American Eagle Outfitters Posts Strong Results on Margin Gains

American Eagle Outfitters Inc. (NYSE: AEO) reported first fiscal quarter 2016 results after markets closed Wednesday afternoon. The specialty retailer reported diluted earnings per share (EPS) of $0.22 and $749 million in revenues. In the same period a year ago, the company reported EPS of $0.15 on revenue of $700 million. First-quarter results compare to the Thomson Reuters consensus estimates for EPS of $0.18 and $731.38 million in revenue.

Same-store sales rose 6 year-over-year in the quarter on top of a 7% increase in the first quarter of last year.

First-quarter gross profit rose 12% to $293 million and operating margin rose by 180 basis points to a rate of 39.2% of revenue. Buying, occupancy and warehousing added 110 basis points, due primarily to occupancy cost leverage. The remaining 60 basis points of gross margin improvement was the result of favorable product costs, offset by an increase in markdowns. Net income rose by 5.4%, or more than $11 million.

American Eagle said it expects same-store sales in the second quarter to rise by the low single digits and EPS to come in at $0.20 to $0.21 compared with the prior year’s EPS of $0.17. Analysts were looking for second-quarter EPS of $0.20 and revenues of $813.62.

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CEO Jay Schottenstein said:

In a tough retail environment, AEO delivered a strong first quarter, driven by compelling merchandise, strategic investments and solid execution across the organization. We achieved higher sales and profitability following strong growth last year. I’m proud of how the team delivered, and I’m optimistic about our future. We’ve built a strong model for success based on our leading brands, and will remain focused on maximizing our business and delivering profitable growth.

Shares traded up nearly 12% in after-hours trading Wednesday, at $14.95 in a 52-week range of $12.78 to $18.49. The stock closed down about 3.4% at $13.39. Thomson Reuters had a consensus analyst price target of $17.42 before today’s results were announced. The highest price target is $24.00.