American Eagle Outfitters, Inc. (AEO) on Q4 2024 Results - Earnings Call Transcript

Judy Meehan: Good morning, everyone. Today, we are hosting an extended earnings call to discuss our fourth quarter and fiscal 2023 financial results as well as our new Powering Profitable Growth strategy and 3-year financial targets. The call will include prepared remarks from Jay Schottenstein, Executive Chairman and Chief Executive Officer; Jen Foyle, President Executive Creative Director for AE and Aerie; and Mike Mathias, Chief Financial Officer. This will be followed by a question-and-answer session. We expect to conclude the call at approximately 1:00. Before we begin, I would like to refer you to our safe harbor statement and additional disclosures around non-GAAP results posted on screen. Reconciliations of adjusted results to the GAAP results are available in the tables attached to the earnings release, which is posted on our corporate website at www.aeo-inc.com in the Investor Relations section. Following today's call -- this is also where you will find a replay and our fourth quarter investor and Powering Profitable Growth strategy presentations. Now I will turn the call over to Jay to kick it off with a quick review of key highlights of our fourth quarter and fiscal 2023 results. Jay? Jay Schottenstein: Good morning. Thanks for joining us. Earlier today, we unveiled our new long-term strategy and financial road map. Our focus is simple, powering profitable growth. We are excited to share the details of our plan with you. But first, let me begin with a quick overview of last year. I'll start with a huge thanks to our teams for their perseverance and commitment throughout 2023. And I am especially proud of the strength we delivered in the second half of the year as we began to implement actions from our profit improvement project. Building on momentum in the third quarter, we achieved record fourth quarter revenue and adjusted operating income reached the highest in over a decade. With strong execution, we nicely exceeded expectations even after raising guidance in early January. While Mike will provide greater details during the fourth quarter, we took a non-GAAP charge as we look to strengthen overall profitability. Our 2023 revenue reached a record $5.3 billion and we registered $375 million of adjusted operating income. With the exception of 2021, this was our highest adjusted operating income result since 2012. We generated strong cash flow and we entered the year in a very healthy financial position. Cash and investments more than doubled from last year, reaching $454 million at year-end. We exited 2023 with clean inventory, well positioned for our go-forward plans. Reflecting improved financial performance and a healthy balance sheet, in December, we announced a 25% increase in our quarterly cash dividend. And in February, we authorized 30 million shares for repurchase. This underscores our confidence in the strength of the business and our commitment to returning cash to shareholders. We enter 2024 well positioned with industry-leading brands, a solid balance sheet and best-in-class operations. Our profit improvement initiatives are taking hold and we expect to deliver nice revenue and profit growth in 2024, which Mike will detail shortly. We remain steadfast in operating the business with balance, staying agile and flexible to capitalize on demand opportunities while optimizing profitability for the foreseeable future. With that, I will pass it over to Jen for some brief merchandise and marketing highlights of the fourth quarter. Jennifer Foyle: Thanks, Jay and good morning, everyone. I'm very proud of our fourth quarter performance. We saw sequential improvement across brands and channels and we achieved record revenue for both AE and Aerie. Merchandise margins were strong, driven by inventory discipline and favorable product costs. We brought excitement with newness, including a fresh take on some tried and true classics. Collections were on trend, including an amazing array of gifting options that did very well over the holiday season. As I will review on today's strategy presentation, we saw early results from a number of new brand initiatives. Strong product, engaging marketing and an unparalleled shopping experience is delivering customer growth. In fact, at over $22 million, our total customer count expanded across brands, reaching an all-time high. Now some brand highlights. American Eagle revenue grew 11%, fueled by a 6% increase in comps. The extra week contributed approximately 4 points to brand revenue. Strength was broad-based across jeans, pants, tops, sweaters and outerwear. Women's outperformed men's, yet both saw meaningful sequential improvement. The AE brand operating margin expanded 100 basis points to 17%. As we have turned our attention to driving growth at AE, we are placing a renewed emphasis on top sellers and expanding availability across the store base. Our new store design is showing nice results, providing a positive lift to comps. I'll talk more about these initiatives later. However, we are incredibly pleased with the early results. They provide a strong proof point of our strategy to deliver profitable growth, which we are excited to share with you later today. Now turning to Aerie. Revenue grew 16% with comps increasing 13%, locking in yet another record fourth quarter. The extra week contributed approximately 4 points to brand revenue. Growth was led by soft apparel and our flourishing OFFLINE activewear business, both of which posted double-digit growth. Aerie's operating margin of 16.2%, hit an all-time fourth quarter high. This is a 400-basis point expansion to last year as the brand continued to scale. We also saw improved markup and lower markdowns. New stores are providing a tailwind to comp growth as they enter the comp base and are boosting margins as they ramp up through the maturity curve. All in all, we had a very successful holiday season and fourth quarter across our brands. I'd like to thank our amazing teams for their hard work, talent and commitment. We made tremendous progress throughout the year. And I look ahead, I'm very optimistic as we build on positive momentum. I look forward to sharing our go-forward plans in a little bit. And now I'll turn the call over to Mike to review the rest of our financial results. Mike Mathias: Thanks, Jen and good morning, everyone. As noted in our press release and earlier in the call, fourth quarter 2023 results are presented for the 14 weeks ending February 3, 2024, compared to the 13 weeks ending January 28, 2023. Comparable sales metrics are presented for the 14 weeks ending February 3, 2024, compared to the 14 weeks ending February 4, 2023. We're very pleased with how we performed during the second half of the year when our profit improvement work began to take hold. We saw a sequential acceleration in revenue growth across brands with an exciting return to growth for American Eagle. This came hand in hand with a significant improvement in profit flow-through, where we saw a 320-basis point improvement in our second half adjusted gross margin over last year. As we'll discuss shortly, the early results from these initiatives gives us tremendous confidence in our go-forward plans. Fourth quarter revenue of $1.7 billion marked a new company record, rising 12% over last year. The 53rd week contributed $57 million or approximately 4 points to growth. The adjusted operating margin increased 200 basis points to 8.4%. Compared to last year, adjusted gross profit dollars increased 23% to $626 million and the gross margin rate expanded 340 basis points to 37.3%. Merchandise margins improved, reflecting strong demand, lower costs and a number of benefits from our profit improvement initiative. Inventory discipline drove lower markdowns and BOW expenses also leveraged. This was led by rent, delivery, distribution and warehousing costs, with a partial offset from higher incentives as we lapped 0 accruals last year. SG&A expense of $427 million was up 22% to last year. Consistent with strong business trends, roughly half of the increase was driven by incentive expense. Store payroll also increased driven by higher wages and additional hours associated with the 53rd week. As a rate to revenue, store payroll was flat to last year. Depreciation was down slightly year-over-year, leveraging 50 basis points. As we will discuss today, with incentives now in our base and an ongoing focus on cost efficiencies, we are well positioned to leverage our expense base moving forward. Adjusted EPS for the fourth quarter of $0.61 per share, was up 65% to last year. Consolidated and inventory cost was up 9% year-over-year with units up 11%. As Jay noted, inventory levels remained healthy and we ended the year with a strong balance sheet. CapEx totaled $39 million, bringing full year spend to $174 million, in line with our guidance. We have entered 2024 well positioned with a clear path to value creation from here. As I will discuss throughout today, our profit improvement initiative remains a top priority. As part of this work, in the fourth quarter, we took a number of additional steps to streamline business priorities and strengthen the organization. This included restructuring the company's distribution network, international operations and associated corporate overhead. We recorded a $131 million impairment and restructuring charge in the fourth quarter, of which $119 million was noncash. This will result in approximately $20 million in annualized savings beginning in 2024. Now on to guidance. For the year, we are guiding operating income of $445 million to $465 million. This reflects revenue growth in the range of 2% to 4%, including an approximately 1 point negative impact from 1 less selling week. As we control expenses, we expect to drive SG&A leverage. Based on the current plan, full year SG&A dollars will be flat at the low end of our revenue outlook. As a result of restructuring actions taken in the fourth quarter, we expect D&A of approximately $220 million for the full year. Our tax rate assumption for the year is in the high 20s. And at this time, we are projecting a weighted average share count in the high 190s. Now I want to provide a little more color on 2024 as a few important factors will impact the cadence of the year. With easier year-over-year comparisons, we are guiding comp sales growth to be stronger in the first half at positive mid-single digits. For the second half, we are currently estimating comp growth in the low single digits. In addition, given the retail calendar shift and 1 less selling week in the fourth quarter, we expect total revenue and profit growth to be skewed to the first half of the year. Now specifically by quarter, in the first quarter, we expect to pick up approximately $15 million in revenue as we capture a higher volume spring week. In the second quarter, we will gain approximately $55 million as we pick up a week of back-to-school, which are some of our busiest weeks of the year. In the third quarter, we will see a net shift of about $45 million in revenue out of the quarter. And lastly, in the fourth quarter, we expect an $85 million impact as a result of 1 less selling week in addition to the calendar shift. These revenue shifts are important as you model out the year by quarter. Now as we look at the first quarter, we are pleased to see business momentum continue. For the quarter, we're expecting operating income to be in the range of $65 million to $70 million on revenue growth in the mid-single digits. We expect SG&A to grow in line with sales in the first quarter and begin leveraging in the second quarter as we continue to build on our profit improvement initiatives. Now I'll turn the call back to Jay to kick off our strategy discussion. Jay Schottenstein: Thanks, Mike. Building on our strong 2023 performance, I'm pleased to now introduce our long-range strategy and financial plan. This is our multiyear road map for powering consistent profitable growth. Our plan is centered on 3 main pillars: amplify our brands, execute with financial discipline; and optimize our operations. This strategy plan is a direct result of our profit improvement project started last year. We reviewed every area of our businesses at AEO, up for profitable growth moving forward. The early stages of this project helped fuel a significant turnaround in revenue and profit during the second half of 2023. Yet we are just getting started. I'll start with a quick look back. We have a strong history and heritage of building great brands. American Eagle is over $3 billion in revenue. Aerie is closing in on $2 billion. We provide excellent customer service and have best-in-class operations. We've been successful over the past several years, driving fairly steady revenue growth, despite a lot of macro volatility. However, flow through to the bottom line has not been consistent. The plan we are presenting today is designed to address this head on. Building on our strong results in 2023, our target is to generate annual profit growth in the mid- to high teens and 3% to 5% top line. We are transforming how we operate to deliver steady profit growth. We have formalized this change with clear responsibility and accountability. And as Mike will discuss, we've instilled a culture of continuous improvement. Before we get into the details, I'd like to begin with a refresh on who we are today and what I see as our unique competitive strength. This is what gives me confidence in our strategy and future potential. So let's get started. AEO has been on incredible journey since its founding in 1977. My father Jerome Schottenstein set out to build a brand with heart and purpose. It was his priority to offer quality merchandise that was accessible to all. From the very beginning, we were open-minded, optimistic and inclusive. Over 45 years later, these remain the core tenets of our brands and the foundation of our company and culture. Our success has been underpinned by distinct and undeniable set of competitive advantages. These are strengths that have been fortified over decades. They set us apart and have enabled us to endure through both good and difficult times. As we move on to the next chapter of our growth, we will lean into these strengths to drive further success. Our brands are the very heart and soul of AEO. American Eagle and Aerie have incredible brand equity, amplifying their strong foundation is at the center of our future growth plans. We are especially excited about the OFFLINE by Aerie activewear sub-brand. It's expanding rapidly and we see a big growth opportunity here. We also have 2 emerging brands in the luxury space, Todd Snyder, a premium menswear brand, which we acquired in 2015 and Unsubscribed, a unique women's brand offering consciously made clothing and accessories launched in 2021. Our commitment to quality is a significant competitive advantage. We are not fast fashion. We sell merchandise that is built to last. We ensure our finishes and fits are best-in-class and that our customers feel comfortable, confident and on trend. We believe that price is what you pay, quality is what you remember. Innovation is woven within everything we do. We have a long history of creating superpower categories that reinforce brand loyalty and drive repeat purchases. Our franchise categories are the cornerstone of our business and give us the authority and credibility with customers to build more. Today, you'll hear more on this theme and the opportunities we see across brands to grow into adjacent categories, some new businesses and some that are being reignited. We have invested in best-in-class operating capabilities. We have an extensive and diversified global supply chain network. Our strong partnerships ensure we can chase cost effectively and with speed. We have modernized our distribution network with edge fulfillment, which has delivered significant benefits to our business over the past 2 years. We have a powerful and profitable store fleet and a significant $1.8 billion digital platform. Together, this is a winning set of capabilities that enable us to operate with strength and agility. Top talent is a differentiator. This team is highly experienced in the retail industry with a broad range of expertise. The passion at AEO to build the best brands in retail and operational excellence is second to none. We have 2 new members of our leadership team. Sarah and Valerie joined us in October, bringing strong backgrounds with years of retail experience. They have hit the ground running, introducing new ideas and ways of working. We're also supported by a deep bench of strong talent at all levels across the organization. With these competitive strength, we have a solid foundation. We are built to last and well positioned for success. As we embark on this next chapter, I cannot be more excited about our future. With that, I'll turn it over to Jen to walk you through our growth strategy for American Eagle and Aerie. Jennifer Foyle: Thanks, Jay. We have an amazing portfolio of brands and we've made great strides over the past several years. As I will share with you today, we continue to see incredible opportunities to amplify our potential and fuel the next chapter of growth. Let's start with American Eagle. As I said at the last investor meeting in 2021, when I first took responsibility for American Eagle, I love this brand. I love its strong platform and everything AE stands for, true today as it was then. Jay, his father, Jerome and Roger Markfield, built something very special, a brand with heart that has always embraced individuality and diversity. It has truly stood the test of time, American Eagle is the largest, most consistent youth brand addressing generations of customers. And today, I'm going to tell you why I'm more excited than ever about our future. American Eagle is perfectly positioned for growth. But first, I'd like to show you a short video that captures the essence of AE and what we stand for. [Presentation] Jennifer Foyle: In addition to its strong brand positioning, American Eagle is also a financial powerhouse. In fact, it was the fuel that built Aerie with steady growth, strong margins and healthy cash flow, enabling us to invest and grow. As we reviewed back in 2021, we saw potential for even better profit flow-through. Three years later, I could not be more proud of how far we've come. AE's operating margin has expanded nearly 300 basis points relative to 2019. With margins restored, we are excited to turn our sights to growth, once again, while maintaining a firm focus on profitability. So here we are, our pillars to Power Profitable Growth at American Eagle. We will continue to lead in jeans. That's what we're known for, building brand loyalty and repeat purchases. Next, we have a real opportunity to complete the outfit by offering a broader assortment of tops, expanding into adjacencies where we know we have a right to play, modernizing our store fleet with a beautiful new store design to elevate the customer experience. And lastly, enhancing how we allocate inventory to better support our best ideas. So let's get started with jeans. We are the #1 denim brand for 15- to 25-year olds, the go to for women of all ages and a preferred shopping destination. We love this for so many reasons. First, Jeans are a huge driver of new customer acquisition. Almost half of new customers have jeans in their first basket. Second, brand loyalty within jeans and bottoms overall is very sticky. In fact, it's our best retention business across genders. We are upping our focus on test and scale, innovating in new fabrications and ensuring that we're offering the very latest in trends while balancing our tried and true. The acceleration we saw in the second half of the year is a great proof point. Women's return to growth, led by unique franchise fabrications like Strigid and Dreamy Drape. Men's also saw improvement as we deepened our assortment of more relaxed fits. With 60% of our business in bottoms, we have an enormous opportunity to grow tops in other categories. The industry standard is a tops to bottoms ratio of 2:1 and we are below 1:1. Bridging this gap is not just a revenue opportunity but also a margin opportunity. Over the past year, our creative teams have been zeroing in on fueling our tops assortment, better fabrics, better fits, more on-trend designs and standing behind hero collections and we are seeing these efforts begin to deliver results. Women's tops returned to growth in the second half. Men's accelerated, fueled by strength in graphic tees as well as new fabric innovation in core tees and flannels. Another smaller example is men's underwear. It's over $100 million in annual revenue and a great basket builder for the men's business. Starting this spring, you'll see new innovation around fabric and function as we build out a more robust assortment. And as you can see here, a dedicated marketing campaign. We are also excited about driving growth for AE by expanding into category adjacencies where we know we have a right to play. American Eagle [indiscernible] to a 15- to 25-year-old target customer and we are the go-to for everyday casual looks. Whether it's going to school, going to the movies with friends or running errands, American Eagle offers amazing comfort and quality in everyday staples. This is what we are known for and we will continue to lead in this core occasion. Additionally, as we are positioned for growth, we have expanded into 3 new areas, 2 new dressing occasions that complement our core, social casual and men's active and we are going to broaden our customer focus, extending into the 25- to 34-year age demo. Let's [Audio Gap] party, date night or brunch with friends, still comfortable, still casual but just a little bit more fashionable. Here's a look at how we're beginning to address this with our spring assortment and women's, offering skirts, dresses and fashion and tops. And here's the taste of it in men's, again, more style and greater outfitting. You'll see this build as the year progresses. Turning to men's active, we see a huge opportunity here. It's a $27 billion market. As casual dressing continues to evolve, men are increasingly adding activewear to their look, both in and out of the gym. We see multiple ways to leverage AE's strong brand equity to capture our fair share in this exciting opportunity. In 2023, we launched 24/7, a men's activewear casual. Early results are very encouraging. It's already a $100 million business. Looking ahead, we see continued potential growth as we leverage learnings and innovate deeper into performance offerings. Now here's how we're thinking about our customer base. Gen Z is our core. Yet the fact is we resonate strongly across a broader age range. Over the past few years, we've seen more 25- to 35-year olds in AE's customer base and we want to capitalize on this. There are some looks we've introduced into our spring assortment, more neutrals, interesting fabrications and more elevated marketing and we are seeing a strong customer response. Last year, we also relaunched AE77, a casual collection offering more premium fabrics and looks at competitive price points. A pair of jeans averages $130, compared to the $250-plus market for premium denim with our 4 focus areas, everyday casual, social casual, men's active and a broader demo. We have a clear merchandising strategy moving forward and multiple avenues to drive growth. Now a few words about our store fleet. We are updating stores, many of which are dated. Stores are the strongest customer acquisition channel, so it's important that we invest and stay best in shelf. Last year, we launched a new lived in store design, bringing a fresh aesthetic to a handful of test stores. We've also explored relocations to stronger shopping centers. Results have been very exciting, which are showing a positive lift. To give you a feel of our new store design, here's a walk-through of our Polaris store in Columbus. As you can see, it's incredibly inviting, with an exciting new look that showcases our product in a fresh and modern way. The design offers greater flexibility and merchandising options. The fitting room areas are a nice place to gather and feel very welcomed and comfortable. We have plans to remodel approximately 50 stores in 2024. We are just as proud and excited about our digital channel, and Mike will cover the opportunities in a few minutes. In our recent review of the business, product allocation was revealed as a significant opportunity. We have 2 priorities, to amplify our bestsellers and improve localization. We see room to stand behind our biggest ideas in categories with greater conviction across our fleet. As we do this, we will also offer more fashion choices in key markets where we know there is demand, for example, urban stores. As we look to amplify AE in all these ways, we will continue to leverage innovative marketing strategies, positioning AE as a center of culture. This past year, we had strong success with limited edition product collaborations. The summer I Turned Pretty, Outer Banks and e.l.f. Cosmetics drove strong buzz, creating urgency and excitement. And we have a robust influencer strategy to engage our customers on social media. Looking ahead, we are excited to launch a new marketing platform for back-to-school in 2024, celebrating AE's heritage of self-expression, acceptance and optimism. Before I move to Aerie, a big thank you to the AE team for working so diligently to execute our transformation over the past few years. We've come so far together and our future is even brighter. And now, Aerie. Aerie has a powerful brand platform with an amazing community of customers. There is so much love for our product and what we stand for and an incredible opportunity to amplify the magic from here. Before I get into that, here's a short video highlighting what makes Aerie truly special. [Presentation] Jennifer Foyle: As we have welcomed more customers into the Aerie community, the brand has seen explosive growth reaching almost $1.7 billion in revenue last year and we are just getting started. Importantly, our growth has come with strong profit flow-through as we have gained scale and introduced new higher-margin categories overall profit margins have expanded significantly. Intimates continues to be the foundation of the Aerie brand, yet 2 of our biggest categories today are soft apparel and activewear. We have seen standout performance in loungewear and cozy collections, benefiting revenue and margins. Looking at the total addressable market for Aerie, we still have significant runway for growth. Our core product lines represent an over $70 billion market. Aerie today commands just over 2% of that pie, making the growth opportunity exponential. Here's our strategy to go after that growth to amplify Aerie. We are focused on winning across the Aerie lifestyle. This includes fueling intimates and soft apparel and building on OFFLINE's explosive growth in activewear. We will also expand awareness of the Aerie brand as we target underpenetrated markets, new customer growth and build the basket across more categories. So let's dig in. Here's a snapshot of Aerie's brand positioning. Aerie is chill, it's effortless. We are famous for intimates, cozy dressing, sleep and swim. In addition to being your favorite first layer, key customer occasions are chill out, girls night in, beach and pool party. Now starting with intimates. This continues to be a very powerful category for Aerie. It's the #1 driver of new customer acquisition. Great fit, quality and comfort are key and Aerie excels at all 3. As trends evolve, we are constantly innovating. For example, in 2022, we launched SMOOTHEZ, a differentiated second skin fabrication, supersoft, barely there and light as air. This is now our #1 bra collection. Last year, we expanded SMOOTHEZ into bodysuits, an exciting new trend. This has been a tremendous success and we are bringing new cuts and colors to this fan favorite style in addition to other exciting SMOOTHEZ launches later this year. This past fall, we also introduced more matching sets, which were a great hit. Aerie's soft apparel business has been our highest growth category, expanding double digits last year. It drives repurchases and we see more upside from here. We recently expanded sleepwear where we are seeing great reads. It's a natural adjacency to Aerie's intimates and lounge offerings, and we are looking forward to building this collection over time. Now moving on to activewear, where we see significant growth ahead. This is a very attractive category. It's large, it's growing. It has great margins and it's ripe for disruption. We launched into activewear with OFFLINE in 2020 and let me tell you this business has been on a tear. We expect to cross $600 million in 2024. It's also highly incremental. In fact, our OFFLINE bottoms business was the #2 driver of new customer acquisition across all OFFLINE in Aerie categories in 2023. OFFLINE brings a unique and fresh take to the activewear category, one that is fun, empowering and body positive and this is resonating. We are now the #3 legging brand and we are right up there at #4 in sports bras too. We are very excited about this new platform, a fresh take on the activewear category. OFFLINE is active, fashionable with the perfect blend of style, quality and function. On the team, on the go, on and off the court. We are bringing more performance activewear for the upcoming back-to-school season. As we invest in our assortments, we are also heavily focused on building our customer base in key markets. Customer penetration in our strongest markets is in the high teens compared to an average in the mid-single digits. Brand awareness at 55% compares to American Eagle and other more established brands at 80%. As with AE, stores are the main source of customer acquisition for the Aerie brand and a key driver of revenue growth. We've had great success in driving expansion with different store formats. Houston, one of our focus markets, has seen rapid growth. Ross Park is our best mall in our strongest state. We moved Aerie to a bigger box and nearly doubled mall sales. In Green Hills Mall, we added an OFFLINE stand-alone store in a mall where we had an Aerie store. The OFFLINE stores revenue is almost on par with the Aerie box. This is a very strong proof point of the power and the future opportunity for OFFLINE. We are also very focused on building the basket across Aerie's categories. Multi-category customers spend more and shop more frequently. Expanding these customers is a major priority. This year, we celebrate 10 years of Aerie Real, and we're going to do it with a bang, look out for some great throwbacks to our biggest product hits and exciting content, elevating the voice of our community, the faces of Aerie Real. And we will continue to leverage various marketing platforms to drive awareness and build the Aerie community. We had great success last year with a 360-degree campaign in intimates, targeted engagement in focused markets and, of course, our incredible grassroots and paid influencer community. In 2024, we're excited to launch a dedicated marketing platform for OFFLINE as we look to mirror this excitement in activewear. Before I turn the call over to Mike, to take you through our optimize pillar, I want to thank the incredible Aerie team for the passion and excitement they bring to our brand every day. This is a very talented team of seasoned leaders. And together, we are ready to take on the next chapter. And Mike, now I'll turn the call over to you. Mike Mathias: Thanks, Jen. As Jay and Jen described, we are energized by the work we've undertaken over the past year to set us on a path to greater profitability. The focus and drive across the organization is very exciting to see. As part of this project, we uncovered a number of opportunities to sharpen our operations and support profitable growth. I'll provide some key examples today and then we'll round out our presentation with our financial targets and capital allocation plans. Let's get started. As Jen noted, our operations are second to none. As we look ahead, we're focused on elevating our capabilities even further to unlock incremental growth and create greater efficiencies. These are 4 focus areas: stores; digital; supply chain; and marketing. First, I'll talk about our selling channels. Let me start by saying we are channel-agnostic. We operate as a single channel. Our customers shop across stores and digital and we're well positioned to capture demand through both at comparable margins. Just to underscore, we're similarly profitable across both digital and stores. We aim to maximize our profits per transaction regardless of the channel. Now looking at the store portfolio, we have a very healthy and profitable fleet and are 4 wall positive in over 90% of our comp stores. Our average lease term is approximately 2 years, providing good flexibility. We've been pleased to see customers return to in-person shopping, underscoring the importance of having a strong physical footprint. And given our strong portfolio of brands, we've been successful in achieving favorable rent terms. Our investment priorities moving forward start with Aerie and OFFLINE store expansion. This continues to be our highest return on investment with the majority of new stores paying back in under 3 years. We expect to add 100 Aerie, OFFLINE stores over the next 3 years. As we open stores, we see a digital halo as more and more customers get introduced to the brand. We need to upgrade and modernize the American Eagle store fleet. Today, the average age of our AE stores is 12 years and we've not had a new store design in over 15 years. We're targeting 300 remodels over the next 3 to 5 years using varying degrees of investment from full upgrades to simpler refreshes depending on the market opportunity. As Jen noted, test stores have shown a nice positive sales lift and we're targeting a minimum ROI of 15%. As we make these changes, we're also investing in new technologies to drive efficiencies in our store operations. Jen talked about product allocation to make sure bestsellers are available across all stores and this is already having a positive impact. We're using AI-driven forecasting tools that are improving inventory allocation. This is providing more precise information by store, creating greater in-stocks and strengthening the customer experience. And we're implementing RFID technology, which for the first time in our history, will enable us to have a real-time view of inventory counts in our stores. While still in early days, we're very encouraged by what we're seeing in our initial 100 stores and we're targeting rollout to approximately 500 stores by the end of the year. Together, these investments greatly improve our ability to read demand and keep fast-turning items in stock. We also anticipate significant upstream benefits to how we manage inventory, ultimately allowing us to buy more accurately and fuel sales with less inventory. Turning to digital. At $1.8 billion in annual revenue, we have a very powerful digital business. In the last 5 years alone, revenue has grown 61% with digital penetration expanding 6 points to 34% today. Last year, we appointed a new Head of Digital, David Zhang, to lead the business. He's bringing a new level of analytical rigor to how we operate, with particular success in improving online conversion. To highlight one small example, we're using tests as a means to roll out new engagement tactics. With 1 million visitors coming to our website every day, our scale has an incredible and competitive advantage when it comes to testing, allowing us to build real-time insights very quickly. As we've implemented learnings, we've seen small changes to how we engage with customers lead to very dramatic results. In aggregate, this work drove a strong acceleration in digital conversion and comps in the second half of last year. With work in very early stages, there are material benefits still to come as we continue to test and scale new insights. Moving on to our supply chain. Let me address our fulfillment business and the restructuring taken in the fourth quarter. Due in large part to macro volatility which has impacted demand for e-commerce fulfillment, third-party business component of Quiet has not met our expectations. As a result, in the fourth quarter, we took charges to streamline the operation and focus on core capabilities to serve our brands and our best customers. Now as we talk about the edge fulfillment capabilities we acquired with this network, I want to underscore the significant benefits it has provided to AEO and our brands. Let me start by looking at how we used to operate prior to the acquisition. Like a traditional model in retail, we had a small number of large distribution centers. Ours were located in Pennsylvania, Kansas and Mississauga, Ontario. This was simple but not terribly efficient. And as our brands were growing, we were running out of capacity. The decision back in 2020 was to buy or build. In anticipation of our future needs and many of the changes we're seeing unfold in the industry today, including demand for faster shipping and rising costs, we made the decision to buy a regionalized fulfillment network. Here's how we operate today. We're customer-focused, build for efficiency, speed and agility. Inventories closer to customers, aligning with population density in big metro areas. Inventory is also closer to stores, enabling faster delivery times and lower costs. In the last 2 years, we've lowered our cost per order by 8% relative to 2021, even as some of the industry's largest shipping companies have taken double-digit rate increases. We've done this while speeding up our delivery times with over 80% of orders now delivered in 3 business days or less. This network has also given us the needed capacity to fuel long-term growth. Separately, in terms of logistics business, as discussed earlier, we're refocusing on core capabilities. This will greatly simplify our operations and result in cost efficiencies, which will drive structural ongoing benefits beginning this year. And lastly, I'll talk about marketing, which typically averages 3% to 4% of sales annually. It's an important driver of the business. We'll continue to spend and support our brands, yet we see opportunity to make our marketing dollars work harder for us. We are enhancing our capabilities here, leveraging advanced marketing analytics. This has been a game changer in improving our return on media spend. We've reallocated how and when we're spending to be more efficient and effective. We saw excellent results from this over the holiday season and expect continued benefits as we implement new learnings. Now a few minutes on our international opportunity. We are the partner of choice in licensed international markets across the globe. We have a successful capital-light model and we continue to pursue opportunities for expansion with existing and new franchise partners. The largest part of our business outside of the U.S. is our company-owned operations in Mexico and Canada. Mexico in particular has been especially successful, more than doubling since 2019. We continue to expand this market where we have strong brand recognition and customer loyalty. This includes introducing and further expanding Aerie and OFFLINE in key markets across the country. And now the final pillar of our strategy, executing with financial discipline. Last year, we kicked off Project Breakthrough, our profit improvement initiative. As Jay said, we left no stone unturned. Keep in mind, this is a growing business and there are variable expenses associated with fueling that. However, through this project, we've identified efficiencies and savings that will enable us to keep operating expenses across BOW and SG&A flat this year. And repeating this structure is our intent for the next several years. Importantly, this work is ongoing. It's been formalized into an office of continuous improvement to identify incremental efficiencies and drive accountability and results. As Jay shared with you a little earlier, here's another look at our financial algorithm. We are driving to $5.7 billion to $6 billion in revenue and an operating margin rate of approximately 10% by 2026. On the revenue front, we have multiple levers we can flex to achieve our 3% to 5% growth target. We're very encouraged by the opportunity at the American Eagle brand as we position for category growth and expansion into new adjacencies. As Jen said, our plans here are strategic and thoughtful. We will test and scale fueling areas with clear proof points. Our expectation for AE is low single-digit revenue growth with potential for upside as we continue to understand the benefits from new initiatives. Aerie and OFFLINE present very exciting growth potential. We're encouraged by the level of customer excitement around activewear and soft apparel. Our plans here are modest as well. Growth expectations are mid- to high single, with the ability to chase into stronger demand. Our 10% operating margin goal embeds a gross margin outlook of 39% to 40%. We closed out 2023 above 38%, reflecting the start of our profit improvement work. As we move forward, we expect to maintain inventory discipline and continue to optimize promotions and markdowns. We're also seeing favorability in product costs and pursuing other [Audio Gap]. Delivery and transportation are also areas where efficiencies and cost savings will continue as we leverage our edge fulfillment model and benefit from the recent restructuring activity and we expect rent to continue to be controlled as we focus on maintaining a favorable cost structure across the fleet. Moving to SG&A. We expect to be in the range of 25% to 26%. We closed out 2023 a little over 27%. Over the long term, we're structuring the business to keep SG&A dollar growth below revenue growth. We have work streams that will continually address 85% of our expense base with focus areas being store and corporate compensation, professional fees and services and optimization of marketing spend. So all that said, here's a view of the major building blocks that take us to approximately 10% over the next 3 years. Our outlook is balanced anticipating both puts and takes. As I reviewed, we have a number of initiatives to control expenses and drive efficiencies across the business. As we grow American Eagle and scale Aerie, OFFLINE, we also expect to see leverage from a higher revenue base. These initiatives will allow us to comfortably absorb pressure from wage inflation, new store openings and investments we are making to incubate emerging brands like Todd Snyder and Unsubscribed. As we build profitability, we expect to generate even stronger cash flow. We're focused on providing healthy returns to shareholders and have a long history of doing so. In fact, over the past decade, these returns totaled nearly $2 billion. We recently announced a 25% increase in our quarterly cash dividend and we also have a new $30 million share repurchase authorization in place to offset dilution and fuel opportunistic repurchase. So here it is, our model for driving shareholder value. Starting with our financial algorithm to drive mid- to high teens operating income growth, we believe we are set up to deliver double-digit total shareholder returns over the next 3 years. We are extremely confident in the road map we shared with you today. The levers at our disposal to drive growth and profit provide multiple paths for us to deliver on our 3-year plan with potential for upside. Our priorities are clear and the teams are focused. And now back to Jay. Jay Schottenstein: Thanks, Mike. As I hope we conveyed clearly to you today, this is an incredible company with powerful brands, capabilities and talent and we have significant opportunity to scale further. We are at an inflection point in our journey, having undergone a huge cultural transformation over the past year to align our strategy and priorities towards delivering consistent, profitable growth. From here, we are focused on execution and we know we are set up for success. With that, I will open it up for questions. Judy, over to you. Judy Meehan: Thanks, Jay. Before we start our question-and-answer session, we'll take a quick 3-minute break. [Break] Judy Meehan: Okay. Thanks, everyone, for joining us for the question-and-answer portion of our meeting today. We're back from our break and we want to get right to your questions. So first up is Matt Boss from JPMorgan. Matthew Boss: Great. Really appreciate all the color. This was great today. So maybe to start off, Jen, could you speak to the total addressable market and customer file opportunity just as we think about the market share opportunity for the AE brand? Or more specifically, how are you positioning the assortment across key destination categories and price points to drive that consistent profitable growth that Jay cited? Jennifer Foyle: Yes, sure. The total addressable market is $70 billion, which is incredible and there's huge white space here that we can go after. What AE owns is the social casual. I love this new term. It's our new term that we're using to describe our core assortments, which are going to be strong across all of our fleet. That's what we're up to, getting all of our fleet robust, certainly managing the inventory and obviously doing it with prudent discipline. But we've really been up to -- just going back, really rationalizing the fleet, rationalizing our SKU count. So we've really built a baseline now that we can sort of leap up and introduce all these new expanded categories. Men's active, $27 billion market, that we've only just begun. You heard that number, $100 million. We're only just getting at this. Keep in mind, when we launched OFFLINE, that's where it started, $100 million and now look where it is. It's almost over $600 million this year. So think about that. So we have huge expansion there. And we're already seeing results in the 25- to 35-age group there. Men -- our denim category is our rite of passage. We love denim and getting denim on all ages is really what we're up to. But if you noticed in the slides, wow, we have such opportunity to round up the assortments and we're so excited about that, yes. And we didn't even mention the premium denim collection we launched last year. We love the early reads. So we have categories now that we can expand on. We have a great baseline and we're looking forward to building on this. Matthew Boss: Great. And then maybe just a follow-up for Mike. With SG&A expected to leverage roughly 200 basis points, I think relative to 2023, maybe just could you elaborate on the expense buckets where you found savings and efficiencies to support the plan, while at the same time, funding brand marketing reinvestments? Mike Mathias: Sure. I think -- I mean just to highlight, again, I think the proof point around this initiative this past year was definitely the expenses up in gross margin. That's where we started. We talked about -- articulated that for a few quarters now. Every quarter this past year, not only did we expand product margins but we leveraged expenses within gross margin every quarter even in the first half of the year when revenue was a little tougher. We've expanded that to SG&A now. So we've talked about the big buckets in SG&A. 85% of the total expense is within store compensation, corporate compensation, related incentives and taxes, marketing dollars and services. So the big areas that we have gone after reflected in this '24 plan and the guidance we're providing and then, we're doing this continuous improvement office, program office, as we call it, underneath Project Breakthrough, that work is going to continue and not stop. So those are the buckets. Store labor, we found efficiency offsets to what has been wage growth and wage inflation pressures in the industry. We're looking at flat rate of revenue per store dollar. So it's -- stores and marketing at places where we -- places we will continue to invest to fuel growth but we want to maintain at that rate. The savings or reduction areas or the leverage areas or other compensation, corporate compensation, incentives, taxes. And services is the other bucket that we are going after to actually more aggressively reduce. So that's where your puts and takes are. We continue to invest in store compensation and advertising to fuel growth but will not be looking to deleverage, which maintain rate there. Other compensation areas, along with services and then some other areas -- smaller areas like supplies and repairs and maintenance, we're looking because where the leverage would be continuously providing leverage in those areas. Judy Meehan: Okay. Next question comes from Jay Sole from UBS. Jay Sole: Can you hear me now? Judy Meehan: There you go. Jay Sole: Okay. Mike -- I want to ask about some of the newer topics that came up in the presentation. One is about Todd Snyder. You mentioned you owned this since 2015. It's grown nicely. Just wanted to talk about what's implied in the guidance from Todd Snyder and what gives you confidence that Todd Snyder can become a bigger business? And also international, how does the international opportunity play into the 3-year outlook and maybe beyond? Like what's the ultimate aspiration for the international business for the company? Jay Schottenstein: Jay here. We bought Todd Snyder around 2015. That time, Todd was doing only $2 million. And here in the last few years, it has grown into a $100-plus million business. We see a big opportunity with it. This year, I think we're setting up 60 to 70 additional stores. And we think when it's all done, it could be a $500 million, $600 million brand in the next couple of years. Mike Mathias: I can expand upon that. It's reaching the point of profitability. So nice growth this past year, right around that breakeven mark and our plans for '24 and this 3-year plan is for Todd to contribute profit to the company. So that's a great milestone. Double-digit top line growth is the continued expectation and profit increases from here. For -- the international opportunity, I think the one thing I want to highlight in here, Canada and Mexico from -- our own markets, our biggest contributors from a revenue perspective. Mexico specifically has been a source of growth, especially it's really 90% plus AE brand. The size of the business in Mexico actually contributes -- the trajectories are contributing 1 point to total AE brand revenue growth at this point. So as we talk about AE brand, expectations being in the low single digits, Mexico alone with its growth is providing about 1 point. Jay Schottenstein: Also Mike, part of international goes [indiscernible] company, continue to have [indiscernible] 2014, we were losing money, $20 million, $30 million on the international business. Today, it's been a very good profit center. And we have, we're at sort of tip of the iceberg. We're not in Europe yet. There's good opportunity there. We're only in a couple of countries out of South America, major opportunity. So we see a major opportunity with our international business and it's being very well received. Mike Mathias: Very strong partnerships with our franchisees and we're looking to expand with them and with new franchisees. That's the model from here. Jay Schottenstein: With the Mexico business and Canada business that are around this. Mike Mathias: Yes. So we're in North America. There is plans for expansion in Latin America [indiscernible] which is a natural progression from the success in Mexico. So there's -- as Jay said, there's runway here. We're not banking on a ton of growth within this next 3 years but there's continual runway for multiple years from here. Jay Schottenstein: [indiscernible] love the brand. Mike Mathias: What we'll do -- it's -- I think we mentioned in the presentation, it's asset light outside of North America. We like that model. Franchise revenue drops straight to the bottom line. We have a few joint ventures that are really just in early stages. So we will be ROI oriented with that expansion and not over invest to go after it. Judy Meehan: Okay. Next up, we have Janet Kloppenburg, JJK Research. Janet Kloppenburg: For Jen, I like the adjacencies I'm seeing in the AE stores. I'm just wondering about maybe a risk of building SKUs. And also as you move a bit older, do you worry at all about losing that young -- that older teen customer that's always had a strong loyalty to your brand? And in the intimates category, which I think you've done a great job on with the SMOOTHEZ line, do you see that category growing? We're hearing from others that the intimate sector is experiencing a downturn in the range of mid-single-digit revenues. And for Michael, when you talk about SG&A going from 27% to 25% to 26%, that's a 3-year period. Do you see more of that coming in the later year or should it be linear as we move along? Jennifer Foyle: Yes. Look, everything we do is with discipline. American Eagle, we went back to our heritage. We completely over the past 3 years -- and by the way, may I add, we rationalized profitably. It's really hard to do that when you're getting rid of thousands of SKUs and we did. We got rid of thousands of SKUs to focus on the core assortments, this new social casual that we're talking about, we are not going to comp with just buying our comp, which means we're not going to just add SKUs randomly. We're going to do it with integrity. There's always trends that ebb and flow. And as we do so, we're going to make sure that we're leaning into the categories that are trending without over assorting. I cannot see an over assortment. We have the most disciplined teams around that. I think you can see it in our stores. They look incredible. And I think we're outfitting better than ever. So certainly not. We're going to do this with integrity and pride and that's what we're up to. As far as intimates is concerned, look, there has been a slowdown but we held our market position, #1. #2, we leaned into new categories that are behaving like intimates. So we started SMOOTHEZ, I mean I hope you love the pictures, SMOOTHEZ collection, it's just amazing. We love it. Not only is it around bras. And by the way, that's our #1 bra within that collection. But other collections outside of just bras, the bodysuits, the crop tops, they're all doing incredible. So there's a little bit of a wear out trend that's been happening and it began last year and we were on it, crop tops were completely trending and we still see that business working. However, intimates, that business is a huge untapped category. And may remind you, it's just incredible the way Aerie tapped into that business. We were disruptive and we did it. I mean, looking at that business, the Aerie business is $1.7 billion. This growth has been exceptional and it's still a huge market that's ripe for the taking. So we're highly focused on new bra launches, undies. We haven't spoken even about undies. There's new categories in undies. So we're going to keep on augmenting there and delivering newness and continue to dominate the way I think we have, leveraging our platform. Mike Mathias: The SG&A, yes, I think, first, I want to make sure just that is towards just the results that we're providing in our guidance for '24. Flat operating expense dollars across the entire -- P&L is a milestone for us and flat SG&A dollars also within that is a milestone for us. And providing that guidance of dollar growth being in line with revenue in the first quarter but we're expecting to leverage SG&A every quarter thereafter, even with some of the revenue shifts that we outlined for the day that are based on the calendar shift. The work is continuous. It's not a one and done. So I think -- and then it's very much correlated to revenue. So the guidance we're providing down to that 25% to 26% range is more about sort of probably the low to mid of that 3% to 5% revenue guide. If we achieve the higher end of that guide, we expect to get to 25% faster. So we want to assume linear for now. We'd be assuming sort of -- basically that's achieving the midrange of the revenue guide -- high end of that revenue guide and further [indiscernible] sooner and the expectation is to continue to leverage there -- leverage from there in out years beyond this 3-year plan. Janet Kloppenburg: And Jen, I just wanted you to know we all think the stores look -- the assortments look amazing. So good luck. Jennifer Foyle: Thank you. The teams have been really working hard. I'm really proud of them. I love to see AE back on the growth trajectory. And Aerie certainly has growth that we can talk about later when we get questions. Janet Kloppenburg: We can see how hard you worked. Jennifer Foyle: Thank you. Thanks, again. Judy Meehan: Okay. Up next, we have Kelly Crago from Citi. Kelly Crago: Hi, everyone. I'm on for Paul today. One on the long term and one on the near term. First to Jen. Just wondering if you could elaborate on the opportunity to broaden the demo at AE. What percent of your business currently is in that 25- to 34-year-old demo? And where can that go over time? And just curious what tools you're using to market to that customer differently than the core Gen Z consumer? And then secondly to Mike, just on the near term, congrats on the great results. You made a comment that momentum is continuing 1Q quarter-to-date. Wondering if you could elaborate on that comment, just given some of the other retailers calling out weakness in February? Jennifer Foyle: Sure. As we -- as the business grew in 2023 and American Eagle quarter-over-quarter, we actually saw this happening. Roughly about 20% to 30% of our share is in this 25% to 35%. And I think it's because our jeans are so safe. Like I mentioned, jeans are a rite of passage for us. And once you get into our jeans, they grow with us. So we've seen our retention rates continue to accelerate, something that wasn't happening in the past. And I believe the biggest reason right now is because of jeans. Now as we round out the tops business, like I said, I think it's going to really just add on and win new customers. So look, we're leaning up a little bit but it's not to say we're going to ever walk away. Our core is our core. It's our tried and true. But if we still extend new ideas which, 24/7 or 77, some of these new offshoots, I think we're going to gain new customers and win them over time. It's something we're highly focused on. We were losing customers after roughly the age -- between the age of 18 and 25. So we've been focused on this and certainly doing it through those tactics, right? We have new brand collabs that we work on, you saw them on the screen. The summer I Turned Pretty, the #1 hit last summer and we're going to continue to work on these collabs. There's so many exciting ones coming your way. Influencers are certainly a big win for us, leveraging them. But again, we're always going to protect our core work and now we're going to expand into this age demo and we're excited about it. And like I said, we already saw the results. It's happening as we speak. So now we're just going to lean in a little bit more. Mike Mathias: Now, on the first quarter guide, we're pleased with the momentum that we saw in February. It's coming off of Q4. As always, at this point, our guidance has some caution in it. February is the smallest month of the quarter. We've got our peak spring break and Easter holiday periods coming up in March and April. And March and April, obviously, bigger months than February. So again, pleased with the momentum and guide reflects that with some caution. Judy Meehan: Okay. Next, we have Adrienne Yih from Barclays. Adrienne Yih-Tennant: Jen, just let me add. The tops look phenomenal. The denim always looks great. So it's really nice to see the entire kind of top to bottom looking fantastic. So I just want to shout out to your merch team. Jennifer Foyle: Thank you. Adrienne Yih-Tennant: So on that -- you're welcome. On that -- so there's a fashion bottom thing that's been happening, it's sort of percolating, simmering. And now it's really happening, right? So you walk the mall and everywhere, it's kind of the wider bottom finally here. Can you just remind us to sort of the denim penetration at AE? I think it's like north of 30 -- mid-30%. And then just remind us, like the skinny legs emerged in 2011 and then it really peaked in the next 2 years and it's been there for a decade. So this could be potentially something that continues to help kind of drive that piece of the business. And then for Mike, on the -- can you give us just the markdown rates relative to mean, like average kind of over the past, where are you in that continuum? And then remind us, AUR is probably up 20% relative to 2019, how much are AURs contributing to the LRP? Jennifer Foyle: Yes. In denim and bottoms, we're seeing wide legs trend. And honestly, it started for us last year. We were ahead of the cargo trend, I would say, first bikini on the beach there and the teams did a great job testing and scaling in wider legs. And the beauty of our denim business and how we approach it is, we have such -- that incredible testing model and we are now on testing so many new silhouettes, not just wide legs, so we're on that, we're ahead of the curve as new fashion silhouettes trends. So I can't tell you just what this team does as we build on new assortments towards the future and learn. And we're just so agile to do it and balance out our assortments. When I started jeggings dominated our business in women's, in particular, huge percentage of the business, over 80%. Now we're seeing fashion emerge and other silhouettes where we can really lean into what's trending. And that's what we're up to. Honestly, it's about as simple as that and the team is executing with style. Mike Mathias: [indiscernible] we've been growing since '21. We've been very -- we've been managing the markdown rate very consistently. I think we found a sweet spot. We maintain our AUR that we gained post-pandemic, a couple of fiscal years ago. And then some of our -- a few years prior to even 2019, I'd say we were running markdown rates in the mid-50s. We're now in the mid-40s and we'll do that consistently for a few years. So we know at end of -- while giving any of that back. I think on initial retails, we have seen markup benefits. And I think the mix of our categories, as Jen outlined in the entire amplify section of today's presentation, the mix of categories will continue to be beneficial there with tops being a driver, Aerie apparel being a driver, OFFLINE within Aerie, all those growth drivers have mixed benefits to initial tickets and to margin rate in general. I'll say in these 3-year targets, we actually are not assuming much product margin improvement. Most of this 3-year target calculated today is based on expense leverage, expense leverage within the gross margin line and expense leverage and SG&A and depreciation. Jen outlined a lot of initiatives and a lot of opportunity within categories for that product margin to expand, that would be beneficial to these targets. So I think that's something that we you should all understand, is that when we pushed product margins over the last 3 years up 300 basis points, we're in very healthy place. We're not assuming much improvement in these targets but there is opportunity there on top of the expense leverage that we're seeing. Judy Meehan: Next up is Dana Telsey from Telsey Advisory. Dana Telsey: Congratulations on a terrific presentation. I could tell the thought and the hard work that went into it. One of the areas that you touched on is modernizing the fleet. As you think about the fleet and modernizing the existing stores, opening new stores, what's the cost model and the return model that you're thinking of for each? And how do you see the role of malls versus open air in your network? And lastly, Jen, with the enhancements of the product offering that you're doing and the category adjustments, what is the impact on margin that you see? Is there a higher merch margin potential from new categories versus existing? Mike Mathias: I can start with the fleet remodeling. I think we outlined it very well. I think the average age of the fleet is 12 years, definitely paused on some plans to update the fleet during the pandemic for obvious reasons. Jen and Jean have come up with amazing designs that were well accepted in the test stores that we rolled out in 2023. So nice sales lift as we outlined. When sales doesn't always translate to income and cash, so we have an ROI focus for that investment as well. I think we said 15% is a good target for our remodel. So we are managing inventory, managing store labor, managing invest
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American Eagle Outfitters (NYSE:AEO) Faces a Cautious Outlook Despite Strong Performance

  • Telsey Advisory updates NYSE:AEO to "Market Perform" with a reduced price target from $18 to $12 due to expected slowdown in demand.
  • $1.6 billion in sales with a slight beat on expectations, but a forecasted low single-digit revenue decline for fiscal year 2025.
  • Gross margin remains steady at 37.3%, with the highest quarterly operating income in over a decade at $142 million.

American Eagle Outfitters (NYSE:AEO) is a well-known American clothing and accessories retailer. The company targets a younger demographic with its trendy and affordable fashion offerings. AEO competes with other retail giants like Abercrombie & Fitch and Gap. Recently, Telsey Advisory updated its rating for AEO to "Market Perform," maintaining a "hold" action, as highlighted by Benzinga.

The stock price at the time of Telsey's announcement was $10.99. Analyst Dana Telsey has reduced the price target from $18 to $12, reflecting a cautious outlook. Despite a strong holiday season, AEO is expected to face a slowdown in demand, which has prompted this adjustment. The company's sales fell by 4.4% to $1.6 billion, slightly better than the anticipated 4.6% decline.

AEO's gross margin remained steady at 37.3%, exceeding expectations. This stability is attributed to effective expense control and improvements in selling, general, and administrative (SG&A) expenses, particularly through reduced compensation costs. The operating income reached $142 million, marking the highest quarterly operating income in over a decade, showcasing the success of the company's Powering Profitable Growth strategy.

However, the outlook for fiscal year 2025 appears weaker than anticipated. AEO projects a low single-digit revenue decline, contrary to the previous consensus of a 3% increase. The company attributes this to slower demand and adverse weather conditions. Currently, AEO's stock is priced at $10.98, experiencing a decrease of 4.10% today, with a trading volume of 14.5 million shares.

American Eagle Outfitters, Inc. (NYSE:AEO) Earnings Preview: Key Insights

  • Anticipated Earnings Release: AEO is expected to report quarterly earnings on March 12, 2025, with an estimated EPS of $0.50 and revenue of approximately $1.6 billion.
  • Performance Expectations: Despite a projected 4.3% decline in revenues, AEO has a history of surpassing earnings expectations, suggesting potential for another positive outcome.
  • Financial Metrics: AEO's financial metrics indicate a modest market valuation with a P/E ratio of approximately 10.02 and a solid return on investment with an earnings yield of 9.98%.

American Eagle Outfitters, Inc. (NYSE:AEO) is a well-known American clothing and accessories retailer. The company operates under two main brands: American Eagle and Aerie. Both brands have shown positive trends, especially during the holiday season, which is expected to influence the company's fourth-quarter fiscal 2024 results. The company competes with other retail giants like Abercrombie & Fitch and Gap Inc.

On March 12, 2025, AEO is set to release its quarterly earnings, with Wall Street analysts estimating an earnings per share (EPS) of $0.50 and revenue of approximately $1.6 billion. Despite a projected 4.3% decline in revenues to $1.61 billion compared to the same quarter last year, the company has a history of surpassing earnings expectations. In the last reported quarter, AEO beat the consensus estimate by 4.4%, delivering an earnings surprise of 12.6%.

The anticipated decline in earnings, with EPS expected to decrease by 18% from 61 cents to 50 cents, is attributed to lower revenues for the quarter ending January 2025. However, AEO's consistent performance in exceeding earnings expectations, with an average surprise of 3.49% over the last two quarters, suggests potential for another positive outcome. In the most recent quarter, AEO reported $0.48 per share, surpassing the expected $0.46, marking a 4.35% surprise.

AEO's financial metrics indicate a modest market valuation. The company's price-to-earnings (P/E) ratio is approximately 10.02, and its price-to-sales ratio is about 0.43. The enterprise value to sales ratio stands at 0.66, while the enterprise value to operating cash flow ratio is 9.13, reflecting cash flow efficiency. With an earnings yield of 9.98%, AEO offers a solid return on investment for shareholders.

The company's debt-to-equity ratio is 0.80, indicating a moderate level of debt compared to equity. Additionally, AEO's current ratio of 1.57 suggests a good level of liquidity to cover short-term liabilities. As the earnings report approaches, the management's discussion during the earnings call will be crucial in assessing the sustainability of any immediate price changes and future earnings projections.

American Eagle Outfitters, Inc. (NYSE: AEO) Financial Performance Analysis

  • Earnings Per Share (EPS) of $0.41 missed the estimated $0.48.
  • Revenue of approximately $1.29 billion was below the anticipated $1.66 billion, marking a slight year-over-year decline of 0.9%.
  • The company's Price-to-Earnings (P/E) ratio is approximately 17.01, with a Price-to-Sales ratio of about 0.73, reflecting investor valuation.

American Eagle Outfitters, Inc. (NYSE: AEO) is a prominent American clothing and accessories retailer, operating under the American Eagle and Aerie brands. Competing with major retailers like Abercrombie & Fitch and Gap Inc., AEO is a key player in the fashion industry.

On December 4, 2024, AEO reported an Earnings Per Share (EPS) of $0.41, missing the estimated $0.48. AEO generated revenue of approximately $1.29 billion, which was below the anticipated $1.66 billion. This revenue figure also fell short of the Zacks Consensus Estimate of $1.3 billion, resulting in a negative surprise of 1.19%. The slight year-over-year decline of 0.9% in revenue highlights challenges in meeting market expectations.

The company's financial metrics provide further insights into its performance. AEO has a Price-to-Earnings (P/E) ratio of approximately 17.01, indicating the price investors are willing to pay for each dollar of earnings. The Price-to-Sales ratio stands at about 0.73, suggesting the market values the company at 73 cents for every dollar of sales.

AEO's debt-to-equity ratio of approximately 0.80 indicates a moderate level of debt relative to its equity, while a current ratio of about 1.57 suggests good liquidity to cover short-term liabilities. These metrics are crucial for investors as they help project the stock's future price performance more accurately.

American Eagle Outfitters (AEO) Surpasses EPS Expectations in Q1 2024

  • American Eagle Outfitters reported an EPS of $0.3366, beating the anticipated EPS of $0.28.
  • Despite exceeding EPS forecasts, AEO's revenue of $1.14 billion slightly missed the expected $1.15 billion.
  • The company's stock is currently trading at $24.05, reflecting a positive market response to its financial results and strategic initiatives.

On Wednesday, May 29, 2024, American Eagle Outfitters (NYSE:AEO) reported its earnings before the market opened, revealing an earnings per share (EPS) of $0.3366, which exceeded the anticipated EPS of $0.28. This performance indicates a significant improvement from the previous year's earnings, showcasing the company's ability to surpass market expectations and deliver value to its shareholders. Despite this achievement, AEO's revenue for the quarter was approximately $1.14 billion, slightly missing the forecasted $1.15 billion. This discrepancy highlights the challenges the company faces in meeting revenue expectations, even as it excels in profitability metrics.

American Eagle Outfitters, a leading player in the casual apparel market, held its first quarter 2024 earnings conference call, featuring key executives such as Jay Schottenstein and Jen Foyle. The call, facilitated by Judy Meehan, provided a platform for discussing the company's financial performance and strategic initiatives. Notable financial analysts engaged with the leadership team, seeking insights into AEO's quarterly results and future outlook. This interaction underscores the company's transparent communication strategy and its efforts to maintain a dialogue with the investment community.

The company's financial results for the first quarter of fiscal year 2024, ending on May 4, 2024, were highlighted by record revenue. This achievement is a testament to the effectiveness of American Eagle's Powering Profitable Growth strategy and its iconic brand portfolio, including American Eagle and Aerie. The focus on offering exciting merchandise collections has been pivotal in driving the company's strong performance, despite the slight miss in revenue expectations.

American Eagle Outfitters' stock performance reflects the market's reaction to its financial results and strategic initiatives. Currently trading at $24.05, with a slight increase of $0.14 or approximately 0.59%, AEO demonstrates resilience in the face of market fluctuations. The company's market capitalization of approximately $4.72 billion and a trading volume of about 5.96 million shares indicate a solid investor interest in its stock. This financial standing, coupled with its strategic focus on growth and brand strength, positions American Eagle Outfitters as a noteworthy competitor in the casual apparel market.