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2 new catalysts for American Eagle Outfitters

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "American Eagle Outfitters (NYSE: AEO) it is one of my favorite stocks in the crowded retail clothing sector. His eponymous brand is strong, particularly with teenagers, and his smaller lingerie and sportswear brand regularly generates double-digit growth. The stock also trades less than 10 times forward gains and pays a 3% forward return. "Data-reactid =" 11 ">American Eagle Outfitters (NYSE: AEO) it is one of my favorite stocks in the crowded retail clothing sector. His eponymous brand is strong, particularly with teenagers, and his smaller lingerie and sportswear brand regularly generates double-digit growth. The title also trades in less than 10 times the forward earnings and pays a 3% forward return.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "I have highlighted many of these strengths in a recent article, but recently two new catalysts have appeared: the introduction of CBD products in its stores and a significant acceleration of repurchases. Let's see how these two positive aspects could increase the share price. "Data-reactid =" 12 "> I have highlighted many of these strengths in a recent article, but recently two new catalysts have appeared: the introduction of CBD products in its stores and a significant acceleration of repurchases. Let's see how these two positive aspects could increase the share price.

A summer advertising campaign by American Eagle Outfitters.

Image source: American Eagle Outfitters.

Jumping on the CBD bandwagon

Last December, Congress formally legalized CBD, the non-psychoactive ingredient of marijuana. Shortly thereafter, a growing number of retailers began selling CBD-infused products such as oils, body care products and beverages.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "CBD products generated about $ 600 million to $ 2 billions in sales last year according to analysts at Cowen & Co., and that figure could touch $ 16 billion by 2025. In response, traditional retailers like it Designer Brands"DSW, GNC, is Abercrombie & Fitch started selling CBD products. "Data-reactid =" 36 "> CBD products generated about $ 600 million in sales of $ 2 billion last year according to Cowen & Co. analysts, and that figure could reach $ 16 billion by 2025. In answer, traditional retailers like it Designer Brands"DSW, GNC, is Abercrombie & Fitch started selling CBD products.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "That's why it wasn't surprising when American Eagle jumped on the bandwagon collaborating with Green growth brands, the CBD body care product manufacturer who collaborated with DSW and Abercrombie. Starting in October, American Eagle will begin selling Green Growth's CBD-infused body care products – which include balms and muscle lotions – online and at nearly 500 American Eagle stores. "Data-reactid =" 37 "> That's why it wasn't surprising when American Eagle jumped on the bandwagon collaborating with Green growth brands, the CBD body care product manufacturer who collaborated with DSW and Abercrombie. Starting in October, American Eagle will begin selling Green Growth's CBD body care products – which include balms and muscle lotions – online and at nearly 500 American Eagle stores.

This represents almost half of the current fleet of the American Eagle with 1,055 stores. The AEO has already generated 17 quarters of comps growth and expects to increase its number of stores this year, so the addition of CBD products is not a desperate attempt to remain relevant and increase sales. .

On the contrary, it could give AEO's main base in Gen Z and the young millennium buyers a different reason to visit its stores. American teenagers ranked American Eagle their second favorite clothing brand in the latest "Taking Stock with Teens" poll by Piper Jaffray, while millennials ranked 29th in the annual "Top 100 Millennial Brands" chart among the other industries. last year.

Bottles of CBD oil with hemp leaves.

Image source: Getty Images.

Buy back 30 million more shares

American Eagle Outfitters has repurchased 7.3 million shares for $ 144 million last year. He bought another 911,000 shares for $ 20 million during the first quarter. These repurchases have reduced their shares in circulation by 2% per year in the first quarter of 2019.

However, AEO has recently authorized the repurchase of 30 million additional shares until 3 February 2024, which increases its total authorization to around 37.4 million shares. CEO Jay Schottenstein said the increase in the repurchase plan and the continued payment of dividends "underline our confidence in long-term growth initiatives and AEO's commitment to providing shareholder returns".

Schottenstein also noted that the retailer generated "strong free cash flow and substantial cash balance even after making investments" to "fuel future growth" – which is reflected in the growth of American Eagle and Aerie in the # 39; last year.

These repurchases should strengthen the assessments of the American Eagle and support the growth of profits, which could compensate for a potential sales deceleration given that its Aerie brand is confronted with increasingly severe year-on-year comparisons. Moreover, unlike many other retailers, who are desperately pouring money into their e-commerce platforms, AEO does not need extra money to support the digital business, which generated 30% of sales last quarter.

The road ahead

AEO is not an impeccable stock: its gross margin is weighed down by lower prices and higher delivery costs for online orders, and Aerie's growth may slow down while facing more tough competition. However, AEO remains a "best in breed" game in a difficult sector, and new catalysts such as CBD products and more substantial repurchases are simply the icing on the cake.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = " More from The Motley Fool "data-reactid =" 72 "> More from The Motley Fool

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Leo Sun owns shares of American Eagle Outfitters. The Motley Fool recommends Designer Brands Inc. The Motley Fool has a disclosure policy."data-reactid =" 80 ">Leo Sun owns shares of American Eagle Outfitters. The Motley Fool recommends Designer Brands Inc. The Motley Fool has a disclosure policy.

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