American Eagle Hit By Market Turbulence

My late December call on American Eagle (AEO) had been working out okay, with the shares up a market-beating 25% into early May, but tariffs and growing concerns about comps and margins across the sector have weighed heavily on the shares (as well as the shares of peers like Abercrombie & Fitch (ANF) and Urban Outfitters (URBN)), and AEO now sits about 5% lower than where it was in late December.

I am concerned about the corrosive impact tariffs could have on gross margins, particularly when the company has been upping its SG&A spending. I'm likewise concerned about the risk of further slowdowns in consumer spending. On the other hand, AEO has established itself as an enduring player in several significant categories (denim especially), and the aerie concept is still growing very well, with a long growth runway ahead of it. I think it's pretty easy to argue for a fair value in the low-to-mid $20s, and possibly even close to $30, but margin pressures need to abate before the shares are likely to be substantially re-rated.

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American Eagle Hit By Market Turbulence