American Eagle expands into Israel

International expansion may provide some relief as the retailer grapples with a margin crunch in its domestic markets.

By Trefis Feb 23, 2012 2:39PM
Image: Jewelry store (© Baerbel Schmidt/Getty Images/Getty Images)American Eagle Outfitters (AEO) announced plans to expand into Israel by opening 11 stores there starting February.
 
With the new stores, the company now operates in Egypt, Jordan, Kuwait, Lebanon, Morocco, Saudi Arabia, the United Arab Emirates and Israel, thus making the Middle East one of the key strategic regions for American Eagle's international operations.

The move is in sync with the retailers long-term strategy to expand its international presence and will provide some respite to the company, particularly as it is facing a margin crunch due to the scale of its holiday promotions in 2011.


American Eagle competes with other teen specialty retailers such as Abercrombie & Fitch (ANF), Aeropostale (ARO) and Gap (GPS).


American Eagle Outfitters Stock Breakup

The holiday season proved to be a tough one for American Eagle Outfitters. In a bid to lure holiday shoppers, the retailer increased its scale of promotions to drive sales. The result was that despite registering a 15% growth in holiday sales, American Eagle had to trim its fourth-quarter earnings outlook from $0.40 to $0.44 per diluted share previously to $0.33 to $0.35 per diluted share. The effect was felt immediately, with American Eagle's stock getting smacked by 20% on the very same day.



Global Economic Outlook


Compared to the U.S. and Europe, where the majority of American Eagle's operations are situated, macro-economic conditions in the Middle East are somewhat better.  As evident from the graph above, the GDP growth trend is expected to continue in 2012 and 2013 as well. This implies that American Eagle could realize higher full-priced merchandise sales in Middle Eastern markets compared to the U.S. and Europe. Additionally, the company may be able to pass cost pressures to customers more easily in the Middle Eastern markets, thus negating margin pressures in domestic market.


Trefis price estimate for American Eagle Outfitters stands at $17.75, implying an upside of nearly 25% to the current market price.


See also: American Eagle Cuts Q4 Earnings Outlook, Sends Shares Crashing

1Comment
Feb 23, 2012 8:41PM
avatar

Last time I shop at American Eagle.

 

Will not shop at any company doing business with Israel, until the Zionists end their Apartheid against the Arabs, and in particular, the Palestinians.

 

Not purchasing any Caterpillar equipment - Caterpillar produces specially built bulldozers for Israel, supposedly at no cost, to use when they illegally raze a Palestinian's home, many times with innocent men, women and children still in them.

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