Good day, and welcome to the AEO Inc. First Quarter 2025 Earnings Conference Call. — Operator Instructions — Please note, this event is being recorded. I would now like to turn the conference over to Ms. Judy Meehan, Head of Investor Relations and Corporate Communications. Please go ahead, ma’am.

Good afternoon, everyone. Joining me today for our prepared remarks are Jay Schottenstein, Executive Chairman and Chief Executive Officer; Jen Foyle, President, Executive Creative Director for American Eagle and Aerie; and Mike Mathias, Chief Financial Officer. Before we begin today’s call, I need to remind you that we will make certain forwardlooking 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 obli- gation 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 first quarter investor presentation. 1 And now I will turn the call over to Jay.

Thanks, Judy, and good afternoon, everyone. As described in our preliminary release earlier this month, we were disappointed with our first quarter performance. The margin impact together with a $75 million inventory write-down contributed to a $68 million adjusted operating loss for the quarter. At the brand level, American Eagle comps were down 2% and Aerie comps declined 4%. While the broader macro environment and cold spring weather presented challenges, we did not execute to our potential. We had some product misses in our spring and summer floor sets. At Aerie, in particular, merchandise came in with higher design and transportation costs. and we were not able to realize pricing to support a healthy margin. Altogether, this resulted in higher-than-expected promotions and the inventory writedown we took on spring and summer merchandise. In reviewing this season, our execution needs to be better and the entire team is hard at work to ensure that it is. We have been busy correcting and planning Fall 2025 and Spring 2026 seasons with all of our learnings top of mind. With the write-down behind us, we entered the second quarter with inventory for the season better aligned with recent sales trends. Additionally, we have implemented increased rigor into our buying process, which includes greater cross-functional partnership and oversight. We also remain focused on optimizing our operations consistent with our long-term strategic framework. In the first quarter, we accelerated plan actions to further strengthen our supply chain network, which included closing 2 of our edge fulfillment centers. This was the majority of the $17 million non-GAAP charge in the first quarter and is expected to generate annualized savings of approximately $5 million. 2 We continue to take steps to mitigate the impact of tariffs, using all levers at our disposal as it makes sense for our business. Additionally, we are continuing on our strategic path to move business to ensure we are manufacturing with best-in-class partners in countries that make sense for us. Although we continue to face challenges and near-term uncertainties, I believe we are making progress. While annual guidance remains paused until we have greater visibility, I am confident that we will see improvement as the year progresses. This is further underscored by the meaningful opportunities we see to continue to amplify our brands. Two of the most loved brands in retail, in American Eagle and Aerie as well as our active sub-brand OFFLINE. The team is focused on fueling growth and reach, and we remain confident in the strategic initiatives we have laid out to drive this. Our capital allocation priorities balance investments to support our long-term growth agenda while making sure we return capital to shareholders. On that note, in the first quarter, this included the initiation of a $200 million accelerated share repurchase program as well as $31 million in open market share repurchases. Additionally, we paid out $22 million in cash dividends in the first quarter. Before I turn the call to Jen, I want to underscore that we are working with urgency to reignite our performance. We expect to be well positioned, heading into the important back-to-school season and are confident that results will follow. We’ve been through challenges in the past and always emerged stronger and that is our goal. We are grateful for the continued commitment and support of our associates and partners as we work to capitalize on the meaningful shareholder value creation and opportunity in front of us. Now I will turn the call over to Jen.

3 Thanks, and good afternoon, everyone. Clearly, this was a tough quarter. We had misses on the merchandising front and a handful of key categories. This was compounded by a cool spring and a slow start to the quarter in February. As the quarter progressed, we saw improvement and met our sales guidance. However, promotional activity was up, resulting in lower AURs. We also took an inventory write-down, altogether driving significant margin pressure. Reviewing our performance by brand, starting with Aerie. Issues were concentrated in soft apparel, particularly in fleece tops and shorts, where some of our big fashion ideas for the season simply did not resonate with our customer. We also had higher product costs, and we are not able to realize the pricing to get an acceptable margin. We did see areas of strength, which we are leaning into as we move through the quarter and the balance of the year. In addition to certain fashion categories, we saw intimates improve sequentially as we gain share, newness and fabrication and design as well as refresh marketing, emphasizing our unique value offering is resonating well. OFFLINE by Aerie demonstrated positive growth. This continues to be such an exciting opportunity for us. We are gaining market share, expanding customer awareness and building a community around our truly unique take on activewear. Looking ahead, Aerie collections are more cohesive and balanced between basics and fashion items and tariffs aside product costs are favorable. Despite the near-term challenges, I am excited as ever about Aerie OFFLINE’S long-term growth opportunities. We have a powerful and strong platform. We will continue to build upon, our dedication to our customer is at the center of every decision we make, and we are committed to delighting them every day. Let’s turn to American Eagle. Although disappointing in total, we saw a nice improvement 4 as spring breaks got underway during the [ Marple ] period. As discussed last quarter, we experienced out of stocks in some core denim styles, which constrained our performance in this quarter. Overall, we saw weakness in shorts and pants. On the positive side, we’re pleased to see comp growth in several areas in our women’s business, in particular, categories that have been a strategic focus around our social, casual dressing initiatives. At the same time, we continue to elevate our everyday casual offering. We achieved our best quarter ever in fleece. And additionally, we came back in stock in women’s denim and men we saw improvement. Although, we continue to see pressure in men’s, 2 notable positives were tops in our activewear franchise, 24/7. Looking ahead, I am confident we can build on these wins while addressing the opportunities that came to light over the past few months. Additionally, we have some very exciting campaigns planned for back-to-school, which we believe will elevate the brand and build greater customer engagement. Before I turn the call over to Mike, I want to reiterate my confidence in the long-term growth potential for American Eagle and Aerie. We have powerful brands, strength in our selling channels and a dedicated customer base that continues to grow with us. We are working with urgency to make the right improvements to realize our full potential. And thank you all. I’ll turn the call over to Mike.

Thanks, Jen, and good afternoon, everyone. Beginning with our first quarter review. As stated earlier this month, first quarter consolidated revenue of $1.1 billion declined 5% to last year. This included a 1 point headwind from adverse currency and another point for moving our Hong Kong operations to a license model last year. Comparable sales decreased 3%. As Jen said, February is particu- 5 larly difficult with some improvement in the March/April time period. Of note, traffic was up across brands and channels, comp pressure came through lower AURs and conversion. Gross profit dollars were $322 million and included approximately $75 million in inventory write-downs on spring and summer goods, as previously disclosed. The gross margin was 29.6%. Our merchandise margin decreased 960 basis points driven by a 680 basis point impact from inventory write-downs. In addition, higher in-season markdowns, higher product costs and increased freight as we chased into goods pressured margins. Buying, occupancy and warehousing expenses deleveraged 140 basis points due largely to rent and delivery in light of the comp decline. SG&A dollars increased 2% as a result of higher advertising where we made investments to support our brands with a partial offset from lower compensation. Depreciation was down year-over-year to $52 million, and we recorded an adjusted first quarter operating loss of $68 million. And adjusted loss per share was $0.29. Consolidated ending inventory cost was down 5% following the write-down with units also down 5%. In the first quarter, as Jay noted, we continue to make long-term investments in our business, while returning cash to shareholders. First quarter CapEx totaled $62 million, with the open market buybacks and the accelerated share repurchase program, our share count comes down to approximately 175 million moving forward, and we remain on track to complete the program in the second quarter. We ended the quarter with approximately $88 million in cash and investments and over $620 million of total liquidity, including our revolver. Now turning to our outlook. While we have paused full year guidance until we have greater visibility, we wanted to share our expectations for the second quarter as well as some incremental color on the actions we’re taking to strengthen performance. 6 Jen and team remains focused on improving product performance with fresh back-toschool merchandise hitting shelves in July. As mentioned, we’ve taken actions on in- ventory, including leaving fall and holiday season buys open to maintain flexibility in our merchandising strategy. As we continue to navigate tariffs, we’re implementing various mitigation strategies, including partnering with our sourcing vendors to reduce costs. Additionally, we’re further diversifying our supply chain and on track to reduce our sourcing exposure to China at under 10% this year with fall and holiday season down to low single digits. We’re pursuing efficiencies across capital spend with full year CapEx now expected to be approximately $275 million as we re-cadence some investments over the coming years. And as noted last quarter, we expect currency pressure to alleviate in the second half as we lap headwinds from last year. Altogether, this positions us to deliver improved growth, profitability and cash flow as the year progresses. For the second quarter specifically, we expect the top line to trend similar to the first quarter, with revenue down 5% and comparable sales down approximately 3%. Operating income is expected to be in the range of $40 million to $45 million. We expect gross margin to be down to last year, driven primarily by higher in-season markdowns and BOW cost delevers on the comp decline. SG&A dollars are expected to be roughly flat with D&A at approximately $54 million. The tax rate is expected to be approximately 25%, and the weighted average share count will be approximately 175 million. Overall, we are committed to reaccelerating performance from here and to take the necessary actions to achieve that goal. We are better positioned entering the second quarter, and our teams are laser-focused on execution to strengthen our performance. And with that, we’ll open up for questions. 7

— Operator Instructions — And the first question will come from Matthew Boss with JPMorgan.

So Jay, maybe larger picture, what’s your view of the consumer today? How do you see this impacting the retail landscape into the back half of the year? And maybe across your brands, how much of the recent performance do you see as macro driven? Maybe relative to execution related? And how can you best respond?

All right. With the macro situation, look, we’re optimistic we’re hoping that this tax plan gets passed sooner than later. And I think that will give a lot of optimism and may even stimulate the economy as far as the second half goes. As far as the macro part as far as the first half, I think at the beginning of the year, it did have a little influence on us between people worried about the – about the immigration issue, they’re worried about the government cuts and worried about tariffs. I think people are getting more settled down now on it and it’s not as prominent as it was before.

Great. And then maybe, Mike, on the second quarter operating income, I guess could you help break down or break apart your embedded assumption for gross margin and just promotional activity needed and the time line to return to a clean inventory position across brands.

Yes, I can hit the inventory piece first. We’ve been hard at work really. We started to see 8 this trend in the first half then with the tariff news on April 2 to really reset plans for the rest of the year, especially in the back half. The write-down, obviously, to get our total inventory right set for this entire first 6 months, spring and summer goods. So our inventory, we feel better place for the back half, very much in line with sales expectations. We’ll talk about we’re not providing full guidance – full year guidance, but we’ll talk about that more on the next call. And for Q2 specifically, yes, we are still embedding on what is a negative 3% comp expectation similar to the first quarter at the moment, down 5% total revenue with — indiscernible — and currency and other – the currency, Hong Kong, a point or 2 headwinds there continuing for the second quarter until we lap both of those things starting in the third quarter. And still embedding some promotional activity that we believe we will probably need during the summer season here to get through the inventory and be clean going into the back-to-school season. And then on – with the down 5% total revenue, pressure on the expenses and gross margin, rent and delivery specifically, I would expect to see deleverage on those lines again, similar to what we saw in the first quarter.

The next question will come from Jay Sole with UBS.

Jen, my questions for you. Just talk about some of the merchandising issues. Do you feel like that maybe there was a little bit of a misread of where the consumer was going? Or was it perhaps your identification of trends was good, but maybe competition had the trends a little bit better or sooner than you did? And then secondly, how fast do you think you can get back on the trend where the merchandising is where you want it to be to perhaps drive stronger comp growth in the back- 9 to-school and holiday seasons?

Sure. Yes. To reiterate, we came off of a really solid Q4. We are expecting more as we moved into February, and obviously, that didn’t happen. I will tell you that these teams are working very swiftly to repair what our learnings are. And there’s always green shoots, right? And we definitely had product issues across brands, but there were product categories that work. So what the team’s been up to since February is repairing and looking forward ahead, of course, we needed to lean into moving our inventory, ensuring that we’re clean. That is our approach. We want to be clean and mean for back-to-school. It’s our Super Bowl season, and that’s what we’re working on. We have categories like OFFLINE. OFFLINE has been great. We had solid strength and growth there, and we’re leaning into that category when we think about the Aerie brand. There are misses, but look, we’re looking into back-toschool. I’m proud of what the team is working through. We have new members on the team, too, and we have new talent. And I think this team is a winning recipe, including moving some tenure teams into new businesses, i.e., direct. So I’m really excited about what’s come, but we have work to do. That’s for sure.

Your next question will come from Dana Telsey with Telsey Advisory Group.

As you think about capital allocation and the CapEx expenditure, I think came in a little bit, how are you thinking about your physical footprint? What’s changing in openings and closings versus what you had previously expected? 10 And then as you think about the merchandise assortment going into the back half of the year, category-wise, Jen, where do you expect to see the biggest improvement and what will take a little bit longer in order to address?

I’ll start with the product. Look,good news is our seasonal products are tough, right? Short across all 3 brands were tough. Interestingly, enough denim’s been, very strong for us and giving us nice solid indications as we think about back-to-school. So it’s interesting how we’ve been able to lean into that category and make sure we’re prepared for the back-to-school season, particularly obviously in AE. . I mentioned OFFLINE. OFFLINE has been a strong category for us. We’re winning in that area, and we’re going to continue to lean into that category in Aerie. And look intimates. We still have our – we have a – do you know what’s interesting as I think about all 3 brands is we’re holding our market share. Okay? And we’re gaining in areas like i.e. intimates, where that whole share has been down across the industry, and we’re gaining share. So thinking about Intimates for Aerie, we’re excited about that category. Undies has been accelerating for us. And again, we’re going to lean into these green shoots that we’ve been seeing, and we’re prepared for back-to-school.

On capital allocation and CapEx standard, you have reduced the guidance for the year to $275 million in CapEx. We’re really just retaining projects. I think our initial guidance for the AU remodel program was around 100 locations. We’re still to do about 60 to 70 this year. So just re-cadencing them to preserve a little bit of cash in the environment and really a reaction to our own business, but the tariff impact initially in April, we decided to recadence some capital projects to preserve some cash, to remodel program recadencing, Aerie stores, we’re still looking about 30 openings. And then we also just recadenced 11 some technology spend as well on a multiyear basis. And then when we prepared remarks, you talked about the dividend the first quarter and the ASR being completed here during the second quarter. And then further outlook, we’ll provide later in terms of continued plans. We know the remodel program will continue into next year. Aerie openings will provide additional color as we get further into this year as well.

Your next question will come from Marni Shapiro with The Retail tracker.

Can we just talk 2 things. I want to confirm, I think you said denim is still doing well, and you had some sellout. When you saw the weather break, did you also see denim pick up in denim shorts? And is denim doing well in men’s and women’s? And then I just have one quick follow-up on your marketing. Is that going to be weighted towards back-to-school? And any change in the spend there?

Sure. Let me just say, in general for men’s. Men’s, we’ve seen some acceleration in all categories as we move into Q2. So really good news there. Shorts have remained fairly tough for us across, again, all 3 brands. Hoping when the weather breaks, we’re going to see some relief there, and we can then pulse on that. Denim and women’s has been strong has been strong. Once we got back, and if you remember back in March, I quoted that we were out of stocks in February. When we got back into stocks, we saw the business and the momentum, really good news there. And it’s really interesting in denim. And I think I’ve mentioned this on previous calls. We’re seeing all fits work for women’s. It’s great news for us. 12 We have a stronghold in women’s denim, and we’ve gained share. So that’s the good news. And again, I want to reiterate on customer file. Our customer file in AE has grown high single digits and Aerie through this tough challenging time has grown mid-single digits. So we know we have work to do on the product. There were definitely some misses an Aerie, wake goods to the floor. I never like how that shows up, by the way, when they’re doing good. Never, I hate it. It ends up looking like what we all we know how that looks. And I know the teams we go – we see what our misses. And again, starting in February, we’ve been reacting. So back-to-school campaign start in July and move through the season.

Fantastic. And just the marketing, will that be weighted towards back-to-school. Is that when we should start to see the new campaigns and change...

Yes, absolutely. AE had a new floor set recently in areas of new floor set this week. So again, want to continue to bring in the newness that’s so important for our customer. But our real marketing campaigns, you’ll see more through July through the back-to-school season.

Honestly, the new floor set that just went in is running in such a big change from what’s been there. So congrats on that because it honestly looks fantastic.

Yes. Thank you. Like I said, starting in February, we started to move fast. So that’s what we need to do. 13

next question will come from Rick Patel with Raymond James.

Hoping you could talk about the outlook for promotions. So you touched on growth improving as the year progresses. What does that embed in terms of promotions? Like just bigger picture, how are you evaluating the potential to improve conversion with promotion versus protecting gross margins?

I think the outlook for the rest of this quarter, like I talked about, still assuming a little pressure on markdown through promotions, get ourselves completely clean going into the back-to-school season, as Jen talked about. In the back half, we’re still embedding a little more expectation around promotions into our gross margin expectations. But again, we haven’t really guided the full year, and we’ll provide more color on that in the third quarter.

I will say, and we definitely look at our – we diagnosed our assortments and where we might have had opportunity in units and opening price points and the teams have been up to remixing, starting back to school and even the near end, as I just spoke about.

Can you also unpack your outlook for SG&A. So you grew 2% in Q1, 2Q is planned flat. Just curious what you’re pulling back on and how you’re approaching the back half given expectations for better growth. Curious if you lean into that improvement or if you keep spending pretty tight here?

14 Yes. I’ll actually give a little color on the full year SG&A. So yes, we’re assuming around – we’re estimating – we’re projecting about flat in the second quarter, and that’s true for the year, too. As of right now, I expect SG&A to be relatively flat in the year, but what we’re leaning into is customer-facing spend, the earlier question, advertising will be up on the year. We have some exciting things coming for the kind of back to school season, Jen will elaborate on later. So we are – there’s some incremental spend in the third quarter. So all other SG&A is down on the year, including compensation lines. Advertising is where we are increasing spend, and that’s resulting in roughly a flattish outlook for the year.

Your next question will come from Jonna Kim with TD Cowen.

Could you just provide more color on how the digital performed versus stores during the quarter and what you’re seeing quarter-to-date there? And as you think about sort of mitigating the tariff impact, how are you thinking about the pricing strategy as you flow through the goods at a higher price?

We definitely saw an uptick on the digital channel, and we leaned in there during the quarter. I will say it was a very interesting quarter. The traffic was very tumultuous, whether it was going to stores or digital. It was – we navigated to the best of our ability, and we leaned into the digital channel for sure. And we saw a nice uptick on the AE side, particularly. So again, we’re going to continue to take those learnings and move forward. I think I missed your rather half of the promotional question, you’ve phased out. So... 15

Yes. Just on as you think about tariffs and mitigating that impact, how are you sort of using pricing as a lever there? How are you sort of selling promotions and raising pricing in the current environment?

Yes. As Jay mentioned in his – earlier, we definitely saw some impact of air and cost of goods, particularly in Aerie. So when we look forward and we again took our learnings, we’re making sure that our cost of goods is in line, including the tariffs. And I have to give a call out to the teams. We were well in front of the tariffs. We worked hard to make sure we were mitigating this risk between production, merchandising planning. They did an outstanding job, and we feel like we’re very well positioned for back- to-school and ready to compete.

The next question will come from Chris Nardone with Bank of America. We’re going to move on. Our next question will come from Alex Straton with Morgan Stanley.

Perfect. Maybe just on guidance. maybe what would give you confidence there to reinstate it? And what are really the KPIs for the second quarter that you’re watching to ensure that you’re making progress from some of the first quarter missteps?

Yes. On guidance, as we said, with the first quarter results, definitely some uncertainty still on the impact of tariffs for the rest of the year, focusing on getting ourselves right set into this back-to-school season. I’d imagine as we get to the second quarter call, we’ll 16 definitely be providing third quarter color. And if we have a better sense of narrowing down that impact compares to our gross margin, we get back to a full year number to include a fourth quarter expectation, too, but we’ll talk about that on the second quarter call in a few months. As far as metrics go, I think there are things that we saw in the first quarter traffic. Traffic was still relatively healthy in general, customer counts still very healthy. AUR and conversion were the drivers of the negative comps. So those are definitely metrics. We’ve got our eyes on here day to day between both channels, Jenn and teams looking at the results every day across those metrics to see what these adjustments that could be made promotionally, either across stores and digital. So I’d say those are the metrics. Based on the driver of the negative comp that we saw in the first quarter, we have our eyes on those very closely.

Your next question will come from Chris Nardone with Bank of America.

Do you hear me now?

Yes. Yes.

All right. Sorry about that. So first, can you just help clarify how both brands are trending so far this quarter relative to the 2Q comp guide of down 3%? I might have missed it.

I don’t think we said it. So I don’t think you missed it, but they’re very similar. Aerie down 17 2% in the first quarter, Aerie down 4% right now, they’re trending very similar to that total guidance.

Okay. And then just on margins really quick. I think you alluded to product costs becoming the tailwind. Can you just elaborate and help quantify anything around this and how we should think about phasing in the tariff impact, if it’s really going to be more of a 3Q onward event or if you’ll see some impact in the second quarter?

Yes. I think we talked about product cost being favorable pre any tariff impact. And then the tariffs, we’ve got the mitigated impact to this year. Couple of million dollars in the second quarter, but the full year number is around $40 million, Chris. Again, a couple of million dollars in the second quarter that’s embedded in our current guidance. The rest of it you could spread between Q3 and Q4.

And our final question will come from Simon Siegel with BMO Capital Markets.

This is Dan on for Simeon. Anything you could share in terms of how you’re planning inventory for the remainder of the year and maybe what you’re planning open to buy for the back half versus historical levels?

Yes. As I said earlier, we’re planning inventory commensurate with our sales expectations. We made a lot of adjustments through this first few months of the year to right set things for the rest of the year, feel very good about how we’re positioned as of right now going into the back half. 18 And we do have about 30% of that open at the moment with calls coming over the next several months as we get into the around the June, July and August period. So we’ll be making very detailed – and decisive conversations together on placing those buys as we see the trend continue over these next several months, but that flexibility is key.

I think there’s no one else left in queue. So that concludes our call for today. Thanks, everyone, for your participation. Thank you.

Thanks, everyone.

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