Benzinga | Apr 15, 2021 10:49AM EDT

ROCE Insights For American Eagle Outfitters

American Eagle Outfitters (NYSE:AEO) posted a 96.25% decrease in earnings from Q3. Sales, however, increased by 25.19% over the previous quarter to $1.29 billion. Despite the increase in sales this quarter, the decrease in earnings may suggest American Eagle Outfitters is not utilizing their capital as effectively as possible. American Eagle Outfitters reached earnings of $95.55 million and sales of $1.03 billion in Q3.

What Is ROCE?

Changes in earnings and sales indicate shifts in American Eagle Outfitters's Return on Capital Employed, a measure of yearly pre-tax profit relative to capital employed by a business. Generally, a higher ROCE suggests successful growth of a company and is a sign of higher earnings per share in the future. In Q4, American Eagle Outfitters posted an ROCE of 0.0%.

It is important to keep in mind ROCE evaluates past performance and is not used as a predictive tool. It is a good measure of a company's recent performance, but several factors could affect earnings and sales in the near future.

Return on Capital Employed is an important measurement of efficiency and a useful tool when comparing companies that operate in the same industry. A relatively high ROCE indicates a company may be generating profits that can be reinvested into more capital, leading to higher returns and growing EPS for shareholders.

In American Eagle Outfitters's case, the positive ROCE ratio will be something investors pay attention to before making long-term financial decisions.

Q4 Earnings Recap

American Eagle Outfitters reported Q4 earnings per share at $0.39/share, which beat analyst predictions of $0.36/share.