Clothing and accessories retailer American Eagle Outfitters (NYSE: AEO) plunged in trading after the company’s holiday forecast disappointed investors. AEO has projected operating income in the range of $105 to $115 million for the holiday (fourth) quarter, below analysts’ expectations of $114 million. Nevertheless, the company expects revenues to grow in the high-single digits, while analysts were anticipating growth of 3.4%.
The lower operating income projections can be attributed to higher sales, general, and administrative expenses. Indeed, they are expected to tick higher by around 20% in the fourth quarter, “including a 5-point impact from the 53rd week.”
For FY23, management has forecast revenues to be “up mid-single digits” year-over-year. At the same time, operating income is expected to be between $340 million and $350 million, at the high end of its prior guidance range of $325 to $350 million.
The company stated in its press release that this outlook “reflects strengthened demand and continued profit improvement. With better business trends driving higher incentives, SG&A is expected to be up in the low double digits for the year.”
AEO posted total revenues of $1.3 billion in the third quarter, up by 5% year-over-year and above analysts’ expectations of $1.28 billion. The company’s diluted earnings increased by 17% year-over-year to $0.49 per share, slightly above consensus estimates of $0.48 per share.
What is the Forecast for AEO Stock?
Analysts remain sidelined about AEO stock with a Hold consensus rating based on three Buys, four Holds, and one Sell. AEO stock has surged by more than 10% year-to-date, and the average AEO price target of $19.25 implies an upside potential of 18.5% at current levels.
