American Eagle Outfitters, Inc.

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

Good afternoon, everyone. Joining me today for our prepared remarks are Jay Schottenstein, Executive Chairman and Chief Executive Officer, Jen Foyle, Chief Creative Officer for AEO, Inc., and Aerie Global Brand President, Michael Rempel, Chief Operating Officer, and Mike Mathias, Chief Financial Officer. In addition, Chad Kessler, AEE 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 on 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 website at www.aeo-inc.com in the investor relations section. Here you can also find the third quarter investor presentation. And now I'd like to turn the call over to Jay.

Thanks, Judy, and good afternoon, everyone. I hope all of you are well and staying safe. I'm very pleased with our third quarter performance, especially in the midst of the pandemic. Earlier this year, we would not have expected to deliver these results and have over $1 billion in liquidity entering the fourth quarter. This is due to operating discipline, as well as much credit to the incredible teamwork across our company. In the third quarter, we produced our best gross margin in some years, and our adjusted operating income was flat the last year. Despite numerous headwinds related to COVID, we saw stronger full-price selling and had limited promotional activity, leading to a meaningful increase in merchandise margin. This is a testament to the strength of our brands and our product, as well as our disciplined inventory management. I'm extremely proud of the team for their brilliant execution and ability to deliver these results while working remotely. Our approach for the fall season was to go on offense and play to win. That approach paid off. Aerie extended its incredible track record of growth with a 34% increase in revenue and record profits. And AE merchandise assortment were well-received and product margins improved. I'm very pleased to see continued growth in our core businesses, such as jeans and bottoms. I'm encouraged by early improvements in areas we are looking to strengthen. When we offer great product and customer experiences, our customers respond, and that's our focus. The digital channel excelled, and we were successful delivering our customer promise with strong fulfillment and timely delivery. The investments we've made over the past several years to vastly expand our omnichannel capabilities are having a meaningful impact on our business. Although stores were impacted by negative mall traffic, we continue to outpace the mall with very strong conversion. Our stores once again led the industry with the very best health and safety measures, ensuring the comfort and confidence of our customers and associates. I'm very proud of how all AEO associates showed up during this crisis. Back in March, we established three near-term priorities, protecting our people, preserving cash, and preparing for a new future. With the crisis ongoing, we remain focused on these areas. Our people are always our top priority. We continue to invest and explore new tools and technologies to make sure we offer the best measures to keep our associates and customers safe. Thanks to efforts across the organization, we quickly took steps to secure our financial health. Today, AEO is among a select group of retail companies with financial strength. When we combine excellent financial with strong brands, leading operation capabilities and exceptional products, we have a winning formula for future success. As I look ahead, I'm very optimistic. This past year has made our company stronger and better positioned for future growth. I've been leading AEO for many years. I see more opportunities for our business today than ever before. Regarding holiday, we are pleased with early trends. Yet there is significant business ahead of us. As you will hear from the team, we are positioned and ready to serve our customers, however and whenever they choose to shop. We look forward to unveiling our longer-term growth plans on January 21st. More details on the meeting will be provided in the upcoming weeks. In the meantime, I hope everyone has a great holiday season, and please stay safe. With that, I will pass the call to Jen.