Sydney Sweeney's endorsement boosts demand, American Eagle Outfitters stock surges

In pre-market trading on Thursday, shares of American Eagle Outfitters surged nearly 24%. Previously, the company enlisted actress Sydney Sweeney and NFL star Travis Kelce to create high-profile advertising campaigns for its jeans and apparel collections, effectively boosting product demand.

American Eagle Outfitters' decision to collaborate with celebrities comes at a time when the U.S. retail industry is facing challenges: against the backdrop of an uncertain overall economic outlook, consumers' discretionary spending on non-essential items such as clothing and accessories continues to be weak.

The company's Chief Marketing Officer, Craig Brommers, stated during the earnings call that the "Great Jeans" advertising campaign starring Sweeney (promoting the brand's fall denim collection) has triggered "unprecedented new customer growth," although the campaign has also sparked some controversy.

To attract younger consumers and Generation Z customers, American Eagle Outfitters has also partnered with Kelce's clothing brand Tru Kolors, tennis player Coco Gauff, and actress Jenna Ortega.

Michael Ashley Schulman, Partner and Chief Investment Officer at Running Point Capital Advisors, commented: “The 25% surge in after-hours trading on Wednesday largely reflects the market’s confidence that ‘celebrity-driven demand will persist throughout the holiday season,’ making this stock price increase both a ‘celebration of victory’ and an expression of optimism for future market performance.”

Meanwhile, American Eagle Outfitters expects same-store sales to achieve low single-digit growth this quarter. According to data compiled by the London Stock Exchange Group (LSEG), the market previously expected this metric to decline by 0.3%.

In May this year, American Eagle Outfitters withdrew its annual performance forecast; the company now expects full-year same-store sales to remain flat compared to last year, while analysts had previously predicted a 1.1% decline in this metric.

Lale Akoner, Global Market Analyst at eToro, pointed out: “Given that American Eagle Outfitters’ share price has fallen by about 18% so far this year, its second-quarter results have alleviated market concerns about the company’s operational capabilities and demonstrated that marketing momentum is translating into actual sales, driving a significant revaluation of the stock.”

The forward price-to-earnings multiple is a commonly used metric for assessing stock value. American Eagle Outfitters currently has a P/E ratio of 13.05, while its peers Abercrombie & Fitch and Urban Outfitters have P/E ratios of 8.94 and 12.13, respectively.

According to data from the London Stock Exchange Group, American Eagle Outfitters’ short interest accounts for 16.6% of its outstanding shares, and the stock was trading at $16.9 in pre-market trading on Thursday.