AEO - Earnings call transcript Q3 2020 | American Eagle Outfitters, Inc.

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Operator

Greetings. And welcome to American Eagle Outfitters Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. to Vice conference President like host, to now Meehan, Judy of would turn over the your I Investor Relations. you. Thank

begin. may You

Judy Meehan

Good afternoon, everyone.

Executive Chief for AEO, Joining are and Financial Aerie Officer; our Officer. for President; Inc. and Foyle, Chairman Michael Mike Brand Schottenstein, Chief Rempell, Jen Officer me Executive Officer; and Creative prepared Chief Global Chief Operating today Jay remarks Mathias,

available Kessler, AE Global during be the Chad will question-and-answer addition, In President session. Brand

forward-looking in that law. call, call release, note metrics information I and or required please The are make both Investor results the need company’s Before we we basis. risk The you of is that result whether statements information, may materially obligation otherwise, upon will non-GAAP on forward-looking results as the www.aeo-inc.com the website future update GAAP remind press accompanying earnings the Also, the no GAAP based current posted begin new in that These statements. Reconciliations today’s realized in of any results actually our beliefs. publicly factors at certain company based to adjusted statements, attached this the by undertakes during certain adjusted SEC expectations release, are or filings. tables presented section. to in which Relations available on as our to represents the on a except to are differ revise included events financial or and

quarter to like turn over to the you Jay. Here I’d can the find investor presentation. now, third And also call

Jay Schottenstein

years a entering quarter especially quarter. not year, some Earlier staying safe. meaningful best related produced the was the in COVID, a full last selling our of leading activity, income much of to in well the margin all our incredible margin. headwinds promotional stronger we I merchandise deliver is for in and and with numerous and was price well year. liquidity quarter, and the management. good expected to to limited saw increase and as this operating I our well billion and we as product, our and testament midst execution pleased Judy, operating Thanks, everyone. were are credit to hope afternoon, adjusted had to third am to across the we to company. gross have flat Despite over deliver This our In as of This discipline, performance, their very due of I remotely. our fourth third brilliant team brands pandemic. these disciplined these the of results the $X teamwork extremely strength our proud ability as while am working results to inventory you

a The customer’s promise to our record improvements expand were we to revenue with investments play Our in go the growth extended encouraged profits. made past we fulfillment excelled customers That as record business. And our very capabilities AE impact areas continued and its vastly our approach timely omnichannel delivering with product in I great offer and improved. and customer Aerie the successful of respond meaningful bottoms. several policies to to well see am we deliveries. strong merchandise having approach off. on years looking our and channel and increase such product paid businesses incredible we The jeans and were win. was track XX% growth am I a pleased over on our have assortment experiences, core received early in by margins and are are digital focus. to When and strengthen. that’s offense our

outpace mall very negative continued we traffic, the by with to impacted mall strong were stores Although, conversion.

I future. associates. and new industry again protecting for the confidence ensuring Back and comfort people, of crisis. am showed safety March the this best term Our proud our health three measures we all AEO customers preparing established with cash in very once a and near led of priorities very during up associates and stores how our preserving

ongoing, focused on crisis areas. remain we the these With

always priority. are top our people Our

tools invest the exceptional financial AEO We to best steps health. keep retail Today offer with efforts combine technologies operational excellent to where safe. customers strong to associates the and our and companies and with continue explore of financial make brands, secure we we took products. among is Thanks we new organization select our strength, to sure to the across and measures financial leading group quickly capabilities

have a for winning success. future We formula

year have This our been see for and business company ahead future before. ever I AEO leading positioned past than has our made am stronger for for look more opportunities better today very I many I As I optimistic. growth. years

Regarding are is pleased trends. significant business of us. with ahead holiday we there Yes early

term With As will be from you whatever in upcoming unveiling In a the we everyone pass and I growth and safe. look meeting January season the on on customers, provided will however, to I are they We please positioned, serve will our ready call longer details hear the forward More the to the XXst. that, team, plans Jen. holiday stay and to shop. meantime has our hope weeks. great choose to

Jen Foyle

the XX% and Aerie for has strong consecutive exceptional to a thrilled Thanks, an quarter well. brand. and year increase good I on year growth. double-digit during quarter. of is third and in am increase everyone Jay, XX% certainly marked afternoon. last XXXX XXth a hope Aerie built quarter. I This revenue another the safe posted the report is been

is Aerie crisis. momentum our we how and Our are embrace this truly for grateful outstanding customers and throughout they

be Although, seeing XX% metrics were the our from mall as online. rose up modestly. Across challenge, The acceleration positive. strong was increased total channel. margins overall Board revenue a XX% by a expanded in saw record last AUR year in Aerie’s which and XX% a acquisitions last from meaningful our improvement were Customer digital were up we continues digital stores and less were strong particularly hit and we levels promotional. are to year significantly meaningful Merchandise profitability, in Aerie fueled growth. traffic

engage loyalist. to efforts our community through grassroots social continued media the of We customers build and with to Aerie’s

which our new customers of double and to plans active and for up response growing that thrilled on details down momentum margins. brand of wear January. OFFLINE fuels has more Across an our Aerie’s amazing future had To with both incredible and what on you new devotion Board higher stand brings our our understatement, to to a call TikTok, In ahead and OFFLINE big something had four the our truly to I have In stops digits, most now the a team. and passionate our success our am in movement and fact, report offers customers with store category has unique, and OFFLINE real brand some Aerie first customer it. rose we everyday. to Aerie. merchandised our remarkable. in in demand Thanks categories you are their opened for key and is Aerie loyalty our incredible we very an an debut. strong opportunity and exciting can’t for running. October different and do wait I associates comes share all we

American Now Eagle. moving to on

Aerie, AE first third in the traffic The has than related so the Keep COVID of store weak demonstrated from penetration a half an a mall larger to mind, was quarter much higher improvement headwind. year.

up XX%. channel Customer engagement digital other strong the new brand with and was AURs. AE’s was acquisitions positive On digital rose hand,

inventory profit results. on is showing Our and focus optimization improvement

We across encouraged are the by margin, our the selling best and particularly activity several strong was in well-controlled pleased and business. was increased which merchandise Promotional very price years. full

in our good really demand continue businesses. leading see We to and bottoms jeans

lifestyle is which in excited innovate, customer As and could the AE you casual category. invest incredibly that retention. be have plays that category and the loyalty built continue to remains our know I an we jeans, not fuels franchise business a an a embrace priority amazing consumers future sticky increasingly into This as and more about strength. in and we comfy

been by as recent spring styles introduced on success move our continue encouraged to better we where and have build fall, we the improvements XXXX. we in this and We will and fabrics into tops

and the connections and of stronger inspiration that with working our back more collection product. by to We quality, supported enhance marketing are ties directly point the to emotional a create view

that while styles strong win but will key generate We returns. unproductive on conviction by items, refocusing not do eliminating

We reception stores the early In We the good and been engagement really has that’s brand partnership feel the unique AE on line reception and efforts customer about The with in quarter, fun are and marketing iconic selling capital holiday a about significant product to TikTok. a ready. forward. excited in two our we in and fourth we new now. are quickly continue This was are and collection way, Disney launched seeing to move fantastic. product collaboration unites equities

to be I this than There AE’s so and I closely you I the work and progress wait that for more working more As across the is past. experiences, our commitment on I with Michael. will initiatives Craig, and along and team pass I customer. future excited their Chad that, very to cannot success. in am we this could and quarter I team. want in entire enthusiasm coming takeaway My exciting creativity With thank that the the impressed with brand quarters. products to about across much AE in talent new and customer know and marketing, share AE not with past to the with began it you is endless our big have

Michael Rempell

by begin our good Thanks, and everyone. globe. thanking the partners would to associates like Jen, afternoon, around and I

this bounced dedication digital AE teams remains XX% has well The sales strong in growth. work pre-pandemic last and and goes by our business the anticipated Channel the year. of more and quarter double-digit Even digital traffic, digital of the than represented across open, the our back Aerie’s with and board was stores led up trend. and year-to-date. conversion Our XX%. XX% our partners. credit for hard KPIs to transaction ahead the of were Online much to XX% positive our channel increasing revenues quarter quickly sales increased remained XX% demand the and all

resulting an maintained AURs increase in the Third quarter digital were in size. strong, and discipline and channel we as higher pricing reduced basket promotions, margins

part inventory choice our we aimed As we counts noted driving quarter, strategy margins. higher of optimization reduced last at online as

Our opportunity Israel, top e-commerce business remains Brazil, are store also Outside international channel with for on but we performed this expand local business building international days very the results extended in continue entry of customer response markets. Russia, opportunity second to additional progress regions, our to third quarter, in great and our for well see quarter. in we pleased quarter our meaningful launching we previously in markets. we in sites South and sizable these the many initial further shopping In a digital this forward. see the Store reflect In continue we and capacity footprint our North conversion digital licensed Turkey, quarter, priority. and remained reduced of the AUR strategy third hours activity America, Korea but still in challenging by positive discussed operating our early market by XX% It and environment, which offset health and included were traffic continued revenue decreased declines. restrictions, safety as moving

continued As house we program. first margin Average customer and with channel the in stores. in and improved richer to the successfully insights acquisitions new saw This spend our channels, we Last strengthen in Across administrating rose we capabilities digital our flexibility channel, with quarter program greater customer time. customer increased enables for merchandise the digital XX%. brought customer loyalty engagement.

As part system providing also activate benefits. range more new frequent a we to re-launched wider by of reward customers a of initiative this designed

and redemption better value seeing from including are change strong We rates, higher margins. transaction very results improved the

stores We this day In have testing year have delivery BOPUS online experience. technologies been customer we orders. tools, down on self further shopping for accelerated to including weeks omnichannel the and Earlier and pickup. shopping accelerated recent we in our enhance focus same checkout curbside new

loads steps also volumes. improved handle significant speed transaction website higher and the our have XX% our holiday site by We to ensure paid peak on can taken

also to running for enable demand. The customers we will and fulfillment capacity, Our This expect has also us in stores growing inventory very which which located this four prepared are we means support new advantages. digital growth volumes holiday our is and closer hubs have distribution many increased the and well fulfillment decentralized be will continued network our season. network overall to high fulfillment distribution

quicker. Our our much Suite customer replenish be delivery ability and to will stores

to capabilities our will fulfill approximately we maximizing the locations store enable manage network, customer optimizing one able to fact days. flexibility. pressures will our while total service, XXX within and two inventory to cost day us flows these within provide better In in XXX operating reducing In delivery shipment be and

Our organization we for succeed. has unprecedented months eight for well-positioned planning been an holiday and to are

and Aerie, items. on collaborated our holiday teams for assortments have As to improvements key you heard of including Jen, and from our very operational creative AE strong some

fourth this our also In early I next third very are holidays will quarter a customers manage season everyone strength. our unique and are our pleased results to We and the wherever present call they look whenever, to forward challenges quarter I position however I speaking enter to the with will hope serve closing, are would enjoys prepared of ready and like. teams year. the in and pass to With holiday over that, the we operational to Mike.

Mike Mathias

reflecting demand afternoon, Despite second Michael. due to for COVID quarter The back-to-school expected everyone. demonstrated income and was improved flattened channel the operating million a expectations. product from third to post-Labor start sequential the from progress and resulting shifted from Thanks, half results further The environment in was year in our the our headwinds Good benefited $XXX September late August first in quarter business compelling cross XX, quarter in ongoing XX% demand operating positive from challenging results Adjusted margin. strong reaching and as the flat last October. our Day exceeded but execution. and meaningful

am led a to Additionally, significantly good higher see quarter. pleased work, inventory our particularly in margin optimization progress the to which on merchandise I

delivery its and brand the XXX Our value. to sales. mall teams years. product XX.X%. reception to assortment merchandise exceptionally store due was combined level traffic impact and margin traffic executed quarters, near-term led and set last impact AE Rent million a both in initiatives, Lower by offset to expense promotional volume as optimization recent $X transaction profit conversion highest declined higher in positive also higher a controllable to significantly center lower higher by related company shipment. to long-term of would offset increased X% perform contributed as cost business several or had last and base. shipment margin our due with expenses the due activity tightly, and greater online year This Traffic to customer professional selling of AE as higher labor well, declined pressure expanded negotiations margin. This to declines the average favorable incentives compensation. driving increased Inventory up teams other mall XX our Aerie we is dollars the the strong per incentive services, our full partly impediments price to to basis have distribution rate taken a store reflecting outpaced year, at absence in SG&A including pressure our success. revenue with continued and COVID a cost have to X% to fees, SG&A on digital managed given Total Gross well and store quarter. product cost X% leverage increased and advertising. and larger highest the points at and Mall gross the for landlords. gross

majority open for half of entire in the as quarter. Our labor year fleet versus first the our were store modest more savings last the was

our The represented true-up full better from reflecting rate anticipated to tax impact year. effective was a a headwind benefits taxes last primarily rate relative the expected the higher including to to operating XX%, due performance, $X.XX CARES the of Act. EPS Our

this COVID-XX rate, $XXX a share count operating unrealized $X of result year, expenses our and pretax million XXX restructuring Adjusted income convertible income $X.XX with to excluded million shares share XX charges. Our per Adjusted associated flat was last in was from included well of related million outstanding million dilution interest was and notes. net expense of incremental notes. our and in declined to convertible per charges adjusted excluded as of and higher net higher the on to debt. tax and last share and the related restructuring non-cash interest earnings as year The diluted expenses the reflected shares to convertible $X.XX $X.XX quarter COVID-XX company’s

SKUs better to organization to quarter chase inventory We our plans. reflecting the to with inventory focus continue in continued reduce strong and American increased sourcing reductions as down assortments, to our to we sales and strength manage to our inventory support and unproductive a Aerie Eagle, XX%, achieve streamline position demand with of well on demand. optimization alignment end in use

As next I improvements and over an indicated effect will inventory have of we a have the years. several is ongoing on believe I priority material optimization cost

During cash credit our quarter the under the repaid in outstanding and $XXX $XXX and million short-term period revolving remaining ended the we million facility with investments.

total Our undrawn revolver including $X available liquidity, billion. our is over

debt only currently our convertible Our outstanding million $XXX is issuance. note

balance pleased capital priority sheet will strength XXXX. This very are We our liquidity remain and in our success uncertainty. preserving ongoing the in near-term allocation with external given during

cash As by our long-term direct business supplemented resume visibility program improve, to shareholders to returns buybacks. our dividend to objective is through continues

We expenditures three XXXX $XXX last million of million continue year. to first million from $XXX in to are $XXX million XXXX. million $XX down in the expenditure $XXX year of down capital quarters capital expect from full of Year-to-date

store are the next selected to several plan levels. discussed proximity customer on on we close and tenure, calls, their have As These been profile, locations previous fleet over our XX based years. stores this actively stores to evaluating year. least engagement lease at We for other mall closures

healthy confident we for learning’s locations and beyond. and inform transfer will see are XXXX sales We from customer from these our will these closures and plans

strategy at will You more meeting. about our our Investor hear store

look the holiday prepared Now season. we are as we for forward

extended mix out over in in and anticipated transactions plans ready demand of business, are online the for strong has have a a that place We shift and higher timeframe. including more spread

seeing are In take place fact, we November. demand holiday already in

made healthy increase distribution on online expect our SG&A financial delivery targets progress great expect margins, well in and year. laying to relative opportunities. look We the long-term improvement to is and growth January. multiyear expect more groundwork questions. plan quarter. shopping we to and we longer-term details increase the that, position, cost for to open We up managed also continued financial we merchandise With while Our In and and center with inventory providing AUR closing, we more in we can forward our our third call for strengthened the last

Operator

our comes question. from Instructions] your line first question with Jefferies. Stichter of proceed with [Operator the Please Janine

Janine Stichter

for for so taking am about the your what thinking are the and markdown what into just be still to invisibly Thanks Great Hi. you you. SKU Eagle is in to I learned inventory core thinking investment and pretty SKUs seems question progress. from control. how brand? on your you challenging wondering How guess inventory much Thank about the congrats and spring then I lower planning a reduction see given my control count. you are the

Jen Foyle

I take that Janine. can

think, we as the I our So, related to year well. of to positioning in of sales relationship terms to have expansion a expectations back of sales about in inventory learned and then our lot margin in of merchandise inventory this optimization

us. We are into inventory pandemic I not completely think conservatively We all behind the believe impact plan don’t the continuing of spring season. to know the we -- that is

some the expect We QX. through of to here headwind definitely the in there rest and winter

definitely planning down sales are we relationship into to seeing expectations are that down our we are related head what in relationship we X% today, down still third So XX% in season being even the our -- with it’s inventory ending quarter range similar a really inventory to our to as we planning. similar spring our to sales relationship

Janine Stichter

about? is the still is there maybe main just and is Okay. to comp of should follow-up anything Great. on range then be incentive similar driver to the there in what else think expected XQ we And or was it a increase SG&A,

Jen Foyle

No.

performance based in as comes how driver. the mid-single us increases which to be incentives very X% is on similar was that we incentives The outcome be will be increase similar by it other nature are digits variable expecting expecting, driver of well. there the what uncertainty exactly channel, would SG&A what third and only revenue to quarter SG&A still would are the We a

Janine Stichter

All so luck Best holiday. right. for Thanks much. of

Jen Foyle

you. Thank

Operator

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

Oliver Chen

question productivity Hi. look what you the think retail Eagle on experience kinds that were what many had you take versus lower mall the and particularly you of store? in the curious higher happened you reinventing American Thank future, Nice of also productivities and different may changes with what about malls for need to large. seen biggest your future across happen the in your in just expect But about quarter. you a What��s have has as pandemic priorities? store love We transformations Jay, the have in we in locations you. thoughts as been you. at strategic rapidly as those your and priorities

Jay Schottenstein

Okay.

are the look but at call the choice experiences plus% these when at down This stores levels XX First of you months. the in a we thing shopping pandemic all, store, are us its One have yet. of gives American next to Right So the was make now emphasized enough the sales. you proud flexibility. at inventory a to our come at there the inventory have XX level up locations mall less the the in our our right we inventory very safe very given the But maybe distancing. been they lot XX% XX%, reopen well down key stores not on customer social have of that the and XX% store if of stores Eagle is store. XX merchandise environment. months was if and considering we performing is in sure It right the Look

blowing are hot items wish right now. had we that just the that off are We now. have items more shelves We right going certain

the to shop the a to come back normal. they the And starting add. regular on designers to into merchandize People the pandemic want and we is they stays be every what spread practice what’s vaccine back are things they you late the is as I one government the same We sharp travel people to early and personal the for was when and believe go we proud a shop. They amazing to down. very it’s for in that are we the customers malls are what record by They don’t like We am to say gut going then the the to team going to spring be that CDC looking our far mean are weeks it them I basis don’t now, time, drive telling amount. given when out. on designers at the get -- on look on I the don’t out, out store sharp to are week. people airlines right -- focus At will through our people springtime, shopping haven’t But happening they our store time, are And Look, that start just whole traveling could that really time when And see to coming things as all going go, be that programs anymore. one this back special everything will to pray excited we next this safe its with have the So pray business. think experiences they be challenging to to as that are on way the in the have same and distancing we this everyone customers of giving stores. are was stopped. really social side winter, it like very go looking that they I in are want too. horizon. going the stores looking our vaccine few at next shut April merchandise. want the thing is through operations my optimistic it we that

fabrics Zoom, the about we the to it still jeans. develop remote, product, were Our that the travel able being doing it by was amazing, They designing. spoke were around designers able without were world our volumes it via to

They product So done very I have proud a am job. the keeping team. of fresh. great my are They

you store Jen day great one you will job stuff there. fresh and see stuff they and done if walk see new you be you a you and our think see and merchandize Chad we have proud in I exciting between

Oliver Chen

helpful. Very Jay. Best Thanks, regards.

Jay Schottenstein

you. Thank

Operator

Our Jay question. with proceed UBS. from next your with the Sole question Please comes line of

Jay Sole

month-to-date, did Great. during Eagle My quarter what compare it seen it compared possible How the Aerie margins just last you. to question year do in you November bit they saw on American right how what other? is in Thank And Thanks compare each now. then have so to to you secondly, and trend give on and little color is versus merchandise to those be more a much. may October?

Jen Foyle

Yeah.

setting Just up we growth can that an done and was $X billion incredible as what you job Aerie. inventory near maximizing see heard, while Certainly, have we against in that a our you are have mark. managing priority,

are really to We billion end the about it. and excited hit front planned XXXX This of in us. team right by its of $X

we about both and and not we Aerie. integrity going it did back with So excited really assorting are But in over brands.

one So we store to those And AE did customers. are out greeted, hell a tell we of keep they converted will kudos safe you, When up stores. and the were customer and leveraged of team I heck door, of job inventory managing QX. just they they the a enters that

so said, be more show through proud margins in were flow right answer, were heard in which and couldn’t of merch were team. best in Aerie just the AE I line numbers. with So margins AE, have the years you That shorter line, in

we right in done AUR’s are are we are have we for same AE that going to at are continue high, an all progress. line. work The time in Aerie and So,

got into next out by quality I there and answer questions we design Our so excited be focus develop into way? the best products in is our as we year the mall. really the on about your quantity billion I going can and Did over of innovate and own mark. terms both compete $X the little head the year next to

Jay Sole

Definitely.

to a If hear about the get you queue. certainly could will little November I and month back today

Jen Foyle

okay. -- November Okay.

here. are We

Okay.

competition some I big have lead So of in quoted actually shipping their in heard their people acceleration results name -- from just and Michael on I let QX. could every our of and the that competition tested we seen be our seeing tested have pulling spent It’s in you some and I rewards. shipping have interest. you, and Rempell, we every amazing. are we great seen our are are November, best there it, world, you all the price Well, I numbers including you We every promotions Amazon’s on say, tell sure competitor pull-forward, see our constraints. the the the to me doors. am and Amazon there’s there operations I time the to

ours, -- been our the management a thrilled we we it. are on I kidding move inventory management he selling inventory will where really to and ability of those about them, that’s and just are say, So the wasn’t units priority

is front of huge weeks ahead in pandemic teamwork’s, So, crossed to our Friday inventories, of are knows have very not had position us, fingers and I big be certainly Black a of ends strength. look this a hope cautious yet, couple place we from COVID us, think point hurdles with but have some we who we our here of where we a so come to that we that in we

Jay Sole

so you Thank it. Got much.

Operator

comes Proceed question next JP with Boss Morgan. line Our your with from the question. Matthew of

Matthew Boss

Great. and on Thanks congrats improvement. the

keep the the in? a what maybe American acquisition So, place trends high pandemic? you Eagle post that assortment you brand, to question, Jen, just retain seeing synergies from as new first And customer you maybe dig are just to as there leverage can initiatives opportunity see you do level, are in that the at customer’s

Jen Foyle

Yeah.

double-digit. customer be So acquisition to continues

about in XX% We the zone. are

hedge top seeing some So, to customers including of we is in towards OFFLINE, of an to retention a new door Based product and offerings, starting get older I like are we little our on customer. see continue we are our mind. new what though.

as the open incrementality. our space growing we to are some up offerings on tell and that versatility seeing she’s with are to sure of I continue malls, we our in focus build on that product So building and Aerie same will as going in make that the are OFFLINE lounge we stores. intimate we you we and assortments OFFLINE liking the pure

So again OFFLINE, up then the mall side. in in Aerie we where as the cost as growth are a on results opened far similar in OFFLINE side and Aerie seeing on we pure

categories, are I to a good we with on excited too. investments going and that more am be think up we are So the and the in there’s going to sure OFFLINE and things opportunity really leverage we are in it’s I on both the show in and couldn’t a results $XX continue the thrilled opportunity, make Aerie we of lots offerings those I can and really such so billion for OFFLINE massaging unique side store way to

the just they with I on offered looking The the said, up. focusing really looking AE now wear really AE on holiday. ones more from September timing outside, and have new -- really right, in share we our the ability what when I making been but bit but that have so continue our at I call broader Aerie, right? perfect. As more not street best. we far just are on really denim am a about I little QX am Aerie excited It’s and assortments couldn’t the to clothes both far sides, AE on The my and opportunities really nothing I and the the jean and we to continue learning’s all there were as outside out am and love headway that opened pointing unbelievable seeing I innovate for focus do to cozy new share that to denim we They in really business go secrets to it, indoors. is in will the going and outside brands results They

on play assortment and brand other’s maximizing So I -- each make that and continue way can are we those understand both. we think with sure to our play

a of of really us lot get the have market we a I XXXX. opportunity to plan share think we solid and to great future we gain I approach and growth have as lots seasons think

Matthew Boss

Great. brand gross think drivers quarter? it’s third gross a how best about? up some margin the opportunity topic for is American think maybe the gross unpack merchandise margin to level Day. just about there in multiyear to help But quantify the fourth of at sure Maybe you even could I quarter the drivers magnitude margin, to that just any or see follow on of Analyst way in Eagle a the high the margin you of the and expansion am And

Mike Mathias

gross I margins. the makeup can overall can cover. Thanks. I of cover

So, XXX by yes, points. basis gross leveraged margin

they going the with. and is know, of we digital as almost we shift all delivery distribution merchandise just and there were that expense XXX around associated business, the then the with, quarter be offset a are points in you XXX this by to points mix omni additional expansion in know As dealing costs thrilled -- with margin obviously, industry

So, in of a fourth of know, quarter to you XXX expecting promotional are environment. as The more digital. a points even shift the was that quarter. the -- makeup third the it’s typically We more do we

saw gross though third in of not to in level because as we we are those the improvement quarter the two points. So same margin expecting

Operator

line comes question of the with Citi. with Lejuez your from Proceed next Paul question. Our

Paul Lejuez

you than am fluctuations the then performing curious to overlap of am about terms if just to have recent back are seeing in think trying both how versus follow to in the each just versus November guys. business, pre-pandemic? up, AE trends that you the an weaker I store to And talk one your about curious versus in the seen customer Thanks, Aerie relative said at was perspective. AE you XQ? the just in curious October more quarters start quarter-to-date and what and understand throughout better given I And I digital acceleration Hey. school? between could to it’s from Thanks. quarter, what you exit am But Aerie rate? I

Mike Mathias

can take… Thanks. This Yeah. Mike. is I

Jen Foyle

I can…

Mike Mathias

Go ahead.

Jen Foyle

Yeah. Okay.

start Mike. You

can You go.

Mike Mathias

of I the quarter. part will is which the first with third take it

the and The should out we pleased So Day. demand. continuation peak in ever as highest the say of back we had we trough was we I are I with demand. to with saw a Labor we said have as a And saw a are opening in sort and that. definitely down season of August school definitely on because February are my in really penetration than shift really is the expected shift of the flattened remarks, of seen September the really based third pleased September our and in August quarter we well.

demand don’t school out that -- there saw time. think we this based We October that anything timings on think anything still some coming was the I at to market-by-market. of to do holiday with

in are think we seeing holiday than November it, I typically now put demands are we now right pleased, earlier see. up have So said November Jen we

back we this through the results quarter, are now are pleased demand October shifted we later more little to history, November pulled in ever with shift we a up have was seeing in our we earlier than the school normalized to have think now I holiday So, seen.

holiday second So we of just the different Go the be just are animal Jen the ahead, and shifting fall from back-to-school on questions? going to part and in it’s total. gears

Jen Foyle

Yeah.

said, to over some to are men’s things have that just we really a really franchise nice to coming trend a what back-to-school, gate, as momentum it we chasing businesses the Not say, that forget out we a what’s and just little just and for started back Men’s on two we are tops movement we nice is yes, incredible lot said, and well. there mentioned, move and honest seeing about been has the I of are tirelessly -- franchise silhouette, On into build some I loving tucked denim about there and great and have really nice our of we Mike are saw would highly dependent think be worked faster acceleration, newer and side. that much exciting that seeing as and the on so to to seeing like year just, as some But denim happening really business see I far we as continues it’s -- on as incredible last of team but am business. so QX come really are chasing back, in I really brand QX out just a the driving I and August, particular Just be excited and in to build into in men’s. inside really businesses positioned XXXX ago we as denim, question. the

as on As and the comp in all some fired QX growth, not said this know. site. of double-digit don’t time small think I exactly Aerie, XX I but consecutive It’s call, just in first categories really I far like the quarters

with each We just team more the huge are I intimates. could comps not in and category including talking be thrilled

to we We are on think the and and I OFFLINE can ever be of more our momentum, going expand regain as that really intimate up momentum able more the really not Aerie, new side whole even open core business the the business. to will brand about expand We doors, that then in forget of we side.

the and isn’t It participate new is customer the will soft think, can but Aerie’s that we there. next a just to going I I continued dominate dressing and comfort trends really current I ours want future, to played because go this go So, overall, really think have just into of to be category going in customers in, think, think every business, I generation. not with away away,

team, they really see a marketing have moved the is chance Disney so So know yeah, not are and up seen campaign. there women’s future really pretty -- just and great see with Craig Brommers pivot this as all you tops the with we have much if we and I I QX. we have a in a wrapped is opportunity his as had the have lot team though to a worked I into don’t delivering have forget and assortments and to furiously.

dancing product. we so I and Addison. sell getting that Nikki It’s there I are think likes he are incredible Addison, stance to views out with more so come TikTok and to have of the hope is done incredible, that there. with that. definitely on you We one much going campaign amazing Mickey, don’t

So your I I answer all I am did questions? think… sorry

Paul Lejuez

No. I…

Jen Foyle

I said everybody…

Paul Lejuez

causing This overlap well one between as is an the...

Jen Foyle

the It site. Yeah. leveraged Aerie’s to really build the overlap. the That’s customer on. AE was We early

numbers for momentum, really the are see on as digital. organically instance entries digit. Aerie’s up to Those nice site into starting double the are We

heights. I baskets seeing and solo on so to Aerie standing so wings still new we but are think really we earning Aerie on speak own. And to our its are really overlap, driving have We

going this Investor on are to focus to continue are this. in call, report to going we the more So we on but

then OFFLINE $X next? into to range, and continue Aerie, we American be grow grow range, we continue it? really then profitability are customers in As What as say new How this this have what’s that think, can Eagle. move introduce to we going to I this into story brand, we to approach billion

Paul Lejuez

you. Got Thank it. Good luck.

Operator

with your next of with Barclays. comes Adrienne Our question. from question the line Yih proceed Please

Adrienne Yih

Yeah. you in margin operating at be an on have level that more. as mentioned such and had I guess Aerie, the inflexion are cetera, with store American that billion at for et one progress. scale Thank towards point level, also now great Thank wondering that expense, on line was you then that Eagle? $X I I to of is the actually margin at Eagle? inflexion Jen should and question you you you gross are line operating much the economies congratulations you see you very you. the On start my buying, that move American of in with

Jen Foyle

Okay.

simply Of course. yes. That that answer -- Yeah. to

accelerate And We -- the are what plan profitability our strategy. would other be Aerie’s then definitely future key to that’s was your question? to and the

Adrienne Yih

we fourth should Dollars question employee is think quarter. components in were any the on the in of mid the you and Can guess the I COVID-related digit the other about the SG&A dollars. third the about expenses? up single just how My -- expenses, SG&A talk incremental quarter, that

Mike Mathias

Sure. Yeah.

travel, else last professional advertising if definitely due back fees, the impacts, mid-single that pleased bit. down labor X% was That the digits. incentives. mix variable to down down you elements incentive store out Our be a will SG&A, was was quarter we it impact year, within to of services, up some Everything we are roughly fixed in SG&A, said, is was as expense,

by a channel I similar a it comes we on then were controllable expecting expenses, again, bit like of Fourth exactly in are makeup. similar how revenue But SG&A. and our have earlier, from an as expenses very a as perspective impact discretionary kind quarter now of of said are variable will well expecting of little quarter. otherwise uncertainty makeup So and SG&A, down the as we

Adrienne Yih

you Thank very Okay. luck. much. of Best Great.

Operator

Please from Our line with next of the David comes with of your Bank question Buckley America. question. proceed

David Buckley

can where channel was I curious our to see speak profile you margin question. you my versus and XXXX? taking if for heading Thanks brick-and-mortar, Hi. into you just e-comm by that

Mike Mathias

a initiatives It’s now aligning our we inventory and have than seeing of within the not again more are channels from Right Sure. optimization proportional Mike perspective. we again.

kind between choices POS just other in of SKUs, week-out difference merchandise other seeing We excess are typically a you impacts margins. margins think, about reserves, sort inventory, excess big we there in markdown are inventory beyond week-in, impacts, post-season of when think accounting, I the our cost not channels. transfer the the of overall actually, of And

We big are as benefits seeing there well.

channel, that same to be down historically. we spring the those focus short-term a choices have. impact impacts reduction going inventory we levels at setting digital levels expecting hit seen not up just in the have to are lot expecting XXXX of those historically, are to we the that inventory our the optimization your more of the we And to to fails, a question writing would how So we and some and not are perspective would inventory, for level. an we in from have not inventories and from And really to year, that perspective, off similar next for other the see selling least Inventory are we SKUs. from we in right relationship of the accounting accounting up what to intend do now

expect XXXX. benefits continue We to the into

David Buckley

you. Thank

Operator

Markets. Loop next question the with question. Please your Capital line comes Champine with of proceed from Laura Our

Laura Champine

for Thanks actually up looks taking accrued It’s on sheet. that increase balance the for million. in or accounted question. my were What expenses It comp about like $XX accrued accruals?

Mike Mathias

in noise will The The there of There incentives other the be incentives part well. would that. biggest impact. some biggest be the is as

Laura Champine

opening message on the plans store you brand? certainly secondly And Aerie for that the not it. closures in impact am potential the hearing are for Does looking I Got or AE. brand. potential the Aerie then

Mike Mathias

No.

had XXXX. reminder And incentives about did years future as for are excited you I also as into XXXX. make excited new continuation Aerie the Our in a about any like story what and we not in that, in next investments would are we look just Aerie and the well sheet performance stores, the that year, and of OFFLINE pay the capital investing starting balance could point we about is question other preliminarily definitely and in expectations

included as So year-over-year has in that the difference well.

have In compensation did not bonus. fact, we in did not pay We out XXXX. the incentive

Laura Champine

it. Got you. Thank

Operator

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

Kate Fitzsimons

early taking very start know curious has to it’s Thanks as for the but stores, much share my of you what Hi. days concept. surprises still out am some question. I Yes. if OFFLINE roll been I for that Jen, you associated can just

Just to OFFLINE some be us guess That could an any if call OFFLINE give of was of give next, within the a through there quarter some helpful. sound Thank initial maybe believe help AUCs take would there into be in Mike, you in AUC you. taste just count be how first quarter. in additional about, to us help here? think hold, about are benefit third continue come? insight out of Can reductions on I box. just And XXXX, us but the half it you then productivity I does will thinking quality the SKU could look helpful be as maybe you of some these like us That investments an and fourth Aerie what you would

Jen Foyle

did love naturally that mean was there customer that. resonating and of viral. Addison. a and happening added has was and to -- prominent not she she influencer, and has see something it It followers. leggings and just -- about nearing was went Well, great in we we one happened is is just the showcased brilliance. surprises of organically Friday I That’s on any it Addison our so one with out our what it with to She one did X,XX,XXX is There’s really

we we what So loved saw.

still I leggings the tell. the knew to as And as that and far productivity, going of be will to foundation So, early guess, business. we that, back it’s

a format We there. out have beautiful

We format. are actually building into an old

format. have is a We we there side-by-side that format a have brand-new then and designed

a measured say So productive business little tell, highly it. sure to leggings early of will for it’s most our it’s and profitable one are businesses. But I really

had Its for what team Again, I but we take just much really don’t I hasn’t, seeing. I are I love your questions, mentioned all I early love this granted. it’s about think my we too early I of one the answer Did in think, mean what earlier I on, we days, early I seeing incrementally. we coffee really today. say, questions? to are

We remain have humble. to

same with this and I learn and drive scale a and remain BUT again built -- quality but see say want hungry, well, I doing the for test wide are Quality brand. brand. to and always things to have what the as and can’t we we me in the experience top just, regulation. our and really quality. the integrity, Chad We you for do to that’s say of for We customer built really results day. enough the overtime each the because to best how we about do to how is going is to it’s brand open so and what every are this mind have we that’s last and old understand brand that’s going

Michael Rempell

I the Yeah. part will And of [Technical Michael take this Rempell. question. is second Difficulty] your

through and spring next we and quarter AUC Second question benefits We expecting cost your of summer are and part larger are year. in was seeing about both what fourth the perspective?

of like, we are improved said, that and capabilities in leveraging but in next Jen QX are both the sourcing strong going investing So, are half strong we in first we through and see in quality, to relationships, year. come markups

Kate Fitzsimons

luck Great, for guys. Best holiday. of

Michael Rempell

Thanks.

Jen Foyle

Thank you.

Kate Fitzsimons

much. so you Thank

Operator

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

Susan Anderson

a AE much Good top terms just I to have Hi. guess Nice It where job the be, how guess, men’s seen trends and hope women’s. throughput with they and where evening. like quarter. they back a far along of sounds are you Thanks. taking how on for getting in would at, managing and question. guess, an follow more versus I just track up the improvement, I our on my go? you Thanks

Michael Rempell

Thanks for this question.

about Jay industry teams we the mentioned, excited worked have go on all tops. our have with great focusing assortments. really The worked, teams are are leading to in jeans what as seeing year We tops

and QX. and to see that really So, QX that coming exceeded expectations those really through and focused in we fleece, tops in continue we our seeing in expect categories mid are

start of are Jen, as of working since closely the and we brand, things well but really more have this on we focus the so with accelerating tops on that’s really focusing opportunity excites with pandemic Guillot, the category it’s with great have much working on as on key want focus work great really the our so Craig customers. we on been the jeans. value, quality, down, assortment marking But on to we that next item, One

we business over in I We and and that through an have and the more amazing taken the have XXXX to past going we that have get tops. beyond steps confident built bottoms years QX into am really

Susan Anderson

do Great. the feel store I and I one and some online sounds Have sales. And hot traffic up. then spots that sales you popping follow been you guess just slowdown the forward store guess, on how’s up, maybe pulled seller in transferred November, It seen like traffic and with guess like then? a I but in some

Michael Rempell

are there constraints in the in is some seeing impacts hot stores. the seeing of capacity are more spots some We traffic additional we and some

job just places are we we traffic that by shift seeing by converting getting As during in traffic demand and traffic in impacted Jay call online. seeing are amazing capacity the that and and leveraging they are mentioned that the are we are that seeing

shifting up of digital. that’s to state just more past So as business, rest add the market on the

Susan Anderson

Okay. luck so Thanks much. holiday. for Great. Good

Michael Rempell

you. Thank

Judy Meehan

have we Kevin, time question. more for one

Operator

with comes Our Kloppenburg JJK your from Janet final Research. Proceed question with question.

Janet Kloppenburg

the inventory total and down maybe inventories so the XX%, the the some on Eagle’s but perhaps in thanks quarter, wonder had I a thinking concern quarter in in AE about I Aerie have how American at noticed for everyone if third tonight. quite now quarter. impacted shortages up, bit quarter, Congrats October? for your that sales and late Hi, I about Eagles down in are to inventories, all and in the here inventory brand. the a stores a the be nice you squeezing me in

Chad Kessler

We… Yeah. Janet. Thanks,

Janet Kloppenburg

Hi, Chad.

Chad Kessler

were inventories some of in did AE history significantly definitely the the of have -- We down quarter. we and sort

back-to-school plan the the quarter and stores person inventory. summer how in of back impact able early and news sales inventory. exceeded is had. margins that well in and drive We were of The we sure lack as use was late that improve how fight demand had going to We really demand. We weren’t to have help the opening were The to we terms the the planned in up. spring were we greatly to get, on our as the expectations product good able would

outpace always little was QX us we thinking believe inventory be and us forward. balance to chase. up Our on that to us inventory. continues We plan want But the we opened inventory of and to going best was margin to for we then when go-forward inventory gives allows sales are definitely sales would results more -- happiest want it outpace out

Janet Kloppenburg

as Thank earlier year quarter this trends? we is the last the and November if both Okay. activity what in impact may I look have the have should promotional you And about that talk on you am you. terms acceleration And when you trends, trying goes or mean, assume the acceleration brands? if which moderate it’s just that top of to you about that seen across along for to think wondering just think line on the I

Chad Kessler

Yeah.

both brands. acceleration in the seeing are trend in We

brand, especially brands been we seen once -- and seen brand have the As Mike with we results AE in in in have August November. we said, acceleration happy through both got quite have we

I think a from and benefiting other are people shopping from from certain promotions. we earlier to maybe extent people’s

We Jen have critical out. to been there but then come is to-date compete we week. were commented, between Christmas when less we holiday and promotional both in a and it’s Obviously as now November the year. in plan go brands this to week than And still last a lot we

Jay Schottenstein

add Hey would one thing. Chad. also I

Chad Kessler

Yeah.

Jay Schottenstein

sharpest period. think We out we there the merchandise have

Janet Kloppenburg

Jay. good, pretty looks It

Jay Schottenstein

you. Thank

Chad Kessler

And have… I with with -- the teams the think

Jay Schottenstein

quarter need there, Chad. a I in

Janet Kloppenburg

will. I it. got I

Jay Schottenstein

anybody merchandise against will I really. else

Janet Kloppenburg

the… with And Great.

Chad Kessler

inventory our positions. with And

Janet Kloppenburg

Yes.

Chad Kessler

already. the as be promotional have through are we QX to less We opportunity

Janet Kloppenburg

All enough. for Thanks. you thank great best can’t I Okay. holiday. the a

Jay Schottenstein

Thank Thank you. Yeah. you.

Chad Kessler

Janet. Thanks,

Jay Schottenstein

you. Thank Yeah.

Operator

the that, have and call to Schottenstein like question-and-answer for back we turn closing reached I would session with end over our to And the of Jay remarks. any

Jay Schottenstein

Yeah. safe. Everyone stay

stay going important hopefully now weeks have weeks safe, strong, next several but are Stay through and thing. the most safe. times are We everyone our unusual and we through right that’s very to country strong, comes interesting through comes

Operator

And this teleconference. that, with concludes today’s

disconnect now participation your and Thank you lines time. a wonderful may day. this have at for You your

American Eagle Outfitters (AEO) 24 Nov 202020 Q3 Earnings call transcript