Morgan Stanley reports that shares of American Eagle Outfitters fell 48.3% in the past year. Kimberly Greenberger, an analyst, downgraded American Eagle Outfitters’ retail stock from equal weight to underweight due to risks to margins. Greenberger also reduced American Eagle’s price target to $8 per share, from $22; this equates to a nearly 39% downside. “Our analysis suggests heightened risk to topline growth at both AE & aerie, and significant risk to 2022 margins & EPS, that put even management’s lowered 2022 financial targets out of reach,” Greenberger said in a note Tuesday. Management hasn’t lowered its optimism about 2023 financial targets. This suggests that there is a negative earnings revision threat. American Eagle’s quarterly results were disappointingly below analysts expectations. And, compared with other mall retailers such as Macy’s — which beat estimates in the recent quarter — AEO’s miss is likely a result of “product execution & poor planning processes rather than a macro issue,” Greenberger wrote. She also said that the full-year guidance for operating income presents more opportunities to misses. Inflation is rising and the possibility of recession are looming, which means that consumer demand will continue to drop. Greenberger predicts that American Eagle will be able to offer discounts and promotions due to the increased inventory and delays in supply chains. “Consumers who had been trained to pay full ticket price will quickly realize they can be more price-selective, making it even more difficult for retailers to extract price increases as they attempt to offset input cost inflation & elevated freight expense,” she wrote. We see the risk of goods needing to be discounted more than usual because so many retailers are clearing stock at once. — CNBC’s Michael Bloom contributed reporting
