American Eagle Outfitters, Inc.

Greetings and welcome to the American Eagle Outfitters first quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Judy Meehan. Thank you. You may begin.

Good morning, everyone. Joining me today for our prepared remarks are Jay Schottenstein, Chief Executive Officer, Michael Rempel, Chief Operating Officer, and Mike Mathias, Chief Financial Officer. In addition, Chad Kessler, AE Global Brand President, and Jen Foyle, Aerie Global Brand President, will be available during the question and answer session. Before we begin today's call, I need to remind you that we will make certain forward-looking statements. These statements are based upon information that represents the company's current expectations or beliefs. The results actually realized may differ materially based on risk factors included in our SEC filings. The company undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events, or otherwise except as required by law. Also, please note that during this call and in the accompanying press release, certain financial metrics are presented on both a GAAP and non-GAAP adjusted basis. Reconciliations of adjusted results to the GAAP results are available in the tables attached to the earnings release, which is posted on our corporate website at www.aeoinc.com in the investor relations section. Here you can also find the first quarter investor presentation. And now I'd like to turn the call over to Jay.

Thanks, Judy, and good morning. Thank you for joining us today. I hope all of you are well and staying safe. Since the last time we spoke to you, COVID-19 has dramatically changed the world and our business. I'd like to start by saying how incredibly proud I am of our entire AEO family. The team has demonstrated extraordinary leadership, collaboration, and humanity. Their commitment and agility have enabled us to take quick, decisive actions while fueling our business and strong online demand. As we begin to manage through the crisis, our priorities immediately shifted to protecting our people and our business, focusing on liquidity and near-term cash flow, and preparing AEO for a new future. Our number one priority has been the health and well-being of our associates, customers, and communities. In March, we hired a medical consultant to advise us on health and safety and to ensure we have the very best practices in all of our locations. We instituted work from home in mid-March ahead of stay-at-home orders. We closed our store shortly thereafter and have taken steps to support our affected associates. We led the industry by implementing best-in-class protective measures at our distribution centers. This includes providing masks, gloves, thermal temperature scanners, staggered schedules, social distancing protocols, and nurses on site. By prioritizing the health and safety of all associates, our distribution centers have continued to operate successfully, supporting the acceleration of digital demand. As stores have reopened, We've also led with best-in-class protocols to provide safe and secure stores for both our customers and our teams. This includes a sanitation station and masks for all customers. We have received incredible associates and customer feedback. Reopen stores are performing extremely well and exceeding expectations. This has allowed us to be less promotional than planned to move through store inventory. Priority number two, protecting our financial strength. We entered 2020 in excellent financial condition. Yet when the pandemic began, we quickly prioritized managing our business for near-term liquidity and cash flow. We took a number of decisive measures to preserve financial strength, which included raising over $400 million through convertible bonds. We ended the quarter with almost $900 million in liquidity. We are confident that this financial position will allow us to successfully navigate through this crisis and emerge with strength. Before I talk about our third priority, preparing for a new future, I'd like to provide some insights into the first quarter. Online demand was very strong and accelerated with the closure of stores. This speaks to the strength of our brands, strong customer loyalty, and engagement. Aerie's performances were nothing short of spectacular. In fact, Aerie's total demand increased at a double-digit rate in a quarter. You heard that correctly. Despite having stores closed for almost seven weeks, Aerie's experienced a double-digit demand increase for their total business. More consumers are looking for exactly what Aerie is, a unique brand platform of positivity and acceptance. The team has done an outstanding job. I cannot be more excited about what lies ahead for this rapidly growing brand in a sector rife with opportunity. American Eagle has a higher revenue contribution from stores and saw a more pronounced impact from closures in the first quarter. Yet the brand saw nice growth in digital demand and gained share in key categories. Internal and external insights confirmed that our brand remains top of the mind with our customers. We have opportunities to improve our focus on outfitting, strengthen inventory management, and raise brand profitability, which we had already began addressing even prior to the pandemic. We continue to see a bright future for AE. AE's profit margin in the quarter were impacted by store closures and aggressive liquidation of AE spring and summer merchandise. We'll enter the fall season strong and we'll set new back-to-school merchandise in July. We believe our commitment to offering new collections will be a point of differentiation in the market and a powerful competitive advantage. Our third near-term priority is preparing for a new future. This event has clearly accelerated the disruption that has been underway in the retail industry. Bankruptcies and some store closures will continue, which we see as an opportunity to gain share. We will use this event as an inflection point to chart a new and more profitable course for the company. Michael will talk about the initiatives we have put in place and how we will further build on our already strong capabilities and maintain industry leadership. There are many opportunities to continue to expand our brand, solidify AE's dominance of the jeans market, and capitalizing on Aerie's incredible momentum. While doing so, we're optimizing inventory management to drive stronger product margins and creating a leading supply chain network. I strongly believe this moment will change our company's future, and we will not be satisfied by simply returning to our starting point. In keeping with our culture and strong purpose, I'm very proud of our efforts in giving back. During the early phase of the pandemic, we quickly sourced and donated over 1 million masks to healthcare workers across our communities, including New York City. Through the AE Foundation and other charitable initiatives, we gave over $1 million across a number of COVID-19 causes, including partnership with America's Food Fund, In good 360, we also established an assistance fund for affected AEO associates. Now a few closing words before I turn it over to Michael. Today, I'm very pleased to have Mike Mathias join us in his first earnings call as CFO. Mike has been an effective leader and valuable member of the AEO family for many years. I'm confident he will be a highly successful change agent as we position our brand and for the future. The character of our company and people are shining through at this moment. From the creativity of our team developing product and marketing, to the tireless efforts of our store associates, to the innovations of our DCs and supply chains, we're moving quickly and taking decisive actions on a daily basis. We've already believed in relationships and the importance of treating our associates, customers, communities and partners with compassion, understanding, and fairness. That will pay dividends for us as we all rebuild together. AEO entered this crisis with a strong balance sheet and two of the most recognized, trusted, and loved brands in retail. For 43 years, we have successfully navigated through both good and difficult times. I am confident we will emerge from this event even stronger, leaner, more agile, and prepare to take market share and grow profits. Although these have been some of the most challenging days of my careers, I truly believe they could be a catalyst for our company's best moments. With that, I will pass over to Michael.