American Eagle Outfitters (AEO) is positioned for improving fundamentals in H2, supported by continued Aerie growth and improving trends at the company, UBS said in a note Wednesday.

UBS said Aerie remains a strong growth story, with revenue up 25% and comps up 19% in the quarter. The brokerage sees further runway for OFFLINE, while bra innovation and intimates share gains could provide additional growth.

While inventory cleanup, markdowns and elevated selling, general, and administrative expenses remain headwinds, UBS said women's denim and traffic trends are improving, with American Eagle tracking about flat in Q3 after a 1% comp decline in Q2.

UBS raised its 2026 sales growth outlook by 120 basis points but cut 2027-2028 EPS estimates by 5%-6% as it reverses the non-recurring tariff refund benefit and flow through its assumptions for lower AE growth and higher SG&A into the outer years.

UBS maintained the company's buy rating and lowered its price target to $27 from $31.

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