American Eagle Outfitters’ (AEO.N) Aerie lingerie brand attracted a lot of attention – and sales – last year when it announced it would not airbrush its model photos and started a campaign using the hashtag #AerieREAL. The brand is still performing well – and so is its parent company.
Aerie’s Same Store Sales (SSS) continue to outperform American Eagle’s. A 3.0% Same Store Sales reflects healthy spending:
Exhibit 1: Same Store Sales results – American Eagle vs. Aerie
Source: I/B/E/S data
Market penetration
Aerie has done a great job growing its presence in the lingerie market. Aerie’s core intimates include sleep, swim, yoga and loungewear. Although it competes with L Brands’ (LB.N) Pink and Victoria’s Secret lines, Aerie can continue to capitalize on the lack of competition in the young women’s lingerie industry. What’s more, Aerie has a rewards program that helps drive consumer loyalty.
Comfort vs. Sexy
Victoria’s Secret is considered more upscale luxury, but Pink offers a young, fun spin on intimates. Pink is the most established, popular lingerie retailer for U.S. teen/college professionals. Pink’s customers are likely to grow into the Victoria’s Secret business. Pink is able to profit from Victoria Secret’s established brand reputation. What’s more, it uses famous ‘Instagirls’ models, and lavish fashion shows to increase its brand awareness. Overall, the brand is known for its sexy appeal.
On the flip side, Aerie’s hit campaign focuses on being comfortable and uses “real women” and non-airbrushed models with the motto “the real you is sexy.” Aerie used 28-year-old Yélena Noah for its campaign, penetrating the established market through merchandise improvements and disciplined promotions. The company also managed its inventories and experienced increased visitor traffic. Selling merchandise at full price helps margins.
As of May 2015, Aerie had 98 stand-alone stores. Pink had 115 free-standing stores through the fourth quarter of 2014, but is in thousands of Victoria’s Secret stores around the globe, helping to raise its brand awareness. American Eagle should consider the same strategy and continue to expand its Aerie products in more of American Eagle’s stand-alone stores to reach a bigger market share.
What’s more, consumers have become more value oriented. They want the latest fashions for less. Within the market, Aerie offers the best prices for similar merchandise, which might place it at an advantage.
American Eagle’s story
StarMine models show American Eagle scoring highly. The earnings per share consensus estimate for Q1 ending July 31 is 14 cents per share, compared to three cents per share in the same quarter a year ago, for 367% growth. Revenue is estimated at $767.4 million vs. $710.6 million (8% growth).
SSS improved by 7% in Q1 and are expected to grow to 7.8% in Q2. StarMine scores (see below) are in the top decile suggesting that:
• Analysts’ revisions for earnings and price stock momentum are in the company’s favor,
• Credit is robust,
• Earnings are coming from sustainable sources.
• Cash, Accruals, Operating Efficiency all look healthy.
Exhibit 2: StarMine scores — American Eagle
Source: StarMine
Analysts stock recommendations are mainly strong buy/buy (16) and hold (10), with two sells.
Exhibit 3: Analysts’ recommendations
Source: Eikon
Good supply chain management
American Eagle has improved turnaround of its products through better supply chain management, therefore being able to stay on top of the latest trends, and compete better with fast fashion retailers. It’s a favorite brand during the important back-to-school retail season and is regaining customer loyalty. Although it’s competing better against Pink, it’s worth noting that fast-fashion retailers continue to lower prices.
On Aug. 20, 2014, when the company beat estimates, (see the StarMine ARM Model below), analysts became generally positive and fairly bullish on the stock again. During its Q2 2014 earnings call, interim CEO Jay Schottenstein touched on Q2 results. He talked about making progress, lean inventory levels, omni-channel initiatives and expense management.
Exhibit 4: StarMine Analyst Revisions Model (ARM) – Analysts’ sentiment
Source: StarMine
Positive outlook
In response to the positive message, analysts raised earnings projections for Q3 2014, boosting the mean consensus forecast. And those upward revisions may not be over. The StarMine Analyst Revision Model (ARM) indicates that analysts are likely to continue boosting their earnings forecasts as the quarter progresses.
AEO can boast a StarMine ARM score of 99, which places it at the top of the top decile of all U.S. companies with respect to this measure of change in the way analysts perceive the outlook for the company. The higher a company’s ARM, the more top-ranked analysts have been boosting their earnings forecasts and the greater the likelihood that they will continue to do so.
Click here to watch Jharonne Martis on the TODAY show commenting on how well lingerie line Aerie is performing following a decision to not retouch or enhance any lingerie photos. NBC’s Betty Nguyen reports.
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