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Is The Sydney Sweeney Boost Already Fading For American Eagle Stock?

Core Viewpoint - American Eagle Outfitters Inc. faces challenges due to slowing sales momentum, tariff impacts, and limited earnings visibility, leading to a downgrade by Bank of America Securities [1][4]. Financial Performance - The company is set to report its second quarter fiscal 2025 on September 3, with analysts estimating earnings of approximately 21 cents per share and sales of $1.24 billion [2]. - Analyst Christopher Nardone has reduced fiscal 2025 and 2026 EPS estimates by 8% and 30% to 65 cents and 95 cents, respectively, due to higher tariffs and declining Aerie sales [3]. Valuation and Market Position - The stock is currently trading at 5x EV/EBITDA (F26E) and 13.5x P/E, with BofA indicating downside risks to these estimates given a deteriorating fundamental backdrop [3]. - The price forecast has been cut from $11 to $10, reflecting lower estimates based on a 4x F26E EV/EBITDA, which remains a discount to peers [4]. Tariff and Margin Impact - American Eagle and Aerie are experiencing tariff headwinds with limited pricing power, with BofA estimating a potential gross margin squeeze of about 20 basis points in fiscal 2025 and up to 70 basis points in fiscal 2026 due to a 20% rest-of-world tariff [5]. - Despite significant cost cuts in recent years, further improvements may be constrained as marketing expenditures lag behind competitors [5]. Sales Growth and Brand Recovery - Sales growth is expected to be capped at 3-5%, making a return to historical EPS of $1.40 challenging [6]. - The recovery of the brand remains uncertain, with sales rebounds from first-quarter assortment issues anticipated to take time, and traction for non-denim products unproven [6]. Aerie's Market Challenges - Aerie is facing secular weaknesses in intimates and swim categories, increasing reliance on offline growth, and reduced promotions may negatively impact traffic [7]. - Store expansion plans may be scaled back if retail conditions remain soft [7]. Advertising and Market Sentiment - The recent advertising campaign featuring actress Sydney Sweeney may provide a short-term boost to sales momentum, but the potential for sustained business impact is limited [8]. - Denim is expected to be a strong category for the back-to-school season, which could influence sales positively [8].