American Eagle Outfitters Q2 2026 Earnings Report

American Eagle Outfitters EPS Results

• Actual EPS: $0.45
• Consensus EPS: $0.20
• Beat/Miss: Beat by +$0.25
• One Year Ago EPS: $0.39

American Eagle Outfitters Revenue Results

• Actual Revenue: $1.28 billion
• Expected Revenue: $1.23 billion
• Beat/Miss: Beat by +$53.67 million
• YoY Revenue Growth: -0.60%

American Eagle Outfitters Announcement Details

• Quarter: Q2 2026
• Date: 9/3/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, September 3, 2025
• Conference Call Time: 4:30PM ET

American Eagle Outfitters (NYSE:AEO) (NYSE: AEO) is a leading American specialty retailer offering apparel, accessories and personal care products for men and women. The company’s flagship brand, American Eagle, focuses on casualwear including denim, tops, outerwear and accessories targeted primarily at teens and young adults. In addition to its core apparel lines, the company operates the Aerie brand of intimates, loungewear and swimwear, which has gained recognition for its body-positive marketing and inclusive sizing.

American Eagle Outfitters conducts business through a combination of over 900 brick-and-mortar stores in North America and Greater China, complemented by a growing e-commerce platform that serves customers around the globe. The company’s multi-channel strategy integrates in-store and online experiences, offering buy-online pickup-in-store, mobile-friendly shopping and a loyalty program designed to drive engagement and repeat visits.

Founded in 1977 as a subsidiary of Retail Ventures, the company went public in 1994 and established its headquarters in Pittsburgh, Pennsylvania. In 2006, American Eagle launched Aerie as a standalone label, which has since become a significant growth driver with its focus on intimates and lifestyle apparel. Over the years, the retailer has expanded its product assortment, invested in digital capabilities and leveraged social media to build strong connections with its core demographic.

Under the leadership of Chairman and Chief Executive Officer Jay L. Schottenstein, American Eagle Outfitters continues to develop its brand portfolio and explore international opportunities. The company remains committed to delivering on its motto of “real brands for real life,” balancing fashion-forward design with accessible pricing and a customer-centric approach.

American Eagle Outfitters Q2 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Second quarter revenue reached $1.28 billion (only 1% below last year), while operating income rose 2% to $103 million and diluted EPS jumped 15%.
• Positive Sentiment: Early strategic actions—new product initiatives, cost controls and high-profile marketing campaigns like those with Sydney Sweeney and Travis Kelce—are driving improved brand strength and customer engagement.
• Positive Sentiment: Back-to-school momentum built throughout Q2 into early Q3, with comps turning mid-single digits positive to date, led by strong demand in women’s jeans, tops and dresses, and accelerating men’s categories, capped by a record Labor Day weekend.
• Negative Sentiment: Tariff pressures are expected to reduce operating income by about $20 million in Q3 and $40–50 million in Q4, though sourcing, freight optimization and selective pricing have cut the unmitigated impact from $180 million to $70 million.
• Positive Sentiment: The company returned $276 million to shareholders year-to-date through dividends and share repurchases (including a $200 million accelerated repurchase), while preserving roughly $400 million in liquidity for growth investments.

Presentation

[Operator]

Welcome to the AEO Inc. Second Quarter twenty twenty five Earnings Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Judy Meehan, Head of Investor Relations and Corporate Communications. Please go ahead.

[Judy Meehan, VP - IR 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, VP - IR 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. Additionally, please see the second quarter investor presentation in our corporate website at www.aeoinc.com in the Investor Relations section. 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. Before we get into the quarterly results, I want to step back and acknowledge the team's hard work and our conviction in our long term plans. We had a good quarter, but more importantly, we continue to strengthen our brands, improve our runway for growth and manage the business for higher profitability. The consumer backdrop is dynamic, yet we are focused on controlling all that is within our control, providing a leading customer experience while maintaining cost disciplines. I'm pleased to report on encouraging early results of the actions we are taking to reignite performance.

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

Last quarter, I spoke about a series of actions we were implementing, and I'm pleased that the team has moved with urgency to execute. Product initiatives across brands, exciting new marketing campaigns and greater operational disciplines are all contributing to improved business results. We have a lot of hard work ahead, yet we are excited about the progress so far. Total revenue of $1,280,000,000 was our second highest ever posted for the second quarter, marking meaningful improvement from the first quarter and validating the actions we have taken. Aerie saw a dramatic turn from the first quarter, delivering comp growth of 3%.

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

American Eagle saw a nice improvement in key go forward categories, as Jen will review shortly. Second quarter traffic was positive across brands and channels. And I was pleased to see traffic momentum build throughout the second quarter, which continued into August. Following the first quarter inventory write down, the team was focused on successfully managing through the season, delivering better sell throughs with less promotions. We also managed the business with financial discipline with SG and A down compared to last year.

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

Operating income improved 2% to $103,000,000 significantly exceeding our expectations. Diluted EPS increased 15% to last year. It was a solid quarter and we are encouraged by the progress, yet our work is not complete. We are leaving no stone unturned. We are committed to growing our brands by putting our customers first and improving operational efficiencies.

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

One component of this plan is to create greater efficiencies and speed across our supply chain. With respect to tariffs, we will begin to feel the impact in the second half, as Mike will review. We are using all levers to mitigate tariff increases. Early efforts have been successful. We have taken action to assure manufacturing options are in place in countries that make the most sense for our business moving forward.

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

We have a highly seasoned sourcing team and strong partnerships with vendors. We will leverage these relationships as we navigate through evolving trade dynamics. Turning to capital allocations, We continue to strike the right balance between investments to support our long term growth agenda and returning capital to shareholders. Year to date, we have returned $276,000,000 to shareholders through dividends and share repurchases. This includes the completion of our $200,000,000 accelerated repurchase program earlier this year.

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

The fall season is off to a good start, fueled by the strength of our product lines and the success of our recent marketing campaigns. The iconic fall denim campaign with Cindy Sweeney affirms we are the American jeans brand. We saw record breaking new customer acquisition and brand awareness, cutting across age demographics and genders. The most recent collaboration with True Colors by Travis Kelce has kept the momentum going. We have seen periods of very strong demand from both campaigns, fueling positive traffic in August, which was up consistently throughout the month.

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

I'll end with our commitment to building on this quarter's progress. We have enduring brands with significant potential for more growth. I am confident we will realize our potential and drive sustainable profitable growth for the long run and create greater value for our shareholders. Let me turn it over to Jen.

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

Thank you, Jay, and good afternoon, everyone. We saw clear improvement in the business in the second quarter. Efforts to strengthen collections across brands, lean into best sellers and deliver higher margins are already having an impact. As we work through some of the challenges from the first quarter, we saw progressive improvements with the new deliveries. And I am encouraged that momentum strengthened into August with the arrival of our new back to school collections.

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

So let me walk you through some of the new highlights. Starting with Aerie, we drove a nice rebound from the first quarter, delivering comp growth of 3% and achieving record second quarter revenue. Performance was driven by positive demand across a number of major categories, including intimates, soft dressing, sleepwear and our activewear collections at Offline. While shorts were the most challenging seasonal category, we are focused on driving improvements here as well. Among the highlights, intimates has been a key area of focus within our long range plan, and we will recapture share in the return of this category to growth.

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

We are pleased to see customers responding to new fits and fabrics in undies and bras and more regular fashion drops. For example, in July, we introduced the Parisian Romance Fashion Capsule, which embraced feminine touches like lace and chic combos of our most loved silhouettes. Our Aerie customers loved it, and it was the page turner we needed to enter the fall season strong. Beyond intimates, offline continues to be a positive performer, and we remain excited about the growth potential as we continue to increase awareness and further expand our footprint. And now turning to American Eagle.

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

Second quarter comps declined, yet demand improved throughout the quarter. And I am confident that we are at an inflection point. Although the second quarter was under pressure from early spring receipts and softer demand in shorts and bottoms, AE saw solid improvement in key go forward categories. That was especially apparent as the quarter progressed, most notably in women's jeans and tops as well as dresses where we were focused on building franchise businesses like our new Sun Chasers collection. Men's has also seen a nice trajectory in key classifications, including graphics, knit tops and jeans, all positive in August.

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

Back to school arrivals have been well received. New jean styles, along with a continued focus on great outfitting across genders, led the business. This year, we continued our long standing partnership with The Summer I Turned Pretty, expanding the collection with new styles and three separate drops to coincide with the storyline. In addition, as Jay mentioned, our exclusive product and marketing campaigns with Sydney Sweeney and Travis Kelce have created amazing energy and buzz. Over a year in the making, these two signature collaborations have generated a strong response driven by limited edition merchandise, demonstrating the power of celebrity style and great product.

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

Sweeney's signature jeans sold out within a week and some products within one day. Demand for her curated online shop of Sid Picks has been very strong. Similarly, AE in True Colors by Travis Kelce has received tremendous engagement, fueling higher traffic and new customers. Product sell throughs have been strong. Overall, we are very pleased with these campaigns.

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

Since the launch, customer counts are up more than 700,000 and the campaigns combined have generated a staggering 40,000,000,000 impressions. As we look ahead, our plan to build on this momentum to further expand brand awareness, customer engagement and retention and ultimately strengthen the long term brand loyalty. I am proud of our second quarter accomplishments and the early third quarter trends. Our work is continuing at full speed. We are heads down focused on the future and improving all aspects of the business to deliver sustained growth.

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

I wanted to thank the teams. And now we'll turn the call over to Mike.

[Mike Mathias, EVP & CFO at American Eagle Outfitters]

Thanks, and good afternoon, everyone. Let me echo Jay and Jen by saying we were very encouraged to see solid progress in the second quarter with results coming in above the expectations that we set back in May. Stronger demand coupled with lower than expected promotional activity and well managed expenses enabled us to stabilize margins and deliver operating income 2% above last year. Consolidated revenue of $1,280,000,000 declined 1% to last year. Comparable sales also decreased 1%.

[Mike Mathias, EVP & CFO at American Eagle Outfitters]

The lower average unit price was largely offset by growth in transactions benefiting from positive traffic across selling channels. We saw demand pick up as the quarter progressed. July was our best month of the second quarter as we introduced our initial back to school product collections. And as Jay mentioned, we are pleased to see that improvement continue into August, consolidated comps turning positive. Gross profit dollars of $500,000,000 reflected a gross margin of 38.9% compared to 38.6% last year.

[Mike Mathias, EVP & CFO at American Eagle Outfitters]

Following the first quarter inventory the quarter with lower promotions. This was partially offset by 20 basis points of deleverage of buying occupancy and warehousing as a result of the sales decline. BOW dollars were flat to last year. SG and A was better than expected, down 1% to $342,000,000 and was flat as a rate of sales. Compensation costs were down as a result of recent expense restructuring initiatives offset by investments in advertising.

[Mike Mathias, EVP & CFO at American Eagle Outfitters]

The balance of expense categories were flat reflecting our ongoing cost management program. Operating income came in at $103,000,000 up 2% for last year. This reflected an operating margin of 8% compared to 7.8% last year. Consolidated ending inventory cost increased 8% with units up 3%. The inventory cost increase is primarily due to the impact of tariffs.

[Mike Mathias, EVP & CFO at American Eagle Outfitters]

We're comfortable with inventory positioning for the quarter, which is aligned with our plans. Our capital allocation priorities remain unchanged and focused on investing in growth and returning cash to shareholders through dividends and share repurchases. Second quarter CapEx totaled $71,000,000 bringing year to date spend to $133,000,000 We continue to expect CapEx of approximately $275,000,000 for the year. During the second quarter, we completed our $200,000,000 accelerated repurchase program announced back in March. In total, year to date, we returned $231,000,000 in buybacks.

[Mike Mathias, EVP & CFO at American Eagle Outfitters]

This reduced outstanding shares by $20,000,000 or approximately 10% of outstanding diluted shares. Our balance sheet is solid with ending cash of $127,000,000 and total liquidity of approximately $400,000,000 As planned, we drew down $200,000,000 from our revolver to support the buyback program and seasonal cash needs. By year end, we expect to repay the majority of outstanding debt and begin rebuilding cash. We're continuing to prioritize investments in our digital channel, making foundational improvements to the shopping experience. We're also focused on optimizing our store fleet to ensure we are in the best location and provide the best customer experience while pursuing additional growth opportunities.

[Mike Mathias, EVP & CFO at American Eagle Outfitters]

This year, we're on path to open approximately 30 Aerie and offline locations and remodel 40 to 50 AE stores for our modern store design. We now anticipate closing 35 to 40 American Eagle locations by year end. Now turning to our outlook, the third quarter is off to a better start with quarter to date consolidated comps up in the mid single digits. This includes a positive turn in the business as Jen noted, as well as a very strong Labor Day weekend. With more than half of our quarter yet to go, our outlook for the third quarter includes a low single digit increase in comparable sales.

[Mike Mathias, EVP & CFO at American Eagle Outfitters]

Third quarter operating income is expected to be in the range of 95,000,000 to $100,000,000 which includes approximately $20,000,000 of incremental tariff costs. Buying occupancy and warehousing costs are expected to increase due to new store growth for Aerie and offline and increased digital penetration resulting in slight deleverage. SG and A is expected to increase in the high single digits driven primarily by investments in advertising. The tax rate is estimated to be approximately 25 and the weighted average share count will be roughly $172,000,000 For the fourth quarter, our outlook is for a low single digit increase in comparable sales and operating profit in the range of 125,000,000 to $130,000,000 This includes approximately 40,000,000 to $50,000,000 of tariff impacts in the fourth quarter. SG and A is expected to be down slightly in the quarter.

[Mike Mathias, EVP & CFO at American Eagle Outfitters]

We're encouraged by the progress this quarter demonstrating that our initiatives are working. While this is a positive step, our teams remain sharply focused on building upon profitable sales momentum, managing costs and driving continued improvements across the organization to deliver higher profitability. Now we can take your questions.

[Operator]

We will now begin the question and answer session. Your first question comes from Jay Sole with UBS. Please go ahead.

[Jay Sole, Managing Director at UBS Group]

Great. Thank you so much. I want to ask about the Sydney Sweeney and the Travis Kelce campaigns. Obviously, I think Jen, I think you mentioned 40,000,000,000 impressions, which is a huge number. The question is, can you tell us more about how you keep the momentum going with these new customers that you've attracted?

[Jay Sole, Managing Director at UBS Group]

And can you tell us about what those consumers shop today by just the specific product associated with the celebrities? Or did they shop across the store and buy tops as well as bottoms? Thank you.

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

Sure, Jay. I wanted to introduce Craig Braumers because we had a feeling that there would be a lot of questions around this very exciting campaign. So let me introduce the American Eagle CMO, Craig Braumers.

[Craig Brommers, Chief Marketing Officer at American Eagle Outfitters]

Thanks, Jen. The American Eagle Sydney campaign was intended to be a brand and business reset, and it has. Let me be very clear. Sydney Sweeney sells great jeans. She is a winner.

[Craig Brommers, Chief Marketing Officer at American Eagle Outfitters]

And in just six weeks, the campaign has generated unprecedented new customer acquisition. To be clear, that consumer acquisition is coming from every single county in The U. S. This momentum is national and it is pervasive. We've experienced denim sellouts of items that Sydney has worn.

[Craig Brommers, Chief Marketing Officer at American Eagle Outfitters]

We have strong positive traffic throughout this quarter, and as Jen mentioned, a staggering 40,000,000,000 impressions. But a brand campaign is not to be judged in just one day, one week or even one month. A brand campaign endures. We are off to a start beyond our wildest dreams. As we track consumer sentiment over the past six weeks, we've seen consideration and purchase intent meaningfully up.

[Craig Brommers, Chief Marketing Officer at American Eagle Outfitters]

And now it's our opportunity to continue to convert this buzz into business and to convert these new customers into repeat customers. That's the work of the work ahead.

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

And to add on, Jay, what they are buying right now. I mean, what's great is all brands are really seeing acceleration. As you know, we share domain on the direct side of the business. So we're obviously driving traffic to our website. Labor Day was record breaking.

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

It was our best Labor Day in history actually. We had a great weekend. But there's work to do in the quarter, of course. You heard that there's some sellouts we need to chase. But really across our key categories, we're seeing great success.

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

Jeans, of course, we do it very well and really proud of that assortment. What I love about the jeans assortment is it's diversified. So we're gaining new customers with all different body types and age groups, and we're very excited and we believe we're getting that market share that we deserve. In Aerie, intimates is back. It's so exciting to see.

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

And we saw that acceleration in Q2, and really it's continuing into Q3 with the launch of our Parisian sheet capsule that I mentioned in my talking points. And lastly, men's acceleration has been more than exciting. We've been really up to repairing the men's business and we're seeing categories work. And again, in both men's and women's, what's nice is we're selling the outfit and selling tops as well.

[Jay Sole, Managing Director at UBS Group]

Maybe, Jen, if I can follow-up on that. Obviously, the marketing campaigns have been hugely successful, but you're talking about in a mid to the area, you're talking about men's. Can you just remind us the transition of the products from where they were in the first half the year to how the product assortment has evolved now for back to school and what you see toward holiday. How much of the improvement in the business is just because the assortment is better, it's more on trend, it's where you want it to be versus kind of where you were in the first half and try to separate it from all the hoopla and excitement around the marketing campaigns if possible?

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

Yes. Great question, Jay. Where we started is Aerie had work to do. Our key competency business is fleece, mean, in the apparel side and we had work to do on the fleece side. What's nice is the team worked really hard and we've seen really incredible results in fleece.

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

So as you know, that's a seasonal business as we head into Q3 and build into Q4, but seeing nice uptick there. Intimates as well, really start to see intimates turn on actually in Q1. We doubled down in Q2 and we've seen nice acceleration into Q3. So that's really basically the Aerie story. There were some seasonal products in Aerie, shorts being one of them, which was the same for American Eagle and both in both men's and women's.

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

Shorts was really the category that we needed to get moving. And as you know, we dominate in that category. And we really couldn't accelerate long bottoms, long legs in both men's and women's to compensate for the miss and shorts. But as the quarter progressed, we saw nice upticks in the AE business and now we're back in business in Q3. We're very excited for, like I mentioned, not only our jeans business, but our tops business, sweaters and fleece in both men's and women's.

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

And again, they're seasonally appropriate. So that's what we've been up to.

[Jay Sole, Managing Director at UBS Group]

Got it. Thank you so much.

[Operator]

The next question comes from Paul Lejuez with Citi. Please go ahead.

[Paul Lejuez, Managing Director at Citi]

Can you give a little bit more on the comp metrics, transaction ticket, maybe the components of ticket in terms of AUR and UPT? And then you gave a couple of tariff numbers. Just curious if those were gross or net, whatever they were, if you could provide the other number? And how much are you relying on pricing to get to that net number?

[Mike Mathias, EVP & CFO at American Eagle Outfitters]

Thanks. Paul, yes, I can start I can actually cover both questions. Metrics for the second quarter, AUR was down mid single digits. So the negative one results, we actually had some healthy traffic, but with the AUR down 5%, UPD didn't offset that completely. We were able to manage that well.

[Mike Mathias, EVP & CFO at American Eagle Outfitters]

AUR on the in our digital channels was actually flat. And that's where some of the really markdown savings and management promotions came through the quarter, really flowing through the revenue beats pretty much all the way to the gross margin line, based on being able to manage markdowns pretty well through the second quarter there. On tariffs, yes, we're providing the guidance here for the third and fourth quarter, about $20,000,000 of impact in Q3, 40,000,000 to $50,000,000 in Q4. So they will pressure gross margin a bit on the low single digit revenue guide. The team has done a tremendous job there.

[Mike Mathias, EVP & CFO at American Eagle Outfitters]

Our unmitigated number was closer to $180,000,000 versus the $70,000,000 we're guiding to. So combination of rebalancing country of origin, cost negotiations with our vendors, optimizing freight between air and ocean costs, some price and then some pricing. So I'd say pricing is down the list. We're taking our shots there. We have increased some tickets.

[Mike Mathias, EVP & CFO at American Eagle Outfitters]

This gives us some flexibility in promoting those items where we haven't seen really any customer resistance to some of those increases, but it's not the largest mitigation strategy. It's those other components I just talked about that the team has done a great job for mitigating the back half impact and the annual impact go forward.

[Paul Lejuez, Managing Director at Citi]

And this is relative to that down mid single digit AUR in the second quarter. What are you expecting for the back half?

[Mike Mathias, EVP & CFO at American Eagle Outfitters]

Third quarter to date, we're actually up slightly. We're up low single digits on AUR. The combination of AUR and traffic was driving the mid single digit increase as of quarter to date through literally yesterday. We're expecting that same type of dynamic for the back half on the low single digit expectation.

[Paul Lejuez, Managing Director at Citi]

Thank you. Good luck.

[Mike Mathias, EVP & CFO at American Eagle Outfitters]

Thank you.

[Operator]

The next question comes from Jonah Kim with TD Cowen. Please go ahead.

[Jonna Kim, Director at TD Cowen]

Thank you for taking my question. You mentioned intimates improved during the quarter. Could you just remind us what percentage of sales intimates is now for Aerie? And could you just give us more color around the strategy to recapture share there? And would love additional color around how the existing consumers performed? You mentioned a nice customer new customer acquisition, but any color around the existing customer during the quarter would be helpful. Thank you.

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

Sure. Intimates is roughly one third of the business. And look, we felt like it's time for intimates to come back. There's been some trends out there where crop and baby tops, baby tees and camis were working. And I think they actually took the place of a key category for us.

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

So I think our timing was right on when we launched the Parisian collection with lace. As we know, intimates is lace and it works. And we're excited about just really double downing on that business. We feel like it's time for Aerie two point zero. We just launched a campaign that really highlights for us.

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

It just launched highlights on these highlights our intimate categories. It's pretty exciting. And again, there's not a lot of news there on the campaign as we're only underway, but it really just leans into our customer, our girl and letting her speak to our product because our intimates are the softest and they feel the best on your skin. So we're really excited about talking about this whole new idea and leaning into a category that we haven't been up to for a while and it's time. It's time for intimates to come back.

[Craig Brommers, Chief Marketing Officer at American Eagle Outfitters]

This is Craig. Let's talk about the new customer acquisition. We decided to level up with talent this season and we architected with intent. Both of these individuals are generational talents that are aspirational to both men and women. And as I just mentioned, we're seeing national swell in new customer acquisition in every single county.

[Craig Brommers, Chief Marketing Officer at American Eagle Outfitters]

And we've just moved from one strength to the other. Sydney Sween has great jeans with all about our best at category jeans. And as Jen mentioned, our Q3 is off to a significant start in terms of our denim penetration. But then last week, we bring Travis Kelce into the conversation, and Travis is at the intersection of fandom and fashion. Sports is driving culture in a way that it's never done before, and Travis is driving interest in fashion like never before.

[Craig Brommers, Chief Marketing Officer at American Eagle Outfitters]

The launch date was the launch date was the launch date. And despite other news, we started working with Travis almost a year ago. Travis was the creator director of this campaign and of this collaboration. He was personally in our design offices working with our designers. He personally picked up fabrics and trims.

[Craig Brommers, Chief Marketing Officer at American Eagle Outfitters]

He personally identified the amazing athletes that helped tell this story, And this collaboration is off to an incredible start, just dominating our men's business over the course of the Labor Day weekend, building on the men's momentum that started in July. We could not be more excited about these back to back campaigns.

[Jonna Kim, Director at TD Cowen]

Got it. Thank you.

[Operator]

The next question comes from Janet Kloppenburg with JJK Research. Please go ahead.

[Janet Kloppenburg, President at JJK Research Associates]

Hi, everybody, and I wanna extend my congratulations. I'm particularly excited about the instruments business and also about the men's charm. On on that note, is there any product category that's not working at at Aerie right now, like like the the sportswear side of the business, Jen, maybe you could talk a little bit about that and about the intimates business and if you're thinking that it's gonna sustain these strong comps going forward? And then just lastly on denim, are your ticket prices higher or will they move higher as the quarter unfolds? Thank you.

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

Yes, I'll just start with denim. I mean, Mike alluded to it, denims are key categories. So if you focus on the AE business, our AURs are nicely up, but I think we've done a great job just balancing out our price points. That's what we're up to. We have key price points in denim that we always learn from and build into, and that's what we did.

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

Obviously, when the tariffs hit, we had to think a little harder. So I think we're well positioned in denim with good, better, best pricing, but really trying to elevate our customer and getting them to pay for the quality that we embed into our product. Going to intimates, there's so much good news in intimates. Undies, we picked up market share, a nice stack in market share actually. And as we know, that's a fire starter to our bundles in Aerie.

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

So to see that business come back is really exciting. But bras, our core bras, again, we've held our share and we're gaining some more share. And I think that that's our focus. We really want to lean into these categories. It's a category, particularly in bras that the customer comes back for to try on, to get to our stores, to experience the brand.

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

So honestly, again, that's what the teams are up to. We're hopefully, we're going to show up really unique. There's more ideas in the hopper. Like I said, we're only up to Aerie two point zero, and these new learnings are going to help us accelerate into 2026, particularly in Intimate as we're just seeing nice new wins there. Offline is continuing.

[Janet Kloppenburg, President at JJK Research Associates]

Offline is good, right. Yes. And what about the soft apparel? It's good?

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

Yes. Soft apparel, that's what we were leaning into. That's what our learning was from Q1. I think we went to fashion. There was too much fashion.

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

We needed to balance out the price equation as well as what that customer expects from us. Now we have sets. We have a set called the Jet Set. It's amazing. If you don't own it, get into it.

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

It's your best travel set out there. And we have just core competency crew next in fleece, and it's just really nicely working for us. So soft apparel is great. It really was shorts. And as you know, we even lean into shorts into August.

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

So I was going to articulate a soft category across all three, men's, women's and Aerie and offline actually, all four, it would be shorts. They were soft.

[Janet Kloppenburg, President at JJK Research Associates]

Okay. Terrific.

[Janet Kloppenburg, President at JJK Research Associates]

And with respect to to pricing, Mike, will we start to see a broader range of select price increases as we go forward, or is it over? Did you take them and it's done?

[Mike Mathias, EVP & CFO at American Eagle Outfitters]

I'd expect that to be ongoing, Jen. I think as we look at our forward plans into the first half of next year, we're going to continue kind of all levers of mitigation for tariffs. So pricing will be a component of that, but kind of optimizing country of origin, cost negotiations, air ocean freight optimization and other expense line items through the that embedded in our landed costs will be the bigger levers. Pricing will just be one tool in the kit.

[Operator]

The next question comes from Alex Stratton with Morgan Stanley. Please go ahead.

[Alex Straton, MD - Equity Research at Morgan Stanley]

Okay. Thanks so much and congrats on a really nice quarter. I just had a couple of questions here. Maybe first for Mike, just on the back half gross margin, where you're guiding to a decline for both the third quarter and the fourth quarter. Looks like fourth quarter decline is maybe two times worse or so than the third quarter.

[Alex Straton, MD - Equity Research at Morgan Stanley]

So can you just walk us through the gross margin pieces? Is that just tariff or is there anything else in there? And then maybe separately, just on these recent campaign launches and some of the sales momentum that you've garnered on the back of them, Do you have a sense for like how long top line momentum lasts after those? And do you have more sort of in the hopper following these pretty big two campaigns? Thanks so much.

[Mike Mathias, EVP & CFO at American Eagle Outfitters]

So I'll start with the gross margin question. Yes, to your point, the fourth quarter impact is a little larger, definitely tied to the tariff impact guidance. So $20,000,000 for the third quarter, 40,000,000 to $50,000,000 for the fourth quarter. So you've got a little more pressure there from tariffs in the fourth quarter. And we do have some embedded promotions assumed.

[Mike Mathias, EVP & CFO at American Eagle Outfitters]

We've been managing that really well all the way through the second quarter. August markdowns came in ahead of where we planned them as well. So we're leaving that embedded in our assumptions, but the teams have done a nice job of optimizing that the promotional levels each week, especially digitally. So could be some upside to that assumption within the gross margin. And then we do with the uptick here in the back half, this mid single digit trend, digital is definitely a big driver of that.

[Mike Mathias, EVP & CFO at American Eagle Outfitters]

So you've got your distribution and delivery costs kind of variability in that. So if the mix does lean heavier toward digital, we've got some variable expense in the BOW lines, in the expenses and gross margin. So at a low single digit assumption, we'd have some BOW deleverage between that line and then sort of a full back half impact of the area and offline openings that are largely second quarter and third quarter weighted. So we'll have a little pressure. So it's equal parts kind of some expense deleverage on a low single digit assumption and some the tariff impact and some embedded promotions that we believe we can probably we believe we have seen actually some optimization of that through the second quarter and through August, so some opportunity there still.

[Mike Mathias, EVP & CFO at American Eagle Outfitters]

On the sales momentum, Craig, I don't if you want to jump in on that one.

[Craig Brommers, Chief Marketing Officer at American Eagle Outfitters]

Yes. Thanks, Mike. I'll go ahead and talk about that. The new Marriott Marriott has just begun. We're excited to introduce new chapters in the future.

[Craig Brommers, Chief Marketing Officer at American Eagle Outfitters]

As we've already publicly announced, there will be a second drop for the American Eagle True Colors by Travis Kelce collection. We've seen incredible interest on this first drop and expect even more in the second drop as the NFL season begins and Travis is front and center in the national conversation. Additionally, Citi Sweeney has great genes is not going anywhere. Citi will be part of our team as we get into the back half of the year and will be interesting will be introducing new elements of the campaign as we continue forward.

[Operator]

The next question comes from Chris Nardone with Bank of America. Please go ahead.

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

Thanks.

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

Thanks guys. Good afternoon. I just had a question on the tariff impact. It sounds like the 40,000,000 to $50,000,000 in 4Q is roughly two fifty to 300 bps. Is this a fair assumption as we think through the mitigated impact for the first half of next year?

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

And then Mike, nearer term on your back half gross margin guidance, just a follow-up on Alex's question, what are some of the positive offsets to drive some muted gross margin expansion, to absorb some of the tariffs? Thank you.

[Mike Mathias, EVP & CFO at American Eagle Outfitters]

Thanks, Chris. Yes, I think if you play forward the tariff impact, talked about $180,000,000 unmitigated kind of back half impact here. But the team has done a nice job knocking it down to this sort of $70,000,000 ish projection we have. If you start with all the country of origin remixing that's happened here in the back half, China, where we we were had a higher penetration coming into the year, is mid single digit now in a full year, but low single digit for the back half. Some other India is small for us, rebalancing some things out of Vietnam.

[Mike Mathias, EVP & CFO at American Eagle Outfitters]

So if you start with just even the country of origin remix on an annualized basis next year, that number probably around the $250,000,000 to 300,000,000 number to start. So there's some benefits there initially. And you have you can continue to cost negotiations and all the other components I just talked about as far as levers. So we latest projection as we're playing forward 2026 numbers now is somewhere in that 125,000,000 to 150,000,000 range on a full year basis with more work to do. And we are.

[Mike Mathias, EVP & CFO at American Eagle Outfitters]

We're uncovering every stone around all other embedded costs in our gross margin. There's still opportunity for delivery optimization. We've got a longer term supply chain network optimization plan that we're in the middle of to optimize those expenses and gross margin. We talked about or we updated our store closure number, if you noticed in our prepared remarks, to about 35 to 40 stores this year. That's kind of double where we've been in the last several years.

[Mike Mathias, EVP & CFO at American Eagle Outfitters]

So as we know that our digital penetration is picking up, we're going to continue to rebalance our fixed versus variable expense base by really looking at rebalancing the store fleet, especially on the AE side, so closures with repositions while we're still opening area and off line locations. So we're going to look at every single line item like we have been for a few years kind of on all of our expense management endeavors over the last two point five years. We're going continue to do that to find offsets to this tariff impact through gross margin into next year.

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

Got it. And then, Jen or Mike, can you just talk a little bit about some of the progress you're seeing in the men's side of the business given the campaigns and whether you're seeing greater comp growth in your denim business versus the rest of the AE brand?

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

Yes. I mean, denim has been certainly trending very nicely. It's actually on par because it's such a big penetration to our business. So we obviously love the results. Men's has been a journey for sure.

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

The team has been we have first of all, we have a new merchant who's come in strong and has some great ideas. And starting in Q1, we really just took charge and really pivoted that business and said, we cannot we need to get this business back for obvious reasons. And it was our time. And I think they've done a nice job balancing out the fashion. So tops, polos, polo sweaters, and of course, our bottoms, mostly denim have been significantly on an uptick.

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

So we're here to deliver more and we know we are still owed more on the men's side of the business to be perfectly frank. So the team is looking at how fast we can grab that.

[Operator]

The next question comes from Rakesh Patel with Raymond James. Please go ahead.

[Rick Patel, Managing Director at Raymond James Financial]

Thank you. Good afternoon and congrats on the strong execution. I had a question on the duration of the Sidney Sweeney and Travis Kelce campaigns. Are these a 3Q initiative or should we expect to run through the rest of the year? And just given the success that you're seeing, how should we think about what's embedded in your marketing spend for the back half of the year?

[Craig Brommers, Chief Marketing Officer at American Eagle Outfitters]

I'll take the first part of that question. This is Craig again. The Citi Tweeny Great Jeans campaign is here and we'll continue with it through the remainder of the year. And again, we'll be introducing new elements along the way. Travis is just getting going.

[Craig Brommers, Chief Marketing Officer at American Eagle Outfitters]

The first week has just been astounding. The traffic, the new customer acquisition, the sell through is so incredibly strong and we're excited to drop a second drop in the coming weeks, again at the height of the NFL season. And so this is a moment to take big swings. And we have big talent, we have big amplification, the world is talking about us. We know that purchase intent is significantly and meaningfully up and we'll be looking to convert this buzz into business all through the back half of the year.

[Mike Mathias, EVP & CFO at American Eagle Outfitters]

Can add on to I just going to drop the advertising expense question. So within SG and A, we high single digits expectation for SG and A growth in the third quarter, largely the advertising increase to support these campaigns. All the line items are up slightly, so leading to that high single digit result. But then for the fourth quarter, we're looking for more of a result similar to second quarter, meaning SG and A dollars being flat to actually slightly down. Advertising would still be up a bit and we're going to kind of manage that week to week.

[Mike Mathias, EVP & CFO at American Eagle Outfitters]

So I'd expect advertising to be up sort of low single digits. A large portion of this expense to support the campaigns is hitting the third quarter even though we will continue some things into the fourth quarter. And then the rest of SG and A outside of advertising is going to be down slightly in fourth quarter. So yes, the brunt of the advertising expense related to everything Craig is outlining is in the third quarter.

[Rick Patel, Managing Director at Raymond James Financial]

Got it. And then also a quick question on inventory. Just curious given the acceleration that you're seeing in the August comp, how we should think about inventory plans for 3Q and 4Q?

[Mike Mathias, EVP & CFO at American Eagle Outfitters]

Yes. So we're very pleased with our position coming into the second quarter as we talked about. Our trend is up mid single digits. Units were up 3%. Costs up eight that differential of five points pretty much all based on driven by the tariff impact.

[Mike Mathias, EVP & CFO at American Eagle Outfitters]

I would expect a similar dynamic through the quarter during Q3. And then into Q4, we same idea that there's going be a tariff impact, Unit increase, think, would be more commensurate with our sales trend. We are chasing some things at the moment that may have an end of quarter impact, but anything we're chasing now is largely in jeans and has long life kind of non markdown liable goods attached to them for the fourth quarter for holiday and a lot of things that will carry, especially the jeans assortment carrying through the first half of next year. So very pleased with where we sit with inventory and we'll continue to manage alongside our revenue expectations, especially on the unit growth knowing there's a tariff cost impact to the balance sheet dollars.

[Rick Patel, Managing Director at Raymond James Financial]

Thanks very much.

[Operator]

The next question comes from Cory Tarlow with Jefferies. Please go ahead.

[Corey Tarlowe, SVP - Equity Research at Jefferies Group LLC]

Great. Thanks. Mike, I wanted to ask on SG and A. I noticed in a while that SG and A actually leveraged in the quarter on a negative comp, and we haven't seen that in quite some time. So could you maybe talk a little bit about in the quarter about some of the changes that you've made in the business from an SG and A perspective?

[Corey Tarlowe, SVP - Equity Research at Jefferies Group LLC]

And kind of what sticks, what comes out? And then and how to think about that going forward? And then maybe what the leverage point might be on comp to actually drive some leverage on SG and A? Thanks so much.

[Mike Mathias, EVP & CFO at American Eagle Outfitters]

Thanks for the question. I think we've been talking about this for a good two, almost three years now around our expense management initiatives. SG and A has definitely benefited from work on those major lines that we always talk about. I mean, the biggest drivers of SG and A are store salaries, corporate compensation, advertising and our services line. So that's like 80% plus of your SG and A incentives built into that compensation bucket.

[Mike Mathias, EVP & CFO at American Eagle Outfitters]

So we've been hard at work at that for a few years. Second really this full year is a result of that, even though there's some with advertising kind of being pulsed by quarter, the full year is going to be up in our projections here. Basically, if you piece together the guidance 1% to 2% with advertising being the only thing actually up and everything else being kind of flat to down. So those efforts are in place forever. As we look forward to 2026, we'll just be back to what we've been continuing to talk about, which is that longer term 3% to 5% revenue algorithm, we intend to keep SG and A flat or even leverage SG and A on that kind of revenue result.

[Mike Mathias, EVP & CFO at American Eagle Outfitters]

A comp in that kind of low to mid single digit range with total growth in that 3% to five we intend to leverage SG and A. That's our continued goal going forward.

[Corey Tarlowe, SVP - Equity Research at Jefferies Group LLC]

Got it. Super helpful. And then just a quick follow-up, if I could. I know that you talked about in the release lower compensation costs. So and I think incentive comp might have come out initially.

[Corey Tarlowe, SVP - Equity Research at Jefferies Group LLC]

Does it come back? What does it look like this year, next year? Thanks so much.

[Mike Mathias, EVP & CFO at American Eagle Outfitters]

Yes. We definitely I mean, did some restructuring things in the first quarter. We got some benefit the second quarter around that. We'll continue to look at opportunities to optimize compensation in total across the P and L. Incentive comp is down this year.

[Mike Mathias, EVP & CFO at American Eagle Outfitters]

So we'll look for mitigation efforts if there's some sort of normalized number next year. But we'll talk about that when we get to 2026 guidance, when we actually set those compensate those incentives annual incentive plans, provide more color at that point. At the end of the day, we're going to look at SG and A as a total bucket. And again, reiterate that goal that on that three to 5% revenue expectation on a longer term basis, our intent is to leverage SG and A at that level.

[Corey Tarlowe, SVP - Equity Research at Jefferies Group LLC]

Great. Thanks so much for all the color and best of luck.

[Operator]

Our last question comes from Marni Shapiro with the Retail Sackler. Please go ahead.

[Marni Shapiro, Managing Partner at The Retail Tracker]

Hey guys, congratulations on the improvements and the denim has just looked absolutely outstanding. So I'm curious on a couple of things. I just wanted to clarify in the inventory increase, was any of that pull forward inventory? I don't know if I missed that, but I just wanted to check on that. And then Jen, can you talk a little bit just about in the product assortments, Travis Kelce has this full kind of assortment.

[Marni Shapiro, Managing Partner at The Retail Tracker]

Sydney Sweeney had her sold out butterfly jean and then I think Sid's Picks, I think that's what you titled it. Are you going to do a real collection with her? And then kind of just thinking into next year, if it's not them, could these things continue with other people? Is this something that you would look to do again?

[Mike Mathias, EVP & CFO at American Eagle Outfitters]

I can hit the inventory quickly. So minor, there's a little bit of pull forward of inventory based on the timing of all the tariffs intentions there in early August, but very minor in the grand scheme of our plus three units plus eight cost.

[Marni Shapiro, Managing Partner at The Retail Tracker]

Excellent. Thanks.

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

Early reads on Travis has been strong as we mentioned. And the nice thing is we're selling really high price points. The customer is loving it and it's right price. So we love that. And as Craig mentioned, we have a second drop and we'll see what's in store for the rest.

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

Sydney Sweeney, again, really nice sell through on the Butterfly gene. The teams have we have ideas cooking, let me just say that. And just moving into great jeans, that's really what I'll say for now. There's more to come. We're thinking about some exciting holiday campaigns and how we leverage the product within these campaigns.

[Marni Shapiro, Managing Partner at The Retail Tracker]

Okay. Don't spill the tea then. Can I just ask you one quick follow-up on swimwear? Now that we're out of swim season and it's been kind of an up and down category for you, Have you hindsighted 25 and even 24? And how are you thinking about it for '26?

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

Well, let me just say based on our short business, I'm glad we didn't over pitch swim. So we really did a great job pitching that business. We sold out of fashion. We planned it accordingly. We actually beat the plan.

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

We didn't have a lot of clearance at the end of the season. So we're going to take those lessons and apply them for future seasons. It is an up and down category, and we're going to take those lessons that we've learned again over a few seasons now, a few spring seasons and apply them on the go forward. We have a new lens, our new merchant, who's in place, who's been with us for over six or eight months now. She's doing a great job and she has some new ideas, should bring some fresh perspectives for the business.

[Marni Shapiro, Managing Partner at The Retail Tracker]

Fantastic. Thanks, guys.

[Judy Meehan, VP - IR at American Eagle Outfitters]

Thanks, Marni. All right, everyone, thanks for your participation tonight, and have a great evening.

[Operator]

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

Participants

Executives

• Judy Meehan, VP - IR
• Jay Schottenstein, Executive Chairman of the Board & CEO
• Jennifer Foyle, President and Executive Creative Director of AE & Aerie
• Mike Mathias, EVP & CFO
• Craig Brommers, Chief Marketing Officer

Analysts

• Jay Sole, Managing Director at UBS Group
• Paul Lejuez, Managing Director at Citi
• Jonna Kim, Director at TD Cowen
• Janet Kloppenburg, President at JJK Research Associates
• Alex Straton, MD - Equity Research at Morgan Stanley
• Chris Nardone, Director - Equity Research at Bank of America
• Rick Patel, Managing Director at Raymond James Financial
• Corey Tarlowe, SVP - Equity Research at Jefferies Group LLC
• Marni Shapiro, Managing Partner at The Retail Tracker