FBR Still on Sidelines with American Eagle Outfitters (AEO) Following ICR Update

FBR maintains its Market Perform rating and $14 price target on American Eagle Outfitters (NYSE: AEO) following the retailer's presentation at 16th Annual ICR XChange Conference.

Analyst Susan Anderson had five key takeaways from the meeting:

-- AEO's fast track initiative will be a positive for the company. About 25 percent of the retailer's women's apparel is on the system, with lead times around six weeks or better.

-- Comps are expected to be flat in 2014. Anderson comments, We expect AEO to find upside with chasing hot products in an attempt to avoid elevated inventory.

-- AEO is getting positive reads on its spring assortment. About 20 percent of a store's area are now on spring inventory with the amount increasing as fall overcarry clears

-- Decreased markdowns will lead to wider margins. Anderson noted, Margins were negatively impacted in 2013 from a heightened level of markdown inventory. AEO plans to better execute on margins in 2014, primarily by decreasing markdown rates. The analyst thinks AEO will also move to narrow its targeted promos which could help by focusing on specific categories versus blanket markdowns.

-- International sales volume is moving above 10 percent of total revenue and AEO thinks that could get to 50 percent with time. Outlets are very productive, with $250/sf more in sales than mainline stores and 4-wall margins in the high 20% range. The retailer should add 10 to 20 outlet stores in 2014.

FBR will remain on the sidelines until comps stabilize and valuation improves on AEO.

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 $14.76 yesterday, with a 52 week range of $13.14 - $22.63.

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