American Eagle Outfitters Inc (AEO) Q4 2025 Earnings Call Transcript

Good afternoon, everyone. Welcome to the AEO, Inc. Fourth Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, Then you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. 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 Communication.

Please go ahead. Judy Meehan- Good afternoon, everyone. Again, today we issued our fourth quarter and fiscal year 2025 press release. Note that included in the release and during this call, 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.aeo-inc.com in the Investor Relations section. Here, you can also find our fourth quarter investor presentation. During today's call, we will make certain forward-looking statements. These statements are based upon information that represents the company's current expectations or beliefs. The results, actually realized, may differ materially based on risk factors included in our SEC filings. The company undertakes no obligation to publicly update or revise any forward-looking statements, events, whether as a result of new information, future events or otherwise, except as required by law. Today, we have a change to our conference call format. Due to the passing of Jay's mother, he is unable to join the question and answer section of the call. We extend our deepest condolences to Jay and the Schottenstein family. Today's call will include Jay's overview and highlights, which were prerecorded. Joining me for the call are Jen Foyle, President, Executive Creative Director for American Eagle and Aerie, and Mike Mathias, Chief Financial Officer. And now we will begin the call.

Thanks to the hard work of the team, we made meaningful progress this year and delivered a strong fourth quarter. Following a tough start to the year, I am extremely proud of how the team course corrected with a deliberate action plan that ignited growth, improved profitability, and cash flow, fueling a strong finish to 2025. Initiatives across merchandising, operations, and marketing continue to strengthen our company and position our brands for long-term success. We remain committed to driving enduring profitable growth and strong cash flow for our shareholders. Let me walk you through the highlights of the quarter, and Mike will go through the numbers in detail. We delivered double-digit sales growth in the fourth quarter ahead of plan. This represented an acceleration from the third quarter to produce our best quarter of the year. We also achieved record-breaking results during the Thanksgiving and holiday season, building on the improved trends that began last summer. Larger performance was solid and drove enhanced operating efficiencies. We were thrilled to see the remarkable momentum at ARRI and offline, which delivered 23% comp Robust demand was broad-based across categories and channels. By leveraging our stronger market position and heightened demand, we exited the quarter with record brand awareness. and customer acquisition was up in the double digits. With successful expansion underway across a number of categories, we see significant runway to continue to build area and offline and capture new audiences in the years ahead. I'm also pleased by the consistent and steady progress we've seen at American Eagle. COPs grew 2%, accelerating from the third quarter, with growth across genders. Product initiatives are delivering more newness and fresh trends right collections. Folly impactful partnerships with Cindy Sweeney and Travis Kelsey, Martha Stewart's holiday campaign, reinforce AE's cross-generational appeal as the ultimate gift giving destination. Customer counts and retention rates are proof points of success. This year, Here we look forward to creating more culture-defining moments with newly announced partnerships with Lumina Mill, Ella Langley, and Bailey Zimmerman, and more to come. In terms of the numbers, total revenue hit an all-time high for the fourth quarter, increasing 10 percent to $1.8 billion. Overall comp sales grew 8 percent. Adjusted operating income of $180 million was up 27% from the $142 million last year. Notably, we achieved these results despite significant tariff pressure. Successful tariff mitigation efforts centered on cost savings, greater efficiencies, and strategic management across our sourcing operations. Full-year 2025 annual revenue reached a record $5.5 billion of 3% to last year. An adjusted operating income was $328 million. We ended 2025 in a strong financial position with nearly $240 million in cash and no debt. Our capital allocation strategy remained focused on investing in the business while returning cash to shareholders. We completed $256 million in share buybacks while paying $85 million in dividends last year. Now looking ahead, we remain confident in our strategy and our ability to build on our second half. As part of the continued effort to drive efficiencies and prioritize initiatives with the highest impact and strongest returns, we made the decision to exit quiet logistics during the quarter. This move keeps our focus and investment dollars on our core brands. As we exit the third-party business, we are left with a significantly enhanced logistics function, including much improved warehousing systems and technology, regionalized distribution capabilities, excellent speed to customer, and a network that will support growth for several years. We enter 2026 from a position of strength and positive sales trends continuing. We have significant opportunities ahead, and our teams are energized and committed to executing on our plans. I am fully confident in our path forward and our strategy to drive long-term profitable growth and free cash generation, which in turn will create value for shareholders.

Good afternoon, everyone. I want to begin by underscoring how pleased I am with the fourth quarter performance. Our commitment to product leadership continues to be a key engine that's driving our business, and that's true across all brands. As I'll share, we saw a widespread improvement in the majority of our categories. There has been a clear acceleration in demand in certain segments as our customers respond to newness, color, and trend-rate fashion. Compelling new collections in fleece, tees, and knits, coupled with a growing accessories business within AE and Aerie, are together supporting our layering and outfitting strategy. As you've heard, following the first quarter, 2025, we initiated a number of process changes and a reorganization of the teams and talent. We began to see the results of this work mid-year. I'm proud of the quick execution and we are excited to carry this momentum forward. I'm confident that we remain very well positioned for profitable growth in 2026 and beyond. Now let's review our wins and opportunities by brand. Turning to Aerie first, where we have experienced strong acceleration and demand, strength has been broad-based across all categories, including intimate, soft dressing, and offline activewear. Fresh flows of new and exciting collections, coupled with category expansions in areas like sleepwear, kept the customer engaged throughout the season. We grabbed our community's attention with must-have products and positioned them in the most relevant ways. Area Parallel was strong across both tops and bottoms as a result of great fabrication on-trend fun prints and winning color stories i am particularly encouraged by the continued momentum and intimates recording some of our best ever results in the quarter with matchback sets fueling demand offline had another incredible quarter with steady sales and active bottoms and double digit growth in sports bras tops, and fashion bottoms. Offline signature cloud fleece remains a customer favorite, and we continue to have significant opportunities to leverage the success of this key franchise. Our focus on new fashion silhouettes and fresh color drops are also contributing to strong growth across categories. As we look to accelerate the offline business in 2026, we will be focused on expanding our footprint, engaging more customers, and delivering great product. Offline's brand awareness is rising, and the brand has a long runway ahead. Our share is still small, but growing, and I'm confident that we have only just begun to scratch the surface of this brand's massive and long-term potential. The powerful re-acceleration of the Aerie brand, coupled with the explosive trajectory of Offline, is cementing our position as a leader in the space. And with our brand positioning as relevant and strong as ever, we look to continue to expand our reach to more customers. New Aerie customers grew 14% and brand awareness climbed 12% year over year. We know these customers are sticky and we are focused on maintaining this healthy and engaged customer base. As we kick off 2026, expect to see significant increase in Buzz for Aerie as we launch a highly visible brand campaign rooted in purpose and mission. And as you've heard, we're just getting started here, and I'm excited for what's ahead. Now, moving on to American Eagle, which achieved a solid 2% increase in the quarter. Positive results were driven by men's, women's tops, and our signature AE jeans across genders. The men's business continued to improve in the fourth quarter, delivering the third consecutive quarter of growth. Positive results were seen across nearly every category, with sweaters, shirts, and tees, and sweatshirts emerging as favorites, and graphics leading the way as the hero. Our strategy to recapture the men's business is on track as we gain market share and expand our customer base. AEWomen's comp was flat in the quarter, strength in jeans and tops, including nips, sweaters and fleece, was offset by a slower demand in dresses and non-denim bottoms. Driving ongoing progress is a top priority and we are working to ensure that we have the best styles and quality together with more frequent flows to support growth. Work is underway and we are focused on investing in depth of key items and size integrity to drive sales. We expect to see continued improvements as we move through 2026. As Jay reviewed, AE brand marketing has been a clear strategic focus and is expanding brand awareness and driving purchase intent. In addition to talent-focused campaigns, we recently relaunched AE's Creator Community to bring together a network of passionate trendsetters and brand advocates to drive revenue and digital content. And just last week, we announced our partnership with Stagecoach, joining country music's biggest stage and connecting with a new generation of artists and fans as we continue to show up at the intersection of culture and fashion. The intention behind these initiatives is to maintain and drive our industry leading position. Before turning the call over to Mike, I want to recognize the team for a strong finish to 2025. Their ability to drive improvement across multiple processes and to deliver results was impressive. We are incredibly optimistic about the profitable growth potential of our portfolio. We are moving forward decisively, and we know that our brands are uniquely positioned to win, scale, and deliver sustained long-term growth. And with that, I'll turn the call over to Mike.

Thanks, Jen, and good afternoon, everyone. 2025 results reflect the action we took to strengthen the fundamentals of the business, make operational improvements, introduce new compelling product collections, and launch strategic marketing initiatives. These steps strengthened our foundation for long-term success and drove a sharp improvement in trends throughout the year across brands and channels, even as we navigated a dynamic retail industry in an unprecedented tariff backdrop. A strong performance in the fourth quarter is a testament to this work with results coming in ahead of expectations across margins and profitability. In the quarter, consolidated revenue of $1.8 billion increased 10% to last year, fueled by comparable sales growth of 8% with area up 23% and American Eagle up 2%. We saw across the board improvement in trends with an acceleration from the prior quarter. KPIs were favorable with growth in transactions across brands driven by higher traffic. The average unit retail price was flat to last year. Gross profit dollars of $651 million increased 9%. Gross margin decline 30 basis points to 37% from 37.3% last year, which included net tariff pressure of approximately $50 million. On the positive side, leverage from strong revenue growth, lower costs, favorable currency, and overall operational efficiencies partially offset tariffs and higher markdown. Buying occupancy and warehousing leveraged 50 basis points due to higher sales and a continued focus on operational improvements. SG&A increased 4% to $418 million and as a rate leveraged 120 basis points to last year, driven by strong revenue growth. Planned investments and advertising were offset by a continued focus on discipline cost management and lower incentives. Adjusted operating income of $180 million was above our recent guidance of $167 to $170 million, driven largely by very robust sales and margins at Arian Offline. The adjusted operating margin of 10.2% increased from 8.9% last year. During the quarter, we recognized restructuring charges totaling approximately $85 million, of which $13 million was cash, primarily related to severance. These charges relate to discontinuation of quiet platforms, third-party logistics, door impairments, and a corporate restructuring. Net annual savings from these actions is estimated at about $20 million annually, with a portion of that expected to be realized in 2026. We ended the year with a strong balance sheet with cash of $239 million after returning $341 million to shareholders. At year end, total liquidity was approximately $930 million. Consolidated ending inventory cost was up 10%, with units up 3%. Cost inventory reflects the impact of tariffs. Fourth quarter CapEx totaled $59 million, bringing year-to-date spend to just over $260 million. As we look ahead to next year, we expect similar levels of CapEx in the range of $250 to $260 million, reflecting investments in technology upgrades, general corporate maintenance, as well as 35 new area offline store openings and about 60 store remodels. In 2026, we expect to close another 25 to 30 lower productivity AE stores. Turning to our 2026 outlook, the first quarter is off to a good start. Comp sales are positive across brands with notable strong performance continuing at Aerie and Offline. For the first quarter, we expect comparable sales growth in the high single digits, with American Eagle comps in the positive low single digits, and Aerie Offline comps in the double digits. Our operating income expectation is in the range of $20 to $25 million, which includes tariff headwinds of approximately $30 million, and incremental advertising investment, which will drive total SG&A expense up approximately 10% versus last year. For the full year, we expect operating profit in the range of $390 to $410 million, based on consolidated comparable sales growth in the mid-single digits. Guidance reflects the incremental tariffs that were put in place in 2025, which primarily impacts the first half of the year. Our outlook does not incorporate developments related to the recent Supreme Court decisions, and subsequent actions. For modeling purposes, please note that we expect approximately 80% of our annual operating profit to be generated in the second half of the year. This weighting reflects pressures from tariffs and incremental advertising spend, which will impact the first and second quarters. In the second half of the year, we will cycle tariffs and the investments in advertising, which began mid-year 2025. To wrap it up, we ended the year on a strong note and remained confident in our forward trajectory. In 2026, we look forward to building on the significant progress we made last year to generate continued growth and enhanced value for our shareholders. With that, we'll open up for questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Please limit yourself to one question. At this time, we will pause momentarily to assemble our roster. Our first question today comes from Paul Leju with Citi. Please go ahead.

Thanks. Two quick ones. Growth margin, can you talk about what you expect once you move past the first quarter where obviously you've got easy comparisons? Maybe you could talk 2Q through 4Q. And then you mentioned increased markdowns, again, this quarter. I'm curious if you could talk more about which brand you saw the higher markdown, maybe which categories needed to be promoted to drive sales, and how you think about the promotional outlook for the rest of the year.

Hi, Paul. On gross margin, yeah, I think we know that last year was a little different with where we broke down inventory in the first quarter. and pulled markdowns forward. So I think as we talked a little bit at different points that if you really look at 2024 gross margin cadence and then the impact of tariffs around that $30 million each quarter, we're looking at gross margin sort of in that mid to high 30% range in the first quarter, a little lower than that in the second quarter. And actually, you know, 24 less tariffs would be pretty close to what we're expecting for the first half of the year. The second half then, we're looking to expand our gross margin performance, having, you know, anniversary, we'll know a lot more come May of really what that's going to look like by quarter. But if you start with that as gross margin results, we just call it like a mid-single digit comp result. The third quarter timeframe at this point, teams are doing a great job there and, you know, controlling costs, all the other costs within gross margin to date, and we look to expand upon gross margin and improve upon gross margin in the back half. Mark down front, we talked about in that January timeframe at ICR and after our holiday sales release around being well controlled across categories for the most part. We talked about bottoms in the jeans business and the jeans category being promoted a little deeper to compete. And that was having kind of a mixed impact in the AE brand where markdowns were up a bit in total, up in the quarter. With the growth trajectory of the business, they've been able to really control or even . AUR was up mid-single digits in the fourth quarter, and markdowns are actually down favorable for ARI. So, the mix of the business is very favorable for us with – Should we expect that to continue?

The markdowns to be higher at AE and lower at ARI?

We – it's Jen, by the way, Paul. We do expect some pressure in denim, and, you know, we feel good about our positioning, though, as we bring in other bottoms. That's what we're really excited about. So there's new bottoms that we've been testing, not only just in long legs, but we're just on the cusp of this right now. In fact, we're in Miami right now, and we can see them coming into shops. So we're excited about the way we're positioning. And the beauty about these brands, Paul, is that we have a portfolio of brands, right? We can pulse if we need to, but also get into new categories that are trending. So we feel really good about where we're headed as we get into peak spring break in all brands and some of the new categories that you'll see us introducing more. And also just to lean on to Aerie, Mike said it, we've been pulling back on promotion there. They've been doing a nice job balancing out food eating and pulling back promotions. And it's only just begun here in Aerie. We have spring break again, I mentioned it already, for that's a category that we're looking to build margin and not just unit-based, you know, promotions.

Thank you.

The next question comes from Jay Soule with UBS. Please go ahead.

Super, thank you. A few questions for me. Just number one, Mike, how are you thinking about store openings this year and sort of you gave us comp sales guidance for the first quarter of the year, but how are you thinking about total sales? And then the Middle East business, can you just give us an update on how you're thinking about that business, given what's going on? And then can you also explain, lastly, the impact of, you know, the change to the quiet logistics? What impact is that having on EBIT dollars? Those are my three questions to start.

Store openings, we're looking at 35 to 40 openings for area and offline this year. And just to reiterate, we're probably expecting somewhere in the 25 to 30 in terms of net closings for AE as we continue just to refine and optimize the AE store fleet so you can model that or assume those plans for the year. We do have single-digit comp guidance for the first spread in our brand sales, but then with the disposition or the closing of quiet, you'll see a reduction to total revenue because of that third-party revenue. So the net-net is that comp result and total revenue should be similar. And, yeah, I mean, just to expand upon that guidance a bit, we – high single-digit comp for the first quarter. We're looking at sort of a mid-to-high in the second quarter and then mid for the back half. So you get to kind of a mid-to-high comp expectation for the full year then. And then, again, with total revenue and comp being similar for the year. Team is doing a nice job just connecting with our business partners in the Middle East. And then our JV partnered with Fox in Israel, since the business – their businesses at the moment will be open at this point, but the stores in Israel are still closed. Reminded us a licensed business – you know, a licensed business in one hand and a JV on the other, so the EBIT impact to us would be – we quantified what we think is assuming that this – you know, the war wraps up in the first quarter for now, that the impact of the first quarter would be very minimal to us from an income or EBIT perspective just based on the structure or the, you know, the relationships there being kind of license and deduction from $3 million total number in our 2025 results. So that'll wind down here. And then we talked about, you know, the restructuring in total, which quite was a part of being around a $20 million benefit. The wind down though, but with the other kind of corporate restructuring and store impairments, respecting probably at least 50% of that, maybe a little more to benefit this year, but we'll provide some updated guidance with especially how the cadence of the client business shutting down here in the next several months.

All right. Super, very helpful.

The next question comes from Matthew Boss with J.P. Morgan. Please go ahead.

Great, thanks, and congrats on another nice quarter.

Thanks, Matt.

So, Jen, with the area comps up high teens in the back half of the year, could you break down the inflection in the business, if maybe if we looked at it by customer file or key category performance. And then so far in the first quarter, have you seen any slowing relative to the low 20s comps that you saw in the fourth quarter?

Yeah, very similar, Matt. We're seeing nice momentum headed into Q1 last year, which is, you know, typically our Super Bowl. We have, you know, I think the team's really certainly what was worth AE. But going back to Aerie, the most important thing is that – I think that's important as we look forward, Matt, because when you think about, you know, I think Aerie then can throttle on either, let's just say that, you know, categories when trends change, and I think it's really working. There's new things to come, too. We have the teams, and I think that's what's winning, just delivering when it's not expected seems to be really working for the Aerie brand. And so more to come here, but we've seen nice momentum into Q1, and, you know, we're going to focus and continue to deliver.

That's a great color. And then, Mike, on the expense side, with reinvestments, I think you cited marketing this year, help us to think about the leverage point in the business for SG&A or any changes relative to historical flow-through to consider. on strategic increase in elevation of our advertising spend.

So you're going to see in the first quarter like over a 50% increase in advertising dollars, which again is intentional. So I think that's driving SG&A in the first half up in the low double-digit range with all other expense categories being managed as we have successfully for a few years now, kind of low to mid-single digit and leveraging nicely on the sales expectations. So it's really advertising driving the dollar increase, And advertising is going to drive some de-leverage in the first and second quarter. When we get to the back, at least our initial plans is for advertising dollars to be relatively flat, maybe a slight increase. So we're planning to leverage advertising in the back half of the year, once – because we're anniversary-ing the elevated spend that started last year in the third quarter. And then the rest of the – again, the rest of the SG&A line is being well controlled. We may have a little bit of incentive comp increase compared to this year in both the third and fourth quarter, a little more in the fourth quarter. But we're looking to leverage SG&A, though, across the back half, even with – we'll get back into a cycle, and that then, you know, starting in the back half of the year and forward 12 months into 27, that we want to leverage this expense based on a mid to high – sorry, a low to mid single-digit comp. And at the moment, in the guidance we're providing, we're looking to expand upon some healthy operating rates in the back half once we anniversary tariffs, and we want to carry that into operating rates going back to the high single digits.

Mike, I think that's a great point, too. When you think about marketing and our strategy, really it was about relevancy for American Eagle, for the American Eagle brand, and, you know, I'm sure you've seen many of the tactics that have gone viral out there for American Eagle. And then Aerie, it's really been awareness, and, boy, has that strategy worked. We've grown our brand awareness over. It's a huge number. I'm really proud of the team there. And now, in mind, we share a platform. Now what we want to do is get that customer shopping back, you know, coming back to us. We want repeat performance from these customers. We want them to come back through our doors or onto the site, and those are the tactics that we're working on.

That's great, Jen. We'll get to 5% this year. Jen, our teams work very closely on a week-to-week basis on, you know, there's the campaign pieces of it, and then there's the week-to-week spend on kind of digital media performance marketing that we're managing very closely, and our teams are doing it very well together, and come to Jen and I on those fronts on kind of managing that week-to-week. The intent, as we talked about then, is kind of to maintain that 5% spend into the sales increase maintaining that we think this elevated level to all the metrics Jen just said you know moving in the right direction we like what we're seeing is why we're continuing it we think it's the right new baseline to run the company we'll make some changes based on what we see rebalancing some of the spend between advertising strategies maybe media performance spend trying to find efficiencies and other line items like content creation percent new baseline is is working for us.

The next question comes from Jonna Kim with TD Cowan. Please go ahead.

Thank you for taking my question. As you think about American Eagle's brand positioning, what are key opportunities that you see for improving over time? And then could you just speak to the intimate business performance during the quarter and just quarter to date what you're seeing there and how do you think that business will evolve over time as well? Thank you so much.

Yeah, for American Eagle, Mike mentioned it, number one, our fleet rationalization. We're still working through some, you know, lower-tier stores that we need to optimize and actually give back to our best stores. So just so you know, our new remodels in relation to where we're in the presentation of the American Eagle brand. So number one, delivering to get back on the map. That's what American Eagle was up to. We're a more mature brand, and we needed to turn heads. And certainly, the team really has stood out there. And I think some of these new campaigns and competition, and I think now we're ready to compete a little bit more. We're building our new franchise businesses. We're excited about men's. Men's has turned around, and now it's just women's. And really looking at women's dollar per square foot by store and making sure that we're really optimizing the women's business in our best stores and online. Let's not forget about the direct business. Our direct business has been outperforming last year on the back half and going into Q1. We're seeing really nice momentum on the direct business. It's a new way of getting new acquired customers. And, again, this is a repeat shop either on the – and that is a new – we're talking a little bit more about Omni customer. I'm not a huge fan of the word Omni, but there certainly is opportunity in this new world to understand where the customer is going to be, leveraging some of our new capabilities and understand where they are and being there for the customer with what he or she wants so most those are really our tactics and again like I said product we have new product categories we have new talent that we're launching in American Eagle we're excited about that you've heard some of them you know you've seen it already Ella Langley by the way we just launched her she's the number one song us right now so we're just excited about continuing to gain that relevancy in American Eagle. And keep in mind, it's America's 250th anniversary this year and next year's AE's 50th anniversary. So lots of excitement around American Eagle. On the Intimates side, I think Intimates is just getting going. We're leveraging undies to bundle and to get new customers into our brand. We're considering it the lipstick of our brand. But also, we're launching new brawlers, violets are back, and these layering pieces. So, we have lots of categories now on the Intimit side, again, that we can lean into and pulse, depending on the trends and where the trends are going. But we're feeling good about Intimit. Again, they saw great success in Q4, and we're continuing that momentum into Q1. Thank you.

The next question comes from Dana Telsey with Telsey Advisory Group.

Please go ahead. good afternoon as you think about the advertising which has been so so successful obviously stagecoach now being the next thing how do you think of it for the balance of the year and how do you see lapping whether it's sydney sweeney or the others and then on the refreshes in stores how many store refreshes are you doing and what kind of productivity gains have you seen from those refreshes thank you sure so um you know i didn't mention this before uh but also not only are we leveraging talent um more so on the ae side of the business but in both we're really leaning into well there's some there's some i can't tell you there's

something i can't share with you guys this this creator community that i think we are approaching on uh for both brands it's real and that is the difference our competitions out there we're get they're getting you know they're they're finding tactics but i think our tactics for our brands are about real community that believes in our brands to celebrate our brand. So these influencers that we're leveraging across momentum, gaining, and again, it's more innate, we own it, and the tactics are slightly different than some of what we see our competition doing.

We've got maybe a few more than that this year. We're, I think, in our third to fourth year of that program. We still have about a 350 to 400 store total we're working toward, probably about another year away from that. I think we'll get over the 300 mark, close to that with these next 60. You know, again, the average age of the fleet before we started this was about 12 years. We were behind a little bit due to COVID and refreshing the fleet. The stores, we know we want to sign leases for the longer term. I think once we'll get into a rhythm of keeping the average age more in that six to seven years, the right thing to do. So, and then on a performance basis, we are seeing, you know, a cop result or an increase in these stores that's above the chain average. So we, you know, like what we're seeing in terms of payback on that cash, cost of these down from where we started in the first year. So we're, you know, kind of the elements of the store that we need to touch and, you know, the biggest bang for our buck. It's kind of, you know, maybe more than halfway through the program. We like what we're seeing in terms of performance and the intent on an ongoing basis to kind of maintain the age of the fleet.

Thank you.

The next question comes from Janine Stitcher with BTIG. Please go ahead.

Hi. Just on the tariff, can you remind us what you've done on pricing in response? Have you raised tickets at all and any thoughts on pricing for the rest of the year?

I think we've talked about really business as usual. We've approached kind of tickets and pricing just like we always have where we, you know, What's the right price value equation for the customer? Where are we not seeing price resistance across items? Some strategic intent of increasing tickets a bit so we can kind of provide that right value equation from a promotion perspective to the customer. So no specific intents around tariff. And maintaining, again, the AUR for the fourth quarter was relatively flat, like down a little bit in AE. And I expected that's not a bad place to be with some mixed benefits in there aside from the tariff impact. So we'll continue down that path. Were there opportunistic and kind of opportunities to raise tickets a bit, action, and what's right for the price?

And then maybe just back on quiet logistics, with the $20 million in annualized savings, are you thinking about reinvesting any of that? Are there areas you would potentially spend more, or is that going all the way through the bottom line?

No, I think we're not looking at reinvesting other than probably advertising. I mean, a lot of what we've been doing with the management or expense base for several of years was to find some funding to do what we're doing on the advertising line. And actually, if you – you know, we've been measuring that ourselves and just looking at our own sort of internal scorecard over the last several years. We've done a nice job at kind of reducing the rate of sale on the majority of the expense base, the bigger line items that we've – you know, the project we had a few years ago where we kind of addressed 85 percent of our overall op-ex base. We've been – continued success there to kind of knock that down as a rate of sale. and we have sort of funding set back to advertising right now in total. Again, we'll anniversary that. No reinvestment of those dollars specifically. It's sort of an ongoing program to, you know, improve our operating rate, but nothing else specific from that savings that we're in touch.

The next question comes from John Kepore with Goldman Sachs. Please go ahead.

Hi, everybody. Thank you, guys. I just had a question about the low single-digit AEComp in 1Q. Just noticing that the – if you go from 4Q24 to 1Q25, the sequential comparable gets, you know, three points easier. But the low single digit sort of implies that on a two-year stack basis there's a slowdown. So just any commentary around that, and then I have a follow-up.

And, John, I think if you look at the improvements to that point, I mean, I think we've seen a five-point improvement from kind of the second quarter of last year through the fourth – this fourth quarter result of plus two and the guidance we're providing now is based on what we've seen to date we know there's been some weather disruptions some serious storms and things like that in the this February this this year that we didn't really see that that dramatically last year especially the Northeast getting pounded a bit and we have our store base is a nice concentration in that area but we're pleased to see the kind of trend continue from fourth quarter that being said you know Jen said at the spring break time is that the Marple time frame is more like 75% of our total first quarter, so we've got a long way to go. But the trend we saw, it's working hard to capture these next two months, and we'll see how the quarter pans out.

And then just in terms of the ARICOP, which was very impressive, just any way that we can get a sense of buckets that contributed to that 23? Like, I guess there was a different question that tried to get at this, but you mentioned like 14% new customer addition. And just, you know, any ways we can piece together the building blocks to get to the 23?

Yeah, that was actually brand awareness. I just wanted to let you know. We were roughly at 55% as we increased that. But we do have a new customer base, too, solidly growing. I have to say this, literally all categories we're excited about. So that continues in the Q1 in a period. So, you know, strategically we didn't pull swim in as hard as we used to in the past because we believe that there's a different strategy for SWIM where we can lean on. It's a great margin category, and I think that's what we're looking to do, and we're going to bring in newness more so than we did in the past. I think there's still more to come here because we still have some new category introductions or seasonal introductions that I think are still in play. Early reads on these seasonal categories, including in AE, are strong. Last year, if you remember, we had weather across the boards. Great.

Thank you.

The next question comes from Corey Tarlow with Jeffrey. Please go ahead.

Yes. Thanks. Mike, on Paris, could you remind us, again, what the impact is that you're expecting? And then I asked that in the name of you guided with IEPA in. And how much upside is there to the current guide if that is struck down?

With IEPA tariffs that were in place, so about a $30 million impact each of the first and second quarter, so kind of $60 million total for the spring season. We incurred $20 million of impact in Q3 of 25, but probably more like a $30-$35 million on a full quarter basis because of the timing of the effective tariff rates last year. and then we incurred $50 million of impact this past fourth quarter. So that gets you to your $130 million-plus number on an annual basis. Obviously, we left that guidance or the approach to guidance in place because to your second question, I don't think any of us know what's about to happen. We've got this 10% Section 122 in place. All indication is that's going to go to 15% based on kind of recent communication. We know there's things happening on the 301 front that, you know, this administration intends to do. So the impact of the total year, we believe the guidance we just gave should be the worst case stock on wood. I hope we didn't distinct ourselves and the entire industry with that comment. But there would be upside. We've done some back of the envelope math of what it could look like based on the cadence of when we think you know the section 122 tariffs expiring after 150 days and if 301 take effect but it's all guests guesstimates at this point so i think we'll do a lot more by the first quarter call at the end of may i expect to provide a bit of upside what numbers out there that was super helpful and then just as a quick follow-up it looks like there's no buyback embedded in the

outlook so i was just curious how you're thinking about that specifically thanks so much Yeah, we repurchased about a million shares there before the end of the year.

Share count in our projection right now would be about $177 million for the year versus $176 million last year. We are going to look at – again, we always talk about capital allocation being – investing back in the business first. We're committed to our 50 cents per share dividend. And then looking at buybacks to offset dilution minimally. So, you know, the January buyback was a part of that. If you look at the full year last year, we returned, again, $341 million to shareholders, $85 million in dividends, and over $250 million in share repurchases. So we'll continue to look at it, Corey. We'll minimally offset kind of internal, dilution from internal grants in general. So we'll kind of prioritize that, look at anything above and beyond that as we kind of get into the year and see how.

This question comes from Marnie Shapiro with the Retail Tracker. Please go ahead.

Hey, everybody. Congratulations, and please extend my condolences to Jay. Jen, the stores look fantastic. So I have a couple quick questions for you. Following on the denim conversation, I'm curious if part of the denim is a shift in what's working in denim from higher rises to lower, from very baggy to boot, and the customer is a little slower to move, or is it something else that you're thinking? and then on your collaborations which have been incredibly successful and I love the two new ones are you thinking about expanding this into ARRI at all to do something there and along the similar vein now that ARRI is kind of like you know ARRI's back kind of thinking only along the lines there and ARRI I like that many different tactics and I just mentioned we we do a little bit more

grassroots as you know with that cannot not on our model i'm quite excited to come back more often and can we go back to your first question i'm sorry i got so excited there's some curious

there are changes happening in denim you know rises yes oh yeah the baggy baggy is going giving way to a cleaner a little more narrow boot cut so is that kind of i feel like there's a confusion with the customers right now because you're not the only ones talking about this all my peeps are talking about this I think you're right I think definitely the rises are getting lower you're seeing more midriffs being shown but I also think it is about these other bottoms including skirts and we do have to execute well the stores look

fantastic your denim shorts look absolutely fantastic congratulations thank you operated we have time for one more question sure that question will be coming from Janet Kloppenberg with JJK research associate thing please go ahead thank you and thank you for squeezing me in yeah I I was a little surprised to hear that that denim bottoms were not performing I don't know maybe I'm misinterpreting it Jen are they performing to your expectations and because you've made investments in other and in another denim areas or maybe

denim isn't where you think the brand should be right now so yeah yeah yeah yeah that episode everything we do in American Eagle like we have maintained a market share like our positioning everything we do you know that is our core recipe for that for that business and so you know in some cases what price So that's some of the pressure that we felt toward this business. So everything we do, it's just it was more about success as we were hoping to and learning from that and reapplying the lessons.

Okay, sweet. And then just from Mike, I think you said AUR was flat. Can you just talk a little bit more about the traffic and unit trends in the quarter and how we should think about that going forward? Thank you.

The company level was flat, AE was down slightly or kind of low single, and ARI was up in the mid single digits. So it kind of ties to the margin, Keller, we were providing earlier as well, and what Jen just mentioned about, you know, we've been talking about teams specifically of, you know, being positive, but then, you know, a little pressure, a little kind of more promotional to drive those results. We're expecting something similar as we continue, like right now in the beginning of the first, you know, early into the year here, again, the ARI team on the current trajectory is being able to kind of manage intelligently and pull back and be more targeted, and NAE is really still fighting the same game we just talked about. So we're expecting something similar in the short term, and we'll see how the rest of the season progresses.

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

Thank you.