American Eagle (AEO)

Young adult apparel retailer American Eagle Outfitters (NYSE:AEO) announced better-than-expected revenue in Q2 CY2025, but sales were flat year on year at $1.28 billion. Its GAAP profit of $0.45 per share was significantly above analysts’ consensus estimates.

Company Overview

With a heavy focus on denim, American Eagle Outfitters (NYSE:AEO) is a specialty retailer offering an assortment of apparel and accessories to young adults.

Apparel sales are not driven so much by personal needs but by seasons, trends, and innovation, and over the last few decades, the category has shifted meaningfully online. Retailers that once only had brick-and-mortar stores are responding with omnichannel presences. The online shopping experience continues to improve and retail foot traffic in places like shopping malls continues to stall, so the evolution of clothing sellers marches on.

Retailers offering youth-focused apparel and accessories include Abercrombie & Fitch (NYSE:ANF), Urban Outfitters (NASDAQ:URBN), and The Gap (NYSE:GPS).

A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.

With $5.27 billion in revenue over the past 12 months, American Eagle is a mid-sized retailer, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale.

As you can see below, American Eagle’s 3.9% annualized revenue growth over the last six years (we compare to 2019 to normalize for COVID-19 impacts) was sluggish as its store footprint remained unchanged.

This quarter, American Eagle’s $1.28 billion of revenue was flat year on year but beat Wall Street’s estimates by 4%.

Looking ahead, sell-side analysts expect revenue to decline by 1.2% over the next 12 months, a deceleration versus the last six years. This projection doesn't excite us and indicates its products will see some demand headwinds.

Number of Stores

American Eagle listed 1,185 locations in the latest quarter and has kept its store count flat over the last two years while other consumer retail businesses have opted for growth.

When a retailer keeps its store footprint steady, it usually means demand is stable and it’s focusing on operational efficiency to increase profitability.

Same-Store Sales

A company's store base only paints one part of the picture. When demand is high, it makes sense to open more. But when demand is low, it’s prudent to close some locations and use the money in other ways. Same-store sales provides a deeper understanding of this issue because it measures organic growth at brick-and-mortar shops for at least a year.

American Eagle’s demand has been spectacular for a retailer over the last two years. On average, the company has increased its same-store sales by an impressive 3.3% per year. Given its flat store base over the same period, this performance stems from not only increased foot traffic at existing locations but also higher e-commerce sales as demand shifts from in-store to online.

In the latest quarter, American Eagle’s same-store sales fell by 1% year on year. This decline was a reversal from its historical levels.

At StockStory, we prefer high gross margin businesses because they indicate pricing power or differentiated products, giving the company a chance to generate higher operating profits.

American Eagle has good unit economics for a retailer, giving it the opportunity to invest in areas such as marketing and talent to stay competitive. As you can see below, it averaged an impressive 38.2% gross margin over the last two years. Said differently, American Eagle paid its suppliers $61.80 for every $100 in revenue.

American Eagle produced a 38.9% gross profit margin in Q2, in line with the same quarter last year and exceeding analysts’ estimates by 8.5%. Zooming out, American Eagle’s full-year margin has been trending down over the past 12 months, decreasing by 2.4 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to discount products and higher input costs (such as labor and freight expenses to transport goods).

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

American Eagle’s operating margin might fluctuated slightly over the last 12 months but has generally stayed the same, averaging 5.4% over the last two years. This profitability was paltry for a consumer retail business and caused by its suboptimal cost structure.

Looking at the trend in its profitability, American Eagle’s operating margin might fluctuated slightly but has generally stayed the same over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, American Eagle generated an operating margin profit margin of 8%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for American Eagle, its EPS declined by 6.4% annually over the last six years while its revenue grew by 3.9%. However, its operating margin didn’t change during this time, telling us that non-fundamental factors such as interest and taxes affected its ultimate earnings.

In Q2, American Eagle reported EPS of $0.45, up from $0.39 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects American Eagle’s full-year EPS of $1.04 to grow 9%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

American Eagle has shown impressive cash profitability, driven by its attractive business model that gives it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 5.2% over the last two years, better than the broader consumer retail sector. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

American Eagle historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 9.3%, somewhat low compared to the best consumer retail companies that consistently pump out 25%+.

American Eagle reported $126.8 million of cash and $2.00 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $514.2 million of EBITDA over the last 12 months, we view American Eagle’s 3.6× net-debt-to-EBITDA ratio as safe. We also see its $5.74 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see American Eagle handily beat analysts’ EPS expectations this quarter driven by revenue and gross margin beats. The company also issued full-year operating profit well above expectations, and this is a major driver of a big stock more. Shares traded up 25.1% to $17.06 immediately following the results.

Updated: November 8, 2025 at 9:27 PM EST

When considering an investment in American Eagle, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

American Eagle’s business quality ultimately falls short of our standards. First off, its revenue growth was a little slower over the last six years, and analysts expect its demand to deteriorate over the next 12 months. And while its projected EPS for the next year implies the company will continue generating shareholder value, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities. On top of that, its operating margins are low compared to other retailers.

American Eagle’s P/E ratio based on the next 12 months is 12.3x. This valuation multiple is fair, but we don’t have much faith in the company. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $16.06 on the company (compared to the current share price of $17.10).