American Eagle Outfitters, Inc. Price & Performance (AEO)

Good afternoon, everyone. Joining me today for our prepared remarks are Jay Schottenstein, Executive Chairman and Chief Executive Officer Dan Foyle, President Executive Creative Director for American Eagle and Aerie and Mike Mathias, Chief Financial Officer.

Before I 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 Results actually realized may differ materially based on the risks factors included in our SEC filings. The company undertakes no obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise, except as required by law. Also, please note that during this call and in the accompanying press release, certain financial metrics are presented on both a GAAP non GAAP adjusted basis Reconciliations of adjusted results to the GAAP results are available in the tables attached to the earnings release which is posted on our corporate website at www.aoeinc.com in the Investor Relations section. Here, you can also find the fourth quarter and fiscal year investor presentation. And now, I'll turn the call over to Jay.

Thanks, Judy, and good afternoon, everyone. 2024 was a solid year for AEO.

We launched our new powering profitable growth strategy aligning the organization's focus on three key priorities: amplify our brands, optimize our operations and execute with financial discipline. And we achieved excellent results, record revenue of $5,300,000,000 was fueled by 4% comparable sales growth, reflecting positive momentum across brands and channels. Adjusted operating profit of $445,000,000 mark one of our strongest years in history. And we drove significant operating margin expansion. This included strong fourth quarter results which came in slightly ahead of the outlook provided in January. Comparable sales rose 3% building on an 8% increase in the fourth quarter of twenty twenty three. Aerie comp sales rose 6% and American Eagle was up 1%. Additionally, fourth quarter operating income of $142,000,000 was the highest we've delivered in over a decade. With good operating margin expansion. Full year cash flow from operations was over $470,000,000 and we returned over $280,000,000 to our shareholders in the form of buybacks and dividends. Reflecting on year one of our plan, we had some clear wins. Yet meaningful opportunities remain and we are fine tuning our Touching on a few highlights. Within our Amplify pillar, both American Eagle, Aerie continue to resonate strongly with customers this year.

Delivering positive comp growth and expanding their customer accounts. American Eagle maintained its number one ranking in denim, with our core customer base and achieved a sixth consecutive quarter of positive comp growth. Women's was a standout, reflecting strong traction with new dressing occasions. Men saw sequential improvement and as Jen will share, we remain focused on reinvigorating growth. Turning to Aerie. We crossed $1,700,000,000 in revenue in 2024. Soft apparel and our activewear collection offline were the big highlights. More than offsetting softness in intimates and swim. I am pleased to note that in leggings, we are now the number two ranked specialty brand As Jen will review shortly, we have targeted strategies across Erie and offline to continue strong growth through greater brand awareness and expanding our collections. Moving on to Optimize pillar, In 2024, we placed a hyphen emphasis on improving our operating capabilities. As Mike will review, we made strategic investments in our store fleet, and digital platform to support growth across channels. And we continue to build speed and agility in our supply chain, while ensuring we are delivering the best products and value to our customers. Lastly, under our third pillar, execute with financial discipline we maintain sharp control over expenses, and drove efficiencies across the business, yielding improved profit flow through.

In short, we executed on our strategic initiative demonstrating the power of our iconic brands and made structural improvements to fuel long term success. Now as we shared in our press release this morning, 2025 has started off softer than anticipated. First quarter date sales have been impacted by a less robust consumer environment and cold weather. For the year, ongoing consumer uncertainty and changes in the operating landscape, including tariffs and [indiscernible] are also creating factors for us to navigate. Against this backdrop, we currently expect full year revenue and operating income to be down relative to last year. Jan and team are focused on driving improvements to strengthen top line growth. Additionally, as Mike will review, we are taking proactive action to drive additional expense savings. With the benefit of both top line and cost initiatives, building throughout the year I'm confident that we can improve business performance as the year progresses.

Lastly, as we review our capital allocation plan moving forward, we are increasing our share repurchase authorization That's bringing the high level of confidence we have in our long term growth prospects we will continue to be opportunistic with our share repurchase program putting on the nearly $200,000,000 in buybacks completed in 2024. Before I turn the call over to Jen, I want to underscore the strength of our brands. Operation and talent. We have been through challenging times before we've always emerged stronger. I know our team's determination focus and creativity With that, I'll pass it to Jen.

Thanks, Jay, and good afternoon, everyone.

As noted, made great progress in amplifying our brands in 2024. Delivering a 4% increase in comparable sales This builds on a 3% full year comp in 2023. I will start today by reviewing our key wins and learnings. Let me start with American Eagle. Our flagship brand that has dress generations, since 1977. After a multiyear focus on rebuilding profitability, last year we turned our focus to growth, with encouraging results. Comparable sales increased 3% accelerating from 1% the prior year. Additionally, our customer count rose to 18,600,000 reflecting on an all time high driven by growth across genders. Women's was a true highlight Our market leading denim business continued to grow in the mid single digits as we introduced new fashion, washes and silhouettes. Skirts and dresses delivered a record year fueled by our expansion into social casual occasions. And the tops category doubled as we offered more fashion styles in line with our focus on completing the outfit and improving our tops to bottoms ratio. In men's, we made progress. Our customer count increased, validating the ongoing strength of our customer base. Expansion into adjacencies like Activewear with 20 fourseven are tracking well. Pants wrote another year of positive comps fueled by social casual introductions.

And we were pleased to see men's tops, return to growth the fourth quarter.

Now looking ahead, we continue to see incredible growth opportunities across genders. In women's, this includes introducing more diversity in our assortments across bottoms dresses and tops to provide more dressing options. On the men's side, we are integrating more active looks and performance fabrics where we have seen a positive reception to date. Additionally, we are enhancing our price value equation for basics by delivering greater optionality at opening price points.

Turning to Aerie, 2024 was another strong year. Revenue hit a new record fueled by a 5% comparable sales increase. And we grew our customer count to 11,800,000 This is an all time high as we expanded our reach and brand awareness with stores and marketing initiatives Two clear wins in the year our soft apparel and activewear businesses.

Both of which saw double digit growth in soft apparel, continued to win in cozy fleece, sweaters and new fashion items, Additionally, our extension into sleepwear was a huge success. In Activewear, Off Line by Aerie saw strength in leggings, sports bras, fleece and shorts. Our powerful platform combined with our winning price quality and value equation continues to differentiate us in the market. And as Jay noted, are number two in the leggings category. Intermittent swim were down last year driven by ongoing challenges across the industry. Yet I am happy to note that we grew our share in intimates across core bras, and undies fueled by innovation, with our smoothies collection and new novelty fabrications like Lace. The long term runway for Erie is significant. Off line is our biggest growth opportunity across the company. We are continuing to broaden brand awareness build equity in Famous Foot franchises like Real Me and add more performance styles. In apparel, we are leaning into innovation, through seasonal drops.

We are also excited to build on our success in sleep by transforming it into year round franchise. In Intuit, we see opportunity to reenergize our basics offerings with new base layers and styles focused on everything from life to lounge. And at the same time, we will also invest to elevate franchise collections like smoothies where we are building a strong following. In addition to product enhancements across brands, we will continue to invest in marketing. We will leverage learnings from optimization work streams in 2024 to speak to our customer base more effectively. We are highly focused on growing where our customers are across social media in a bigger way with a focus on favorite and emerging platforms. We also have an exciting new AE men's campaign planned for the second half of the year. And now entering 2025, it's important to note that we are cycling a strong spring season from last year when we saw nicely positive results across brands.

This spring, we have been facing headwinds Colder weather has clearly been a factor, as well as some uncertainty with the consumer. As I will discuss, we also had some out of stocks in big categories as well as product opportunities which we have been working hard to correct. Quarter to date, while we have continued to see positive traffic into AE and Aerie across channels, demand has been softer than anticipated. From a category standpoint, [indiscernible] such as shorts and tees have been soft. While cold weather items like sweaters have outperformed.

Fashion items are checking with positive trends in categories like dresses at AE, and soft apparel and activewear at Aerie.

Of note, have seen warmer markets perform better overall. We have also been chasing high demand denim styles to manage outages in some of our best selling items.

We are working hard to address the current business trends and thoroughly reviewing assortment opportunities for upcoming seasons.

In light of ongoing consumer uncertainty, are also leaving Open to Buy for the back half of the year, while ensuring we are in stock in the right items. And before I turn the call over to Mike, I want to thank the teams a successful 2024 and maintaining such strong focus through the near term bumps in the road. Overall, we remain very excited about the long term opportunity to grow our incredible portfolio of brands We are acting on what we can control, staying disciplined and maximizing flex And with that, I will turn the call over to Mike.

Thanks, Jen, and good afternoon, everyone. I'm pleased with how we delivered the first year of our Power and Profitable Growth Plan. While we experienced some choppiness in demand and unforeseen currency headwinds, navigated with agility. We drove efficiencies across the business to deliver significant profit and margin expansion. As Jay noted, full year adjusted operating income of $445,000,000 reflected a 19% increase to last year hitting the high end of our long term algorithm. Our adjusted operating margin expanded by 120 basis points to 8.3%. We closed the year on a positive note with strong fourth quarter results. Expanding on a few highlights, fourth quarter consolidated revenue of $1,600,000,000 was down 4% to last year reflecting an $85,000,000 adverse impact from the retail calendar as previously discussed. Comparable sales increased 3%. Operating income was $142,000,000 up slightly to last year, including an approximately $20,000,000 adverse impact and approximately $10,000,000 of adverse impact from the strengthening of the U. S. Dollar. The adjusted operating margin expanded 50 basis points to 8.9%. Gross profit dollars were $599,000,000 the rate of 37.3% reflected higher freight and product cost.

Which were offset by lower markdowns. BOW costs were roughly neutral as we successfully with efficiencies across several expense areas including delivery and compensation. These efforts also had a positive impact on the SG and A line, which decreased 6% leveraged 40 basis points as a rate of sales.

The improvement was driven by lower compensation, including incentive costs, partially offset by higher advertising where we made choiceful investments to support long term growth. Depreciation was down year over year leveraging 10 basis points. The fourth quarter tax rate was 29.4% earnings per share was $0.54 Consolidated ending inventory cost was down 1% year over year as we maintained strong inventory control and a choppy demand environment. As Jay noted, our healthy cash position allowed us to fuel investments in our business as well as return cash to shareholders. Fourth quarter CapEx totaled $65,000,000 Full year CapEx investments were $223,000,000 This included a rollout of our new store design to 56 stores, where results have been positive and 22 new area and offline locations. We returned approximately $24,000,000 to shareholders through the fourth quarter cash dividend and completed $3,500,000 in share repurchases amounting to $60,000,000 For the year, we repurchased a total of 9,500,000.0 shares As Jay noted, we have upsized our share repurchase authorization demonstrating strong confidence in our brands and long term growth plan. We ended the year with a strong balance sheet with approximately $359,000,000 in cash and investments over $920,000,000 of total liquidity including our revolver.

Our 2024 financial results were strong proof points of our agility and expense discipline and this work continues. As noted, 2025 has started off softer than anticipated, In light of this, Jen walked you through the actions she's taking on the top line. Additionally, we're taking proactive actions to pull back on expense plans for the year with a thorough assessment of all costs and capital spend. We're also actively working to further diversify our supply chain to mitigate tariff impact. Our current outlook reflects the first quarter revenue decline in the mid single digits with operating income in the range of $20,000,000 to $25,000,000 This includes an approximately $10,000,000 negative impact from the strengthening of the U. S. Dollar. For the year, our outlook reflects revenue down in the low single digits with operating income in the range of $360,000,000 to $375,000,000 includes an approximately $20,000,000 adverse impact for the strengthening of the U. S. Dollar and approximately $5,000,000 to $10,000,000 adverse impact from U. S. Tariffs on China net of early mitigation strategies. We anticipate a mid single digit revenue decline in the first half recovering to flat to slightly up in the back half driven by improved merchandising, easier comparisons and a normalization of year over year currency headwinds.

Additionally, it anticipates profit declines in the first half with second half operating profit flat to last year's levels on improved top line trends lower currency headwinds and as cost savings and tariff mitigation activities build through the year. For the first quarter and the year, the gross margin is expected to be down due to higher markdown activity, tariffs, BOW cost deleverage on the comp decline.

SG and A dollars are expected to be flat to last year in the first quarter and down for the full year.

This reflects higher marketing investments to drive top lines with declines in all other line items driven by expense initiatives. The full year tax rate is expected to be approximately 25% Our weighted average share count is projected to be in the low-190s before accounting for repurchase activity beyond offsetting internal grants.

This year, we expect capital expenditures of approximately This includes a one time $40,000,000 cost of relocating to a new Manhattan office provides more favorable lease terms. We're also investing to enhance our digital platform to support our growing e commerce business further strengthen the customer experience. And this year, we're investing in automation and RDCs to create greater cost efficiencies. I'll end by saying across AEO, the teams are highly focused on improving performance We're managing the business with discipline, taking action with urgency as we navigate through the current environment. And with that, we'll open up for questions.

Thank you. Thank you. Our first question is from Jay Sole with UBS.

Great. Thank you so much. I have a two part question. Jen, the first part is for you. You talked about how some stores in warmer areas have done better than stores that were have been affected by the cold. If you just maybe us an idea of like what the difference in comp has been And then secondly for Mike, if you think about beyond fiscal twenty twenty five, [indiscernible] you just talk about your ability to control SG and A because the SG and A control has been really solid Just like the company had said, over the past year. But can you talk about your ability to control S and A going forward to, in other words, re leverage those costs and get back to the margin targets or get to the margin targets that you've had assuming that sales sort of bounce back as this consumer environment normalizes again and returns to normal? Thank you.

Thanks for the question. And certainly, yes, we do penetrate a little higher in the softer markets. Definitely in the warmer weather climates, we did see some better comps, but certainly not enough to go off on for this quarter. So still a lot to come. We're only a third of the way into this quarter, lots of volume to be had and we're ready to compete.

And Jay, on SG and A, it's a good question. I think at 2024 as a proof point of what we've been talking about, got this muscle built now around expense controls. Cross functional teams working through our transformation office with the FP and A team, with the cost center owners across the organization on a constant basis. Are able to leverage SG and A for the year last year on the four comp result and revenue up low single [indiscernible] Actually the entire operating rate improvement last year of 120 basis points was all from expense leverage. So just the proof points of everything we've been doing for the last two years now. And then even on this guide for 2025, and team, we're going to work [indiscernible] vigorously at the top line improvement But even messaging at this point, the dollar is on the year are down similar to the revenue assumption kind of down low single digit. I'm not sure last time we been able to say that walking into a year like this. We were structured in a similar way going into the year where within our algorithm, we [indiscernible] SG and A was set to leverage.

So the starting point for this work that we kicked off immediately when we started seeing this trend has allowed us to at least capture that But then the work continues. We've got more decisions coming at us here in the next few weeks, that we can we're going to make this really decide on a few other line items across P and L. The big store expenses like rent, store labor, services, delivery SLAs, decisions we can make across our distribution fulfillment capabilities there.

All discretionary spend. So it's all in work the moment and I'm confident we're going to be able to knock that number down even further. With kind of more updates to come from there. So we're structured to do this. So in the out years, yes, our target of 25% to 26% of the rate is still intact. We need revenue growth to do that. No doubt about that. We've But we're structured to continue to manage expenses for leverage.

Got it. Thank you so much. Our next question is from Matthew Boss with JPMorgan.

Great. Thanks. It's Amanda Douglas on for Matt.

So Jen, could you elaborate on early spring selling trends that you're seeing across the American Eagle brand relative to Aerie? And how that's reflected in your 1Q revenue outlook?

Sure.

Early on, as you mentioned, it's there's obviously headwinds coming out of February, you heard. Coming off of a very [indiscernible] [indiscernible] So we're leaving ourselves open for Chase and the new learnings are we have to react to these learnings. There's certainly opportunities across all brands. Right? We could have had more denim in AEs specifically. Aerie, we could have had more fleece. That's a good news and patent is the same time. But because of our inventory position and because of the way we're posturing our ourselves on the back half, we can chase our business and we're ready to do so. So there's learnings in February. It was softer than expected. And we are ready to gear up and the teams are moving very swift So So, early on, the weather was tough. You heard that And we actually are more penetrated in some of the temper climates. So that's the truth. But early on, the teams have reacted. We've responded. Inventory is well positioned. And we're taking all of our lessons and moving forward.

Great. And as a follow-up from my on the gross margin outlook, could you help break apart the embedded assumptions for markdowns versus product costs in the first quarter and just how you see each of those progressing over the balance of the year?

Yes.

Within gross margin, we've got currency headwind in the first half that comes through the margin line. A little bit of tariff impact, we said $5,000,000 to $10,000,000 So small in the grand scheme of things, mitigated by the teams very well. Flexibility there is key. We've got that built depending on what actually happens with tariffs that we're all kind of waiting to confirm. But the currency headwind is an impact to IMU and product margin in the first quarter. And then on the down 5% or the down mid single digit call it revenue guide, our ability to leverage expenses and gross margin like rent, for example, diminished. So some expense headwinds in gross margin in the first quarter as well.

You get through the first half of the year into the back half, IMU improvement is expected and projected at the moment, which is a good change from the first half of the year. We still believe markdowns can be well controlled at a sort of flat comp or flat revenue [indiscernible] Expense mitigations are got some things flowing through the third and fourth quarter already, but there are some lines that were managing through right now that we could see some additional benefits to. So we're expecting gross margin to be relatively in line for last year in the back half.

So front half headwinds back half relatively similar to last year.

Thank you.

Our next question is from Janet Kloppenburg with JJK Research.

Hi, everybody.

Hi, Janet.

Jen, I didn't hear you call out and I might have missed it.

So forgive me.

Did you call out leggings as a position of strength at Aerie. I think you said Activewear. And comment on swim would really help there too. And getting back to American Eagle, if you could elaborate a little bit more on the women's on the slowdown in women's other than weather.

Like what categories and what the learnings are there.

That would help me a lot.

And And Mike, we should be using flat gross margins in the back half And can you give us sort of a range on the front half please?

Sure.

Leggings, we're very excited about that business. In fact, I'm here at a hotel in Miami and I met a customer checking in and she literally said to me, do you work for Aerie offline? And I thought I could hear me speaking and I said, yes, she's like, they're the best leggings in town. And that's certainly true. We grew market share this year. We grew to the number two market share in our core demographic. Thrilled with that number. And you're seeing that continue here.

Yes, we are actually activewear's deposits trend for us. We're very excited about that business. Women's, Janet, we look, we're coming off yes, women's at Eagle. Yes, coming off of a very strong trend. We're comping the comp. The business is growing. We're introducing new fashion and obviously introducing getting back to some of our core competency there. We're dressing that girl head to toe. We're closing the gap on our top to bottoms ratio, very excited about that. Women's continues to comp quarter over quarter. And actually, if you look the two year stack, actually women's have accelerated in Q4 including denim which was a five comp. Going to swim, my favorite subject, Amanda is really an area planning it accordingly, some softness in some other categories that we were expecting to comp the swim business, but we did plan swim down. It's actually beating that plan as we speak, and we plan some other categories up. And we needed some receipts here to be honest. To offset some of the early headwinds that we're facing just getting out of the gate and area.

Okay. But, Erie then where are the slowdowns from where you had been?

Jen?

It's actually not, As I mentioned in my remarks, intimates in general is a slowdown, but we actually gained market share in bras and in undies. And we oversold lease early in Q4 and we needed receipts here to mitigate some of the plan some of the swim business that we planned down. That's what we're chasing right now. Good news is we have a new set coming our way, starting on direct newness is hitting on Thursday and new goods coming next week for Erie.

So except for men's, it sounds like everything's pretty correctable in the near term.

Definitely. I mean, definitely. And I love our inventory position. I love that we're open. And men's definitely have some green shoes some new launches, some new product categories, some new fashion, We're seeing great returns in graphics, the graphics business. We're chasing that business and twenty fourseven is tracking well. We're seeing a great response to the new active books, and pants has been strong for us. And I do believe as we cycle into the warmer climates, our short business is really set up for success.

Great. Thank you, Jen, and good luck to you. Mike?

Yes, Jen. On gross margin, first quarter with the guidance at the $25,000,000 to $25,000,000 op bank on mid single revenue decline, you're going to get to gross margin around two forty basis points down. The majority of that is expense delevered. So rent and fixed costs in the gross margin that are still in work but the leverage there will be the biggest driver of that. We do have bit of IMU headwind, like I said, from currency. Q1 is still the biggest currency lap especially against the peso last year. Dan mentioned some Chase and some things being adjusted through the assortment receipts we're chasing, so a little bit of freight as well. But the majority is going to be expense deleverage with a little bit of pressure on the merch margin from the couple of items as well.

Second quarter, more definitely tighter, call it, about 150 basis points is what we're thinking basis and projecting now. Expense deleverage is not as significant on some revenue improvements And again, we start to lap the currency impact to the back half of the second quarter last year. So back if negated through IMU, for those two components. Better than the first quarter than difference to last year in the second quarter versus the first quarter.

Thank you, Mike. Our next question is from Adrian Yee with Barclays.

Good afternoon. So my question is going to go back to the tariff piece of it.

Your Your assumptions for the tariff, you have the 20% exposure to China. It's think that was for FY 'twenty four, but I know you're working that down. Where are you currently? Where do you expect that to be at the end of the year? And then just kind of proactively thinking, what is your exposure to Vietnam? Does your guidance actually just assume you're taking the margin hit with no pass through and no kind of manufacturing negotiations, etcetera. And then Jen, where are we in the denim cycle of things? And [indiscernible] up 5%.

Is there another iteration or another kind of progression of kind of that wider leg denim And then if you can talk about the promotionality of both Berry and AE brand? Thank you.

When it comes to Terra, Nobody Knows What Tariffs Are Going To Put On Where, When Or What.

We Don't Know If It's Going To Be Either Vietnam, we don't know if China, we don't know India, don't know Bangladesh.

So [indiscernible] where we're shifting to? And you have to remember that eight years ago, we went through this before. And everything settled down. So we just have to be calm a new course. Rack could be jumping all over the place. Until we know exactly what the story is. Nobody knows what the story is yet.

We went through this eight years ago, it settled down. And if you remember, eight years ago, the first half of business was a tough business and it settled down. Then everything got very good for the next few years until the pandemic. So I wouldn't be rushing [indiscernible] I don't know where I'm rushing to.

Yes.

And then the assumption That's very fair.

Yes. 100%, James. So I think flexibility is key. That's the key point there. The teams have that built. We've got redundancy built just to to move around if we need to. But at the moment, to Jay's point, where do you move until we know But the assumptions are right now in the the reality around China penetration is we're below 20 now, we're in the high teens. Some of the mitigation is we plan to be in the single digits by the time we get to the back half of the year. So that's why the little bit of tariff headwind in the front half back half pretty low under these assumptions. Vietnam is similar to China at the moment, kind of high teens to 20%. The teams have already worked the same process around mitigation efforts with our manufacturing partners, vendors in Vietnam. So right now, the assumption is no pass through to consumer. We've actually between the mitigation efforts in China reducing the penetration then it's the partnerships we have with our vendors and sharing and the cost of what could happen.

At the moment. We feel good about that. The teams have worked tirelessly for a good six, nine months now getting ready for this to create that redundancy, create flexibility across the network.

We feel like we can make a lot of different moves pending Jay's point what actually does occur.

And in denim, particularly in women's, we had a strong year mid single digit comps. Q4 to run that five comp was exceptional. However, we did go into Q1 very lean and we needed to chase goods. What I love about what's happening in the business right now is the diversity of fits.

It's not just about baggy actually. We're seeing skinny emerge and what makes this magic in this on this team and our positioning in the market is how we chase denim and how we go to market and also our fit. I mean our fits are the best in the industry and I'm extremely proud of what the team is able to deliver. However, we still have a lot of open to buy. We just did our denim testing, and the results came in. And again, it's a little bit more diversified than I think what other people are saying. We're seeing strength across a variety of fits in women's in particular, and we are seeing leaner fits coming back into men. The other thing that's happening in men is bottoms are definitely trending for us. So other bottoms, pants, and shorts, and I mentioned earlier, shorts are just beginning for that business.

So lot more business to be had in this quarter. And hopefully, we'll get that 70 degree weather. As I think about promotions for AE and Aerie, look, where we have to win, right? We have to manage our So the teams don't have a lot of pressure there. But we have to compete at the same time. I do think that we could definitely balance out our assortments a little bit more with some opening price points so that we can compete. In that value equation. And but mixing that business and we'll continue to work on that. That's what the team is working on as we speak. But again, because we're lean on inventory, we have open receipts, we can actually be nimble and and manage Great. Thank you very much. That's what?

Thank you.

Our next call our next question is from Paul Lejuez with Citi. Hey, thanks guys. Just a couple of quick ones. What built in for incentive comp in F-twenty '5? Can you just remind us what F-twenty '4 was versus '23, the impact of the margins on the incentive comp And then offline, can you talk about the size of that business in dollars and what you expect for growth this year?

And then just curious if you canceled any inventory purchases from the back half? Thanks.

Yes. I understand, as we talked in the past about [indiscernible] about the path, our incentive metric is aligned with everything we talked about for this three year plan. So EBIT on this guide, we'd assume very low to minimal incentive comps twenty twenty five off the three seventy five number. Talked about in the past relative average around $50,000,000 but that's again the $375,000,000 we would assume very little incentive compensation this guide. The size of offline, we've done a lot of work strategic work around the growth of the brands in the last several months. We believe that penetration is still low, customer awareness is very low, We talked about Aerie in total of being only around 55% offline for awareness perspective is next to nothing. Obviously, we've got a nice business across the categories, within the sub brand. At area to build area to build area to build area to build area to build area to build area to build area to build area to build area to build area to build area to build area to build area to build area to build area to build area to build area to build area to build area to build area to build area to build area to build area to build area to build area to build area to build area to build area to build area to build area to build area to build area to build area to build area to build area to build area to build area to build area to build area to build.

We always talk about offline as a sub brand being about a third of the business around $600,000,000 So very small still It's the fastest growing thing in the company as we speak. Set of categories [indiscernible] lot of runway ahead of us, The TAM, total adjustable market is around, I think, [indiscernible] Small in the context of the company, a lot of opportunity for us in terms of product expansion, geographic expansion, building awareness, And as we talked about in the opening remarks, we're not going to stop [indiscernible] slow down the investments there.

Best use of our cash right now is the return we think we can get from the continued investment across the brands nothing nothing bigger than offline at the moment. And think about the positioning, right, where number two leggings does and actually number three or four in the bra and the sports bra segment. And we've only just begun we haven't even marketed to this business. So lots to come here. The product is very well received. Received and the innovation is like no other. So really proud of this business. And it continues to outpace the other businesses in our company.

Got it.

And then any place you've adjusted inventory purchases for the back half?

Paul, can you repeat that here? Coming through a little muffled.

Inventory purchases for the back half and the adjustments we've made Yes.

We've a lot of open to buy for Q3 still. Q4 is in work and development as we speak. So we have a lot of flexibility on the back half. We're looking at trends and projections that we've laid out here for this guide and Jen and team working through adjustments to forward plans and we have a lot of flexibility. To do that still.

Thanks. Good luck.

Thank you.

Our next question is from Dana Telsey with Telsey Advisory Group.

Hi, good afternoon, everyone.

Can you talk a little bit about the performance of digital and stores in the fourth quarter? And how it's looking in first quarter to date and how you're planning to go forward? It is following up on remodels. I know that there was expected to be an acceleration in store remodels in [indiscernible] Is that still on track? Or what are you looking at for openings and remodels? How you're thinking about marketing spend this year?

Yes, we had growth for the fourth quarter, Dana, we had comped improvement across brands and channels, so both in digital and stores, digital ahead of stores within three the plus three comp results. First quarter right now digital is stronger than stores. Our traffic is still relative to mall traffic.

Outpacing even though traffic is down significantly in the mall. Traffic to digital is definitely healthier than in stores. And right now on this mid single digit guide, digital on the more positive side of that stores being down more than mid single. On remodels for the year, we talked about we did 56 in 2024. Seeing nice results from those stores. We know we want to continue on this program to knock down the average ages of American Eagle fleet from 12 years to seven years. We are planning to still on our capital plans to do more this year, closer probably 90 to 100. In that range. Within the $300,000,000 capital spend guide And then for openings for area and offline around 35 which includes a mix of stand alones and side by sides. So continuing to make those investments for future growth in this year. Marketing spend, so within the earlier question around expense management, really coming into the year, we were really successful in keeping expenses down across SG and A other than advertising really to fund additional marketing expense. We've talked about getting a lot better in terms of investments there, measuring those investments, continuing to invest in marketing for growth We've got very specific acquisition and retention targets for our customer base.

We don't want to slow that down either. So advertising in this guide is still similar to what we've planned.

The rest of our expense dollars and SG and A down to fund that investment. We have the opportunity to flex that still through evaluating some elements of that spend. But it is still the one line that in an SG and A guide that is basically flat rate to last year. Advertising would deleverage within that. On the year.

Got it. And then just one follow-up on the warmer markets doing better. How much better is the warmer markets do? And Jen, what are you seeing in terms of category performance that may be different in the warmer markets that is making you excited? Thank you.

Yes. We're seeing just obviously the seasonal business is check better in the warmer markets. We slightly [indiscernible] slightly about 10 basis points. It's still too early. We have a lot of checks and balances on this quarter with the shifts of spring break and Easter being out so late.

Very early to read, but the product that's checking, that's what we're responding to, right? And of course, did digital, you see a little bit of a different demand on the digital channel. Less seasonal. So when we're in the market, When I think about how we're reacting to this business, The teams, like I said, you definitely see some warmer trends happening in the warmer climate, shorts and tees, but it's too early to tell. And what we're doing is posturing our inventory as I mentioned that earlier so that we can be nimble And the teams are, chasing what is working early out. So little early to tell here, but the team is reacting and responding.

Thank you.

Our next question is from Marni Shapiro with The Retail Tracker.

Hey, guys. Thank you. And Jen, the dresses and the fashion at Eagle really look absolutely fantastic. Just a couple of quick housekeeping questions. And then Jay, I have a question for you. But did you guys talk about the penetration of your loyalty program to your business And you talked about store openings and closings and remodels.

Did you provide like a square footage number for the full year? Are those remodels the same sizes big or smaller? So what's the full year square footage? And then I have a big picture question for you, Jay.

We I'm curious, you've been through a lot of cycles obviously before.

I'm I'm curious what you think about the consumer out there. Do you think that they're slowing down? Is it really the weather? Do you think that they also bought a lot over holiday and they're taking a breather? Do you think the news is actually having an impact on them? I've I've read some articles. I'm sure you've seen the same ones at consumer today actually knows or is trying to figure out what a tariff is, where two months ago they didn't even ask a question. So I'm curious what your big picture thoughts are on the consumer?

Okay. My big picture thoughts are very simple. They have the fear of the unknown.

Not just tariffs, not just inflation, You see the government cutting people off. They don't know how that's going to affect them.

They see programs being cut. They don't know how that's going to affect them.

They just don't know how it's going to affect them. And when people don't know what they don't know, they get very conservative.

I think the vast majority of mergers are going to be affected one way or the other. But right now, until there's so much news on the TV, it makes everyone a little nervous. And that's where I think we're going through.

I also remember eight years ago, when we went through this before on similar issues, things were up and down. The first six months were tough and then things got back to normal. And then they had and then the country was beginning to everything was going very well until pandemic.

So So I don't know what to get excited about right now or not get excited about.

Are you seeing you have to let things settle in first before we figure out what to do exactly?

On your loyalty penetration question, Maureen, 75%, that's grown over recent years. We know that we get customers into that loyalty program. We get them shopping across brands. American Eagle area and offline are the most profitable customers. They are the highest lifetime value. So we have very specific strategies on growing that loyalty penetration [indiscernible] brand shoppers. It's why our customer file is never been bigger over $24,000,000 at the moment and again, it's very specific retention or acquisition and then retention strategies against that. Square footage with the area offline openings of around 35 AE still being net closure maybe $15,000,000 to $20,000,000 in our plans, but that's under evaluation at the moment as well. You'd have square footage netting out at around a plus 1% to two Thank you.

Thank you for the dress comments.

Our next question is from Rick Patel with Raymond James.

Thank you.

Good afternoon.

Can you talk about the opportunity around basket size You're making progress on tops and it sounds like you're leaning more into entry price point products as well. So just curious if you see basket size as being a bigger contributor to the business this year?

Yes, actually, we've been holding our own in traffic against some of the data we've been seeing and actually [indiscernible] And it's a focus of ours because in this environment, we have to make sure that when she comes in or he comes in that we're fulfilling their needs. So big focus on basket size and like I said, there's a little uptick there on those numbers with traffic being some weeks slightly down to slightly negative and some some weeks beating them all. And it's very right now, it's a little erratic. Coming out of the gate in February. So I think what the teams have been doing is, what our teams have been doing is making sure that our customer is satisfied when they come in and actually our best [indiscernible] as we build out this year. And obviously managing the promotions And we're finding new ways to dress her and to dress him, new new occasions, dressing occasions. And obviously, with the growth in offline, and some of the we're very excited about this that business that we think that's an add on business for all the brands. As you know, we share our website and we're definitely talking to her across brands Aerie, offline and obviously AE Women's.

So lots of opportunity there, Mike. Just talked about the loyalty program and there's definitely opportunity to invite all of our customers at $24,000,000 into all of our brands.

Can you also help us with the outlook for marketing? It sounds like you're going to continue investing gear I think you touched on a new campaign in the back half. So curious if there's anything else to call out in terms of timing that could be a swing factor for margins. If you don't see a good ROI on this marketing, do you see it as an opportunity opportunity to pull back and protect your margins?

Yes. Right now we're playing up in the first half. So first quarter, second quarter plans in place Some of that strategic based on a lot of learnings around some new analytics tools of sort of effectiveness of the timing of spend to get benefits into back to school and holiday.

Dollars in the back half were relatively flat. We increased last year in the back half.

So it's a flex line item for us as we get into the back half of the year still.

Working through nailing down specific plans there with Jen and the creative teams. So up in the first half, funded with SG and A dollars being flat, all other expense lines and funding advertising in the first half.

Flat in the back half for the moment with some plans to get nailed down still.

Thank you.

Our next question is from Simeon Stigle with BMO Capital Markets.

Thanks. Afternoon, everyone. First off, sorry if I missed it. Did you say how the different brands are looking in your guided revenue declines for the year? And then Jen, when thinking about the market share versus the market growth dynamics within intimates you're referring to, any thoughts to what or when Revitalize the intimates broader market growth?

And then lastly, a bit peripheral, but it looks like you showed an uptick in the international license store count. At this point, how large are international license revenues and the profits I guess what's the right way to think about them going forward? Thanks, guys.

Yes. I think for it's been the guide to me and the brands are similar what we saw in 2024, the current trends and trajectory with A, a little bit on the negative side of the average, A, on the positive So for down mid single, we could assume Aerie is a little better than that.

AE down a little more than that.

Similar, I mean, if you think about 2024, we had a four comp AAR was a plus five, AAR was plus three. So I think we're just looking at similar things at the moment with more to come once we see how trends can continue. A lot to be a lot to absorb in current performance and see how things trend from here. Yes.

Regarding market share, obviously, in this environment right now, it is a certainly stack against our core competency businesses, denim. We're holding our rank. As I think about offline, we've grown in the legging market share. And then in a declining market in airy intimate, so it's been declining, We've certainly held our own and we've grown in broads and in undies. Slightly not huge, but this will be a year of us competing and getting the market share that we deserve.

On the license business, I mean, over the last several years, we've been pretty [indiscernible] around the mid-30s revenue from those businesses. Some of our biggest partners in The Middle East with Alshaya and Box, obviously, a lot of disruption over the last couple of years, but their businesses have stabilized and come back a bit. But you can assume something similar We're assessing some things around kind of future international growth majority of our international revenue, as you know, is from Canada and Mexico. Over 10% of our total revenue.

It's good. You're right. It's amazing. Yes.

It's sort of made [indiscernible] but pretty consistent to that. And next time, let's talk about Mexico. Oh, warm weather, that's a good sign. Yes.

So nothing to think about in terms of anything significantly different from the license piece of that. With what we have talked about in the last several years is the grant growth at Jay's Point coming out of American. We still have a lot of room there. There's been a nice impact to the AE brand over the last several years kind of only getting started with airing offline. So it's very small penetration to the total for those two brands in Mexico with plans to grow those brands and market still.

Okay, great. I think there were seven I was just saying, I think there were some in Hong Kong that were converted. So just there is there not a change or an approach to looking more to licensing internationally or is that a one off off? Yes, we shifted that business from an owned model to a license model in the back half. That was I think it's strategic move for profitability purposes and just to have a partner in the market. Our own markets that are really at this point are Canada and Mexico now. So growth in the future in other markets would be more through partnerships in one way or the other. Is our strategic thinking, yes.

Thank you. We have time for one more question.

Thank you. Our last question is from Alex Stratton with Morgan Stanley.

Thanks so much. And maybe for Jen, just you mentioned a number of top line and initiatives that should build throughout the year and enable that post first quarter sales improvement. You mentioned a number of things. So I just want to understand how you think about them maybe in terms of buckets or which are the top ones? And then just a quick follow-up on the tariff response. I think you said you're moving China sourcing exposure pretty materially into the back half. Just curious where are you going or where are you shifting that? Thanks a lot.

Sure. First and foremost coming out of Q4, we had strong results And going into Q1, we have some inventory opportunities And some good news and some bad news, right, going into the quarter. We definitely had some inventory outages but it allows us to be nimble. We are chasing denim after a in women's in particular after a strong fourth quarter comp. And then there has been some product misses that we are acknowledging. And most of it is due to inventory. So again, we needed some inventory here in some key categories in American particular. And we're seeing just some wins in some businesses that we could have had more of. So for instance, in Aerie, soft dressing sleepwear has been actually across all categories, sleep and lounge really doing well, chasing that. Graphics has been great. So of course, we have early reads. And this is what we do day in and day out. So the early reads we're reacting to. We're ensuring that our inventory is nimble. We're ensuring that we're open on the back half, which is obviously it's our Super Bowl as we enter into Q3 when we're such a denim driven business and denim drives behavior for all of our brands, which is important to note.

Denim drives traffic to our site and then we cross pollinate throughout our brand. So that's really important to note and we're setting ourselves up for the back half of winning in denim. And I feel like the teams are doing a great job So and then of course, we're monitoring our promotional cadence. Balancing AURs with opening price points very important right now, And of course, just reading the business day in and day, but mostly staying connected to our customer. We've done a lot of data analytics around our [indiscernible] The fluidity of that is really important in today's business, right? One week she's in stores or he's in stores and the next week they're online shopping and we have to open up the gates and ensure we are addressing where that customer is and obviously delivering to that customer. And that's a high intent for the balance of this year.

Great. And then just on that China sourcing question.

Can you repeat the question?

I think in the prior tariff question, maybe Mike can answer that you guys are moving China production from like a high teens percentage of the business to single digits or something. So I'm just wondering where that's going?

Yes, we have the ability that's the plan for now, but again, flexibility is key. So to Jay's point earlier, depending on what actually happens, we can decide if we ultimately do that or not and we have redundancy to move as needed. But if needed, if things that are being projected or said about China a high teens to single digits. We source across 15 countries. The teams have built redundancy across those countries we will flex as needed.

Thank you.

Thank you.

Thank you. This concludes our question and answer session. This is the end of today's conference. Thank you for your participation. May disconnect your lines at this time.