American Eagle Outfitters (AEO) Reports Solid, Underwhelming Quarter

That’s based on the company’s plan to keep trimming back underperforming stores. Over the year, American Eagle plans to shut down between 15 to 20 underperforming stores that are dragging comps down. Assuming that those closures are front-loaded, they should have less impact on the comps this coming quarter. That, along with the strength of direct sales, which increased 24% last quarter, should be enough to keep investors happy.

The bottom line
While the outlook is subdued and the earnings missed unspoken expectations, I’m not worries about American Eagle just yet. While I keep comparing it to Gap, it’s helpful to take a look at other competitors such as Aeropostale, Inc. (NYSE:ARO) to round the view out. Aeropostale had a fall in comps over the holidays of 8%, which was stacked on a 9% decrease from the previous year. In calls and press releases, it’s become clear that management has no meaningful plan for getting out of that hole. Compared to Aeropostale, American Eagle is saint-like.

Given the context of its competition and the success that American Eagle has had over the past year, I’m happy to keep watching as things improve. I still think Gap is the better overall play, but American Eagle isn’t a bad choice, and with a P/E of 18, its cost is in line with the sector average. For investors looking to invest in an apparel retailer, American Eagle offers a very good chance at growth over the next three years.

The article American Eagle Reports Solid, Underwhelming Quarter originally appeared on Fool.com.

Fool contributor Andrew Marder has no position in any stocks mentioned. The Motley Fool owns shares of Aeropostale.

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