Investors hoping for a rapid turnaround in American Eagle Outfitters (NYSE:AEO) should be a little concerned. Although the company is reporting better results, it seems that much of that is a byproduct of easier comps, as opposed to truly improving performance. Moreover, while American Eagle has been one of the very few to consistently post attractive returns on capital and earn real economic profits in the brutally-competitive no-moat retailing world, competition makes this very nearly a zero-sum game. There is still value in these shares, but investors need to understand that the company has to sell Wall Street on its turnaround plan before the shares are likely to match that value.
An Ok Third Quarter
American Eagle had preannounced top-line results, so there were few surprises there. Revenue rose almost 11% on a 5% comp-store increase. Keep in mind, though, that the comp-store growth was just 1% in the prior quarter, so a rebound was to be expected. Direct sales continue to be a growth opportunity (up 21% this quarter), while traditional store sales growth is more modest.
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