Q3 2024 American Eagle Outfitters Inc Earnings Call
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Speaker Change: Greetings and welcome to the American Eagle Outfitters third quarter 2024 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 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. You may begin.
Judy Meehan: Good afternoon everyone. Joining me today for our prepared remarks are Jay Schottenstein, Executive Chairman and Chief Executive Officer, Jennifer Foyle, President, Executive Creative Director for AE and AERI, and Mike Mathias, Chief Financial Officer.
Judy Meehan: 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 in our FEC filings.
Judy Meehan: 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.
Judy Meehan: Consistent with the retail calendar in the 53rd week last year, third quarter 2024 results and today's discussion are presented for the 13 weeks ended November 2nd, 2024, compared to the 13 weeks ended October 28th, 2023.
Judy Meehan: Comparable sales metrics are presented for the 13 weeks ended November 2nd, 2024, compared to the 13 weeks ended November 4th, 2023.
Judy Meehan: 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.
Judy Meehan: Reconciliations of adjusted results to the gap 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 third quarter investor presentation.
And now I'll turn the call over to Jay.
Jay Schottenstein: We are pleased to report another strong quarter building on positive performance in the first half of the year.
Jay Schottenstein: Our powering profitable growth strategy is clearly delivering results. As we execute on these strategic initiatives, we are positioning AEO for healthy long-term growth and transforming how we operate to be more efficient and agile.
Jay Schottenstein: This is all aimed at strengthening long-term profitability and building greater consistency in our performance.
Jay Schottenstein: Third quarter comparable sales grew 3% on top of last year's strong 5% growth.
Jay Schottenstein: with positive momentum across brands and channels. While we saw some demand choppiness, we successfully offset the bulk of this through expense efficiencies and delivered adjusted operating income at the high end of our guidance.
Jay Schottenstein: Turning now to a few highlights of the quarter. First, we're making very good progress on our top strategic pillar, Amplify Our Brands.
Jay Schottenstein: Building on a solid foundation in denim as the number one brand for 15 to 25 year olds and the number one brand for women of all ages, American Eagle achieved its sixth consecutive quarter of comparable sales growth and share gains in several key categories.
Jay Schottenstein: Our strategies to fuel growth and go after new dressing occasions like social casual and men's active are gaining momentum with meaningful opportunities still ahead.
Jay Schottenstein: ARI achieved yet another record revenue result, also led by positive comp growth.
Jay Schottenstein: With revenue on track to cross 1.7 billion dollars this year, I'm so proud of the remarkable strides the teams have made.
Jay Schottenstein: Aerie's unique brand DNA anchored in authenticity, positivity, and empowerment continue to resonate powerfully with women of all ages.
Jay Schottenstein: And we are incredibly encouraged by continued momentum and market share growth in soft dressing and active wear, which are two of our strongest long-term growth engines.
Jay Schottenstein: There is no better validation of our strategic direction than the vote of our customers. On that note, we are pleased to see continued growth in our customer file across brands in the third quarter.
Jay Schottenstein: And we were thrilled to see American Eagle and Aerie retain their top rankings as a shopping destination for a day's youth, yet again, in the fall edition of Piper Sandler's Teen Survey.
Jay Schottenstein: This is a testament to our strong brand heritage and evergreen promise of delivering high quality fashion at a great value to our customers.
Jay Schottenstein: Turning to our second strategic pillar, optimizing our operations, we take great pride in the quality of our shopping experience, where we continue to invest and innovate. Openings and remodels are tracking well and delivering results in line with our expectations.
Jay Schottenstein: Two recent call-outs in high-profile malls where we have seen terrific results are King of Prussia, Pennsylvania, and Woodfield, Illinois, with all brands represented.
in a fresh and modern way.
Jay Schottenstein: Additionally, we remain highly committed to elevating our e-commerce platform. We are successfully leveraging new tools like outfitting and sizing, as well as customer engagement tactics to improve conversion.
Jay Schottenstein: We also set the stage for ongoing improvement through a number of restructuring actions we took during the quarter, which Mike will elaborate on.
Jay Schottenstein: Lastly, our balance sheet remains in great shape. We exited the quarter with 160 million dollars in cash and no debt. During the third quarter, we continue to advance our capital allocation priorities, investing in our brands and operation to drive growth while returning cash to our shareholders.
Jay Schottenstein: With three successful quarters under our belt, we are poised to deliver significant progress across our strategic initiatives this year.
Jay Schottenstein: And we expect to achieve mid-team growth in operating income this year, in line with our long-term roadmap. Yet, as Mike will review, we have adjusted our full-year guidance to reflect more cautioned fourth-quarter demand outlook. This also incorporates pressure from a strong U.S. dollar.
Speaker Change: Before I turn it over to Jen, I want to underscore the strength of our brands and our commitment to powering their long-term potential while continuing to strengthen our operations.
Speaker Change: In the near term, we remain focused on delivering the holiday season as we execute on our strategic initiatives. Now over to Jen.
Jen: Thanks Jay, and good afternoon everyone. Overall, I am pleased with our third quarter performance.
Jen: Demand was positive each month, with peak back-to-school selling weeks seeing the strongest trend. The teams executed well in this environment, working strategically to drive top line while maintaining healthy profit flow through.
Jen: Led by our amplified strategy, we came to market with trend rate fashion underscored by our unique price value quality equation.
Jen: We supported our brands with innovative marketing and collaborations and promoted selectively to support healthy traffic and conversion.
Jen: So, beginning with ARI, the third quarter marked yet another record revenue result, with comps growing 5%, building on 12% growth last year.
Jen: I'm thrilled to see strong momentum continue. In fact, we expect 2024 to mark our 11th consecutive year of revenue growth and we remain excited about the opportunities ahead.
Jen: We continue to scale our core businesses and fuel new opportunities.
Jen: Aerie's apparel category achieved its seventh consecutive quarter of double digit growth with strength across soft dressing and offline active wear and we're just getting started.
Jen: These two categories continue to be our most exciting growth opportunities, which we are actively building on with each season.
Jen: In soft dressing, strength in the third quarter was led by sleep, dresses, tees, tanks, sweaters, and fleece.
Jen: We are gaining traction and sleep by expanding into new fabrications and styles. In activewear, I am extremely pleased to see Offline continue to grow in the highly attractive $29 billion activewear market.
Jen: In the third quarter, we saw strength and share gains in leggings and sports bras, as we brought greater innovation to core product lines.
Jen: As awareness of offline builds, it's bringing in new customers. In fact, Active Bottoms has been our strongest driver of new customer acquisitions.
Jen: Now turning to intimates, while the category continues to be down across the industry, we are holding our share. I was pleased to see demand trends improve substantially with each month.
Jen: Newness is resonating and I am pleased to see this improvement continue into this holiday season.
Jen: As we build brand awareness, we are accelerating investments in our influencer strategy. With our holiday campaign, Get Real, Make It Airy, we are highlighting comfy, cozy looks and elevated styling for the holiday occasions.
Jen: In addition, we launched new activewear focused marketing for offline for the first time. Here we highlighted our Famous 4 Fabrics, a key differentiator for the brand.
Okay, now moving on to American Eagle.
Jen: I was pleased with the business in the third quarter, particularly with the strengths during the back-to-school season. American Eagle posted a 3% comp increase following a positive 2% comp last year, marking its sixth consecutive quarter of growth.
Jen: We are making solid progress on our strategic pillars. Momentum in women's continued, and I am especially pleased with share gains across denim and tops.
Jen: We saw positive comps across most categories with double-digit increases in dresses, sweaters, fleece, shorts, and skirts.
Jen: We are seeing powerful trends and distorting into new fashion as we offer greater options for outfitting, including more wear out, social casual dressing occasions.
Jen: Within men's, we have seen sequential improvement across a number of categories. Highlights include knit tees and men's sweaters.
Jen: AE men's continues to be top of mind with our core demo as we hold chair and denim and gain in other focus categories like tops and activewear.
Jen: Okay, now on the marketing front. With last quarter's launch of Live Your Life, we continue to engage our community in new and exciting ways. Product and celebrity collaborations have been positive, including our Timberland, Red Bull, and the NFL, where we are chasing into styles for future seasons.
Jen: And we are particularly excited about our upcoming partnerships as we look ahead into the spring season.
Jen: And now, the holiday season is upon us. Our product looks great and we are seeing a favorable customer response.
Overall, we've had numerous wins across our brands.
Jen: Stores have been particularly strong and we are highly focused on working hard to fuel improvements and deliver upon the holiday season.
Jen: Stepping back, we are making fantastic progress across our strategic initiatives.
Jen: Our brands are top destinations and our unique combination of quality, fashion, and value is second to none in this marketplace.
Jen: I am incredibly confident that we are on the right path to unlock the tremendous potential we see across our brands.
Speaker Change: Thanks to the teams for their incredible focus and commitment, and wishing everyone a happy holiday season. And with that, I'll turn the call over to Mike.
Mike Mathias: Thanks Jen, good afternoon everyone. We remain focused on our powering profitable growth plan with the third quarter another proof point of the effectiveness of our strategic initiatives.
Mike Mathias: As Jay and Jen noted, we were able to deliver adjusted operating income on the high end of our guidance with positive comms across brands and channels while experiencing some peaks and lulls in demand.
Mike Mathias: As discussed at our strategy meeting back in March, we have an ongoing focus on optimizing our business and improving profit flow through.
Mike Mathias: With this work continuing, we took additional actions in the third quarter, which included further moves to streamline our corporate cost structure and better align our teams.
Mike Mathias: We also made a change in Hong Kong from a company owned operation to a licensed model.
Mike Mathias: Expanding on a few third quarter highlights, consolidated revenue of $1.3 billion was down 1% to last year, reflecting the $45 million headwind related to the retail calendar as previously discussed.
Comparable sales increased 3% in line with our guidance.
This follows a 5% comp increase last year.
Mike Mathias: Operating income of $106 million included $18 million of the impairment and restructuring costs I discussed earlier. Adjusted operating income was $124 million on the high end of our guidance range and included approximately $20 million of headwinds related to the shifted calendar.
Mike Mathias: The adjusted operating margin of 9.6% was flat to last year.
Mike Mathias: Gross profit dollars of 527 million decreased 3% and reflected a gross margin rate of 40.9% compared to 41.8% last year.
Markdowns increased and IME was relatively flat to last year.
Mike Mathias: The O.W. costs you leverage 20 basis points due to lower revenue as a result of the retail calendar shift. Despite this, certain items leveraged, including digital delivery, professional fees and services, and rent, driven by our efforts to reduce costs and find efficiencies across the company.
Mike Mathias: These efforts also had a positive impact in the FCNA line, which decreased 3% and leveraged 50 basis points as a rate of sales.
Mike Mathias: The improvement was driven by lower compensation, including incentive costs, as well as lower professional fees and services, and maintenance costs.
Mike Mathias: Teams are continuing to make progress across key focus areas, and we remain on track to leverage SG&A again in the fourth quarter.
Mike Mathias: Depreciation was down year-over-year, leveraging 40 basis points. The third quarter tax rate was 26.1% in line with guidance.
Mike Mathias: Adjusted earnings per share for the second quarter was 48 cents per share.
Mike Mathias: Consolidated ending inventory at cost was up 5% year-over-year. Inventory is healthy and well positioned for the holiday season.
Speaker Change: As Jay noted, our healthy cash position allowed us to fuel investments in our business as well as return cash to shareholders.
Speaker Change: Third quarter CapEx totaled $60 million, bringing year-to-date investments to $158 million.
Speaker Change: Now expect full year spend to be in the range of $225 to $245 million.
Speaker Change: Additionally, we return approximately $24 million to shareholders through the third quarter cash dividend, bringing year-to-date returns through dividends and share repurchases to over $200 million.
Speaker Change: We ended the quarter with a strong balance sheet with approximately $160 million in cash and over $800 million of total liquidity, including our revolver.
Speaker Change: Third quarter results reflect continued progress on a long-term strategy to fuel growth across our brands, drive efficiencies across our business, and deliver shareholder value.
Speaker Change: And looking ahead, we remain focused on executing on our strategic pillars.
Speaker Change: Now, moving on to our outlook, as Jen mentioned, we're well positioned and prepared for the holiday season.
Speaker Change: Customer response has been positive during key selling periods, including Thanksgiving and Black Friday weekend, when we experienced double-digit traffic growth, positive comps in stores, and some of our highest store volume in history.
Speaker Change: However we've seen less consistency in our direct business relative to last year. We also remain cognizant of potential choppiness during non-peak selling periods.
Thank you.
Speaker Change: As a result, we're revising our fourth quarter comp outlook to be up approximately 1% on last year's 8% reported comp increase.
The End
Speaker Change: With the $85 million adverse impact from the retail calendar shift and one less selling week as previously noted, total revenue is expected to be down 4%.
Speaker Change: We expect operating income to be in the range of $125 to $130 million. This incorporates currency pressure from the recent strengthening in the U.S. dollar, in addition to a $20 million drag from the retail calendar shift.
Speaker Change: We remain focused on driving efficiencies and finding cost savings across the P&L, which will enable us to leverage SG&A in the quarter.
Speaker Change: For the year, this implies comps up 3%, total revenue up 1%, and adjusted operating income in the range of $428 to $433 million, an increase in the mid-teens from $375 million last year.
Speaker Change: This is consistent with our long-term algorithm of mid- to high-teens operating income growth announced back in March.
The teams remain focused on delivering the quarter.
Speaker Change: We are confident in the decisive steps we are taking under our Powering Profitable Growth Strategy.
to position our iconic brands for success.
further enhance operating efficiencies and deliver consistent profitable growth.
And with that, we'll open it up for questions.
Thank you.
Speaker Change: We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the start key.
One moment, please, while we poll for questions.
Speaker Change: Our first question comes from the line of Matthew Boss with JPMorgan. Please proceed with your question.
Speaker Change: Great, thanks. So, Jen, maybe to start off, could you speak to what you've seen in terms of the progression of demand into the fourth quarter at Aerie, maybe any outliers by category, and as you look ahead to next year, what are the opportunities you see to potentially accelerate the pace of growth at Aerie as we look across the assortment or the store fleet?
Speaker Change: Yeah, thanks. Look, as I mentioned, Aerie saw record revenues in Q3, and I love the way we are delivering on our strategic pillars. I've never seen such consistency in this company.
Speaker Change: including thinking about all three brands showing growth which I think is something that hasn't been done in a long time and that's what we're building into MAT. Moving into Aerie, look
We're really pleased with the 5 comp on the 12.
Speaker Change: moving into holiday. We're seeing, you know, a little bit of some choppiness. Mike mentioned just in a couple weeks we just want to be really cautious and we want to deliver strong results but at the same time we're thinking about new categories so and that is something that we learned thinking back in Q3 so let me just take a moment to speak about that.
Speaker Change: Sleep has been outstanding. We've been chasing into that business and we chased into it to Q4 It'll be a new category for us as we deliver into spring Something very exciting that I think Aerie hasn't really dipped their toes in and thinking about spring You know that will be something a new category to offset swim
Look, Aerie has a lot of potential growth.
This year we only opened four stores.
Speaker Change: Next year we're opening 45, and we know what that means.
Speaker Change: for the business, right? We're going to get new customer acquisition based on that. And by the way, our customer acquisition is strong right now. And the team did a really amazing job delivering an incredible campaign in Q3 where we saw just increased brand awareness, increased.
Speaker Change: influencer strategies, increased investment that we are making change and I believe all that marketing impact will have a halo effect on the brand as we march into 2025 and think about these new category opportunities.
Thank you.
Speaker Change: Great and then maybe a follow-up for Mike. Maybe could you speak to your expectations for promotions in the fourth quarter relative to what you saw in the third quarter and just overall health of your inventory today and if with that maybe just drivers of gross margin expansion that you see remaining as we look into next year.
Mike Mathias: Yeah, I'll start with inventory. Inventory up five at the end of the quarter, positioned very well across brands and categories. We did pull up, there's definitely some receipt timing differences.
Mike Mathias: Then last year, looking to mitigate any potential port strike. So that's a little bit of an apples and oranges comparing with some of the receipts that hit at the end of the third quarter.
Mike Mathias: And then a reminder last year, we were chasing a trend change into the third quarter. So inventory was down a bit. I think we were down mid single last year. So we're kind of relatively flat on a two year basis. So inventory is well positioned across brands and categories.
Mike Mathias: promotional level we are planned similarly this this holiday season to last year so we're not expecting any real additional impact from from markdowns or margin erosion from having to be more promotional this year and I think we've seen that actually even through this last peak period over the last week and a half
Mike Mathias: through Thanksgiving and Black Friday weekend. So nothing indicating we'll need to be more promotional. As far as gross margin, go forward, it's...
Mike Mathias: You know, we talk about this really efficiency focus across the P&L, leveraging the expenses in gross margin on this 3-5% revenue algorithm. The teams are hard at work at looking at delivery, distribution, and supply chain costs within the gross margin.
Mike Mathias: and then finding efficiencies in our IMU as well. Somewhere else in the P&L we've been very focused on...
Mike Mathias: pulling apart the cost of the expenses within our landed costs, so raw materials.
Mike Mathias: freight and transportation, duty, sampling development, those are all areas we're also focused on to reduce the cost and gross margin. That 39 to 40 percent target we put out back in March on a multi-year basis is still where our sights are set and we view as very achievable.
Great. Best of luck.
Thank you very much.
Speaker Change: Thank you. Our next question comes from the line of Paul LeJouez with Citigroup. Please proceed with your question.
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Speaker Change: Hey thanks guys, just want to understand the choppiness that you're seeing a little bit better, understanding that there's a calendar shift.
impacting November, how did
Speaker Change: this period that you've seen quarter to date perform relative to your expectations.
Speaker Change: at each of the brands. And then second, just curious, as we think about SG&A, Mike, for next year, what sort of leverage point are we thinking is necessary to see leverage on that SG&A line? Thanks.
Thank you. Thank you.
Speaker Change: The choppiness as we've described it, you think about coming off of back to school peak in August and we provide a guidance at the end of August.
different pieces in September, October.
Speaker Change: And there's a reason why we came in at our three comp versus the three to four that we guided to a little on the lower end. That did continue into early November. So the first couple weeks of November, we saw a similar pattern. And then as we got into Thanksgiving and the last week and a half or so, similar to the back-to-school peak period, we've been really pleased with the business.
Speaker Change: So it's really just looking at that, taking the learnings from the last four or five months here, applying to maybe what we could see post-Christmas at the moment, and with the ability to update that with our holiday sales release at the beginning of January and see where we are recorded to date at that point.
For SG&A next year, we are very focused
Speaker Change: SG Naming continues to be a huge focus across the organization. The teams are in place.
Speaker Change: So, you know, we intend to leverage, you know, on that sales algorithm of 3 to 5% that we're committed to, we will leverage at the low end and leverage more on the high end.
Thanks, good luck.
Thank you.
Speaker Change: Thank you. Our next question comes from the line of Adrian Yee with Barclays. Please proceed with your question.
Speaker Change: Hi, this is Angus Kelleher on for Adrian Yee. Curious if you could speak to some of the new customers you're bringing in. I know you mentioned Aerie, but curious if American Eagle is also seeing uptake, particularly in the adjacent categories and the new brands like AE247 and AE77.
yeah
Speaker Change: Actually, I was referring to both brands combined are up double digits as far as customer acquisition. So, really pleased with those results and if I think about AE, we just launched our Live Your Life campaign, which was...
Speaker Change: our original campaign. We brought it back to life in such a modern way and we're really proud of that.
Speaker Change: Some of the tactics there were simply influencers, collaborations, speaking to our man, and really just doubling down where we haven't before. And these collaborations are really working. We noted it on the earlier speaking points. Timberland was fantastic.
Speaker Change: Now that we look ahead, we have so many exciting collaborations for spring, and I think we're going to continue to really open up the doors for these new customers.
Speaker Change: Also, I want to really reiterate something that hadn't happened in the American Eagle brand.
Speaker Change: Retention was an issue in the past, and we are now retaining our customers. They're staying with us longer and growing with us, and that doubled down there with the new acquisition and growing. We're also renovating stores. We've seen really nice upticks in the new store renovations, and that's bringing in new customers.
Jay mentioned King of Prussia, wow, the numbers are fantastic.
Speaker Change: So we're going to renovate more stores next year. I mentioned in Aerie, again, they saw acceleration in customer acquisition. We're opening 45 new stores next year, where we only opened four this year. So there's lots in the works to see this momentum continue.
Speaker Change: Thank you. Our next question comes from the line of Jay Soule with UPS. Please proceed with your question.
Speaker Change: Great, thank you so much. My question, Jen, two for you. One, can you just talk about the denim category a little bit more and what you saw and how you saw the competitive landscape sort of develop over the last three months? And then, Mike, can you just quantify the FX impact on the quarter and also the full year guide? Thank you.
Speaker Change: Yeah, well, I'm going to reiterate that both men's and women's were holding our share. There was definitely some softness in long legs through Q3. Women's helped, you know, maintain more and particularly in fashion. We were really excited about what we delivered on fashion.
Speaker Change: and so that continues. In fact we've seen women's accelerate into Q4 and that team's chasing denim like no tomorrow right now. Our fashion is checking all new fits and silhouettes. I've never seen such a great variety in our assortments and the team is doing an outstanding job developing new fabrications and new fits and we have accelerated into Q4.
Speaker Change: at FXJ. The significant strengthening of the US dollar here over the last several months, impacting both the peso and the Canadian dollar, is what's impacting a bit of our guide here for the fourth quarter, especially the peso. Our business in Mexico is really healthy, growing at double digits locally.
Speaker Change: and the contribution from Mexico in the fourth quarter is over 40 percent. So that's changed here over the last several months, even more recently with the election outcome.
Speaker Change: We're adjusting our projections to account for that, for sure, in the fourth quarter. And that's having about a $15 million impact combined, mostly through based...
Speaker Change: Mostly from Mexico and from the peso. So, you know, about half of our kind of guide change here for the fourth quarter is related to
Speaker Change: Long-term, our long-term targets, no issues there. We are going to be looking for some mitigation through other expense reductions specifically in the market. So you know nothing concerning for the long term but definitely a piece of this fourth quarter and annual guide change.
Got it. Thank you so much.
Speaker Change: Thank you. Our next question comes from the line of Dana Telsey with Telsey Advisory Group. Please proceed with your question.
Speaker Change: Good afternoon everyone. If you think about the business with digital and stores, was there any difference as you went through the quarter between the two for either their brands?
Speaker Change: and how much did the hurricane have an impact on their lives?
Speaker Change: And just lastly, if you think about the remodels that you're doing, how are they performing versus the base and any initial thoughts as for 2025 on them? Thank you.
Speaker Change: I can start with the remodels. We're seeing great results, as Jen said, from the program so far. So we're, you know, first year into this remodel program for the AU brand. We're touching 70-ish-plus stores here by the end of the year. We're seeing some very nice, consistent results across the board where the store performance is outpacing the base or average comp for the AU brand. It has us encouraged about what that means for the go-forward.
Speaker Change: And we talked about a 300-store-plus program, maybe 400 stores. We're going to accelerate that a bit going into next year. So it's a good thing. We're seeing a payback for that investment and we want to go a little faster.
Speaker Change: Hurricanes, yeah, I think the combined back-to-back impact of Helene and Milton there were a little bit of a surprise. I hate to talk about hurricanes from a comp perspective, but definitely a bigger impact to the Southeast than what happened last year.
Speaker Change: coming in on the low end of our comp expectation in Q3 versus the 3% versus the 4%.
Thank you.
Thank you.
Speaker Change: Yeah, I think third quarter, we comped both positively across brands and channels. So stores were positive, digital was positive on that 3%. More recently here, we've seen traffic in stores through this past week was tremendous, our store growth and our store results.
Speaker Change: As I said in my remarks, some historical highs in terms of store performance over the weekend.
Speaker Change: Looks like that could be continuing into this week a bit, so we'll see, that bodes well for us. We have a healthy store fleet, we've got a little bit of a shift, maybe even back to the mall for holiday here, that could be in our favor, but we'll take the transactions wherever they come.
Thank you.
Thank you.
Thank you.
Thank you. Our next question.
Speaker Change: Our next question comes from the line of John Akin with TD Cowan & Company. Please proceed with your question.
Thank you.
Speaker Change: Thank you for taking my question. I would love to hear about the intimate business strategy Though you mentioned the category is still down and you held share, but as you think about Aries intimate business What are ways that you can make a share? And accelerate sales there and then also would love your thoughts on just offline It looks like it's doing really well, but how are you planning to accelerate that growth as we look into next year? Thank you so much
Speaker Change: Yeah, well it's interesting with offline we've seen really nice increases in shares in sports bras so I think that that's been a big play for trend. Girls are wearing sports bras out again as tops.
Speaker Change: and that continues to happen and we've done really well addressing that trend.
Speaker Change: We're really unlocking some growth there in that category. On the go forward, look, this team does not stop as far as innovation, and I think we have some of the best in show. If you think about smoothies, we now have offshoots of that category. We have body suits. So we're going to continue to double down on the fabrications that we are famous for.
Speaker Change: that's what we do well. So going into Q1 and Q2, look I think there's opportunity in this category. LACE is certainly a trend out there the team's on it and you know LACE is obviously
Thank you so much
Thank you. Thank you.
Speaker Change: Thank you. Our next question comes from the line of Janet Kloppenberg with JJK Research. Please proceed with your question.
Hi, everybody.
Speaker Change: I wanted to, Jen, learn a little bit more about the choppiness. Did any of that, beyond weather, which I heard loud and clear, did any of that have to do with, you know, perhaps inventory imbalances? Like, I saw a lot of the colors sell down in the stores, and I thought maybe you could have had more of that, like the colorful sweaters and that kind of stuff. And I wanted to understand more about November, Mike. I think you said that...
Speaker Change: November was weak, maybe until Thanksgiving, and then it picked up.
Speaker Change: I think that's what you said maybe you could clarify and and if you've had some choppiness since
and does the great SG&A performance of the third quarter.
Does that steal from the fourth quarter on SG&A?
Thank you very much.
Speaker Change: Yeah, of course. I think Mike said it well, you know, we're just anticipating what happens in January again Which is some of the slowdown that we saw for instance during the hurricane for instance, you know long legs that I mentioned We've seen very like trending categories from Q3 in both brands heading into Q4
Speaker Change: The store is definitely outpaced and we are on it. That team is filling in like left and right. We just have new deliveries today land. We've already seen nice upticks in the sales, including stores again. So we are feeding that beast as quickly as possible. I do like fast turns, let's not deny, and the team is doing a great job replenishing and getting back into business. But again, Mike said it well, our store business is on fire. Black Friday was a record breaker for us. We've never seen sales like that.
Speaker Change: and I think that that, you know, speaks well for how we execute it. I think that's the most important thing. When we were in the malls, our brand executed. Our bags were everywhere. We were fulfilling the needs of the customers. The lines were moving and we have a lot in front of us. So we're hoping to grab every bit we can.
Good afternoon.
Thanks Jen.
Speaker Change: So what I'm trying to understand is your thoughts behind the digital business slowing down. What happened there?
Speaker Change: We're just, you know, honestly we're up against incredible comps on that side of the business.
Speaker Change: and look, we're balancing what Mike said. We are going to where the customer's at. So we're thinking Omni. It's not my favorite word, but we are there for where the customer is. And digital, look, we're testing every day in that business. We're relentless, and we're learning new tricks. And as we get this halo effect, I think from some of the new acquisition, we're going to really bridge that gap. So there's more to do always,
Speaker Change: ideas for the future, and right now I think digital is showing up again. There was a slight slowdown during cyber because I think we pulled it in, to be honest. We launched some of the ideas early and we saw nice upticks earlier, so now we're getting it back, a little bit back day by day.
Speaker Change: Okay, thanks and lots of luck. Go ahead, Mike. I'm sorry. I'll answer your question. No, the, I mean, the...
Speaker Change: The improvement or us seeing a reduction in Q3 beyond where we expected is just the outcome of the continued work. The SG&A focus is here to stay.
Speaker Change: Q3 was another proof point of that. We were able to find a few other dollars through all the work we're doing to reduce SG&A a little further than anticipated.
Speaker Change: It's compensation related areas, all the focus areas we continue to talk about, leveraged, so corporate compensation, related incentives.
Speaker Change: Store salaries have been well controlled Services leveraged and Q4 is a continuation. We're actually expecting dollars to be down mid to high single Expecting similar type leverage even with total revenue being down 4% with the calendar shift so focus is there and It's here to stay
Okay, lots of luck to you all.
Thank you, Jim.
Thank you.
Speaker Change: Thank you. Our next question comes from the line of Simeon Siegel with BMO Capital Markets. Please proceed with your question.
Speaker Change: Hi, good evening. This is Dan Offersimian. Thanks for taking our question. I'm curious what your general lead times are now and maybe how much has been left open to buy for holiday versus prior years. I'm sorry if I missed it, but how are you planning to end the year with inventory? Thank you.
Speaker Change: Sorry, can you repeat that? You were a little choppy on the first question.
Speaker Change: Yeah, so just where the lead times are now and then how much has been left open to buy for holiday now versus prior years.
Speaker Change: We're positioned and we're nimble. That's all I can say. And I've never seen the team react so swiftly on the business and we're in a good position. Chase is always a good thing and they're doing a great job.
Thank you.
Thank you for your attention.
Great, thank you.
Speaker Change: And going into spring, inventory planned in line with sales growth. That's our planning mentality at the moment, and we'll continue to do that into spring and next year.
I appreciate the color. Thanks guys.
Speaker Change: Thank you. Our next question comes from the line up of Chris Nardone with Bank of America. Please proceed with your question.
Speaker Change: Jay Schottenstein, Judy Meehan, Jay Schottenstein, Jennifer Foyle, Judy Meehan, Jay Schottenstein, Jennifer Foyle, Jay Schottenstein
Speaker Change: Hi guys, good afternoon. So just on your plan to ramp up the AERI door count next year, can you just talk about what is giving you the confidence to step up the pace relative to the more muted openings this year? And Jen, just on the recent introduction of the sleep business, is this sizable enough to offset any potential pressure you may see from your swim business next year if it continues to be a challenging category?
Speaker Change: Yeah, sure, um, you know, it's I should I should add on it's not just sleep We're seeing incredible momentum in all of soft dressing and airy fleece tops knits
Speaker Change: new categories like dresses, cover-ups. So, you'll see a lot more of that assortment as we head into the spring season. So, I feel really good about the way we positioned our plans to offset any slowness in SWIM. Interestingly enough, Aerie held all their market share in all of our categories. Apparel, every category, but Intimates. Well, we did hold our market share in Intimates, I should say, but those are the two categories that are seeing pressure across, you know, the entire business. So, you know, feel good about the way we're attacking our other businesses to offset for spring.
Speaker Change: That said, we feel very confident about our store openings. Offline is actually neck and neck with Aerie and similar malls. This is amazing. It's a brand new business. I want to remind you, Offline launched in 2020 during COVID, online only. We're now seeing record highs in our legging business and our sports bra business. So we feel like we definitely can go. Mike mentioned these stores are profitable. They're making money out of the gate. They're hitting performas.
Speaker Change: really excited about the offline growth. And Aerie, it's just about moving into new markets still. We still have opportunity in new markets and we know our Aerie stores are very profitable. The new store design, must I say, is...
Speaker Change: Pretty cool. I love it. They're calling it the Arch. It's amazing. I think everyone would feel...
Speaker Change: If you haven't seen it, get out there and we're seeing nice business on those new stores and they're definitely more profitable. We were really efficient the way we built them out, so some exciting things to happen for the future.
Speaker Change: Jen just said it, the accelerations to support that. We're open 25 stores this year, which is a combination of Aerie, stand-alone, offline stand-alone, and side-by-side, so even more doors for the two brands beyond the 25 total store count.
Speaker Change: And we're looking to accelerate or build upon that next year, probably more in the 45 store count with doors being higher to support area offline side-by-side within that count as well. This offline business has been the kind of highest growth category.
Speaker Change: for the company. We're seeing great, tremendous strides here in terms of market share gains. So it's really a strategic gain to support that even further going into next year.
Speaker Change: Jay Schottenstein, Jennifer Foyle, Judy Meehan, Jay Schottenstein, Jennifer Foyle, Tracey
Thank you.
Thank you.
Speaker Change: Our next question comes to the line of Alex Stratton with Morgan Stanley. Please proceed with your question.
Speaker Change: Hi, this is Katie Delahunt on for Alex Strayton. I just wanted to ask, how are you thinking about the impact of the new administration, particularly on tariffs? Any color you could give on, you know, kind of your manufacturing exposure there would be really helpful. Thank you.
Jay Schottenstein: Okay, this is Jay. Like, we're very flexible in our operations. We have the ability, like, to source, to, like, source anywhere.
Jay Schottenstein: Just to remind everybody, we were around in 2016 through 2020.
Jay Schottenstein: So this is nothing new to us. We've been living with tariffs and never changed a tariff policy in 2020. It's still going on and we have that flexibility and nobody knows for sure exactly what's going to happen.
So we are flexible and we are lean that way.
Yeah, we've got a very strong source.
Jay Schottenstein: sourcing team, sourcing capabilities. We already source from 15 plus countries with great relationships and partnerships with our manufacturers.
Jay Schottenstein: We're in this together, I think, and the team internally is doing a great job.
Jay Schottenstein: are proactively looking at setting up redundancy and the ability to shift as we see fit depending on the outcome. But nobody knows where it's going to be. Right. So we're setting ourselves up to be ready to react regardless of exactly what occurs.
Great, thank you.
Speaker Change: Thank you. Our next question, our last question comes from the line of Marnie Shapiro with Retail Tracker. Please proceed with your question.
Speaker Change: Hey guys, I have a couple quick questions. I just want to confirm, did you say 45 Aerie and Offline stores in 25? And can you just give us an estimate on what Eagle stores would look like for next year as well?
Speaker Change: Yeah, Marty, I think we're talking about 45 stores roughly. We're going to refine these plans. We'll talk more in March when we provide a very specific color and updates for 25 guidance and store counts, capital spending, all of it.
Right now, preliminarily, we're looking at
Speaker Change: Forty-five stores total, which would be a combination of Aerie standalones, offline standalones.
Speaker Change: And then when I say doors, doors could be like 55 to 60 because a bunch of those would be airy and offline side by side.
Speaker Change: It could be 45 stores, maybe 60 doors, the way we call our terminology internally.
Speaker Change: because a chunk of those would be side-by-sides. For AE, we're still looking at repositioning a bunch of stores. We're seeing good success when we do that in markets, especially one- or two-store markets.
Speaker Change: Probably still a net closure situation, but we've been closing less stores, you know, in the 20 range. Could be something similar, and we're really focused on this remodel program, though.
Speaker Change: As we're touching, you know, 70 to 80 this year in total, we're looking at probably accelerating that just based on the results we're seeing. Could be over a hundred stores that we... And getting better locations at the mall. And we're repositioning, right-sizing, getting better positions where it makes sense, and we could be looking at over a hundred next year, but we'll refine that.
Speaker Change: That's great. And then Jen, it sounds like almost a tale of two businesses right now. When things are good, they are really good. I was in your stores all Black Friday. You know I sent you pictures. Your bags were literally everywhere. They were gremlins through them all.
So is the choppiness, to me...
Speaker Change: You had a lot of sweaters leading the store. You had a lot of warm weather. To Janet's point, your fashion when it came in sold very, very quickly.
Speaker Change: How much of this can you really attribute just to, you know, lack of weather-driven demand? And if that really is the case, I guess, why would you be so concerned about January? I mean, it's possible we have a really warm January, but it feels inconsistent because
You're getting really...
Speaker Change: really good reception to all the products you're putting in the store.
So I'm just trying to marry those two things.
Speaker Change: Yeah, I understand. It's a great call, Marni. We're up against incredible comps from last year. We're seeing this year-over-year, quarter-over-quarter growth for all brands. I think that's something that we should be proud of right now. It's been something that hasn't been done, and we've been working on all brands.
Speaker Change: Now I think it's time, you know, for these brands to really take it forward and really double down on all of our learnings. Aerie's at the pinnacle of a new stage of growth.
Speaker Change: A.E. has only just begun. We have opportunity in men's. We're seeing some acceleration in men's.
Speaker Change: But I think with some of the plans we have ready for spring, I think you're going to see a lot more excitement there.
Speaker Change: And look, you know, we are just thinking, we're just being smart, that's all. There was some choppiness with the election. Who knows about snowstorms? So we're just preparing ourselves. And look, what we're seeing early on, coming out of cyber, we like what we're seeing. I mentioned that. We're seeing similar repairs. And, you know, we want to obviously over-deliver, that's what we want to do.
Speaker Change: Just being smart, that's all. That's great. Best of luck for the rest of the holiday season, guys.
Thank you.
Speaker Change: Thank you and we have reached the end of the question and answer session and also we have reached the end of today's call and we thank you for your participation. You may disconnect your line at this time.
Have a great day.
Thank you.