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Why American Eagle Stock Was Gaining Today


What happened

Shares of a teen clothing retailer American Eagle Outfitters (AEO -1.31% ) were climbing today despite no specific news on the stock. Instead, a rival announcement L Brands (BBWI -1.98% )the parent company of Victoria’s Secret, appeared to push shares higher.

As of 11:16 a.m. EDT, American Eagle stock was up 7.5% while L Brands jumped 32.8%.

Image source: American Eagle Outfitters.

So what

American Eagle’s Aerie brand, which sells underwear to young women and teenage girls, has been one of the biggest retail success stories in recent years, as the brand has taken an opposite approach to Victoria’s Secret by pledging that his photos are not airbrushed and using templates. who look like ordinary women, rather than the “angels” that characterized Victoria’s Secret.

As tastes and cultural mores have changed, Aerie has emerged as a winner in the industry while Victoria’s Secret has been on the losing side. Therefore, investors may interpret Victoria’s Secret challenges as favorable to American Eagle. L Brands has just announced that the lingerie brand’s sales are expected to fall by 40% in the second quarter, and plans to close 250 Victoria’s Secret stores and reduce its workforce by around 15%, or 850 people.

L Brands is also in the process of separating Bath and Body Works, its smaller and more successful brand, from Victoria’s Secret, which some say has fallen into disuse in the #MeToo era. The ousting of former CEO Leslie Wexner over his ties to Jeffrey Epstein also weighed on the brand.

Now what

In the first quarter, Aerie’s sales fell just 2% against a 45% drop in American Eagle brand revenue, showing the strength of its lingerie brand and that it is well positioned to capture market share from Victoria’s Secret as that company continues to restructure. Prior to the pandemic, the brand had enjoyed 21 consecutive quarters of double-digit comparable sales growth, proving that it is rapidly gaining market share.

Shares of American Eagle have faded since surging after the first-quarter earnings report in early June as the economic recovery faltered in the United States. However, today’s news might remind investors that the Aerie brand still has huge potential.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.