📝 usncan Note: American Eagle: When Value Goes Viral
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LAS VEGAS, NEVADA – FEBRUARY 11: Travis Kelce #87 of the Kansas City Chiefs and Taylor Swift embrace after defeating the San Francisco 49ers in overtime during Super Bowl LVIII at Allegiant Stadium on February 11, 2024 in Las Vegas, Nevada. (Photo by Ezra Shaw/Getty Images)
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It isn’t often that a value stock finds itself at the center of pop culture. Yet American Eagle (AEO) has caught lightning in a bottle, first with a campaign that stirred controversy and then with a celebrity collaboration that coincided with headlines involving the most famous woman in the world.
The setup began with Sydney Sweeney. Her “Great Jeans” ad turned into a meme sensation, generating 40 billion impressions and adding more than 700,000 new customers. The butterfly jean sold out in a week and certain pieces disappeared within a day. The buzz was national, reaching every county in the U.S. For some, the campaign was playful marketing genius. For others, the wordplay around “genes” and “jeans” raised eyebrows. Either way, it put American Eagle in the cultural conversation and reignited interest in the brand.
Then came Travis Kelce. Just as the NFL season approached, American Eagle dropped its Tru Kolors line with the Kansas City Chiefs star. Timing could not have been better. The collection launched as Kelce proposed to Taylor Swift, ensuring global attention on a campaign that might otherwise have stayed within fashion circles. AE stores and digital channels saw record Labor Day traffic, with men’s categories accelerating on the back of celebrity-driven demand. Management promised a second drop during the heart of the NFL season, setting the stage for more momentum.
Is There Substance To The Sizzle?
The question for investors is whether the business matches the buzz. Q2 FY26 delivered encouraging answers. Revenue of $1.28 billion was the second-highest in company history for the quarter, with comps down just 1%. Traffic was positive across channels, July was the best month of the quarter and August comps turned positive with mid-single-digit growth. Gross margin expanded slightly to 38.9% as tighter inventories and lower promotions offset lower average unit prices. SG&A fell 1% and operating income rose 2% to $103 million. EPS grew 15% year over year.
Aerie, a typical growth engine for the fashion concern, rebounded with a 3% comp and record Q2 revenue. Intimates returned to growth and OFFLINE activewear continued to build momentum. For the American Eagle brand, women’s jeans and tops improved, men’s saw acceleration in graphics, knits and denim, and back-to-school arrivals landed well. Management described the period as an inflection point, with early Q3 trends supporting that assessment.
Tariffs remain a headwind, with expected costs of $20 million in Q3 and $40 million to $50 million in Q4. But the team has mitigated what would have been an unmanageable $180 million hit by rebalancing sourcing away from China, renegotiating vendor terms and optimizing freight. Pricing is being used sparingly to avoid consumer pushback.
The company continues to return capital to shareholders. Year-to-date, $276 million has gone toward dividends and buybacks, including a $200 million accelerated program that reduced diluted shares by about 10%. Management is also investing in growth, with 30 new Aerie and OFFLINE locations, 40 to 50 AE remodels and 35 to 40 AE closures expected by year-end.
Bottom Line
American Eagle is not just a meme stock. It is a retailer with improving execution, real cash flow and a dividend yield that makes waiting worthwhile. The celebrity partnerships added cultural spark, but the numbers show the business is holding its own. For investors, that mix of value and viral might be more durable than many expect.
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Disclosure: Please note that shares of the stocks mentioned are owned by asset management clients of Kovitz Investment Group Partners, LLC, a SEC registered investment adviser. For a list of stock recommendations like these made in The Prudent Speculator, visit theprudentspeculator.com.
