American Eagle Outfitters Profit Up

American Eagle Outfitters (NYSE:AEO) reported its Q2 2025 results on July 1, 2025, delivering revenue of $1.28 billion (down 1% YoY) (GAAP), operating income up 2% YoY to $103 million, and diluted EPS up 15% YoY. Management highlighted significant customer acquisition driven by high-profile marketing campaigns, robust turnaround in Aerie brand comps (+3% YoY), and outlined explicit strategies for tariff mitigation, SG&A discipline, and ongoing store optimization. Below are three actionable, insight-driven themes with direct investment impact.

Brand collaborations accelerate AEO customer growth

American Eagle's Sydney Sweeney and Travis Kelce campaigns generated over 700,000 net new customers since launch, fueling strong positive traffic and denim sellouts. But the combined cross-gender reach and omnichannel impact of these campaigns drove unprecedented new customer acquisition.

"The American Eagle Sydney Sweeney campaign was intended to be a brand and business reset, and it has. Let me be very clear. Sydney Sweeney sells great jeans. She is a winner. And in just six weeks, the campaign has generated unprecedented new customer acquisition. To be clear, that consumer acquisition is coming from every single county in the US. This momentum is national, and it is pervasive. We experienced denim sellouts of items that Sydney has worn. We have strong positive traffic throughout this quarter, and as Jen mentioned, a staggering 40 billion impressions. But a brand campaign is not to be judged in just one day, one week, or even one month. A brand campaign endures. We are off to a start beyond our wildest dreams. As we track consumer sentiment over the past six weeks, we have seen consideration and purchase intent meaningfully up. And now it's our opportunity to continue to convert this buzz into business and to convert these new customers into repeat customers. That's the work of the work ahead."
-- Craig Brahmers, American Eagle CMO

Tariff mitigation reduces profit headwinds for AEO

Incremental tariff costs are estimated at approximately $20 million in Q3 2025 and $40 million to $50 million in Q4 2025, the sourcing team reduced unmitigated tariff exposure from $180 million to $70 million for the back half of FY2025 through country-of-origin rebalancing and vendor negotiations. China sourcing will drop to low single-digit penetration in the back half of the year, compared to mid-single digits year-to-date, according to management on the Q2 2025 earnings call.

"Our unmitigated number was closer to $180 million versus the $70 million we are guiding to. So combination of rebalancing, country of origin, cost negotiations with our vendors, optimizing freight between air and ocean costs, some price and then some pricing. So I'd say pricing is down the list. We are taking our shots there. We have increased some tickets. This gives us some flexibility in promoting those items. Where we haven't seen really any customer resistance to some of those increases, but it's not real it's not the largest mitigation strategies. There's other components I just talked about that the team has done a great job for the mitigating the back half impact and the annual impact go forward. I guess just relative to that, down mid-single digit AUR. The second quarter, what are you expecting for the back half?"
-- Mike Mathias, CFO

Effective tariff mitigation minimizes margin erosion and demonstrates disciplined cost management, differentiated positioning, and multi-segment loyalty renewal.

Aerie and men's initiatives drive AEO’s category renewal

Aerie reversed a negative Q1 by delivering 3% comp growth and record sales in Q2 FY2025, attributed to innovation in intimates and loungewear.

"Starting with Aerie, we drove a nice rebound from the first quarter, delivering comp growth of 3% and achieving record second-quarter revenue. Performance was driven by positive demand across a number of major categories, including intimates, soft dressing, sleepwear, and our activewear collections at offline. While shorts were the most challenging seasonal category, we are focused on driving improvements here as well. Among the highlights, intimate has been a key area of focus within our long-range plan, and we will recapture share in the return of this category to growth. We are pleased to see customers responding to new fits and fabrics in undies and bras and more regular fashion drops. For example, in July, we introduced the Parisian romance fashion capsule, which embraced feminine touches like lace and chic combos of our most loved silhouettes. Our Aerie customers loved it, and it was the page-turner we needed to enter the fall season strong."
-- Jen Foyle, President, Executive Creative Director

Looking Ahead

Consolidated comparable sales for the third quarter to date are up mid-single digits, with management guiding for low single-digit comp growth and operating income of $95 million to $100 million for Q3 2025, despite $20 million in incremental tariffs. The outlook for Q4 FY2025 also calls for low single-digit comp growth and operating profit of $125 million to $130 million, absorbing $40 million to $50 million in tariff impact. American Eagle anticipates closing 35 to 40 stores by year-end, opening 30 Aerie/offline locations, and maintaining capital expenditures at approximately $275 million for the year; no additional share repurchases announced after completion of the $200 million program earlier in 2025.

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This article was created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. The Motley Fool recommends American Eagle Outfitters. The Motley Fool has a disclosure policy.