American Eagle Outfitters (AEO) likely to post in-line Q3 earnings

American Eagle Outfitters (NYSE: AEO) is set to report its earnings results for the third quarter of 2019 on Wednesday before the market opens. The bottom line will likely face higher costs and expenses associated with the discounts offered to the American Eagle brand while the top line will be benefited by the Aerie brand.

The revenue will be driven by store sales from merchandise purchases by customers and e-commerce operations. For driving traffic to the stores, the company has been engaging in heavy promotions that hurt sales and canceled margins. Also, the digital presence remained the key in driving growth for the quarter and competition has been enabled the company to resort to discounting of products.

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The comparable sales will include sales from American Eagle, Aerie, Tailgate and Todd Snyder stores, as well as from AEO Direct and other digital channels. American Eagle Jeans is expected to record strong double-digit growth across genders, capture market share and further strengthen its number one market position.

The company sees an uplift in its digital business as it enters new markets. The company, as expected earlier, will continue its strong momentum into the second half of the year and sees great potential for Aerie over the long-term.

Analysts expect the company’s earnings to remain flat at $0.48 per share while revenue will rise by 3.80% to $1.06 billion for the third quarter. The company has surprised investors by beating analysts’ expectations thrice in the past four quarters. The majority of the analysts recommended a “hold” rating with an average price target of $18.71.

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For the second quarter, American Eagle Outfitters posted an 8% increase in earnings helped by higher revenue. The top line included the majority for Japan license royalties. The consolidated comparable sales increased by 2%, following a 9% comparable sales increase last year. By brand, American Eagle’s comparable sales decreased 1% while Aerie’s comparable sales increased by 16%.

For the third quarter, the company expects earnings in the range of about $0.47 to $0.49 per share. This is based on an anticipated comparable sales increase in the low to mid-single digits range. The guidance excludes potential asset impairment and restructuring charges.

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