AEO Q2 2025 Earnings Transcript Overview - Blog

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Announcement Date and Time of the Earnings Call

Wednesday, September 3, 2025, at 4:30 p.m. ET

Meet the Key Participants of the Earnings Call

Executive Chairman — Jay Schottenstein
President and Executive Creative Director at Aerie — Jennifer Foyle
Chief Financial Officer — Michael Mathias
Chief Marketing Officer of American Eagle — Craig Brahmers

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Identifying Potential Risks Impacting Performance

Tariff Impact — Chief Financial Officer Michael Mathias highlighted, “About $20 million of impact from Q3. $40 million to $50 million in tariff impact expected in Q4,” which will exert pressure on gross margin and earnings during the latter half of the fiscal year.
Store Closures — Michael Mathias stated, “We now expect to close 35 to 40 American Eagle locations by year-end,” citing the ongoing need to rebalance the physical store fleet due to increased digital penetration.

Key Insights and Financial Takeaways from the Earnings Call

Total Revenue Performance — Fiscal Q2 2025 revenue was reported at $1.28 billion, reflecting a 1% decrease; this represents the company’s second-highest Q2 revenue ever recorded.
Gross Margin Analysis — Gross margin stood at 38.9%, an increase from 38.6% year over year; achieved despite “20 basis points of deleverage in buying, occupancy, and warehousing” during fiscal Q2 2025, per Michael Mathias.
Operating Income Growth — Operating income reached $103 million, reflecting a 2% increase from the previous year, resulting in an operating margin of 8%, compared to 7.8% in the prior year.
SG&A Expense Trends — SG&A expenses totaled $342 million, down 1% from the previous year in fiscal Q2 2025, remaining flat as a percentage of sales, driven by restructuring efforts, cost control measures, and increased advertising investments.
Diluted EPS Growth — Diluted EPS saw a rise of 15% compared to the previous year.
Comparable Sales Performance — Comparable sales experienced a decline of 1% in fiscal Q2 2025; however, Aerie comparable sales increased by 3% during the same period, while American Eagle comps declined, though overall traffic increased across brands, with comps turning positive in August.
Inventory Management — Ending inventory costs rose by 8%, with units increasing by 3% in fiscal Q2 2025, primarily attributed to tariff effects; management described inventory levels as “aligned with our plans.”
Share Repurchase Activities — Year-to-date, the company executed $231 million in buybacks, reducing shares outstanding by 20 million, or about 10% year-to-date; this includes the completion of a $200 million accelerated repurchase program in fiscal Q2 2025.
Cash Position and Liquidity — Ending cash was reported at $127 million in fiscal Q2 2025, with total liquidity nearing $400 million; $200 million was drawn from the revolver to support buybacks and seasonal cash demands during fiscal Q2 2025.
Store Remodeling and Closures — Plans are in place to remodel 40-50 American Eagle stores, while 35-40 American Eagle store closures are anticipated by year-end.
Q3-to-Date Sales Performance — Quarter-to-date, consolidated comparable sales are up mid-single digits in fiscal Q3 2025, with Labor Day described as a record-breaking period for the company.
Guidance for Q3 and Q4 — Fiscal Q3 2025 comparable sales are projected to experience a low single-digit increase, with operating income expected to be between $95 million to $100 million (including approximately $20 million in tariffs); for fiscal Q4, comparable sales are anticipated to increase by low single digits, and operating profit is projected at $125 million to $130 million (factoring in approximately $40 million to $50 million in tariffs).
SG&A Expense Forecast — SG&A expenses are expected to rise by high single digits in fiscal Q3 due to advertising investments, while fiscal Q4 SG&A is projected to be slightly lower.
Marketing Campaign Results — Highlighted “record-breaking” new customer acquisitions, exceeding 700,000 new customers, alongside 40 billion campaign impressions from the Sydney Sweeney and Travis Kelce collaborations, generating significant national engagement and denim sellouts.
Digital Channel Developments — “Foundational improvements” are being made, with digital traffic and sales penetration recognized as major growth drivers, as well as distribution costs.

Comprehensive Summary of American Eagle Outfitters’ Performance

American Eagle Outfitters(AEO 0.63%) has reported that early momentum in fiscal Q3 2025 is being fueled by strong new customer growth resulting from celebrity marketing campaigns, with increased traffic sustained into August, especially during Labor Day. Strategic adjustments to the supply chain, including shifts in country of origin and vendor negotiations, have significantly mitigated an unmitigated $180 million tariff impact down to an expected $70 million for the second half of the year (fiscal Q3 and Q4 2025). Inventory management has been proactive, keeping pace with category trends and anticipated demand, with minimal pull-forward noted related to tariffs in fiscal Q2 2025. A lower promotional cadence has also contributed to improved gross margins despite sales declines in fiscal Q2 2025. The company is prioritizing rationalization of its store fleet while accelerating the rollout of Aerie and offline locations, scaling back on core American Eagle stores in response to changing consumer behavior. Shareholder returns remain robust, with buybacks and dividends year-to-date, alongside an intention to reduce seasonal debt by year-end.

Michael Mathias remarked, “Our unmitigated number was closer to $180 million, compared to the $70 million we are guiding to,” confirming multiple simultaneous mitigation strategies—country-of-origin remixing, cost negotiations, and selective price adjustments — with pricing “not being the primary mitigation strategy,” as discussed for fiscal Q2 and the latter half of the year.
The company noted that “digital is definitely a key driver” for growth in fiscal Q3 and Q4, but it also entails “variable expenses” and “slight deleverage” in BOW lines as penetration increases.
Marketing investments are heavily concentrated in fiscal Q3, explicitly supporting ongoing campaign activities, with guidance indicating advertising as the main driver of high single-digit SG&A growth.
American Eagle’s men’s and Aerie’s intimates businesses have been identified as major focus areas, with new collections and merchandising shifts yielding “notable upticks” and momentum continuing into the fall season, as observed in fiscal Q2 and into fiscal Q3 2025.
Store fleet optimization is ongoing as management plans for 35-40 American Eagle store closures in 2025, doubling recent annual closure rates while simultaneously opening new Aerie and offline stores to capture growth segments.

Key Industry Terms and Definitions

BOW (Buying, Occupancy, and Warehousing): Cost components associated with product sourcing, distribution, and store occupancy, distinct from cost of goods sold and SG&A.
AUR (Average Unit Retail): The average selling price per unit of merchandise, accounting for promotional discounts and markdowns.
UPT (Units Per Transaction): The average number of items sold per customer transaction.

Complete Conference Call Transcript

Jay Schottenstein: Thank you, Judy, and good afternoon, everyone. Before diving into quarterly results, I want to acknowledge the team’s hard work and our commitment to our long-term plans. We had a solid quarter, but more importantly, we continue to strengthen our brands, enhance our growth trajectory, and manage our business for improved profitability. The consumer landscape is dynamic, yet we are focused on controlling what we can—providing an exceptional customer experience while maintaining cost discipline. I am pleased to report on the encouraging early results of our initiatives aimed at reigniting performance.

Last quarter, I spoke about a series of actions we are implementing, and I am proud to say that the team has moved swiftly to execute them. Product initiatives across brands, exciting new marketing campaigns, and improved operational practices are all contributing to better business outcomes. While we have significant work ahead, we are optimistic about the progress made thus far. Total revenue of $1.28 billion marks our second-highest posted for the second quarter, reflecting meaningful improvement from the first quarter and validating the actions we’ve undertaken. Aerie has rebounded dramatically from the first quarter, achieving comparable growth of 3%. American Eagle has also shown notable improvement in key categories moving forward, as Jen will elaborate shortly.

Traffic across brands and channels was positive throughout the second quarter, and I was pleased to see momentum build, continuing into August. Following the inventory write-down in the first quarter, the team focused on effectively managing the season, achieving better sell-throughs with fewer promotions. Financial discipline was a priority, with SG&A expenses down compared to the previous year. Operating income improved by 2% to $103 million, significantly surpassing our expectations. Diluted EPS increased by 15% compared to last year. Overall, it was a solid quarter, and we are encouraged by the advancements. However, our work is far from finished.

We are leaving no stone unturned and are committed to expanding our brands by prioritizing customer satisfaction and improving operational efficiencies. A key component of this plan is to enhance efficiency and speed across our supply chain. Regarding tariffs, we anticipate feeling their impact in the second half of the fiscal year, as Mike will discuss. We are employing all available levers to mitigate these tariff increases. Our early efforts have been fruitful, as we have taken steps to ensure that manufacturing options are strategically placed in countries conducive to our business moving forward. We have a highly experienced sourcing team and strong partnerships with our vendors. We will leverage these relationships as we navigate evolving trade dynamics.

In terms of capital allocation, we continue to strike a balance between investments that support our long-term growth strategy and returning capital to our shareholders. Year-to-date, we have returned $276 million to shareholders through dividends and share repurchases. This includes the completion of our $200 million accelerated repurchase program earlier this year.

The fall season has started strong, propelled by the strength of our product lines and the success of our recent marketing campaigns. Our iconic fall denim campaign featuring Sydney Sweeney reinforces our position as the American jeans brand. We witnessed record-breaking new customer acquisition and brand awareness across various age demographics. Additionally, our recent collaboration with True Colors by Travis Kelce has sustained this momentum. Throughout August, we experienced periods of heightened demand from both campaigns, driving positive traffic increases, which persisted throughout the month. In closing, we are committed to building on the progress made this quarter. We possess enduring brands with substantial potential for growth.

I am confident that we will realize our potential and achieve sustainable, profitable growth in the long run, creating greater value for our shareholders. Now, let me turn it over to Jen.

Jen Foyle: Thank you, Jay, and good afternoon, everyone. We observed clear improvements in the business during the second quarter. Our efforts to enhance collections across brands, focus on best-sellers, and deliver higher margins are already yielding positive results. As we navigated challenges from the first quarter, we noted progressive improvements with new deliveries, and I am encouraged that momentum has strengthened into August with the arrival of our new back-to-school collections. Let me walk you through some of the new highlights.

Starting with Aerie, we achieved a nice rebound from the first quarter, delivering comparable growth of 3% and attaining record second-quarter revenue. Performance was driven by positive demand across several major categories, including intimates, soft dressing, sleepwear, and our activewear collections at offline. While shorts posed the most significant seasonal challenge, we are focused on driving improvements in this area as well. Intimates have been a key focus within our long-term strategy, and we are determined to recapture market share in this category. We are pleased to see customer response to new fits and fabrics in both underwear and bras, along with more frequent fashion drops.

For instance, in July, we launched the Parisian romance fashion capsule, which incorporated feminine elements such as lace and chic combinations of our most beloved silhouettes. Our Aerie customers responded positively, and this collection served as a pivotal moment as we entered the fall season on a strong note.

Outside of intimates, offline continues to perform positively, and we remain excited about the growth potential as we enhance brand awareness and further expand our presence. Now, turning to American Eagle, although second-quarter comparable sales declined, demand improved as the quarter progressed, and I am confident we are at an inflection point. Despite pressure on the second quarter from early spring receipts and softer demand in shorts and bottoms, AE has witnessed solid improvements in key forward categories. This was particularly evident as the quarter progressed, notably in women’s jeans, tops, and dresses, where we focused on building franchises, such as our new Sun Chasers collection.

Men’s categories have also seen promising trajectories, with positive trends in key classifications, including graphics, knit tops, and jeans, especially in August. Our back-to-school arrivals have been well-received.

New jean styles, together with a continued emphasis on great outfitting across genders, have been driving business success. This year, we have continued our longstanding partnership with “The Summer I Turned Pretty,” expanding the collection with new styles and three separate drops to align with the storyline. Furthermore, as Jay mentioned, our exclusive products and marketing campaigns featuring Sydney Sweeney and Travis Kelce have generated tremendous energy and buzz. These two signature collaborations, over a year in the making, have resulted in strong responses driven by limited edition merchandise, showcasing the power of celebrity influence and quality product. Sweeney’s signature jeans sold out within a week, with some items selling out in just one day.

The demand for her curated online shop, “Sid Picks,” has been exceptionally strong. Likewise, AE and True Colors by Travis Kelce have experienced substantial engagement, driving higher traffic and attracting new customers. Product sell-throughs have been impressive. Overall, we are thrilled with the outcomes of these campaigns. Since launch, customer counts have increased by more than 700,000, and the combined campaigns have generated an astounding 40 billion impressions. Looking ahead, our plan is to build on this momentum to further enhance brand awareness, customer engagement, and retention, ultimately strengthening long-term brand loyalty. I am proud of our accomplishments in the second quarter and the encouraging early trends in the third quarter. Our work is ongoing and at full throttle.

We are wholly focused on the future and are dedicated to enhancing all aspects of our business to achieve sustained growth. I want to extend my gratitude to our teams, and now I will turn the call over to Mike.

Mike Mathias: Thanks, and good afternoon, everyone. I echo Jay and Jen’s sentiments by expressing our encouragement with the solid progress made in the second quarter, with results surpassing the expectations we set back in May. Stronger demand, coupled with lower-than-anticipated promotional activity and well-managed expenses, enabled us to stabilize margins and deliver operating income that was 2% above last year. Consolidated revenue of $1.28 billion reflects a 1% decline compared to the previous year.

Comparable sales also decreased by 1%. A lower average unit price was largely offset by transaction growth, benefiting from positive traffic across various selling channels. Demand picked up as the quarter progressed, with July being our best month of the second quarter as we launched our initial back-to-school product collections. As Jay mentioned, we are pleased to see this improvement carry into August, with consolidated comps turning positive. Gross profit dollars of $500 million indicated a gross margin of 38.9%, compared to 38.6% last year. Following the inventory write-down in the first quarter, we ended the quarter with reduced promotions.

This was partially countered by 20 basis points of deleverage in buying, occupancy, and warehousing as a result of the sales decline. BOW dollars remained flat compared to the last year. SG&A expenses were better than anticipated, declining by 1% to $342 million, remaining flat as a percentage of sales. Compensation costs fell due to recent restructuring initiatives, offset by investments in advertising. Other expense categories remained consistent, reflecting our ongoing cost management strategy. Operating income reached $103 million, representing a 2% increase from the previous year, resulting in an operating margin of 8%, compared to 7.8% last year. Consolidated ending inventory costs rose by 8%, with units increasing by 3%.

The inventory cost increase is primarily attributed to the impact of tariffs. We are comfortable with our inventory positioning for the quarter, which aligns with our plans. Our capital allocation priorities remain focused on investing in growth and returning cash to shareholders through dividends and share repurchases. Second-quarter capital expenditures totaled $71 million, bringing our year-to-date spending to $133 million. We anticipate capital expenditures of approximately $275 million for the year. During the second quarter, we completed our $200 million accelerated repurchase program announced earlier this year. Year-to-date, we have returned $231 million through buybacks, reducing outstanding shares by 20 million, or around 10% of diluted shares.

Our balance sheet remains strong, with ending cash of $127 million and total liquidity of approximately $400 million. To facilitate the buyback program, we drew down $200 million from our revolver and seasonal cash needs. By year-end, we expect to repay the majority of outstanding debt and begin rebuilding our cash reserves. We continue to prioritize investments in our digital channel, making foundational improvements to the shopping experience. Additionally, we are focused on optimizing our store fleet to ensure we are in the best locations to provide an exceptional customer experience while pursuing further growth opportunities.

This year, we plan to open approximately 30 Aerie and offline locations and remodel 40 to 50 AE stores to align with modern store design. We now anticipate closing 35 to 40 American Eagle locations by year-end. Turning to our outlook, the third quarter has started positively, with quarter-to-date consolidated comps rising in the mid-single digits. This includes a favorable turnaround in business, as Jen noted, as well as a very strong Labor Day weekend. With more than half of our quarter remaining, our outlook for Q3 includes a low single-digit increase in comparable sales.

Third-quarter operating income is expected to range between $95 million and $100 million, which includes approximately $20 million in incremental tariff costs. Buying, occupancy, and warehousing expenses are projected to rise due to new store growth for Aerie and offline, as well as increased digital penetration leading to slight deleverage. SG&A expenses are expected to increase in the high single digits, primarily driven by advertising investments. The tax rate is estimated to be around 25%, and the weighted average share count will be approximately 172 million. For the fourth quarter, we anticipate a low single-digit increase in comparable sales and operating profit in the range of $125 million to $130 million, including roughly $40 million to $50 million in tariff impacts.

SG&A expenses are expected to decrease slightly for Q4. We are encouraged by the progress made this quarter, demonstrating that our initiatives are effective. While this is a positive step, our teams remain sharply focused on building on this profitable sales momentum, managing costs, and driving ongoing improvements across the organization to deliver enhanced profitability. We are now ready to take your questions.

Operator: We will now begin the question and answer session. If you have a question, please press star then 1. Our first question comes from Jay Sole with UBS. Please go ahead.

Jay Sole: Thank you very much. I would like to ask about the Sydney Sweeney and Travis Kelce campaigns. Clearly, I believe, Jen, you mentioned that there were 40 billion impressions, which is an impressive figure. Can you elaborate on how you intend to maintain momentum with the new customers you have attracted? Are these consumers purchasing specific products associated with the celebrities, or are they shopping across various categories, including tops and bottoms? Thank you.

Jen Foyle: Certainly, Jay. I would like to introduce Craig Brahmers, as we anticipated many questions regarding this exciting campaign. So, let me introduce the Chief Marketing Officer of American Eagle, Craig Brahmers.

Craig Brahmers: Thank you, Jen. The American Eagle Sydney Sweeney campaign was designed to serve as a brand and business reset, and it has achieved that goal. Let me be very clear: Sydney Sweeney sells outstanding jeans. She is incredibly successful. In just six weeks, this campaign has generated unprecedented new customer acquisitions. Importantly, this consumer acquisition spans every county in the U.S. This momentum is both national and pervasive. We have experienced sellouts of denim items worn by Sydney. Throughout this quarter, we have seen a strong positive traffic flow, and as Jen mentioned, a staggering 40 billion impressions. However, it’s essential to recognize that a brand campaign should not be evaluated based on a single day, week, or even month. A successful brand campaign endures over time.

We are off to a start that surpasses our wildest dreams. As we monitor consumer sentiment over the past six weeks, we have noticed a significant increase in consideration and purchase intent. Now, our opportunity lies in converting this excitement into business and transforming these new customers into repeat buyers. That’s the work ahead of us.

Jen Foyle: To add to that, Jay, regarding what these new customers are currently purchasing: All brands are experiencing acceleration. As you know, we share domain in our direct business. We are successfully driving traffic to our website. Labor Day was record-breaking for us; it was our best Labor Day in history. We had an outstanding weekend. However, we still have work to do in this quarter, as there are certain sellouts we need to address. Overall, we are experiencing strong success across our key categories, particularly in jeans, where we excel, and we take great pride in that assortment. Our jeans assortment is diverse, allowing us to attract new customers of various body types and age groups, and we are genuinely excited about the market share we are capturing. Furthermore, Aerie intimates is making a comeback, which is thrilling to see. We noticed this acceleration in Q2, and it is continuing into Q3 with the launch of our Parisian sheet capsule that I mentioned earlier. Lastly, the acceleration in men’s categories has been particularly exciting. We have been focused on revitalizing the men’s business, and we are witnessing positive outcomes across various classifications.

Jay Sole: If I could follow up on that, while the marketing campaigns have been immensely successful, I want to discuss the product assortment for both Aerie and men’s. Can you remind us how the product offerings have evolved from the first half of the year to the current back-to-school season, and what you expect for the holiday season? How much of the improvement in business can be attributed to an enhanced product assortment that aligns with current trends, as opposed to the excitement surrounding the marketing campaigns?

Jen Foyle: That’s a great question, Jay. To start, Aerie needed to address some challenges. Our core competency lies in the apparel sector, and we had areas for improvement regarding fleece. Fortunately, our team worked diligently, and we have seen remarkable results in fleece. As you know, this is a seasonal business, and as we transition into Q3 and build toward Q4, we are witnessing a positive uptick there. Intimates have also begun to show improvement, initially in Q1, and we doubled down in Q2, resulting in notable acceleration into Q3. This essentially encapsulates the Aerie story. There were some seasonal products, such as shorts, that presented challenges, which was similarly true for American Eagle. Both men’s and women’s shorts were categories where we needed to gain momentum. Despite this, we successfully accelerated long bottoms and long legs in both segments as the quarter progressed, leading to positive results for the AE business.

We are genuinely excited about our new jean styles and our ongoing commitment to offering great outfitting across genders. This year, we have continued our partnership with “The Summer I Turned Pretty,” expanding the collection with new styles and timing our drops to coincide with the storyline. Additionally, as Jay mentioned, our exclusive products and marketing initiatives featuring Sydney Sweeney and Travis Kelce have created incredible energy and excitement around our brand. Over a year in the making, these two signature collaborations have yielded strong responses driven by limited edition merchandise, showcasing the impact of celebrity style and quality products. Sweeney’s signature jeans sold out within a week, with some items flying off the shelves within just one day.

Demand for her curated online shop, “Sid Picks,” has been exceptionally robust. Similarly, the collaboration with True Colors by Travis Kelce has garnered significant engagement, driving increased traffic and new customers. Product sell-throughs have been impressive. Overall, we are thrilled with the results of these campaigns. Since their launch, our customer base has grown by more than 700,000, and the combined campaigns have generated an extraordinary 40 billion impressions. Looking ahead, we plan to build on this momentum to further enhance brand awareness, customer engagement, and retention, ultimately strengthening long-term brand loyalty. I am proud of our accomplishments in the second quarter and the promising early trends in the third quarter, as our work continues at full speed.

Mike Mathias: Thank you, and good afternoon, everyone. I echo Jay and Jen’s sentiments regarding our positive progress in the second quarter, with results exceeding our expectations set back in May. Stronger demand, coupled with lower-than-anticipated promotional activity and well-managed expenses, has allowed us to stabilize margins and deliver operating income that is 2% above last year. Consolidated revenue of $1.28 billion reflects a 1% decline from the previous year.

Comparable sales also decreased by 1%. A lower average unit price was largely offset by transaction growth, benefiting from positive traffic across various selling channels. Demand has picked up as the quarter progressed. July was our best month of the second quarter due to the launch of our initial back-to-school product collections. As Jay mentioned, we are pleased to see this improvement continue into August, with consolidated comps turning positive. Gross profit dollars of $500 million indicated a gross margin of 38.9%, compared to 38.6% last year. Following the inventory write-down in the first quarter, we ended the quarter with reduced promotions.

This year, we plan to open approximately 30 Aerie and offline locations and remodel 40 to 50 AE stores to align with modern store design. We now anticipate closing 35 to 40 American Eagle locations by year-end. Turning to our outlook, the third quarter started positively, with quarter-to-date consolidated comps rising in the mid-single digits. This includes a favorable turnaround in business, as Jen noted, as well as a very strong Labor Day weekend. With more than half of our quarter remaining, our outlook for Q3 includes a low single-digit increase in comparable sales.