American Eagle Outfitters, Inc.

Greetings and welcome to the American Eagle Outsetters third quarter 2023 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 call over to your host, Judy Meehan. Thank you. You may begin.

Good morning, everyone. Joining me today for our prepared remarks are Jay Schottenstein, Executive Chairman and Chief Executive Officer, Jen Boyle, President, Executive Creative Director for AE and ARRI, and Mike Mathias, Chief Financial Officer. 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 released 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. Additionally, you can find our third quarter investor presentation posted on our corporate website at www.aeo-inc.com in the investor relations section. And now I will turn the call over to Jay.

Good morning. Overall, I'm pleased with our third quarter performance. Although the macro environment remains highly dynamic, we are seeing encouraging trends. Our brands remain stronger than ever, and our strategic priorities are propelling us forward. AEO's customers are at the center of our strategy, driving constant innovation that enables us time and time again to deliver exciting collections. And this fall was no exception. Additionally, we provided industry-leading customer experience, reflecting our investments in data-driven insights and operational excellence. With the launch of our profit improvement program, structural initiatives to drive growth and higher margins are taking hold. Now a few financial and strategic highlights from the quarter. Third quarter revenue hit a record of $1.3 billion, driven by 5% comp growth, reflecting growing brand momentum and terrific fall merchandise collection. Our market-leading brands are true lifestyle destinations for our customers, and that was evident this quarter. Aerie returned a double-digit revenue and comp growth, and they generated positive revenues and comps. We also saw significant strength across digital and stores with new merchandise and strong execution, driving improved traffic across AE and Aerie. The digital channel was a star performer, accelerating to 10% growth. We are seeing great momentum here. Under the leadership of our new head of digital, David Zhang, we have introduced innovative customer engagement tactics, enhanced our use of data and analytics, to drive stronger KPIs. This work has yielded a remarkable improvement in our e-commerce business, where we see plenty of runway ahead. Stores were also positive in the quarter. We are pleased with early results from new store designs, including our Gateway store in Soho. The store encompasses all of our collections across AE, Aerie, Offline, AE77, AE247, and are unsubscribed seamlessly under one roof. New area and offline stores are also coming out of the gate positive to expectations. Turning to profit, we achieved our second highest third quarter gross margin and operating income in over a decade. This was only second only to 2021 when stimulus fueled exceptional results across the industry. Margin expansion to last year was driven by improved markup as well as numerous structural changes aligned with our ongoing focus on profit improvement. A few highlights of this work include maintaining tight inventory and promotional discipline, changing our clearance strategy to yield higher profit, scaling area and shifting the product mix into higher margin categories, modernizing our delivery network to reduce costs, and optimizing AE's real estate footprint. As we continue to drive strong demand and build momentum on this work, we are raising our full-year operating income guidance to the high end of our prior range. We now expect to be in the range of $340 to $350 million from $325 to $350 million prior. Lastly, our capital allocation priorities remain unchanged. We are committed to investing in our brand to continue growth while returning capital to shareholders. Our balance sheet is resilient, and we maintain a healthy liquidity position. We ended the quarter with $241 million in cash and nearly $900 million in total liquidity with no debt. Looking ahead, we remain intently focused on advancing our long-term strategic priorities to, one, drive consistent growth across our portfolio brands, and two, generate efficiencies and cost savings for improved profit flow through. We continue to advance towards our priorities and are investing in talent, which further positions us for future success. During the quarter, as part of our COO, Michael Rappel's succession plan, we made two key leadership appointments. We're excited to welcome Sarah Clark, our new Chief Supply Chain Officer, who is responsible for ensuring operational excellence across our global supply chain from sourcing through distribution and a welcome to valerie van atrop our new head of brand operations a role we created to drive greater collaboration and synergies across ae and aries growth and profit plan sarah and valerie nicely complement our teams of experienced executives an excellent bench of division leaders and associates There's a high level of focus and energy across the organization around our profit improvement project. We've had strong engagement from our leadership teams with great support from our board of directors. We're harnessing our innovative spirit to rethink how we operate every day. And with Workstream's focus on unlocking both revenue growth and efficiencies moving forward. We intend to host an investors meeting in spring of 2024, where we will unveil specifics on our go-forward strategy and provide long-term financial targets. In the near term, with incentives fully embedded in our 2023 expense base and early benefits from our profit improvement initiative, I'm confident of our ability to leverage expenses even on modest sales growth in 2024. AEO has enduring brands, robust operations, and strong talent. I am confident that with our strong foundation and new strategic direction, we have the right recipe in place to build revenue and profit from here and deliver shareholder returns. With that, I'll turn the call over to Jane.