American Eagle Outfitters(AEO) - 2026 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenue increased by 6% to $1.4 billion, marking a record for the third quarter [5][17] - Operating income reached $113 million, exceeding guidance of $95-$100 million, driven by higher-than-expected demand [5][17] - Diluted EPS for the quarter was $0.53, a 10% increase compared to the adjusted EPS from the previous year [5][17] - Gross profit dollars increased by 5% to $552 million, while gross margin declined by 40 basis points to 40.5% [17][18] Business Line Data and Key Metrics Changes - Aerie's comparable sales (comps) grew by 11%, significantly outperforming American Eagle's 1% comp growth [5][12] - Aerie achieved record revenue, with strong demand across all categories including intimates and apparel [10][11] - American Eagle's denim business showed improvement, particularly in men's clothing, contributing to the overall positive comp growth [12][13] Market Data and Key Metrics Changes - Aerie and Offline are emerging as important customer destinations, with Aerie generating nearly $2 billion in revenue and less than 5% market share, indicating significant growth potential [6][12] - The company reported a 4% increase in comparable sales, a notable improvement from the previous quarter's 1% decrease [5][17] Company Strategy and Development Direction - The company is focused on operational improvements and cost efficiencies to enhance profitability in a dynamic macro environment [5][17] - Incremental investments in advertising are aimed at driving stronger demand and enhancing long-term brand awareness [5][7] - The company plans to continue expanding Aerie and Offline, with 22 Aerie and 26 Offline stores expected to open [19][20] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the long-term outlook, citing a meaningful turnaround from the first half of the year and strong performance during the holiday season [8][9] - The fourth quarter is off to an excellent start, with broad-based strength across brands and channels, particularly in Aerie and Offline [21][22] - Management raised fourth quarter operating income guidance to a range of $155-$160 million, based on expected comp sales growth of 8%-9% [22][23] Other Important Information - The company is on track to complete approximately 50 Aerie store remodels and close about 35 lower productivity Aerie stores [20] - The balance sheet remains strong, with cash of $113 million and total liquidity of approximately $560 million [21] Q&A Session Summary Question: Can you discuss the acceleration in fourth quarter guidance and what is driving it? - Management indicated that both brands are trending ahead of expectations, with Aerie expected to see high teens comp growth and American Eagle in the low to mid-single digits [25][26] Question: What are the new denim silhouettes that are working, and how durable are those trends? - Management noted that denim has been strong, particularly in women's, with new silhouettes being tested and performing well [27] Question: What are the drivers of Aerie's same-store sales improvement? - Aerie's strong performance is attributed to core competency businesses, new categories like sleep, and effective marketing strategies [32] Question: What are the expectations for markdowns in the fourth quarter? - Management expects markdowns to be similar to the third quarter, with a focus on maintaining top-line growth despite some increases in markdowns [35] Question: Can you elaborate on customer acquisition trends and retention strategies? - Management reported strong customer acquisition across both brands, with strategies in place to retain these customers through community engagement and product focus [51][53] Question: What are the plans for store openings and closures in the upcoming year? - The company plans to close approximately 35 lower productivity stores while opening a similar number of new Aerie and Offline stores [62][63]