Bank of America Analysts Warn American Eagle Faces Challenges Despite Advertising Surge
- Bank of America analyst downgrades American Eagle's shares, indicating a potential decline of over 21%.
- Analyst revises EPS estimates downward for American Eagle and Aerie, citing tariff impacts and declining sales.
- Increased purchases of put options reflect bearish sentiment towards Bank of America's future performance.
Bank of America Analysts Warn of Challenges for American Eagle Amidst Advertising Surge
Bank of America analyst Christopher Nardone issues a cautionary outlook for American Eagle Outfitters as the retailer witnesses a temporary stock price surge driven by a new fall campaign featuring actress Sydney Sweeney. Ahead of the company’s upcoming second-quarter earnings release on September 3, Nardone downgrades American Eagle's shares from neutral to underperform, reducing the price target from $11 to $10. This downgrade indicates a potential decline of over 21% from the previous close, reflecting Nardone's concerns that the current boost in stock price may not translate into sustained business improvements.
Nardone emphasizes that the momentum generated by the advertising campaign may be short-lived due to mounting pressures from rising tariffs and diminishing pricing power for both American Eagle and its sub-brand, Aerie. He revises his earnings per share (EPS) estimates for fiscal years 2025 and 2026 downward by 8% and 30% respectively, citing the adverse effects of tariffs and declining sales in the Aerie brand. While American Eagle’s shares saw an increase of over 18% in August and 9% in the past month, Nardone urges caution, suggesting that the recovery of sales for both American Eagle and Aerie may take longer than anticipated.
The challenges facing American Eagle are compounded by uncertainties regarding its product lines beyond denim, as well as Aerie's ongoing struggles in the intimates and swimwear categories. Nardone points out that these factors could hinder the brand's growth prospects in the current macroeconomic landscape. Additionally, he raises concerns about the possible limitations on promotional activities, which could further reduce customer traffic. If market conditions do not improve, Aerie may need to reconsider its store expansion plans, highlighting the precarious position of American Eagle amid economic headwinds.
In other news, the competitive landscape in the retail sector continues to evolve as other companies like Lululemon face their own challenges. Lululemon is contending with a deceleration in growth in North America while increasing its discounting strategies. Despite these pressures, the brand remains committed to innovation and global expansion, which may provide a buffer against the slowing growth in its primary market.
Additionally, the bearish sentiment surrounding Bank of America is becoming evident as large investors increase their purchases of put options, indicating a lack of confidence in the bank's future performance. This trend suggests that significant players in the market are hedging against potential declines, reflecting broader uncertainties in the financial sector. As these dynamics unfold, the implications for American Eagle and Bank of America within their respective industries become increasingly pronounced.
