Earnings call transcript: American Eagle Outfitters misses Q1 2025 EPS forecast

American Eagle Outfitters Inc. (AEO) reported a first-quarter adjusted loss per share of $0.29, falling short of the analyst forecast of $0.11. The company’s revenue reached $1.1 billion, slightly above the expected $1.08 billion. Following the earnings announcement, AEO’s stock fell by 7.87% in after-hours trading, reflecting investor disappointment with the earnings miss. According to InvestingPro analysis, the company currently trades at a P/E ratio of 6.53, suggesting a potentially undervalued position relative to its Fair Value.

Key Takeaways

• American Eagle Outfitters reported a Q1 adjusted loss per share of $0.29, missing forecasts.
• Revenue was $1.1 billion, slightly exceeding expectations.
• After-hours trading saw AEO’s stock drop by 7.87%.
• The company faced challenges in spring/summer merchandise but saw strengths in denim and intimates.
• Full-year guidance has been paused due to market uncertainties.

Company Performance

American Eagle Outfitters experienced a 5% decline in consolidated revenue year-over-year, with comparable sales dropping by 3%. The company reported a gross profit of $322 million and a gross margin of 29.6%. Despite challenges in spring/summer merchandise, particularly in shorts and fleece, the company maintained strong performance in the denim, intimates, and Offline by Aerie categories. Notably, InvestingPro data shows the company has maintained dividend payments for 22 consecutive years, demonstrating long-term financial stability. The company’s current ratio of 1.53 indicates strong liquidity, with assets well-positioned to cover short-term obligations.

Financial Highlights

• Revenue: $1.1 billion, a 5% decline year-over-year
• Earnings per share: Adjusted loss of $0.29
• Gross profit: $322 million
• Gross margin: 29.6%
• Ended Q1 with $88 million in cash and over $620 million in total liquidity

Earnings vs. Forecast

American Eagle Outfitters reported an adjusted loss per share of $0.29, compared to the forecasted earnings per share of $0.11, resulting in a significant miss. Revenue slightly exceeded expectations at $1.1 billion versus the forecast of $1.08 billion.

Market Reaction

Following the earnings release, AEO’s stock declined by 7.87% in after-hours trading, closing at $10.30. This drop reflects investor concerns over the earnings miss, despite the slight revenue beat. The stock’s movement places it closer to its 52-week low of $9.45, indicating a challenging period for the retailer. InvestingPro data reveals the stock has experienced a significant 52.41% decline over the past year, though the company maintains a "GOOD" overall Financial Health score. For deeper insights into AEO’s valuation and growth potential, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.

Outlook & Guidance

The company expects Q2 revenue to decline by 5% and comparable sales to decrease by 3%. Operating income for the quarter is projected to range between $40 million and $45 million. However, full-year guidance has been paused due to uncertainties surrounding tariffs and market conditions. Despite these challenges, InvestingPro analysis indicates the company remains profitable with positive earnings expected this year, maintaining a strong EBITDA of $665 million over the last twelve months.

Executive Commentary

CEO Jay Schottenstein emphasized the company’s commitment to improving performance, stating, "We are working with urgency to reignite our performance." Jen Foyle, President, highlighted the company’s focus on back-to-school preparations, noting, "We want to be clean and mean for back to school."

Risks and Challenges

• Supply chain disruptions and sourcing challenges, particularly with efforts to reduce exposure to China.
• Competitive pressures in the apparel industry, impacting pricing and promotions.
• Macroeconomic factors, including consumer uncertainty and unfavorable weather conditions affecting sales.

Q&A

Analysts inquired about the company’s inventory management strategies and tariff mitigation approaches. Executives addressed these concerns, emphasizing their focus on improving product performance and refining promotional strategies to navigate the challenging retail environment.

Full transcript - American Eagle Outfitters Inc (AEO) Q1 2026:

Conference Operator: Good day, and welcome to the AEO Incorporated First Quarter twenty twenty five Earnings Conference Call. All participants will be in a listen only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Ms.

Judy Meehan, Head of Investor Relations and Corporate Communications. Please go ahead, ma’am.

Judy Meehan, Head of Investor Relations and Corporate Communications, AEO Incorporated: Good afternoon, everyone. Joining me today for our prepared remarks are Jay Schottenstein, Executive Chairman and Chief Executive Officer Jen Foyle, President, Executive Creative Director for American Eagle and Aerie and Mike Mathias, Chief Financial Officer. Before we begin today’s call, I need to remind you that we will make certain forward looking statements. These statements are based upon information that represents the company’s current expectations or beliefs. The results actually realized may differ materially based on risk factors included in our SEC filings.

The company undertakes no obligation to publicly update or revise any forward looking statements whether as a result of new information, future events or otherwise, except as required by law. Also, note that during this call and in the accompanying press release, certain financial metrics are presented on both a GAAP and non GAAP adjusted basis. Reconciliations of adjusted results to the GAAP results are available in the tables attached to the earnings release, which is posted on our corporate website at www.aeoinc.com in the Investor Relations section. Here, you can also find the first quarter investor presentation. And now I will turn the call over to Jay.

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

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

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

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

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

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

Jen Foyle, President, Executive Creative Director for American Eagle and Aerie, AEO Incorporated: Thanks, and good afternoon, everyone. Clearly, this was a tough quarter. We had misses on the merchandising front and a handful of key categories. This was compounded by a cool spring and a slow start to the quarter in February. As the quarter progressed, we saw improvement and met our sales guidance.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

And how can you best respond?

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

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

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

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

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

Matthew Boss, Analyst, JPMorgan: Great. Best of luck.

Jen Foyle, President, Executive Creative Director for American Eagle and Aerie, AEO Incorporated: Thanks, guys. The

Conference Operator: next question will come from Jay Sole with UBS. Please go ahead.

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

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

Jen Foyle, President, Executive Creative Director for American Eagle and Aerie, AEO Incorporated: Sure. Yes, to reiterate, we came off of a really solid Q4. We are expecting more as we moved into February and obviously that didn’t happen. I will tell you that these teams are working very swiftly to repair what our learnings are. And there’s always green shoots, right?

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

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

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

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

Jay Sole, Analyst, UBS: Got it. Thank you so much.

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

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

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

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

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

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

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

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

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

Dana Telsey, Analyst, Telsey Advisory Group: Thank you.

Judy Meehan, Head of Investor Relations and Corporate Communications, AEO Incorporated: Thanks, Dana.

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

Judy Meehan, Head of Investor Relations and Corporate Communications, AEO Incorporated: Thanks, guys. Can we just talk two things I wanted to confirm? I think you said denim is still doing well, and you had some sellouts. When you saw the weather break, did you also see denim pickup in denim shorts? And is denim doing well in men’s and women’s?

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

Jen Foyle, President, Executive Creative Director for American Eagle and Aerie, AEO Incorporated: Sure. Let me just say in general for men’s. Men’s, we’ve seen some acceleration in all categories as we move into Q2. So really good news there. Shorts has still remained fairly tough for us across, again, all three brands.

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

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

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

I never liked how that shows up, by the way, when they’re airing business. Oh, never. I hate it. It ends up looking like

Mike Mathias, Chief Financial Officer, AEO Incorporated: I

Jay Sole, Analyst, UBS: we all

Mike Mathias, Chief Financial Officer, AEO Incorporated: not bug. We

Jen Foyle, President, Executive Creative Director for American Eagle and Aerie, AEO Incorporated: know how that looks. And and I know the teams we, you know, we go we we see what our misses. And again, starting in February, we’ve been reacting. So we’re back to school campaign start in July and move through the season.

Judy Meehan, Head of Investor Relations and Corporate Communications, AEO Incorporated: Fantastic. And just the marketing, will that be weighted towards back to school? Is that the

Jen Foyle, President, Executive Creative Director for American Eagle and Aerie, AEO Incorporated: when we should start

Judy Meehan, Head of Investor Relations and Corporate Communications, AEO Incorporated: to see the new campaigns

Jen Foyle, President, Executive Creative Director for American Eagle and Aerie, AEO Incorporated: Yes. Absolutely. AE had a new floor set recently, an area of new floor set this week. So, again, we wanna continue to bring in the newness. That’s so important for our customer.

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

Judy Meehan, Head of Investor Relations and Corporate Communications, AEO Incorporated: Honestly, the new floor set that just went in is stunning and such a big change from what’s been there. So congrats on that because it honestly looks fantastic.

Jen Foyle, President, Executive Creative Director for American Eagle and Aerie, AEO Incorporated: Yep. Thank you. I like I said, starting in February, we we started to move fast, so that’s what we need to do.

Judy Meehan, Head of Investor Relations and Corporate Communications, AEO Incorporated: Thank you, guys.

Jen Foyle, President, Executive Creative Director for American Eagle and Aerie, AEO Incorporated: Thank

Conference Operator: The next question will come from Rick Patel with Raymond James. Please go ahead. Thank you. Good afternoon. Hoping you could talk about the outlook for promotions.

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

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

Jen Foyle, President, Executive Creative Director for American Eagle and Aerie, AEO Incorporated: I will say, and we definitely look at our we know we diagnosed our assortments and where we might have had opportunity in units and opening price points. And the teams have been up to remixing starting back to school and even the near end as I just spoke about.

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

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

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

Conference Operator: Thanks very much. Your next question will come from Jonah Kim with TD Cowen. Please go ahead.

Judy Meehan, Head of Investor Relations and Corporate Communications, AEO Incorporated: Thank you for taking my question. Could you provide more color on how the digital performed versus stores during the quarter and what you’re seeing quarter to date there? And as you think about mitigating the tariff impact, how are you thinking about the pricing strategy as you flow through the goods at a higher price? Thank you very much.

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

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

Judy Meehan, Head of Investor Relations and Corporate Communications, AEO Incorporated: Yeah. Just just as you think about tariffs and mitigating that impact, how are you sort of using pricing as a lever there? How are you sort of balancing promotions and raising pricing in the current environment?

Jen Foyle, President, Executive Creative Director for American Eagle and Aerie, AEO Incorporated: Yes. As Jay mentioned in his earlier, we definitely saw some impact of air and cost of goods, particularly in airy. So when we looked forward and we, again, took our learnings, we’re making sure that our cost of goods is in line, including the tariffs. And I have to give a call out to the teams. We were well in front of the tariffs.

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

Judy Meehan, Head of Investor Relations and Corporate Communications, AEO Incorporated: All right. Thank you.

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

Jen Foyle, President, Executive Creative Director for American Eagle and Aerie, AEO Incorporated: Chris, are you on mute?

Judy Meehan, Head of Investor Relations and Corporate Communications, AEO Incorporated: Oh, maybe I’m mute.

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

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

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

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

Jen Foyle, President, Executive Creative Director for American Eagle and Aerie, AEO Incorporated: Great. Good luck. Thank you.

Mike Mathias, Chief Financial Officer, AEO Incorporated: Thank you.

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

Chris Nordone, Analyst, Bank of America: Hi, guys. Do

Mike Mathias, Chief Financial Officer, AEO Incorporated: you hear me now?

Jen Foyle, President, Executive Creative Director for American Eagle and Aerie, AEO Incorporated: Yes. Yes.

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

Mike Mathias, Chief Financial Officer, AEO Incorporated: I think we said it, so I think you missed it, but they’re, very similar. Okay. Down two in first quarter, down four. Right now, they’re trending very similar to that, total guidance.

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

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

Chris Nordone, Analyst, Bank of America: Understood. Thanks.

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

Judy Meehan, Head of Investor Relations and Corporate Communications, AEO Incorporated0: Hey, good afternoon. This is Dan on for Simeon. Thanks for taking our question. Anything you could share in terms of how you’re planning inventory for the remainder of the year? And maybe what you’re planning open to buy for

Jay Schottenstein, Executive Chairman and Chief Executive Officer, AEO Incorporated: the back half versus historical levels? Thanks.

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

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

Judy Meehan, Head of Investor Relations and Corporate Communications, AEO Incorporated0: Got it. Thanks very much.

Jay Sole, Analyst, UBS: Thank you.

Judy Meehan, Head of Investor Relations and Corporate Communications, AEO Incorporated: Thanks. I think there’s no one else left in queue. So that concludes our call for today. Thanks everyone for your participation. Thank you.

Mike Mathias, Chief Financial Officer, AEO Incorporated: Thanks everyone.

Conference Operator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

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