rating due to a combination of factors impacting American Eagle’s current financial performance and outlook. The company reported a first-quarter adjusted EPS loss, with revenues declining year-over-year and same-store sales also experiencing a downturn. Gross margins have decreased significantly, and there has been a deleverage in SG&A, resulting in a negative EBIT margin. These financial challenges are compounded by higher-than-expected markdowns and inventory charges, which have affected the company’s profitability.
Looking forward, management’s guidance for the second quarter suggests continued pressure, with expected declines in net sales and gross margins. Although there is potential for improvement in growth, profitability, and cash flows later in the year, the current environment presents execution risks and uncertainties. The company’s decision to withdraw full-year guidance further underscores these challenges. Consequently, while there are long-term growth opportunities, the near-term volatility and risks justify a Hold rating.

Boss covers the Consumer Cyclical sector, focusing on stocks such as Ross Stores, Abercrombie Fitch, and American Eagle. According to TipRanks, Boss has an average return of 0.5% and a 46.93% success rate on recommended stocks.

In another report released today, Barclays also maintained a Hold rating on the stock with a $11.00 price target.