1) AEO is well positioned as one of the most 'inclusive' brands to outperform peers
2) consistently solid comps (+2%, 20th consecutive quarter of growth) and healthy fundamentals (ample
liquidity and little debt), which underscores strength of leading brands and the company's ability to expand footprint (+70 in FY 21) and
capture share from competitors' woes like GPS and LB , which I expect to shutter 230 and 53 stores through FY 21
3) AEO boasts an attractive yield (4.3%).
Risks: margin headwinds tariffs and supply chain disruptions from the coronavirus, an estimate a $0.01 headwind in the first quarter of FY 21. About 30% of AEO's production comes from China and we see figure falling below 20% in 2020.
A 12-month target of $16 is 11.3x, FY 21
EPS estimate of $1.41, below 3-year historical forward P/E average, reflecting expectation that apparel is in for a tough 2020 due to:
1) increased acceptance of secondhand clothing;
2) a softening economic environment;
3) thinning retail traffic due to coronavirus. (January clothing sales dropped 3.1% from December, the steepest drop since March