New Model Good for AEO Stock
From teen fashions, to designer clothing for adults, U.S. fashion group American Eagle Outfitters (NYSE:AEO) acquired high-end men’s designer clothing firm Todd Snyder last November, upgrading its style and product lines. (Todd Snyder was founded in 1991 and specializes in vintage fashion style inspired by sports.) It may be too early to tell, it being just three months later, if Todd Snyder’s style has rubbed off on American Eagle stock’s sales. However, AEO stock has shown better resilience to market forces since the Todd Snyder acquisition.
In 2015, American Eagle, like so many of its sector peers, suffered. The retailer had few tools to confront the onslaught from such low-cost brands as H&M. Rather than adapt the “if you can’t beat them, join them” philosophy, American Eagle has chosen to leave that fight; it has chosen a new and upmarket battleground where the profit margins are greater.
The Snyder acquisition has taken American Eagle away from the “fast food”-like fashion business that teens consume. AEO stock benefits because the brand can now appeal to its former teen customers who have grown up, gone to college, and are now entering the workforce. The retailer can also attract a more mature and wealthier type of customer to its stores, even while retaining a top spot among youth.
The purchase includes the acquisition of the Tailgate and Todd Snyder retail brands. American Eagle plans to open up to 200 related stores in universities across the United States. The company now poses a serious challenge to such established higher-end brands as JCrew, as well as its traditional competitor Abercrombie & Fitch.
American Eagle has incorporated Todd Snyder into its structure. Todd Snyder himself has joined the AEO management team, becoming group vice president. AEO stock needed the Todd Snyder boost, even if the AEO brand itself has now entered entirely new territory.
American Eagle started in 1977 as a leisure and outdoors brand. Since the 1990s, it shifted to cater more to teenagers alongside rivals like Abercrombie & Fitch and American Apparel. (Source: “A New Look, and Label, for American Eagle Outfitters,” The New York Times, November 2, 2015.)
For now, the Todd Snyder purchase has had a good effect on AEO stock. The company saw its net income for the fourth quarter (which ended in late January) grow 32.6% to $81.7 million, or $0.42 per share, in line with expectations. Its sales increased three percent to $ 1.11 billion. (Analysts had expected $1.12 billion.) More significantly for AEO stock, in the first quarter of the 2016 fiscal year, American Eagle Outfitters earned a profit of between $0.17 and $0.19 per share.
As the “cultural” shift to a different market proceeds, American Eagle stock can expect to continue the recovery it started in February, potentially hitting $20.00. Currently, AEO stock is trading at about $14.90 per share.