How has the retail environment affected American Eagle? Is Lululemon unstoppable? Will National Beverage meet estimates? Those questions surround these three stocks.
American Eagle (September 4)
American Eagle (AEO) has either the misfortune or the luck of reporting earnings the week after Abercrombie & Fitch (ANF) released their abysmal second quarter results that included an unwelcome revision of full year guidance thanks to the impact of tariffs. With net sales declining the in the second quarter, the stock did not do well last week. Now, American Eagle has its chance. Whether or not the clothing company can buck the apparent trend for this type of specialty retailer remains to be seen.
Regarding tariffs, I view them as a more near term problem rather than a major catalyst that will plague this type of stock for years to come. Yes, I think we're seeing a genuine shift in manufacturing that puts less emphasis on China. But I don't think that clothing company's like this will suffer forever. Over the last five fiscal years, I've been supremely impressed by American Eagle's sales revenue growth, and consistency of profitability. Yes, earnings are a bit up and down from year to year, but they still make a great deal of money. The overall earnings have trended in a positive direction, and it'll be interesting to see how the climate within retail affected the company in the second quarter.
Lululemon (September 5)
I've said before that my bearish stance on Starbucks (SBUX) is my worst call over the last few years. My old views on Lululemon (LULU) are definitely a close second. Lululemon reported comp sales gains of 14% in the first quarter of the year, along with a 34.5% increase in earnings per share. With guidance suggesting another round of double digit comp sales growth in the second quarter, along with earnings of $0.86 to $0.88 per diluted share, Lululemon seems unstoppable. Once again, the big question here will be whether or not Lululemon will alter its guidance in reaction to the escalating trade disputes between the United States and China.
Full year guidance at the end of the fiscal first quarter was $4.51 to $4.58 per diluted share. Will the company maintain that guidance? Will we get a surprise to the upside? Will the world trade turmoil begin to take a toll? These are the questions that everyone will be looking for. If I had to venture a guess, the stock reaction to this week's earnings release will be more focused on comp sales and guidance, then it will be about earnings.
National Beverage Corp (September 5)
National Beverage (FIZZ) has not had the best year in terms of stock performance. Over the past five years, the soda company has outpaced the S&P 500. More recently, the stock is down off of highs in the low $100 range. A series of earnings misses, combined with an unwelcome lawsuit, have put pressure on the shares. The stock has lost more than half its value this year.
Their fiscal first quarter earnings are expected to be around $0.76 per share; a year over year decrease. I think one of the reasons that the stock has fallen so much is valuation. At $100 a share, FIZZ had a trailing P/E ratio of 30x earnings. Yes, overvaluations have seemed to be the trend these days, but it tends to cause the stock to take bigger hits to the downside in times of trouble. Now trading at a much more realistic price, I think the big thing for National Beverage will be to at least meet estimates. The company doesn't want another earnings miss as they need something that will help stabilize the views of investors. The company has a lot of equity on the balance sheet, and doesn't seem troubled from that viewpoint. It's all about how much the stock built into itself, relative to the disappointments that have occurred over the past 12 months.