American Eagle Outfitters, Inc.

Greetings and welcome to the American Eagle Outfitters fourth quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. A brief 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. It is now my pleasure to introduce your host, Judy Meehan. Thank you, Judy. You may begin.

Good afternoon, everyone. Joining me today for our prepared remarks are Jay Schottenstein, Executive Chairman and Chief Executive Officer, and Mike Mathias, Chief Financial Officer. In addition, Jen Boyle, Chief Creative Officer for AEO, Inc., and Eric Global Brand President, and Michael Rimpel, Chief Operations Officer, will join us for Q&A. 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. 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 and 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 fourth quarter investor presentation. And now I'd like to turn the call over to Jay.

Thanks, Judy, and good afternoon, everyone. I hope you and your families are safe and healthy. I am extremely proud of our results in the fourth quarter and throughout 2020. COVID-19 severely tested us, yet our success is a testament to the power of our people, our brands, and our operations. Early on, we took decisive action to protect our associates and customers, preserve cash, and prepare for a new future. These actions enabled AEO to thrive and deliver positive results while also developing our plan for consistent profit growth. Looking back on 2020, after a difficult start with the abrupt closure of all stores, we saw substantial improvement in each quarter. We ended the year on a very strong note. Fourth quarter adjusted operating profit grew 38% compared to 2019. This is a remarkable achievement in the face of a pandemic related traffic pressures in stores. Cash flow was strong and we ended the year with $850 million in cash and approximately $1.2 billion in total liquidity. I'm very pleased that today we announced the reinstatement of our quarterly cash dividend. We have a strong and long tradition of returning cash to shareholders and are very proud of this commitment. Last year, we also spent time preparing for a new future and developing our real power, real growth value creation plan. As you heard at our investor meeting in January, Our strategy is centered on five key pillars, which we believe will support top-tier financial results over the next few years. I will briefly discuss each of these now, as well as initial progress in each area. Our first pillar is a double ARRI to $2 billion in revenue by 2023. ARRI had an exceptional 2020. During the fourth quarter, revenue grew 25%. marking our 25th consecutive quarter, a double-digit growth. Aerie's adjusted operating profit grew an incredible 52% as merchandise margins expanded and it leveraged the expense base. Consistent with the trend throughout the year, Aerie's momentum was broad-based across categories. This speaks to the incredible power of our lifestyle brand. Activewear was a clear standout in the quarter, and our highest growth category. In July, we consolidate our active assortment into a new sub-brand offline by Aerie as part of our strategy to maximize our potential in this exciting growth category. We have been extremely pleased with the customer response. In addition to offline strong growth, our data shows the sub-brand is attracting new customers to the Aerie brand. At the same time, Aerie's core categories continue to perform. For example, eminence grew at a double-digit rate in the fourth quarter, led by bralettes and undies. We continue to be amazed with all Erie has accomplished and sees significant future runway. Our second pillar is to ignite American Eagle for profit growth. As you heard a few weeks ago, the AE brand's most meaningful opportunity is to drive stronger and more consistent profitability and cash flow. This was a clear focus in 2020. I am pleased with the progress made over the course of the year. AE's fourth quarter results sequentially improved from the third quarter. With continued pressure on stores, AE's revenue declined 9%, yet digital grew 20% and overall adjusted operating profit increased 29%. We ran a very healthy business, and that remains a major priority as we look to the future. Our leading jeans franchise was yet again a standout in the quarter. We gained share even as we meaningfully reduced holiday promotions and saw AUR grow. AE continues to introduce product-focused marketing campaigns that showcase our relatable and positive spirit. Last week, we announced our Jeans Are Forever Spring 2021 campaign. featuring stars of the hit Netflix show Outer Banks. We also launched a new innovative shopping experience in partnership with Snapchat. We are really excited about this launch as we continue to introduce new ways to fuel customer engagement. Overall, I am proud of the AE team's execution and confident we will continue to see great progress in 2021. Our third priority is to continue to invest in customer-focused operations. The digital fulfillment capabilities we developed over the past year were critical during the holiday. Our digital channel revenue grew by $155 million during the fourth quarter, a growth rate of 35%. I'm really proud that we were able to handle the increases in site traffic and shipment volumes while still maintaining excellent customer experience and service levels. Our regional distribution network also ensured we had inventory located at the right places at the right time. Despite industry cost increases, the team did a nice job mitigating delivery cost pressures. Our supply chain transformation initiative is a significant competitive advantage that will continue to drive efficiencies and support bottom-line growth. Fourth, strengthening RI discipline. This was a focus throughout the year and evident in our results. During the fourth quarter, we drove meaningful growth in operating margin expansion and generated robust cash flow. This performance reflects strong inventory optimization and expense management, which will remain major priorities. In addition, we will continue to invest in our growth businesses as I see more opportunity for AEO than ever before. Finally, our fifth pillar is to embrace the power of our people, culture, and purpose. At AEO, we are a purpose-led company with enduring brands and inclusive and optimistic culture. There's a lot of great work going on across the companies. the coming months we look forward to awarding our first real change scholarships for social justice we also continue to focus on the environment across our operation and we are thrilled with the customer response to our real good product lines in closing although we still face an uncertain macro environment we are entering 2021 with great momentum i am optimistic about the future The promotional environment is more rational than we've seen in recent years. We have two of the most loved and in-demand brands in retail, a favorable real estate environment, strong operational capabilities, and improving competitive background. The disruptive retail landscape has created many opportunities, and we have the right strategy and leaders to capture sustainable, profitable market share gains in the future. I'm pleased to have Jen Foyle and Michael Rumpel joining us today. During Q&A, they can provide further insights on our brands and channels. Now I'll turn the call over to Mike Mathias to review the financial results.