American Eagle Outfitters Q4 2025 Earnings Report

American Eagle Outfitters EPS Results

• Actual EPS: N/A
• Consensus EPS: $0.50
• Beat/Miss: N/A
• One Year Ago EPS: N/A

American Eagle Outfitters Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $1.60 billion
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

American Eagle Outfitters Announcement Details

• Quarter: Q4 2025
• Date: 3/12/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, March 12, 2025
• Conference Call Time: 4:30PM ET

American Eagle Outfitters (NYSE:AEO) operates as a multi-brand specialty retailer in the United States and internationally. The company provides jeans, apparel and accessories, and personal care products for women and men under the American Eagle brand; and intimates, apparel, activewear, and swim collections under the Aerie and OFFLINE by Aerie brands. It also offers menswear products under the Todd Snyder New York brand; and fashion clothing and accessories under the Unsubscribed brand. The company sells its products through own and licensed retail stores; concession-based shops-within-shops; and digital channels, such as www.ae.com, www.aerie.com, www.toddsnyder.com, and www.unsubscribed.com. American Eagle Outfitters, Inc. was founded in 1977 and is headquartered in Pittsburgh, Pennsylvania.

American Eagle Outfitters Q4 2025 Earnings Call Transcript

Key Takeaways

• In 2024, AEO delivered record revenue of $5.3 billion with 4% comparable‐sales growth and achieved $445 million in adjusted operating profit, driving margin expansion and generating over $470 million in operating cash flow while returning over $280 million to shareholders.
• The company’s new Powering Profitable Growth strategy—focused on amplifying brands, optimizing operations and executing with financial discipline—drove strong 2024 execution across channels and functions.
• American Eagle maintained its #1 ranking in denim and saw six consecutive quarters of positive comp sales, while Aerie surpassed $1.7 billion in revenue, became the #2 specialty leggings brand and grew its soft apparel and activewear franchises.
• Looking to 2025, AEO expects a softer start due to a muted consumer, cold weather, tariffs and USD strength, forecasting mid‐single‐digit Q1 sales declines and full‐year revenue and operating income down year‐over‐year, with top‐line initiatives and cost measures underway.
• Capital allocation priorities include increasing the share repurchase authorization, deploying ~$300 million in 2025 capex for new store designs, digital platform upgrades, automation, RDCs and relocating the Manhattan office, while remaining disciplined on expenses.

Presentation

[Operator]

Greetings, and welcome to the American Eagle Outfitters Fourth Quarter twenty twenty four Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Judy Meehan. Please go ahead.

[Judy Meehan, Vice President of Corporate Communications & Investor Relations at American Eagle Outfitters]

Good afternoon, everyone. Joining me today for our prepared remarks are Jay Schottenstein, Executive Chairman and Chief Executive Officer, Dan Foyle, President, Executive Creative Director for American Eagle and Aerie, and Mike Mathias, Chief Financial Officer. Before I 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. Results may differ materially based on the risk factors included in our SEC filings.

[Judy Meehan, Vice President of Corporate Communications & Investor Relations at American Eagle Outfitters]

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. Also, please note that during this call and in the accompanying press release, certain financial metrics are presented on both a GAAP and non GAAP adjusted basis. 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 the fourth quarter and fiscal year investor presentation. And now, I'll turn the call over to Jay.

[Jay Schottenstein, Executive Chairman of the Board & CEO at American Eagle Outfitters]

Thanks, Judy, and good afternoon, everyone. 2024 was a solid year for AEO. We launched our new Powering Profitable Growth strategy, aligning the organization's focus on three key priorities: amplify our brands, optimize our operations and execute with financial discipline. And we achieved excellent results. Record revenue of $5,300,000,000 was fueled by 4% comparable sales growth, reflecting positive momentum across brands and channels.

[Jay Schottenstein, Executive Chairman of the Board & CEO at American Eagle Outfitters]

Adjusted operating profit of $445,000,000 marked one of our strongest years in history, and we drove significant operating margin expansion. This included strong fourth quarter results, which came in slightly ahead of the outlook provided in January. Comparable sales rose 3%, building on an 8% increase in the fourth quarter of twenty twenty three. Aerie comp sales rose 6% and American Eagle was up 1%. Additionally, fourth quarter operating income of $142,000,000 was the highest we've delivered in over a decade with good operating margin expansion.

[Jay Schottenstein, Executive Chairman of the Board & CEO at American Eagle Outfitters]

Full year cash flow from operations was over $470,000,000 and we returned over $280,000,000 to our shareholders in the form of buybacks and dividends. Reflecting on year one of our plan, we had some clear wins, yet meaningful opportunities remain and we are fine tuning our strategy moving forward. Touching on a few highlights. Within our Amplify pillar, both American Eagle and Aerie continue to resonate strongly with customers this year, delivering positive comp growth and expanding their customer accounts. American Eagle maintained its number one ranking in denim with our core customer base and achieved its sixth consecutive quarter of positive comp growth.

[Jay Schottenstein, Executive Chairman of the Board & CEO at American Eagle Outfitters]

Women's was a standout, reflecting strong traction with new dressing occasions. Men saw sequential improvement and as Jen will share, we remain focused on reinvigorating growth. Turning to Aerie, we crossed $1,700,000,000 in revenue in 2024. Soft apparel and our activewear collection offline were the big highlights, more than offsetting softness in intermittent swim. I am pleased to note that in leggings, we are now the number two ranked specialty brand with our core demo.

[Jay Schottenstein, Executive Chairman of the Board & CEO at American Eagle Outfitters]

As Jen will review shortly, we have targeted strategies across ARI and offline to continue strong growth through greater brand awareness and expanding our collections. Moving on to optimize pillar. In 2024, we placed a heightened emphasis on improving our operating capabilities. As Mike will review, we made strategic investments in our store fleet and digital platform to support growth across channels. And we continue to build speed and agility in our supply chain, while ensuring we are delivering the best products and value to our customers.

[Jay Schottenstein, Executive Chairman of the Board & CEO at American Eagle Outfitters]

Lastly, under our third pillar, execute with financial discipline, we maintained sharp control over expenses and drove efficiencies across the business, yielding improved profit flow through. In short, we executed on our strategic initiative, demonstrating the power of our iconic brands and made structural improvements to fuel long term success. Now, as we shared in our press release this morning, 2025 has started off softer than anticipated. First quarter date sales have been impacted by a less robust consumer environment and cold weather. For the year, ongoing consumer uncertainty and changes in the operating landscape, including tariffs and strength of U.

[Jay Schottenstein, Executive Chairman of the Board & CEO at American Eagle Outfitters]

S. Dollar, are also creating factors for us to navigate. Against this backdrop, we currently expect full year revenue and operating income to be down relative to last year. Jan and team are focused on driving improvements to strengthen top line growth. Additionally, as Mike will review, we are taking proactive action to drive additional expense savings.

[Jay Schottenstein, Executive Chairman of the Board & CEO at American Eagle Outfitters]

With the benefit of both top line and cost initiatives building throughout the year, I'm confident that we can improve business performance as the year progresses. Lastly, as we review our capital allocation plan moving forward, we are increasing our share repurchase authorization. Factoring the high level of confidence we have in our long term growth prospects, we will continue to be opportunistic with our share repurchase program, putting on the nearly $200,000,000 in buybacks completed in 2024. Before I turn the call over to Jen, I want to underscore the strength of our brands, operation and talent. We have been through challenging times before, but we've always emerged stronger.

[Jay Schottenstein, Executive Chairman of the Board & CEO at American Eagle Outfitters]

I know our team's determination, focus and creativity will continue to drive this forward. With that, I'll pass it to Jen.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

Thanks, Jay, and good afternoon, everyone. As noted, we made great progress in amplifying our brands in 2024, delivering a four percent increase in comparable sales. This builds on a 3% full year comp in 2023. I will start today by reviewing our key wins and learnings. Let me start with American Eagle, our flagship brand that has dressed generations since 1977.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

After a multi year focus on rebuilding profitability, last year we turned our focus to growth with encouraging results. Comparable sales increased 3%, accelerating from 1% the prior year. Additionally, our customer count rose to 18,600,000 reflecting on an all time high driven by growth across genders. Women's was a true highlight where we achieved high single digit comps. Our market leading denim business continued to grow in the mid single digits as we introduced new fashion, washes and silhouettes.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

Skirts and dresses delivered a record year fueled by our expansion into social casual occasions. And the tops category doubled as we offered more fashion styles in line with our focus on completing the outfit and improving our tops to bottoms ratio. In men's, we made progress. Our customer count increased validating the ongoing strength of our customer base. Expansion into adjacencies like activewear with twenty fourseven are tracking well.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

Pants wrote another year of positive comps fueled by social casual introductions, and we are pleased to see men's tops return to growth in the fourth quarter. Now looking ahead, we continue to see incredible growth opportunities across genders. In women's, this includes introducing more diversity in our assortments across bottoms, dresses and tops to provide more dressing options. On the men's side, we are integrating more active looks and performance fabrics where we have seen a positive reception to date. Additionally, we are enhancing our price value equation for basics by delivering greater optionality at opening price points.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

Turning to Aerie, twenty twenty four was another strong year. Revenue hit a new record fueled by a 5% comparable sales increase And we grew our customer count to $11,800,000 this is an all time high as we expanded our reach and brand awareness with stores and marketing initiatives. Two clear wins in the year were our soft apparel and activewear businesses, both of which saw double digit growth. In soft apparel, we continued to win in cozy fleece, sweaters and new fashion items. Additionally, our extension into sleepwear was a huge success.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

In activewear, offline by Aerie saw strength in leggings, sports bras, fleece and shorts. Our powerful platform combined with our winning price, quality and value equation continues to differentiate us in the market. And as Jay noted, we are number two in the leggings category. Intimates and swim were down last year driven by ongoing challenges across the industry, yet I am happy to note that we grew our share in intimates across core bras and undies fueled by innovation with our Smoothies collection and new novelty fabrications like lace. The long term runway for Aerie is significant.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

Offline is our biggest growth opportunity across the company. We are continuing to broaden brand awareness, build equity in Famous for franchises like Real Me and add more performance styles. In apparel, we are leaning into innovation through seasonal drops. We are also excited to build on our success in sleep by transforming it into year round franchise. In Intimates, we see opportunity to reenergize our basics offering with new base layers and styles focused on everything from life to lounge.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

And at the same time, we will also invest to elevate franchise collections like smoothies where we are building a strong following. In addition to product enhancements across brands, we will continue to invest in marketing. We will leverage learnings from optimization work streams in 2024 to speak to our customer base more effectively. We are highly focused on growing where our customers are across social media in a bigger way with a focus on favorite and emerging platforms. We also have an exciting new AE men's campaign planned for the second half of the year.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

And now entering 2025, it's important to note that we are cycling a strong spring season from last year when we saw nicely positive results across brands. This spring, we have been facing headwinds. Colder weather has clearly been a factor as well as some uncertainty with the consumer. As I will discuss, we also had some out of stocks in big categories as well as product opportunities, which we have been working hard to correct. Quarter to date, while we have continued to see positive traffic into AE and Aerie across channels, demand has been softer than anticipated.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

From a category standpoint, bare looks such as shorts and tees have been soft, while cold weather items like sweaters have outperformed. Fashion items are checking with positive trends in categories like dresses at AE and soft apparel and activewear at Aerie. Of note, we have seen warmer markets perform better overall. We have also been chasing high demand denim styles to manage outages in some of our best selling items. We are working hard to address the current business trends and thoroughly reviewing assortment opportunities for upcoming seasons.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

In light of ongoing consumer uncertainty, we are also leaving open to buy for the back half of the year while ensuring we are in stock in the right items. And before I turn the call over to Mike, I want to thank the teams for a successful 2024 and maintaining such strong focus through the near term bumps in the road. Overall, we remain very excited about the long term opportunity to grow our incredible portfolio of brands. We are acting on what we can control, staying disciplined and maximizing flexibility to drive performance. And with that, I will turn the call over to Mike.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

Thanks, Jen, and good afternoon, everyone. I'm pleased with how we delivered the first year of our Power and Profitable Growth Plan. While we experienced some choppiness in demand and unforeseen currency headwinds, we navigated with agility. We drove efficiencies across the business to deliver significant profit and margin expansion. As Jay noted, full year adjusted operating income of $445,000,000 reflected a 19% increase to last year, hitting the high end of our long term algorithm.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

Our adjusted operating margin expanded by 120 basis points to 8.3%. We closed the year on a positive note with strong fourth quarter results. Expanding on a few highlights. Fourth quarter consolidated revenue of $1,600,000,000 was down 4% to last year, reflecting an $85,000,000 adverse impact from the retail calendar as previously discussed. Comparable sales increased 3%.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

Operating income was $142,000,000 up slightly to last year, including an approximately $20,000,000 adverse impact from the retail calendar and approximately $10,000,000 of adverse impact from the strengthening of the U. S. Dollar. The adjusted operating margin expanded 50 basis points to 8.9%. Gross profit dollars were $599,000,000 the rate of 37.3% reflected higher freight and product costs, which were offset by lower markdowns.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

BOW costs were roughly neutral as we successfully offset the leverage associated with the retail calendar shift with efficiencies across several expense areas, including delivery and compensation. These efforts also had a positive impact on the SG and A line, which decreased 6% and leveraged 40 basis points as a rate of sales. The improvement was driven by lower compensation, including incentive costs, partially offset by higher advertising, where we made choiceful investments to support long term growth. Depreciation was down year over year, leveraging 10 basis points. The fourth quarter tax rate was 29.4% and earnings per share was $0.54 Consolidated ending inventory cost was down 1% year over year as we maintained strong inventory control in a choppy demand environment.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

As Jay noted, our healthy cash position allowed us to fuel investments in our business as well as return cash to shareholders. Fourth quarter CapEx totaled $65,000,000 Full year CapEx investments were $223,000,000 This included rollout of our new store design to 56 stores where results have been positive and 22 new area and offline locations. We returned approximately $24,000,000 to shareholders through the fourth quarter cash dividend and completed $3,500,000 in share repurchases amounting to $60,000,000 For the year, we repurchased a total of 9,500,000.0 shares. As Jay noted, we have upsized our share repurchase authorization, demonstrating strong confidence in our brands and long term growth plan. We ended the year with a strong balance sheet with approximately $359,000,000 in cash and investments and over $920,000,000 of total liquidity, including our revolver.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

Our 2024 financial results were strong proof points of our agility and expense discipline, and this work continues. As noted, 2025 has started off softer than anticipated. In light of this, Jen walked you through the actions she's taking on the top line. Additionally, we're taking proactive actions to pull back on expense plans for the year with a thorough assessment of all costs and capital spend. We're also actively working to further diversify our supply chain to mitigate tariff impacts.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

Our current outlook reflects a first quarter revenue decline in the mid single digits with operating income in the range of $20,000,000 to $25,000,000 This includes an approximately $10,000,000 negative impact from the strengthening of the U. S. Dollar. For the year, our outlook reflects revenue down in the low single digits with operating income in the range of $360,000,000 to $375,000,000 includes an approximately $20,000,000 adverse impact for the strengthening of the U. S.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

Dollar and approximately $5,000,000 to $10,000,000 adverse impact from U. S. Tariffs on China, net of early mitigation strategies. We anticipate a mid single digit revenue decline in the first half recovering to flat to slightly up in the back half, driven by improved merchandising, easier comparisons and a normalization of year over year currency headwinds. Additionally, it anticipates profit declines in the first half with second half operating profit flat to last year's levels on improved top line trends, lower currency headwinds and as cost savings and tariff mitigation activities build through the year.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

For the first quarter and the year, the gross margin is expected to be down due to higher markdown activity, tariffs and BOW cost deleverage on the comp decline. SG and A dollars are expected to be flat to last year in the first quarter and down for the full year. This reflects higher marketing investments to drive top lines with declines in all other line items driven by expense initiatives. The full year tax rate is expected to be approximately 25%. Our weighted average share count is projected to be in the low 190s before accounting for repurchase activity beyond offsetting internal grants.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

This year, we expect capital expenditures of approximately $300,000,000 This includes a onetime $40,000,000 cost of relocating to a new Manhattan office provides more favorable lease terms. We're also investing to enhance our digital platform to support our growing e commerce business, further strengthen the customer experience. And this year, we're investing in automation and RDCs to create greater cost efficiencies. I'll end by saying across AEOs, the teams are highly focused on improving performance. We're managing the business with discipline, taking action with urgency as we navigate through the current environment. And with that, we'll open up for questions.

[Operator]

Thank you. We'll now be conducting a question and answer session. Thank you. Our first question is from Jay Sole with UBS.

[Jay Sole, Managing Director at UBS Group]

Great. Thank you so much. I have a two part question. Jay, the first part is for you. You talked about how some stores in warmer areas have done better than stores where have been affected by the cold.

[Jay Sole, Managing Director at UBS Group]

If you could just maybe give us an idea of like what the difference in comp has been? And then secondly for Mike, if you think about beyond fiscal twenty twenty five, can you just talk about your ability to control SG and A? Because the SG and A control has been really solid just like the company had said over the past year. But can you talk about your ability to control SG and A going forward to, in other words, re leverage those costs and get back to the margin targets or get to the margin targets that you've had assuming that sales sort of bounce back as this consumer environment normalizes again and returns to normal? Thank you.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

Thanks for the question. And certainly, yes, we do penetrate a little higher in the softer markets. Definitely in the warmer weather climates, we did see some better comps, but certainly not enough to go off to go off on for this quarter. So still a lot to come. We're only a third of the way into this quarter, lots of volume to be had and we're ready to compete.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

And Jay, on SG and A, it's a good question. I think if you look at 2024 as a proof point of what we've been talking about, we've got this muscle built now around expense controls, cross functional teams working through our transformation office with the FP and A team, with the kind of cost center owners across the organization on a constant basis. We're able to leverage SG and A for the year, last year on the for comp result and revenue up low single digits. And actually the entire operating rate improvement last year of 120 basis points was all from expense leverage. So just the proof points of everything we've been doing for the last two years now. And then even on this guide for 2025, Jen and Tim were going to work vigorously at the top line improvement.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

But even messaging at this point, the dollars on the year are down similar to the revenue assumption kind of down low single digit. I'm not sure last time we've been able to say that walking into a year like this. We were structured in a similar way going into the year where within our algorithm, SG and A was set to leverage. So the starting point for this work that we kicked off immediately when we started seeing this trend has allowed us to at least capture that. But then the work continues.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

We've got more decisions coming at us here in the next few weeks that we can that we're going to make this really decide on a few other line items across the P and L, the big to big store expenses like rent, store labor, services, delivery, SLAs, decisions we can make across our distribution fulfillment capabilities there, all discretionary spend. So it's all in work at the moment. I'm confident we're going to be able to knock that number down even further with kind of more updates to come from there. So we're structured to do this. So in the out years, yes, our target of 25% to twenty six percent as a rate is still intact.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

We need revenue growth to do that. There's no doubt about that. We're confident we'll get back to that revenue growth. But we're structured to continue to manage expenses for leverage.

[Jay Sole, Managing Director at UBS Group]

Got it. Thank you so much.

[Operator]

Our next question is from Matthew Boss with JPMorgan.

[Amanda Douglas, VP - Equity Research at JP Morgan]

Great. Thanks. It's Amanda Douglas on for Matt. So Jen, could you elaborate on early spring selling trends that you're seeing across the American Eagle brand relative to Aerie and how that's reflected in your 1Q revenue outlook?

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

Sure. Early on, as you mentioned, there's obviously headwinds coming out of February, you heard. Coming off of a very strong Q4, we were really pleased with our results. We entered very agile with our inventory, thinking we were down one. So we're leaving ourselves open for Chase and, the new learnings are we have to react to these learnings.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

There's certainly opportunities across all brands, right? We could have had more denim in AE specifically. Aerie, we could have had more fleece. That's a good news and bad news at the same time. But because of our inventory position and because of the way we're posturing ourselves on the back half, we can chase our business and, we're ready to do so.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

So there's learnings in February. It was softer than expected and we are ready to gear up and the teams are moving very swiftly and getting into the businesses that are working and obviously flowing the businesses that are not. So early on the weather was tough. You heard that and we actually are more penetrated in some of the tougher climates. So that's the truth.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

But early on, the teams have reacted. We've responded. Inventory is well positioned and we're taking all of our lessons and moving forward.

[Amanda Douglas, VP - Equity Research at JP Morgan]

Great. And as a follow-up for Mike on the gross margin outlook, could you help break apart the embedded assumptions from markdowns versus product costs in the first quarter? And just how you see each of those progressing over the balance of the year?

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

Yes. With the gross margin, we've got currency headwind in the first half that comes through the margin line. A little bit of tariff impact, we said $5,000,000 to $10,000,000 So small in the grand scheme of things mitigated by the teams very well. Flexibility there is key. We've got that built depending on what actually happens with tariffs that we're all kind of waiting to confirm.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

But the currency headwind is an impact to IMU and product margin in the first quarter. And then on the down 5% or the down mid single digit call it revenue guide, our ability to leverage expenses and gross margin like rent, for example, diminish. So some expense headwinds in gross margin in the first quarter as well. When you get through the first half of the year into the back half, IMU improvement is expected and projected at the moment, which is a good change from the first half of the year. We still believe markdowns can be well controlled at a sort of flat comp or flat revenue results.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

Expense mitigations are we've got some things flowing through the third and fourth quarter already, but there are some lines that we're managing to right now that we could see some additional benefits to. So we're expecting gross margin to be relatively in line to last year in the back half. So front half headwinds, back half relatively similar to last year.

[Amanda Douglas, VP - Equity Research at JP Morgan]

Thank you.

[Operator]

Our next question is from Janet Kloppenburg with JJK Research.

[Janet Kloppenburg, President at JJK Research Associates]

Hi, everybody.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

Hi, Janet.

[Janet Kloppenburg, President at JJK Research Associates]

Jen, I didn't hear you call out and I might have missed it, so forgive me. Did you call out leggings as a position of strength at Airy? I think you said activewear and comments on swim would really help there too. And getting back to American Eagle, if you could elaborate a little bit more on the women's on the slowdown in women's other than weather, like what categories and what the learnings are there, that would help me a lot. And Mike, we should be using flat gross margins in the back half and can you give us sort of a range on the front half please?

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

Sure. Leggings, we're very excited about that business. In fact, I'm here at a hotel in Miami and I met a customer checking in and she literally said to me, do you work for Aerie offline? And I feel I could she heard me speaking and I said, yes, she's like they're the best leggings in town. And that's certainly true.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

We grew market share this year. We grew to the number two market share in our core demographic. I'm thrilled with that number.

[Janet Kloppenburg, President at JJK Research Associates]

And you're seeing that continue here.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

Yes, we are actually. Activewear is a positive trend for us. We're very excited about that business. Women's, Janet, we look we're coming off of yes, women's edibles, yes, coming off of a very strong trend. We're copying the comp. The business is growing. We're introducing new fashion and obviously introducing getting back to some of our core competency businesses, I. E.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

Fashion tops and that social casual dressing, we're doing great there. We're dressing that girl head to toe. We're closing the gap on our tops to bottoms ratio, very excited about that. Women's continues to comp quarter over quarter. And actually if you look at the two year stack, actually women's has accelerated into Q4, including denim, which was a five comp.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

Going to swim, my favorite subject, my favorite subject, Amanda's billionaire planning it accordingly, some softness in some other categories that we were expecting to comp the swim business, but we did plan swim down. It's actually beating that plan as we speak, and we plan some other categories up and we needed some receipts here to be honest to offset some of the early headwinds that we're facing just getting out of the gate in Erie.

[Janet Kloppenburg, President at JJK Research Associates]

Okay. But, Erie, then where are the slowdowns from where you had been, Jen?

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

It's actually not. As I mentioned in my remarks, intimates in general is a slowdown, but we actually gained market share in bras and in undies. And we oversold lease early in Q4 and we needed receipts here to mitigate some of the plan, some of the swim business that we planned down. That's what we're chasing right now. Good news is we have a new set coming our way starting on direct.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

Newness is hitting on Thursday and new goods coming next week for Erie.

[Janet Kloppenburg, President at JJK Research Associates]

So except for men's, it sounds like everything's pretty correctable in the near term?

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

Definitely. I mean, definitely. And I love our inventory position. I love that we're open. And men's definitely have some green shoots, some new launches, some new product categories, some new fashion.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

We're seeing great returns in graphics, the graphics business. We're chasing that business and twenty fourseven is tracking well. We're seeing a great response to the new active books, and pants has been strong for us. And I do believe as we cycle into the warmer climates, our short business is really set up for success.

[Janet Kloppenburg, President at JJK Research Associates]

Great. Thank you, Jen, and good luck to you. Mike?

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

Yes, Jen, on gross margin, the first quarter with the guidance at the $25,000,000 to $25,000,000 op bank on mid single revenue decline, you're going to get the gross margin around two forty basis points down. The majority of that is expense deleverage. So rent and other rent and then fixed costs and in the gross margin that are still in work. But the deleverage there will be the biggest driver of that. We do have a little bit of IMU headwind, like I said, from currency. Q1 is still the biggest currency lap, especially against the pace of last year. Dan mentioned some chase and some things being adjusted to the assortment receipts for chasing, so a little bit of freight as well.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

But the majority is going to be expense deleverage with a little bit of pressure on the merch margin from those couple of items as well. Second quarter, more definitely tighter, call about 150 basis points is what we're thinking based on projecting now. Expense deleverage is not as significant on some revenue improvement. And again, we start to lap the currency impact to the back half of the second quarter last year. So that gets negated through IMU.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

So those two components better than the first quarter resulting in about maybe 100 basis points better difference to last year in the second quarter versus the first quarter.

[Janet Kloppenburg, President at JJK Research Associates]

Thank you, Mike.

[Operator]

Our next question is from Adrienne Yoo with Barclays.

[Adrienne Yih, Managing Director, Consumer Discretionary Analyst at Barclays]

Good afternoon. So my question is, going to go back to the tariff piece of it. Your assumptions, for the tariff, you have the 20% exposure to China. I think that was for FY 2024, but I know you're working that down. Where are you currently? Where do you expect that to be at the end of the year? And then just kind of proactively thinking, what is your exposure to Vietnam?

[Adrienne Yih, Managing Director, Consumer Discretionary Analyst at Barclays]

Does your guidance actually just assume you're taking the margin hit with no pass through and no kind of manufacturing negotiations, etcetera? And then Jen, where are we in the denim cycle of things? And obviously comps up five percent. Is there another iteration or another kind of progression of kind of that wider leg denim? And then if you can talk about the promotionality of both Aerie and AD brand? Thank you.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

I can hear you. Can you say that again? Yes.

[Jay Schottenstein, Executive Chairman of the Board & CEO at American Eagle Outfitters]

When it comes to tariffs, nobody knows what tariffs are going to put on where, when or what. We don't know if it's going to be either Vietnam, we don't know China, we don't know India, we don't know Bangladesh. So there's a shift in every where we're shifting to. And you have to remember that eight years ago we went through this before and everything settled down. So we just have to be gone a new course.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

We're not going to be jumping all over

[Jay Schottenstein, Executive Chairman of the Board & CEO at American Eagle Outfitters]

the place until we know exactly what the story is. Nobody knows what the story is yet. We went through this eight years ago, it settled down. And if you remember, eight years ago, the first half of business was a tough business and it settled down and then everything got very good for the next few years until the pandemic. So I want to be rushing where am I rushing to?

[Jay Schottenstein, Executive Chairman of the Board & CEO at American Eagle Outfitters]

I don't know where I'm rushing to. And then the assumption

[Adrienne Yih, Managing Director, Consumer Discretionary Analyst at Barclays]

That's very fair.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

Yes. %, Jay. So I think flexibility is key. That's the key point there. The teams have that built.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

We've got redundancy built just to move around if we need to. But at the moment, to Jay's point, where do you move until we know? But the assumptions are right now and the reality around China penetration is we're below 20 now, we're in the high teens. Some of the mitigation is we plan to be in the single digits by the time we get to the back half of the year. So that's why the little bit of tariff headwind in the front half, back half pretty low under these assumptions.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

Vietnam is similar to China at the moment, kind of high teens 20%. The teams have already worked the same process around mitigation efforts with our manufacturing partners, vendors in Vietnam. So right now the assumption is no pass through to consumer. We've actually between the mitigation efforts and China reducing the penetration, then it's the partnerships we have with our vendors and sharing and the cost of what could happen at the moment. We feel good about that.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

The teams have worked tirelessly for a good six, nine months now getting ready for this to create that redundancy, create flexibility across the network. We feel like we can make a lot of different moves pending to Jay's point what actually does occur.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

And in denim, particularly in women's, we had a strong year mid single digit comps. Q4 to run that five comp was exceptional. However, we did go into Q1 very lean and we needed to chase goods. What I love about what's happening in the business right now is the diversity of fence. It's not just about baggy actually.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

We're seeing skinny emerge and, what makes this magic in this on this team and our positioning in the market is how we chase denim and how we go to market and also our fits. I mean our fits are the best in the industry and I'm extremely proud of what the team is able to deliver. However, we still have a lot of open to buy. We just did our denim testing and the results came in. And again, it's a little bit more diversified than I think what other people are saying.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

We're seeing strength across a variety of fits in women's in particular and we are seeing leaner fits coming back into men's. The other thing that's happening in men's is bottoms are definitely trending for us. So other bottoms, pants and shorts and I mentioned earlier shorts are just beginning for that business. So a lot of our business to be had in this quarter and hopefully we'll get that 70 degree weather. As I think about promotions for AD and Harry, look this is where we have to win, right?

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

We have to manage our inventory. Good news is we're lean coming in with inventory. So the teams don't have a lot of pressure there, but we have to compete at the same time. I do think that we could definitely balance out our assortments a little bit more with some opening price points so that we can compete in that value equation and, but mixing that business and we'll continue to work on that. That's what the team is working on as we speak.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

But again, because we're lean on inventory, we have open receipts, we can actually be nimble and manage business better.

[Adrienne Yih, Managing Director, Consumer Discretionary Analyst at Barclays]

Great. Thank you very much. That's what.

[Operator]

Thank you.

[Operator]

Our next call our next question is from Paul Lejuez with Citi.

[Paul Lejuez, Managing Director at Citi]

Hey, thanks guys. Just a couple of quick ones. What's built in for incentive comp in F25? Could you just remind us what F24 was versus 2023, the impact of the margins on incentive comp? And then offline, can you talk about the size of that business in dollars and what you expect for growth this year?

[Paul Lejuez, Managing Director at Citi]

And then just curious if you canceled any inventory purchases from the back half?

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

Yes. Incentives, we talked in the past about, you may need to mute Paul. In fact, as we talked about our incentive metric is aligned with everything we talked about for the three year plan. So EBIT on this guide, we'd assume very low to minimal incentive comps in 2025 off of March number. We talked about in the past relative average around $50,000,000 but that's again the $375,000,000 we would assume very little incentive compensation in this guide. Offline?

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

The size of offline, we've look, we've done a lot of work strategic work around the growth of the brands in the last several months. And we believe that penetration is still low, customer awareness is very low. We've talked about Aerie in total being only around 55%. Off line from an awareness perspective is next to nothing. Obviously, we've got a nice business across the categories within the sub brands, at area to $1,700,000,000 we always talk about offline as a sub brand being about a third of the business around $600,000,000 So very small still.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

It's the fastest growing thing in the company as we speak, set of categories, a lot of runway ahead of us. The TAM total adjustable market is around I think $30,000,000,000 40 billion dollars So small in the context of the company, a lot of opportunity for us in terms of product expansion, geographic expansion, building awareness. And as we talked about in the opening remarks, we're not going to stop or slow down the investments there. Best use of our cash right now is the return we think we can get from the continued investment across the brands, nothing bigger than offline at the moment.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

And think about the positioning, right? We're number two leggings business and actually number three or four in the bra and the sports bra segment and we've only just begun. We haven't even marketed to this business. So lots to come here. The product is very well received and the innovation is like no other.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

So really proud of this business and it continues to outpace the other businesses in our company.

[Paul Lejuez, Managing Director at Citi]

Got it. And then any place you've adjusted in the third purchase dates for the back half?

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

Sorry, Paul, can you repeat that here? Coming through a little muffled.

[Paul Lejuez, Managing Director at Citi]

Inventory purchases for the back half, any adjustments that you've made?

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

Yes. Yes. We have a lot of open to buy for Q3 still. Q4 is in work and development as we speak. So we have a lot of flexibility on the back half.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

We're looking at the trends and projections that we've laid out here for this guide and Jen and team working through adjustments to forward plans and we have a lot of flexibility to do that still.

[Paul Lejuez, Managing Director at Citi]

Thanks. Good luck.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

Thank you.

[Operator]

Our next question is from Dana Telsey with Telsey Advisory Group.

[Dana Telsey, CEO and Chief Research Officer at Telsey Advisory Group]

Hi. Good afternoon, everyone. Can you talk a little bit about the performance of digital and stores in the fourth quarter and how it's looking in first quarter to date and how you're planning to go forward? It is following up on remodels. I know that there was expected to be an acceleration in store remodels in 'twenty five.

[Dana Telsey, CEO and Chief Research Officer at Telsey Advisory Group]

Is that still on track? Or what are you looking at for openings and remodels? And how are you thinking about marketing spend this year? Thank you.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

Yes. We had growth for the fourth quarter, Dana. We had comp improvement across brands and channels, so both in digital and stores digital ahead of stores within the three the plus three comp results. First quarter right now, digital is stronger than stores. Our traffic is still relative to mall traffic outpacing even though traffic is down significantly in the mall.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

Traffic to digital is definitely healthier than in stores. And right now on this mid single digit guide, digital is on the more positive side of that with stores being down more than mid single. On remodels for the year, we talked about we did 56 in 2024, seen nice results from those stores. We know we want to continue on this program to knock down the average ages of American Eagle fleet from twelve years to seven years. We are planning to still in our capital plans to do more this year, closer probably 90,000,000 to $100,000,000 in that range within the $300,000,000 capital spend guide.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

And then for openings for area and offline around $35,000,000 which includes a mix of stand alones and side by sides. So continuing to make those investments for future growth in this year. Marketing spend. So within the earlier question around expense management, really coming into the year, we were really successful in keeping expenses down across SG and A other than advertising really to fund additional marketing expense. We talked about getting a lot better in terms of investments there, measuring those investments, continuing to invest in marketing for growth.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

We've got very specific acquisition and retention targets for our customer base. We don't want to slow that down either. So advertising in this guide is still similar to what we planned. The rest of our expense dollars in SG and A down to fund that investment. We have the opportunity to flex that still through evaluating some elements of that spend.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

But it is still the one line that in an SG and A guide that is basically flat rate to last year, advertising would deleverage within that on the year.

[Dana Telsey, CEO and Chief Research Officer at Telsey Advisory Group]

Got it. And then just one follow-up on the warmer markets doing better. How much better is the warmer markets do? And Jen, what are you seeing in terms of category performance that may be different in the warmer markets that is making you excited? Thank you.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

Yes. We're seeing just obviously the seasonal businesses check better in the warmer markets. We slightly penetrate higher as I mentioned in the cooler climates, Midwest and Northeast, slightly about 10 basis points. It's still too early. We have a lot of checks and balances on this quarter with the shifts of spring break and Easter being out so late.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

It's very early to read, but the product that's checking, that's what we're responding to, right? And of course, digital, you see a little bit of a different demand on the digital channel, less seasonal. So when we're in the market, when I think about how we're reacting to this business, the teams, like I said, you definitely see some warmer trends happening in the warmer climate shorts and tees, but it's too early to tell. And what we're doing is posturing our inventory as I mentioned that earlier so that we can be nimble and the teams are chasing what is working early out. So little early to tell here, but the team is reacting and responding.

[Dana Telsey, CEO and Chief Research Officer at Telsey Advisory Group]

Thank you.

[Operator]

Our next question is from Marni Shapiro with The Retail Tracker.

[Marni Shapiro, Managing Partner at The Retail Tracker]

Hey guys, thank you. And Jen, the dresses and the fashion at Eagle really look absolutely fantastic. Just a couple of quick housekeeping questions and then Jay, I have a question for you. But did you guys talk about the penetration of your loyalty program to your business? And you talked about store openings and closings and remodels.

[Marni Shapiro, Managing Partner at The Retail Tracker]

Did you provide like a square footage number for the full year? Are those remodels the same sizes, bigger, smaller? So what's the full year square footage? And then I have a big picture question for you, Jay. I'm curious, you've been through a lot of cycles obviously before.

[Marni Shapiro, Managing Partner at The Retail Tracker]

I'm curious what you think about the consumer out there. Do you think that they're slowing down? Is it really the weather? Do you think that they also bought a lot over holiday and they're taking a breather? Do you think the news is actually having an impact on them?

[Marni Shapiro, Managing Partner at The Retail Tracker]

I've read some articles. I'm sure you've seen the same ones that the consumer today actually knows or is trying to figure out what a tariff is, where two months ago they didn't even ask So I'm curious what your big picture thoughts are on the consumer.

[Jay Schottenstein, Executive Chairman of the Board & CEO at American Eagle Outfitters]

Okay. My big picture thoughts are very simple. They have the fear of the unknown, not just tariffs, not just inflation. You see the government cutting people off. They don't know how that's going to affect them.

[Jay Schottenstein, Executive Chairman of the Board & CEO at American Eagle Outfitters]

They see programs being cut. They don't know how that's going to affect them. They just don't know how it's going to affect them. And when people don't know what they don't know, they get very conservative. I think the vast majority of Americans are going to be affected one way or the other.

[Jay Schottenstein, Executive Chairman of the Board & CEO at American Eagle Outfitters]

But for right now, until there's so much news on the TV, it makes everyone a little nervous. And that's what I think we're going through. I also remember eight years ago, when we went through this before on similar issues, things were up and down. The first six months were tough. And then things got back to normal.

[Jay Schottenstein, Executive Chairman of the Board & CEO at American Eagle Outfitters]

And then the country was everything was going very well until the pandemic. So I don't know what to get excited about right now or not get excited about. I just think you have less things settled in first before we figure out what to do exactly.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

On your loyalty penetration question, Martin, seventy five percent and that's grown over recent years. We know that we get customers into that loyalty program. We get them shopping across brands in American Eagle area and offline. They're the most profitable customers. They are they have the highest lifetime value.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

So we have very specific strategies on growing that loyalty penetration and cross brand shoppers. That's why our customer file has never been bigger over $24,000,000 at the moment. And again, it's very specific retention or acquisition and then retention strategies against that. Square footage with the area offline openings around 35 AE still being net closure, maybe 15 to 20 in our plans, but that's under evaluation at the moment as well. You'd have square footage netting out at around a plus one to two.

[Marni Shapiro, Managing Partner at The Retail Tracker]

Thank you for the direct comment.

[Operator]

Our next question is from Rick Patel with Raymond James.

[Rick Patel, Managing Director at Raymond James Financial]

Thank you. Good afternoon. Can you talk about the opportunity around basket size? You're making progress on tops and it sounds like you're leaning more into entry price point products as well. So just curious if you see basket size as being a bigger contributor to the business this year?

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

Yes, actually, we've been holding our own in traffic against some of the data we've been seeing and actually the basket size is holding its own right now. And it's a focus of ours because in this environment we have to make sure that when she comes in or he comes in that we're fulfilling their needs. So big focus on basket size and like I said, we're there's a little uptick there, on those numbers with traffic being, you know, some weeks slightly down to slightly negative and some weeks beating them all. And it's very right now it's a little erratic coming out of the gate in February. So I think what the teams have been doing is, what our teams have been doing is making sure that our customers are satisfied when they come in and actually our basket size is actually slightly up right now.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

So it's a focus of ours as dress him, new occasions, dressing occasions and obviously with the growth in offline, and some of the we're very excited about that business that we think that's an add on business for all the brands. As you know, we share our website and we're definitely talking to her across brands, Aerie, Offline and obviously, AE Women. So lots of opportunity there. Mike just talked about the loyalty program and there's definitely opportunity to invite all of our customers that 24,000,000 into all of our brands.

[Rick Patel, Managing Director at Raymond James Financial]

Can you also help us with the outlook for marketing? It sounds like you're going to continue investing here. I think you touched on a new campaign in the back half. So curious if there's anything else to call out in terms of timing that could be a swing factor for margins. And if you don't see a good ROI on this marketing, do you see it as an opportunity to pull back and protect your margins?

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

Yes. Right now, we're playing up in the first half. So first quarter, second quarter plans in place. Some of that strategic based on a lot of learnings around some new analytics tools of sort of effectiveness of the timing of spend to get benefits into back to school and holiday. Dollars in the back half were relatively flat.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

We increased investments last year in the back half. So it's a flex line item for us as we get into the back half of the year still, still working through nailing down specific plans there with Jen and the creative teams. So up in the first half, funded with SG and A dollars being flat, all other expense lines kind of funding advertising in the first half, flat in the back half at the moment with some plans to get nailed down still.

[Rick Patel, Managing Director at Raymond James Financial]

Thanks very much.

[Janet Kloppenburg, President at JJK Research Associates]

Thank you.

[Operator]

Our next question is from Simeon Siegel with BMO Capital Markets.

[Simeon Siegel, Managing Director & Senior Analyst at BMO Capital Markets]

Thanks. Afternoon, everyone. First off, sorry if I missed it. Did you study how the different brands are looking in your guided revenue declines for the year? And then Jen, when thinking about the market share versus the market growth dynamics within intimates you were referring to, any thoughts to what or when revitalizes the intimates broader market growth? And then lastly, a bit peripheral, but it looks like you showed an uptick in the international license store count. At this point, how large are international license revenues and the profits?

[Simeon Siegel, Managing Director & Senior Analyst at BMO Capital Markets]

And I guess what's the right way to think about them going forward? Thanks, guys.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

Yes. I think for it's been the guide to me and the brands are similar to what we saw in 2024. The current trends and trajectory with AE a little bit on the negative side of the average, Aerie on the positive side. So for down mid single, you could assume Ares was better than that, AE down a little more than that. So I mean if you think about 2024, we had a four comp, ARE was a plus five, AE was a plus three.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

So I think we're looking at similar things at the moment with more to come once we see how trends continue, a lot to be a lot to absorb in current performance and see how things trend from here.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

Yes. Regarding market share, obviously, in this environment right now, it is a market share play. And I'm pleased to say that we certainly stack against our core competency businesses, denim. We're holding our rank. As I think about offline, we've grown in the legging market share and then in a declining market in Airy, intimates has been declining.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

We've certainly held our own and we've grown in bras and in undies, slightly, not huge. But this will be a year of us competing and getting the market share that we deserve.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

On the license business, I mean, the over the last several years, we've been pretty consistent with around the mid-30s revenue from those businesses. Some of our biggest partners in The Middle East with Alshaya and Vox, obviously, years, but their businesses have stabilized and come back a bit. But you can assume something similar. We're assessing some things around kind of future international growth. The majority of our international revenue, as you know, is from Canada and Mexico. So over 10% of our total revenue.

[Simeon Siegel, Managing Director & Senior Analyst at BMO Capital Markets]

And it's good there, right? It's amazing.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

Yes. It's sort of amazing to Dave's point. Even what have been going on in The Middle East that has bounced back, but pretty consistent to that.

[Jay Schottenstein, Executive Chairman of the Board & CEO at American Eagle Outfitters]

And next time, I'm talking about Mexico. Oh, Mexican.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

Warm weather, that's a good sign.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

Yes. So nothing to think about in terms of anything significantly different from the license piece of that with what we have talked about in the last several years is the grant growth to Jay's point coming out of Mexico. We still have a lot of room there. It's been a nice impact to the AE brand over the last several years. We've kind of only gotten started with Aire and offline.

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

So it's very small penetration to the total for those two brands in Mexico with plans to grow those brands in market still.

[Simeon Siegel, Managing Director & Senior Analyst at BMO Capital Markets]

Okay, great. I think there were some in Hong Kong that were converted. So just is there a change or an approach to looking more to licensing internationally or is that a one off?

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

Yes, we shifted that business from an owned model to a licensed model in the back half. That was I think a strategic move for profitability purposes and just have a partner in the market. Yes, our own markets that are really at this point are Canada and Mexico now. So growth in the future in other markets would be more through partnerships in one way or the other is our strategic thinking, yes.

[Simeon Siegel, Managing Director & Senior Analyst at BMO Capital Markets]

Sounds great. All right. Thanks, guys. Best of luck for the year.

[Judy Meehan, Vice President of Corporate Communications & Investor Relations at American Eagle Outfitters]

Thank you. We have time for one more question.

[Operator]

Thank you. Our last question is from Alex Stratton with Morgan Stanley.

[Alex Straton, Analyst at Morgan Stanley]

Thanks so much. And maybe for Jen, just you mentioned a number of top line initiatives that should build throughout the year and enable that post first quarter sales improvement. You mentioned a number of things. So I just want to understand how you think about them maybe in terms of buckets or which are the top ones? And then just a quick follow-up on the tariff response. I think you said you're moving China sourcing exposure pretty materially into the back half.

[Alex Straton, Analyst at Morgan Stanley]

I'm just curious where are you going or where are you shifting that? Thanks a lot.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

Sure. First and foremost, coming out of Q4, we had strong results. And going into Q1, we had some inventory opportunities. And some good news and some bad news, right, going into the quarter. We definitely had some inventory outages, but it allows us to be nimble.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

We are chasing denim after in women's in particular after a strong fourth quarter comp. And then there has been some product misses that we are acknowledging and most of it is due to inventory. So again, we needed some inventory here in some key categories in Aerie in particular. And we're seeing just some wins in some businesses that we could have had more of. So for instance, in Airy, soft dressing, Sleepwear has been actually across all categories, Sleep and Lounge has been really doing well, chasing that, Graphics has been great.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

So of course, we have early reads and this is what we do day in and day out. So the early reads we're reacting to. We're ensuring that our inventory is nimble. We're ensuring that we're open on the back half, which is obviously it's our Super Bowl as we enter into Q3 when we're such a denim driven business and denim drives behavior for all of our brands, which is important to note. Denim drives traffic to our site and then we cross pollinate throughout our brand.

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

So that's really important to note and we're setting ourselves up for the back half of the winning in denim. And I feel like the teams are doing a great job. So and then of course, we're monitoring our promotional cadence, balancing AURs with opening price points, very important right now. And of course, just reading the business day in and day, but mostly staying connected to our customer. We've done a lot of data analytics around our customer, where she is and what she wants and the fluidity, The fluidity of that is really important in today's business, right?

[Jennifer Foyle, President and Executive Creative Director of AE & Aerie at American Eagle Outfitters]

One week she's in stores or he's in stores and the next week they're online shopping and we have to open up the gates and ensure we are addressing where that customer is and obviously delivering to that customer.

[Alex Straton, Analyst at Morgan Stanley]

China sourcing question?

[Operator]

Can you repeat the question?

[Alex Straton, Analyst at Morgan Stanley]

I think in the prior tariff question, maybe Mike had answered that you guys are moving China production from like a high teens percentage of the business to single digits or something. So I'm just wondering where that's going?

[Mike Mathias, Executive VP & CFO at American Eagle Outfitters]

Yes, we have the ability that's the plan for now, but again flexibility is key. So to Jay's point earlier, depending on what actually happens, we can decide if we ultimately do that or not and we have redundancy to move as needed. But if needed, if things that are being projected or said about China actually do occur, we have the plans right now to go from high teens to single digits. We source across 15 countries. The teams have built redundancy across those countries. We will flex as needed.

[Alex Straton, Analyst at Morgan Stanley]

Thank you.

[Operator]

Thank you. This concludes our question and answer session.

Participants

Executives

• Judy Meehan, Vice President of Corporate Communications & Investor Relations
• Jay Schottenstein, Executive Chairman of the Board & CEO
• Jennifer Foyle, President and Executive Creative Director of AE & Aerie
• Mike Mathias, Executive VP & CFO

Analysts

• Jay Sole, Managing Director at UBS Group
• Amanda Douglas, VP - Equity Research at JP Morgan
• Janet Kloppenburg, President at JJK Research Associates
• Adrienne Yih, Managing Director, Consumer Discretionary Analyst at Barclays
• Paul Lejuez, Managing Director at Citi
• Dana Telsey, CEO and Chief Research Officer at Telsey Advisory Group
• Marni Shapiro, Managing Partner at The Retail Tracker
• Rick Patel, Managing Director at Raymond James Financial
• Simeon Siegel, Managing Director & Senior Analyst at BMO Capital Markets
• Alex Straton, Analyst at Morgan Stanley