Clothing retailer American Eagle Outfitters (NYSE:AEO) has had a reasonably good story to inform over the past couple of years. Heading into its fourth-quarter earnings release on Thursday, the retailer’s stock price was up 11% 12 months so far (YTD) at $23.45 per share, and that’s coming off a 55% return in 2023. In reality, American Eagle’s stock has bounced back after a devastating 43% drop in 2022 that saw its share price sink below $10 per share.

On Thursday morning, American Eagle flew even higher, rising about 13% in early trading to over $26 per share after it posted strong fiscal fourth-quarter earnings and shared a three-year plan to spice up profits.

Record fourth-quarter revenue

The numbers were pretty impressive for American Eagle in its fiscal fourth quarter , which ended Feb. 3. The retailer posted record revenue of $1.7 billion. It is a 12% year-over-year increase with store revenue jumping 10% and online revenue climbing 19%.

The American Eagle brand did $1.1 billion in sales, up 11% overall with comparable or same-store sales rising 6% from the identical quarter a 12 months ago. The Aerie women’s brand did $538 million in revenue, up 16% overall with comparable sales up 13%. These numbers beat analysts’ estimates, as did American Eagle’s earnings results.

Nevertheless, the retailer saw net income of only $6.3 million or 3 cents per share, down from $55 million or 28 cents per share in Q4 2022. On an adjusted basis, American Eagle’s net income got here in at $121.4 million or 61 cents per share, up from $72.3 million or 37 cents per share and topping estimates.

The low GAAP net income variety of $6.3 million included $131 million in impairment and restructuring charges, with the majority of that coming from the restructuring of American Eagle’s Quiet Platforms internal shipping and logistics brand. The restructuring was done to enhance alignment with American Eagle’s strategy of a regionalized achievement center network. These actions are expected to end in $20 million in annualized savings starting this 12 months.

“We’re entering 2024 with momentum and from a position of strength with an exciting line-up of innovation and customer engagement initiatives,” said Jay Schottenstein, executive board chairman and CEO of American Eagle Outfitters. “Our balance sheet is healthy, and we’re seeing early proof points of our latest long-term technique to deliver industry-leading earnings growth and shareholder returns.”

Three-year plan to spice up profits

American Eagle also laid out its expectations, not just for Q1 and even fiscal 2024 but for the following three years.

In Q1, the corporate expects its revenue to be up within the mid-single digits percentage-wise, with operating income within the range of $65 million to $70 million. For the complete fiscal 12 months, American Eagle anticipates revenue climbing 2% to 4%, with operating income between $445 million and $465 million.

The larger picture looks even higher if the corporate can execute. Its Powering Profitable Growth plan calls for mid-to-high teens annual operating-income growth with annual revenue growth of three% to five% over the following three years. That may bring American Eagle’s revenue to potentially $6 billion in 2026, up from $5.26 billion at the tip of 2023.

The goal is to have a ten% operating margin by the tip of 2026, up from the present 7%. The plan to get there involves three pillars: amplifying its brands; executing financial discipline; and optimizing its operations.

“Amplifying American Eagle and Aerie’s stronghold in casual apparel is on the very center of our strategic plan,” Schottenstein explained. “We see incredible growth opportunities as we elevate key businesses and expand into category adjacencies at American Eagle, fuel the #AerieReal movement in underpenetrated markets, and speed up OFFLINE’s significant potential in activewear. These efforts can be supported by a pointy give attention to profit expansion.”

Can American Eagle keep flying?

This looks like a reasonably realistic plan and achievable goal for American Eagle, because it already took key steps within the fourth quarter to restructure and develop into more efficient in the longer term.

The corporate’s price-to-earnings ratio of 21 is somewhat skewed after the fourth quarter, however the forward P/E is an affordable 13, and the price-to-sales ratio is an affordable 0.91.

Analysts are generally pretty lukewarm on the stock, and there have been no price goal increases, at the least initially, after the earnings got here out. We’d see some boosts in some unspecified time in the future, but greater than likely they’ll wait for continued execution by American Eagle.

The corporate’s stock price could flatten out a bit after today’s big jump, but at this relatively low-cost valuation, it could be one to placed on your radar because the long-term prospects look decent.