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| | Why American Eagle Outfitters?
American Eagles outfitters run a clothing chain in the US focusing on the age of 15-25. It seems they have invented a formula that is
successful, which is associated with their brand name and differentiates them from competitors.
A main risk is that fashion can change really quickly and if AEO is not able to sell "what is hot" their sales will decrease. Also an economic downturn could have a short term negative impact on their financial results as people tend to postpone clothing expenditures during a downturn.
This risk is reduced as AEO mainly sells low cost clothing.
Their balance sheet is very strong. They have no debt. The return on equity is 28% and the return on assets is 20%.
Their net income / tot assets is about 0.2 and their net income/non current assets is 0.5.
These are all indications that their formule creates a competitive advantage and they can increase revenue by opening new stores.
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