AMERICAN EAGLE OUTFITTERS INC

Overview

The first quarter was a challenging period for our business. While the broader macro environment and cold spring weather presented challenges, merchandising strategies did not drive the results we anticipated, leading to higher promotions and excess inventory. As a result, the operating loss reflects an inventory charge of $75 million related to a write-down of spring and summer merchandise, as well as higher than planned promotional activity in the quarter.

Compared to the first 13 weeks of Fiscal 2024:

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Total revenue decreased 5% to $1.090 billion from $1.144 billion, with American Eagle revenue decreasing 4% year-over-year, and Aerie revenue decreasing 3% year-over-year. American Eagle's comparable sales decreased 2% year-over-year, and Aerie's comparable sales decreased 4% year-over-year.

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Gross profit decreased 31% to $322 million year-over-year, and decreased to 29.6% as a percentage of revenue.

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Operating loss of $85 million compared to $77 million operating income last year. Adjusted operating loss of $68 million this year compared to operating income of $78 million last year.

Diluted loss per share decreased to ($0.36) for the 13 weeks ended May 3, 2025 compared to earnings per share of $0.34 for the 13 weeks ended May 4, 2024.

The following table shows 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 weeks ended May 3, 2025 and May 4, 2024:

(1)

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

As of May 3, 2025, we operated 828 American Eagle retail stores, consisting of 182 Aerie side-by-side locations, five locations with AE brand, Aerie brand and OFFLINE™ connected as one store, and six OFFLINE™ side-by-side locations, 321 Aerie stand-alone stores (including 42 OFFLINE™ stand-alone stores and 40 OFFLINE™ side-by-side locations), and AEO Direct. Additionally, there were 20 Todd Snyder stand-alone locations and seven Unsubscribed locations.

Comparison of the 13 weeks ended May 3, 2025 to the 13 weeks ended May 4, 2024

Total Net Revenue

Total net revenue decreased 5% for the 13 weeks ended May 3, 2025 to $1.090 billion, compared to $1.144 billion last year. This included a one point headwind from adverse currency and another point from moving our Hong Kong operations to a license model in Fiscal 2024. Digital revenue decreased 2%, and store revenue decreased 6%. Total comparable sales decreased by 3%, compared to a 7% increase last year. Traffic was up across brands and channels, with declines in average unit retail price and conversion.

American Eagle. The decrease in net revenue was driven by lower average unit retail price. American Eagle comparable sales decreased 2%.

Aerie. The decrease in net revenue was driven by decreased transactions across channels. Aerie comparable sales decreased 4%.

Other. The decrease in net revenue was primarily attributable to $6 million of lower revenue from Todd Snyder, and $5 million of lower revenue from Quiet Platforms due to our change in strategy for this business.

Gross Profit

The 31% decrease in gross profit was primarily driven by a decrease of $66 million in merchandise margin due to lower sales and increased promotional activity, as well as a $75 million inventory charge related to a write-down of spring and summer merchandise.

During the 13 weeks ended May 3, 2025 and May 4, 2024, $7.0 million and $6.6 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 included herein for a description of our accounting policy regarding cost of sales, including certain buying, occupancy and warehousing expenses.

Selling, General and Administrative Expenses

The increase in expense was primarily driven by a $7 million increase in advertising year-over-year, with a partial offset from lower compensation.

There was $13.6 million and $14.0 million of share-based payment expense included in SG&A expenses for the 13 weeks ended May 3, 2025 and May 4, 2024, respectively, comprised of both time and performance-based awards.

Impairment and Restructuring

During the 13 weeks ended May 3, 2025, we recorded $17.1 million of impairment and restructuring. We recorded $10.4 million of impairment related to ROU assets, $4.9 million related to fixed assets, and $1.8 million of employee severance.

Depreciation and Amortization Expense

Operating (Loss) Income

The decrease in operating (loss) income was primarily driven by lower gross profit, and an increase in impairment and restructuring charges, all of which are explained in detail above.

American Eagle. The decrease was primarily the result of a $78 million decrease in gross profit driven by decreased merchandise margin on the $31 million, or 4%, decline in total net revenue, and increased promotional activity, as well as a $31 million inventory write-down of spring and summer merchandise. SG&A expenses and depreciation and amortization also increased a combined $11 million year-over-year.

Aerie. The decrease was primarily the result of a $58 million decrease in gross profit driven by decreased merchandise margin on the $13 million, or 3%, decline in total net revenue and increased promotional activity, as well as a $44 million inventory write-down of spring and summer merchandise.

Interest (Income), net

The decrease in interest (income), net is primarily related to $3 million less interest income on deposits year-over-year.

Other (Income), net

(Benefit) Provision for Income Taxes

The (benefit) 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 May 3, 2025 was 23.3% compared to 18.0% for the 13 weeks ended May 4, 2024. The change in the effective tax rate, as compared to the prior period, is primarily due to share-based payments and tax audit adjustments.

Net (Loss) Income

Net loss per diluted share of ($0.36) decreased for the 13 weeks ended May 3, 2025, compared to net income per diluted share of $0.34, for the 13 weeks ended May 4, 2024. The decrease in net income was attributable to the factors noted above.