By Mackenzie Tatananni
There has been no shortage of chatter about American Eagle Outfitters lately.
On the heels of a viral advertising campaign starring actress Sydney Sweeney, the retailer has caught the eye of an audience including President Donald Trump. He posted in support of what he dubbed "the HOTTEST ad out there" last month.
While the campaign, which featured the tagline "Sydney Sweeney has great jeans," sparked controversy -- posts on social media criticized the retailer's decision to use that language solely with a white actress -- and initially sent the shares lower, the attention was a net positive for the stock. Shares remain up by double digits since the campaign was unveiled on July 23, even though investor excitement has fallen from its peak.
However, not everyone believes Sweeney's star power can transform American Eagle's outlook. Analysts with BofA Securities downgraded American Eagle to Underperform from Neutral on Monday, saying it is a "tough time for a turnaround" despite the recent gains.
American Eagle didn't immediately respond to a request for comment.
While the Sweeney ad caused a stir, "we do not assign a high likelihood that momentum from this campaign can fully inflect the business over the long run," the analysts wrote.
The bank cut its target for the stock price to $10 from $11, a call that suggests the shares could fall nearly 20% from their level on Monday morning. The stock was down 3.3% to $12.43.
Skepticism is widespread on Wall Street. Only two of 12 analysts tracked by FactSet rare the stock at Buy. Seven have it at Hold, while three rate it at Sell or the equivalent.
Shares fell in May after the retailer's fiscal first-quarter results revealed a decline in comparable sales within its Aerie and AE brands, which focus on women's clothing and unisex apparel, respectively. Management stuck with its decision disclosed earlier in the month to withdraw financial guidance for the fiscal year.
On the heels of the latest ad campaign, "the jury is out on whether product outside of denim can gain momentum," BofA argued. Within Aerie, the brand's Offline activewear line is under pressure as both intimates and swimwear face long-term challenges, the firm said.
Chief Financial Officer Michael Mathias said on the latest earnings call, in late May, that management was targeting around 30 Aerie store openings. However, those plans could be in jeopardy, the BofA team contended. If the retail environment remains tough, there is a risk that Aerie could pull back on store opening plans next year, analysts wrote.
Even before the unveiling of new tariff rates on Aug. 1, management said the levies would have an estimated $40 million impact on 2025 gross profit, even with mitigation efforts in place. Both Aerie and AE are in "tough positions to navigate tariffs," with little power to pass higher costs on to consumers, BofA said.
While the retailer has made considerable progress in cost control over the past few years, "we worry that the low-hanging fruit has been accomplished and marketing spend remains below peers" like Victoria's Secret and Urban Outfitters, the BofA team said.
The firm believes American Eagle may struggle to reach its historical average earnings profile of $1.40 a share against the backdrop of tariffs and less than 3% sales growth. "Great jeans," to quote Sweeney's campaign, may not be enough to keep the ball rolling.
Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com
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August 25, 2025 13:49 ET (17:49 GMT)
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