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UPDATE: Goldman Sachs Sees 29% Downside in American Eagle Outfitters (AEO), Downgrades to Sell

March 27, 2015 6:39 AM EDT
Get Alerts AEO Hot Sheet
Price: $23.53 --0%

Rating Summary:
    14 Buy, 18 Hold, 3 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 8 | Down: 5 | New: 36
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(Updated - March 27, 2015 9:33 AM EDT)

Goldman Sachs downgraded American Eagle Outfitters (NYSE: AEO) from Neutral to Sell with a price target of $12.00. Analyst Lindsay Drucker Mann continues to think sluggish fundamentals will pressure specialty retailers, including peers ANN, Inc. (NYSE: ANN) and Abercrombie & Fitch (NYSE: ANF), which are also rated Sell

"We are negatively biased on Specialty Apparel retailers. Structural challenges including declining mall traffic and accelerating low-cost competition (fast fashion, outlets, off-price, ecomm) set the stage for long-term headwinds to comps and EBIT margins. In the near term, very cold weather in key markets during the spring season alongside product flow disruptions related to West Coast congestion set the stage for a muted 1Q. The sluggish near-term fundamental environment is likely to pressure valuations, which for many names across the group are at all-time highs," said Drucker Mann.

On American Eagle, she said, "We believe AEO is in the midst of a multi-year period of diminishing productivity, margins, and returns as (1) their very large store footprint is negatively impacted by declining mall traffic, (2) ecommerce adds new costs but has not been fully offsetting the loss of sales at brick and mortar, and (3) AEO faces aggressive competition from low cost competition including fast fashion retailers, outlet malls, and off-price stores. These factors will make it difficult for AEO to achieve its objective of price (AUR) increases across the year, in our view. We have already seen long-term erosion in the business margin structure, and with challenges only intensifying going forward, continued erosion over time appears
likely."

For an analyst ratings summary and ratings history on American Eagle Outfitters click here. For more ratings news on American Eagle Outfitters click here.

Shares of American Eagle Outfitters closed at $16.92 yesterday.



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