AEO - American Eagle Outfitters stock takes flight on earnings beat inventory management

American Eagle Outfitters ( NYSE: AEO ) shares surged after the bell on Wednesday after the apparel retailer exceeded Q4 expectations and curtailed inventory issues.

For the fourth quarter, an adjusted EPS report of $0.37 came in $0.07 better than analysts expected, while $1.49B in revenue narrowly beat the Street consensus as well. An 8% increase in Aerie sales from Q4 2021 was credited as a key factor in the stronger than expected sales print.

Additionally, inventory levels were trimmed to $585M, down from $798M at the close of Q3 and up only 6% from Q4 2021. Gross margin rate of 33.9% reflected an 150 basis point expansion from the prior year quarter.

“I am proud of how our teams navigated through unanticipated macro challenges this year, which pressured top line demand as we lapped record strength in 2021,” CEO Jay Schottenstein said. “In response, we took aggressive actions early in the year on inventory and spending to strengthen margins and increase free cash flow. We saw meaningful improvements as the year progressed.”

He added that the healthier inventory levels will be key to continuing strong momentum in 2023. As will "stabilized supply chains” in his view. Given remaining uncertainty, however, he warned that guidance for the full year remains cautious.

Management expects revenue in the range of flat to up low-single digits from 2022. Given the company notched $5.01B in revenue in 2022, even mild growth suggests upside to the $5.12B consensus. Operating income in the range of $270M to $310M is anticipated for the year ahead, compared to adjusted operating income of $269M in 2022.

Shares of the Pittsburgh-based retailer ripped 7.22% higher in after hours trading on Wednesday.

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