Becker Private Equity & Business Podcast
American Eagle Outfitters & Share Buybacks 3-18-25
Tue, 18 Mar 2025
In this episode, Scott Becker explores the recent share buybacks by American Eagle Outfitters and RH, questioning the financial strategy behind borrowing to repurchase shares.
Chapter 1: What are the recent share buybacks by American Eagle Outfitters?
This is Scott Becker with the Becker Private Equity and Business Podcast. Today's discussion is about American Eagle Outfitters and on the broader topics of share buybacks. So here's the deal with American Eagle Outfitters, and I'll put RH in the same category. Companies do share buybacks for multiple different reasons.
Chapter 2: How have American Eagle and RH performed financially?
Currently, American Eagle Outfitters is down 48% over the last 12 months and down 28% year to date. RH is having a similar type of situation, at least this year, where they're down significantly. One of the things that both companies have in common is they both recently announced share buybacks. And share buybacks have multiple different pieces, some good, some bad.
Chapter 3: Why are share buybacks considered risky?
The place where we hate share buybacks is is when a company is burning through cash and is using bank leverage or bank financing to do the share buyback. And that's essentially what RH, the American Eagle Outfitters, are doing.
Chapter 4: What are the implications of borrowing for share buybacks?
They're borrowing money to do share buybacks, and it largely feels like they don't know what else to do, and this gives their shareholders a quick goose because it pops up the share price because now you've got less shares outstanding. It's somewhat artificial because you've borrowed enough money to do it.
So that's sort of what we see with American Eagle Outfitters and with the situation with RH, using share buybacks. Even worse, in one of those two cases, the CEO is selling into the share buyback, which makes you really think they don't have a lot of confidence in the company and just a financial engineering game. So again, share buybacks in American Eagle Outfitters.
Now, there's famous companies, Apple, Berkshire Hathaway, that over time, if you share buybacks, And a lot of it depends on the integrity of leadership. When I see Warren Buffett do it, I generally believe he's doing it because he truly thinks it's his best use of cash right now, and he's not going to the bank typically to do it.
In these cases, RH and American Eagle Outfitters, they're doing something very different. They're going to the bank to finance share buybacks, and they better have a return on that and hope that it goes in the right direction. I don't know that it will. In any event, thank you for listening to the Becker Private Equity and Business Podcast. We hope we shed a little light for you on share buybacks.
Again, often used for dastardly purposes, sometimes used for good purposes. Depends a lot on the financial situation of the company and what you're doing. Thank you for listening to the Becker Private Equity and Business Podcast.
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