AEO - Earnings call transcript Q2 2019 | American Eagle Outfitters, Inc.

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Operator

Greetings and welcome to the American Eagle Outfitters' Second Quarter 2019 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to your host, Ms. Judy Meehan. Thank you.

begin. may You

Judy Meehan

everyone. Good morning,

Chief today Chief for President; are me Bob prepared Foyle, our Officer; Chad Schottenstein, Madore, and Executive President; Brand Global Jay Officer. Kessler, Aerie Joining Brand remarks Financial AE Jen Global

realized to current Company Before included we whether by based you The or obligation our expectations of These in undertakes on are or The revise will I that information statements, actually no statements. that based as law. forward-looking beliefs. remind upon we may certain represents publicly call, filings. begin statements forward-looking new factors as or update required today's risk otherwise, differ need except events to materially make SEC the result information, results Company's any future a

the adjusted that and aeoinc.com this GAAP to release, posted at on please Relations [ph] press and are release, which website of in GAAP results in section. on both available to financial the a is our Also, Reconciliations results call certain corporate basis. accompanying Investor tables metrics the attached presented in the the earnings are adjusted during non-GAAP note

Here find quarter the investor you presentation. second also can

call I'd turn now to to the like Jay. And over

Jay Schottenstein

Thanks, good morning Judy, and everyone.

consecutive XXth show environment. our marked of in quarter a second positive comps, which quarter consistency The remarkable difficult

the did weather weather. apparel warm certain that we were the challenges impacted by largely in unseasonable face in concentrated issues quarter categories While some our were AE Brand, affected which

for business half has I'm strength Based the categories, August, the up in of quarter-to-date. and prospects on with of about start the trends trends our second optimistic year. we're positive With picked and pleased these positive fall

had in of the some and number Despite a wins the second quarter, accomplishments. challenges we of

recorded highs further consecutive position. double-digit sales, growth genders, we continue market Eagle number American of every capturing and across one strengthening This quarter. all-time each to Jeans Specifically, period, our share market marking in and strong record six post years

sales double-digit quarter that the opportunity offer industry-leading quality continues increase, and significant fits XX% of emotional wrapped increases. to its ahead experiences. growth XXth in power Clearly, incredible innovations brand demonstrate and of momentum, comp us. a achieving brand maintained product the best we Aerie's industry-leading of Aerie consecutive consistent emerging value, customers our this

was repurchases. brands, business Across debt equity. quarter We saw and in stores positive a growth brand the the $XX the million million clear share strong and and digital to double-digits. highlight, no over channel Our indication shareholders producing with returning in cash in we also outpaced $XXX mall, a and of ended after traffic, dividends

our the success. the culture our to key ensure talent customer business across deliver to we We we and and best best importantly, continue brands, investments drive to and in make products And have experiences. people invest future

quarter, the That last on has ever changed. industry. we better to not are disruption retail said I capitalize positioned As across continued than view

getting stronger to our brand our capture our intend and grow Our and we profitability. merchandise assortments, continue customer keeps to and market share base,

that we our all Our world optimistic another in strength year organization power optimism a will purpose our the an culture, stakeholders. post is to show in strong of youth. for the real people, and that of our as there lies I'm strong

And the turn Chad. to now I call

Chad Kessler

style. apparel. increase good mix hurt our women's Comp against the top with weather demand which expectations was the results. satisfied skewed sales year. AUR our difficult Thanks, Jay, last quarter of strong missed declined product lower everyone. Shorts A comparison and for morning and second to the our May warm not X% in was X% I most year, cool

are behind These in our by and early and business issues -- are us it right It in trend to we the very strong, was demand and trend pressure was caused comps September. the unit yet meaningful AUR August largely encouraged was the improvement decline.

fall apparel, increasingly and positive comps consistently forward. important seeing we go as are We which led in become jeans quarter-to-date strength by

In the addition, second in quarter. plenty bright the headwinds, despite there of spots are

are for where we leadership jeans, in undisputed the our destination consolidate customers. continue to First, we

double-digit The both in men's represented and second our women's and quarter our assortment. XXth strong we of record quarter growth consecutive sales, delivered

proud jeans brand brand men's core age the women's in XX-year-old remain brand year jeans group, the jeans Number are America, We X X and X to Number to XX- our Number in overall.

an to inclusivity. on expanding continued leadership committed and are through We our emphasis extending share innovation and

to to be With new that pleased the which has customers with are to and collection, with our both welcome very thrilled we size we women's, Curvy ranges men's extended the new in brand. incremental. response in mind, Together, are to women's shown

new expect help will in styles growth to confident we build deliver position extend to leadership in this important now our strong record we season. with awareness peak With sizes and and new us, sustain behind are our This customers back-to-school category. grow, another will we expanded As time. jeans

other were There in quarter. highlights the

The in combined and skirts, out standout our our record to paying trends strengthen focus on working quarter. near to term. in improvements to with dresses and new positive Powerful and pleased sales accessories, team performance we're addition category accessories been has the this very to a In those yield this renewed I'd program, which off. was see hard like call longer should

healthy The AE Brand today's consumers. coveted is very by and

of we market. positive, our connections engaging outreach, positions Our traffic at through was our programs, will base best frequently media a youth and strength. customers continue campaigns loyalty our to customers social higher retaining Expanding with and in the in-stores are store AE personal the individuality, Me customer more the online, our and spending level resonate fuel Both and and at more rate brand. with brand's and inclusivity, today's strongly and again once brand self-expression

back powerful our to confident the and see is brand. the ever We by are and environment. of the our third plans the and stronger perfect disrupted Eagle that Looking quarter. of continue encouraged for start winning ahead, than retail for American healthy half poised trend the a consumer I'm in in year fashion

to Now Jen. I'd turn the call over

Jen Foyle

quarter. of XX%, comparable a consecutive of consistency by growth Sales sales across more stores. quarter meaningful thrilled sales I'm everyone. capture we we spectacular morning business good on year. marked report extremely The share. increase comp increased the a delivered to as see XXth the increase I'm our and that double-digit new a XX% period fueled than XX% Aerie to Chad, revenue built in continue market of our increases. last proud Thanks, This

Sales metrics reflected Aerie. a positive stores was across growing healthy as outpacing with brand. customers attract averages channels more continue all mall Traffic to to well we

We by also is excitement of were bras quarter, increased of bralettes, the core healthy a healthy for demand size all one clip, strong per categories for growth. basket quarter. signature Our and areas categories. in In units the Bras driven AURs. at strongest and transaction renewed posted sales expanding very one second saw the Aerie’s

collections. Once by we are to thrilled more, very our new positive response the apparel

due robust, to Brand the body -- body were remains platform demand, the strong business our tops continues much encouraging strength connection is bottoms chasing empowerment and of and we throughout quarter. underpins Brand positivity emotional Our grow. Aerie's and our to customers. awareness with

and acceptance and self-love with about. of truly is and trust is the all movement power that loyalty, AerieREAL builds The

with As our frequently a more result, buying Retention customers to Aerie. growing, from expand. and categories customer rates existing file more shopping continues are

new are in and the California, priority Our tracking stores states well. on with XX us. opened emphasis which and an quarter store Texas openings We for are in filling plans markets, including expansion

digital As in business we well. in we seeing those new markets, markets enter are uplift our as an

performance latest the I'm re-modeled pleased our of very with stores design. also in

re-modeled be of Aerie. several productive XX our stores XX among strategy estate locations top and fact, locations. of and our validates our quickly the In most new rose This to real power

my XX coming in opportunity meaningful We expand and locations this XX,XXX marketing to the I'm states. thankful cylinders. team of to deliver presence to is retail amazing footprint in store very team, openings, results to still only who from across collections, for the firing years feet on our continue outstanding uniquely so our new a exception sizable have innovative campaigns, Board, with square all

I'm success. has of momentum half apparel key back-to-school intimates. been trends year. as I'm strong as we by our that sales in Our the will categories, seasonal season continue the in into very encouraged second a strength well confident terrific

longer short Aerie visibility over the $X potential Beyond that, in we see for have billion and to order exceeding term. great

I'll turn the call now Bob. over And to

Bob Madore

financials, and the the Thanks, detailed Jim, comments everyone. good second on in were as morning investor excludes presentation. release items in the quarter which adjusted and press tables My focused certain

quarter short was as As May many apparel. was cool, unreasonably expectations. demand accounts, And the weather indicated our results second challenging. environment By of suppressing early warm June, indicated, for operating in fell we back

continued This with to quarter adversely impacting second the back-to-school later sales start margins. and

post growth in However, there we quarters and record of number were and XX in very that to increases revenues. pleased comp consolidated revenue, well consecutive comp a of were marking we performed areas

far We trends a this improvement are meaningful encouraged also quarter. business in so by

recognized million operator million, This Turning includes $X share. for Total with to our now terminate growth a building We net the results. of from billion. to and business Total the are royalties rising year. on for and improvement was revenue margin growth to $XX in the to primary revenue generated $XX model $X.XX quarter plan earnings in second increased Japan. driver license Japan. increased agreement payment X% future X% X%, third-party our in exploring comparable continue currently our options sales Consolidated last partner per financial

quarter. a comps XX%, across building decline which declined last offset comps year. grew stores. by XX% X% for quarter, second on saw Eagle, Aerie positive the American comps brand, channels American X% last By the in digital year. following in We Eagle increased Aerie both growth was increase in

basis, -- saw and points business. over up a Digital basis our consolidated combined increases low-double of decreased which reaching app XXX digits, which last revenue, stores now X%. year. the the to contributed biggest On our represent XX% in rose well from coming sales half channels total digital mobile approximately We

million. increase was to to improvement. basis or gross markdowns, the offset to due points million increased X% compensation of through and basis which higher $XX rate increased approximately delivery Total XXX revenue from margin XX.X%. flow costs. Japanese This Gross contributed margin licensed increased points by royalties, expense The XX $XXX strong to was largely profit

million the facing, our in the the impact $XXX payroll and began Selling, dollar increase, also percent general customer X% of professional of as in largest was contributed continued to primarily expense Compensation Higher contributor which XX.X%. and fees a at increase. store wages, reflecting was and increased revenues to administrative flat from investments mid-XXXX. the

to $XX compared million points $XX million received, or Operating consistent with our operating million margin digit basis to XX expectation expenses the points income license Japan from income from last to the X.X% to improved down growth rate XX as $X revenue was was revenue to the to million approximately dollar rose XX amortization a and year. royalty of rate year million revenue, some increased Adjusted and Depreciation a basis includes increase. which XX% Absent last $XX SG&A license royalty. with mid-single X.X%. associated

included year, rate $X.XX approximately of last EPS royalty $X.XX per compared approximately tax license in effective $X.XX excluded or earnings EPS Adjusted second of was XX% adjusted increased the Adjusted $X.X year. million also charges, to share. received. The in from restructuring XX% approximately from the last quarter, XX% of $X.XX

be found for with regarding or ago AE which up We from XX% on Now new period. page $XX inventory $XXX reflects sizes. the largely year styles Jeans, year. inventory, XX quarter XX% were can of inventory at last versus million increase and cost the to investor the support ended million, demand of presentation. expanded up including The Units strong

incremental are year. last to lines These product

in-stocks increase. the Additionally, feel year. represented the last These for good half also about new composition wholly-owned to to our improved we businesses the of increase over and Aerie contributed international Overall, of stores inventory inventory. factors

continue in million of to the year. we the to totaled for and Capital expect $XXX the $XX million CapEx million in range to second expenditures $XXX be quarter,

During dividends shareholders. $XX in in million $XX share million paid and the we quarter, to completed repurchases

an and with of quarter the Board we XX shares Directors authorized our for over exit July, million a repurchase, additional shares available XX for In purchase. little million

we Our total investments million ended outstanding. remain and $XXX liquidity quarter cash no strong position and of the debt and with

our to turning Now portfolio. real estate

lower are priorities the prior the on store reposition target. we expect end stores our accelerate to year, this the our near global for of our year every to expanding of continue balance footprint. growth XX and and of Aerie, openings remodel XXXX Our and openings to the now XX the Based plans XX to to-date

function simply timing. is a of this Importantly,

operate footprint, unchanged. growth stores Overall, remain we and engage long-term business Our how business expansion expectations for and a with plans very our this important are of our part customers.

a and have significant profitable flexibility. lease portfolio highly We store

pages XX can be found in investor XX Additional on presentation. the through store information

update provide tariffs. of I would the to an like impact now on

meaningfully to As impact. actively in we the mitigate with partners discussed have collaborated past, sourcing potential the our

do recently not further In enforced At the continue addition, of List we a be tariffs in we progress this impact we on in partnering vendors year. reducing manageable geographic our production expect X, to to exposure and XXXX. our to tariffs combination Based with impact China diversifying make a capabilities. through material expect present,

range to increase expect in growth quarter This $X.XX S&GA expect with in looking assumes Consistent low to activity. per of the Now we share. comparable mid-single we sales digits. EPS third continued the sales the promotional ahead, to expense digits. expected mid-single trends, outlook improving $X.XX is in

quarter guidance compares $X.XX and EPS excludes potential charges. restructuring year third Our and of last to impairment

quarter-to-date pleased trends. conclude, To very with we're

Chad financial and and both have initiatives us our comparable path generate strengthen product on brands performing momentum, As year. is maintain line across clear to our sales remain and discussed, bottom Jen shareholders. rest fall to We our the a for our enable strategic focused the of that will returns we our

take questions. we'd like to now your Thanks. And

Operator

Sole Jay Thank with Please you. from Instructions] with comes UBS. question. proceed of line Our first [Operator your question the

Jay Sole

better so confident deliver you you up the much. like Jen, XQ. you the a bit XQ where were line guidance? Do two-year XQ? can comp comp with you tougher Do or you into a in a look XQ. as in you is question you're feel my it about looked feel from within in against you XQ Aerie, at deliver comp to that basis, going Great. On a least can slowed Thank confident

Jen Foyle

Absolutely. If apparel We that has as been into we business back strong get well, appropriate. because I own it's did I -- apparel, mention seasonally half. more very mentioned the our

feel we what's apparel in and about really happened so what in August. confident However, happening

up comps. laid very very strong were comps very, Our some and strong against

looking own bralettes they've and Bras bras on undies. to and we're fire actually, us. to in great extremely also, dominate that So month an and had we forward continue chasing August, for said, more been

Jay Sole

And could million for a just Can there this it'd issue, quarters? in be royalty. was was or a about Great. for last the super one-time year? I one-time then, amount Bob, Japan clarify, the clarify you XX just license how that Japan previous you ask you if helpful. just accounted can similar a business payment, Was If us,

Bob Madore

put payment one-time royalties a breach. by that into due motion It's our that as triggered breach of result which partner, a a that by was minimum prior years license became from

result quarter royalty directly events and were So, higher the that and related actually it the a was of that circumstances that. in was triggered transpired rates result of as to

Jay Sole

it. Got

you Thank much. Okay. so

Operator

you. Thank

Please Our next question comes your with from Lejuez Citigroup. the proceed line of Paul question. with

Paul Lejuez

guys. thanks Hey,

curious that didn't received the an you Bob? on break simply Was that follow-up to that payment. Just Japan out already or was Also accrual? why

Bob Madore

– received is received was there the Part Part in coming was and quarter.

Jay Schottenstein

that's amount is there's So, million was $XX paid, million the million total couple receivable of royalties earned. $XX of $XX in a due months. a

Paul Lejuez

Got you.

confidence And you include as digit and trends comp on more Okay. gives you're a that you guidance XQ? can for bit by then, quarter-to-date just brand, of color provide little to mid-single part what seeing Thanks. the that maybe

Jen Foyle

well doing really us, Honestly, for just bralettes we're in just pleased We're are core business -- as all I seeing with Aerie, category, really the mentioned category. August For bra are great. I doing bra results. we're strong mentioned. apparel, the categories the

all said job as script, executing. here. firing we're in know, we're a on doing really The team's great cylinders my really, You I

Bob Madore

both within quarter off. would our we've August I and that profit how with very profit with sales got you single tell month the representing behind -- finished the back-to-school us largest happy We're operating now. a perspective, from

July, we in got off finished of last weeks strong two in As we we really although to start a the pointed August. slow out, back-to-school

month guidance completed that support we and confidence the for lot we've in got So, gave biggest our quarter. a of us that gives of our

Chad Kessler

related and lower mentioned. a as unit start the knits, demand women's lot of was Shorts with in in seeing we cool seasonal I I challenges Yeah, great, were think in second quarter AE, the weather, we and AUR. really was were had product, slow to what a

shifted of with As went strength to powerful business, our through we Jeans all that's bottom, back-to-school have launches expectations. exceeded and new long and really the our been

been broad of early And into through we've and weather August, then set we based great across lot already demand categories. get warmer that as has to a the started product really

in quarter. should second and the quarter, fourth the better I than the the quarter So, we expect have what whole saw third trend even a fall

Paul Lejuez

promotionally are happy Have been margins? or they with the driven you

Chad Kessler

We're the last year. promotions the we margins some But We're promotion promotional were happy in as not more August a cleared consistent year-over-year. inventory more through mainline in little seeing. much we're with had our factory than We there. channel channel

As we’ll improving margins bottoms hopefully the business as rate that well. carry jeans grows, -- lower track, than that we with does business. back on are the margin tops slightly tops as have see But

Operator

you. Thank

next the comes Company. of Our question your from with question. proceed Oliver Chen Please & Cowen line with

Oliver Chen

assumes you've you you. it What Bob, margins how thoughts subscription does I are position that clean. Hi. sounds Drop of engagement this managing -- your would evolve? very then And the means mentioned in you're model, of now? inventory promotional comments, there. incrementality done your your innovation why what and Style terms mean the outlook love for the your customer right what merchandise is in you like continued activity. and now with that that seeing in thoughts on Thank one And Chad,

Bob Madore

Yes.

So, the that carried deleveraging in inventory gross contemplate the that does muted of our relative we seen rate, second a not the QX it guidance our as magnitude the clear in quarter. be slight you we that we've of from seasonal will some through know, results, to margin of end to

really growth the our X% rate. it from total a summer margin but is have slight which on for impact us, spring our carryover extremely Now but are hand, having supported businesses are vehicles will manageable, than performing inventory that, only on whole less is and large well, are really investments inventory, not currency, Oliver, said by the our incremental huge we happy with that of

Chad Kessler

it's watch. months basically Drop, really been then for Style interesting And into six to and as it, we're

said. of than we're incrementality percentage incrementality customers to of the higher think participating is main Right Style attracting most new the the in of our a you be I it? program. lot as We're per customers the se. going customers rather What's in seeing a Oliver, the already question, at engaged Drop now, engaged seeing

with in need in what spending as that see just from they're more to renting. if getting total the as if well stores we're they're we spending both through So flow and means margin brand

we of interesting. a think I forms are new of we test new as and why watching really that's do So it. kicked these customer of sort and are retail purchasing forms off

come our We have they expect with that business. sales in the sure we that margin to make and the

Oliver Chen

Best you. regards. Thank

Operator

you. Thank

of with comes next Bank. line question. Deutsche Tiffany Kanaga from Our question with Please proceed your

Tiffany Kanaga

mentioned the for should AUR down your Thanks also questions. or with your Hi. quarter, lift a year-over-year? our heard thought you you introduced easier I keep Aerie With Jen AUR taking And the would lot since of that of you back new second positive territory back-to-school, down AUR it on I year compares for believe in by further against metric strong the break back to decelerating side? Thanks. the half the brand the can during do quarter activity in innovation promotional

Jay Schottenstein

already AE, the in Tiffany, paid AURs innovation strength [indiscernible]. the We're well as year we're fall we're and product in already of the delivering we're Jeans to getting -- definitely the last seeing to business continuing with positive as the grow for

it came in positive AUR the overcome a I As of we women's low trend able were the comps. challenge AUR the to QX -- quarter with that mentioned, first lot in in a knits category from lower AUR

make it quarter, And really was top the AE said, the we second for into really -- mix the lower line. recognizable in second AUR. and are is innovation -- definitely recognizable the our so have. driven innovation ended the our able -- product as quarter, And for AUR product we're we to third impacting paid to quarter AURs that I weren't for in But impacting is customer getting we put we the is the up and in sure back that by far positive overcome

Bob Madore

And increase for the product expansion. second in AUR mid-single in the innovation their digits Aerie They paid is definitely category and getting quarter. saw

Operator

Thank you.

Advisory Our Telsey next line your with Please Telsey from with Dana question comes question. of Group. proceed

Dana Telsey

Good morning.

to order about reach? And your think that do in lastly, you format you you. Thank and As to as the full-line category, in think profitability How stores. looking for? are and and what both needs positive each tops you store stand at you closings store change deliver see results seeing where openings about outlet the you're the base,

Jay Schottenstein

in seen we're all being to the knits across categories a higher strong Yeah, bare so, the in business high already We're return carrying those think, we've in AUR to What know, sales seasonal second as tops. And mentioned tops, percentage and really really in a quarter. seeing we of board a outerwear categories come with I seeing change sweaters, that in businesses QX, you what the seasonal I fleece, lower a need really as the was in healthy. plus knits, change are carry see AUR.

we're through and So going the those mixes assortment continue third the fall see and categories. of I the quarter as into drop that rest to as into the think temperatures more even

In terms see mainline in healthy profitability we stores. are we of and both stores, outlet --

You there's not are profitable. stores handful that of a only our know,

at look returns in we not we renew active or by really the but leases. looking stores, factory of mainline really all store store. but specific, We're at so, And as

Bob Madore

hit their four-wall that than it's that But of profitability. purposes profitable. and have in isn't stores pretty we an flagship sales know, X% been estate is just that. productivity, you are nature to That I'll Over answer. more new or our XX% haven't extremely either that other add other a maturity little fleet have real consistent color And, a profitable levels strong portfolio. just the

on coming to we in example, renewals, X,XXX are of profit have at for XXX the out XXX course looking objectives, our them decision strategic average our next the over of lease locations etc. meet We're constantly stores a year. those of stores, a at the give got up the three rate objectives, about And you an we've flexibility years whether of that,

store So about really our the fleet we feel fleet. continue good and the to performance across

Dana Telsey

Thank you.

Bob Madore

for over another a number We're side XX to going that by one question your store openings -- open the And Aerie little store. stores, XX and about I'm to closings. of side sorry add was

additional in around of we'll majority stores and XX So we're have throughout of the being the course to going year. with year that we AE will be the stores stores those the the XX new opening of be course closing

Dana Telsey

you. Thank

Operator

you. Thank

Jefferies. question from of Janine Stichter Our line question. Please with the proceed comes your next with

Janine Stichter

Jen Hi, on Aerie. for good morning. Two questions

the hear bralette more fashion your purchase Curious just a on commentary. there, to using behind item bralette in thoughts what's she you're some the an trade-off and that of bralettes? is resurgence First, or incremental is if there the is as seeing purchase between bras and

for And terms comment in then on promotional just AUR strategy? any your strong Thank could promotional. very you might to be in you having on pricing mentioned you. there wondering you're competitors impact seen if what this we've just Aerie. And activity and your seeing thoughts that of some I'm be space

Jen Foyle

a stayed business you in But peaked years ago, always always that trend ago, we a few own Certainly it, years really -- know, of bralettes. I strong our business couple fact. was let's had it's as and we Well, with say in have we it really and a it.

So we've what and bras. we into proud eaten really core our done there it feel hasn't of

we've disciplined bras. very in In fact, been

sizes and not extended really being demanding on sorted. the denim, she's from have silhouettes We in Chad as also but that bra over focusing us has

on So But it out the bra promotional on business. AURs has keep really up. we that's in going our there. what's been mixing Yeah,

So, know, that ride we're wave. to you able

Bob Madore

They going down flat. basis was do. extremely much which versus year margin didn't her quarter quarter. have rate XXX what a spite gross pretty was head competitors, environment, Just put she strong in in points gross of perspective, to overall had company last margin particularly with promotional to an in was head of Aerie's some to margin deleverage the a very total

Janine Stichter

you very helpful color. -- Really you thank Thank much.

Operator

you. Thank

line from Shapiro with Marni question. The proceed your of Retail with Our comes next Please question Tracker. the

Marni Shapiro

Hey, guys.

I think the Curvy line looks great.

coming scope have Studio, just brand. big I how you bit two you very a Eagle? when for little then, Sense. fits to brand in little could Seventh new quick to do long AE trying with been time. this touch this with are expected You've the touch a partnership of the on on And that you And Eagle launch questions. American into if could understand as I So Jay, a American the customer if you Chad, guess, a stores? view bit into the

the intimately. know customer You

So on what thoughts that curious are I'm launch? your

Chad Kessler

AE about we could Why in and new guess Marti, I'd terms of as with a I and Ask exciting evolve, Why learn Don't quickly Studio, test saw Don't AE When we Don't Ask replaced results. Ask way Hi, we Studio. or trends. great about learn We that Why

So AE capsules to is about of learn response monthly a and fast try very trend a seeing a and more great fashion new styling doing product, to series new in create Studio and it time editorial lead learning to message customer trying our we're we're lot. that for to

different in the every really experience like it use and we was been react the we a So it's and specific Ask Why look a for view Ask to to selling Don't Don't Why and had of very great Studio will it business. -- month, is goal of learning is point in terms test use and AE

Marni Shapiro

the American blend assortment? or than It sort is with Eagle meant to look very tops different in meant of to it core business

Chad Kessler

clothes, right. she it a but about, that get and things think think it, it's I month. different I a It's really American also we customer show how outfits than to look learn there you we in to that month looking can to will Like to be style communicate different lot way -- a maybe of the depends at are trying expects Eagle. to the trying maybe

Jay Schottenstein

going Sense, fall Seventh for of issue be on coming issuing to name this special to going we're the and the -- be And a we're it. we have

to we're and everybody. surprise kick-off special a have going We

research. we've opportunity think business. be We the we're you beauty get going to exciting. a to So for very We there's It to not think get tell as positive. big now. -- been into opportunity some It's will very us done customer big

Marni Shapiro

holiday So, Jay, then? in this season for will the be

Jay Schottenstein

Yes, be. it will

Marni Shapiro

Fantastic. Thanks, guys.

Operator

Thank you.

of Our Morgan your Stanley. next comes line with from Kimberly the question. question Greenberger with Please proceed

Kimberly Greenberger

comparison us a you you've October. store slightly in wanted Thank investments October? a ask much. into look and year get you could get to just if let was then, similar you last wages. if back similarly got know difficult I it And I more to the wondering so in as Does -- about

the that store would expect in forward? Now much. wages, would SG&A point you so that increases moving you've less you that of Thank in lapped a represent pressure

Bob Madore

the Kimberly and ask pointed investments mid year. store around store we question as of out, of, you Yeah, last incremental payroll, we quarter payroll, the last started second kind that

much forward. expect And of you this going level that should not we've that see left pretty investment So at incremental point. to

we're very If you, believe slightly leverage can too. in feel QX able quarter we the strong, ability we in third we hit as we've to to SG&A rate have our to that revenue to which communicated we addition still guidance the

part still forward for and strategy our So represents sure. of narrative going the

October And we're -- forward our in quarter. said, as the quarter, as good in up reflects to but comp third quarter, profits as guidance profits XX% of sales the our the and which coming roughly mid-single August digits the digits much quarter looking in some again I against the I performance, think represent of in in our almost is our XX% of of bank, -- revenue far to low-single more

ability our about hit So the gave it. to guidance and that feel good really we

Operator

you. Thank

your with with proceed from question. of Our next Research. JJK question Kloppenburg comes Janet line Please

Janet Kloppenburg

business and Good question of Chad, for your Chad I'm Jay. and if know, denim morning And wondering sort some jeans I and long outsized becoming been of mean just consistently might outlook? change a the Eagle's bottom about, strong know cycle now. what American chunk for everyone. Quick that for has time to in there's that the slowdown worry growth a is any and business if you

you growth Thank you developed beauty. of considering look to about, it's if M&A for whether are give you if so I thinking internally a about And Jay just much. be would the wondering kinds us they or you're interesting could strategies also talked forward was you opportunities?

Chad Kessler

Hi demand Thanks. more business offer point amazing Janet. have going even to we're and I in we than at find quite We confident for today quarter another said, is customer. as this I'm record Jeans just jeans. there's The continues to grow, the and what

assortment see continue the expand throughout with more We jeans. the opportunity to productivity to

or get years in we five jeans that everyone were to to writing big, ago, Now, I concerns continue were business do could think said we four when and too Jeans that jeans dead, lead you're record that some but so. saying can

I think jeans think in I call. everybody the outlive room and on are we to jeans going this destination for us, this are for and

prior And we what when strength us so as that consolidated jeans, the for leader think a forward. I just going from ran position in the is that space. saw opportunity an and away And our is people think we I

We a do healthy bottoms overall. business have

There as some -- the of rest we we our bottoms comps even think in write pants to bottoms the people weakness to shorts I quarter. positive and time in have did very spoke by strong though, going a goes forward. jeans, and continue led women's So wear in business the is to shorts, are I business,

Janet Kloppenburg

Thanks.

Jay Schottenstein

of year, we We're it. this far into toe as next gung too. And getting our see lot of the We beauty just as opportunity opportunity the and for it's lot very Look, water. business, see very we're a excited year as as big opportunity. we're about like far and think we ho a

Operator

Thank you.

line comes Our of B. Susan question. with Please FBR. next Anderson proceed Riley your question with from

Susan Anderson

my for question. Hi, morning. good Thanks taking

in just vendor or level be terms to of, maybe prices? of sourcing the any Thanks. material tariffs, year, maybe the expect China exposure like if it be you I we give plan don't you guess future that not when to manageable, and expect next next will On impact any if material sounds a kind us you XX%, your this did Should concessions and be China about, And then -- to also? in it also it would update talk assume raise that guess. plan so if you an year there next year on go year the to could can at I

Bob Madore

the for know, too. able XX%, team trade months, done XX% drive the partnerships negotiating they've XX% of had skills or Well, We below production slightly XX to about China to months other Today, XX%. the manufacturing next some our that of China production. and war this out in tariff this has a of going issue and been we'll on has down believe represents while. They've issue, you tell I two-thirds XX able have a with tariff that you, of sourcing to be migrating and our production to been our below over partners the front team, in in geographies our phenomenal to exposure through our China job. has And to been mitigate

is impact year's this terrorists of immaterial. Yeah,

an quarter have year material, We're we number Next to bit to the year, fourth of a it's growth. drive full strategies income in it's more other the income and total see lot going that little it's manageable a -- it's impact. a only operating impact and but within our

Jay Schottenstein

too. forecast your building [indiscernible]

Bob Madore

the in reflected gave. definitely we guidance It's

Jay Schottenstein

choice, is the already are good too. the look, guidance, And factories, that the news we we with are of -- vendor it the good. is It's in

have move hopefully a And moving of the There China. So around to a done. a are getting around with good probably flexibility is we deal the and the we deal very chance President world. makes look,

Bob Madore

two-thirds I haven't been heard that they've able mitigate Jay, disclosing items. really any of competitors tariff to exposure And the

for demonstrates. that's So think I and a just us think I big plus it

Jay Schottenstein

or know way, day, we put the we -- the end quarter let's quarter, improve use those where for think last opportunities know competition. we year. to this can of if Now don't plan for excuse it We anything. last misses we it have have tariffs merchandise We we any to next certain have lie. At

it. lot we it know know know the time, changes This are. about was a miss being down. We very excuses first We was wise. there's in good what the to working don't We and been the and the have where like is. on of don't long merchandise opportunities Actually we're future. feel We we -- do this accept quarter we but first made where a

Susan Anderson

much guys. Thank helpful. so Very you

Jay Schottenstein

analyst in better and on down. watching We're way, it the naysayers. confidence more this all about this stock feel analyst shame put the lot just the future I'll the put go much will. I the up way, than and I got Let's

Operator

you. Thank

Our question Capital proceed of next question. comes Markets. RBC with your from the Fitzsimons line with Kate Please

Kate Fitzsimons

your know you on to impressed to good extent that definitely on curious XX%, morning. the a piggybacking go Hi, your but curious to of the guess, internally kind pressure able I'm that tariff on lot tariffs views of is I price that pricing. increases view question, what mitigate just on Yes. are you guys

and to be? you top improving You seem XQ we now? bottom you're the where you there. What versus you Thank should And cycle seeing seeing sounds maybe? optimistic changing how like quarter-to-date ratio then a think it's are pretty Just of silhouette, Is secondly, made that to Chad, what on know about want fashion on you the it the opportunity you. there? mention

Chad Kessler

we the be careful. very to I think I when look have at we think for pricing, just tariff,

always customer we priced what that value. make where what to we that brand we've as perceive we it think a the for will been think a We've always have been ticket. -- a built to I represents sure fair our apparel brand we and into

do tariffs a still need of at styles go there. for maybe and in to we're percentage if goods those a where to China, think making tweener or I we our here look an dollars some there's opportunity few XX% of

But I representing continue be a will think space. we value and competitive will to in the the environment to be continue leader

across judgment But as have come in across news I and then so our don't to that we know, things increases time. can the again, think Board that so. use at breaks of And best at at it ticket, sort you and the we any look as look

see as both are to silhouettes. going new of women's a the longer women's size I And driving boxier continue into it some terms -- great silhouettes fall. and shift into tops a opportunity jean rises of as think we of the changing really the a we shift well provides do In in or high silhouettes silhouette, in

categories said, in back-to-school very received going apparel. drove non-bottoms the I think and was forward through that back-to-school and that the are that the the significant provides we merchandise categories well will I As drive fall women's opportunity

metric a other of of our look the strength of ratio, to bottoms us think, I business. bottoms to tops at because The for retailers, it's a tough bit

to continues part continue ratio, that bottoms and they're As to that right. that of they means grow grow

So the we at tops goal grow. if I tops growth that hold The the bottoms to But that business bottoms along brand growth that ratio my steady with to -- shifting bottoms. back to and don't continue see see our tops. is bottoms is the to goal growing not incremental least

that drive brand our is our But strength seen fall, consistent business that and QX a going QX drive a to as bottoms our we'll but into positive coming business each -- through outfits positive to that growth. and hiccup, back in I brand the every see we've think the both well their those the as strength continue way. and has bottoms and is apparel

Kate Fitzsimons

luck. Best guys. of Great

Operator

Thank you.

from your with with Please Westcott question next comes question. proceed of Our ISI. line Rochette Evercore

Westcott Rochette

customer. an Aerie move is of you into I that -- the Texas at you to go and to brand if have And markets between a between you California, Thanks, the brand on guys. over to interact Eagle especially customer awareness into maybe you Aerie the the new and and awareness American grow question like as translating as how and interplay brands? go do and see apparel, kind Aerie Eagle Eagle, over two that customer opportunity and the

Chad Kessler

we a base. have with customer really think I circle virtuous the

lot their brings to customers from of brands and We a AE in brand two customers to Aerie work in we AE with little Aerie campaign shop a the strong to AE to who higher AerieREAL the new excitement we work we Aerie. in those awareness Aerie inspire appeal that, really into that build and the a of have And have shop business migrate actively brand maybe help lot only still XX XX business. and and customers customers and bringing even yes, to

make calls, So we total. thing and customers retain that lifts the migrate then and customers we other try have, same attract those use we umbrella. brands. and try It's that and positive see Jen apparel we more as two business growing, Aerie's have under apparel and even AE I jeans working have the to to apparel based, new to is sure we can these with brands Aerie a lounge, really really thing on I we It find thing website. think it's a strong those that and in both brands a a compete brands with share said more to together not is that each the between earlier positive positive And two such business, and to customers entire directly

Judy Meehan

Okay.

So one question. we'll more take

Operator

Thank you.

of comes Research Partners. BlueFin Duval question. Our with with Rebecca your from final proceed question Please line

Rebecca Duval

Chad, just sizes? that pretty that and seen the see incredible extended was Good starting it the for you I've talked briefly the acquisition thank you're customer you touched just bit, the the I a measuring and a wondering it's reaction brand. little extended terms at plans morning, question. what you and particularly with how in, new to are wondering base on the sizes guys -- my come you just that on of customer taking But of new I'm AE Curvy, are you in reviews actually, online. about

plans offering it to going going or lines, marketing that those to along are that well there And then for out continue the you sizes get is just that as in on kind are back continue different you denim? into the to half. message terms of tops the going to Are we're to extended Thanks. there see of

Chad Kessler

Yeah.

and really was size. So the just not the One, Curvy silhouette parts. from represents two sort about into -- it shape of break everything the in

be we at posting our in quarter great. is would we even positive been business, in has Jeans the look Curvy business, looks Jeans Jeans we layer so the Curvy Curvy. the comps like to And core When before really incremental it business, also

reach Curvy as our jeans out with existing fit the getting great the in and customers of as maybe to a very well customers, did new felt around to happy we're success like marketing that. customers who the We didn't provide has optimal been and both a So lot specific brand. Curvy

The we to inclusivity. the we're have build stores. I brand something is upon we're sizing really happy really excited really about sizes extended led in And our The to there Jen stores. extending think by the Aerie that and and way offer able in I'm all it is

faster a build. seeing it of still think getting and We're pickup that's we're store. attracting the the a seeing store but the customer new awareness I still online, to story we're out to customer

it's then offer our to across have bottoms I'm able it's we'll think And and category. They've I time, stores the an how five days. I'm customer across grow then see that but early the see to We're of bottoms We it to well. it build do if think the sizes still as over see weeks. I it tops happy But builds opportunity all been build base. expect do it in we're in have reaction for and tops, like and happy to larger only seeing we in

Judy Meehan

Thanks our that your for today. So and have a call day. concludes participation great

Operator

and you, gentlemen. ladies Thank

Our call now ended. has

disconnect now you may You lines. for your your Thank participation.

American Eagle Outfitters (AEO) 4 Sep 192019 Q2 Earnings call transcript