AMERICAN EAGLE OUTFITTERS INC

The first 13 weeks of Fiscal 2024 showed early indicators of progress on our "Powering Profitable Growth" plan, marked by the three strategic priorities. Compared to the first 13 weeks of Fiscal 2023:

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Amplifying our brands: Total revenue increased 6% to $1.144 billion from $1.081 billion, with American Eagle revenue increasing 8% year over year, and Aerie revenue increasing 4% year over year. American Eagle's comparable sales increased 7% year over year, and Aerie's comparable sales increased 6% year over year.

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Executing with financial discipline: Gross profit increased 12% to $464 million year over year, and increased by 240 basis points to 40.6% as a percentage of revenue.

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Optimizing our operating capabilities: Operating income increased 241% to $78 million from $23 million last year, and increased by 470 basis points to 6.8% as a percentage of revenue. Operating income of $78 million this year increased 76% when compared to adjusted operating income of $44 million last year, and increased 270 basis points.

Diluted earnings per share increased to $0.34 for the 13 weeks ended May 4, 2024 compared to $0.09, or $0.17 on an adjusted basis, for the 13 weeks ended April 29, 2023.

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 4, 2024 and April 29, 2023:

(1)

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

As of May 4, 2024, we operated 846 American Eagle retail stores, consisting of 188 Aerie side-by-side locations, five locations with AE brand, Aerie brand and OFFLINE™ connected as one store, and 2 OFFLINE™ side-by-side locations, 307 Aerie stand-alone stores (including 38 OFFLINE™ stand-alone stores and 32 OFFLINE™ side-by-side locations), and AEO Direct. Additionally, there were 15 Todd Snyder stand-alone locations and five Unsubscribed locations.

Comparison of the 13 weeks ended May 4, 2024 to the 13 weeks ended April 29, 2023

Total Net Revenue

Total net revenue increased 6% for the 13 weeks ended May 4, 2024 to $1.144 billion, compared to $1.081 billion last year. Digital revenue increased 12%, and store revenue increased 4%, driven by increased transactions across both channels. Total comparable sales increased by 7%, compared to a 2% increase last year. Additionally, last year included $14 million of revenue from excess end-of-season selloffs, which we did not anniversary this year, partially offsetting revenue growth across brands and channels for the current year.

American Eagle. The increase in net revenue was driven by increased transactions across channels. This increase was partially offset by $4 million of incremental revenue from excess end-of-season selloffs, during the 13 weeks ended April 29, 2023, which we did not anniversary this year. American Eagle comparable sales increased 7%.

Aerie. The increase in net revenue was driven by increased transactions across channels. This increase was partially offset by $9 million of incremental revenue from excess end-of-season selloffs, during the 13 weeks ended April 29, 2023, which we did not anniversary this year. Aerie comparable sales increased 6%.

Other. The decrease in net revenue was primarily attributable to $56 million of lower revenue from Quiet Platforms due to our change in strategy for this business. This decrease was partially offset by lower intersegment eliminations, as $50 million of incremental Quiet Platforms revenue during the 13 weeks ended April 29, 2023 was derived from the American Eagle and Aerie segments.

Gross Profit

The 12% increase in gross profit was primarily driven by an increase of $52 million in merchandise margin due to increased net revenue from both American Eagle and Aerie, as well as an improvement in markup primarily related to lower product and transportation costs.

This increase was partially offset by a $2 million increase in buying, occupancy and warehousing costs, primarily due to increased compensation, offset by lower rent and distribution and warehousing costs.

During the 13 weeks ended May 4, 2024 and April 29, 2023, $6.6 million and $5.9 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 to the Consolidated Financial Statements 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 expenses was primarily related to:

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an $18 million increase in compensation, primarily due to $10 million of incremental incentive expense resulting from annual share-based compensation grants during the 13 weeks ended May 4, 2024 and performance-based incentive accruals, as well as $6 million of increased store compensation due to increased wage rates, partially offset by efficiencies in our store labor model; and

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an increase in advertising and variable sales related expenses.

There was $14.0 million and $8.9 million of share-based payment expense included in SG&A expenses for the 13 week periods ended May 4, 2024 and April 29, 2023, respectively, comprised of both time and performance-based awards.

Impairment, Restructuring and Other Charges

(1)

There were no impairment, restructuring and other charges for the 13 weeks ended May 4, 2024. During the 13 weeks ended April 29, 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 a year-over-year decrease in capital expenditures as well as prior year impairments of definite-lived tangible and intangible assets of Quiet Platforms.

Operating Income

The 241% 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 offset by increased SG&A expenses, all of which are explained in detail above.

American Eagle. The 29% increase was primarily the result of a $33 million increase in gross profit driven by incremental merchandise margin on the increase in total net revenue as well as improved markup, partially offset by increased buying, occupancy, and warehousing costs. The gross profit improvement was partially offset by a $3 million increase in SG&A costs, primarily from store compensation.

Aerie. The 8% increase was primarily the result of a $13 million increase in gross profit driven by incremental merchandise margin on the increase in total net revenue as well as improved markup. The gross profit improvement was partially offset by a $9 million increase in SG&A expenses, primarily driven by store compensation and incremental advertising investment.

Other. The improvement year over year was primarily the result of a $3 million improvement from Quiet Platforms as a result of lower SG&A and depreciation and amortization expenses.

General Corporate Expenses. General corporate expenses increased primarily due to an increase in incentive compensation.

Interest (Income) Expense, net

The increase in interest income, net was primarily attributable to increased interest income of $4 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.

Other (Income), net

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 May 4, 2024 was 18.0% compared to 27.5% for the 13 weeks ended April 29, 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 $0.34 per diluted share for the 13 weeks ended May 4, 2024, compared to $0.09 per diluted share, for the 13 weeks ended April 29, 2023. The increase in net income was attributable to the factors noted above.