American Eagle Outfitters(AEO) - 2026 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION FORWARD LOOKING STATEMENTS 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] - Open approximately 30 Aerie and OFFLINE stores[12] - Remodel approximately 90-100 American Eagle and Aerie stores in the U.S and Canada[12] - Net closure of approximately 35-40 American Eagle stores, primarily in North America, at lease expiration[12] - Key Risk Factors: - Changes in global economic and financial conditions, impacting consumer confidence and spending[13][14] - Effect of inflation on business[13][14] - Potential for additional write-downs, impairment, or restructuring charges[13][14] - Inability to anticipate and respond to changing consumer preferences and fashion trends[13][14] - Risks associated with operating in a highly competitive industry and pricing pressures[13][14] - Impact of events beyond control (natural disasters, public health crises, political crises)[13][14] - Risks related to international operations, merchandise sourcing, and tariffs[13][14] - Failure to manage inventory properly[13][14] - Reliance on key personnel and increases in labor costs[13][14] Item 1. Financial Statements 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 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 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 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 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 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][200][201] - 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][200][201] - 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][200][201] Notes to Consolidated Financial Statements 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 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] - Geographic Presence: Stores in the United States, Canada, and Mexico; merchandise available in over 30 countries via license partners; robust e-commerce business[29] - 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] Note 2 Summary of Significant Accounting Policies 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][82] - 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] - Recent Accounting Pronouncements: - ASU 2023-09 (Improvements to Income Tax Disclosures): Effective Fiscal 2025, requires increased transparency in tax disclosures[34][36][37] - ASU 2024-03 (Disaggregation of Income Statement Expenses): Effective Fiscal 2027, requires additional disclosure for specific expense categories[34][36][37] - 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][36][37] - 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] - 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][44][45] - 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][73][74] - Cost of Sales Components: Includes merchandise costs, Quiet Platforms' service costs, and buying, occupancy, and warehousing costs[75][77] - Selling, General and Administrative Expenses (SG&A) Components: Includes compensation for stores and corporate, advertising, supplies, communication, travel, and leasing costs[78][79] Note 3 Cash and Cash Equivalents and Short-term Investments 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 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] - Cash and Cash Equivalents: Classified as Level 1 financial assets[85][87] - Non-Financial Asset Impairment (26 Weeks Ended August 2, 2025): - Total asset impairment charges: $15.3 million[89] - Related to ROU assets: $10.4 million[89] - Related to fixed assets: $4.9 million[89] - Goodwill Impairment: No indicators of goodwill impairment were present during the 13 and 26 weeks ended August 2, 2025, or August 3, 2024[92] Note 5 Earnings per Share (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] Note 6 Property and Equipment, Net 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 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][92] Note 8 Long-Term Debt, Net 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] - Expiration: June 24, 2027[98] 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 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][109] - Time-based restricted stock unit awards: $38.5 million (over 2.3 years)[105][109] - Performance-based restricted stock unit awards: $7.6 million (over 2.0 years)[105][109] Note 10 Income Taxes 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][112] - 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] Note 11 Legal Proceedings 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] - Environmental Proceedings: No environmental matters requiring disclosure (monetary sanctions of $1.0 million or more) for this period[220] Note 12 Segment Reporting 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] - 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] 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 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] - Employee severance: $1.8 million (primarily related to closing two fulfillment centers)[127] - 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] Executive Overview 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] - Reportable Segments: American Eagle and Aerie[133] - Key Performance Metric for CEO: Adjusted operating income (loss)[133] Key Performance Indicators 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][136][137][139][140] - Comparable Sales Definition: Measures sales growth for stores and channels open at least one year, adjusted for 53-week fiscal years[134] - 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] Current Trends and Outlook The company's results were negatively impacted by macroeconomic challenges, though demand improved in the second quarter, stabilizing margins Macroeconomic Conditions 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] - 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] - 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] Omni-Channel Capabilities 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] - Investment Focus: Investments in building technologies and digital capabilities, specifically in mobile technology, digital marketing, and improving the digital customer experience[148] Results of Operations 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) 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] - American Eagle revenue: Decreased 3% year-over-year[150] - Aerie revenue: Increased 3% year-over-year[150] - Gross Profit (13 Weeks): $500 million, increased by 30 basis points year-over-year to 38.9% as a percentage of total revenue[150] - 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] - 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] - 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] Comparison of the 13 weeks ended August 2, 2025 to the 13 weeks ended August 3, 2024 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 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] - 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] - Aerie Revenue: Increased 3% to $429.1 million, driven by increased traffic and transactions across channels; comparable sales increased 3%[154][155] - Other Revenue: Increased 7% to $61.5 million, primarily attributable to higher revenue from Todd Snyder and Unsubscribed[154][155] Gross Profit 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] Selling, General and Administrative Expenses 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] Depreciation and Amortization Expense 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] Operating Income 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] - Segment Performance: - American Eagle: Operating income decreased 5% to $138.2 million, primarily due to an $11 million decrease in gross profit[162][163][164] - Aerie: Operating income increased 7% to $74.6 million, primarily due to a $12 million increase in gross profit[162][163][164] Interest Expense (Income), net 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] Other (Income), net 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 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] Net Income 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] Comparison of the 26 weeks ended August 2, 2025 to the 26 weeks ended August 3, 2024 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 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] - 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] - Aerie Revenue: Flat year-over-year at $788.9 million, with lower average unit retail price offset by 11 net new store openings[171][172] - Other Revenue: Decreased 6% to $105.5 million, primarily attributable to planned lower revenue from Quiet Platforms[171][172] Gross Profit 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] Selling, General and Administrative Expenses 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] Impairment & Restructuring Charges 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] - $4.9 million related to fixed assets[178] - $1.8 million of employee severance[178] - Reason: Primarily related to closing two fulfillment centers as part of its supply chain network optimization project[127][178] Depreciation and Amortization Expense 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] Operating Income 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] - Segment Performance: - American Eagle: Operating income decreased 34% to $187.9 million, primarily due to an $89 million decline in gross profit[180][181][182] - 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][181][182] Interest Expense (Income), net 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] Other (Income), net 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 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] Net Income 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] Non-GAAP Information 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][191] 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 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] - Licensed Retail Stores: As of August 2, 2025, international licensing partners operated in 365 licensed retail stores and concessions in approximately 30 countries[193] - Company-Owned International Stores (August 2, 2025): The company had 99 Company-owned stores in Canada and 92 in Mexico[194] Liquidity and Capital Resources 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] 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] Cash Flows (Used For) Provided By Operating Activities 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] Cash Flows (Used For) Investing Activities 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] Cash Flows (Used for) Financing Activities 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][201] - Repurchase of common stock (publicly announced programs, including excise tax): $(31,301) thousand[25][201] - Cash dividends paid: $(42,824) thousand[25][201] - Net proceeds from revolving line of credit: $203,000 thousand ($485.3 million proceeds - $282.3 million principal payments)[25][201] Revolving Credit Facility 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] 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] Capital Expenditures for Property and Equipment 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] Store Openings and Remodels (26 Weeks Ended) | Category | August 2, 2025 | August 3, 2024 | | :--- | :--- | :--- | | New Stores | 18 | 18 | | Remodels | 25 | 36 | Share Repurchases 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] - 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] - Accelerated Share Repurchase (ASR) Agreement: - Entered into on March 14, 2025, for $200 million[209][210] - Cumulative repurchases under ASR totaled 18.4 million shares at an average price of $10.86[209][210] - 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] 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] - 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] Critical Accounting Estimates 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] - 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] - 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] Item 3. Quantitative and Qualitative Disclosures about Market Risk 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] 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] Item 4. Controls and Procedures 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] - 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] PART II - OTHER INFORMATION Item 1. Legal Proceedings 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] - 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] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] - 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] Item 3. Defaults Upon Senior Securities This item is marked as "N/A," indicating no defaults upon senior securities for the reporting period - Status: Not Applicable (N/A)[9] Item 4. Mine Safety Disclosures This item is marked as "N/A," indicating no mine safety disclosures for the reporting period - Status: Not Applicable (N/A)[9] Item 5. Other Information 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] Item 6. Exhibits 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] SIGNATURES 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]