American Eagle Outfitters (NYSE:AEO) Q1 2026 Earnings Call

0:00 Good afternoon, everyone. Welcome to AEO, Inc. First Quarter twenty twenty six Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions.

0:26 Please note this event is being recorded. I would now like to turn the conference over to Alexis Tragos, Vice President, Corporate Communications. Please go ahead. Good afternoon, everyone. Joining me today for our prepared remarks are Jay Schottenstein, Executive Chairman and Chief Executive Officer Jen Foil, President, Executive Creative Director for American Eagle and Aerie and Mike Mathias, Chief Financial Officer.

0:53 Before we begin today's call, I need to remind you that we will make certain forward looking statements. These statements are based upon information that represents the company's current expectations or beliefs. The results actually realized may differ materially based on risk factors included in our SEC filings. The company undertakes no obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise, except as required by law. Note that included in our press release and during this call, certain financial metrics are presented on both a GAAP and non GAAP adjusted basis.

1:40 Reconciliations of adjusted results to the GAAP results are available in the tables attached to the earnings release, which is posted on our corporate website at www.aeoinc.com in the Investor Relations section. Here, you can also find our first quarter investor presentation. Now, I'll turn the call over to Jay. Thanks, Alexis, and good afternoon, everyone. This quarter reflected the strength of our portfolio, the power of Aerie and work underway at American Eagle. Overall, we are pleased with performance in the quarter. We delivered revenue of $1,200,000,000 up 10% versus last year, with operating income of $28,000,000 ahead of our guidance.

2:31 Aerie continued to fuel exceptional growth and profitability across channels, surpassing $2,000,000,000 on a trailing twelve month basis. AE's performance in men's and women's tops continue their momentum, yet we have identified specific opportunities to better position women's bottoms. Over the past year, our teams have moved with urgency to strengthen the business and improve execution, And I am proud of the progress we have made. We're moving with purpose and with a firm understanding of where improvement is needed. We are extremely pleased with the continued momentum in Aerie and Offline with revenue of $481,000,000 up 34% to last year.

3:22 Demand remains strong across categories and channels, supported by compelling product collections, high customer engagement and continued expansion of brand awareness. Erie's winning formula is its real connection with customers, product positioning and its leadership in everyday comfort.

3:43 Offline also continues to be an important long term growth opportunity as we build awareness and scale the Activewear brand across stores, digital and social. Together, Aerie and Offline are powerful brands with growing recognition, a loyal customer community and significant runway ahead. American Eagle's results were mixed in the quarter. We had continued strength in men's delivering the third consecutive quarter of positive performance. We saw softer trends in women's bottoms, including denim along with pressure on seasonal categories during a colder spring. These are areas we understand well and we are actively addressing.

4:30 While May started slowly for the AE brand, we're encouraged by the improvement in the business that we have seen over the last few weeks. We remain highly confident in the relevance and resilience of the overall AE brand and in our ability to strengthen execution and drive better results moving forward. We must improve conversion, sharpen assortments, drive greater productivity in women's and build on the progress in men's. Marketing continues to be an important investment across the portfolio and a key driver of long term brand health. Supporting both AE and Aerie through initiatives that deepen customer connection, expand our reach and keep our brands at the center of culture and conversation are positioning us well for the future.

5:23 This value is seen in strong engagement across the portfolio where our product and brand message continues to resonate with both new and existing customers. The attention around key campaigns, talent and customer activation only reinforces the power of our brands. We are leveraging our learnings as we activate go forward plans and are working to recalibrate spending to maximize our efforts. We will continue investing behind our brands and capabilities where we see the strongest returns. We are excited about the opening of our West Coast distribution center in Phoenix, which went live in early May, as we further optimize our distribution network, improve inventory placement and continue to give customers more ways to get what they want, when they want it.

6:20 I am especially proud of our innovation, passion and teamwork that enabled us to bring this facility online in under one year. Every investment we make supports our long term growth agenda and creates value for AEO. We're operating in a dynamic environment and the retail landscape remains highly fluid. This is why execution matters and we understand the importance of staying disciplined and flexible. We remain fully prepared to utilize the many levers available to us within products, sourcing, marketing and operations to navigate headwinds as a result of macroeconomic uncertainty. Finally, I want to thank our associates across the company.

7:08 We are proud of the work our teams have done to build a stronger and more agile operating foundation across the organization. Their commitment and dedication to AEO and our brands have been critical to the success and progress we are seeing. We all believe strongly in the opportunities that lay ahead. As America celebrates two fifty years, we are incredibly proud of our permanent place in the fabric of American style. We have powerful brands, a solid operating foundation and a clear pathway to drive profitable growth and deliver long term value for shareholders. With that, I'll turn the call over to Jen. Thank you, Jay, and good afternoon, everyone. Before I get into specifics, I want to acknowledge the incredible performance of the Aerie business and extend my appreciation to the entire team.

8:04 Surpassing $2,000,000,000 in revenue reflects years of discipline, brand building, deep customer connection and consistent execution. Turning now to the quarter. We are thrilled by the excitement, energy and customer response to the Aerie and Offline brands.

8:23 Our results are a direct reflection of when great product, impactful marketing and aligned sales channels work together seamlessly. Aerie is firing on all cylinders, delivering repeatable growth by aligning seasonal trends with elevated brand visibility, perception and a more engaged customer base. Aerie saw broad based strength across key categories, led by a 45% comp in Aerie apparel. A key driver of this success has been a head to toe approach across intimates, sleep and apparel. This cohesive strategy simplifies how customers outfit while increasing basket size and AOV. Intimates delivered a standout quarter with high single digit comps anchored by a record setting performance in our undies business, where our leadership in cotton fabrication drove an exceptional customer response.

9:18 Sleep also continues to scale rapidly, and we view this category as a long term engine for top line growth. We successfully transitioned away from brand wide promotions to more disciplined, high margin commercial strategies. This shift was fueled by three key levers: targeted promotions, always on pricing in key categories and investments in marketing to acquire and retain high value customers. This strategy has resulted in improved AURs and product margins. We drove elevated brand visibility through marketing investments, most notably our 100% Aerie Real campaign featuring Pamela Anderson. The campaign builds on our Aerie Real mission to always put inclusivity and authenticity first.

10:10 This next chapter reinforces Aerie's commitment to transparency and a promise to never use AI generated bodies or people in our marketing. The strong emotional connection we have built with our customer community is driving deeper resonance, relevance and loyalty. Additionally, our new Aerie Real Makers Influencer program blew past its six month target within weeks, significantly increasing repeat customer engagement. Offline is continuing to prove to be the new breakout brand in our portfolio. We continue to build the off line community, and customers are responding to new silhouettes, styles and fabrications. Matching sets and a strong color story through curated drops are driving excitement.

10:56 Offline is currently the number two legging brand within our core demo, and it's well on its way to becoming its own activewear brand.

11:05 While we remain encouraged by the momentum at Aerie, we do recognize the environment remains competitive and sustaining growth at this scale requires continued discipline, innovation and execution. And I am confident that our team is ready and able to deliver in all those areas.

11:24 Now turning to American Eagle. I believe deeply in this brand and its potential. While results were more mixed, we are not satisfied with where the business performed this quarter, especially in women's. We know what needs to be corrected, and the teams are aligned and activated to return AE to growth. Despite a slower start to the year with revenue down 2% to last year, AE's performance in men's alongside with women's skis and fashion tops continues to be highlights again this quarter. We have been dedicated to rebuilding the AE men's business, and our efforts have resulted in its third consecutive quarter of positive growth with growth across tops and bottoms. This reflects the team's efforts to improve product assortments and generate a stronger customer response in key categories.

12:14 Women's bottoms underperformed our expectations and was the primary driver of AE sales decline. Some of the challenges this quarter reflected the need to distort into specific styles and fits, coupled with a colder spring, which impacted demand in several seasonal wear now categories.

12:33 That said, we are very focused on the areas within our control and where we need to improve execution and product productivity. As merchants, we move quickly when we see opportunities and when we see misses, and we are already making adjustments. As we head into the crucial back to school season, we are refining our bottoms architecture, specifically optimizing key silhouettes and rises while leveraging our chase capabilities to inject fresh newness. At the same time, we are scaling high demand categories within women's tops to fully maximize ongoing consumer momentum. Looking ahead, we have strong product deliveries and newness on the way for the remainder of the year. I'm also incredibly excited about the new talent in women's merchandising and design as we stack our exceptional existing roster.

13:24 Building strength across these critical creative and product roles will sharpen our edge as we prepare for AEO's fiftieth anniversary in 2027. We continue to see strong customer engagement around the AE brands marketing initiatives and partnerships. The customer file is expanding and is larger than ever at more than 19,000,000 customers, up 3% year over year. We saw moments of strong engagement through the quarter, and we absolutely believe there is a

13:55 continued customer loyalty and love for this iconic brand, reinforcing that American Eagle remains top of mind with our core customers. More recently, we introduced our AE Creator Community and launched a dedicated TikTok shop, which is helping us engage customers in a more relevant and immediate way.

14:17 We also have a strong pipeline of launches and collaborations that continue to highlight AE, including already announced partnerships with Bubble Skin Care and exclusive integration with Prime Video's hit show Off Campus. Our strategic marketing investments have driven awareness and consideration, and now we're focused on conversion. As we transition into the summer season, we are encouraged by a recent acceleration in the trend of the business, and we are well positioned to capitalize on the quarter ahead of us. I firmly believe in the power of the AE brand, and our team is highly focused on executing with even greater clarity, speed and discipline. We are confident that we can capture demand and build momentum as we move throughout this year.

15:06 As I close, I want to echo what you heard from Jay. There is incredible work happening across this entire AEO organization. Building and growing brands in today's environment requires creativity, resilience, speed and constant evolution.

15:23 I am so proud of the passion and commitment our people continue to pour into our brands every single day. I remain deeply confident in the long term power of American Eagle, Aerie and Offline. We are staying very close to our customers, moving quickly when we see opportunity and remaining disciplined in the areas where we need to improve. Together, we are actively working to drive healthy, more consistent performance at AEO over time. And with that, I'll turn the call over to Mike. Thanks, Jen, and good afternoon, everyone. Our first quarter results reflect our continuous actions to strengthen our operational foundation and invest in our brand portfolio for long term value creation.

16:04 We delivered on our revenue and operating income expectations, driven by the continued outstanding momentum at Aerie and Offline. As Jay and Jen described, we're actioning on the opportunities for improvement within the AE brand performance. We're managing what is in our control with absolute focus, and the business remains structurally resilient.

16:25 First quarter consolidated revenue of $1,200,000,000 increased 10% to last year, with comparable sales growing 8%. Aerie's strong business continued with total sales growing by 34% and comparable sales up 25% with growth across channels. AE total sales declined 2% with comparable sales also declining 2%. AE brand digital performance was flat with the comp results driven by a decline in stores. Gross profit dollars of $456,000,000 rose 41% from last year and gross margin of 38.2% increased eight sixty basis points. Merchandise margin improved seven ten basis points driven primarily by last year's inventory write down. Buying occupancy and warehousing expenses leveraged 150 basis points due to positive sales and expense initiatives to control delivery and distribution costs, including benefits from winding down third party fulfillment operations.

17:22 SG and A dollars increased 11% as a result of planned investments in advertising. Interest expense increased due to a transaction agreement under which we sold a portion of our tariff claims. Other income increased due to unrealized gain on investments. Depreciation was flat year over year at $51,000,000 We recorded a first quarter operating profit of $28,000,000 The first quarter tax rate was approximately 17% and EPS was $0.14 Consolidated ending inventory at cost was up 27% with units up 5%. The increase in cost in relation to units reflects the impact of incremental tariffs this year in comparison to the inventory write down taken in Q1 of last year.

18:06 In the first quarter, as Jay noted, we continue to make long term investments in our business while returning cash to shareholders. First quarter CapEx totaled $61,000,000 and the company returned $74,000,000 to shareholders during the quarter, dollars 21,000,000 via the quarterly dividend and $53,000,000 via repurchasing 3,000,000 shares.

18:26 We ended the quarter with $103,000,000 in cash and approximately $620,000,000 of total liquidity, including our revolver. Now turning to our outlook. For the second quarter, we expect comparable sales growth in the mid to high single digits with area and offline continuing in the high teens to low 20s and American Eagle in the flat to negative low single digit range. Our operating income expectation is in the range of 45,000,000 to $50,000,000 which includes a $20,000,000 incremental tariff headwind versus last year and SG and A up in the mid teens, driven primarily by continued investment in advertising as previously discussed.

19:02 The tariff rate on imports is planned at 10% for the second quarter and the balance of the year is planned at 15%.

19:10 We've applied for roughly $190,000,000 in tariff refunds and anticipate a $140,000,000 net cash benefit. However, it's not included in our guidance with a significant portion still outstanding. For the full year, we expect operating profit in the range of $390,000,000 to $410,000,000 based on consolidated comparable sales growth in the mid single digits. In the second half of the year, we will cycle tariffs and investments in advertising, which began midyear twenty twenty five. We expect CapEx to remain in the range of $250,000,000 to $260,000,000 as previously guided.

19:44 To wrap up our prepared remarks, the year is off to a solid start with strength across the majority of our portfolio. The teams have taken actions to capture opportunities where we see them. We'll continue to manage with discipline, reallocating investment across the portfolio to create value. We'll continue to control what we can control in what is still a complicated and evolving macro environment. And with that, we'll open it up for questions.

20:08 Thank you. We will now begin the question and answer session. And the first question will come from Jay Sole with UBS. Please go ahead. Great. Thank you so much. Maybe I'd love to dig into the American Eagle Women's business. Jen, you talked about how women's tees and fashion tops are good,

20:48 but women's bottoms is weak. Can you just give us a little bit more color here? Like what were some of the styles that maybe you need to lean into a little bit more? And last year, when they were issues in the first half of the year, you corrected them real quick and back to school ended up being really strong. It sounded like you're saying you're refining your bottoms architecture for back to school. Do you think you can get that comp trend to inflect by the time we get to back to school?

21:09 A little bit more color there would be super helpful. Thank you. Absolutely. Yes, we're really pleased with the fashion business. We've been really working hard in tops and tees and exceptional run rates there, but not enough to offset a highly focused and concentrated area that we need to turn around and engage in. And the team has already pivoted. In fact, more recently, we've seen some more positive results in the denim side of the business. And

21:36 we are 100% focused there. We know where the problem is. We are going to pivot and we've already done testing for back to school. We know what rises are working. We know what fits are working. And we're excited to enter into our Super Bowl, which is, as you know, Q3 is when we lead in denim, and it was just highly focused there. That's all I can say. And like I said, the more recent results are proving well for us and excited to see what's to come.

22:05 All right. Thank you so much. The next question will come from Marni Shapiro with Retail Tracker. Please go ahead. Hey guys. Congratulations on Aerie and Stirsel Crate. I was curious if we can dive in just a little bit there. Is the traffic or the sales being driven by last shoppers, new shoppers? Or are people just buying more when they come into the store?

22:30 All of the above Marni. It's really we are striking on all chords. Honestly, we really hit a home run here and I just want to give kudos to the team. Last year at this time, as you know, we really had to pivot turn this And business certainly, as we entered into Q3 and Q4, we really led the way here. This brand looks great, Marni. And the customer engagement is unbelievable. Our brand awareness is up over double digits. That was something that we spoke to on some prior calls. And just all product categories are working.

23:10 It's just our head to toe outfitting. They're engaged in our outfitting. They know what we really are set up to win. I mean, don't know if you've been to the store, if you look at it, it's just really a mix and match environment. It's like a candy shop. That's what I say every time I go into the store. It's exciting to see, and we're just highly focused on those wins and how we're gonna enter into back to school. And I'm really excited what I'm seeing. The marketing gets better with age. The team is they never cease to fail me. I mean, every time I look at what's coming next, can't believe that it even looks better than the last. So our winning formula as you know, our winning formula is our customer base. They believe in our platform real. We launched 100% real and they love this campaign.

23:57 We took a stance on AI not airbrushing our models or using AI to manipulate our imagery and it is resonating. So

24:07 I'm excited to see what's to come here. We have more categories coming your way, new categories. We're testing into a lot of new ideas and yes, we're just going to keep this momentum going. And, Marty, just from a pure metrics perspective, just add on to what Jen said, it's it's traffic, it's conversion, it's AUR, it's AOV, it's existing customers, it's new customers. So, you know, that all all the above comment is all the metrics are green across the board on that front. That's

24:36 fantastic. Best of luck. I'll leave it to somebody else. But, Jen, the low rise drapey jeans that are in American Eagle right now with the orange flowers on them, you need, like, 200 more pair per store. Thanks guys. Good luck. Thank you.

24:52 The next question will come from Matthew Boss with JPMorgan. Please go ahead. Great. Thanks. So at Aerie, Jen, could you speak to new customer acquisition that you're seeing with three consecutive comps now of double digits and just opportunity that you see for incremental market share from here? And then Mike, could you elaborate on the drivers of gross margin contraction in the second quarter if we're thinking about markdowns freight and tariffs and just puts and takes to consider in the back half of the year?

25:24 Yes, can start with that gross margin question, Matt. So for the second quarter, yes, I think when you think about the second quarter over against last year, last year we were a pretty healthy kind of good rate of history with the write down and the kind of pull forward of markdowns that we executed in the first quarter last year. This year with the tariff assumption we're using,

25:48 it's somewhere between 150 basis points to 200 basis points of tariff impact in the quarter still for Q2 against no impact last year. And we are and the expenses and gross margin on the kind of mid to high single digit revenue guide, we do expect those BOW expenses and gross margin to leverage again in the second quarter. So that's a positive side. Tariffs again being a 150 basis to 200 basis point impact

26:14 headwind. And then we are accounting for in the guide some expectation for some needed AE brand markdowns. Just in short clearance inventory at the end of the quarter is in the optimal position as we head into that back to school Super Bowl period as Jen likes to describe it. So those are your puts and takes in terms of gross margins, some headwind in tariffs, a little bit of markdown pressure in AE to get clean for back to school and then expense leverage to the good side. And our new customer acquisitions up roughly $1,000,000 which is incredible. And the beauty of Aerie is, well, just mentioned it, not only is our new customer acquisitions up, our retained customers are up, they're staying with us. We remain very sticky.

27:00 And again, it just goes back to our platform, our emotional connection, it just drives it's unbelievable, this community. And I didn't mention, but we have a new influencer program that actually hit it out of the ballpark. We beat our expectations three weeks in and this is really hitting home with this community of ours. So we're just going to continue to build on that success. And then Matt, just to jump back in on the back half gross margin, just to give you some flavor, there's some more detail to the guide. Starting with that mid single digit comp expectation across the portfolio, as you know, everybody knows we'll be lapping tariffs in the back half. So it becomes apples to apples. The reason that 15% assumption for tariffs in the back half and there's some favorability to like our original guide there, which we were thinking about IEPA tariff rates still at the same time or with our original guide back in March.

27:58 But we did have built in a little bit of expectation into our plans for some potential freights, ocean air freight rates pressure. So that's kind of a wash between the tariff assumptions and that placeholder for freight and we'll see how that all pans out here as we path toward the back half of the year. Product margin in total, we're expecting some benefit across the brands and across the portfolio. At the end EOW expense leverage and gross margin, kind of relatively flat, maybe a bit of leverage. So at the end of the gross margin in total then we're expecting expansion, we're expecting improvement in the back half. And if you think about our full year guide then, kind of first half, back half, we're positioned at that mid single digit to get back to operating rate improvement. So income growing ahead of revenue, improving operating rates and, that would be our expectation as we lap tariffs, lap the advertising investments, rebalance those investments, set up advertising to leverage that in the back half really on any revenue growth as the dollars are planned relatively flat.

29:05 We'll get back to again implied in the guide is almost a double digit income expectation for the back half on the mid single digit revenue. Helpful color. Best of luck. Thanks, Bob. Thank you. The next question will come from Dana Telsey with Telsey Advisory Group. Please go ahead. Hi, good afternoon, everyone. As you think about your guide for the second quarter, do you expect a similar breakdown between the brands Or with the second quarter, the beginning of back to school, should we expect to see any uptick in Aerie in American Eagle, I mean, Aerie, 25% is amazing. And then, Jen, as you think about the other product categories beyond bottoms at American Eagle, What are you seeing and how do you see the women's business, doing? And then just lastly, on new on stores, store closures for American Eagle, where are you and where are you in the refreshes and how are they performing? Thank you.

30:06 I can start Dana. I'll start with actually the last part of that first. Just to I'll work backwards. The store closures, we're still expecting a net 20 to 25 around 25 closures in the AE brand for the year. On the opening side, about 40 area and offline openings. And then the remodel program for AE, around 80 could be north of 80 projects there that's still being a a refined number. But that'll get us almost to the end of that, maybe one more year of kind of remodel program for the AE brand on that front. Your q two guide for sales, we talked about Aerie continuing this tremendous momentum at a high teen to 20% clip, which would be a tremendous outcome again, but I think, could be some upside to that.

30:55 We'll we'll keep an eye on that. On the American Eagle brand, we said flat to down low single. And the guides is really pretty consistent with what we're seeing May to date. But as I think, you know, we said in our prepared remarks, the, you know, the the the first couple weeks of May were a little tougher, almost continuing a couple, you know, couple tougher weeks in the back half of April. But these last two weeks of May, have been really encouraging kind of, you know, week going into Memorial Day and now on the back end of Memorial Day being still consistent with the uptick in trend. So the mix of the brands is sort of flat to slightly down in AE and, you know, high teens to 20% in Aerie. That gets you to your mid to high single digits. Could be some play really in either brand in terms of, how things continue in June and July.

31:45 Yes. And just benching off of what Mike just said, more recently, we've seen a turnaround in women's. We still have the rest of this quarter to go, but some near end learnings that we're certainly applying for back to school. We did have other bottom categories that were highly successful. We just didn't have enough distortion in them. So you'll be seeing some of those other categories, not just denim, but newness in other categories as we and penetrated higher as we go into back to school. And then of course, we believe in our denim testing. We do it very well and we think we have the right fits and silhouettes for back to school. You're going to see more excitement in denim, ranking some fashion silhouettes into our top 10, really a lot of excitement there. So Marni, we have more excitement for you, but we're very excited about the denim assortment. Shorts have turned on for us. They were slow, definitely slow, but going into Memorial Day weekend, even with the colder climates, shorts had a huge turnaround for us. So look, we have weeks to go here. And then, of course, our big, as I say, again, our Super Bowl is our back to school.

32:52 And I think the teams are armed and ready. All of this fashion that's working, we've chased back into. We can execute very swiftly on cut and sew, T shirts, bare knits, and the team's done a great job getting us back into what's working. Thank you. The next question will come from Adrian Yee with Barclays. Please go ahead. Hi, this is Angus on for Adrian Yee. Thanks for taking our question. So you mentioned improving conversion as a key opportunity at AE. Can you just unpack where you're seeing the biggest gap today, whether that's stores versus digital? And what specific actions you're taking to close that gap near term? And then my follow-up is on inventory.

33:38 Dollars are up meaningfully versus units. Can you help us understand how much of that is mix versus tariffs? I'm sure it's mostly tariffs, but just how comfortable you feel with inventory positioning into the back half? Thank you very much. Yes, sure. It was more, I would say, we leaned into where we had some conversion opportunity were definitely stores. And again, like I said, more recently, we've seen the digital channel really have an incredible uptick for the AE business. So what we've been doing is doing, again, testing by store grade, by groups, seeing the price value quality equation, where it's working for us, where we can compete. And we've had some really good results from some stores and we applied them more recently and we've seen some wins. So again, we continually look at for these golden nuggets to turn the business around. And I think we've seen some of that, these green shoots, and we're certainly going to apply those learnings.

34:37 And then on inventory, yes, we're in a good position at the end of the quarter. I'll start with the units up five in relation to our kind of eight comp and 10% total revenue. 20 up 27 in cost. And as I said on the in my prepared remarks there that the impact of tariffs, to your point, is the biggest biggest impact differential between those unit the units and cost dollars. And then with the write down last year that we took, normalizing for those two things, our cost dollars would be up more in the high single digit range. So a couple of reconciling items, picture 27 to up high single with units up five. Great. Thank you. The next question will come from Jonah Kim with TD Cowen. Please go ahead.

35:26 Hi, thank you for taking my question. Just one on marketing, how are you allocating the marketing spend across Aerie and Eagle? Just would love the breakdown there. And then just second question, how are you thinking about comping the comp with just Aerie being so strong and posting really good results in the second half? What are key strategies around comping the comp there? Thank you so much. Of course. Look, this is what Aerie does best. I do want to remind you, we grew the business $1,000,000,000 in five years. I mean, I think that's a record number. I'm certainly impressed with this team and how we continue to look at opportunities on how to comp our business. I can I remember maybe one, maybe two quarters where we saw some softness? This business has been unbelievable year over year and we're constantly challenging ourselves. You're only as good as yesterday and that's how we think about the business every day. We have to have better product, better marketing, better campaigns, quality. That's what this whole company. I mean, all of our brands.

36:30 We continually focus on quality and how we can compete on our terms and Aerie does it impeccably well. And we have some room to grow on the AE side, but I think the teams leaned in and the Aerie team feels very good about what we're going up against. On the advertising front, you know, spend is up across both brands. Aerie more Aerie more commensurate with the sales increase. So as we're the sales are up 30% and, you know, in our forward plans within our guidance, advertising is is up in relation to that. A little a little ahead of sales to fuel obviously this pretty tremendous trend. So very good flow through on that investment. As we've been talking about now for 0.75 and into the second quarter, this incremental investment in AE that Jen highlighted the benefits of customer file consideration, potentially to spend.

37:23 The teams are doing a lot of evaluation, surveys, etcetera, on the effectiveness of this, not just from a quantitative perspective every day, but what we think those metrics could lead to here with for the rest of the summer, but especially in the back to school and the back half of the year in terms of customer file growth and that consideration score elevating with the marketing campaigns that we've been investing in. We enter you know, the second quarter here is the last quarter of kind of increment incrementality on that spend. We get into the third and fourth quarter and total spend across the company is relatively flat for the back half. So on the sales guide, advertising is set up to leverage for the rest of the year. And we are rebalancing then a little between brands in the back half, but then definitely in terms of how we're spending the dollars. And Jen mentioned the shift to conversion. So a lot of what we've been doing is, these bigger campaigns, the Sydney Sweeney campaign, the stage coach, stuff in the first quarter with Ella Langley and Bailey Zimmerman.

38:20 We have Limini Mall coming as well, as Jen talked about in her remarks. And, but the back half spend is more weighted toward digital media, performance marketing, influencer and social influencer spend, more day to day traffic driving elements. So I think that's where the conversion will play into because that traffic is has a higher propensity to convert. So we are rebalancing, kind of how those dollars will be spent in the third starting really in the third quarter, which we feel it sets us up for success and be able to hit the revenue expectations that we have for ourselves in the back half. Got it. Thank you. The next question will come from Rick Patel with Raymond James. Please go ahead.

39:09 Thank you. Good afternoon. It looks like you're planning SG and A growth to be up high single digits for the year versus up mid single digits three months ago. Can you unpack that for us? Is that all marketing or are there other factors at play? And then secondly, can you provide additional color on the marketing campaigns that you have planned into back to school and the potential for new brand ambassadors as we think about the back half? Yes. Thanks, Rick. To the SG and A result for the year, you've got, you know, the 11% increase in Q1, we're guiding mid teens here for the second quarter. The whole first half year is mostly really all driven for the most part by the incremental advertising investment. Back half SG and A is really actually in line with sales. So as we talk about a mid single digit comp and kind of mid mid to high single digit total revenue then, total SG and A is right now pretty much in line with revenue.

40:03 We will that will leverage the advertising line as we anniversary that spend. We have a couple you know, a little bit of compensation that comes into play with a little lower than average incentive accruals last year. You know, not nothing extraordinary, but then really the combination of those two factors as SG and A in the back half up again, kind of commensurate with that revenue guide. More work happening there on all compensation lines, services, travel, usual suspects to find some more efficiencies in that number, but to, to hopefully exceed that guide. Network continues like it has been for the last three years. But it's a it's a good position to be in at the moment. And then, yes, your total year between that, you know, the first half being up in the teens, back half being up more like in the that commensurate with sales level, you get to roughly about a 10% kinda increase in SG and A in this guide.

40:58 And then looking forward to next year, we'll talk about that later, but, you know, work continues on the expense lines. Advertising is not planned to be up in the first half. We're going to kind of manage the same way we're talking about here in the third and fourth quarter, then we'll provide more color on next year, much later this year. Sure. So our more recent some of our initiatives that we're really excited about, one is our new influencer program in AE and Aerie. Both are exceeding expectations, and that's where we really win, right? We have our customers engaged marketing our brand. And again, it's exceeding expectations. We've made a strategic hire there on the AE side. We're excited for her to join, who's going to really take that program to the next level. So that's first. We just announced Lamine, so he's coming our way. And welcome to World Cup. So we're excited about launching him.

41:52 He's been great and he really suits our brand and loves our clothes. So Lamine near in. And then we just had our partnership with off campus, the collab with Prime Video. As everyone knows, that show has been a hit. We've really been able to hit pop culture with these shows last year with Summer I Turned Pretty, and you'll see more of that. So I can't really reveal our colors for back to school, but I do want to remind you that our prime focus every day is our product, and that's where we win. So we're up to some really good things on the product side for American Eagle, and I'm really excited to deliver. One of our newest deliveries actually just hit, and that's what I was referring to that we had a pretty nice some nice results with that. So more to come.

42:43 Great. Thanks very much. The next question will come from John Kippur with Goldman Sachs. Please go ahead. Hi. Thank you, guys. Thanks for the question. I just had one around the macro. You guys mentioned, I think, a little bit of uncertainty there. I'm just wondering what you're seeing in your consumer base. Any difference between how the consumer is behaving in Eagle versus in Aerie and offline? And then, just if you could break down maybe AUR and volume, between the Eagle and Aerie banners, please? And thank you. You want talk about AUR? Yes. Start with the AUR. I think AUR in the second quarter, Aerie was up. Jen talked about that in her remarks. Again, Aerie's the metric are positive across the board. So AUR up in Aerie, slightly down low single digit in AE. So for for the company, we are up in total.

43:40 I think from a, you know, from a consumer perspective, I I wouldn't say there's a lot of difference between the brands. Obviously, the engagement with Aerie and the the traffic that we're driving in the Aerie brand along with everything we said earlier on conversion, different different customer cohorts all kind of performing for us, clicking on all cylinders. Jen hit the positivity in the American Eagle customer file. So that's all going in the right direction. Again, we've seen, I think, some encouraging things here the last couple weeks in May versus how the quarter started. You know, I think it feels like it's all coming together in terms of, where we want things to head through the rest of the summer and back to school and be ready to really capitalize on all this to spend to move those metrics for the results that we were expecting from the brand in the back half.

44:31 Yes. About like the macroeconomics, one thing we're very proud of, Aerie, we started that brand inside American Eagle around 2012, 2013 and seven years we grew it to a $1,000,000,000 brand. In the last five years we grew it to like a $2,000,000,000 brand. It's not a brand that we acquired, it's a brand that we created from start. And we're very proud of that because I don't know too many companies in such a short period build a $2,000,000,000 a year brand. So I give Jen, I give the team a lot of credit. American Eagle has been around this coming year in 2027, this will be our fiftieth year.

45:17 So one thing we're proud about is if you went back fifty years ago and saw the different brands in the mall at that time and saw where we were positioned just a couple of stores then and you go back and you say who's around and who's not around. I think the majority of those brands aren't around and we're stronger than ever. So we're very proud of that. The last few weeks have been very encouraging. We're seeing increased traffic in the stores in American Eagle stores. We're seeing increased sales. We're very optimistic. There's we think the economy, The U. S. Economy is very strong and we think it's only going to get better as time goes on. We think with gas prices hopefully we'll start selling down very shortly and with the current affairs hopefully we'll come to some type of finish.

46:13 Hopefully it'd a very good finish for the world. And so we're very optimistic on that. And we think American Eagle is positioned very well. We think our brand offers great value to the consumer, great quality. And we're not seeing the impact of the economy as far as like a negative way. So we're optimistic and I always said, I never ran this business quarter to quarter. I look at the year end and I think Jen said it the right way, our Super Bowl comes at third and the fourth quarter. That's where we really gear up and that's where we always shine. And this team is going to shine. Thank you very much. I appreciate it. The next question will come from Janine Stichter with BTIG.

47:02 Please go ahead. Yes. Thanks for taking my question. Jen, I want to dig a little bit more into the bottom side of the business. I think in the past you've talked about there being just less consensus around and maybe the silhouettes that consumers were wearing in bottoms and having to kind of diversify the assortment. And now it seems like we're kind of going the other direction. Just wanna make sure understand. Is the issue now that you need to go deeper into there's more consensus that you need to go deeper into certain key silhouettes and you just didn't have enough? And then I just wanted to clarify, you mentioned you sold a portion of the tariff claim. Have you said how much that was and what's left on that? Thank you. Sure. Exactly what you said. We just needed more distortion in some of our newer silos that we were testing and some of them we owned and we just could have had more. So that's what we're rightsizing for back to school.

47:51 And Mike, I don't know. Yes. On the tariff, so we filed the $190,000,000 worth of claims. We've gotten over a $100,000,000 back at the moment. We did sort of back at the beginning of the year, not sort of. We at the beginning of the year, we sold about $70,000,000 worth of claims for roughly $20,000,000. So our net number on the $190,000,000 total, filings will be around the should be a $140,000,000 if we do get it all back. And again, we're a little over little over a $100,000,000 back so far, which which our portion of that net is around 75,000,000. So it's a lot of numbers. 75,000,000, we've actually got the bank, net of what we kind of owed the third party that we sold some claims off into to. And then the $11.40 would be if everything is refunded by the end of the second quarter here, that's how much cash we would receive.

48:47 And hasn't been recognized, Right. So that will be so we did not we still yes, we did not guide. I recognized it. Yes. Good. Thanks, Jay. None of that is in our guidance. So the 45,000,000 to 50,000,000 does not include any benefit from that. That would all be an incremental outcome at the end of the quarter when we report. Thank you. The last question today will come from Tom Nikic with Needham. Please go ahead. Hey, thanks for taking my question. Just wanted to ask, we look out to the back half of this year, sounds like you're addressing, I guess, some of the issues that are leading to the declines at the American Eagle brand in the first half.

49:36 So should we assume that the American Eagle that embedded in your guidance is that the American Eagle brand gets back to positive comp growth in the back half and against tougher compares, we would get slower comp growth at Aerie relative to what we saw in the first half? Thanks. Know something, I'll let Mike answer some of this, but I will tell you this. I expect the positive comp growth and so does this team. This team under Jen takes everything very seriously. They've been tearing everything apart for the last few months figuring out how can we get better and stronger, where do we learn. Like Jen said, our third and fourth quarters where we shine and she's going to shine and we expect it to shine in both Aerie and American Eagle, period.

50:30 We'll reiterate again, it's very isolated to bottoms and women's bottoms. Men's bottoms was actually positive. Jeans and men's was positive. So it's a targeted area of opportunity and the teams are all over to back up to reiterate Jen's description earlier. The specific brand assumptions for the back half, yes, we're AE to be in the low single digit range in that guide. If you listen to what Jay just said, he's expecting more than that. We all are. And then Aerie, yes, moderating to more of like a low double digits, maybe even high single to low double depending on the mix. And that would, kinda get you to that mid t or I'm sorry, mid single digits total across the portfolio. That's what's assumed in our guide.

51:21 Got it. Thanks very much and best of luck for the rest of the year. Thank Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.