It’s not the first time we’ve discussed a possible American Eagle spin that didn’t happen. Years ago, American Airlines had planned to spin off its American Eagle regional carrier, but that never came to fruition.
Some of you are probably wondering why this is even being discussed. Welcome to the copycat world. Mr. Madore basically acknowledged as much by saying that ‘you’d have to think about it [a spinoff], in light of a lot of the other announcements that have come out fairly recently’. By ‘other announcements’ he is really talking about VF Corp (VFC) upcoming denim brands spinoff, Kontoor, this May and Gap’s (GPS) recent Old Navy spinoff announcement. The latter move sent shockwaves through the industry and led to an enormous short term stock price pop…which has since mostly been given back. Activist Barington Capital is also pushing L Brands (LB) to consider a breakup as well.
Putting it another way, some retail brands have announced spinoffs and been rewarded by the market with short term price pops so now every retail company needs to consider this playbook. Truly inspiring analysis, but this trend has already taken place in several other industries such as print newspapers, the oil & gas value chain (upstream, midstream and downstream) and restaurants. There are plenty of other examples as well, but in the end, it remains to be seen whether or not this industry’s spins actually deliver any long term shareholder value. At the very least maybe just some sustained short term juice? If they do, watch out because then the floodgates will really open. If not, then it might take a little while before someone dusts off the old playbook from the shelf. In the meantime, I am sure company boards and CEOs are preparing for the possibilities.
Disclosure: Author holds no position in any stock mentioned.