AMERICAN EAGLE OUTFITTERS INC

The third quarter of Fiscal 2024 showed continued progress on our "Powering Profitable Growth" plan, marked by the three strategic priorities. Compared to the third quarter of Fiscal 2023:

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Total revenue decreased 1% to $1.289 billion from $1.301 billion, which included an approximately $45 million headwind from the shifted 2024 retail calendar. Comparable sales increased 3%.

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Operating income decreased $19 million, or 15% year over year including approximately $20 million negative impact from the retail calendar shift. Adjusted operating income, which excludes $18 million from the impairment, restructuring, and other charges decreased $2 million to prior year.

Diluted earnings per share decreased of $0.41, or $0.48 on an adjusted basis, for the 13 weeks ended November 2, 2024 compared to $0.49 for the 13 weeks ended October 28, 2023.

The following tables show the percentage relationship to total net revenue of the listed line items included in our Consolidated Statements of Operations:

The following table shows our consolidated store data for the 13 and 39 weeks ended November 2, 2024 and October 28, 2023:

(1)

International licensed/franchise stores are not included in the consolidated store data or the total gross square feet calculation.

As of November 2, 2024, we operated 845 AE retail stores (AE brand stores include 649 AE stand alone locations, 187 AE/Aerie side-by-side locations, four AE/OFFLINE side-by-side locations, and five AE/Aerie/OFFLINE side-by-side locations), and 317 Aerie retail stores (Aerie brand (which includes OFFLINE) stores include 239 Aerie stand alone locations, 41 OFFLINE stand alone locations, and 37 Aerie/OFFLINE side-by-side locations). Additionally, there were 19 Todd Snyder retail locations, and five Unsubscribed locations.

Comparison of the 13 weeks ended November 2, 2024 to the 13 weeks ended October 28, 2023

Total Net Revenue

Total net revenue decreased 1% to $1.289 billion for the 13 weeks ended November 2, 2024, compared to $1.301 billion last year. The shift in the retail calendar negatively impacted revenue by approximately $45 million for the 13 weeks ended November 2, 2024.

Digital revenue increased 6%, and store revenue decreased 4% compared to the 13 weeks ended October 28, 2023. The increase in digital revenue was driven by increased transactions. The decrease in store revenue was primarily attributable to the shift in the retail calendar. Total comparable sales increased by 3%, compared to a 5% increase last year.

American Eagle. The decrease in net revenue was primarily driven by the shift in the retail calendar. Comparable sales increased 3%, driven by increased traffic and transactions across channels.

Aerie. The increase in net revenue was primarily driven by the increase in comparable sales. Aerie comparable sales increased 5%, driven primarily by increased traffic and transactions across channels.

Other. The decrease in net revenue was primarily attributable to planned lower revenue from Quiet Platforms offset by lower intersegment eliminations of this revenue (net reduction of $5 million) due to our change in strategy for this business.

Gross Profit

The 3% decrease in gross profit resulted primarily from the impact of the shifted retail calendar on revenue, as well as an $18 million increase in markdowns due to timing of promotional activity in the third quarter of Fiscal 2024. Buying, occupancy and warehousing costs were flat compared to the third quarter of Fiscal 2023.

During the 13 weeks ended November 2, 2024 and October 28, 2023, $2.5 million and $4.5 million, respectively, of share-based payment expense were included in gross profit, representing both time- and performance-based awards.

Our gross profit may not be comparable to that of other retailers, as some retailers include all costs related to their distribution network, as well as design costs in cost of sales and others may exclude a portion of these costs from cost of sales, including them in a line item such as SG&A expenses. Refer to Note 2, Summary of Significant Accounting Policies, to the Consolidated Financial Statements for a description of our accounting policy regarding cost of sales, including certain buying, occupancy and warehousing expenses.

The decrease in expenses was primarily related to:

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lower corporate compensation costs, including a $14 million reduction in performance-based incentive compensation, as well as lower services and maintenance costs; partially offset by

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a $9 million increase in advertising.

There was $3.5 million and $5.4 million of share-based payment expense included in SG&A expenses for the 13 week periods ended November 2, 2024 and October 28, 2023, respectively, comprised of both time- and performance-based awards.

Impairment, Restructuring and Other Charges

During the 13 weeks ended November 2, 2024, we recorded $10.7 million of employee severance costs related to corporate restructuring, and $6.8 million of impairment and restructuring costs due to the pending sale of our Hong Kong retail operations. There were no impairment, restructuring, and other charges recorded during the 13 weeks ended October 28, 2023.

Depreciation and Amortization Expense

The decrease in depreciation and amortization expense was primarily driven by prior year impairments of definite-lived tangible and intangible assets of Quiet Platforms.

Operating Income

The $19 million, or 15% decline in operating income was primarily driven by the $17 million reduction in gross profit discussed above, as well as $18 million of impairment, restructuring and other charges, partially offset by an $11 million reduction in selling, general and administrative expenses and lower depreciation and amortization expense.

American Eagle. The 20% decline was primarily the result of the 3% reduction in revenue as a result of the shifted retail calendar discussed above, as well as an $11 million increase in markdowns, leading to a $31 million, or 8%, decline in gross profit. Additionally SG&A costs increased by $6 million as a result of incremental advertising investments.

Aerie. The 17% increase was primarily the result of the 4% increase in revenue discussed above as well as a $5 million reduction in buying, occupancy, and warehousing costs, partially offset by an increase in SG&A costs of $3 million, primarily driven by store compensation.

General Corporate Expenses. The reduction in expense is primarily due to a $17 million decrease in performance-based incentives and other compensation, as well as decreased depreciation and amortization expense.

The decrease in interest income, net was primarily attributable to a decrease in cash and investment balances outstanding.

The decrease in other income, net was primarily attributable to foreign currency fluctuations.

Provision for Income Taxes

The provision for income taxes is based on the current estimate of the annual effective income tax rate and is adjusted as necessary for discrete quarterly events. The effective income tax rate for the 13 weeks ended November 2, 2024 was 26.1% compared to 26.9% for the 13 weeks ended October 28, 2023. The change in the effective tax rate, as compared to the prior period, is primarily due to a change in non-deductible executive compensation and international provisions of the Tax Act.

Net Income

Net income per share decreased to $0.41 per diluted share for the 13 weeks ended November 2, 2024, compared to $0.49 per diluted share for the 13 weeks ended October 28, 2023. The decrease in net income was attributable to the factors noted above.

Comparison of the 39 weeks ended November 2, 2024 to the 39 weeks ended October 28, 2023

Total Net Revenue

Total net revenue increased 4% to $3.724 billion for the 39 weeks ended November 2, 2024, compared to $3.583 billion last year. The shift in the retail calendar contributed approximately $26 million to revenue for the 39 weeks ended November 2, 2024. Digital revenue increased 10%, and store revenue increased 2%, driven by increased transaction volume as a result of increased traffic across channels. Total comparable sales increased by 4%, compared to a 1% increase last year.

American Eagle. The increase in net revenue was driven by increased transaction volume in the high single digits as a result of increased traffic across channels. American Eagle comparable sales increased 5%.

Aerie. The increase in net revenue was driven by increased transaction volume as a result of increased traffic across channels. This increase was partially offset by $9 million of incremental revenue from excess end-of-season selloffs, during the 39 weeks ended October 28, 2023, which we did not repeat this year. Aerie comparable sales increased 5%.

Other. The decrease in net revenue was primarily attributable to planned lower revenue from Quiet Platforms offset by lower intersegment eliminations of this revenue (net reduction of $17 million) due to our change in strategy for this business.

Gross Profit

The 6% increase in gross profit was primarily driven by an increase of $99 million in merchandise margin year over year due to increased net revenue from both American Eagle and Aerie, partially offset by a $42 million increase in markdowns. Buying, occupancy and warehousing costs increased by $13 million, primarily as a result of the increase in sales volume.

However, as a percentage of net revenue, buying, occupancy, and warehousing costs improved by 40 basis points, driven by rent and digital delivery leverage.

During the 39 weeks ended November 2, 2024 and October 28, 2023, $11.6 million and $15.3 million, respectively, of share-based payment expense were included in gross profit, representing both time- and performance-based awards.

Our gross profit may not be comparable to that of other retailers, as some retailers include all costs related to their distribution network as well as design costs in cost of sales and others may exclude a portion of these costs from cost of sales, including them in a line item such as SG&A expenses. Refer to Note 2, Summary of Significant Accounting Policies, to the Consolidated Financial Statements for a description of our accounting policy regarding cost of sales, including certain buying, occupancy and warehousing expenses.

The increase in expenses was primarily related to:

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an increase of $19 million in advertising; and

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$16 million of incremental store compensation due to increased wage rates, partially offset by efficiencies in our store labor model.

The increase was partially offset by:

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lower corporate compensation costs, including a $9 million reduction in performance-based incentive compensation.

There was $21.8 million and $19.9 million of share-based payment expense included in SG&A expenses for the 39 week periods ended November 2, 2024 and October 28, 2023, respectively, comprised of both time- and performance-based awards.

Impairment, Restructuring and Other Charges

During the 39 weeks ended November 2, 2024, we recorded $10.7 million of employee severance related to corporate restructuring, and $6.8 million of impairment and restructuring costs due to the pending sale of our Hong Kong retail operations. During the 39 weeks ended October 28, 2023, we recorded $21.3 million of impairment, restructuring and other charges related to Quiet Platforms. We recorded $10.8 million of impairment of supply chain technology assets due to insufficient prospective cash flows to support the asset value resulting from the restructuring of Quiet Platforms, $5.6 million of employee severance, and $4.9 million of contract-related charges.

Depreciation and Amortization Expense

The decrease in depreciation and amortization expense was primarily driven by prior year impairments of definite-lived tangible and intangible assets of Quiet Platforms.

Operating Income

The increase in operating income was primarily driven by higher gross profit, a reduction in impairment, restructuring, and other charges, and a reduction in depreciation and amortization, partially offset by increased SG&A expenses, all of which are explained in detail above.

American Eagle. The increase was primarily the result of the 4% increase in revenue discussed above, leading to a $27 million, or 3%, increase in gross profit driven by a $44 million increase in merchandise margin, offset by a $7 million increase in buying, occupancy, and warehousing costs from the increased sales volume. The gross profit improvement was partially offset by a $17 million increase in SG&A costs, primarily from incremental advertising and store compensation to arrive at the $13 million increase in operating income.

Aerie. The increase was primarily the result of the 6% increase in revenue discussed above, leading to a $51 million increase in gross profit driven by a $51 million increase in merchandise margin. The gross profit improvement was partially offset by a $22 million increase in SG&A expenses, primarily driven by store compensation and incremental advertising costs to arrive at the $30 million increase in operating income.

General Corporate Expenses. The reduction in expense is primarily due to a $13 million decrease in performance-based incentives and other compensation, an $8 million decrease in depreciation and amortization, and a $4 million decrease in professional services.

The increase in interest (income), net was primarily attributable to increased interest income of $3 million on deposits, no borrowings on our Credit Facility, and the elimination of convertible note interest expense on the 2025 Notes due to their Early Redemption last year.

The decrease in other (income), net was primarily attributable to foreign currency fluctuations.

Provision for Income Taxes

The provision for income taxes is based on the current estimate of the annual effective income tax rate and is adjusted as necessary for discrete quarterly events. The effective income tax rate for the 39 weeks ended November 2, 2024 was 23.6% compared to 27.0% for the 39 weeks ended October 28, 2023. The change in the effective tax rate, as compared to the prior period, is primarily due to excess tax benefits on share-based payments and tax audit adjustments.

Net Income

Net income per share increased to $1.14 per diluted share for the 39 weeks ended November 2, 2024, compared to $0.83 per diluted share, for the 39 weeks ended October 28, 2023. The increase in net income was attributable to the factors noted above.