AMERICAN EAGLE OUTFITTERS INC

Macroeconomic Conditions and Inflation

During Fiscal 2023 and the 39 weeks ended November 2, 2024, our results were negatively impacted by macroeconomic challenges and global inflationary pressures impacting consumer spending behavior, which constrained revenue and increased margin pressure to clear through excess inventory. Given ongoing external uncertainties, we have taken additional actions to improve financial performance, including more operating efficiency initiatives, as described below under "Profit Improvement Program". For further information about the risks associated with global economic conditions and the effect of economic pressures on our business, see "Risk Factors" in Part I, Item 1A of our Fiscal 2023 Form 10-K.

Omni-Channel and Digital Capabilities

We sell merchandise through our digital channels, www.ae.com, www.aerie.com, and our AEO apps, both domestically and internationally in approximately 80 countries. We also sell AE brand and Aerie brand merchandise on various international online marketplaces. We offer Todd Snyder and Unsubscribed brand products online at www.toddsnyder.com and www.unsubscribed.com, respectively. The digital channels reinforce each particular brand and are designed to complement the in-store experience.

Over the past several years, we have invested in building our technologies and digital capabilities. We focused our investments in three key areas: making significant advances in mobile technology, investing in digital marketing and improving the digital customer experience.

Profit Improvement Program

We launched our profit improvement program, "Powering Profitable Growth," during Fiscal 2023, which focused on a comprehensive review of our cost structure. Early actions focused on the components of gross margin and contributed to margin expansion in Fiscal 2023. Other significant work streams have been identified, actioned and incorporated into our Fiscal 2024 plans. The results of these initiatives are expected to yield gross margin expansion, as well as SG&A and depreciation leverage, resulting in an improved operating profit rate. Through the third quarter of Fiscal 2024, we saw expansion of our gross profit rate of 60 basis points and expansion of our operating rate of 170 basis points in comparison to the 39 weeks ended October 28, 2023, primarily as a result of our initiatives.