American Eagle Outfitters Stock Delivers 18% Year-To-Date Gain in 2019 (AEO)

After a drop more than 40% in the last four months of 2018, American Eagle Outfitters, Inc. (NYSE:AEO) saw its share price reverse direction and deliver a gain of nearly 18% since the beginning of 2019.

The company’s stock experienced significant volatility and minimal gains for nearly a decade. After losing nearly 80% of its value in the aftermath of the 2008 financial crisis, the share price struggled to recover. While experiencing more than half dozen fluctuations, the share price gained barely 10% between January 2009 and August 2017.

However, in August 2017, the share price embarked on a year-long uptrend that delivered a 160% price gain before peaking in August 2018. After returning all those gains, and more, by the end of 2018, the share price has been rising in 2019, attempting to regain all losses and return closer to August 2018 peak levels.

Financial Results

While reporting mixed results for the fourth quarter of fiscal 2018 — which ended on February 2, 2019 — the company still manged enough good results to retain a mostly positive outlook for the rest of the year. Net revenues rose 1% to $1.244 billion and gross profit delivered a similar increase to $430 million. However, operating income and net earnings came in lower than the same period last year. While 17% lower than last year, adjusted earnings of $0.43 per share beat analysts’ expectations of $0.42.

American Eagle Outfitters’ merchandising initiatives and the ability to boost market share through strong brands and compelling merchandise increased comparable sales 6% versus same period last year. The company managed to deliver comparable store increases over the past 16 consecutive quarters. Additionally, American Eagle Outfitters’ digital business continued to expand faster than other business segments and currently accounts for approximately 30% of the company’s net revenues.

American Eagle Outfitters, Inc. (NYSE:AEO)

Based in Pittsburgh, Pennsylvania, and founded in 1977, American Eagle Outfitters, Inc. operates as a specialty retailer that provides clothing, accessories and personal care products under the American Eagle and Aerie brands. The company also provides jeans, and other apparel and accessories for men and women, as well as intimates, activewear, swim collections and personal care products for women. Additionally, the company offers sports apparel under the Tailgate brand and menswear products under the Todd Snyder New York name. As of March 6, 2019, American Eagle Outfitters operated 934 American Eagle stores, 262 Aerie stores, 5 Tailgate stand-alone stores and 1 Todd Snyder stand-alone store in the United States, Canada, Mexico, China and Hong Kong. Furthermore, American Eagle Outfitters offers its merchandise through 231 additional retail locations in 25 countries, which operate under licensing agreements. The company also operates three corporate Web sites — ae.com, aerie.com and ToddSnyder.com. Through these three sites, American Eagle Outfitters sells and ships its products to 81 countries.

Dividends

American Eagle Outfitters began paying dividends in 2004 and boosted its annual dividend over the subsequent four years right into the 2008 financial crisis. In the aftermath of the crisis, many equities had to cut or even outright eliminate dividend distributions. However, American Eagle Outfitters managed to skip its annual dividend hikes for just two years. After a combination of two dividend boosts and two multi-year streaks of flat dividend distributions, American Eagle Outfitters boosted its annual dividend over the past two consecutive years.

The company boosted its annual payout 10% over the past two years for an average growth rate of 5.1% per year. Even with the extended periods of no dividend hikes, American Eagle Outfitters enhanced its total annual payout nearly seven-fold since beginning dividend distributions. This pace of advancement is equivalent to an average growth rate of 13.7% per year since 2004.

The current $0.138 quarterly dividend distribution corresponds to a $0.552 annualized dividend amount and yields 2.42%. The slow dividend growth and robust asset appreciation suppressed the current yield to more than 16% below the company’s own 2.9% average yield over the past five years. American Eagle Outfitters’ current dividend payout ratio of 37, implying that the company’s dividends are well covered by earnings. The company should be able to sustain dividend payouts and continue raising annual dividends, at least for the near term.

Share Price

The share price came into the trailing 12-month period riding an uptrend that began in August 2017. After continuing to advance for another four months, the share price reached its 52-week high of $28.99 on August 21, 2018. The uptrend ended after a full year of strong gains. The share price gave back all the gains since the beginning of the current 12 month by mid-November and continued to drop another 18% before reaching the 52-week low of $17.12 on December 21, 2018.

However, the share price performed another direction reversal and has been rising steadily since mid-December. By the end of trading on April 4, 2019, the share price regained nearly half of its losses from the August peak and closed at $22.77. This closing price was 8.7% higher than one year earlier, 33% above the 52-week low from December 2018 and nearly double the price level from five years ago.

The combined benefits of asset appreciation and rising dividend income delivered a total return of 11.3% over the past year. Additionally, the tree year total return exceeded 40%. However, the total return was 117% over the past five years, which indicates that shareholders more than doubled their investment since 2014.

Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.