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The Ratings Game: American Eagle Outfitters moves to strengthen capital structure and inventory position after tough first half


American Eagle Outfitters Inc. is taking steps across its businesses to set itself up for a stronger second half of 2022 following a relatively soft first half.

Ahead of Friday’s open, the retailer announced an accelerated share buyback agreement with JP Morgan Chase for $200 million of its stock, part of a broader effort to shore up its capital structure.

The move comes after a disappointing first-quarter earnings report last week that missed the FactSet consensus for both profit and revenue. American Eagle executives say tough stimulus-enhanced comparisons, unseasonable weather, inflation, high gas prices and higher freight expenses were to blame.

“In hindsight, our buys and overall plans were too optimistic for the current environment,” said Jay Schottenstein, chief executive of the company, on last week’s earnings call, according to FactSet.

Read: If you thought Walmart and Target had disappointing results, these retailers did so much worse

Now American Eagle, which is also parent to the underwear and loungewear brand Aerie, is taking steps to clear out inventory to prepare for back-to-school and other second-half shopping occasions.

“In addition to rightsizing the inventory, we also see an opportunity to strike a better balance across our key styles,” said Jennifer Foyle, executive creative director for American Eagle and Aerie, on the call.

American Eagle

shares have been halved for the year to date, down 52.7% for the period. The broader S&P 500 index

has lost 12.4%.

During the call, executives highlighted the popularity of the company’s brands with young shoppers, noting the strong denim business and top ranking position on the Piper Sandler Taking Stock with Teens survey. Analysts also zeroed in on the company’s cool status.

But it’s not just demand that Wall Street analysts are worried about.

“[W]e see potential markdown risk tied to supply vs. demand imbalances across categories as the consumer pivots to event-driven apparel and away from loungewear and due to longer lead-times in the constrained supply chain environment which may impact management’s ability to forecast with visibility,” wrote JPMorgan in a note.

“That said, Aerie has posted several years of consistent double-digit comp growth, which we expect to continue and American Eagle remains the #1 market share player within denim for 15-to-25-year olds.”

JPMorgan rates American Eagle stock neutral with a $15 price target.

Also: Target stock plunges as profit drops on consumer spending shifts and jump in freight costs.

UBS is more bullish on American Eagle’s prospects, as it rates the stock buy with a $23 price target.

“American Eagle delivered a disappointing 1Q22 report. Despite this, our view remains American Eagle is a growth stock, and it will return to this trajectory once the macro environment normalizes,” analysts wrote.

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