Core Insights - Urban Outfitters (URBN) is positioned as a more attractive investment compared to American Eagle Outfitters (AEO), trading at 14 times earnings versus AEO's 18 times, with better growth and improved margins [2] - URBN has shown significant stock appreciation of approximately 30% year-to-date, rising from around $55 in January to about $71 [4] - The company has strong growth drivers, particularly from its brands Free People and Anthropologie, with Free People revenues increasing by 12% year-on-year and Anthropologie generating $1.18 billion, a 7% increase [5] Growth - URBN's revenue has increased by over 8% in the last twelve months, achieving nearly $3 billion in sales in the first half of fiscal 2025, more than double AEO's results [6] - The subscription service Nuuly has seen a remarkable growth of 56% to $263 million, indicating a successful expansion into new commerce channels [5] Margins - URBN's trailing twelve-month margin exceeds 9%, while AEO's is approximately 6%, demonstrating greater profitability [6] - For the first half of FY2025, URBN recorded a 10.7% operating margin compared to AEO's 7.8%, highlighting URBN's operational efficiency [6] Tariffs and Cost Management - URBN anticipates around 75 basis points of margin compression in the second half of 2025 due to tariffs, but this is manageable given its solid margins and cost control [6] - AEO expects higher dollar costs due to tariffs, with an estimated impact of about $20 million in Q3 and $40–50 million in Q4, although mitigation efforts will reduce total exposure [6] Long-Term Perspective - For long-term investors, URBN presents an intriguing entry point with its premium brands, growth in subscriptions, and digital presence, supported by solid cash reserves and low debt [8]

PART I - FINANCIAL INFORMATION [FORWARD LOOKING STATEMENTS](index=4&type=section&id=FORWARD%20LOOKING%20STATEMENTS) This section outlines the company's forward-looking statements, including planned store activities for Fiscal 2025, business priorities, financial expectations, and significant risk factors - **Planned Store Activities (Fiscal 2025):** - Open approximately **5-15 American Eagle stores**[12](index=12&type=chunk) - Open approximately **30 Aerie and OFFLINE stores**[12](index=12&type=chunk) - Remodel approximately **90-100 American Eagle and Aerie stores** in the U.S and Canada[12](index=12&type=chunk) - Net closure of approximately **35-40 American Eagle stores**, primarily in North America, at lease expiration[12](index=12&type=chunk) - **Key Risk Factors:** - Changes in global economic and financial conditions, impacting consumer confidence and spending[13](index=13&type=chunk)[14](index=14&type=chunk) - Effect of inflation on business[13](index=13&type=chunk)[14](index=14&type=chunk) - Potential for additional write-downs, impairment, or restructuring charges[13](index=13&type=chunk)[14](index=14&type=chunk) - Inability to anticipate and respond to changing consumer preferences and fashion trends[13](index=13&type=chunk)[14](index=14&type=chunk) - Risks associated with operating in a highly competitive industry and pricing pressures[13](index=13&type=chunk)[14](index=14&type=chunk) - Impact of events beyond control (natural disasters, public health crises, political crises)[13](index=13&type=chunk)[14](index=14&type=chunk) - Risks related to international operations, merchandise sourcing, and tariffs[13](index=13&type=chunk)[14](index=14&type=chunk) - Failure to manage inventory properly[13](index=13&type=chunk)[14](index=14&type=chunk) - Reliance on key personnel and increases in labor costs[13](index=13&type=chunk)[14](index=14&type=chunk) [Item 1. Financial Statements](index=7&type=section&id=Item%201.%20Financial%20Statements) This section presents the company's unaudited consolidated financial statements, including balance sheets, statements of operations, comprehensive income, stockholders' equity, and cash flows [Consolidated Balance Sheets](index=7&type=section&id=Consolidated%20Balance%20Sheets) The consolidated balance sheets provide a snapshot of the company's financial position, showing an increase in total assets to $4.06 billion as of August 2, 2025 Total Assets (in thousands) | Date | Amount | | :--- | :--- | | August 2, 2025 | $4,061,032 | | February 1, 2025 | $3,830,775 | | August 3, 2024 | $3,540,316 | Key Balance Sheet Changes (August 2, 2025 vs. February 1, 2025, in thousands) | Metric | February 1, 2025 | August 2, 2025 | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $308,962 | $126,780 | $(182,182) | | Merchandise inventory | $636,655 | $718,337 | $81,682 | | Operating lease right-of-use assets | $1,295,400 | $1,604,457 | $309,057 | | Long-term debt, net | $— | $203,000 | $203,000 | | Total stockholders' equity | $1,766,860 | $1,544,610 | $(222,250) | [Consolidated Statements of Operations](index=8&type=section&id=Consolidated%20Statements%20of%20Operations) The consolidated statements of operations show the company's financial performance, with a significant decrease in net income for the 26-week period ended August 2, 2025 13 Weeks Ended August 2, 2025 vs. August 3, 2024 (in thousands, except per share amounts) | Metric | August 2, 2025 | August 3, 2024 | Change (YoY) | | :-------------------------------- | :------------- | :------------- | :----------- | | Total net revenue | $1,283,675 | $1,291,058 | -0.6% | | Gross profit | $499,962 | $498,896 | +0.2% | | Operating income | $103,085 | $101,109 | +1.9% | | Net income | $77,633 | $77,264 | +0.5% | | Diluted net income per common share | $0.45 | $0.39 | +15.4% | 26 Weeks Ended August 2, 2025 vs. August 3, 2024 (in thousands, except per share amounts) | Metric | August 2, 2025 | August 3, 2024 | Change (YoY) | | :-------------------------------- | :------------- | :------------- | :----------- | | Total net revenue | $2,373,275 | $2,434,925 | -2.5% | | Gross profit | $822,383 | $963,134 | -14.6% | | Impairment and restructuring charges | $17,119 | $— | N/A | | Operating income | $17,903 | $178,944 | -90.0% | | Net income | $12,734 | $145,014 | -91.2% | | Diluted net income per common share | $0.07 | $0.73 | -90.4% | [Consolidated Statements of Comprehensive Income](index=9&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) The consolidated statements of comprehensive income show a significant increase for the 13-week period and a substantial decrease for the 26-week period ended August 2, 2025 13 Weeks Ended August 2, 2025 vs. August 3, 2024 (in thousands) | Metric | August 2, 2025 | August 3, 2024 | Change (YoY) | | :----------------------------- | :------------- | :------------- | :----------- | | Net income | $77,633 | $77,264 | +0.5% | | Foreign currency translation gain (loss) | $7,459 | $(23,549) | N/A | | Comprehensive income | $85,092 | $53,715 | +58.4% | 26 Weeks Ended August 2, 2025 vs. August 3, 2024 (in thousands) | Metric | August 2, 2025 | August 3, 2024 | Change (YoY) | | :----------------------------- | :------------- | :------------- | :----------- | | Net income | $12,734 | $145,014 | -91.2% | | Foreign currency translation gain (loss) | $21,744 | $(22,861) | N/A | | Comprehensive income | $34,478 | $122,153 | -71.8% | [Consolidated Statements of Stockholders' Equity](index=10&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) The consolidated statements of stockholders' equity detail a decrease in total equity to $1.54 billion for the 26 weeks ended August 2, 2025, driven by share repurchases Total Stockholders' Equity (26 Weeks Ended, in thousands) | Date | Amount | | :--- | :--- | | August 2, 2025 | $1,544,610 | | February 1, 2025 | $1,766,860 | | August 3, 2024 | $1,694,366 | Key Changes in Stockholders' Equity (26 Weeks Ended August 2, 2025, in thousands) | Metric | Amount | | :--- | :--- | | Net income | $12,734 | | Accelerated share repurchase (including excise tax) | $(201,849) | | Repurchase of common stock (public programs) | $(31,301) | | Cash dividends declared and dividend equivalents | $(42,824) | | Other comprehensive income | $21,744 | [Consolidated Statements of Cash Flows](index=12&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) The consolidated statements of cash flows show a significant shift to cash used for operating activities and increased cash used for investing activities in the current 26-week period Cash Flow Summary (26 Weeks Ended August 2, 2025 vs. August 3, 2024, in thousands) | Activity | August 2, 2025 | August 3, 2024 | Change (YoY) | | :------------------------------------ | :------------- | :------------- | :----------- | | Net cash (used for) provided by operating activities | $(26,859) | $40,140 | $(66,999) | | Net cash (used for) investing activities | $(74,113) | $(5,329) | $(68,784) | | Net cash (used for) financing activities | $(82,701) | $(194,500) | $111,799 | | Net change in cash and cash equivalents | $(182,182) | $(162,257) | $(19,925) | | Cash and cash equivalents - end of period | $126,780 | $191,837 | -33.9% | - **Key Drivers of Cash Flow Changes (26 Weeks Ended August 2, 2025):** - Operating activities: **Negative cash flow** primarily due to changes in merchandise inventory, operating lease assets/liabilities, and other assets/liabilities[25](index=25&type=chunk)[200](index=200&type=chunk)[201](index=201&type=chunk) - Investing activities: **Increased capital expenditures ($132.6 million)** and lower proceeds from sale of available-for-sale investments ($50.0 million vs $100.0 million)[25](index=25&type=chunk)[200](index=200&type=chunk)[201](index=201&type=chunk) - Financing activities: **Significant accelerated share repurchases ($201.8 million)** and other share repurchases ($31.3 million), partially offset by $485.3 million proceeds from revolving line of credit and $282.3 million principal payments[25](index=25&type=chunk)[200](index=200&type=chunk)[201](index=201&type=chunk) [Notes to Consolidated Financial Statements](index=14&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures for the financial statements, covering significant accounting policies and specific financial line items [Note 1 Interim Financial Statements](index=14&type=section&id=Note%201%20Interim%20Financial%20Statements) The interim financial statements are condensed and should be read in conjunction with the Fiscal 2024 Form 10-K, noting the company's brand portfolio and operational seasonality - **Brands Operated:** American Eagle®, Aerie®, Todd Snyder New York, and Unsubscribed[29](index=29&type=chunk) - **Geographic Presence:** Stores in the United States, Canada, and Mexico; merchandise available in over 30 countries via license partners; robust e-commerce business[29](index=29&type=chunk) - **Seasonality:** Operations are seasonal, with a large portion of total net revenue and operating income occurring in the **third and fourth fiscal quarters** due to back-to-school and year-end holiday selling seasons[30](index=30&type=chunk) [Note 2 Summary of Significant Accounting Policies](index=14&type=section&id=Note%202%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the company's key accounting policies, including consolidation, fiscal year definition, use of estimates, and recent accounting pronouncements - **Reportable Segments:** **American Eagle and Aerie**, with Todd Snyder, Unsubscribed, and Quiet Platforms included in "Corporate and Other"[31](index=31&type=chunk)[82](index=82&type=chunk) - **Fiscal Year Definition:** A 52- or 53-week year that ends on the Saturday nearest to January 31; Fiscal 2025 refers to the 52-week period ending January 31, 2026[32](index=32&type=chunk) - **Recent Accounting Pronouncements:** - **ASU 2023-09 (Improvements to Income Tax Disclosures):** Effective Fiscal 2025, requires increased transparency in tax disclosures[34](index=34&type=chunk)[36](index=36&type=chunk)[37](index=37&type=chunk) - **ASU 2024-03 (Disaggregation of Income Statement Expenses):** Effective Fiscal 2027, requires additional disclosure for specific expense categories[34](index=34&type=chunk)[36](index=36&type=chunk)[37](index=37&type=chunk) - **ASU 2025-05 (Financial Instruments - Credit Losses):** Effective Fiscal 2026, provides a practical expedient for estimating expected credit losses; not expected to have a material impact[34](index=34&type=chunk)[36](index=36&type=chunk)[37](index=37&type=chunk) - **Foreign Currency Translation:** Assets and liabilities are translated at balance sheet date exchange rates, while revenues and expenses are at monthly average rates, with translation adjustments reported in other comprehensive income[38](index=38&type=chunk) - **Merchandise Inventory Valuation:** Valued at the **lower of average cost or net realizable value**, utilizing the retail method and including design and sourcing costs[43](index=43&type=chunk)[44](index=44&type=chunk)[45](index=45&type=chunk) - **Revenue Recognition:** Revenue is recorded for store sales upon customer purchase and for e-commerce upon customer receipt, with loyalty point revenue deferred until redemption or expiration[72](index=72&type=chunk)[73](index=73&type=chunk)[74](index=74&type=chunk) - **Cost of Sales Components:** Includes merchandise costs, Quiet Platforms' service costs, and buying, occupancy, and warehousing costs[75](index=75&type=chunk)[77](index=77&type=chunk) - **Selling, General and Administrative Expenses (SG&A) Components:** Includes compensation for stores and corporate, advertising, supplies, communication, travel, and leasing costs[78](index=78&type=chunk)[79](index=79&type=chunk) [Note 3 Cash and Cash Equivalents and Short-term Investments](index=20&type=section&id=Note%203%20Cash%20and%20Cash%20Equivalents%20and%20Short-term%20Investments) This note provides a breakdown of cash, cash equivalents, and short-term investments, showing a significant decrease in total cash and cash equivalents as of August 2, 2025 Cash and Short-term Investments (in thousands) | Category | August 2, 2025 | February 1, 2025 | August 3, 2024 | | :-------------------------- | :------------- | :--------------- | :------------- | | Cash and cash equivalents | $126,780 | $308,962 | $191,837 | | Short-term investments | $— | $50,000 | $— | | Total cash and short-term investments | $126,780 | $358,962 | $191,837 | [Note 4 Fair Value Measurements](index=20&type=section&id=Note%204%20Fair%20Value%20Measurements) This note describes the company's fair value measurements, categorizing financial instruments into a three-tier hierarchy and detailing non-financial asset impairment charges - **Fair Value Hierarchy:** Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), Level 3 (unobservable inputs)[86](index=86&type=chunk) - **Cash and Cash Equivalents:** Classified as **Level 1** financial assets[85](index=85&type=chunk)[87](index=87&type=chunk) - **Non-Financial Asset Impairment (26 Weeks Ended August 2, 2025):** - Total asset impairment charges: **$15.3 million**[89](index=89&type=chunk) - Related to ROU assets: **$10.4 million**[89](index=89&type=chunk) - Related to fixed assets: **$4.9 million**[89](index=89&type=chunk) - **Goodwill Impairment:** **No indicators of goodwill impairment** were present during the 13 and 26 weeks ended August 2, 2025, or August 3, 2024[92](index=92&type=chunk) [Note 5 Earnings per Share (EPS)](index=22&type=section&id=Note%205%20Earnings%20per%20Share%20(EPS)) This note reconciles basic and diluted weighted average shares for EPS calculation, showing a significant decrease in diluted EPS for the 26-week period due to lower net income Diluted EPS (13 Weeks Ended) | Date | Amount | | :--- | :--- | | August 2, 2025 | $0.45 | | August 3, 2024 | $0.39 | Diluted EPS (26 Weeks Ended) | Date | Amount | | :--- | :--- | | August 2, 2025 | $0.07 | | August 3, 2024 | $0.73 | - **Share Repurchases Impact:** The company completed an accelerated share repurchase (ASR) agreement, repurchasing **18.4 million shares** at an average price of $10.86, contributing to a reduction in diluted shares outstanding[95](index=95&type=chunk) [Note 6 Property and Equipment, Net](index=22&type=section&id=Note%206%20Property%20and%20Equipment%2C%20Net) This note details the composition of property and equipment, net, which increased to $773.87 million as of August 2, 2025, reflecting ongoing capital investments Property and Equipment, Net (in thousands) | Metric | August 2, 2025 | February 1, 2025 | August 3, 2024 | | :------------------------------------ | :------------- | :--------------- | :------------- | | Property and equipment, at cost | $2,623,140 | $2,571,285 | $2,474,484 | | Less: Accumulated depreciation and impairment | $(1,849,268) | $(1,820,021) | $(1,752,291) | | Property and equipment, net | $773,872 | $751,264 | $722,193 | [Note 7 Goodwill and Intangible Assets, Net](index=23&type=section&id=Note%207%20Goodwill%20and%20Intangible%20Assets%2C%20Net) This note provides a breakdown of goodwill and definite-lived intangible assets, with goodwill remaining stable and no impairment indicators present Goodwill, Net (in thousands) | Date | Amount | | :--- | :--- | | August 2, 2025 | $225,231 | | February 1, 2025 | $225,079 | | August 3, 2024 | $225,213 | Intangible Assets, Net (in thousands) | Date | Amount | | :--- | :--- | | August 2, 2025 | $40,674 | | February 1, 2025 | $42,449 | | August 3, 2024 | $44,241 | - **Impairment:** **No indicators of goodwill impairment** or definite-lived intangible asset impairment were present during the reported periods[53](index=53&type=chunk)[92](index=92&type=chunk) [Note 8 Long-Term Debt, Net](index=23&type=section&id=Note%208%20Long-Term%20Debt%2C%20Net) This note details the company's revolving credit facility, showing $203.0 million in outstanding borrowings as of August 2, 2025, under its $700 million facility - **Revolving Credit Facility:** - Maximum capacity: **$700 million**[98](index=98&type=chunk) - Expiration: **June 24, 2027**[98](index=98&type=chunk) Outstanding Borrowings (in thousands) | Date | Amount | | :--- | :--- | | August 2, 2025 | $203,000 | | August 3, 2024 | $— | Interest Expense (in thousands) | Period | August 2, 2025 | August 3, 2024 | | :--- | :--- | :--- | | 13 Weeks Ended | $1,800 | $— | | 26 Weeks Ended | $2,100 | $— | [Note 9 Share-Based Payments](index=23&type=section&id=Note%209%20Share-Based%20Payments) This note outlines the company's share-based compensation, with total expense for the 26 weeks ended August 2, 2025, at $27.1 million Total Share-Based Compensation Expense (in thousands) | Period | August 2, 2025 | August 3, 2024 | | :-------------------- | :------------- | :------------- | | 13 Weeks Ended | $6,500 | $6,800 | | 26 Weeks Ended | $27,100 | $27,400 | Stock Options Outstanding (August 2, 2025) | Metric | Amount | | :--- | :--- | | Options (in thousands) | 5,199 | | Weighted Average Exercise Price | $16.24 | | Weighted Average Remaining Contractual Term | 4.1 years | Non-Vested Restricted Stock Units (August 2, 2025, shares in thousands) | Type | Shares | Weighted Average Grant Date Fair Value | | :--- | :--- | :--- | | Time-Based Restricted Stock Units | 3,136 | $15.14 | | Performance-Based Restricted Stock Units | 2,459 | $16.07 | - **Unrecognized Compensation Expense (August 2, 2025):** - Stock option awards: **$1.2 million** (over 2.3 years)[105](index=105&type=chunk)[109](index=109&type=chunk) - Time-based restricted stock unit awards: **$38.5 million** (over 2.3 years)[105](index=105&type=chunk)[109](index=109&type=chunk) - Performance-based restricted stock unit awards: **$7.6 million** (over 2.0 years)[105](index=105&type=chunk)[109](index=109&type=chunk) [Note 10 Income Taxes](index=25&type=section&id=Note%2010%20Income%20Taxes) This note discusses income tax provisions, with the effective tax rate for the 26 weeks ended August 2, 2025, increasing to 23.9% Effective Income Tax Rate (13 Weeks Ended) | Date | Rate | | :--- | :--- | | August 2, 2025 | 23.4% | | August 3, 2024 | 25.4% | | Change (YoY) | -2.0 percentage points | Effective Income Tax Rate (26 Weeks Ended) | Date | Rate | | :--- | :--- | | August 2, 2025 | 23.9% | | August 3, 2024 | 22.1% | | Change (YoY) | +1.8 percentage points | - **Impact of OBBBA:** The estimated tax implications of the H.R.1 Reconciliation Act (OBBBA) were **immaterial** for the 13 and 26 weeks ended August 2, 2025[111](index=111&type=chunk)[112](index=112&type=chunk) - **Unrecognized Tax Benefits:** Reasonably possible decrease of approximately **$6.8 million** over the next twelve months due to settlements or expiration of statutes of limitations, with an immaterial impact on the annual effective tax rate[115](index=115&type=chunk) [Note 11 Legal Proceedings](index=26&type=section&id=Note%2011%20Legal%20Proceedings) The company is involved in various legal proceedings incidental to its business but believes their resolution will not have a material adverse effect - **Assessment of Legal Matters:** Resolution of currently pending legal matters is **not expected to have a material adverse effect** on consolidated financial position, results of operations, or cash flows[116](index=116&type=chunk) - **Environmental Proceedings:** **No environmental matters requiring disclosure** (monetary sanctions of $1.0 million or more) for this period[220](index=220&type=chunk) [Note 12 Segment Reporting](index=26&type=section&id=Note%2012%20Segment%20Reporting) This note provides financial information by reportable segment, showing a decrease in American Eagle's net revenue and an increase in Aerie's for the 13-week period - **Reportable Segments:** **American Eagle and Aerie**, with "Other" including Todd Snyder, Unsubscribed, and Quiet Platforms[117](index=117&type=chunk) - **Key Metric for CODM:** **Adjusted operating income** (or operating income if no adjustments) is used by the CEO to analyze segment results and allocate resources[119](index=119&type=chunk) Segment Net Revenue (13 Weeks Ended August 2, 2025 vs. August 3, 2024, in thousands) | Segment | August 2, 2025 | August 3, 2024 | Change (YoY) | | :-------------- | :------------- | :------------- | :----------- | | American Eagle | $800,406 | $827,638 | -3.3% | | Aerie | $429,084 | $415,646 | +3.2% | | Other | $61,523 | $57,457 | +7.1% | Segment Net Revenue (26 Weeks Ended August 2, 2025 vs. August 3, 2024, in thousands) | Segment | August 2, 2025 | August 3, 2024 | Change (YoY) | | :-------------- | :------------- | :------------- | :----------- | | American Eagle | $1,494,271 | $1,552,382 | -3.7% | | Aerie | $788,872 | $788,298 | +0.1% | | Other | $105,494 | $112,441 | -6.2% | Geographical Net Revenue (13 Weeks Ended August 2, 2025 vs. August 3, 2024, in thousands) | Region | August 2, 2025 | August 3, 2024 | Change (YoY) | | :------------ | :------------- | :------------- | :----------- | | United States | $1,083,813 | $1,088,870 | -0.5% | | Foreign | $199,862 | $202,188 | -1.2% | Geographical Net Revenue (26 Weeks Ended August 2, 2025 vs. August 3, 2024, in thousands) | Region | August 2, 2025 | August 3, 2024 | Change (YoY) | | :------------ | :------------- | :------------- | :----------- | | United States | $2,005,326 | $2,048,604 | -2.2% | | Foreign | $367,949 | $386,321 | -4.8% | [Note 13 Impairment and Restructuring Charges](index=28&type=section&id=Note%2013%20Impairment%20and%20Restructuring%20Charges) This note details impairment and restructuring charges of $17.1 million recorded during the 26 weeks ended August 2, 2025, primarily related to fulfillment center closures Total Impairment and Restructuring Charges (26 Weeks Ended August 2, 2025, in thousands) | Metric | Amount | | :--- | :--- | | Total impairment and restructuring charges | $17,119 | - **Breakdown of Charges:** - Long-lived asset impairment: **$15.3 million** (primarily related to closing two fulfillment centers, including $10.4 million for ROU assets and $4.9 million for property and equipment)[127](index=127&type=chunk) - Employee severance: **$1.8 million** (primarily related to closing two fulfillment centers)[127](index=127&type=chunk) - **Prior Periods:** **No impairment and restructuring charges** were recorded for the 13 weeks ended August 2, 2025, or for the 13 and 26 weeks ended August 3, 2024[126](index=126&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, offering a detailed analysis of performance for the recent 13 and 26-week periods [Introduction](index=30&type=section&id=Introduction) This section serves as a supplement to the Fiscal 2024 Form 10-K MD&A, providing an understanding of the company's operations and financial condition - **Purpose:** To help readers understand the Company, its operations, and business environment, supplementing the Fiscal 2024 Form 10-K MD&A[129](index=129&type=chunk) [Executive Overview](index=30&type=section&id=Executive%20Overview) The company is a global specialty retailer of clothing, accessories, and personal care products under its American Eagle and Aerie brands, with two reportable segments - **Core Business:** Leading global specialty retailer offering high-quality, on-trend clothing, accessories, and personal care products under **American Eagle® and Aerie® brands**[132](index=132&type=chunk) - **Reportable Segments:** **American Eagle and Aerie**[133](index=133&type=chunk) - **Key Performance Metric for CEO:** **Adjusted operating income (loss)**[133](index=133&type=chunk) [Key Performance Indicators](index=30&type=section&id=Key%20Performance%20Indicators) Management evaluates comparable sales, omni-channel sales performance metrics, gross profit, operating income, and cash flow to assess performance - **Key Performance Indicators:** Comparable Sales, Omni-Channel Sales Performance (average unit retail price, total transactions, units per transaction, consolidated comparable traffic), Gross Profit, Operating Income, Cash Flow and Liquidity[134](index=134&type=chunk)[136](index=136&type=chunk)[137](index=137&type=chunk)[139](index=139&type=chunk)[140](index=140&type=chunk) - **Comparable Sales Definition:** Measures sales growth for stores and channels open at least one year, adjusted for 53-week fiscal years[134](index=134&type=chunk) - **Gross Profit Definition:** Difference between total net revenue and cost of sales, which includes merchandise costs, Quiet Platforms' costs, and buying, occupancy, and warehousing costs[137](index=137&type=chunk) [Current Trends and Outlook](index=31&type=section&id=Current%20Trends%20and%20Outlook) The company's results were negatively impacted by macroeconomic challenges, though demand improved in the second quarter, stabilizing margins [Macroeconomic Conditions](index=31&type=section&id=Macroeconomic%20Conditions) Macroeconomic challenges and global inflationary pressures negatively impacted revenue and increased margin pressure, though demand improved in the second quarter - **Negative Impacts:** Macroeconomic challenges and global inflationary pressures constrained revenue and **increased margin pressure** to clear excess spring and summer inventory[141](index=141&type=chunk) - **Q2 Improvement:** Second quarter demand increased, coupled with lower than expected promotional activity, enabling **stabilization of margins** and delivery of operating income slightly ahead of last year for the 13 weeks ended August 2, 2025[142](index=142&type=chunk) - **Tariff Impact:** Recent changes in legislative and regulatory developments, including tariffs and other trade policies, have introduced **additional uncertainty** and may affect margins and operations[143](index=143&type=chunk) [Omni-Channel Capabilities](index=31&type=section&id=Omni-Channel%20Capabilities) The company operates stores in the US, Canada, and Mexico, with a robust e-commerce business and significant investments in digital capabilities - **Global Presence:** Operates stores in the United States, Canada, and Mexico, with merchandise available in more than 30 countries through a global network of license partners, and a robust e-commerce business[147](index=147&type=chunk) - **Investment Focus:** Investments in building technologies and digital capabilities, specifically in **mobile technology, digital marketing, and improving the digital customer experience**[148](index=148&type=chunk) [Results of Operations](index=32&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the company's financial performance for the 13 and 26 weeks ended August 2, 2025, compared to the prior year [Overview (13 weeks)](index=32&type=section&id=Overview%20(13%20weeks)) For the 13 weeks ended August 2, 2025, total net revenue decreased by 1% to $1.284 billion, while operating income increased by 2% to $103 million - **Total Net Revenue (13 Weeks):** **Decreased 1%** from $1.291 billion to $1.284 billion[150](index=150&type=chunk) - American Eagle revenue: **Decreased 3%** year-over-year[150](index=150&type=chunk) - Aerie revenue: **Increased 3%** year-over-year[150](index=150&type=chunk) - **Gross Profit (13 Weeks):** $500 million, **increased by 30 basis points** year-over-year to 38.9% as a percentage of total revenue[150](index=150&type=chunk) - **Operating Income (13 Weeks):** **Increased 2% to $103 million** and increased by 20 basis points to 8.0% as a percentage of total revenue[150](index=150&type=chunk) - **Diluted EPS (13 Weeks):** **Increased to $0.45** for the 13 weeks ended August 2, 2025, compared to $0.39 for the 13 weeks ended August 3, 2024[150](index=150&type=chunk) - **Share Repurchases (Year-to-Date):** The company completed **$231 million, or 20.4 million shares**, in share repurchases, which is approximately a 10% reduction in diluted shares outstanding[150](index=150&type=chunk) [Comparison of the 13 weeks ended August 2, 2025 to the 13 weeks ended August 3, 2024](index=33&type=section&id=Comparison%20of%20the%2013%20weeks%20ended%20August%202%2C%202025%20to%20the%2013%20weeks%20ended%20August%203%2C%202024) This section provides a detailed comparison of financial performance for the 13-week periods, showing a slight revenue decrease but improved gross margin and operating income [Total Net Revenue](index=33&type=section&id=Total%20Net%20Revenue) Total net revenue decreased by 1% to $1.284 billion, driven by a 3% decrease in American Eagle revenue, partially offset by a 3% increase in Aerie's net revenue - **Total Net Revenue:** **Decreased 1% to $1.284 billion**; store and digital revenue both decreased 1%, and total comparable sales decreased by 1%[153](index=153&type=chunk) - **American Eagle Revenue:** **Decreased 3% to $800.4 million**, driven by lower average unit retail price, leading to lower transaction value; comparable sales decreased 3%[154](index=154&type=chunk) - **Aerie Revenue:** **Increased 3% to $429.1 million**, driven by increased traffic and transactions across channels; comparable sales increased 3%[154](index=154&type=chunk)[155](index=155&type=chunk) - **Other Revenue:** **Increased 7% to $61.5 million**, primarily attributable to higher revenue from Todd Snyder and Unsubscribed[154](index=154&type=chunk)[155](index=155&type=chunk) [Gross Profit](index=34&type=section&id=Gross%20Profit) Gross profit remained flat year-over-year at $500 million, but gross margin improved by 30 basis points to 38.9% due to lower promotional activity Gross Profit (in thousands) | Date | Amount | | :--- | :--- | | August 2, 2025 | $499,962 | | August 3, 2024 | $498,896 | | Change (YoY) | +0.2% | Gross Margin | Date | Percentage | | :--- | :--- | | August 2, 2025 | 38.9% | | August 3, 2024 | 38.6% | | Change (YoY) | +30 basis points | - **Driver:** Gross profit was flat year-over-year, with the decline in revenue offset by **lower promotional activity**[156](index=156&type=chunk) [Selling, General and Administrative Expenses](index=34&type=section&id=Selling%2C%20General%20and%20Administrative%20Expenses) SG&A expenses decreased by 1% to $342.2 million, remaining flat at 26.7% as a percentage of net revenue, due to lower compensation costs Selling, General and Administrative Expenses (in thousands) | Date | Amount | | :--- | :--- | | August 2, 2025 | $342,211 | | August 3, 2024 | $345,313 | | Change (YoY) | -1% | SG&A as a Percentage of Net Revenue | Date | Percentage | | :--- | :--- | | August 2, 2025 | 26.7% | | August 3, 2024 | 26.7% | | Change (YoY) | 0 basis points | - **Drivers:** Primarily driven by **lower compensation costs** as a result of recent restructuring and lower incentive costs, partially offset by investments in advertising[159](index=159&type=chunk) [Depreciation and Amortization Expense](index=35&type=section&id=Depreciation%20and%20Amortization%20Expense) Depreciation and amortization expense increased by 4% to $54.7 million, primarily driven by new and renovated American Eagle stores Total Depreciation and Amortization Expense (in thousands) | Date | Amount | | :--- | :--- | | August 2, 2025 | $54,666 | | August 3, 2024 | $52,474 | | Change (YoY) | +4% | D&A as a Percentage of Net Revenue | Date | Percentage | | :--- | :--- | | August 2, 2025 | 4.2% | | August 3, 2024 | 4.1% | | Change (YoY) | +10 basis points | - **Driver:** The increase in expense was primarily driven by **new and renovated American Eagle stores**[161](index=161&type=chunk) [Operating Income](index=35&type=section&id=Operating%20Income) Total operating income increased by 2% to $103.1 million, improving by 20 basis points to 8.0% as a percentage of net revenue Total Operating Income (in thousands) | Date | Amount | | :--- | :--- | | August 2, 2025 | $103,085 | | August 3, 2024 | $101,109 | | Change (YoY) | +2% | Operating Income as a Percentage of Net Revenue | Date | Percentage | | :--- | :--- | | August 2, 2025 | 8.0% | | August 3, 2024 | 7.8% | | Change (YoY) | +20 basis points | - **Drivers:** The increase in operating income was primarily driven by **higher gross profit and lower SG&A expenses**, partially offset by increased depreciation and amortization expense[162](index=162&type=chunk) - **Segment Performance:** - American Eagle: Operating income **decreased 5% to $138.2 million**, primarily due to an $11 million decrease in gross profit[162](index=162&type=chunk)[163](index=163&type=chunk)[164](index=164&type=chunk) - Aerie: Operating income **increased 7% to $74.6 million**, primarily due to a $12 million increase in gross profit[162](index=162&type=chunk)[163](index=163&type=chunk)[164](index=164&type=chunk) [Interest Expense (Income), net](index=35&type=section&id=Interest%20Expense%20(Income)%2C%20net) Interest expense (income), net, shifted from income to expense, increasing by $2.6 million to $1.9 million due to interest on Credit Facility borrowings Interest Expense (Income), net (in thousands) | Date | Amount | | :--- | :--- | | August 2, 2025 | $1,919 | | August 3, 2024 | $(730) | | Change (YoY) | +363% | - **Driver:** The increase in interest expense (income), net is primarily related to **$2 million in interest expense on increased borrowings** year-over-year[166](index=166&type=chunk) [Other (Income), net](index=36&type=section&id=Other%20(Income)%2C%20net) Other (income), net, decreased by 90% to $(172) thousand, compared to $(1,715) thousand in the prior year Other (Income), net (in thousands) | Date | Amount | | :--- | :--- | | August 2, 2025 | $(172) | | August 3, 2024 | $(1,715) | | Change (YoY) | -90% | [Provision for Income Taxes](index=36&type=section&id=Provision%20for%20Income%20Taxes) The provision for income taxes decreased by 10% to $23.7 million, with the effective tax rate decreasing to 23.4% Provision for Income Taxes (in thousands) | Date | Amount | | :--- | :--- | | August 2, 2025 | $23,705 | | August 3, 2024 | $26,290 | | Change (YoY) | -10% | Effective Tax Rate | Date | Rate | | :--- | :--- | | August 2, 2025 | 23.4% | | August 3, 2024 | 25.4% | | Change (YoY) | -2.0 percentage points | - **Drivers:** The change in the effective tax rate, as compared to the prior period, is primarily due to **tax audit adjustments and foreign currency adjustments**[168](index=168&type=chunk) [Net Income](index=36&type=section&id=Net%20Income) Net income remained flat year-over-year at $77.6 million, while diluted net income per common share increased to $0.45 due to share repurchases Net Income (in thousands) | Date | Amount | | :--- | :--- | | August 2, 2025 | $77,633 | | August 3, 2024 | $77,264 | | Change (YoY) | 0% | Net Income as a Percentage of Net Revenue | Date | Percentage | | :--- | :--- | | August 2, 2025 | 6.0% | | August 3, 2024 | 6.0% | | Change (YoY) | 0 basis points | Diluted Net Income per Common Share | Date | Amount | | :--- | :--- | | August 2, 2025 | $0.45 | | August 3, 2024 | $0.39 | | Change (YoY) | +15.4% | - **Driver for EPS Increase:** The increase in net income per diluted share was due to a **reduction in diluted shares outstanding** as a result of recent share repurchases[169](index=169&type=chunk) [Comparison of the 26 weeks ended August 2, 2025 to the 26 weeks ended August 3, 2024](index=36&type=section&id=Comparison%20of%20the%2026%20weeks%20ended%20August%202%2C%202025%20to%20the%2026%20weeks%20ended%20August%203%2C%202024) This section provides a detailed comparison of financial performance for the 26-week periods, showing significant decreases in revenue, gross profit, and operating income [Total Net Revenue](index=36&type=section&id=Total%20Net%20Revenue) Total net revenue decreased by 3% to $2.373 billion, with American Eagle's revenue decreasing by 4% while Aerie's remained flat - **Total Net Revenue:** **Decreased 3% to $2.373 billion**; digital revenue decreased 1%, store revenue decreased 3%, and total comparable sales decreased by 2%[170](index=170&type=chunk) - **American Eagle Revenue:** **Decreased 4% to $1.494 billion**, driven by lower average unit retail, partially offset by increased units per transaction; comparable sales decreased 3%[171](index=171&type=chunk) - **Aerie Revenue:** **Flat year-over-year at $788.9 million**, with lower average unit retail price offset by 11 net new store openings[171](index=171&type=chunk)[172](index=172&type=chunk) - **Other Revenue:** **Decreased 6% to $105.5 million**, primarily attributable to planned lower revenue from Quiet Platforms[171](index=171&type=chunk)[172](index=172&type=chunk) [Gross Profit](index=37&type=section&id=Gross%20Profit) Gross profit decreased by 15% to $822.4 million, and gross margin declined by 480 basis points to 34.7% due to lower sales and increased promotional activity Gross Profit (in thousands) | Date | Amount | | :--- | :--- | | August 2, 2025 | $822,383 | | August 3, 2024 | $963,134 | | Change (YoY) | -15% | Gross Margin | Date | Percentage | | :--- | :--- | | August 2, 2025 | 34.7% | | August 3, 2024 | 39.5% | | Change (YoY) | -480 basis points | - **Drivers:** The 15% decrease in gross profit was primarily driven by a **decrease of $123 million in merchandise margin** year over year due to lower sales and increased promotional activity[173](index=173&type=chunk) [Selling, General and Administrative Expenses](index=37&type=section&id=Selling%2C%20General%20and%20Administrative%20Expenses) SG&A expenses increased slightly to $681.0 million, and as a percentage of net revenue, they increased by 80 basis points to 28.7% Selling, General and Administrative Expenses (in thousands) | Date | Amount | | :--- | :--- | | August 2, 2025 | $680,998 | | August 3, 2024 | $678,806 | | Change (YoY) | 0% | SG&A as a Percentage of Net Revenue | Date | Percentage | | :--- | :--- | | August 2, 2025 | 28.7% | | August 3, 2024 | 27.9% | | Change (YoY) | +80 basis points | - **Drivers:** The increase in SG&A expense was primarily related to an **increase in advertising** year-over-year, partially offset by lower compensation costs[176](index=176&type=chunk) [Impairment & Restructuring Charges](index=38&type=section&id=Impairment%20%26%20Restructuring%20Charges) The company recorded $17.1 million in impairment and restructuring charges during the 26 weeks ended August 2, 2025, related to supply chain optimization Impairment and Restructuring Charges (in thousands) | Date | Amount | | :--- | :--- | | August 2, 2025 | $17,119 | | August 3, 2024 | $— | | Change (YoY) | +100% | - **Breakdown of Charges:** - **$10.4 million** of impairment related to ROU assets[178](index=178&type=chunk) - **$4.9 million** related to fixed assets[178](index=178&type=chunk) - **$1.8 million** of employee severance[178](index=178&type=chunk) - **Reason:** Primarily related to **closing two fulfillment centers** as part of its supply chain network optimization project[127](index=127&type=chunk)[178](index=178&type=chunk) [Depreciation and Amortization Expense](index=38&type=section&id=Depreciation%20and%20Amortization%20Expense) Depreciation and amortization expense increased by 1% to $106.4 million, primarily driven by new and renovated American Eagle stores Total Depreciation and Amortization Expense (in thousands) | Date | Amount | | :--- | :--- | | August 2, 2025 | $106,363 | | August 3, 2024 | $105,384 | | Change (YoY) | +1% | D&A as a Percentage of Net Revenue | Date | Percentage | | :--- | :--- | | August 2, 2025 | 4.5% | | August 3, 2024 | 4.3% | | Change (YoY) | +20 basis points | - **Driver:** The increase in expense was primarily driven by **new and renovated American Eagle stores**[179](index=179&type=chunk) [Operating Income](index=38&type=section&id=Operating%20Income) Total operating income significantly decreased by 90% to $17.9 million, primarily due to lower gross profit and impairment charges Total Operating Income (in thousands) | Date | Amount | | :--- | :--- | | August 2, 2025 | $17,903 | | August 3, 2024 | $178,944 | | Change (YoY) | -90% | Operating Income as a Percentage of Net Revenue | Date | Percentage | | :--- | :--- | | August 2, 2025 | 0.8% | | August 3, 2024 | 7.3% | | Change (YoY) | -650 basis points | - **Drivers:** The decrease in operating income was primarily driven by **lower gross profit**, and an increase in impairment and restructuring charges[180](index=180&type=chunk) - **Segment Performance:** - American Eagle: Operating income **decreased 34% to $187.9 million**, primarily due to an $89 million decline in gross profit[180](index=180&type=chunk)[181](index=181&type=chunk)[182](index=182&type=chunk) - Aerie: Operating income **decreased 42% to $75.4 million**, primarily due to a $46 million decline in gross profit and an $11 million increase in SG&A expenses[180](index=180&type=chunk)[181](index=181&type=chunk)[182](index=182&type=chunk) [Interest Expense (Income), net](index=38&type=section&id=Interest%20Expense%20(Income)%2C%20net) Interest expense (income), net, shifted from income to expense, increasing by $5.9 million to $1.7 million due to Credit Facility borrowings and lower cash balances Interest Expense (Income), net (in thousands) | Date | Amount | | :--- | :--- | | August 2, 2025 | $1,700 | | August 3, 2024 | $(4,168) | | Change (YoY) | +141% | - **Drivers:** Primarily attributable to a **$3 million increase in interest expense** from borrowings on our Credit Facility, as well as a **$3 million reduction in interest income** from lower cash balances[184](index=184&type=chunk) [Other (Income), net](index=39&type=section&id=Other%20(Income)%2C%20net) Other (income), net, decreased by 83% to $(523) thousand, compared to $(3,111) thousand in the prior year Other (Income), net (in thousands) | Date | Amount | | :--- | :--- | | August 2, 2025 | $(523) | | August 3, 2024 | $(3,111) | | Change (YoY) | -83% | [Provision for Income Taxes](index=39&type=section&id=Provision%20for%20Income%20Taxes) The provision for income taxes significantly decreased by 90% to $4.0 million, with the effective tax rate increasing to 23.9% Provision for Income Taxes (in thousands) | Date | Amount | | :--- | :--- | | August 2, 2025 | $3,992 | | August 3, 2024 | $41,209 | | Change (YoY) | -90% | Effective Tax Rate | Date | Rate | | :--- | :--- | | August 2, 2025 | 23.9% | | August 3, 2024 | 22.1% | | Change (YoY) | +1.8 percentage points | - **Drivers:** The change in the effective tax rate, as compared to the prior period, is primarily due to **share-based payments and tax audit adjustments**[186](index=186&type=chunk) [Net Income](index=39&type=section&id=Net%20Income) Net income significantly decreased by 91% to $12.7 million, with diluted net income per common share decreasing to $0.07 Net Income (in thousands) | Date | Amount | | :--- | :--- | | August 2, 2025 | $12,734 | | August 3, 2024 | $145,014 | | Change (YoY) | -91% | Net Income as a Percentage of Net Revenue | Date | Percentage | | :--- | :--- | | August 2, 2025 | 0.5% | | August 3, 2024 | 6.0% | | Change (YoY) | -550 basis points | Diluted Net Income per Common Share | Date | Amount | | :--- | :--- | | August 2, 2025 | $0.07 | | August 3, 2024 | $0.73 | | Change (YoY) | -90.4% | - **Driver for EPS Decrease:** The decrease in net income was attributable to the factors noted above, partially offset by a **reduction in diluted shares outstanding** from recent share repurchases[187](index=187&type=chunk) [Non-GAAP Information](index=39&type=section&id=Non-GAAP%20Information) This section provides a reconciliation of GAAP to non-GAAP financial measures, showing an adjusted operating income of $35.0 million for the 26-week period - **Non-GAAP Measures:** Operating income and net income per diluted share are presented on an adjusted basis, **excluding impairment and restructuring charges**[188](index=188&type=chunk)[191](index=191&type=chunk) GAAP to Non-GAAP Reconciliation (26 Weeks Ended August 2, 2025, in thousands, except per share amounts) | Metric | GAAP Basis | Add: Impairment and restructuring charges | Tax effect of the above | Non-GAAP Basis | | :-------------------- | :--------- | :---------------------------------------- | :---------------------- | :------------- | | Operating income | $17,903 | $17,119 | N/A | $35,022 | | Net income | $12,734 | $13,130 | N/A | $25,864 | | Earnings per Diluted Share | $0.07 | $0.08 | N/A | $0.15 | [International Operations](index=40&type=section&id=International%20Operations) The company expands its brands internationally through third-party licensing partners, who operate 365 licensed retail stores and concessions in approximately 30 countries - **International Licensing:** The company has agreements with multiple third-party operators to expand its brands internationally, granting rights to sell, promote, market, and/or distribute products[193](index=193&type=chunk) - **Licensed Retail Stores:** As of August 2, 2025, international licensing partners operated in **365 licensed retail stores and concessions** in approximately 30 countries[193](index=193&type=chunk) - **Company-Owned International Stores (August 2, 2025):** The company had **99 Company-owned stores in Canada and 92 in Mexico**[194](index=194&type=chunk) [Liquidity and Capital Resources](index=40&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is primarily supported by cash flow from operations and a $700 million asset-based revolving credit facility Liquidity Measures (August 2, 2025, in thousands) | Metric | Amount | | :--- | :--- | | Working Capital | $487,717 | | Current Ratio | 1.62 | - **Funding Sources:** Historically, uses of cash have been funded with cash flow from operations and existing cash on hand, supplemented by a **$700 million asset-based revolving credit facility**[196](index=196&type=chunk) Cash and Cash Equivalents (in thousands) | Date | Amount | | :--- | :--- | | August 2, 2025 | $126,780 | | August 3, 2024 | $191,837 | - **Credit Facility Borrowings (August 2, 2025):** **$203.0 million** in borrowings under the Credit Facility[196](index=196&type=chunk) [Cash Flows (Used For) Provided By Operating Activities](index=41&type=section&id=Cash%20Flows%20(Used%20For)%20Provided%20By%20Operating%20Activities) For the 26 weeks ended August 2, 2025, the company used $26.9 million in cash from operating activities, a significant decrease from the prior year Net Cash (Used For) Provided By Operating Activities (26 Weeks Ended, in thousands) | Date | Amount | | :--- | :--- | | August 2, 2025 | $(26,859) | | August 3, 2024 | $40,140 | | Change (YoY) | $(66,999) (decrease) | - **Primary Source/Outflow:** Major source of cash from operations was **merchandise sales**, and the primary outflow was for the payment of operational costs[199](index=199&type=chunk) [Cash Flows (Used For) Investing Activities](index=41&type=section&id=Cash%20Flows%20(Used%20For)%20Investing%20Activities) For the 26 weeks ended August 2, 2025, investing activities used $74.1 million in cash, a substantial increase from the prior year due to higher capital expenditures Net Cash (Used For) Investing Activities (26 Weeks Ended, in thousands) | Date | Amount | | :--- | :--- | | August 2, 2025 | $(74,113) | | August 3, 2024 | $(5,329) | | Change (YoY) | $(68,784) (increase in cash used) | - **Drivers (26 Weeks Ended August 2, 2025):** Primarily consisted of **capital expenditures of $132.6 million**, partially offset by the sale of available-for-sale investments of $50.0 million[200](index=200&type=chunk) [Cash Flows (Used for) Financing Activities](index=41&type=section&id=Cash%20Flows%20(Used%20for)%20Financing%20Activities) For the 26 weeks ended August 2, 2025, financing activities used $82.7 million in cash, driven by significant share repurchases and dividends Net Cash (Used For) Financing Activities (26 Weeks Ended, in thousands) | Date | Amount | | :--- | :--- | | August 2, 2025 | $(82,701) | | August 3, 2024 | $(194,500) | | Change (YoY) | $111,799 (decrease in cash used) | - **Drivers (26 Weeks Ended August 2, 2025):** - Accelerated share repurchase (including excise tax): **$(201,849) thousand**[25](index=25&type=chunk)[201](index=201&type=chunk) - Repurchase of common stock (publicly announced programs, including excise tax): **$(31,301) thousand**[25](index=25&type=chunk)[201](index=201&type=chunk) - Cash dividends paid: **$(42,824) thousand**[25](index=25&type=chunk)[201](index=201&type=chunk) - Net proceeds from revolving line of credit: **$203,000 thousand** ($485.3 million proceeds - $282.3 million principal payments)[25](index=25&type=chunk)[201](index=201&type=chunk) [Revolving Credit Facility](index=41&type=section&id=Revolving%20Credit%20Facility) The company maintains a $700 million senior secured asset-based revolving credit facility, with $203.0 million outstanding as of August 2, 2025 - **Credit Facility Details:** Amended and restated Credit Agreement provides senior secured asset-based revolving credit for loans and letters of credit up to **$700 million**, expiring on June 24, 2027[203](index=203&type=chunk) Outstanding Borrowings and Letters of Credit (in thousands) | Metric | August 2, 2025 | August 3, 2024 | | :--- | :--- | :--- | | Outstanding borrowings | $203,000 | $— | | Outstanding stand-by letters of credit | $12,000 | $12,000 | - **Compliance:** As of August 2, 2025, the Company was **in compliance** with the terms of the Credit Agreement[205](index=205&type=chunk) [Capital Expenditures for Property and Equipment](index=42&type=section&id=Capital%20Expenditures%20for%20Property%20and%20Equipment) Capital expenditures for the 26 weeks ended August 2, 2025, totaled $132.6 million, a 37% increase from the prior year Total Capital Expenditures (26 Weeks Ended, in thousands) | Date | Amount | | :--- | :--- | | August 2, 2025 | $132,565 | | August 3, 2024 | $96,945 | | Change (YoY) | +37% | Key Investment Areas (26 Weeks Ended August 2, 2025, in thousands) | Category | Amount | Change (YoY) | | :--- | :--- | :--- | | Store, fixture, and visual investments | $66,649 | +9% | | Information technology initiatives | $22,765 | -5% | | Supply chain infrastructure | $20,947 | +140% | | Other home office projects | $22,204 | +598% | - **Fiscal 2025 Outlook:** Expects capital expenditures to be approximately **$275 million**, related to continued support of expansion efforts, stores, information technology upgrades, and investments in supply chain[206](index=206&type=chunk) Store Openings and Remodels (26 Weeks Ended) | Category | August 2, 2025 | August 3, 2024 | | :--- | :--- | :--- | | New Stores | 18 | 18 | | Remodels | 25 | 36 | [Share Repurchases](index=42&type=section&id=Share%20Repurchases) The Board authorized an additional 50 million shares for repurchase, and the company completed an accelerated share repurchase agreement for $200 million - **Share Repurchase Authorization:** On March 11, 2025, the Board authorized **50 million additional shares** for repurchase, bringing the total remaining authorized shares to 54.0 million through February 3, 2029[208](index=208&type=chunk) - **Public Program Repurchases (26 Weeks Ended August 2, 2025):** Approximately **2.0 million shares** were repurchased as part of the publicly announced share repurchase program[208](index=208&type=chunk) - **Accelerated Share Repurchase (ASR) Agreement:** - Entered into on March 14, 2025, for **$200 million**[209](index=209&type=chunk)[210](index=210&type=chunk) - Cumulative repurchases under ASR totaled **18.4 million shares** at an average price of $10.86[209](index=209&type=chunk)[210](index=210&type=chunk) - **Employee Share Repurchases (26 Weeks Ended August 2, 2025):** Approximately **0.7 million shares** repurchased from employees for $7.9 million for tax payments related to share-based payments[211](index=211&type=chunk) [Dividends](index=43&type=section&id=Dividends) The Board declared a quarterly cash dividend of $0.125 per share on June 4, 2025, with future dividends at the discretion of the Board - **Quarterly Cash Dividend:** A quarterly cash dividend of **$0.125 per share** was declared on June 4, 2025, and paid on July 25, 2025[213](index=213&type=chunk) - **Future Dividends:** Payment of future dividends is at the **discretion of the Board** and is based on future earnings, cash flow, financial condition, and other relevant factors[214](index=214&type=chunk) [Critical Accounting Estimates](index=43&type=section&id=Critical%20Accounting%20Estimates) This section refers to the critical accounting policies and estimates detailed in the Fiscal 2024 Form 10-K, with any updates discussed in the current report's notes - **Reference:** Critical accounting policies and estimates are described in Part II, Item 7 of the **Fiscal 2024 Form 10-K**[215](index=215&type=chunk) - **Updates:** Any new accounting policies or updates to existing policies due to new accounting pronouncements are discussed in the notes to the Consolidated Financial Statements in this Quarterly Report[215](index=215&type=chunk) - **Nature of Estimates:** Management makes judgments and estimates about amounts reflected in the Consolidated Financial Statements based on historical experience and available information, acknowledging that **actual results could differ**[215](index=215&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=43&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risk exposure is foreign exchange rate risk, mainly from its Canadian and Mexican operations - **Primary Market Risk:** Primarily exposed to **foreign exchange rate risk** through Canadian and Mexican operations[216](index=216&type=chunk) Unrealized Foreign Currency Translation Gain (in millions) | Period | Amount | | :--- | :--- | | 13 Weeks Ended August 2, 2025 | $7 | | 26 Weeks Ended August 2, 2025 | $22 | - **Market Risk Profile:** **Unchanged** as of August 2, 2025, from the Fiscal 2024 Form 10-K[216](index=216&type=chunk) [Item 4. Controls and Procedures](index=43&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of August 2, 2025, with no material changes in internal control over financial reporting - **Effectiveness of Disclosure Controls:** Management concluded that disclosure controls and procedures were **effective** as of August 2, 2025, in the timely and accurate recording, processing, summarizing, and reporting of material financial and non-financial information[218](index=218&type=chunk) - **Changes in Internal Control over Financial Reporting:** There has been **no change** in internal control over financial reporting during the most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting[219](index=219&type=chunk) PART II - OTHER INFORMATION [Item 1. Legal Proceedings](index=44&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings but believes their resolution will not materially affect its consolidated financial position or results of operations - **Assessment of Legal Matters:** The company believes that the resolution of currently pending matters will **not individually or in the aggregate have a material adverse effect** on its consolidated financial position, results of operations, or consolidated cash flows[220](index=220&type=chunk) - **Environmental Proceedings:** **No environmental proceedings** with a governmental entity as a party, where monetary sanctions of $1.0 million or more are reasonably believed, were identified for this period[220](index=220&type=chunk) [Item 1A. Risk Factors](index=44&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors affecting the company's business and financial results as disclosed in the Fiscal 2024 Form 10-K - **No Material Changes:** There have been **no material changes** to the risk factors as disclosed in the Fiscal 2024 Form 10-K[222](index=222&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=44&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the company's common stock repurchases during the 13 weeks ended August 2, 2025, totaling 3,951,000 shares Issuer Purchases of Equity Securities (13 Weeks Ended August 2, 2025) | Metric | Amount | | :--- | :--- | | Total Number of Shares Purchased | 3,951,000 | | Average Price Paid Per Share | $10.86 | | Total Number of Shares Purchased as Part of Publicly Announced Programs | 3,949,152 | | Maximum Number of Shares that May Yet Be Purchased Under the Program | 50,084,301 | - **ASR Agreement Impact:** The total shares purchased include those from an **Accelerated Share Repurchase (ASR) agreement**, where the company paid $200.0 million and received 18.4 million shares cumulatively[223](index=223&type=chunk) - **Repurchase Authorization:** On March 11, 2025, the Board authorized the public repurchase of an **additional 50 million shares** under the existing share repurchase program, which expires on February 3, 2029[223](index=223&type=chunk) [Item 3. Defaults Upon Senior Securities](index=44&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is marked as "N/A," indicating no defaults upon senior securities for the reporting period - Status: **Not Applicable (N/A)**[9](index=9&type=chunk) [Item 4. Mine Safety Disclosures](index=44&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is marked as "N/A," indicating no mine safety disclosures for the reporting period - Status: **Not Applicable (N/A)**[9](index=9&type=chunk) [Item 5. Other Information](index=44&type=section&id=Item%205.%20Other%20Information) This section states that no directors or officers adopted, modified, or terminated a "Rule 10b5-1 trading arrangement" during the fiscal quarter - **No directors or officers** adopted, modified, or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 105b-1 trading arrangement" during the fiscal quarter ended August 2, 2025[224](index=224&type=chunk) [Item 6. Exhibits](index=45&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including certifications by the CEO and CFO, and XBRL formatted financial statements - **Key Exhibits:** Includes **certifications by Jay L. Schottenstein (CEO) and Michael A. Mathias (CFO)**, and XBRL formatted financial statements (Consolidated Balance Sheets, Statements of Operations, Comprehensive Income, Stockholders' Equity, and Cash Flows)[226](index=226&type=chunk) SIGNATURES [SIGNATURES](index=46&type=section&id=SIGNATURES) This section contains the required signatures for the Quarterly Report on Form 10-Q, confirming its submission by American Eagle Outfitters, Inc - **Signatories:** The report is signed by **Jay L. Schottenstein (Chief Executive Officer) and Michael A. Mathias (Executive Vice President, Chief Financial Officer)** on behalf of American Eagle Outfitters, Inc[228](index=228&type=chunk)

Core Insights - American Eagle Outfitters (AEO) has experienced a 40% stock price increase in the past week due to stronger-than-expected second-quarter results, but remains 2% lower year-over-year, underperforming the S&P 500 [2] - The stock is currently priced at 18x earnings and 0.9x sales, indicating it may appear inexpensive, yet this does not necessarily reflect good value [2] - Concerns persist regarding the company's core functions, profitability, and balance sheet robustness, suggesting that the recent stock price increase may not indicate a sustainable recovery [2][8] Financial Performance - Revenue decreased by 1% year-over-year to $1.28 billion, while operating income increased by 2% to $103 million, with earnings per share (EPS) of $0.45 significantly exceeding the consensus estimate of $0.20, marking a 125% beat [3] - Management has raised its full-year adjusted operating income forecast to $255 million–$265 million, well above Wall Street's estimate of $176 million [3] Marketing Impact - Effective marketing campaigns featuring Sydney Sweeney and Travis Kelce have gone viral, positively impacting comparable sales, demonstrating a successful translation of excitement into business success [4] Financial Concerns - The company has narrow margins, with a 5.7% operating margin over the past 12 months compared to 18.6% for the S&P 500, and cash constitutes only 3% of assets while debt approaches $2 billion, roughly 75% of equity [5] - Historical performance raises concerns, as AEO has underperformed during downturns, with significant drops of 74% during the 2022 inflation crisis, 55% in the COVID crash, and nearly 80% in 2008 [6] Long-term Outlook - Despite demonstrating the ability to provide earnings surprises and capitalize on effective marketing, declining sales, poor profitability, and high debt overshadow the long-term perspective, with the discounted valuation reflecting these challenges rather than hidden strengths [8]

Core Insights - American Eagle Outfitters experienced a significant stock rally of 19.8% in August, driven by a successful ad campaign featuring actress Sydney Sweeney and an endorsement from President Trump [1][3] - The company also announced a collaboration with Travis Kelce, which is expected to further enhance brand visibility and sales [2][4] Group 1: Marketing and Celebrity Influence - The ad campaign featuring Sydney Sweeney, titled "Sydney Sweeney has Great Genes Jeans," initially boosted stock prices, and Trump's endorsement on social media further fueled investor interest [3][5] - The collaboration with Travis Kelce's "Tru Colors" clothing line is set to launch in two phases, coinciding with Kelce's engagement to Taylor Swift, which adds to the marketing appeal [4][5] Group 2: Financial Performance and Projections - American Eagle reported second-quarter earnings that exceeded analyst expectations, despite a 1% decline in sales and comparable-store sales [8] - Management indicated an increase in customer awareness and engagement due to the recent campaigns, projecting a return to positive comparable sales in Q3 and Q4 [9] - Despite the recent stock gains, American Eagle's year-to-date performance shows only a 12.8% increase, with current stock prices still 2.3% lower than a year ago, impacted by cautious consumer behavior and external economic factors [10]

Core Insights - American Eagle Outfitters (AEO) reported strong second-quarter earnings, driven by a successful marketing campaign featuring actress Sydney Sweeney and a collaboration with football player Travis Kelce [1] Financial Performance - The company's second-quarter earnings exceeded investor expectations, indicating positive market reception and effective promotional strategies [1] Marketing Strategy - The new marketing campaign has significantly boosted sales of jeans, showcasing the effectiveness of celebrity endorsements in retail [1]

Marketing Campaign & Impact - American Eagle's share price soared more than 35% after reporting earnings, potentially linked to the Sydney Sweeney campaign [1] - The campaign with Sydney Sweeney generated unprecedented new customer acquisition in just six weeks [2] - The combined campaigns with Sydney Sweeney and Travis Kelce generated over 40 billion impressions [5] - A Calvin Klein ad starring Brooke Shields boosted sales by 300%, selling over 200 thousand pairs of jeans in a single week, suggesting provocative ads can be lucrative [10] Financial Performance & Market Position - American Eagle's sales are down 1% from the same time last year, despite a recent stock surge [6] - Profits were better than expected, contributing to the stock increase [6] - Wall Street expects the company's momentum to continue with better results in the coming quarters [7] Brand Strategy & Competition - American Eagle is expected to continue leaning into provocative or controversial ads [8] - Competitors like Levi's and Gap are releasing their own ads, capitalizing on the denim trend [8] - American Eagle partnered with NFL star Travis Kelce, featuring oversized busy prints, a departure from the brand's minimalist style [5]

Core Viewpoint - American Eagle Outfitters experienced a significant increase in stock value, driven by strong quarterly results and effective marketing campaigns featuring high-profile figures [2][6]. Financial Performance - The company's second-quarter revenue was reported at $1.28 billion, reflecting a minor year-over-year decline of 1% [3]. - GAAP net income rose to $77.6 million, translating to earnings of $0.45 per share, surpassing analyst expectations [3][5]. Analyst Reactions - Following the earnings report, several analysts raised their price targets for American Eagle, with UBS analyst Jay Sole increasing his target from $19 to $21.50 while maintaining a buy recommendation [7][8]. - Analysts noted the positive impact of marketing campaigns featuring Sydney Sweeney and Travis Kelce, as well as the success of the Aerie brand in resonating with customers [6][8].

Core Viewpoint - American Eagle Outfitters (AEO) has demonstrated strong financial performance, leading to a positive outlook and increased stock price target by UBS [2][3][6] Financial Performance - AEO reported revenue of $1.28 billion in Q2, exceeding the forecast of $1.24 billion [2][6] - Earnings per share (EPS) reached 45 cents, significantly higher than the anticipated 20 cents [3][6] - The stock surged by 35.5% following the earnings announcement, reflecting strong investor confidence [3][6] Stock Performance - AEO's current stock price is $18.79, marking a 37.96% increase or $5.17 from previous levels [4][6] - The stock has fluctuated between a low of $17.21 and a high of $18.85 on the current trading day [4] - Over the past year, AEO's stock has seen a high of $22.63 and a low of $9.27, with a market capitalization of approximately $3.26 billion [4] Investor Sentiment - Trading volume for AEO is at 105.17 million shares, indicating strong investor interest [5] - UBS has maintained a "Buy" rating for AEO and raised its price target from $19 to $21.50, reflecting confidence in the company's growth [2][6] Future Outlook - AEO anticipates comparable sales growth in the low single-digit range for the upcoming third and fourth quarters, suggesting continued positive momentum [5]

Group 1: Hong Kong Stock Market Highlights - China Tobacco Hong Kong (06055) rose over 2% after announcing exclusive distribution agreements for brand cigars with Hubei and Shandong Tobacco [1] - Sportswear stocks generally increased, with Li Ning (02331) up nearly 1% and Tmall (06110) up nearly 2%, following a government directive to enhance the modern sports industry and boost consumption [1] - He Yu-B (02256) surged over 3% as the company announced multiple positive developments, including the approval of oral PD-L1 combined with Gorai Leisai for Phase II clinical trials [1] - Gold stocks collectively rose, with Lingbao Gold (03330) up over 4%, China Gold International (02099) up over 1%, and Zijin Mining (02899) up over 3%, amid expectations of a U.S. interest rate cut [1] - UBTECH (09880) increased over 2% after Citigroup reported that the company has received 400 million RMB in humanoid robot orders and secured a $1 billion strategic investment from a Middle Eastern fund [1] - Huimai Technology (01860) surged over 12%, reaching a historical high, with a year-to-date stock price increase of over 110% due to the continuous iteration of its AI-driven smart bidding system [1] Group 2: Other Notable Stocks - Wanka Yilian (01762) rose over 11% after announcing a comprehensive cooperation memorandum with Alibaba Cloud to create an AI marketing ecosystem [2] - Longpan Technology (02465) increased over 10%, with Citic Securities indicating potential opportunities in the battery sector due to an upcoming significant meeting [2] - Juzi Bio (02367) rose over 4%, with institutions optimistic about the recovery of live streaming during the upcoming Double Eleven shopping festival [2] - Shoucheng Holdings (00697) increased over 8% after its subsidiary announced additional investment in Songyan Power amounting to several million RMB [2] Group 3: U.S. Stock Market Highlights - Salesforce (CRM.US) fell 4.85% after reporting a 9.8% year-over-year revenue growth for Q2, with Q3 revenue guidance slightly below expectations [3] - American Eagle (AEO.US) surged 37.96% after exceeding expectations in its Q2 earnings report [3] - Hewlett Packard Enterprise (HPE.US) rose 1.49% with a 19% year-over-year revenue growth in Q3, marking a record high [3] - United Microelectronics (UMC.US) increased 3.46%, reporting a 1.86% year-over-year sales growth for the first eight months of the year [3] - ZTO Express (ZTO.US) continued to rise by 0.94%, with the logistics industry index in China at 50.9%, up 0.4 percentage points from the previous month [3] - Bilibili (BILI.US) rose 0.99%, with research indicating high growth in the gaming industry supported by policy, expecting continued quarter-over-quarter improvement [3] - Waterdrop (WDH.US) increased 2.25%, reporting nearly a 120% growth in net profit attributable to shareholders, driven by AI model empowerment [3] Group 4: Additional U.S. Stock Movements - Sanofi (SNY.US) fell 9.14% despite achieving all primary and secondary endpoints in a Phase III study for Amlitelimab, as results did not meet market expectations [4] - Toyota (TM.US) rose 2.40% after announcing plans to produce a pure electric vehicle model at its Czech factory, marking its first electric vehicle production in Europe [4] - Baidu (BIDU.US) increased 1.88% following the release of an action plan by the Ministry of Industry and Information Technology to enhance intelligent cloud services [4] Group 5: Earnings Reports and Forecasts - C3.ai (AI.US) fell 7.31% after reporting Q1 results and revenue guidance for FY2026 that fell short of expectations [5] - Samsara (IOT.US) rose over 10% with a 30% year-over-year revenue growth in Q2 [5] - UiPath (PATH.US) increased nearly 5%, reporting Q2 revenue of $362 million, a 14% year-over-year growth, and projecting FY2026 revenue between $1.571 billion and $1.576 billion [5] - DocuSign (DOCU.US) rose nearly 9% after reporting Q2 revenue of $800.6 million, a 9% year-over-year increase, with GAAP gross margin at 79.3% [5]

Core Viewpoint - American Eagle Outfitters (AEO.US) stock price surged over 32% to $18.02 following the announcement of strong Q2 2025 earnings that exceeded market expectations [1] Financial Performance - Earnings per share reached $0.45, significantly higher than the expected $0.20 [1] - Revenue for the quarter was $1.28 billion, surpassing the forecast of $1.23 billion [1] Guidance and Adjustments - The company reissued its previously withdrawn full-year guidance, expecting comparable sales to remain flat, which is better than the analyst expectation of a 0.2% decline [1] - Full-year revenue guidance was revised down from $360 million to $375 million to a new range of $255 million to $265 million, primarily due to tariff cost impacts [1] - Projected losses for Q3 are estimated at $20 million, with Q4 losses expected to increase to between $40 million and $50 million [1]