AMERICAN EAGLE OUTFITTERS INC

Results of Operations

Overview

With a deliberate action plan that ignited growth, we improved profitability and cash flow fueling a strong finish to Fiscal 2025. Initiatives across merchandising, operations and marketing continue to strengthen our company and position our brands for long-term success. We remain committed to driving continued profitable growth and strong cash flow for our shareholders. Except as otherwise indicated, all comparisons are to Fiscal 2024.

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Total net revenue increased $219 million to $5.547 billion compared to $5.329 billion last year.

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Total comparable sales increased 3%. By brand, comparable sales for Aerie increased 9%, and American Eagle comparable sales were flat year-over-year.

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Gross profit decreased 3% to $2.025 billion and decreased by 270 basis points to 36.5% as a percentage of revenue.

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Operating income decreased 47% to $226.2 million and decreased by 390 basis points to 4.1% as a percentage of total revenue. Non-GAAP adjusted operating income decreased 26% to $327.8 million and decreased by 240 basis points to 5.9% as a percentage of revenue.

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Net income attributable to AEO decreased 42% to $192.0 million and decreased by 270 basis points to 3.5% as a percentage of total revenue. Diluted earnings per share attributable to AEO decreased to $1.09 for Fiscal 2025 compared to $1.68 for Fiscal 2024. Non-GAAP adjusted net income attributable to AEO decreased 23% to $266.0 million and decreased by 160 basis points to 4.8% as a percentage of revenue. Non-GAAP adjusted diluted earnings per share attributable to AEO decreased to $1.50 for Fiscal 2025 compared to $1.74 for Fiscal 2024.

The following table shows, for the periods indicated, the percentage relationship to total net revenue of the listed items included in our Consolidated Statements of Operations.

Comparison of Fiscal 2025 to Fiscal 2024

Total Net Revenue

Total net revenue for Fiscal 2025 increased $219 million to $5.547 billion compared to $5.329 billion for Fiscal 2024. Total comparable sales increased by 3% and 4% for Fiscal 2025 and Fiscal 2024, respectively. Digital revenue increased 7%, driven by increased transaction volume as a result of increased traffic. Higher average dollar sales and units per transaction also contributed to the increase in digital revenue. Store revenue was flat compared to Fiscal 2024.

American Eagle. Net revenue was relatively flat year-over-year. American Eagle comparable sales were flat year-over-year.

Aerie. The increase in net revenue was driven by increased traffic and transactions across channels, as well as increased units per transaction and transaction value. Aerie comparable sales increased 9% year-over-year.

Other. Net revenue decreased compared to Fiscal 2024 primarily due to planned lower revenue from Quiet Platforms due to our change in strategy for this business.

Gross Profit

The decrease in gross profit was driven by a decrease of $30 million in merchandise margin due to increased promotional activity and $70 million of incremental tariffs, net of mitigation efforts, as well as an inventory charge taken in the first quarter of Fiscal 2025 related to the write-down of spring and summer merchandise.

Additionally, buying, occupancy, and warehousing costs increased $34 million year-over-year, primarily due to new store openings and digital sales volume. As a percentage of net revenue, buying, occupancy, and warehousing costs leveraged 10 basis points compared to Fiscal 2024, due to higher sales in Fiscal 2025.

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

SG&A expenses increased $54 million year-over-year. The increase was primarily related to planned investments in advertising.

Impairment, Restructuring and Other Charges

For Fiscal 2025, we recorded the following:

(1)

As part of our continued supply chain network optimization project, the Company made the decision to close the Quiet Platforms business and discontinue services for all third-party customers. The Company recorded $59.0 million of impairment and restructuring charges related to closing Quiet fulfillment centers.

(2)

The Company recorded $42.6 million of impairment and restructuring charges related to corporate operations and store impairment.

As set forth below, for Fiscal 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 sale of our Hong Kong retail operations.

Refer to Note 15, Impairment, Restructuring and Other Charges, to the Consolidated Financial Statements included in this Annual Report for additional information.

Depreciation and Amortization Expense

Operating Income

The decrease in total operating income was primarily driven by lower gross profit in the American Eagle brand and increased investments in advertising, as well as an $84 million increase in impairment, restructuring and other charges during Fiscal 2025.

American Eagle. The decrease was primarily the result of the $114 million decline in gross margin, driven by lower merchandise margin due to increased promotional activity and $44 million of incremental tariffs, net of mitigation efforts. SG&A expenses increased $28 million primarily due to planned investments in advertising. Depreciation and amortization expense also increased $10 million primarily as a result of remodeled stores.

Aerie. The increase was primarily the result of the $65 million increase in gross margin, driven by higher merchandise margin on the $196 million, or 12%, increase in total net revenue, which was partially offset by increased promotional activity and $26 million of incremental tariffs, net of mitigation efforts, as well as a $19 million increase in buying, occupancy, and warehousing costs primarily related to delivery and new store rent. SG&A expenses increased $33 million primarily due to store compensation and planned investments in advertising.

Other. The reduction in loss was primarily related to planned lower volume from Quiet Platforms.

Interest Expense (Income), Net

The increase in interest expense (income), net was primarily attributable to a $7 million reduction in interest income as a result of lower investable cash balances, as well as a $5 million increase in interest expense as a result of borrowings on our Credit Facility (as defined below) in Fiscal 2025.

Other (Income), Net

The increase in other (income), net consists of a $26 million gain on equity method investments, partially offset by foreign currency fluctuations.

Income Taxes

The effective income tax rate was 25.6% for Fiscal 2025, compared to an effective income tax rate of 25.7% for Fiscal 2024.The lower effective income tax rate in Fiscal 2024 was primarily driven by changes in international provisions of the Tax Cut and Jobs Act of 2017 partially offset by changes in non-deductible executive compensation. Our effective income tax rate is also dependent upon the overall mix of earnings in jurisdictions with different tax rates.

The Organization for Economic Cooperation and Development ("OECD") Global Anti-Base Erosion Pillar Two minimum tax rules, also referred to as "Pillar Two", are intended to apply to tax years beginning in 2024 and generally provide for a minimum effective tax rate of 15%. While the U.S. has not enacted legislation to adopt Pillar Two, certain countries in which we operate have enacted such legislation, and other countries are in the process of doing so. We considered the applicable tax laws in relevant jurisdictions and concluded there is no material effect on our effective tax rate or our consolidated results of operation, financial position, and cash flows for the year ended January 31, 2026. The Company will continue to evaluate the potential effect of Pillar Two on future reporting periods and expects the impact to be immaterial.

Refer to Note 2, Summary of Significant Accounting Policies, and Note 13, Income Taxes, to the Consolidated Financial Statements included herein for additional information regarding our accounting for income taxes.

Net Income attributable to AEO

The change in net income was attributable to the factors described above.

Net income per diluted share attributable to AEO for Fiscal 2025 was $1.09, which included $97.9 million (net of $3.7 million of non-controlling interest), or $0.43 per diluted share, of pre-tax impairment and restructuring charges. Refer to "Non-GAAP Information" below for additional detail.

Net income per diluted share attributable to AEO for Fiscal 2024 was $1.68, which includes $17.6 million ($0.06 per diluted share) of pre-tax impairment and restructuring charges. Refer to "Non-GAAP Information" below for additional detail.