American Eagle Outfitters Inc. (NYSE:AEO) shares slipped Monday after fresh concerns emerged over slowing sales momentum, tariff headwinds, and limited earnings visibility, raising doubts about the retailer’s ability to sustain its recent buzz from celebrity-driven marketing and denim demand.
Bank of America Securities (BofA) downgraded American Eagle Outfitters Inc., citing a longer path to a more normalized earnings profile in a challenging environment.
American Eagle Outfitters is scheduled to report its second quarter fiscal 2025 on September 3. Analysts estimate earnings of around 21 cents per share with sales of $1.24 billion.
Analyst Christopher Nardone cut fiscal 2025 and 2026 EPS estimates by 8%/30% to 65 cents/95 cents to reflect the impact of higher tariffs and lower Aerie sales.
With the stock trading at 5x EV/EBITDA (F26E) or 13.5x P/E, BofA sees downside risk to estimates and the multiple given a worsening fundamental backdrop.
The analyst downgraded from Neutral to Underperform and cut the price forecast from $11 to $10, reflecting lower estimates based on 4x F26E EV/EBITDA (from 3.5x given re-rating in peer multiples but still a discount to peers).
American Eagle and Aerie face tariff headwinds with limited pricing power, the analyst noted. BofA estimates that a 20% rest-of-world tariff could squeeze gross margins by about 20 basis points in fiscal 2025 and as much as 70 basis points in fiscal 2026, even after mitigation measures.
American Eagle Outfitters has made significant cost cuts in recent years, but further gains may be limited as marketing spend lags peers.
With tariffs and sales growth likely capped at 3–5%, BofA sees a return to American Eagle Outfitters’ historical EPS of $1.40 as challenging.
Brand recovery remains uncertain. Sales rebounds following the first-quarter assortment issues will take time, and American Eagle’s non-denim product traction is unproven.
Aerie faces secular weakness in intimates and swim, increasing reliance on Offline for growth. Reduced promotions could weigh on traffic, and store expansion plans may be scaled back if retail conditions stay soft.
Last month, American Eagle Outfitters’ new advertising campaign featuring actress Sydney Sweeney added to speculation that the apparel retailer could become the latest target in the ongoing meme stock phenomenon.
BofA analyst said in the near term, American Eagle’s Sydney Sweeney campaign may boost momentum enough to support a positive third-quarter sales outlook, but sees limited potential for sustained business impact.
Another factor to watch is denim, which is expected to be a strong category this back-to-school season.
Price Action: AEO stock is trading lower by 2.61% to $12.51 at last check Monday.
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