Cramer's Investing Club: A deeper dive into why we bought more of this retailer before the holidays

Published Tue, Nov 23 20212:32 PM ESTUpdated Fri, Jan 14 202212:34 PM EST

(This article was sent first to members of the CNBC Investing Club with Jim Cramer. To get the real-time updates in your inbox, subscribe here .) Charitable Trust holding American Eagle Outfitters (AEO) reported stronger than expected third quarter results Tuesday morning and the shares were on the move higher Tuesday. Breaking down the numbers: Total net revenue increased 24% YoY to $1.27 billion, topping estimates of $1.23 billion (FactSet). Adjusted earnings per share of $0.76 crushed the consensus of $0.61, according to FactSet. Looking at sales, consolidated store revenue increased 29% thanks to double-digit growth in traffic, while digital revenues grew 10% and lapped a difficult 29% comp from the prior year. Both store and digital revenues and profits in the quarter exceeded levels achieved in the third quarter of 2019, a sign that the company has emerged from the pandemic in a strong position. The rise of casual wear, a trend we believe will be a multi-year story, continues to be a huge driver of sales growth at the company's two leading brands. Strongest margins in years: Company third-quarter gross margins were the strongest since 2007, expanding 410 basis points YoY to 44.3% (1 basis point equals 0.01%). This was a beat against estimates of about 42%. The increase was largely due to leverage on rent and delivery as well as strong product demand, higher full-priced sales, less promotional activity, and inventory optimization initiatives, though higher freight costs were a drag. Operating margins at 16.5% were also the strongest since 2007 and exceeded estimates of about 13.8%. Total operating income in the quarter was $210 million, representing a big beat compared to estimates of $170 million. Management said on the call that they expect operating income to "nicely exceed" $600 million this year. Breaking down the brands: By brand, Aerie's revenue increased 28% YoY to $315 million. The momentum here is simply unstoppable with the quarterly results representing the 28th consecutive