10:52 AM EDT, 08/25/2025 (MT Newswires) -- American Eagle Outfitters ( AEO ) faces a longer timeline to return to a more normalized earnings level, given current economic and industry conditions, BofA Securities said in a note Monday.

The clothing retailer is scheduled to report its fiscal Q2 results on Sept. 3 after market close.

The analysts said that both American Eagle and its Aerie brand are likely to struggle under higher tariff pressures, as they lack significant pricing power. Management previously noted that tariffs implemented before Aug. 1 would reduce fiscal year 2025 gross profit by $40 million, or about 150 basis points annually, net of mitigation. It is now likely that new tariffs will add an additional 20 basis points of gross margin pressure in 2025 and 70 basis points in 2026, according to the analysts.

"We see a path toward American Eagle Outfitters' ( AEO ) historical average EPS profile of $1.40 as challenging with tariffs and less than 3-5% sales growth," the analysts said.

For American Eagle, it remains unclear whether non-denim categories can gain traction, BofA said. Meanwhile, Aerie is facing broader industry headwinds in the intimates and swimwear segments, the analysts said, adding that if promotions are scaled back, it could reduce store traffic, and Aerie will likely delay store openings next year if retail conditions do not improve.

The analysts said they lowered their EPS forecasts to $0.65 for fiscal year 2025 and $0.95 for 2026.

BofA Securities downgraded American Eagle Outfitters ( AEO ) to underperform from neutral and cut its price target to $10 from $11.

Shares of the company fell past 2% in recent trading activity.

Price: 12.49, Change: -0.37, Percent Change: -2.84