Why American Eagle Stock Dropped Today

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What happened

Shares of apparel company American Eagle Outfitters (AEO -8.56%) dropped on Tuesday, after analysts turned increasingly negative over the business’ near-term prospects. As of 11:45 a.m. ET today, American Eagle stock was down 8%.

So what

Bank of America analyst David Buckley kicked the morning off by downgrading his outlook for American Eagle stock, according to StreetInsider. As recently as May, Buckley was neutral on the stock. But as of today, Buckley recommends selling American Eagle stock.

Commentary from Deutsche Bank analyst Gabriella Carbone today cast a shadow over the competitive landscape for apparel. Walmart stock is down today after the company said it’s struggling with inventory management. To remedy this, it’s cutting prices. And apparel is one area where Walmart’s prices are going down.

 That’s not great news for a company like American Eagle that could lose sales as consumer flock to Walmart’s deals. According to The Fly, Carbone said this was a “red flag” for American Eagle and other apparel stocks.

This negative commentary from analysts is why American Eagle stock is down today.

Now what

The market might be overreacting slightly today. For its part, American Eagle management already warned that it was marking down prices in the second quarter of 2022, hoping to have more-optimal inventory in the second half of the year. Therefore, Walmart’s price cuts came after American Eagle already had lowered its own prices. 

That said, American Eagle was only guiding for modest growth in 2022 compared to 2021. If consumer spending slows further and price-cut wars become more prevalent, the company’s profit margins could come under pressure, which would likely have a negative effect on the stock.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Walmart Inc. The Motley Fool recommends American Eagle Outfitters. The Motley Fool has a disclosure policy.