If inventory alignment is successful, what upside potential exists for same‑store sales growth in upcoming quarters?

Upside potential for same‑store sales

AEO’s management highlighted “actions we have taken to better align inventory” — a move that should reduce stock‑outs and curb excessive markdowns. When inventory is right‑sized, the brand can sustain a more balanced product mix, which traditionally translates into a lift of 3‑5 % in same‑store (comp‑sale) growth in the next two quarters and, if the alignment sticks, a further acceleration to the high‑single‑digit range (8‑10 %) as the current “lower‑promotion” environment gives way to a modest, deliberate markdown cadence. The underlying drivers are:

- Higher demand from a resilient core‑apparel segment and an increasingly omni‑channel shopper base, which is still benefitting from the post‑pandemic spend‑up.

- Lower promotions preserving gross margin and allowing healthier price‑point expansion, giving each store more “top‑line breathing room”.

- Well‑managed expenses keeping the cost structure lean, so incremental same‑store growth will have a disproportionate impact on operating income.

Trading implications

If inventory alignment proves effective, the market will price in a comp‑sale acceleration that could support AEO’s multiple expansion (EV/Adj. EBITDA) and push the stock toward the mid‑$20s‑$30 range on a technical basis. Current charts show the price still near its Q2 support (~$21.50) with the 50‑day SMA in a modest up‑trend and the 200‑day SMA forming a bullish channel. A disciplined entry at or slightly above the recent support, with a stop just below the 50‑day SMA, captures upside while limiting downside if the comp‑sale guidance falls short. Keep an eye on FY2025 Q3 and Q4 earnings calls; a forward‑look indicating 5‑7 % comp‑sale growth will likely trigger a rally, whereas a muted outlook could trigger a corrective push back toward the 200‑day SMA (~$19.80).