AMERICAN EAGLE OUTFITTERS INC Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Amplify Our Brands: American Eagle had sixth consecutive quarter of comparable sales growth and share gains in key categories, with strategies for growth in Social Casual and Men's Active gaining momentum. Aerie had record revenue, anchored in authenticity, positivity, and empowerment, with growth in Soft Dressing and Activewear, and retained top rankings in shopping destinations for youth.
• Optimizing Our Operations: Openings and remodels tracking well, with high-profile malls like King of Prussia and Woodfield showing great results. Focus on elevating e-commerce platform using tools like outfitting and sizing to improve conversion.
• Executing with Financial Discipline: SG&A dollars down 3% quarter-over-quarter, leveraging 50 basis points. Took actions to streamline corporate cost structure, changed Hong Kong operation to licensed model. Healthy cash position allowed investments in business and return of cash to shareholders.

Segment Performance

• American Eagle: Third quarter comparable sales grew 3% following a 2% growth last year, marking its sixth consecutive quarter of growth. Women's showed momentum in Denim and Tops with double-digit increases in categories like dresses, sweaters, etc. Men's had sequential improvement in categories such as knit tees and men's sweaters. Revenue contribution from American Eagle is part of the overall performance but specific percentage wasn't explicitly stated in absolute terms beyond the sales growth.
• Aerie: Achieved another record revenue result with 5% comp growth, on track to cross $1.7 billion in revenue this year. Strong in Soft Dressing and Activewear, particularly OFFLINE. Revenue contribution percentage wasn't explicitly given in absolute terms but was highlighted as a key driver of growth.

Guidance

• Fourth quarter comp outlook revised to up approximately 1% vs last year's 8% reported comp increase, total revenue expected down 4%, operating income in range of $125 million to $130 million.
• Full year: comps up 3%, total revenue up 1%, adjusted operating income in range of $428 million to $433 million, an increase in the mid-teens from last year's $375 million.

Risks

• Impact of US Dollar strength, particularly affecting the business in Mexico which has a significant revenue contribution in the fourth quarter.
• Weather conditions such as hurricanes and warmer weather impacting demand during certain periods.
• Potential inventory and supply chain challenges, though inventory was noted as healthy and well positioned for the holiday season.

Q: Matthew Boss from JPMorgan asked Jen about the progression of demand into the fourth quarter at Aerie and opportunities to accelerate growth next year.

A: Jen mentioned Aerie saw record revenues in Q3, saw some choppiness in holiday, spoke about new categories like sleep and swim, with plans to open 45 stores next year and leveraging marketing impact for growth.

Q: Matthew Boss followed up with Mike about expectations for promotions in the fourth quarter, inventory health, and drivers of gross margin expansion.

A: Mike said inventory was up 5% and well positioned, promotions planned similarly to last year, and focus on efficiency across P&L including delivery, distribution, supply chain, and IMU to achieve gross margin targets.

Q: Paul Lejuez from Citigroup asked about quarter-to-date performance relative to expectations at each brand and SG&A comp leverage for next year.

A: Mike said choppiness was due to weather and calendar shifts, and SG&A continues to be a focus with intention to leverage at the low end of 3%-5% sales growth algorithm.

Q: Angus Kelleher-Ferguson from Barclays asked about new customers for American Eagle and Aerie.

A: Jennifer Foyle said both brands combined are up double-digits in customer acquisition, American Eagle launched Live Your Life campaign, renovated stores, and Aerie had new store openings and collaborations driving new customers.

Q: Jay Sole from UBS asked about Denim category at American Eagle and FX impact.

A: Jennifer Foyle spoke about Denim category performance and Mike discussed FX impact from US Dollar strength, particularly affecting Mexico business, with about $15M impact in fourth quarter.

Q: Dana Telsey from Telsey Advisory Group asked about difference between digital and stores, impact of hurricanes, and remodels.

A: Mike said remodels performing well, hurricanes had impact, digital and stores both had positive comps, and store traffic was strong during peak periods.

Q: Jonna Kim from TD Cowen & Company asked about Intimates business strategy and OFFLINE growth.

A: Jennifer Foyle said Intimates held share and OFFLINE saw growth in sports bras, with focus on innovation and new categories to accelerate growth.

Q: Janet Kloppenburg from JJK Research asked about choppiness, digital business slowdown, and SG&A.

A: Jennifer Foyle spoke about trending categories and store performance, Mike discussed SG&A focus and continued leverage in Q4.

Q: Dan Stroller from BMO Capital Markets asked about lead times, open to buy for holiday, and inventory end of year.

A: Jennifer Foyle said they were strategic with new receipts and open to buy, and Mike mentioned spring inventory planned in line with sales growth.

Q: Chris Nardone from Bank of America asked about ramping up Aerie door count and sleep business offsetting swim.

A: Jennifer Foyle spoke about momentum in Soft Dressing and store openings, and Mike discussed acceleration of Aerie door count to support growth.

Q: Katie Delahunt from Morgan Stanley asked about impact of new administration on tariffs.

A: Jay Schottenstein and Mike said they were flexible in sourcing with ability to source from multiple countries and strong sourcing team to react to tariff changes.

Q: Marni Shapiro from Retail Tracker asked about Aerie door count ramp and choppiness.

A: Mike and Jennifer Foyle spoke about plans for Aerie door count, choppiness due to comps and preparation for future, and confidence in spring plans.