American Eagle Outfitters (AEO)’s Plan for Success

American Eagle has used its denim business to draw customers in the door, and then convert those visits to bigger sales and average transactions. That’s allowed it to move past weaker competitors like Aeropostale, Inc. (NYSE:ARO) . Over the last 12 months, Areopostale’s stock has fallen 25% on weak sales and plummeting comparable sales. What American Eagle is doing right is focusing on its strength, something that Aeropostale has been unable to do. In its last call, Aeropostale admitted that all it could do was chase fashion — in fact it seemed happy to do so. CEO Thomas Johnson said that the company would “continue to invest in and enhance our processes that will enable us to chase fashion and increase our overall speed to market.”

The bottom line
What American Eagle and Gap understand is that customers respond to strong brands more than they respond to the latest thing. While it’s certainly important to have trendy clothing in-store, it’s more important to have a name that’s synonymous with a type of fashion. On top of that, American Eagle has a clearly defined and conservative plan for renewing its brand. So far, it’s performed admirably and there’s no reason to think that the growth is going to stop anytime soon.

Tomorrow, I want to hear that comparable sales inched up a point or two at the end of the quarter. That should push earnings per share past the $0.55 that the market is expecting. Even more than I want to see that growth, I want to hear how the next 12 months are going to build and improve on the previous 12. American Eagle should start talking about omnichannel and international, and I want those discussions to be in line with the strong, well-executed plan that it had for its brand. Investors should be very optimistic about American Eagle this year.

The article American Eagle’s Plan for Success originally appeared on Fool.com and is written by Andrew Marder.

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

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