American Eagle Outfitters Q1 2026 Earnings Report

American Eagle Outfitters EPS Results

• Actual EPS: -$0.29
• Consensus EPS: -$0.25
• Beat/Miss: Missed by -$0.04
• One Year Ago EPS: $0.34

American Eagle Outfitters Revenue Results

• Actual Revenue: $1.09 billion
• Expected Revenue: $1.08 billion
• Beat/Miss: Beat by +$6.14 million
• YoY Revenue Growth: -4.70%

American Eagle Outfitters Announcement Details

• Quarter: Q1 2026
• Date: 5/29/2025
• Time: After Market Closes
• Conference Call Date: Thursday, May 29, 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 Q1 2026 Earnings Call Transcript

Key Takeaways

• The company reported a $68 million adjusted operating loss in Q1, with American Eagle comps down 2% and Aerie comps down 4%, driven by product execution misses, higher promotions and a $75 million spring/summer inventory write-down.
• For Q2, AEO expects revenue down 5% and comparable sales down ~3%, with operating income projected at $40 million–$45 million and gross margin pressured by in-season markdowns and deleveraged occupancy costs.
• Management has implemented a more rigorous cross-functional buying process, realigned seasonal inventory for back-to-school and closed two Edge fulfillment centers—actions expected to generate ~$5 million in annualized savings.
• To mitigate tariff impacts, AEO is diversifying its supply chain and plans to reduce sourcing exposure to China to under 10% this year, targeting low single digits for the fall/holiday season.
• Capital allocation priorities remain balanced, including a $200 million accelerated share repurchase, $31 million in open-market buybacks and $22 million in Q1 dividends.

Presentation

[Operator]

Good day, and welcome to the AEO Incorporated First Quarter twenty twenty five Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Ms. Judy Meehan, Head of Investor Relations and Corporate Communications. Please go ahead, ma'am.

[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 Jen Foyle, President, Executive Creative Director for American Eagle and Aerie and Mike Mathias, Chief Financial Officer. 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.

[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, 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 first quarter investor presentation. And now I will turn the call over to Jay.

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

Thanks Judy and good afternoon everyone. As described in our preliminary release earlier this month, we were disappointed with our first quarter performance. The margin impact together with the $75,000,000 inventory write down contributed to a $68,000,000 adjusted operating loss for the quarter. At the brand level, American Eagle comps were down 2% and Aerie comps declined 4%. While the broader macro environment and cold spring weather presented challenges, we did not execute to our potential.

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

We had some product misses in our spring and summer floor sets. At Aerie in particular, merchandise came in with higher design and transportation costs, and we were not able to realize pricing to support a healthy margin. Altogether, this resulted in higher than expected promotions and the inventory write down we took on spring and summer merchandise. In reviewing this season, our execution needs to be better, and the entire team is hard at work to ensure that it is. We have been busy correcting and planning fall twenty twenty five and spring twenty twenty six seasons with all of our learnings top of mind.

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

With the write down behind us, we entered the second quarter with inventory for the season better aligned with recent sale trends. Additionally, we have implemented increased rigor into our buying process, which includes greater cross functional partnership and oversight. We also remain focused on optimizing our operations consistent with our long term strategic framework. In the first quarter, we accelerated plan actions to further strengthen our supply chain network, which included closing two of our Edge fulfillment centers. This was the majority of the $17,000,000 non GAAP charge in the first quarter and is expected to generate annualized savings of approximately $5,000,000 We continue to take steps to mitigate the impact of tariffs using all levers at our disposal as it makes sense for our business.

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

Additionally, we are continuing on our strategic path to move business to ensure we are manufacturing with best in class partners in countries that make sense for us. Although we continue to face challenges and near term uncertainties, I believe we are making progress. While annual guidance remains paused until we have greater visibility, I'm confident that we will see improvement as the year progresses. This is further underscored by the meaningful opportunities we see to continue to amplify our brands. Two of the most beloved brands in retail in American Eagle and Aerie as well as our active sub brand offline.

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

The team is focused on fueling growth and reach and we remain confident in the strategic initiatives we have laid out to drive this. Our capital allocation priorities balance investments to support our long term growth agenda, while making sure we return capital to shareholders. On that note, in the first quarter, this included the initiation of a $200,000,000 accelerated share repurchase program as well as $31,000,000 in open market shares repurchases. Additionally, we paid out $22,000,000 in cash dividends in the first quarter. Before I turn the call to Chen, I want to underscore that we are working with urgency to reignite our performance.

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

We expect to be well positioned heading into the important back to school season and are confident that results will follow. We've been through challenges in the past and always emerged stronger and that is our goal. We are grateful for the continued commitment and support of our associates and partners as we work to capitalize on the meaningful shareholder value creation and opportunity in front of us. Now I will turn the call over to Jen.

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

Thanks, and good afternoon, everyone. Clearly, this was a tough quarter. We had misses on the merchandising front and a handful of key categories. This was compounded by a cool spring and a slow start to the quarter in February. As the quarter progressed, we saw improvement and met our sales guidance.

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

However, promotional activity was up, resulting in lower AURs. We also took an inventory write down, altogether driving significant margin pressure. Reviewing our performance by brand, starting with Aerie. Issues are concentrated in soft apparel, particularly in fleece tops and shorts, where some of our big fashion ideas for the season simply did not resonate with our customer. We also had higher product costs and we were not able to realize the pricing to get an acceptable margin.

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

We did see areas of strength, which we are leaning into as we move through the quarter and the balance of the year. In addition to certain fashion categories, we saw intimates improve sequentially as we gain share. Newness in fabrication and design as well as refreshed marketing emphasizing our unique value offering is resonating well. Offline by Aerie demonstrated positive growth. This continues to be such an exciting opportunity for us.

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

We are gaining market share, expanding customer awareness, and building a community around our truly unique take on activewear. Looking ahead, collections are more cohesive and balanced between basics and fashion items. And tariffs aside, product costs are favorable. Despite the near term challenges, I'm excited as ever about Aerie and Offline's long term growth opportunities. We have a powerful and strong platform.

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

We will continue to build upon our dedication to our customer is at the center of every decision we make and we are committed to delighting them every day. Let's turn to American Eagle. Although disappointing in total, we saw a nice improvement as spring breaks got underway during the Marpril period. As discussed last quarter, we experienced out of stocks in some core denim styles, which constrained our performance in this quarter. Overall, we saw weakness in shorts and pants.

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

On the positive side, we are pleased to see comp growth in several areas in our women's business, in particular categories that have been a strategic focus around our social casual dressing initiative. At the same time, we continue to elevate our everyday casual offering. We achieved our best quarter ever in fleece. And additionally, we came back in stock in women's denim and then we saw improvement. Although we continue to see pressure in men's, two notable positives were tops in our activewear franchise twenty fourseven.

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

Looking ahead, I am confident we can build on these wins while addressing the opportunities that came to light over the past few months. Additionally, we have some very exciting campaigns planned for back to school, which we believe will elevate the brand and build greater customer engagement. Before I turn the call over to Mike, I want to reiterate my confidence in the long term growth potential for American Eagle and Neri. We have powerful brands, strengthen our selling channels and a dedicated customer base that continues to grow with us. We are working with urgency to make the right improvements to realize our full potential.

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

And thank you all. I'll turn the call over to Mike.

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

Thanks, gents, and good afternoon, everyone. Beginning with our first quarter review. As shared earlier this month, first quarter consolidated revenue of 1,100,000,000 declined 5% to last year. This included a one point headwind from adverse currency and another point from moving our Hong Kong operations to a license model last year. Comparable sales decreased 3%.

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

As Jen said, February is particularly difficult with some improvement in the March time period. Of note, traffic was up across brands and channels. Comp pressure came through lower AURs and conversion. Gross profit dollars were $322,000,000 and included approximately $75,000,000 in inventory write downs on spring and summer goods as previously disclosed. The gross margin was 29.6%.

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

Our merchandise margin decreased nine sixty basis points driven by a six eighty basis point impact from inventory write downs. In addition, higher in season markdowns, higher product costs and increased freight as we chased into goods pressured margins. Buying, occupancy and warehousing expenses deleveraged 140 basis points due largely to rent and delivery in light of the comp decline. SG and A dollars increased 2% as a result of higher advertising where we made investments to support our brands with a partial offset from lower compensation. Depreciation was down year over year to $52,000,000 and we recorded an adjusted first quarter operating loss of $68,000,000 And adjusted loss per share was $0.29 Consolidated ending inventory cost was down 5% following the write down with units also down 5%.

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

In the first quarter, as Jay noted, we continued to make long term investments in our business while returning cash to shareholders. First quarter CapEx totaled $62,000,000 With the open market buybacks and the accelerated share repurchase program, our share count comes down to approximately 175,000,000 moving forward, and we remain on track to complete the program in the second quarter. We ended the quarter with approximately $88,000,000 in cash and investments and over $620,000,000 of total liquidity, including our revolver. Now turning to our outlook. While we have paused full year guidance until we have greater visibility, we wanted to share our expectations for the second quarter as well as some incremental color on the actions we're taking to strengthen performance.

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

Jen and team remain focused on improving product performance with fresh back to school merchandise hitting shelves in July. As mentioned, we've taken actions on inventory, including leaving fall and holiday season buys open to maintain flexibility in our merchandising strategy. As we continue to navigate tariffs, we're implementing various mitigation strategies, including partnering with our sourcing vendors to reduce costs. Additionally, we're further diversifying our supply chain and on track to reduce our sourcing exposure to China to under 10% this year with fall and holiday season down to low single digits. We're pursuing efficiencies across capital spend with full year CapEx now expected to be approximately $275,000,000 as we recadence some investments over the coming years.

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

And as noted last quarter, we expect currency pressure to alleviate in the second half as we lap headwinds from last year. Altogether, this positions us to deliver improved growth, profitability and cash flow as the year progresses. For the second quarter specifically, we expect the top line to trend similar to the first quarter with revenue down 5% and comparable sales down approximately 3%. Operating income is expected to be in the range of 40,000,000 to $45,000,000 We expect gross margin to be down to last year, driven primarily by higher in season markdowns and BOW cost de levers on the comp decline. SG and A dollars are expected to be roughly flat with D and A at approximately $54,000,000 The tax rate is expected to be approximately 25% and the weighted average share count will be approximately $175,000,000 Overall, we are committed to reaccelerating performance from here and to taking the necessary actions to achieve that goal.

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

We are better positioned entering the second quarter and our teams are laser focused on execution to strengthen our performance. And with that, we'll open up for questions.

[Operator]

We will now begin the question and answer session. And the first question will come from Matthew Boss with JPMorgan. Please go ahead.

[Matt Boss, Equity Research Analyst at JP Morgan]

Great. Thanks. So Jay, maybe larger picture, what's your view of the consumer today? How do you see this impacting the retail landscape into the back half of the year? And maybe across your brands, how much of the recent performance do you see is macro driven maybe relative to execution related? And how can you best respond?

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

Alright. With the macro macro situation, look, we're optimistic. You know, we're hoping that this, you know, tax plan gets passed sooner than later. And I think they'll give a lot of optimism and it may even stimulate the economy as far as the second half goes. As far as the macro as far as the first half, I think in the beginning of the year, it did have a little influence on us between people worried about the immigration issue.

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

They're worried about the government cuts They're worried about tariffs. I think people are getting more settled down now on it, and it's not as prominent as it was before.

[Matt Boss, Equity Research Analyst at JP Morgan]

Great. And then maybe, Mike, on the second quarter operating income, I guess, you help break down or break apart your embedded assumption for gross margin and just promotional activity needed and the timeline to return to a clean inventory position across brands?

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

Yes. I can hit the inventory piece first. We've been hard at work really for the start to see this trend in the first half, then with the tariff news on April 2 to really reset plans for the rest of the year, especially in the back half. The write down, obviously, to get our total inventory right set for this entire first six months, spring and summer goods. So our inventory, we feel is in a better place for the back half, very much in line with sales expectations.

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

We'll talk about we're not providing full guidance with our full year guidance, but we'll talk about that more on the next call. And for Q2 specifically, yes, we are still embedding on what is the negative three comp expectation similar to the first quarter at the moment, down five total revenue with still some currency and other the currency Hong Kong, point or two headwinds there continuing for the second quarter until we lap both those things starting in the third quarter. And still embedding some promotional activity that we believe we will probably need during summer season here to get through the inventory and be clean going into the back to school season. And then on with the down 5% total revenue pressure on the expenses and gross margin, rent and delivery specifically, I would expect to see deleverage on those lines again similar to what we saw in the first quarter.

[Matt Boss, Equity Research Analyst at JP Morgan]

Great. Best of luck.

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

Thanks, guys.

[Operator]

The next question will come from Jay Sole with UBS. Please go ahead.

[Jay Sole, Managing Director at UBS Group]

Great. Thank you so much. Jen, my question is for you. Just talk about some of the merchandising issues. Do you feel like that maybe there was a little bit of a misread of where the consumer was going?

[Jay Sole, Managing Director at UBS Group]

Or was it perhaps your identification of trends is good but maybe competition had the trends a little bit better or sooner than you did? And then secondly, how fast do you think you can get back on the trend where the merchandising is where you want it to be to perhaps drive stronger comp growth in the back to school and holiday seasons? Thank you.

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

Sure. Yes, to reiterate, we came off of a really solid Q4. We are expecting more as we moved into February and obviously that didn't happen. I will tell you that these teams are working very swiftly to repair what our learnings are. And there's always green shoots, right?

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

And we definitely had product issues across brands, but there were product categories that worked. So what the team has been up to since February is repairing and looking forward ahead. Of course, we needed to lean into moving our inventory, ensuring that we're clean. That is our approach. We want to be clean and mean for back to school.

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

It's our Super Bowl season, and that's what we're working on. We have categories like offline. Offline has been great. We had solid strength and growth there, and we're leaning into that category when we think about the Aerie brand. There are misses, but look, we're looking into back to school.

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

I'm proud of what the team is working through. We have new members on the team too, and we have new talent. And I think this team is a winning recipe, including moving some, ten year teams into new businesses, I. E. Direct.

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

So I'm I'm really excited about what's to come, but we have work to do. That's for sure.

[Jay Sole, Managing Director at UBS Group]

Got it. Thank you so much.

[Operator]

The next question will come from Dana Telsey with Telsey Advisory Group. Please go ahead.

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

Hi. Good afternoon, everyone. As you think about capital allocation and the CapEx expenditure, I think came in a little bit. How are you thinking about your physical footprint? What's changing in openings and closings versus what you had previously expected?

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

And then if you think about the merchandise assortment going into the back half of the year, category wise, Jen, where do you expect to see the biggest improvement? And what will take a little bit longer in order to address? Thank you.

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

I'll start with the product. The good news is our seasonal products were tough, right? Shorts across all three brands were tough. Interestingly enough, denim has been very, very strong for us and giving us nice solid indications as we think about back to school. So it's interesting how we've been able to lean into that category and make sure we're prepared for the back to school season, particularly, obviously, in AE.

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

I mentioned off line. Off line has been a strong category for us. We're winning in that area, and we're going to continue to lean into that category in Aerie and look, intimates. We still have our we have shared you know what's interesting as I think about all three brands is we're holding our market share, okay? And we're gaining in areas like I.

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

E. Intimates, where that whole share has been down across the industry and we're gaining share. So thinking about intimates for Aerie, we're excited about that category. Undies has been accelerating for us. And again, we're going to lean into these green shoots that we've been seeing and we're prepared for back to school.

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

On capital allocation and CapEx, Dana, we reduced the guidance for the year to $275,000,000 in CapEx. We're really just recadencing projects. I think our initial guidance for the AU remodel program was around 100 locations. We're still gonna do about 60 to 70 this year. So just recadencing them to, you know, preserve a little bit of cash, in the environment, and really reaction to our own business, but the tariff impact initially in April, we decided to recadence some capital projects to to preserve some cash.

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

To remodel program recadencing Aerie stores, we're still looking about 30 openings. And then we also just recain some technology spend as well on a multiyear basis. And then, you know, when we prepared remarks, we talked about the dividend the first quarter and the ASR being completed here during the second quarter. And then further further outlook, we'll provide later in terms of continued plans. We know the remodel program will continue into next year.

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

Area openings will provide additional color as we get further into this year as well.

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

Thank you.

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

Thanks, Dana.

[Operator]

Your next question will come from Marni Shapiro with The Retail Tracker. Please go ahead.

[Marni Shapiro, Managing Partner at The Retail Tracker]

Thanks, guys. Can we just talk two things I wanted to confirm? I think you said denim is still doing well, and you had some sellouts. When you saw the weather break, did you also see denim pickup in denim shorts? And is denim doing well in men's and women's?

[Marni Shapiro, Managing Partner at The Retail Tracker]

And then I just have one quick follow-up on your marketing. Is that gonna be weighted towards back to school and any change in the spend there?

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

Sure. Let me just say in general for men's. Men's, we've seen some acceleration in all categories as we move into Q2. So really good news there. Shorts has still remained fairly tough for us across, again, all three brands.

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

Hoping when the weather breaks, we're going to see some relief there, and we can then pulse on that. Denim and women's has been strong. Once we got back and if you remember back in March, I quoted that we were out of stocks in February. When we got back into stocks, we saw the business and the momentum. Really good news there.

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

And all are you know, it's really interesting in denim, and I think I've mentioned this on previous calls. We're seeing all fits work for women's. It's great news for us. We have a stronghold in women's denim, and we've gained share. So that's the good news.

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

And again, I want to reiterate our customer file. Our customer file in AE has grown high single digits and Aerie, through this tough challenging time, has grown mid single digits. So we know we have work to do on the product. There were definitely some misses in Aerie. Weigh good to the floor.

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

I never liked how that shows up, by the way, when they're airing business. Oh, never. I hate it. It ends up looking like I we all not bug. We know how that looks. And and I know the teams we, you know, we go we we see what our misses. And again, starting in February, we've been reacting. So we're back to school campaign start in July and move through the season.

[Marni Shapiro, Managing Partner at The Retail Tracker]

Fantastic. And just the marketing, will that be weighted towards back to school? Is that the when we should start to see the new campaigns

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

Yes. Absolutely. AE had a new floor set recently, an area of new floor set this week. So, again, we wanna continue to bring in the newness. That's so important for our customer.

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

But, our our real marketing campaigns, you'll see more through July through the, you know, back to school season.

[Marni Shapiro, Managing Partner at The Retail Tracker]

Honestly, the new floor set that just went in is stunning and such a big change from what's been there. So congrats on that because it honestly looks fantastic.

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

Yep. Thank you. I like I said, starting in February, we we started to move fast, so that's what we need to do.

[Marni Shapiro, Managing Partner at The Retail Tracker]

Thank you, guys.

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

Thank

[Operator]

The next question will come from Rick Patel with Raymond James. Please go ahead.

[Rick Patel, Managing Director at Raymond James Financial]

Thank you. Good afternoon. Hoping you could talk about the outlook for promotions.

[Rick Patel, Managing Director at Raymond James Financial]

So you touched on growth improving as the year progresses. What does that embed in terms of promotions? Like just bigger picture, how are you evaluating the potential to improve conversion with promotions versus protecting gross margins?

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

Yeah. I think the outlook for the rest of this quarter, like I talked about, still assuming a little pressure on markdown through promotions to get ourselves completely clean going into this back to school season, as Jen talked about. In the back half, we're still embedding a little more expectation around promotions into our gross margin expectations. But again, we haven't really guided the full year, and we'll provide more color on that in the third quarter.

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

I will say, and we definitely look at our we know we diagnosed our assortments and where we might have had opportunity in units and opening price points. And the teams have been up to remixing starting back to school and even the near end as I just spoke about.

[Rick Patel, Managing Director at Raymond James Financial]

Can you also unpack your outlook for SG and A? So it grew 2% in Q1, 2Q is planned flat. Just curious what you're pulling back on and how you're approaching the back half given expectations for better growth. Curious if you lean into that improvement or if you keep spending pretty tight here.

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

Yes. I'll actually give a little color on the full year SG and A. So yes, we're assuming around we're estimating or projecting about flat SG and in the second quarter, and that's true for the year too. As of right now, I'd expect SG and A to be relatively flat in the year, but where we're leaning into is customer facing spend. As earlier question, advertising will be up on the year.

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

We have some exciting things coming for the come back to school season, Jen will elaborate on later. So we are there's some incremental spend in the third quarter. So all other SG and A is down on the year, including compensation lines. Advertising is where we are increasing spend, and that's resulting in roughly a flattish outlook for the year.

[Rick Patel, Managing Director at Raymond James Financial]

Thanks very much.

[Operator]

Your next question will come from Jonah Kim with TD Cowen. Please go ahead.

[Jonna Kim, Director at TD Cowen]

Thank you for taking my question. Could you provide more color on how the digital performed versus stores during the quarter and what you're seeing quarter to date there? And as you think about mitigating the tariff impact, how are you thinking about the pricing strategy as you flow through the goods at a higher price? Thank you very much.

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

We definitely saw an uptick on the digital channel and we leaned in there during the quarter. I will say it was a very interesting quarter. The traffic was very tumultuous, whether it was going to stores or digital. It was we navigated to the best of our ability, and we leaned into the digital channel for sure. And we saw a nice uptick on the AE side, particularly.

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

So again, we're gonna continue to take those learnings and move forward. I think I missed your latter half of the promotional question. You phased out. So

[Jonna Kim, Director at TD Cowen]

Yeah. Just just as you think about tariffs and mitigating that impact, how are you sort of using pricing as a lever there? How are you sort of balancing promotions and raising pricing in the current environment?

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

Yes. As Jay mentioned in his earlier, we definitely saw some impact of air and cost of goods, particularly in airy. So when we looked forward and we, again, took our learnings, we're making sure that our cost of goods is in line, including the tariffs. And I have to give a call out to the teams. We were well in front of the tariffs.

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

We worked hard to make sure we were mitigating this risk between production, merchandising, planning. They did an outstanding job, and we feel like we're very well positioned for back to school and ready to compete.

[Jonna Kim, Director at TD Cowen]

All right. Thank you.

[Operator]

The next question will come from Chris Nardone with Bank of America. Please go ahead. Pardon me, Mr. Nardone, your line is open.

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

Chris, are you on mute?

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

Oh, maybe I'm mute.

[Operator]

We're going to move on. Our next question will come from Alex Stratton with Morgan Stanley. Please go ahead.

[Alex Straton, Equity Research Managing Director at Morgan Stanley]

Perfect. Thanks so much. Maybe just on guidance, maybe what would give you confidence there to to reinstate it? And and and what are really the the KPIs for the second quarter that you're watching to to ensure that you're making progress from some of the the first quarter missteps? Thanks so much.

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

Yeah. On guidance, as we said, with, you know, the first quarter results, definitely some uncertainty still on the impact of tariffs for the rest of the year, focusing on getting ourselves right set into this back to school season. I'd imagine as we get to the second quarter call, we'll definitely be deciding third quarter color. And if we have a better sense of narrowing down that impact on from tariffs to our gross margin, we get back to a full year number to include a fourth quarter expectation too. But we'll, you know, talk about that on the second quarter call in in a few months.

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

As far as metrics go, I think, you know, the things that we saw in the first quarter were, you know, traffic traffic was still relatively healthy in general, customer accounts still very healthy. It was you know, AUR and conversion were the drivers of the negative comp. So those are definitely metrics we've got our eyes on here day to day between both channels. You know, Jen and Teams looking at the results every day across those metrics to see what the adjustments that could be made commercially either in, you know, cross stores and digital. So I'd say those are the metrics, you know, based on the driver of the negative comp that we saw in the first quarter, we have our eyes on those very closely.

[Alex Straton, Equity Research Managing Director at Morgan Stanley]

Great. Good luck.

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

Thank you.

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

Thank you.

[Operator]

The next question will come from Chris Nordone with Bank of America. Please go ahead.

[Chris Nardone, Director, Equity Research at Bank of America]

Hi, guys. Do you hear me now?

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

Yes.

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

Yes.

[Chris Nardone, Director, Equity Research at Bank of America]

All right. Sorry about that. So first, can you just help clarify how both brands are trending, so far this quarter relative to the 2Q comp guide of down three? I might have missed it.

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

I think we said it, so I think you missed it, but they're, very similar. Okay. Down two in first quarter, down four. Right now, they're trending very similar to that, total guidance.

[Chris Nardone, Director, Equity Research at Bank of America]

Okay. And then just on margins really quick. I think you alluded to product cost becoming a tailwind. Can you just elaborate and help quantify anything around this? And how we should think about phasing in the tariff impact if it's really going to be more of a 3Q onward event or if you'll see some impact in the second quarter?

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

Yeah. I think we talked about product cost being favorable pre any tariff impact. And then the tariffs, we've got the mitigated impact to this year, couple of million dollars in the second quarter, but the full year number is around $40,000,000 Chris. Again, couple of million dollars in the second quarter that's embedded in our current guidance. The rest of it, you could spread between Q3 and Q4.

[Chris Nardone, Director, Equity Research at Bank of America]

Understood. Thanks.

[Operator]

And our final question will come from Simon Segal with BMO Capital Markets. Please go ahead.

[Dan Stroller, VP - Equity Research at BMO Capital Markets]

Hey, good afternoon. This is Dan on for Simeon. Thanks for taking our question. Anything you could share in terms of how you're planning inventory for the remainder of the year? And maybe what you're planning open to buy for the back half versus historical levels? Thanks.

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

Yeah. As I said earlier, we're planning inventory commensurate with our sales expectations. Made a lot of adjustments through this first few months of year to right side things for the rest of the year. Feel very good about how we're positioned as of right now going into the back half. And we do have about 30% of that open at the moment with calls coming over these next several months as we get into the, you know, around the June, July, and August period.

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

So we're making very we're very detailed and, you know Decided. Yeah. Decided conversations together on placing those buys as we see the trend continue over these next several months, but that flexibility is key.

[Dan Stroller, VP - Equity Research at BMO Capital Markets]

Got it. Thanks very much.

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

Thank you.

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

Thanks. I think there's no one else left in queue. So that concludes our call for today. Thanks everyone for your participation. Thank you.

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

Thanks everyone.

[Operator]

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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

• Matt Boss, Equity Research Analyst at JP Morgan
• Jay Sole, Managing Director at UBS Group
• 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
• Jonna Kim, Director at TD Cowen
• Alex Straton, Equity Research Managing Director at Morgan Stanley
• Chris Nardone, Director, Equity Research at Bank of America
• Dan Stroller, VP - Equity Research at BMO Capital Markets