American Eagle Outfitters 2027 Q2 Earnings Call

Joining me today for our prepared remarks are Jay Schottenstein, Executive Chairman and Chief Executive Officer, Jen Foyle, President, Executive Creative Director for American Eagle and Aerie, Ravi Thanawala, Chief Financial Officer, and Mike Mathias, Strategic Advisor. Before we begin today's call, I need to remind you that we will make certain forward-looking statements. These statements are based upon information that represents the company's current expectations or beliefs. The results actually realized may differ materially based on risk factors included in our SEC filings. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. You can find our second quarter investor presentation on our corporate website at www.aeo-inc.com in the investor relations section. Now, I'll turn the call over to Jay.

Thanks, Alexis, and good afternoon, everyone. The second quarter represented another important step forward for AEO. We built on the strength of our portfolio, making progress at American Eagle, while Aerie continued to deliver outstanding performance. The second quarter came in at the high end of our expectations, with revenue of $1.4 billion and comparable sale growth of 6%. Operating income of $211 million included a net tariff refund benefit of approximately $161 million. We remain focused on driving stronger profitability across the business, and these results underscore the strength and relevance of our brands and the progress against our priorities. At Aerie, which includes OFFLINE, momentum continued. Aerie delivered revenue of 25% total growth and comparable sales grew 19%, reflecting the broad-based demand across categories and channels. We remain confident in the long-term opportunity for Aerie and our ability to reach new customers.

Turning to American Eagle, total revenue grew 1% with comps declining 1%, an improvement from the first quarter. AE Men's posted its fourth consecutive quarter positive comps, seeing continued traction and relevance. We are moving in the right direction, yet there remains work to do. Our progress is fueled by our people. I'd like to extend my gratitude to our associates for their relentless dedication and commitment to our brands and customers. Before I turn it over to Ravi, I want to take a moment to thank Mike for his many years of service to AEO. Mike has been, and will continue to be, a trusted partner to me, and I'm grateful for his leadership, his commitment, and the many contributions he has made to our business over the years. I'm also very pleased to welcome Ravi to the team.

He brings comprehensive financial and operating expertise, a fresh perspective, and a deep understanding of what drives long-term shareholder value. As we look at the opportunities ahead, I am excited about the breadth of our experience and judgment he brings to the team as we work together to make AEO a stronger, more productive business over time. Now, I will turn the call over to Ravi.

Thank you, Jay. I am excited to step into the CFO role. I have been at AEO for just a few weeks, so I am spending a great deal of time listening, learning, and getting to know the business and our teams. What attracted me to AEO was the strength of its brands, the connection to its customers, and the opportunity I see to create meaningful long-term value for shareholders. I will be focused on driving durable value creation by connecting brand growth with disciplined execution, stronger profitability, and the thoughtful allocation of resources. Those are the areas where I am spending time on with Jay and the leadership team as I get deeper into the business. It is still early, and I want to be thoughtful about drawing conclusions. However, I am excited by the opportunity I see at AEO and look forward to sharing more about my perspective and priorities over time.

I also wanted to thank Mike and the entire finance team for the support they have given me through this transition. Mike has been extremely generous with his time and his knowledge of AEO, and I am grateful to have the benefit of his experience and perspective. Given how recently I joined the company, Mike will be taking you through the details of the second quarter results and the outlook. I have spent considerable time with Mike and the team reviewing the outlook and the assumptions supporting it. I am comfortable with the company's expectations for the balance of the year. Now, I would like to turn the call over to Jen.

Thank you, Ravi, and good afternoon, everyone. Before I get into the brand details, I wanted to share my appreciation to our entire organization. Their passion for our brands, our products, and our customers shows up every day, and I am proud of the work they are doing. Aerie and OFFLINE delivered another outstanding quarter, with broad strength across the business and tremendous response from our customers. At American Eagle, we made progress from the first quarter with continued strength in men's. There is still work to do, yet I am encouraged by the opportunity ahead. Turning first to Aerie and OFFLINE, we delivered another exceptional quarter. Comparable sales increased 19% and total revenue grew 25% to $536 million. What I am most excited about is the breadth and quality of that growth. We saw strength across channels and categories with growth in core apparel, intimates, and activewear.

There was a consistent demand in Aerie apparel and tees, tanks, fleece, and bottoms. Head-to-toe outfitting, curated monthly drops, sleep-to-street, and wear-now fabrications resonated with our customers. Mix and match, summer brights, stripes, and a little leopard all worked. We are also pleased with continued growth in OFFLINE's Cloud Fleece franchise, sports bras, and incredibly strong results across bottoms. I love seeing this breadth because it tells us the customer is responding to the complete lifestyle offering, not just one category or one trend. Our core intimates business also remained strong throughout the quarter. We continue to win with what Aerie has stood for from the beginning, real comfort. Customers responded to our focus on fabrication and the 20 years of Happy Booties anniversary campaign. In July, we also introduced our new Float bra collection.

Designed for a weightless feel, Float complements our structured bra franchise and gives customers a new way to experience Aerie's signature comfort. Our customer base continues to grow. We are expanding the Aerie community and deepening their engagement with us. Our Aerie Realmakers continue to be an important part of that connection. Across the quarter, we nearly doubled the size of the Advocate program and found fresh new ways to bring new customers to the brand and engage them. As we move into the third quarter, we are doing something I love to see. We are comping the comp. We are sustaining growth against increasingly strong comparisons and seeing strength across categories while continuing to expand our customer base. Now turning to American Eagle. We are seeing steady traction as we actively work to refine our strategies.

We delivered sequential improvement from the first quarter, yet there is opportunity to build on our progress and further accelerate our performance. Men's continues to deliver as we posted our fourth consecutive quarter of positive comps. Growth was driven by strength across all bottoms categories, with tops continuing to meet our expectations. This demonstrates that our focus and strategies to restore top-line growth in the AE men's business is paying off. In women's, customers responded well to our focus on outfitting, particularly pairing tiny tops with oversized bottoms. We leaned into the cargo trend, and fashion bottoms performed positively. In women's denim, new fashion fits, including wide leg, straight, and low rise, gained strong acceptance. Moving forward, we recognize where there is still opportunity to restore consistent growth across categories. AE's brand awareness and cultural significance remains strong, and the active customer file continues to grow.

Our marketing strategies are built on multiple touchpoints, tapping into differing interests, rituals, and experiences. We have strategically invested in our presence at the mall as a place to shop, gather, and connect, on campus with our sorority partners to own a stake in rush talk, and in sports on the biggest stage of the year with global brand ambassador, Lamine Yamal. We spent the last four quarters investing in brand awareness to drive purchase consideration, and now we are shifting our marketing dollars into conversion-driving tactics. Ultimately, this is about showing up for our customers during their biggest moments, building their wardrobes while building our community. In looking ahead to the second half of this year, our strategic priorities across AEO are clear: deliver best-in-class products, maintain our investment in marketing tactics that drive conversion, remain focused on our inventory management, and improve margin health.

We are also making strategic investments in product and marketing as we build towards AEO's 50th anniversary in 2027. We enter the third quarter with momentum in Aerie and OFFLINE, a game plan to make clear improvements in American Eagle, and a highly engaged customer community across all brands. I am excited about what the brands can accomplish together. Aerie's consistent growth, the opportunity we see in OFFLINE, and American Eagle's deep customer relationships give us multiple ways to serve our customers across more categories, occasions, and moments in their lives. Each brand has its own identity and distinct opportunities. Together, they give AEO a springboard to grow. We have talented teams across our stores, distribution centers, and corporate offices bringing these brands to life every day, and I have tremendous confidence in what we can achieve together. Thank you, all of our associates, for all of your hard work.

With that, I will turn the call over to Mike.