American Eagle Outfitters - Aerie and a Strong Digital Presence
Apr 02, 2020 by InvestorDestination Team
COVD-19 has halted the global economy. In the US, retailers have shutdown stores indefinitely, furloughed employees, and asking landlords to defer or reduce rent payment. During these unprecedented times, it is a bit hard to see the light at the end of the tunnel.
Right now, no one can predict the timeline for ending this social distancing. However, eventually, things will return to normal. The moment retailers open stores, most probably consumers will not flock to the stores and start a spending spree. After opening stores, retailers need to clear their inventory buildup and will offer deep discounts. This lockdown will trigger a recession, and consumer spending will be curtailed. During these challenging times, investors will be presented with long-term opportunities. During this recession, retail will be hit hard; however, retailers with no debt and compelling brands will survive the downturn. One such company in the retail segment is American Eagle Outfitters Inc (NYSE: AEO) .
Nowadays, most retailers are inclusive in their product offerings. However, American Eagle Outfitters is a pioneer in this. In 2014, Aerie launched its inclusive offerings with Aerie Real campaign. Aerie has built a robust emotional connection with consumers, which is a secret sauce for success in the retail business. Customer loyalty has helped the brand achieve double-digit comp growth even during declining mall traffic. Apart from that, it generates 40% of its revenue from digital.
Fashion hit and miss are part of the fashion business and hard to predict. However, in recent years, American Eagle Outfitters brand has narrowed its focus to jeans, and through innovation, it has strengthened its product offerings.
Once the company opens its stores, it needs to clear its excess inventory. It is known for clearing out excess inventory pretty quickly. The company also manages its inventory efficiently.
At the current stock price, it pays 7% divided. However, the company might suspend dividends for the foreseeable future. The company has a strong balance sheet. It has no debt and ample liquidity, which is essential to survive during this downturn. 2020 will be a very challenging year for retailers, including American Eagle Outfitters. But, it can be a good candidate for your long-term portfolio.
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