American Eagle Outfitters, Inc.

Greetings and welcome to the American Eagle Outfitters second 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 would now like to turn the conference over to your host, Ms. 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, Jen Foyle, Chief Creative Officer for AEO Inc. and Aerie Global Brand President, and Chad Kessler, AE 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.aeo-inc.com in the investor relations section. Here you can also find the second quarter investor presentation. And now I'll turn the call over to Jay.

Thanks, Judy, and good morning, everyone. I hope all of you are well and staying safe. In the second quarter, we delivered significant improvements throughout our business, a true testament to how well our teams are executing in these challenging times. I'm truly grateful to all of our associates across the organization for their commitment to our success and the humanity they have displayed. Underlying our second quarter results was a continued focus on our 2020 priorities. protecting our people, preserving financial liquidity, and preparing for a new future. First, we continue to run our business with the well-being of our associates, customers, and partners as our top priority. This includes providing the very best health and safety measures across our offices, distribution centers, and stores. Second, we are focused on disciplined growth and making good decisions to preserve cash. Second quarter financial results were impacted by sore closures early in the period. Yet our performance demonstrated meaningful progress in the first quarter as we sharpened our merchandise assortments, lowered inventory, and reacted to shifting customer demands. Our online channel performed extremely well across brands. Demand rose 48%, our fastest growth rate in over a decade. Online strength was fueled by new customer acquisitions, robust traffic, and strong conversion. Investments over the past several years in our digital platform, omnichannel capabilities, and supply chain are providing the engine to fuel our business and keep pace with our strong customer demand. As Michael will discuss, we are implementing strategic supply chain capabilities to support the holiday season and future growth. The team managed the business well, tightly controlling expenses. In total, our actions contributed to a significant improvement in our financial position. We generated $173 million in operating cash flow during the quarter, ending the period with $899 million in cash and over $1 billion in total available liquidity. Now I'll provide a little more color on our brands. First, Aerie posted exceptional results in the second quarter with both record sales and margins. The momentum in this business is truly incredible. Revenues rose 32% to approximately $250 million in a quarter. Sales growth accelerated despite the impact of stores closures as nearly 70% of the revenue was done online. Total customer acquisition increased 22% in the quarter and more than doubled in the digital channel. We saw strength across categories as customers continued to embrace Aerie's strong brand position, empowering messages, and trend-right collections. The quarter we were pleased to launch Offline, our new activewear brand, which leverages Aerie's powerful platform, providing a fresh take on this exciting growth category. Over a year in the making, the timing of our debut was perfect, with rising demand for active apparel. Offline builds are the strong results of Aerie's leggings, sports bras, comfy tees, and fleece. The early response has been absolutely terrific. I see significant runway for growth, and we are very excited about the prospects for Aerie and offline. Congratulations to the entire Aerie team for their achievements. American Eagle's second quarter was impacted by stores closures and mall traffic decline to a greater extent. However, we ran a healthier business, which was less promotional than last quarter, and we successfully cleared through excess inventory. AE's online demand was strong, rising 21% in the quarter. We also saw significant growth in online customers. AE maintain leadership in jeans and bottoms. The team is hard at work building on that strength, improving product lines, and managing customer choices more effectively. We remain committed to running a healthy business with product innovation and strong inventory disciplines. As we announced this morning, I am thrilled to recognize Jen Boyle's promotion to Chief Creative Officer and her expanded role Jen will lead the creative functions for both Aerie and American Eagle. Jen is an exceptional talent who has demonstrated the ability to create, drive, and optimize successful brands and businesses. I look forward to her influence and leadership as we continue to evolve the AE product line and marketing and produce even stronger results. Jen will also continue to fuel Aerie's tremendous growth opportunities. I am pleased to welcome a new member to AE's creative team, Craig Brommers, as head of marketing. Craig has a wealth of experience building authentic customer engagement with leading retail and consumer brands, and we are very excited to have him on board. Next, I'd like to briefly touch on culture at AEL. For many years, we have fostered an inclusive and diverse corporate culture, accepting people for who they are and celebrating different backgrounds and viewpoints have been at the very heart of our brands and company. Several years ago, we established an inclusion and diversity work stream. This year, we named a chief inclusion and diversity officer, Kerry Roberts. We're very proud of the progress we made, and this work remains an ongoing priority for AEO. As we prepare for a new future, we're using this moment to take a fresh look across all areas of our business to ensure we are positioned for even greater success. I've always been passionate about innovation, and today it's more important than ever. Our teams are testing new experiences and technologies to engage with customers in different ways. We're committed to providing the best experiences in retail, as I recognize how crucial this will be to our future success. Finally, we have a long history of success with the talent, experience, to navigate through challenging times. Our company is in a healthy financial position with two of the most trusted and loved brands in the market today. We will stay focused on successfully managing through the near term while fueling incredible growth opportunities ahead. Now I'll turn the call over to Michael.