Shares of American Eagle Outfitters Inc. (AEO) gained over 10% during yesterday’s trade after the teen specialty retailer raised its third-quarter fiscal 2014 earnings outlook. The company will release its third-quarter results after the market closes on Dec 4, 2014.

American Eagle now expects to post adjusted earnings of 22 cents per share for the third quarter, which is well above its previous guidance range of 17–19 cents and represents an increase of 15.8% from the year-ago quarter’s earnings of 19 cents. Currently, the Zacks Consensus Estimate is pegged at 18 cents per share, which we believe may witness an upward revision following the company’s guidance update.

The company’s adjusted earnings for the upcoming quarter excludes a one-time restructuring and asset impairment charge of 17 cents per share, while the year-ago quarter’s adjusted earnings excludes a charge of 6 cents per share related to asset impairment. Including the one-time charges, the company anticipates earnings of 5 cents per share for the third quarter compared with 13 cents in the previous-year period.

The company revealed that the upbeat guidance primarily reflects the year-over-year improvement in markdowns and lower expenses, which more than offset the negative impact of a fall in revenues. American Eagle has witnessed a year-over-year decline in revenue due to a 5% plunge in comparable-store-sales. Moreover, inventories are expected to remain down at the end of the quarter.

Further, American Eagle stated that it will continue to work on reducing promotional activity while focusing on improving merchandise assortments. However, it is skeptical about future performance due to the ongoing softness in mall traffic along with a challenging and highly competitive retail environment.

Currently, American Eagle carries a Zacks Rank #3 (Hold).

Stocks Worth Considering

Better-ranked stocks in the retail industry include L Brands Inc. (LB - Analyst Report), Columbia Sportswear Company (COLM - Snapshot Report) and Ross Stores Inc. (ROST - Analyst Report), each carrying a Zacks Rank #2 (Buy).