Why American Eagle Stock Plummeted After Earnings

American Eagle Outfitters (NYSE: AEO) stock slid 6.4% through 10:50 a.m. ET Wednesday after preannouncing sales broadly in line with expectations, but warning of worse times to come.

Analysts are expecting AEO to report just under $1.1 billion in Q1 sales, and the company said last night it expects to hit that number -- this time. Unfortunately, macroeconomic uncertainty prevented management from committing to hit its full-year numbers, and the company pulled its guidance for the rest of 2025.

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What American Eagle said

Assuming AEO hits its Q1 number, $1.1 billion in revenue would represent about a 5% year-over-year decline in sales at the retail clothier. Management broke the numbers down even further, anticipating a 3% decline in same-store sales, a 2% decline at the American Eagle brand, and Aerie down 4%.

Operating losses for the quarter could be as high as $85 million.

CEO Jay Schottenstein told investors he is "disappointed with our execution in the first quarter," which was marred by "higher promotions" to clean out "excess inventory," resulting in charges to earnings for inventory write-downs.

Is American Eagle stock a sell?

The good news is that recent developments in President Trump's tariffs policy could lessen AEO's troubles going forward. And Schottenstein said the company continues to "work with urgency" to repair its inventory problems.

The better news is that the stock is heading into these troubled waters in a decent position. Valued at less than 7x trailing earnings and less than 9x free cash flow, and paying a 3.9% dividend yield, AEO stock isn't particularly expensive. If it can get through this current crisis and resume growing, it might turn out to be a good buy long term.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends American Eagle Outfitters. The Motley Fool has a disclosure policy.