AEO Inc. — Second Quarter Fiscal 2026 Earnings Summary

Financial Performance

• Total net revenue reached $1.38 billion for the quarter, an 8% increase year-over-year from $1.28 billion.
• Total comparable sales increased 6% year-over-year.
• Gross profit rose 34% to $672 million from $500 million, with gross margin expanding 980 basis points to 48.7%.
• Gross margin expansion included a $179 million net benefit from tariff refunds, accounting for 1,300 basis points of the increase.
• Merchandise margins deleveraged 330 basis points, with Aerie margin improvements offset by American Eagle.
• Selling, general and administrative (SG&A) expenses increased 19% to $408 million, rising 290 basis points to a rate of 29.6%.
• SG&A included $18 million (130 basis points) of tariff refund-related incentive compensation expense.
• Operating profit was $211 million compared to $103 million in the prior year, with operating margin expanding to 15.3% from 8.0%.
• Operating margin expansion included a $161 million net benefit from tariff refunds, driving 1,170 basis points of growth.
• Other income was $14 million, including a $12 million gain on equity method investments.
• Interest expense increased to $47 million due to an agreement regarding the sale of certain tariff refund claims.
• Diluted earnings per share were $0.79 compared to $0.45 in the prior year.
• Average diluted shares outstanding were 170 million.
• Consolidated inventory at cost increased 14% and units increased 9% year-over-year.
• Cash and cash equivalents were $147.95 million as of August 1, 2026, compared to $126.78 million in the prior year.
• Long-term debt, net, decreased to $55 million from $203 million in the prior year.

Guidance and Future Outlook

• Fiscal 2026 operating income guidance is updated to a range of $540 million to $550 million, inclusive of net tariff refund benefits.
• Third Quarter 2026 comparable sales outlook is mid-to-high single digits.
• Fiscal 2026 comparable sales outlook is mid-single digits.
• Third Quarter 2026 gross margin is expected to be flat year-over-year.
• Fiscal 2026 gross margin is expected to be up year-over-year.
• Third Quarter 2026 SG&A is expected to increase high-single digits.
• Fiscal 2026 SG&A is expected to increase low-double digits.
• Third Quarter 2026 depreciation and amortization is expected to be $55 million.
• Fiscal 2026 depreciation and amortization is expected to be approximately $215 million.
• Third Quarter 2026 operating income is expected to be $110 million to $115 million.
• Fiscal 2026 weighted average share count is expected to be in the low 170 millions.
• Fiscal 2026 capital expenditures are expected to be in the range of $250 million to $260 million.

Business Segments and Product Lines

• Aerie and OFFLINE total revenue grew 25%, with comparable sales growth of 19%.
• American Eagle comparable sales decreased 1%.
• American Eagle saw sequential improvement from the first quarter, marking the fourth consecutive quarter of men's growth.
• Aerie is expanding reach and deepening brand awareness to attract new customers.
• Inventory plans will continue to be rebalanced between brands and categories for the remainder of the year.
• Store count remained flat at 1,167 consolidated stores at the end of the period.
• During the quarter, 2 AE Brand stores and 2 Aerie stores were closed; 2 Aerie stores were opened.
• Over the 26-week period, 3 AE Brand stores and 5 Aerie stores were opened; 6 AE Brand, 2 Aerie, and 1 Unsubscribed store were closed.
• Total consolidated stores at end of period: 802 AE Brand, 335 Aerie (including OFFL/NE), 23 Todd Snyder, and 7 Unsubscribed.
• International license locations totaled 376 at the end of the period.

Market and Competitive Landscape

• The company operates in the global specialty retail apparel market with brands including American Eagle, Aerie, OFFL/NE by Aerie, Todd Snyder, and Unsubscribed.
• The company operates stores in the United States, Canada, and Mexico, with merchandise available in more than 30 countries through license partners.
• The company faces risks related to declining shopping center traffic and competition for market share.

Risks and Challenges

• Risks include inability to anticipate customer demand fluctuations, manage inventory, or respond to changing consumer preferences and fashion trends.
• Risks include inability to achieve planned store financial performance, react to raw material, labor, and energy cost increases, or expand internationally.
• Risks include foreign trade issues, import tariffs, trade restrictions, currency exchange rate fluctuations, and potential trade wars.
• Risks include challenges with information technology systems, security breaches, and changes in trade policies.
• Risks include global economic, public health, social, political, and financial conditions impacting consumer confidence and discretionary spending.

Management Commentary and Tone

• Executive Chairman and CEO Jay Schottenstein stated the second quarter reflects the value of the AEO Inc. portfolio, led by momentum in Aerie and OFFLINE and encouraging progress at American Eagle.
• Management noted the value of leveraging authentic connections to attract new customers and fuel engagement.
• Management expressed a commitment to building momentum in Aerie and OFFLINE, accelerating improvement at American Eagle, and unlocking greater consistency and profitability in the second half.
• Management highlighted the fourth consecutive quarter of growth in men's business at American Eagle.

Other Key Points

• The company received $196 million in IEEPA tariff refunds during the second quarter, including interest.
• The company accrued $35 million in incremental incentive compensation related to tariff refunds, impacting both gross profit and SG&A.
• The net operating income benefit from tariff refunds was $161 million for the quarter.
• The company has received substantially all tariff refunds for which it submitted claims.
• The company recorded $45 million in interest expense related to an agreement with a third-party buyer for the sale of certain tariff refund claims.
• The company returned $21 million to shareholders via a quarterly cash dividend of $0.125 per share.
• Capital expenditures totaled $66 million in the second quarter.
• Management will host a conference call at 4:30 p.m. Eastern Time on the day of the announcement.