Shares of American Eagle Outfitters are down 48.3% this year, according to Morgan Stanley, and are on further downside. Analyst Kimberly Greenberger underperformed the retail stock by equal weight, citing margin and selling risks. Greenberger lowered its price target on American Eagle from $22 to $8 a share, meaning a decline of about 39%. “Our analysis suggests increased exposure to topline growth in both AE and Aerie, and significant exposure to 2022 margin and EPS, which also undermined management’s 2022 financial targets,” Greenberger said in a note Tuesday. ” “Additionally, management has not yet downgraded its optimistic 2023 financial targets, which tells us that downside earnings modification risk extends to next year.” American Eagle recently reported quarterly results that missed analysts’ expectations. And, compared to other mall retailers like Macy’s — which beat estimates in the most recent quarter — AEO’s omission is likely the result of “product execution and poor planning processes rather than a macro issue,” Greenberger wrote. The company’s full-year guidance on operating income also presents more missed opportunity, he said. As inflation rises and a possible recession ensues, consumer demand continues to decline. Between that and “outside orders” driven by supply chain delays, Greenberger believes American Eagle will have excess inventory that could force the company to increase promotions and discounts. “Consumers who were trained to pay the full ticket price will quickly realize that they can be more price-selective, making it even more difficult for retailers to extract price increases as they reduce input costs.” Strive to offset inflation and higher freight costs,” she wrote. “With so many retailers clearing inventory at the same time, we see the risk that goods may need to be discounted deeper than normal clearance needs.” — CNBC’s Michael Bloom contributed reporting
Morgan Stanley downgrades American Eagle, sees big discounts ahead for retailer