$11.20
$30.40
bear $11.20
base $21.10
bull $30.40
margin of safety $13.00
market price* $17.98
American Eagle Outfitters runs two apparel brands sold mainly through about 1,170 company stores in the United States, Canada and Mexico and through its own websites. American Eagle, jeans and casual wear for teens and young adults, is about 61% of revenue ($3.4 billion) and earned $455 million at the brand level in fiscal 2025, down from $607 million the year before. Aerie, intimates and activewear including the OFFLINE line, is about 35% of revenue ($1.9 billion), earned $346 million, and is the company's growth engine: its comparable sales rose 11%, 23%, 25% and 19% over the last four reported quarters. Roughly 83% of sales are in the United States; licensed partners operate stores and online shops in about 30 other countries. This is a cyclical, fashion-driven business, and we value it on what it has actually earned across a full cycle. We measure owner earnings as the cash the business generates from operations, with seasonal inventory and payables swings smoothed out, less stock-based pay, and less the capital spending needed just to maintain the existing stores. Rent is counted as the cash actually paid to landlords. Store write-downs reduce the rent shown in reported earnings, but they do not reduce the checks, so we look through them. Over the last ten fiscal years owner earnings ranged from 18 cents a share in the 2020 COVID year to $1.72 in the 2021 stimulus boom, fell to 85 cents in 2022 when the industry was stuck with too much inventory, and recovered to $1.60 and $1.63 in fiscal 2024 and 2025. In dollars the business has earned about $246 million in a typical year for a decade, even though revenue grew more than 50% over that time: margins have not kept pace with sales, and per-share gains have come mostly from buybacks. On today's roughly 170 million shares, that typical year is worth about $1.45 a share, and that is our starting point. We do not use the latest twelve months as the starting point. Two recent events have drawn a great deal of attention, and we treat both cautiously. First, the "Sydney Sweeney Has Great Jeans" campaign launched in late July 2025. American Eagle brand comparable sales went from -3% in the quarter before it to +1% and +2% in the next two quarters, then slipped back to -2% and -1% in the first half of 2026, while the brand's profit fell by a quarter in fiscal 2025. We see no lasting lift from the campaign and have built none into our figures. Second, tariffs. The company absorbed about $70 million of added tariff cost in fiscal 2025 and also wrote down $75 million of spring and summer merchandise that did not move. After the Supreme Court struck down the emergency tariffs in February 2026, the company received $196 million of refunds in its second quarter. Part of that went to a third party that had earlier acquired some of the refund claims from the company, and part to employee bonuses, leaving roughly 51 cents a share after tax. We count that once and do not repeat it. Tariffs have not gone away: new duties of 10% to 12.5% on most apparel-producing countries, and higher on China, took effect July 24, 2026. The most recent quarter is weaker than its headline. Operating income of $211 million includes $179 million of refund benefit; excluding the refund and the bonuses tied to it, operating income was about $67 million, against $103 million a year earlier. Gross margin excluding the refund was down about 3 percentage points, and inventory was 14% higher than a year ago on 9% more units. That is why we do not assume any recovery above normal earning power in the coming year. Our base case, about $21 a share, assumes the pattern of the last decade continues for the next ten years: Aerie's growth roughly offsets a shrinking American Eagle brand and ongoing tariff costs, so owner earnings hold near $1.45 a share, plus the one-time refund this year. We give no credit for further share buybacks, because the cash used to repurchase shares is the same cash we are already valuing. Beyond ten years we let earnings shrink about 2% a year. The American Eagle brand, still the larger part of the business, is losing profit, and the company has no contracts or patents protecting its position, so we cannot justify holding earnings flat indefinitely. That later fade lowers the value by about $3.60 a share compared with holding earnings flat forever. Our bear case, about $11, is roughly a one-in-ten downside. It assumes a repeat of the 2022 inventory glut; inventory was already 27% higher than a year earlier at the end of the first quarter of 2026 on only 5% more units. Earnings drop to about 85 cents a share for two years, recover only to about $1.05 as tariffs persist and the American Eagle brand keeps shrinking, and decline steadily after year ten. About $1.7 billion of store lease obligations make costs hard to cut in a downturn, and the company's 2021 purchase of logistics businesses for $358 million has since been written down and still loses money. Our bull case, about $30, is roughly a one-in-ten upside. It assumes Aerie keeps growing in the mid-teens toward half the business at its higher margins, the logistics losses end, and the American Eagle brand holds steady at recent levels. Earnings then grow about 6% a year for five years and 3% a year for the next five, reaching about $2.10 a share, and ease gradually after that. The company has little borrowing beyond its store leases: its credit line was undrawn at year end, and it pays a dividend of 50 cents a share a year. Given how widely results swing across the cycle, the margin-of-safety price sits at a large discount to our base value, close to our downside case. Compared with our previous analysis, our estimates are lower across the board: base $21 versus $28.90, bear $11 versus $14.60, bull $30 versus $43.30. We previously gave credit for per-share growth from buybacks and held earnings flat indefinitely after year ten; we now do neither. We had also read fiscal 2025 as a 28% earnings drop. Measured on rent actually paid, it was roughly flat per share, so that drop mostly reflected how lease accounting shifted costs between years. The long-run starting point barely changed. And the company's second-quarter 2026 results, released September 9, show that the apparent recovery was mostly a one-time tariff refund rather than improvement in the underlying business. One item we could not fully reconcile from the filings: fiscal 2025 lease cash flows added about $65 million more than the company's rent disclosures explain, most likely landlord allowances on new stores. It affects that single year, not our long-run starting point.