American Eagle (AEO) Q4 2025 Earnings Transcript

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DATE

Wednesday, March 4, 2026, at 4:30 p.m. ET

CALL PARTICIPANTS

• Executive Chairman and CEO — Jay L. Schottenstein
• President and Executive Creative Director, American Eagle and Aerie — Jennifer M. Foyle
• Chief Financial Officer — Michael R. Mathias

TAKEAWAYS

• Total Revenue -- $1.8 billion, up 10%, reaching an all-time quarterly high and accelerating from the previous quarter.
• Comparable Sales -- Increased 8% in total, with Aerie and OFFL/NE up 23% and American Eagle up 2%.
• Gross Profit -- $651 million, up 9%, with gross margin at 37%, down 30 basis points due to net tariff pressure of approximately $50 million.
• Adjusted Operating Income -- $180 million, up 27% from last year and above recent guidance ($167 million–$170 million), driven by strong performance at Aerie and OFFL/NE.
• SG&A Expense -- $418 million, up 4%, with SG&A rate leveraging 120 basis points due to revenue growth and disciplined cost control.
• Annual Revenue -- $5.5 billion, up 3% to last year, representing a record high for the company.
• Annual Adjusted Operating Income -- $328 million; full-year free cash flow was not directly disclosed.
• Year-End Cash -- $239 million, with total liquidity of approximately $930 million and no debt.
• Shareholder Returns -- $256 million in share buybacks and $85 million in dividends completed during the year.
• Inventory -- Consolidated ending inventory cost up 10%; units up 3%; increase attributed to tariffs.
• Store Investment -- CapEx totaled $59 million in the quarter and $260 million for the year; 35 new Aerie and OFFL/NE stores, roughly 60 store remodels planned, and 25–30 AE store closures expected in 2026.
• Restructuring Charges -- $85 million recognized, including $13 million in cash, primarily for discontinuing Quiet Platform third-party logistics, door impairments, and corporate restructuring; projected annual savings of $20 million, with at least 50% expected in 2026.
• Brand-Specific Customer Metrics -- New Aerie customers increased 14% and brand awareness rose 12%.
• Average Unit Retail (AUR) -- Flat overall; down slightly for American Eagle, up mid-single digits for Aerie; Aerie saw reduced markdowns and less promotional activity, while AE required deeper promotions in jeans to compete.
• 2026 Guidance -- Q1 comp sales expected to grow high single digits overall; American Eagle in low single digits and Aerie/OFFL/NE in double digits. Operating income forecasted at $20 million–$25 million in Q1, with full-year operating profit guided to $390 million–$410 million on mid-single-digit comp growth, assuming tariff headwinds persist.
• Quiet Logistics Exit -- Third-party logistics business exited, reducing annual revenue by approximately $60 million but generating substantial efficiency gains and ongoing net savings.

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RISKS

• "Gross margin declined 30 basis points" due to net tariff pressure of approximately $50 million, with guidance maintaining a worst-case scenario of $130 million in annualized tariff costs for 2026.
• First and second quarter SG&A expense will deleverage due to a greater than 50% increase in advertising spend, raising total SG&A by approximately 10% in Q1 versus last year.
• Store closures are projected to continue, with 25–30 lower-productivity American Eagle stores expected to close in 2026, highlighting a continued need for fleet optimization.
• Significant restructuring charges of $85 million, primarily related to exiting the Quiet Platform business and store impairments, may create short-term earnings volatility even as related annual savings accrue.

SUMMARY

American Eagle Outfitters (NYSE:AEO) management emphasized decisive strategic actions, including product innovation and brand partnerships, which contributed to record Q4 results and accelerating momentum in Aerie and OFFL/NE. The company highlighted that tariff mitigation, disciplined cost controls, and SG&A efficiency offset substantial headwinds, and its exit from Quiet Logistics is supplying significant operational and financial benefits. There is explicit confidence in sustaining double-digit growth in emerging brands, enhanced customer acquisition, and achieving mid-single-digit consolidated comp growth, though the full-year outlook maintains explicit caution regarding tariff and SG&A headwinds.

• Operational investments will remain elevated, with CapEx of $250 million–$260 million planned, including a continued store remodel program projected to refresh roughly 60 stores on top of new openings and closures.
• Advertising spend will be maintained at a new normalized level of approximately 5% of sales, with "over 50% increase in advertising dollars" in the first half, then flat or slightly down in the back half as elevated spend laps.
• Management stated, "all categories worked" at Aerie in the quarter, attributing broad growth to strategic merchandising and expansions in new product categories.
• Shareholder capital returns are planned to continue, with share buybacks focused on offsetting dilution and maintaining a $0.50 per share dividend.

INDUSTRY GLOSSARY

• OFFL/NE: Aerie's activewear and athleisure sub-brand, referenced for its strong double-digit comp growth and strategic expansion focus.
• AUR (Average Unit Retail): The average selling price per unit of merchandise, monitored for pricing trends and promotional effectiveness.
• Quiet Platform: The company's former third-party logistics and fulfillment business that was discontinued to prioritize core brand operations.
• CapEx: Capital expenditures for property, store openings, remodels, and technology investments.

Full Conference Call Transcript

Today's call will include Jay's overview and highlights which were prerecorded. Joining me for the call are Jennifer 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.

Jay Schottenstein: 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. Margin performance was solid and drove enhanced operating efficiencies. We were thrilled to see the remarkable momentum at Aerie and OFFL/NE, which delivered 23% comp growth. 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 Aerie and OFFL/NE and capture new audiences in the years ahead.

I am also pleased by the consistent and steady progress we have seen at American Eagle. Comps grew 2%, accelerating from the third quarter with growth across genders. Product initiatives are delivering more newness and fresh trend-right collections. Following impactful partnerships with Sydney Sweeney and Travis Kelce, Martha Stewart’s holiday campaign reinforced AE’s cross-generational appeal as the ultimate gift-giving destination. Customer counts and retention rates are proof points of success. This year, we look forward to creating more culture-defining moments with newly announced partnerships with The Manion, 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% to $1.8 billion.

Overall comp sales grew 8%. Adjusted operating income of $180 million was up 27% from $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, up 3% to last year, and adjusted operating income was $328 million. We ended 2025 in a strong financial position with nearly $240 million of 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 entered 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.

Jennifer Foyle: 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 is driving our business, and that is true across all brands. As I will share, we saw 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-right 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 have 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 midyear. I am proud of the quick execution, and we are excited to carry this momentum forward. I am confident that we remain very well positioned for profitable growth in 2026 and beyond. Now let us review our wins and opportunities by brand. Turning to Aerie first, where we have experienced strong acceleration in demand, strength has been broad-based across all categories, including intimates, soft dressing, and OFFL/NE 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. Aerie apparel 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 in intimates, recording some of our best-ever results in the quarter with match-back sets fueling demand. OFFL/NE had another incredible quarter with steady sales in active bottoms and double-digit growth in sports bras, tops, and fashion bottoms.

OFFL/NE 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 OFFL/NE business in 2026, we will be focused on expanding our footprint, engaging more customers, and delivering great product. OFFL/NE's brand awareness is rising, and the brand has a long runway ahead. Our share is still small but growing, and I am confident that we have only just begun to scratch the surface of this brand's massive and long-term potential.

The powerful reacceleration of the Aerie brand coupled with the explosive trajectory of OFFL/NE 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 a significant increase in buzz for Aerie as we launch a highly visible brand campaign rooted in purpose and mission.

And as you have heard, we are just getting started here, and I am excited for what is 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, 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. AE women's comp was flat in the quarter.

Strength in jeans and tops, including knits, sweaters, and fleece, was offset by 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 will turn the call over to Mike.

Jay Schottenstein: Thanks, Jen, and good afternoon, everyone.

Mike Mathias: 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 and an unprecedented tariff backdrop. Our 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 Aerie 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 declined 30 basis points to 37% from 37.3% last year, which included net tariff pressure of approximately $50 million. On the positive side, the leverage from strong revenue growth, lower costs, favorable currency, and overall operational efficiencies partially offset tariffs and higher markdowns. 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 in advertising were offset by our continued focus on disciplined cost management and lower incentives. Adjusted operating income of $180 million was above our recent guidance of $167 million to $170 million, driven largely by very robust sales and margins at Aerie and OFFL/NE. The adjusted operating margin of 10.2% increased from 8.9% last year. In 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 Platform's 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, 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 million to $260 million reflecting investments in technology upgrades, general corporate maintenance, as well as 35 new Aerie and OFFL/NE 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, first quarter is off to a good start. Comp sales are positive across brands with notable strong performance continuing at Aerie and OFFL/NE. 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/OFFL/NE comps in the double digits.

Our operating income expectation is in the range of $20 million 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 million 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 first and second quarters. In the second half of the year, we will cycle tariffs and the investments in advertising which began midyear 2025. To wrap it up, we ended the year on a strong note and remain 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 will open up for questions.

Operator: Thank you. We will now begin the question and answer session. If you are 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, limit yourself to one question. At this time, we will pause momentarily to assemble our roster. Our first question today comes from Paul Lejuez with Citi. Please go ahead.

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

Mike Mathias: Hi, Paul. On gross margin, yeah, I think we know that last year was a little different with where we wrote down inventory in the first quarter, pulled markdowns forward. So I think as we talked at different points, if you really look at 2024 gross margin cadence, and then the impact of tariffs around that $30 million each quarter, we are looking at gross margin in that mid- to high-30% range in the first quarter, a little lower than in the second quarter. And if actually 2024 less tariffs would get you pretty close to what we are expecting for the first half of the year.

Second half then, we are looking to expand on our gross margin performance, having, like, anniversarying tariffs as is. I mean, we are guiding tariffs to essentially the same thing we have been talking about, really the AIPA impact, that $130 million plus per year. We will know a lot more come May of really what that is going to look like by quarter. But if you start with that as what should be a worst case, we would look to expand upon the gross margin results we just saw in the third and fourth quarter of this year. At, call it, like, a mid-single-digit comp results.

We have some early indications on costing for the third quarter time frame at this point. The team is doing a great job there. And controlling costs and all the other costs within gross margin has been very successful to date and we expect to continue that. So we would look to expand upon gross margin and improve upon gross margin in the back half. Markdown front, Jen, if you talked about, in the January time frame after 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. Aerie, on the other hand, AUR was up in the quarter. With the growth trajectory of the business, they have been able to really control or even reduce promotions a bit. AUR was up mid-single digits in the fourth quarter, and markdowns were actually down, favorable for Aerie. So the mix of the business is very favorable for us with, you know, really a lot of bottoms categories, especially jeans, being promoted a little deeper.

Jennifer Foyle: It is Jen, by the way, Paul. We do expect some pressure in denim and we feel good about our positioning, though, as we bring in other bottoms. That is what we are really excited about. So there are new bottoms that we have been testing, not only just in long legs, but skirts and shorts. Early reads have been positive. As you know, we have a huge spring break customer, and we are just on the cusp of this right now. In fact, we are in Miami right now, and we can see them coming in to shop. So we are excited about the way we are positioned, Paul.

And the beauty about these brands, Paul, is that we have a portfolio of brands. We can throttle categories that we need to, but also get into new categories that are trending. So we feel really good about where we are headed as we get into peak spring break in all brands, and some of the new categories that you will see us introducing more. And also, just to lean on to Aerie, Mike said that we have been pulling back on promotion there. They have been doing a nice job balancing out growth and pulling back promotions. And it is only just begun here in Aerie. We have spring break again. I mentioned it already for all brands.

It is coming our way in swim. Early reads on swim have been strong, but that is a category that we are looking to build margin and not just unit-based promotions.

Paul Lejuez: Got it. Thank you. Good luck.

Operator: The next question comes from Jay Sole with UBS. Please go ahead.

Jay Sole: Super. Thank you. A few questions from me. Just number one, Mike, how are you thinking about store openings this year, and you gave us comp sales guidance for the first quarter of the year, but how do you think about total sales? And then the Middle East business, can you just give us an update on how you are thinking about that business given what is going on? And then can you also explain, lastly, the impact of the change to the Quiet Logistics—what impact is that having on EBIT dollars? Those are my three questions to start. Thank you.

Mike Mathias: Sure, Jay. Store openings, we are looking at 35 to 40 openings for Aerie and OFFL/NE this year. Just to reiterate, we are probably expecting somewhere in the 25 to 30 in terms of net closings for AE as we continue to refine and optimize the AE store fleet. So you can model or assume those plans for the year. Total sales then, we do have total sales to comp actually would be pretty similar. So we give high-single-digit comp guidance for the first quarter.

Total revenue will be similar to that, just based on the fact we do have a bit of a comp spread in our brand sales, but then with the disposition of closing Quiet, you will 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. Yeah, I mean, just to expand upon that guidance a bit, we are high single digit for the first quarter.

We are looking at 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, with total revenue and comp being similar for the year. In the Middle East, our team is doing a nice job just connecting with our business partners there, really Alshaya in the Middle East, and then our JD partner with Fox in Israel. Definitely some disruption to their businesses at the moment. Outside of that, stores are actually mostly open at this point after some initial disruption, but the stores in Israel are still closed.

Reminder, it is a licensed business in one hand and a JV on the other. So the EBIT impact to us would be minimal. We have quantified what we think is, assuming that the war wraps up in the first quarter for now, that the impact of the first quarter will be very minimal to us from an income or EBIT perspective just based on the structure of the relationships there being licensed and JV. And then for Quiet, again, you will see some quarterly revenue reduction from what was about a $60 million total number in our 2025 results.

So that will wind down here beginning of the year and go to zero as we get to the end of the year. And then we talked about the restructuring in total, which Quiet was a part of, being around a $20 million benefit annually. Again, we are in a bit of a wind-down mode, but with the other kind of corporate restructuring and store impairments, we are expecting probably at least 50% of that, maybe a little more, to benefit this year. We will provide some updated guidance with the cadence of the Quiet business shutting down here in the next several months.

Jay Sole: Alright. Super. Very helpful. Thank you.

Operator: The next question comes from Matthew Boss with JPMorgan. Please go ahead.

Matthew Boss: Great. Thanks, and congrats on another nice quarter. Jen, with the Aerie comps up high teens in the back half of the year, can 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 comp that you saw in the fourth quarter?

Jennifer Foyle: Very similar, Matt. We are seeing nice momentum headed into Q1. Look, back in Q1 last year, we knew it was the time for all brands, not just Aerie, for us to pivot, focus on our product, deliver, and gain momentum going into the back half, which is typically our Super Bowl. We have all brands. It is our big quarter, Q3. And I think the team really, that is what we did. We focused on our product. So if you look at Aerie, certainly, what was really exciting in Aerie, not only new categories, i.e., sleep, which delivered a lot of growth for the brand. OFFL/NE is moving faster.

Honestly, it is one of our fastest-growing brands in the total portfolio that I have seen in history. So OFFL/NE is very exciting, and then, of course, AE. But going back to Aerie, the most important thing is that all categories really worked. And I think that is important as we look forward, Matt, because when you think about the newer trends, and trends are moving faster, I think Aerie then can throttle on either, let us just say that, you know, more hard lines become trending, whether it is suiting or, you know, more straight lines. What I can say is areas of softer business. We have all the layering pieces. We can support those businesses.

And I think that is why we are expanding our offerings in Aerie so that we can lean into other categories when trends change, and I think it is really working. And there are new things to come too. We have new businesses that we are developing, new ideas. The team is running very flexible. I mean, we are really trying to work on flexibility and newness, and I think that is what is winning. Just delivering these new product offerings when it is not expected seems to be really, really working for the Aerie brand. So more to come here, but we have seen nice momentum into Q1, and we are going to focus and continue to deliver.

Matthew Boss: It is great color. And then, Mike, on the expense side, with reinvestments—I think you cited marketing this year—how best to think about the leverage point in the business for SG&A or any changes relative to historical flow-through to consider?

Mike Mathias: Yes. We have another two quarters here of this intentional and strategic increase in elevation of our advertising spend. So you are going to see in the first quarter or first two quarters an over 50% increase in advertising dollars, which again is intentional. So I think that is 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—low to mid-single digit—and leveraging nicely on the sales expectations. So it is really advertising driving the dollar increase. Advertising is going to drive some deleverage in the first and second quarter.

We get to the back half, at this point looking to, at least our initial plans for advertising dollars to be relatively flat, maybe a slight down. So we plan to leverage advertising in the back half of the year once, because we are anniversarying elevated spend that started last year in the third quarter. And then the rest of the SG&A line is being well controlled. We may have a little bit of an incentive comp increase compared to this year in both the third and fourth quarter, a little more in the fourth quarter. But we are really looking to leverage SG&A across the back half even with that.

So we will get back into a cycle on that, then starting in the back half of the year and for twelve months into 2027 that we want to leverage this expense base on a low to mid-single-digit comp. And with our plans at the moment and the guidance we are providing, we are looking to expand upon healthy operating rates in the back half as we anniversary tariffs and this elevated advertising spend. We want to carry that into 2027 on a twelve-month basis going forward to get this operating rate back to the high single digits.

Jennifer Foyle: Mike, I think that is 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 I am sure you have seen many of the tactics that have gone viral out there for American Eagle. And then Aerie, it has really been awareness. And boy, has that strategy worked. We have grown our brand awareness over 10 points. It is huge. It is a huge number. I am really proud of the team there. And now the teams are up because, keep 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 are working on.

Mike Mathias: It is great, Jen. We will get to 5% this year. Jen and our teams work very closely on a week-to-week basis. There are the campaign pieces of it, and then there is the week-to-week spend on digital media performance marketing that we are managing very closely. And teams are doing it very well together and come to Jen and me on those fronts on managing that week to week. The intent, as we talked about, then, is to maintain that 5% spend into the sales increase, maintaining that. We think this elevated level—all the metrics Jen just said—are moving in the right direction. We like what we are seeing. It is why we are continuing it.

We think it is the right new baseline to run the company. We will make some changes based on what we see, rebalancing some of the spend between advertising strategies—maybe across tactics around talent versus media and performance spend. Just trying to find efficiencies in other line items like content creation. We are looking at some plans in 2027 around rebalancing some of those things and we are continuing to manage it that way. But this kind of 5% new baseline is working for us.

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

Jonah Kim: As you think about American Eagle brand positioning, what are key opportunities that you see for improvement over time? And then could you just speak to the internet business performance during the quarter and quarter to date—what you are seeing there? And how do you think that business will evolve over time as well? Thank you so much.

Jennifer Foyle: For American Eagle, Mike mentioned it. Number one, fleet rationalization. We are still working through some 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 the American Eagle brand are really resonating with the customer. We are seeing nice upticks versus the average base. And so we are working on the remodels where we can justify and where it makes sense depending on the mall. So excited about that. Our new Soho store has been outperforming, and it is a great visualization to where we are headed for our entire portfolio of our brands, but a great representation of the American Eagle brand.

So, number one, fleet optimization. Number two, product, product, product. We focus on product. We are focusing on new innovation, delivering new product, delivering excitement on top of our incredible marketing campaigns that, again, are about, you know, we have relevancy now. We needed to get back on the map. That is what American Eagle is up to. We are 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 getting up to snuff on our marketing spend and competing because we underperformed there versus our competition. And I think now we are ready to compete a little bit more.

We are building our new franchise businesses. We are excited about men's. Men's has turned around, and now it is just women's, and really looking at women's dollars per square foot by store and making sure that we are really optimizing the women's business in our best stores. And online. Let us not forget about the direct business. Our direct business has been outperforming last year on the back half and going into Q1. We are seeing really nice momentum on the direct business. It is a new way of getting new acquired customers. And again, this is where we are working on how do we get them to repeat shop either on-site or going into stores.

And that is a new, I would say it is a new initiative for us. We are talking a little bit more about omni customer. I am 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 understanding where they are and being there for the customer with what he or she wants. So those are really our tactics. And again, like I said, product. We have new product categories. We have new talent that we are launching in American Eagle. We are excited about that. You have heard some of it. You have seen it already.

Ella Langley, by the way, we just launched her. She has the number one song in the U.S. right now. Her song, “Choosing Texas.” Sorry. We are just excited about continuing to gain that relevancy in American Eagle. And keep in mind, it is America’s 250th anniversary this year, and next year is AE’s 50th anniversary. So lots of excitement around American Eagle. On the intimates side, I think intimates is just getting going. We are leveraging undies to bundle and to get new customers into our brand. We are considering it the lipstick of our brand. But also, we are launching new silhouettes. Bralettes are back, and these layering pieces.

So we have lots of categories now on the site, again, that we can lean into and pulse depending on the trends and where the trends are going. We are feeling good about this. Again, they saw great success in Q4, and we are continuing that momentum into Q1.

Operator: Thank you. The next question comes from Dana Telsey with Telsey Advisory Group. Please go ahead.

Dana Telsey: Hi. Good afternoon. As you think about the advertising, which has been 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 is 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 these refreshes? Thank you.

Jennifer Foyle: Sure. So, I did not mention this before, but also, not only are we leveraging talent—more so on the AE side of the business—but in both brands, AE and Aerie, we are really leaning into our community and our customer base, and we are really—there are some I cannot share with you—but this creator community that I think we are just encroaching on for both brands, it is real. And that is the difference. So there is a lot of our competition out there. They are finding tactics, but I think our tactics for our brands are about real and authentic, and getting our community that believes in our brands to celebrate our brands.

And so these influencers that we are leveraging across all brands, I think we are going to really lean into both. We are excited about it, and we are already starting to see some momentum gaining with this influencer program that we are starting. And again, it is more innate. We own it, and we are excited about it. So the tactics are slightly different than some of what we see our competition doing.

Mike Mathias: On the store remodels/refreshes, Dana, we have got, as I said in prepared remarks, we will do at least around 60, maybe a few more than that this year. We are, I think, in our third to fourth year of that program. We still have about a 350 to 400 store total we are working toward. We are probably about another year away from that. I think we will get over the 300 mark, close to that with these next 60. The average age of the fleet before we started this was about twelve years.

We were behind the game a little bit due to COVID and our intentions of refreshing the fleets, the stores we know we want to sign leases for the longer term. And I think once we will get into a rhythm of keeping the average age more in that six- to seven-year sweet spot, which we think is the right thing to do. On a performance basis, we are seeing a comp per sold or an increase in these stores that is above the chain average. We like what we are seeing in terms of payback on that cash. It is a bit of a maintenance/slash some payback by doing this.

We have refined the cost of these down from where we started in the first year, so we know the elements of the store that we need to touch and the biggest bang for our buck. The average has come down on the spend since we started. We are maybe half, more than halfway, through the program. We like what we are seeing in terms of performance, with the intent on an ongoing basis to maintain the age of the fleet more in that six- to seven-year range.

Operator: The next question comes from Janine Hoffman Stichter with BTIG. Please go ahead.

Janine Stichter: Hi. Good afternoon. Just on the tariffs, can you remind us what you have done on pricing in response? Have you raised tickets at all? And any thoughts on pricing for the rest of the year?

Mike Mathias: Yeah. I think we have talked about really business as usual. We have approached tickets/pricing just like we always have where we ask what is 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 provide that right value equation from a promotion perspective to the customer. So no specific intents around tariff pass-through. It is really what we have been, what we have always done, from a pricing perspective. And, maintaining again, the AUR for the fourth quarter was relatively flat—down a little bit in AE and up in Aerie.

From a margin perspective, that is not a bad place to be with some mix benefits in there, aside from the tariff impact. We will continue down that path where there are opportunistic opportunities to raise tickets a bit, but all based on customer reaction and what is right for the price-value equation.

Janine Stichter: Great. And then maybe just back on Quiet Logistics with the $20 million in annualized savings. Are you thinking about reinvesting any of that? Or do you potentially spend more? Or is that going all the way to the bottom line? Thank you.

Mike Mathias: No. Not really looking at reinvesting other than probably advertising. I mean, a lot of what we have been doing with the management of our expense base for several years was to find some funding to do what we are doing on the advertising line. And actually, we have been measuring that ourselves and just looking at our own sort of internal scorecard over the last several years. We have done a nice job at reducing the rate of sale on the majority of the expense base—the bigger line items that we project. We had a few years ago a program where we addressed 85% of our overall OpEx base.

We have had continued success there to knock that down as a rate of sale, and we have been funding that back to advertising right now in total. Again, we will anniversary that and start to leverage again starting in the back half of the year. So no reinvestment of those dollars specifically. It is an ongoing program to improve our operating rate. Short term here, we are investing some dollars back in advertising for sure over these twelve months. But nothing else specific from that savings that we are intending to do.

Operator: The next question comes from John Kippur with Goldman Sachs. Please go ahead.

John Kippur: Hi, everybody. Thank you, guys. Just had a question about the low single-digit AE comp in 1Q. Just noticing that if you go from 4Q 2024 to 1Q 2025, the sequential comparable gets three points easier, but the low single digit sort of implies that on a two-year stack basis, there is a slowdown. So just any commentary around that? And then I have a follow-up.

Mike Mathias: Yes. And then, John, if you look at the improvements to that point, I mean, I think we have seen a five-point improvement from the second quarter of last year through this fourth quarter result of plus two. The guidance we are providing now is based on what we have seen to date. We know there have been some weather disruptions, some serious storms, and things like that in February this year that we did not really see that dramatically last year, especially the Northeast getting pounded a bit. We have a store base with a nice concentration in that area. But we are pleased to see the kind of trend continue from fourth quarter.

That being said, Jen said the spring break time is ahead of us. Shorts season is coming. That is like 75% of our total first quarter, so we have got a long way to go. But it is a continuation of the trend we saw. And the teams are working hard to capture these next two months, and we will see how the quarter pans out. But it is the right place to be at the moment.

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

Jennifer Foyle: That was actually brand awareness. I just wanted to let you know we were at 55% and increased that, but we do have a new customer base too, solidly growing our customer base. In Aerie, I have to say this: literally, all categories worked, whether it was set dressing, fleece, knit tees, sweaters, sleep. It really was unbelievable in intimates and layering. We have this new layering business that we are pretty excited about. So, you know, so far so good. And that continues into Q1. We still have some categories that we can lean on more as we head into the spring break time period.

Strategically, we did not pull swim in as hard as we used to in the past because we believe that there is a different strategy for swim where we can lean on. It is a great margin category, and I think that is what we are looking to do. And we are going to bring in newness monthly more so than we did in the past to excite that girl. So I think there is still more to come here. We still have some new category introductions or seasonal introductions that are still in play. Early reads on these seasonal categories, including in AE, are strong.

Last year, if you remember, we had weather and shorts were really tough across the board. And that is a huge category for us in Aerie, OFFL/NE, and in American Eagle. So there is still a lot of volume in front of us, and we are going to set ourselves up for success here.

Operator: The next question comes from Corey Tarlowe with Jefferies. Please go ahead.

Corey Tarlowe: Thanks. Mike, on tariffs, could you remind us again what the impact is that you are expecting? And then I ask that in the vein of—you guided with AIPA—and how much upside is there to the current guide if that is struck down?

Mike Mathias: Yes. So just the quarterly impact of how we laid things out with our EBITDA, tariffs that were in place. About a $30 million impact each of the first and second quarter—so $60 million total for the spring season. We incurred $20 million of impact in 2025, but on more like a $30 million to $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, and we left that guidance or that approach to guidance in place because to your second question, I do not think any of us know what is about to happen. We have got this 10% Section 122 in place. All indication is that is going to go to 15% based on recent communication. We know there are things happening on the 301 front that this administration tends to do. So the impact to the total year—we believe the guidance we just gave should be the worst case. I hope I did not distinct ourselves in the entire industry with that comment. But there would be upside.

We have done some back-of-the-envelope math of what it could look like based on the cadence of when we think the Section 122 tariffs expiring after 150 days and if 301 takes effect. But it is all guesstimate at this point. So I think we will know a lot more by the first quarter call in May. I expect to provide a bit of upside to this guidance at that point, but better off to quantify that over these next couple months once we actually know more than put numbers out there that we are not 100% sure of at the moment.

Corey Tarlowe: Got it. That is super helpful. And then just as a quick follow-up, it looks like there is no buyback embedded in the outlook. So I was just curious how you are thinking about that specifically. Thanks so much.

Mike Mathias: Yeah. We purchased about a million shares before the end of the year. Share count in our projection right now would be about 170 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 are committed to our $0.50 per share dividend, then looking at buybacks to offset dilution minimally. So 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. We will continue to look at it, Corey.

Minimally offset internal dilution from internal grants in general. So we will prioritize that, and look at anything above and beyond that as we get into the year and see how cash flow is trending.

Operator: The next question comes from Marni Shapiro with The Retail Tracker. Please go ahead.

Marni Shapiro: Hey, everybody. Congratulations, and please, my condolences to Jay. Jen, the store is looking fantastic. So I have a couple quick-hit questions for you. Following on the denim conversation, I am curious if part of the denim is a shift in what is 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 are 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 Aerie at all to do something there along the similar vein now that Aerie is kind of like, you know, Aerie is back. So you are kind of thinking only along the lines there in Aerie.

Jennifer Foyle: I like that thinking, Marni. First, Aerie has some great things in store. But Aerie has many different tactics, and I just mentioned we do a little bit more grassroots. The community, and they vote for us. And it is a winning recipe. But I will say, Marni, we do have some fun things in store. And as you know, back in October, we leaned into not using AI on our models, and it is a nice uptick to where we were when we launched AerieReal. I think it addresses the new generation. I am quite excited about it, and we have only just begun here. So really, that is what we are up to in Aerie.

And, Marni, with all these new customers, we have to get them to come back more often. You cannot imagine the dollars on the table if we could just get them to come back one more time annually. So those will be some of our focuses. And on denim: I think you are right. I think, definitely, the rises are getting lower. You are seeing more midriffs being shown. But I also think it is about these other bottoms, including skirts, shorts, and other quality khaki, chino, utility. Those ideas are here, and I think it is about pivoting into those. But you are right. Definitely, the lower rise is something that we are addressing.

And that is working for us. So now it is about just moving the business. This business has changed drastically, Marni. There are so many new fits, to your point. We are seeing, with Ella, the boot work for us. For sure. That makes a lot of sense. So right now, we are in the process of our test and scale for back to school. I will learn more in a couple of weeks as far as, and we have all these fits out there that we test and learn from and where we want to place our bets. So there is more to come here. And the team is ready to execute.

Marni Shapiro: Well, the shirts look fantastic. Your denim shorts look absolutely fantastic. Congratulations. Best of luck in the spring.

Jennifer Foyle: Thank you, Marni. Operator, we have time for one more question.

Operator: Sure. That question will be coming from Janet Kloppenburg with JJK Research Associates Inc. Please go ahead.

Janet Kloppenburg: Thank you, and thank you for squeezing me in. I was a little surprised to hear that denim bottoms were not performing. I do not know. Maybe I am misinterpreting it, Jen. Are they performing to your expectations? And because you have made investments in other denim areas or maybe denim is not where you think the brand should be right now?

Jennifer Foyle: No. Denim is at the epicenter of everything we do in American Eagle. We have maintained our market share—our positioning. Everything we do, that is our core recipe for that business. And both men's and women's did comp on the quarter. It was just, in some cases, what price they are willing to pay for some fashion. So that is some of the pressure that we felt, but we learned that lesson. We are trying to take that forward, particularly, the most important quarter, obviously, is Q3 for this business. So applying the learnings—denim is at the core of everything we do.

It was more about leaning into some sets that did not work as successfully as we were hoping to and learning from that and reapplying the lessons.

Janet Kloppenburg: Okay. Great. And then just from me, 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.

Mike Mathias: Yes, Janet. So AUR overall at a company level was flat. AE was down slightly—low single—and Aerie was up in the mid-single digits. So it ties to the margin commentary we were providing earlier as well and what Jen just mentioned about, talking about jeans specifically being positive but then a little more promotional to drive those results. We are expecting something similar as we continue right now in the beginning of the year. Again, the Aerie team on the current trajectory is being able to manage intelligently and pull back and be more targeted, and then AE is really still fighting the same game we just talked about.

So we are expecting something similar in the short term, and we will see how the rest of the season progresses.

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

Mike Mathias: Thank you.

Jennifer Foyle: I really have to. I really do. Did we do okay?

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