Risks to our target price include: (1) comps deteriorate relative to our estimates; (2) competitive promotional pressures cause AEO to increase promotions resulting in margin pressure; (3) AEO does not successfully identify and respond to new and changing fashion trends, which would result in lower sales and margin relative to our estimate; (4) cotton or other input costs rise significantly; and (5) mall traffic decelerates more significantly resulting in more store closings than we currently anticipate.
If the impact on the company from any of these factors proves to be greater than we anticipate, the stock will likely have difficulty achieving our target price. However, should they be less than anticipated, the stock could trade above our target price.
|