Will Consumer Headwinds Weigh on American Eagle's Q2 Earnings?

American Eagle Outfitters, Inc. AEO is scheduled to report second-quarter fiscal 2025 results on Sept. 3, after the opening bell.The Zacks Consensus Estimate for AEO’s fiscal second-quarter revenues is pegged at $1.2 billion, suggesting a 4.5% decline from the year-ago quarter. For fiscal second-quarter earnings, the consensus mark is pegged at 20 cents per share, implying a 48.7% decline from earnings of 39 cents reported in the year-ago quarter. The consensus mark has increased by a penny in the past 30 days. In the last reported quarter, American Eagle's earnings missed the consensus estimate by 16%. Moreover, the company has delivered a negative earnings surprise of 0.3%, on average, in the trailing four quarters.Earnings Whispers for AEO StockOur proven model conclusively predicts an earnings beat for American Eagle this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat, which is exactly the case here. You can uncover the best stocks before they are reported with our Earnings ESP Filter.American Eagle has an Earnings ESP of +7.69% and carries a Zacks Rank of 3 at present.Things to Know About AEO’s Upcoming ResultsAmerican Eagle’s second-quarter fiscal 2025 results are likely to be negatively impacted by persistent macroeconomic pressures that are weighing on consumer discretionary spending. Elevated household debt, inflationary headwinds and ongoing uncertainty around employment are dampening consumer confidence, particularly among its core demographic of younger, price-sensitive shoppers. As a result, spending on non-essential categories like apparel is expected to remain subdued, affecting both traffic and conversion in stores and online.Merchandising missteps remain one of the biggest hurdles. At Aerie, categories like lace tops and shorts failed to resonate with customers, while at American Eagle, out-of-stocks in core denim and weakness in men’s pants and shorts constrained growth. Although certain categories, such as women’s denim and fleece, performed well, overall product performance was uneven, forcing the company to rely more heavily on markdowns that further hurt profitability.Another significant challenge lies in margin pressure. Beyond the inventory write-down, higher product costs, increased freight expenses and elevated promotional activity weighed on profitability. Tariffs also remain a looming headwind, with management estimating about $40 million in costs this year, a portion of which will impact the fiscal second quarter. While some mitigation is underway, continued pricing pressure and the need to clear seasonal goods suggest margin recovery may take time.On the last reported quarter’s earnings call, management expected the top-line trend in the fiscal second quarter to be similar to the first quarter. For the second quarter of fiscal 2025, the company expects revenues to decline 5% and comps to decrease 3%. Gross margin is projected to be down year over year, thanks to an increase in in-season markdowns and a deleveraged BOW cost on lower comps. Operating income is anticipated to be $40-$45 million for the said quarter.Despite these challenges, AEO has taken corrective actions that could strengthen performance in the back half of the year. Inventory levels are better aligned with current demand, assortments are being refined to emphasize proven categories like denim, intimates and activewear, and sourcing diversification should ease tariff exposure. Marketing investments are being ramped up ahead of back-to-school, and capital spending is being paced more carefully to preserve cash while still supporting growth. These steps position AEO to stabilize results and rebuild momentum heading into the fall and holiday seasons.AEO’s Valuation PictureFrom a valuation perspective, American Eagle’s shares present an attractive opportunity, trading at a discount relative to historical and industry benchmarks. With a forward 12-month price-to-earnings ratio of 12.58X, below the Retail-Apparel & Shoes industry’s average of 18.67X, the stock offers compelling value for investors seeking exposure to the sector.AEO Stock's ValuationImage Source: Zacks Investment ResearchThe recent market movements show that American Eagle’s shares have gained 5.3% in the past six months compared with the industry's growth of 5.6%.AEO Stock's Price PerformanceImage Source: Zacks Investment ResearchOther Stocks With the Favorable CombinationDollar Tree Inc. DLTR currently has an Earnings ESP of +7.90% and a Zacks Rank of 3. The company is likely to register a decline in its top and bottom lines when it reports second-quarter fiscal 2025 results. The consensus mark for DLTR’s quarterly revenues is pegged at $4.5 billion, which indicates a plunge of 39.6% from the figure reported in the prior-year quarter. You can see the complete list of today’s Zacks #1 Rank stocks here. The Zacks Consensus Estimate for Dollar Tree’s earnings has moved up by a penny in the past seven days to 37 cents per share. The consensus estimate indicates a drop of 43.3% from the year-ago quarter’s actual. DLTR delivered a negative trailing four-quarter earnings surprise of 6.9%, on average.The Kroger Co. KR currently has an Earnings ESP of +0.29% and a Zacks Rank of 3. KR’s top line is anticipated to advance year over year when it reports second-quarter fiscal 2025 results. The Zacks Consensus Estimate for its quarterly revenues is pegged at $34.12 billion, which indicates a 0.6% rise from the figure reported in the year-ago quarter.The company is expected to register an increase in the bottom line. The consensus estimate for Kroger’s second-quarter earnings is pegged at $1.00 per share, up 7.5% from the year-ago quarter. KR delivered a trailing four-quarter earnings surprise of 3.5%, on average.Torrid Holdings CURV presently has an Earnings ESP of +71.43% and a Zacks Rank of 2. The company is likely to register a decline in both top and bottom lines when it reports second-quarter fiscal 2025 results. The consensus mark for CURV’s quarterly revenues is pegged at $259.6 million, which indicates an 8.8% decline from the figure reported in the prior-year quarter.The Zacks Consensus Estimate for second-quarter earnings per share is pegged at 3 cents, which indicates a decrease of 50% from the year-ago quarter’s actual. CURV has a negative trailing four-quarter earnings surprise of 10.5%, on average.Zacks' Research Chief Names "Stock Most Likely to Double"Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.This top pick is a little-known satellite-based communications firm. Space is projected to become a trillion dollar industry, and this company's customer base is growing fast. Analysts have forecasted a major revenue breakout in 2025. Of course, all our elite picks aren't winners but this one could far surpass earlier Zacks' Stocks Set to Double like Hims & Hers Health, which shot up +209%.Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Dollar Tree, Inc. (DLTR): Free Stock Analysis Report American Eagle Outfitters, Inc. (AEO): Free Stock Analysis Report The Kroger Co. (KR): Free Stock Analysis Report Torrid Holdings Inc. (CURV): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks