American Eagle Outfitters 10Q 2024 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 28, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 1-33338

American Eagle Outfitters, Inc.

(Exact name of registrant as specified in its charter)


Delaware		No. 13-2721761
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

77 Hot Metal Street, Pittsburgh, PA		15203-2329
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (412) 432-3300

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	AEO	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 197,538,350 shares of Common Stock were outstanding at November 17, 2023.

AMERICAN EAGLE OUTFITTERS, INC.

TABLE OF CONTENTS


		Page Number
	PART I - FINANCIAL INFORMATION

	Forward Looking Statements	4

Item 1.	Financial Statements	7
	Consolidated Balance Sheets: October 28, 2023, January 28, 2023 and October 29, 2022	7
	Consolidated Statements of Operations: 13 and 39 weeks ended October 28, 2023 and October 29, 2022	8
	Consolidated Statements of Comprehensive Income: 13 and 39 weeks ended October 28, 2023 and October 29, 2022	9
	Consolidated Statements of Stockholders' Equity: 13 and 39 weeks ended October 28, 2023 and October 29, 2022	10
	Consolidated Statements of Cash Flows: 39 weeks ended October 28, 2023 and October 29, 2022	12
	Notes to Consolidated Financial Statements	13
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	39
Item 4.	Controls and Procedures	40

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	N/A
Item 4.	Mine Safety Disclosures	N/A
Item 5.	Other Information	N/A
Item 6.	Exhibits	43

FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this "Quarterly Report") contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are based on the views and beliefs of management, as well as assumptions and estimates made by management. Any forward-looking statement speaks only as of the date on which such statement is made, and we do not intend to correct or update any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law. Actual results could differ materially from such forward-looking statements as a result of various risk factors, including those contained in this Quarterly Report and in the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 2023 filed with the Securities and Exchange Commission (the "SEC") on March 13, 2023 (the "Fiscal 2022 Form 10-K") that may not be in the control of management. As used herein, “Fiscal 2023” refers to the 53-week period that will end on February 3, 2024. “Fiscal 2022” refers to the 52-week period ended January 28, 2023.

All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. Words such as “estimate,” “project,” “plan,” “believe,” “expect,” “anticipate,” “intend,” “potential,” and similar expressions may identify forward-looking statements. Our forward-looking statements include, but are not limited to, statements about:

•

the planned opening of approximately five to 15 American Eagle stores and approximately 20 to 30 Aerie locations, including approximately 15 OFFLINETM stores, which will be a mix of stand-alone and Aerie side-by-side locations, during Fiscal 2023;

•

the anticipated selection of approximately 15 to 30 American Eagle and Aerie stores in the U.S. and Canada for remodeling during Fiscal 2023;

•

the potential closure of approximately 20 to 40 American Eagle stores at the expiration of their lease terms, primarily in North America, during Fiscal 2023;

•

the success of our core American Eagle and Aerie brands through our omni-channel and licensed outlets within North America and internationally;

•

our plans for Quiet Platforms;

•

the success of our business priorities and strategies;

•

the continued validity of our trademarks;

•

our performance during the back-to-school and holiday selling seasons;

•

the reduction of operating expenses and capital expenditures;

•

the accuracy of the estimates and assumptions we make pursuant to our critical accounting policies and estimates;

•

the payment of a dividend in future periods;

•

our ability to fund our current and long-term cash requirements through current cash holdings and available liquidity, including under our revolving credit facility;

•

the possibility that product costs are adversely affected by foreign trade issues (including import tariffs and other trade restrictions with China and other countries), currency exchange rate fluctuations, increasing prices for raw materials, supply chain issues, political instability or other reasons;

•

the possibility of changes in global economic and financial conditions, and resulting impacts on consumer confidence and consumer spending, as well as other changes in consumer discretionary spending habits;

•

the effect of inflation on our business;

•

the possibility that we may be required to take additional impairment or other restructuring charges;

•

the impact of any global pandemic on general economic conditions; and

•

the ability of our distribution centers and stores to maintain adequate staffing to meet increased customer demand.

Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, without limitation, the following:

•

the risk that global economic conditions, such as a slowing economy, inflation, rising interest rates, and the effect of economic pressures and other business factors on discretionary consumer spending and changes in consumer preferences could have a material adverse effect on our business, results of operations and financial condition;

•

the risk that our inability to anticipate and respond to changing consumer preferences and fashion trends and fluctuations in consumer demand in a timely manner could adversely impact our business and results of operations;

•

the risk that our interest expense may be negatively impacted by rising interest rates;

•

the risk that recent inflationary pressures could have a material adverse effect on demand based on pricing actions and operating measures taken to mitigate the impact of inflation;

•

the risk that seasonality may cause sales to fluctuate in a manner inconsistent with our expectations and negatively impact our results of operations;

•

the risks associated with operating in a highly competitive industry, as we face significant pricing pressures from existing and new competitors;

•

the risk that our results could be adversely affected by events beyond our control, such as natural disasters, public health crises, political crises, negative global climate patterns, armed conflicts, including the ongoing war in Ukraine and the Israel-Hamas war, or other geopolitical or catastrophic events;

•

the risk that adverse public health developments have had, and may continue to have, an adverse effect on our business and results of operations;

•

the risks associated with climate change and other corporate responsibility issues, and legislative and regulatory responses to climate change, which may adversely impact our business;

•

the risk that impairment to goodwill, intangible assets, and other long-lived assets could adversely impact our profitability;

•

the risk that our inability to grow our digital channels and leverage omni-channel capabilities could adversely impact our business;

•

the risk that failure to define, launch and communicate a brand-relevant customer experience or otherwise achieve the desired results of our advertising initiatives could have a negative impact on our growth and profitability;

•

the risks that our efforts to execute on our key business priorities could have a negative impact on our growth and profitability;

•

the risk that our current international operations and efforts to further expand internationally expose us to risks inherent in operating in other countries;

•

the risk that failure to protect our reputation could have a material adverse effect on the value of our brands;

•

the risk that failure to manage growth in our omni-channel operations and the resulting impact on our distribution and fulfillment networks may have an adverse effect on our results of operations;

•

the risks associated with our inability to implement and sustain adequate information technology systems;

•

the risk that the loss or disruption of information technology systems could affect our ability to implement our strategies and have a material adverse effect on our business;

•

the risks related to our electronic processing of sensitive and confidential personal and business data. If such data is lost or disclosed in an unauthorized manner, or if we or our third-party vendors are subject to cyberattacks, data breaches, other security incidents, or disruption of information technology systems or software, such events could expose us to regulatory action or investigation, liability, damage our reputation, and have a material adverse effect on our business;

•

the risk that remote working measures may negatively impact our operations or increase our risk exposures;

•

the risks that our international merchandise sourcing strategy subjects us to, which could adversely impact our business and results of operations;

•

the risk that our product costs may be adversely affected by foreign trade issues, including import tariffs and other trade restrictions with China, currency rate fluctuations, increasing prices for raw materials due to inflationary pressures or otherwise, political instability, or for other reasons, which could impact our profitability;

•

the risk that our suppliers may be impacted by economic conditions and cycles and changing laws and regulatory requirements that could impact their ability to do business with us or cause us to terminate our relationship with them and require us to find replacements, which we may have difficulty doing;

•

the risk that our inability to achieve planned store performance, gain market share in the face of declining shopping center traffic or attract customers to our stores could adversely impact our profitability and our results of operations;

•

the risk that failure to properly manage and allocate our inventory could have an adverse effect on our business, sales, margins, financial condition, and results of operations;

•

the possibility that our credit facilities may not be available for future borrowings;

•

the risks that our share repurchase program may not be successfully consummated, that it may not enhance shareholder value, or that share repurchases could be negatively perceived by investors;

•

the risk that we cannot provide assurance that we will pay dividends, or if paid, that dividend payments will be consistent with historical levels;

•

the risks associated with our substantial lease obligations, including future increases in occupancy costs and the need to generate significant cash flow to meet our lease obligations;

•

the risk that our inability to successfully integrate Quiet Logistics, Inc.'s ("Quiet Logistics") business and operations may adversely affect the combined company's future results;

•

the risk that the integration of Quiet Logistics may result in significant accounting charges that adversely affect the results of the combined company;

•

the risk associated with our reliance on key personnel, the loss of whom could have a material adverse effect on our business;

•

the risks associated with the increases in labor costs, including wages, which could adversely impact our operational results, financial condition and results of operations;

•

the risks associated with stringent and changing privacy laws, regulations, and standards as well as policies, contracts, and other obligations related to data privacy and security. Our failure to comply with privacy laws and regulations, as well as other legal obligations, could have a material adverse effect on our business;

•

the risks relating to foreign laws and regulations that our international operations subject us to;

•

the risks associated with changes in tax policy, including as a result of the Inflation Reduction Act, or trade regulations or the imposition of new tariffs on imported products that could have an adverse effect on our business and results of operations;

•

the risk that we may be unable to protect our trademarks and other intellectual property rights;

•

the risk associated with changes in the regulatory or administrative landscape, which could adversely affect our financial condition and results of operations;

•

the risk that fluctuations in our tax obligations and effective tax rate could adversely affect us; and

•

the risk that the unfavorable outcome of pending or future litigation could have an adverse impact on our business, financial condition, and results of operations.

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

AMERICAN EAGLE OUTFITTERS, INC.

CONSOLIDATED BALANCE SHEETS


	October 28,			January 28,			October 29,
(In thousands, except per share amounts)	2023			2023			2022
	(Unaudited)						(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	240,940		$	170,209		$	82,133
Merchandise inventory		769,315			585,083			797,731
Accounts receivable, net		239,374			242,386			250,879
Prepaid expenses and other		103,789			102,563			146,362
Total current assets		1,353,418			1,100,241			1,277,105
Operating lease right-of-use assets		995,023			1,086,999			1,148,832
Property and equipment, at cost, net of accumulated depreciation		742,793			781,514			789,809
Goodwill, net		264,825			264,945			271,209
Intangible assets, net		88,201			94,536			96,530
Non-current deferred income taxes		20,791			36,483			34,135
Other assets		55,735			56,238			54,857
Total assets	$	3,520,786		$	3,420,956		$	3,672,477
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	300,031		$	234,340		$	188,448
Current portion of operating lease liabilities		294,898			337,258			332,160
Unredeemed gift cards and gift certificates		47,676			67,618			47,531
Accrued compensation and payroll taxes		96,484			51,912			36,436
Accrued income and other taxes		19,255			10,919			13,056
Other current liabilities and accrued expenses		72,887			66,901			67,799
Total current liabilities		831,231			768,948		��	685,430
Non-current liabilities:
Non-current operating lease liabilities		927,019			1,021,200			1,089,710
Long-term debt, net		-			8,911			411,911
Other non-current liabilities		24,247			22,734			22,894
Total non-current liabilities		951,266			1,052,845			1,524,515
Commitments and contingencies		—			—			—
Stockholders’ equity:
Preferred stock, $0.01 par value; 5,000 shares authorized; none issued and outstanding		—			—			—
Common stock, $0.01 par value; 600,000 shares authorized; 249,566 shares issued; 197,538, 195,064, and 187,388 shares outstanding, respectively		2,496			2,496			2,496
Contributed capital		343,695			341,775			389,726
Accumulated other comprehensive loss		(32,865	)		(32,630	)		(41,267	)
Retained earnings		2,234,761			2,137,126			2,080,852
Treasury stock, at cost, 52,028, 54,502, and 62,178 shares, respectively		(809,798	)		(849,604	)		(969,275	)
Total stockholders’ equity		1,738,289			1,599,163			1,462,532
Total liabilities and stockholders’ equity	$	3,520,786		$	3,420,956		$	3,672,477

Refer to Notes to Consolidated Financial Statements

AMERICAN EAGLE OUTFITTERS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	13 Weeks Ended					39 Weeks Ended
	October 28,			October 29,		October 28,			October 29,
(In thousands, except per share amounts)	2023			2022		2023			2022
Total net revenue	$	1,301,055		$	1,240,583	$	3,582,859		$	3,493,745
Cost of sales, including certain buying, occupancy and warehousing expenses		757,258			760,810		2,172,867			2,255,929
Gross profit		543,797			479,773		1,409,992			1,237,816
Selling, general and administrative expenses		361,992			311,101		1,006,210			917,687
Impairment, restructuring and other charges		—			—		21,275			—
Depreciation and amortization expense		56,444			51,124		169,026			146,664
Operating income		125,361			117,548		213,481			173,465
Debt related charges		—			—		—			60,066
Interest (income) expense, net		(2,871	)		3,878		(1,229	)		11,887
Other (income) expense, net		(3,984	)		782		(9,446	)		(5,501	)
Income before income taxes		132,216			112,888		224,156			107,013
Provision for income taxes		35,516			31,616		60,434			36,466
Net income	$	96,700		$	81,272	$	163,722		$	70,547


Basic net income per common share	$	0.50		$	0.44	$	0.84		$	0.39
Diluted net income per common share	$	0.49		$	0.42	$	0.83		$	0.36

Weighted average common shares outstanding - basic		195,343			186,305		195,467			178,637
Weighted average common shares outstanding - diluted		198,367			195,776		197,969			207,499

Refer to Notes to Consolidated Financial Statements

AMERICAN EAGLE OUTFITTERS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	13 Weeks Ended						39 Weeks Ended
	October 28,			October 29,			October 28,			October 29,
(In thousands)	2023			2022			2023			2022
Net income	$	96,700		$	81,272		$	163,722		$	70,547
Other comprehensive loss:
Foreign currency translation adjustments		(21,299	)		(1,250	)		(235	)		(422	)
Other comprehensive loss:		(21,299	)		(1,250	)		(235	)		(422	)
Comprehensive income	$	75,401		$	80,022		$	163,487		$	70,125

Refer to Notes to Consolidated Financial Statements

AMERICAN EAGLE OUTFITTERS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

13 Weeks Ended October 28, 2023 and October 29, 2022


(In thousands, except per share amounts)	Shares Outstanding			Common Stock		Contributed Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Stockholders' Equity
Balance at July 30, 2022		187,312		$	2,496	$	380,959		$	2,000,021		$	(970,536	)	$	(40,017	)	$	1,372,923
Stock awards		—			—		6,591			—			—			—			6,591
Repurchase of common stock from employees		(18	)		—		—			—			(193	)		—			(193	)
Reissuance of treasury stock		94			—		(660	)		(441	)		1,454			—			353
Net income		—			—		—			81,272			—			—			81,272
Other comprehensive loss		—			—		—			—			—			(1,250	)		(1,250	)
Contributions from noncontrolling interests		—			—		2,836			—			—			—			2,836
Balance at October 29, 2022		187,388		$	2,496	$	389,726		$	2,080,852		$	(969,275	)	$	(41,267	)	$	1,462,532

Balance at July 29, 2023		197,481		$	2,496	$	334,447		$	2,158,294		$	(810,672	)	$	(11,566	)	$	1,672,999
Stock awards		—			—		9,794			—			—			—			9,794
Repurchase of common stock from employees		(17	)		—		—			—			(270	)		—			(270	)
Reissuance of treasury stock		74			—		(557	)		—			1,144			—			587
Net income		—			—		—			96,700			—			—			96,700
Other comprehensive loss		—			—		—			—			—			(21,299	)		(21,299	)
Cash dividends declared and dividend equivalents ($0.10 per share)		—			—		483			(20,233	)		—			—			(19,750	)
Contributions from noncontrolling interests		—			—		(472	)		—			—			—			(472	)
Balance at October 28, 2023		197,538		$	2,496	$	343,695		$	2,234,761		$	(809,798	)	$	(32,865	)	$	1,738,289

39 Weeks Ended October 28, 2023 and October 29, 2022


(In thousands, except per share amounts)	Shares Outstanding			Common Stock			Contributed Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Stockholders' Equity
Balance at January 29, 2022		168,699		$	2,496		$	636,355		$	2,203,772		$	(1,378,106	)	$	(40,845	)	$	1,423,672
Stock awards		—			—			29,249			—			—			—			29,249
Repurchase of common stock from employees		(584	)		—			—			—			(9,772	)		—			(9,772	)
Reissuance of treasury stock		1,617			—			(24,618	)		(1,539	)		27,425			—			1,268
Adoption of Accounting Standards Update 2020-06, net of tax		—			—			(67,686	)		18,830			—			—			(48,856	)
Accelerated share repurchase		(17,023	)		—			—			—			(200,000	)		—			(200,000	)
Exchange of Convertible Senior Notes		34,679			—			(187,894	)		(144,507	)		591,178			—			258,777
Net income		—			—			—			70,547			—			—			70,547
Other comprehensive loss		—			—			—			—			—			(422	)		(422	)
Contributions from noncontrolling interests		—			—			2,836			—			—			—			2,836
Cash dividends declared and dividend equivalents ($0.36 per share)		—			—			1,484			(66,251	)		—			—			(64,767	)
Balance at October 29, 2022		187,388		$	2,496		$	389,726		$	2,080,852		$	(969,275	)	$	(41,267	)	$	1,462,532

Balance at January 28, 2023		195,064		$	2,496		$	341,775		$	2,137,126		$	(849,604	)	$	(32,630	)	$	1,599,163
Stock awards		—			—			34,777			—			—			—			34,777
Repurchase of common stock from employees		(766	)		—			—			—			(10,666	)		—			(10,666	)
Reissuance of treasury stock		2,141			—			(28,038	)		(3,330	)		33,364			—			1,996
Redemption of Convertible Senior Notes		1,099			—			(6,281	)		(2,137	)		17,108			—			8,690
Net income		—			—			—			163,722			—			—			163,722
Other comprehensive loss		—			—			—			—			—			(235	)		(235	)
Cash dividends declared and dividend equivalents ($0.30 per share)		—			—			1,499			(60,620	)		—			—			(59,121	)
Contributions from non-controlling interests		—			—	—		(37	)		—			—			—			(37	)
Balance at October 28, 2023		197,538		$	2,496		$	343,695		$	2,234,761		$	(809,798	)	$	(32,865	)	$	1,738,289

Refer to Notes to Consolidated Financial Statements

AMERICAN EAGLE OUTFITTERS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	39 Weeks Ended
	October 28,			October 29,
(In thousands)	2023			2022
Operating activities:
Net income	$	163,722		$	70,547
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		174,559			150,462
Share-based compensation		35,289			29,962
Deferred income taxes		15,691			25,416
Loss on impairment of assets		10,759			-
Loss on exchange of Convertible Senior Notes		-			55,687
Changes in assets and liabilities:
Accounts receivable		3,906			36,662
Merchandise inventory		(186,546	)		(244,864	)
Operating lease assets		201,810			256,523
Operating lease liabilities		(241,760	)		(248,721	)
Other assets		793			(41,066	)
Accounts payable		65,630			(43,378	)
Accrued compensation and payroll taxes		44,584			(105,466	)
Accrued and other liabilities		(4,094	)		(28,466	)
Net cash provided by (used for) operating activities		284,343			(86,702	)
Investing activities:
Capital expenditures for property and equipment		(134,915	)		(199,364	)
Other investing activities		(9,346	)		(700	)
Net cash used for investing activities		(144,261	)		(200,064	)
Financing activities:
Proceeds from revolving line of credit and convertible notes		30,000			343,000
Principal payments on revolving line of credit		(30,000	)		—
Net proceeds from stock options exercised		1,561			1,799
Repurchase of common stock from employees		(10,666	)		(9,772	)
Cash dividends paid		(59,121	)		(64,767	)
Principal paid in connection with exchange of Convertible Senior Notes due 2025		—			(136,077	)
Accelerated share repurchase		—			(200,000	)
Other financing activities		(762	)		1,670
Net cash used for financing activities		(68,988	)		(64,147	)
Effect of exchange rates changes on cash		(363	)		(1,724	)
Net change in cash and cash equivalents		70,731			(352,637	)
Cash and cash equivalents - beginning of period		170,209			434,770
Cash and cash equivalents - end of period	$	240,940		$	82,133

Refer to Notes to Consolidated Financial Statements

AMERICAN EAGLE OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Interim Financial Statements

The accompanying Consolidated Financial Statements of American Eagle Outfitters, Inc. (the “Company", “we”, and “our”), a Delaware corporation, at October 28, 2023 and October 29, 2022 and for the 13 and 39 week periods ended October 28, 2023 and October 29, 2022 have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. Certain notes and other information have been condensed or omitted from the interim Consolidated Financial Statements presented in this Quarterly Report. Therefore, these Consolidated Financial Statements should be read in conjunction with our Fiscal 2022 Form 10-K. In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments and those described in the notes that follow) considered necessary for a fair presentation have been included. The existence of subsequent events has been evaluated through the filing date of this Quarterly Report.

The Company operates under the American Eagle® ("AE") and Aerie® brands. We also operate Todd Snyder New York ("Todd Snyder"), a premium menswear brand, and Unsubscribed, which focuses on consciously made slow fashion.

Founded in 1977, the Company is a leading multi-brand specialty retailer that operates more than 1,000 retail stores in the U.S. and internationally, online through our digital channels at www.ae.com and www.aerie.com, www.toddsnyder.com, www.unsubscribed.com and through more than 300 international store locations managed by third-party operators. Through its portfolio of brands, the Company offers high quality, on-trend clothing, accessories, and personal care products at affordable prices. We sell directly to consumers through our retail channel, which includes our stores and concession-based shop-within-shops. We operate stores in the U.S., Canada, Mexico, Hong Kong and Japan. We also have license agreements with third parties to operate American Eagle and Aerie stores throughout Asia (including India), Europe, India, Latin America, and the Middle East. The Company's online business, AEO Direct, ships to approximately 80 countries worldwide.

Quiet Platforms is a logistics company that operates a network of in-market fulfillment centers, locating products closer to need, creating inventory efficiencies, cost benefits and affordable same-day and next-day delivery options for customers and stores to help us manage costs and improve service.

Historically, our operations have been seasonal, with a large portion of total net revenue and operating income occurring in the third and fourth fiscal quarters, reflecting increased demand during the back-to-school and year-end holiday selling seasons, respectively. Our quarterly results of operations also may fluctuate based upon such factors as the timing of certain holiday seasons, the number and timing of new store openings, the acceptability of seasonal merchandise offerings, the timing and level of markdowns, store closings and remodels, competitive factors, weather and general economic and political conditions.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries and consolidated entities where the Company's ownership percentage is less than 100%. Non-controlling interests are included as a component of contributed capital within the Consolidated Balance Sheets and Consolidated Statements of Stockholders' Equity and was not material for any period presented. All intercompany transactions and balances have been eliminated in consolidation. At October 28, 2023, the Company operated in two reportable segments, American Eagle and Aerie.

Fiscal Year

Our fiscal year is a 52- or 53-week year that ends on the Saturday nearest to January 31. As used herein, “Fiscal 2023” refers to the 53-week period that will end on February 3, 2024. “Fiscal 2022” refers to the 52-week period ended January 28, 2023.

Estimates

The preparation of financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, our management reviews its estimates based on currently available information. Changes in facts and circumstances may result in revised estimates.

Recent Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2020-06, Debt with Conversion and Other Options (“ASU 2020-06”), which simplifies the accounting for convertible debt instruments. The new guidance eliminates two of the three models in Accounting Standards Codification (“ASC”) 470-20, Debt with Conversion and Other Options that require separating embedded conversion features from convertible instruments. The guidance also addresses how convertible instruments are accounted for in the diluted earnings per share (“EPS”) calculation. The guidance is effective for fiscal years beginning after December 15, 2021. The Company adopted ASU 2020-06 at the beginning of Fiscal 2022 using the modified retrospective method.

Refer to Note 5 and Note 8 to the Consolidated Financial Statements for additional information regarding EPS and long-term debt, respectively.

Foreign Currency Translation

In accordance with ASC 830, Foreign Currency Matters, the Company translates assets and liabilities denominated in foreign currencies into U.S. dollars (“USD”) (the reporting currency) at the exchange rates prevailing at the balance sheet date. The Company translates revenues and expenses denominated in foreign currencies into USD at the monthly average exchange rates for the period. Gains or losses resulting from foreign currency transactions are included in the consolidated results of operations, whereas related translation adjustments are reported as an element of other comprehensive income (loss) in accordance with ASC 220, Comprehensive Income.

We are exposed to the impact of foreign exchange rate risk primarily through our Canadian and Mexican operations where the functional currency is the Canadian dollar and Mexican peso, respectively. The impact of all other foreign currencies is currently immaterial to our consolidated financial results. During the 13 and 39 weeks ended October 28, 2023, an unrealized loss of $21.3 million and $0.2 million, respectively, was included in other comprehensive loss, which were primarily related to the fluctuations of the USD to Mexican peso and USD to Canadian dollar exchange rates.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents.

Refer to Note 3 to the Consolidated Financial Statements for information regarding cash and cash equivalents.

Accounts Receivable

The Company maintains an allowance for doubtful accounts for estimated losses from the failure of certain of our customers to make required payments for products or services delivered. The Company estimates this allowance based on the age of the related receivable, knowledge of the financial condition of customers, review of historical and expected future receivables, reserve trends and other pertinent information. If the financial condition of customers deteriorates or an unfavorable trend in receivable collections is experienced in the future, additional allowances may be required. Historically, the Company’s reserves have approximated actual experience.

Merchandise Inventory

Merchandise inventory is valued at the lower of average cost or net realizable value, utilizing the retail method. Average cost includes merchandise design and sourcing costs and related expenses. The Company records merchandise receipts when control of the merchandise has transferred to the Company.

The Company reviews its inventory levels to identify slow-moving merchandise and generally uses markdowns to clear merchandise. Additionally, the Company estimates a markdown reserve for future planned permanent markdowns related to current inventory. Markdowns may occur when inventory exceeds customer demand for reasons of style, seasonal adaptation, changes in customer preference, lack of consumer acceptance of fashion items, competition, or if it is

determined that the inventory in stock will not sell at its currently ticketed price. Such markdowns may have a material adverse impact on earnings, depending on the extent and amount of inventory affected.

The Company also estimates a shrinkage reserve for the period between the last physical count and the balance sheet date. The estimate for the shrinkage reserve, based on historical results, can be affected by changes in merchandise mix and changes in actual shrinkage trends.

Property and Equipment

Property and equipment is recorded on the basis of cost with depreciation computed utilizing the straight-line method over the asset’s estimated useful life. The useful lives of our major classes of assets are as follows:


Buildings		25 years
Leasehold improvements		Lesser of 10 years or the term of the lease
Fixtures and equipment Information technology		Five years Three to five years

As of October 28, 2023, the weighted average remaining useful life of our assets was approximately six years.

In accordance with ASC 360, Property, Plant, and Equipment (“ASC 360”), the Company’s management evaluates the value of leasehold improvements, store fixtures, and operating lease right-of-use ("ROU") assets associated with retail stores. The Company evaluates long-lived assets for impairment at the individual store level, which is the lowest level at which individual cash flows can be identified. Impairment losses are recorded on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the projected undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts. When events such as these occur, the impaired assets are adjusted to their estimated fair value and an impairment loss is recorded separately as a component of operating income within the Consolidated Statements of Operations.

Our impairment loss calculations require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values. The significant assumption used in our fair value analysis is forecasted revenue. We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate long-lived asset impairment losses. However, if actual results are not consistent with our estimates and assumptions, our consolidated operating results could be adversely affected.

When the Company closes, remodels, or relocates a store prior to the end of its lease term, the remaining net book value of the assets related to the store is recorded as a write-off of assets within depreciation and amortization expense.

There were no long-lived asset impairment charges recorded during the 13 weeks ended October 28, 2023 or October 29, 2022. During the 39 weeks ended October 28, 2023, the Company recorded impairment of property and equipment of $10.8 million. No long-lived asset impairment charges were recorded during the 39 weeks ended October 29, 2022. Refer to Note 6 to the Consolidated Financial Statements for additional information regarding property and equipment and refer to Note 13 to the Consolidated Financial Statements for additional information regarding the impairment of these assets.

Goodwill and Intangible Assets

The Company’s goodwill is primarily related to the acquisition of Quiet Logistics, in Fiscal 2021, as well as its importing operations and Canadian business, and represents the excess of cost over fair value of net assets of businesses acquired. In accordance with ASC 350, Intangibles – Goodwill and Other, the Company evaluates goodwill for possible impairment at least annually as of the last day of the fiscal year and upon occurrence of certain triggering events or substantive changes in circumstances that indicate that the fair value of a reporting unit may be below its carrying value. If the carrying value of the reporting unit exceeds the fair value, an impairment charge is recorded in the period of the evaluation based on that difference. As a result of the Company's annual goodwill impairment test as of January 28, 2023, the Company concluded that its goodwill was not impaired. No indicators of impairment were present during the 13 or 39 weeks ended October 28, 2023 and October 29, 2022.

Definite-lived intangible assets are initially recorded at fair value, with amortization computed utilizing the straight-line method over the assets’ estimated useful lives. The Company’s definite-lived intangible assets, which consist primarily of trademark assets, are generally amortized over 10 to 15 years.

The Company evaluates definite-lived intangible assets for impairment in accordance with ASC 360 when events or circumstances indicate that the carrying value of the asset may not be recoverable. Such an evaluation includes the estimation of undiscounted future cash flows to be generated by those assets. If the sum of the estimated future undiscounted cash flows is less than the carrying amounts of the assets, then the assets are impaired and are adjusted to their estimated fair value. No definite-lived intangible asset impairment charges were recorded during the 13 or 39 weeks ended October 28, 2023 or October 29, 2022.

Refer to Note 7 to the Consolidated Financial Statements for additional information regarding goodwill and intangible assets.

Construction Allowances

As part of certain lease agreements for retail stores, the Company receives construction allowances from lessors, which are generally comprised of cash amounts. The Company records a receivable and an adjustment to the operating lease ROU asset at the lease commencement date (date of initial possession of the store). The deferred lease credit is amortized as part of the single lease cost over the term of the original lease (including the pre-opening build-out period). The receivable is reduced as amounts are received from the lessor.

Self-Insurance Liability

The Company uses a combination of insurance and self-insurance mechanisms for certain losses related to employee medical benefits and worker’s compensation. Costs for self-insurance claims filed and claims incurred but not reported are accrued based on known claims and historical experience. Management believes that it has adequately reserved for its self-insurance liability, which is capped by stop-loss contracts with insurance companies. However, any significant variation of future claims from historical trends could cause actual results to differ from the accrued liability.

Leases

The Company leases all store premises, the Canadian distribution center in Mississauga, Ontario, regional distribution facilities, some of its office space and certain information technology and office equipment. These leases are generally classified as operating leases.

Store leases generally provide for a combination of base rentals and contingent rent based on store sales. Additionally, most leases include lessor incentives such as construction allowances and rent holidays. The Company is typically responsible for tenant occupancy costs including maintenance costs, common area charges, real estate taxes and certain other expenses. When measuring operating lease ROU assets and operating lease liabilities, the Company only includes cash flows related to options to extend or terminate leases once those options are executed.

Some leases have variable payments. However, because they are not based on an index or rate, they are not included in the measurement of operating lease ROU assets and operating lease liabilities.

When determining the present value of future payments for an operating lease that does not have a readily determinable implicit rate, the Company uses its incremental borrowing rate as of the date of initial possession of the leased asset.

For leases that qualify for the short-term lease exemption, the Company does not record an operating lease liability or operating lease ROU asset. Short-term lease payments are recognized on a straight-line basis over the lease term of 12 months or less.

Co-branded and Private Label Credit Cards

The Company offers a co-branded credit card and a private-label credit card under the AE and Aerie brands. These credit cards are issued by a third-party bank (the “Bank”) in accordance with a credit card agreement (the “Agreement”). The Company has no liability to the Bank for bad debt expense, provided that purchases are made in accordance with the Bank’s procedures. We receive funding from the Bank based on the Agreement and card activity, which includes payments for new account activations and usage of the credit cards. We recognize revenue for this funding as we fulfill our performance obligations under the Agreement. This revenue is recorded in other revenue, which is a component of total net revenue in our Consolidated Statements of Operations.

Customer Loyalty Program

The Company offers a highly digitized loyalty program called Real Rewards by American Eagle and Aerie™ (the “Program”). The Program features both shared and unique benefits for loyalty members and credit card holders. Under the Program, members accumulate points based on purchase activity and earn rewards by reaching certain point thresholds. Members earn rewards in the form of discount savings certificates. Rewards earned are valid through the stated expiration date, which is 60 days from the issuance date of the reward. Rewards not redeemed during the 60-day redemption period are forfeited.

Points earned under the Program on purchases at AE and Aerie are accounted for in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). The portion of the sales revenue attributed to the reward points is deferred and recognized when the reward is redeemed or when the points expire, using the relative stand-alone selling price method. Additionally, reward points earned using the co-branded credit card on non-AE or Aerie purchases are accounted for in accordance with ASC 606. As the points are earned, a current liability is recorded for the estimated cost of the reward, and the impact of adjustments is recorded in revenue.

The Company defers a portion of the sales revenue attributed to the loyalty points and recognizes revenue when the points are redeemed or expire, consistent with the requirements of ASC 606.

Long-Term Debt

In April 2020, the Company issued $415 million aggregate principal amount of convertible senior notes due 2025 (the "2025 Notes"). Prior to the adoption of ASU 2020-06 in Fiscal 2022, the 2025 Notes were accounted for under the cash conversion model, which is one of the models eliminated by ASU 2020-06. The adoption of ASU 2020-06 resulted in the 2025 Notes being accounted for as a single balance in long-term debt, rather than being accounted for as separate debt and equity components.

In June 2022, the Company entered into an amended and restated credit agreement (the “Credit Agreement”). The Credit Agreement provides senior secured asset-based revolving credit for loans and letters of credit up to $700 million, subject to customary borrowing base limitations (the "Credit Facility"). The Credit Facility expires on June 24, 2027.

Refer to Note 8 to the Consolidated Financial Statements for additional information regarding Long-Term Debt.

Income Taxes

The Company calculates income taxes in accordance with ASC 740, Income Taxes (“ASC 740”), which requires the use of the liability method. Under this method, deferred tax assets and liabilities are recognized based on the difference between the Consolidated Financial Statements carrying amounts of existing assets and liabilities and their respective tax bases as computed pursuant to ASC 740. Deferred tax assets and liabilities are measured using the tax rates, based on certain judgments regarding enacted tax laws and published guidance, in effect in the years when those temporary differences are expected to reverse. A valuation allowance is established against the deferred tax assets when it is more likely than not that some portion or all of the deferred taxes may not be realized. Changes in the Company’s level and composition of earnings, tax laws or the deferred tax valuation allowance, as well as the results of tax audits, may materially impact the Company’s effective income tax rate.

The Company evaluates its income tax positions in accordance with ASC 740, which prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in the financial statements tax positions taken or expected to be taken on a tax return, including a decision whether to file or not to file in a particular jurisdiction. Under ASC 740, a tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable based on its technical merits.

The calculation of deferred tax assets and liabilities, as well as the decision to recognize a tax benefit from an uncertain position and to establish a valuation allowance, requires management to make estimates and assumptions. The Company believes that its estimates and assumptions are reasonable, although actual results may have a positive or negative material impact on the balances of deferred tax assets and liabilities, valuation allowances or net income (loss).

Refer to Note 10 to the Consolidated Financial Statements for additional information regarding income taxes.

Revenue Recognition

The Company recognizes revenue pursuant to ASC 606. Revenue is recorded for store sales upon the purchase of merchandise by customers. The Company’s e-commerce operation records revenue upon the customer receipt date of the merchandise. Shipping and handling revenues are included in total net revenue. Sales tax collected from customers is excluded from revenue and is included as part of accrued income and other taxes on the Company’s Consolidated Balance Sheets.

Revenue is recorded net of estimated and actual sales returns and promotional price reductions. The Company records the impact of adjustments to its sales return reserve quarterly within total net revenue and cost of sales. The sales return reserve reflects an estimate of sales returns based on projected merchandise returns determined using historical average return percentages. The presentation on a gross basis of the sales return reserve consists of a separate right of return asset and liability. These amounts are recorded within (i) prepaid expenses and other and (ii) other current liabilities and accrued expenses, respectively, on the Consolidated Balance Sheets.

Revenue is not recorded on the issuance of gift cards. A current liability is recorded upon issuance, and revenue is recognized when the gift card is redeemed for merchandise. Additionally, the Company recognizes revenue on gift card breakage, determined through historical redemption trends. Revenue on unredeemed gift cards, based on an estimate of the amounts that will not be redeemed ("gift card breakage"), is recorded in proportion to actual gift cards redemptions as a component of total net revenue. The Company determines an estimated gift card breakage rate by continuously evaluating historical redemption data and the time when there is a remote likelihood that a gift card will be redeemed. During both the 13 weeks ended October 28, 2023 and October 29, 2022, the Company recorded approximately $1.7 million of revenue related to gift card breakage. During the 39 weeks ended October 28, 2023 and October 29, 2022, the Company recorded $5.8 million and $6.6 million, respectively, of revenue related to gift card breakage.

The Company recognizes royalty revenue generated from its license or franchise agreements based on a percentage of merchandise sales by the licensee/franchisee. This revenue is recorded as a component of total net revenue when earned and collection is probable.

The Company defers a portion of the sales revenue attributed to loyalty points and recognizes revenue when the points are redeemed or expire, consistent with the requirements of ASC 606. Refer to the Customer Loyalty Program caption above for additional information.

Revenue associated with Quiet Platforms is recognized as the services are performed.

Cost of Sales, Including Certain Buying, Occupancy and Warehousing Expenses

Cost of sales consists of merchandise costs, including design, sourcing, importing and inbound freight costs, as well as markdowns, shrinkage and certain promotional costs (collectively, “merchandise costs”), Quiet Platforms' costs to service its customers and buying, occupancy and warehousing costs and services.

Design costs are related to the Company's Design Center operations and include compensation, travel and entertainment, supplies and samples for our design teams, as well as rent and depreciation for our Design Center. These costs are included in cost of sales as the respective inventory is sold.

Buying, occupancy and warehousing costs and services consist of compensation, employee benefit expenses and travel and entertainment for our buyers and certain senior merchandising executives; rent and utilities related to our stores, corporate headquarters, distribution centers and other office space; freight from our distribution centers to the stores; compensation and supplies for our distribution centers, including purchasing, receiving and inspection costs; and shipping and handling costs related to our e-commerce operation. Gross profit is the difference between total net revenue and cost of sales.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist of compensation and employee benefit expenses, including salaries, incentives and related benefits associated with our stores and corporate headquarters. SG&A expenses also include advertising costs, supplies for our stores and home office, communication costs, travel and entertainment, leasing costs and services purchased.

SG&A expenses do not include compensation, employee benefit expenses and travel for our design, sourcing and importing teams, our buyers and our distribution centers as these amounts are recorded in cost of sales. Additionally, SG&A expenses do not include rent and utilities related to our stores, operating costs of our distribution centers, and shipping and handling costs related to our e-commerce operations, all of which are included in cost of sales.

Debt Related Charges

Debt related charges consist primarily of a $55.7 million induced conversion expense on the exchange of the 2025 Notes, along with certain other costs related to actions we took to strengthen our capital structure during the 39 weeks ended October 29, 2022. Refer to Note 8 to the Consolidated Financial Statements for additional information regarding the 2025 Notes

Interest (Income) Expense, Net

Interest expense, net primarily consists of interest expense related to the Company’s 2025 Notes and borrowings under our five-year, syndicated, asset-based revolving credit facilities, partially offset by interest income from cash and cash equivalents.

Other (Income) Expense, Net

Other income, net consists primarily of foreign currency fluctuations and changes in other non-operating items. Non-controlling interest was not material for any period presented and is included within other income, net.

Segment Information

The Company has identified two operating segments (American Eagle and Aerie brand) that also represent our reportable segments and reflect the Chief Operating Decision Maker's (defined as our CEO) internal view of analyzing results and allocating resources. Additionally, our Todd Snyder and Unsubscribed brands and Quiet Platforms have been identified as separate operating segments; however, as they do not meet the quantitative thresholds for separate disclosure, they are presented under the Other caption. For additional information regarding the Company’s segment and geographic information, refer to Note 12 to the Consolidated Financial Statements.

3. Cash and Cash Equivalents

The following table summarizes the fair market values for the Company’s cash and cash equivalents, which are recorded in the Consolidated Balance Sheets:


(In thousands)	October 28, 2023		January 28, 2023		October 29, 2022
Cash and cash equivalents:
Cash	$	134,874	$	84,960	$	82,029
Interest bearing deposits		106,066		85,249		104
Total cash and cash equivalents	$	240,940	$	170,209	$	82,133

4. Fair Value Measurements

ASC 820, Fair Value Measurement Disclosures (“ASC 820”), defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosures about fair value measurements. Fair value is defined under ASC 820 as the exit price associated with the sale of an asset or transfer of a liability in an orderly transaction between market participants at the measurement date.

Financial Instruments

Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. In addition, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

•

Level 1 — Quoted prices in active markets.

•

Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly.

•

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company’s cash equivalents and short-term investments are Level 1 financial assets and are measured at fair value on a recurring basis, for all periods presented. Refer to Note 3 to the Consolidated Financial Statements for additional information regarding cash equivalents.


	Fair Value Measurements at October 28, 2023
(In thousands)	Carrying Amount		Quoted Market Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents:
Cash	$	134,874	$	134,874	$	—	$	—
Interest bearing deposits		106,066		106,066		—		—
Total cash and cash equivalents	$	240,940	$	240,940	$	—	$	—

Long-Term Debt

As of October 28, 2023, there were no outstanding borrowing under the Company's Credit Facility. As of October 29, 2022, the fair value of the Company's $343 million in outstanding borrowings under its Credit Facility approximated the carrying value.

In April 2020, the Company issued $415 million aggregate principal amount of 2025 Notes. As of October 28, 2023, the Company's 2025 Notes have been fully redeemed. The fair value of the Company's 2025 Notes was not required to be measured at fair value on a recurring basis. Upon issuance, the fair value of the 2025 Notes was measured using two approaches that consider market related conditions, including market benchmark rates and a secondary market quoted price, and is therefore within Level 2 of the fair value hierarchy.

Refer to Note 8 to the Consolidated Financial Statements for additional information regarding long-term debt and other credit arrangements.

Non-Financial Assets

The Company’s non-financial assets, which include intangible assets and property and equipment, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur and the Company is required to evaluate the non-financial asset for impairment, a resulting impairment would require that the non-financial asset be recorded at the estimated fair value. The fair value is determined by estimating the amount and timing of net future cash flows and discounting them using a risk-adjusted rate of interest. The Company estimates future cash flows based on its experience and knowledge of the market in which the store is located. There were no long-lived asset impairment charges recorded during the 13 weeks ended October 28, 2023 or October 29, 2022. During the 39 weeks ended October 28, 2023, the Company recorded impairment of property and equipment of $10.8 million. No long-lived asset impairment charges were recorded during the 39 weeks ended October 29, 2022. Refer to Note 13 to the Consolidated Financial Statements for additional information on impairment, restructuring and other charges.

The fair value of the Company's ROU assets was based upon market rent assumptions.

The Company evaluates goodwill for possible impairment at least annually as of the last day of the fiscal year and upon occurrence of certain triggering events or substantive changes in circumstances that indicate that the fair value of a reporting unit may be below its carrying value. The Company last performed an annual goodwill impairment test using Level 3 inputs as defined in ASC 820 as of January 28, 2023. As a result of the Company's annual goodwill impairment test, the Company concluded that its goodwill was not impaired. No indicators of impairment were present during the 13 or 39 weeks ended October 28, 2023 and October 29, 2022.

5. Earnings per Share

The following is a reconciliation between basic and diluted weighted average shares outstanding:


	13 Weeks Ended				39 Weeks Ended
(In thousands)	October 28, 2023		October 29, 2022		October 28, 2023		October 29, 2022
Numerator:
Net income and numerator for basic EPS	$	96,700	$	81,272	$	163,722	$	70,547
Add: Interest expense, net of tax, related to the 2025 Notes (1)		-		529		58		4,897
Numerator for diluted EPS	$	96,700	$	81,801	$	163,780	$	75,444

Denominator:
Denominator for basic EPS - weighted average shares		195,343		186,305		195,467		178,637
Add: Dilutive effect of the 2025 Notes (1)		—		8,418		278		27,280
Add: Dilutive effect of stock options and non-vested restricted stock		3,024		1,053		2,224		1,582
Denominator for diluted EPS - adjusted weighted average shares		198,367		195,776		197,969		207,499
Anti-dilutive shares (2)		1,816		4,221		1,861		2,390

(1) During the 39 weeks ended October 29, 2022, the Company adopted ASU 2020-06. The Company utilizes the "if-converted" method of calculating diluted EPS. Refer to Note 2 to the Consolidated Financial Statements for additional information regarding the impact of the adoption of ASU 2020-06.

(2) For all periods presented, anti-dilutive shares relate to stock options and unvested restricted stock.

Refer to Notes 8 and 9 to the Consolidated Financial Statements for additional information regarding the 2025 Notes and share-based compensation, respectively.

On June 3, 2022, the Company entered into an accelerated share repurchase agreement (the ASR Agreement) with JPMorgan Chase Bank (JPM). Pursuant to the terms of the ASR Agreement, on June 3, 2022, the Company paid $200.0 million in cash and received an initial delivery of 13.4 million shares of its common stock on June 3, 2022. At final settlement, on July 28, 2022, an additional 3.7 million shares were received. The cumulative repurchase under the ASR Agreement was 17.0 million shares repurchased at an average price per share of $11.75. The aforementioned shares have been recorded as treasury stock.

6. Property and Equipment

Property and equipment consists of the following:


	October 28,			January 28,			October 29,
(In thousands)	2023			2023			2022
Property and equipment, at cost	$	2,774,161		$	2,707,061		$	2,657,167
Less: Accumulated depreciation and impairment		(2,031,368	)		(1,925,547	)		(1,867,358	)
Property and equipment, net	$	742,793		$	781,514		$	789,809

7. Goodwill and Intangible Assets, net

Goodwill and definite-lived intangible assets, net consist of the following:


	October 28,			January 28,			October 29,
(In thousands)	2023			2023			2022
Goodwill, gross	$	269,021		$	269,141		$	275,405
Accumulated impairment (1)		(4,196	)		(4,196	)		(4,196	)
Goodwill, net	$	264,825		$	264,945		$	271,209

(1)

Accumulated impairment includes $1.7 million recorded in Fiscal 2019 and $2.5 million recorded in Fiscal 2016.


	October 28,			January 28,			October 29,
(In thousands)	2023			2023			2022
Intangible assets, at cost	$	146,739		$	146,228		$	145,935
Accumulated amortization		(58,538	)		(51,692	)		(49,405	)
Intangible assets, net	$	88,201		$	94,536		$	96,530

8. Long-Term Debt, Net

Our long-term debt consisted of the following at October 28, 2023, January 28, 2023, and October 29, 2022:


(In thousands)	October 28, 2023		January 28, 2023		October 29, 2022
2025 Notes principal	$	—	$	8,791	$	69,601
Less: unamortized discount		—		105		690
2025 Notes, net	$	—	$	8,686	$	68,911
Credit Facility borrowings	$	—	$	—	$	343,000

2025 Notes

In April 2020, the Company issued $415 million aggregate principal amount of 2025 Notes in a private placement to qualified institutional buyers in reliance on Rule 144A under the Securities Act. The 2025 Notes had a stated interest rate of 3.75%, payable semi-annually. The Company used the net proceeds from the issuance for general corporate purposes. The Company redeemed all of the remaining 2025 Notes during the 13 weeks ended April 29, 2023. See "-Note Exchanges" and "Early Redemption" below.

The Company did not have the right to redeem the 2025 Notes prior to April 17, 2023. On or after April 17, 2023 and prior to the fortieth scheduled trading day immediately preceding the maturity date, the Company could redeem all or any portion of the 2025 Notes, at its option, for cash, if the last reported sale price of our common stock had been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period.

Note Exchanges

In June and December 2022, the Company entered into separate privately negotiated exchange agreements with certain holders of the 2025 Notes, to exchange $403.2 million in aggregate principal amount of the 2025 Notes for a combination of cash and shares of the Company's common stock, plus payment of accrued and unpaid interest (together, the "Note Exchanges").

In June 2022, the Company exchanged $342.4 million in aggregate principal amount of the 2025 Notes. The Company paid cash of $136.1 million to redeem a principal amount of the 2025 Notes with a carrying value of $339.2 million and issued approximately 34.7 million shares of the Company's common stock. In connection with these transactions, the Company recognized a pre-tax inducement charge of approximately $55.7 million during the 13 weeks ended July 30, 2022, which was recorded within debt-related charges on the Consolidated Statements of Operations.

In December 2022, the Company exchanged $60.8 million in aggregate principal amount of the 2025 Notes for shares of the Company's common stock, plus payment of accrued and unpaid interest. The Company issued approximately 7.6 million shares of the Company's common stock with a carrying value of $60.4 million. In connection with these transactions, the Company recognized a pre-tax inducement charge of approximately $4.7 million during the 13 weeks ended January 28, 2023, which was recorded within debt-related charges on the Consolidated Statements of Operations.

Early Redemption

On February 10, 2023, the Company issued a notice of optional redemption for all of its remaining outstanding 2025 Notes, notifying holders that, among other things, it had elected to exercise its right to redeem any and all of the outstanding 2025 Notes on April 17, 2023 (the "Early Redemption"). Subsequent to this notice, and prior to April 17, 2023, the 2025 Note holders redeemed a total of $8.8 million aggregate principal amount for a combined 1.1 million shares of the Company's common stock.

Following the Note Exchanges and Early Redemption, the aggregate principal amount of the 2025 Notes had been fully redeemed.

Interest expense for the 2025 Notes was:


	13 Weeks Ended				39 Weeks Ended
(In thousands)	October 28, 2023		October 29, 2022		October 28, 2023		October 29, 2022
Accrued interest for interest payments	$	—	$	645	$	70	$	6,559
Amortization of discount		—		89		10		872
Total interest expense	$	—	$	734	$	80	$	7,431

Refer to Note 2 and Note 5 to the Consolidated Financial Statements for additional information regarding the impact of the adoption of ASU 2020-06.

Revolving Credit Facility

In June 2022, the Company entered into an amended and restated Credit Agreement. The Credit Agreement provides senior secured asset-based revolving credit for loans and letters of credit up to $700 million, subject to customary borrowing base limitations. The Credit Facility expires on June 24, 2027. Before amendment and restatement, the Company's previous credit agreement provided senior secured asset-based revolving credit for loans and letters of credit up to $400 million and was scheduled to expire on January 30, 2024.

All obligations under the Credit Facility are unconditionally guaranteed by certain subsidiaries. The obligations under the Credit Agreement are secured by certain assets of the Company and certain subsidiaries.

As of October 28, 2023, there were no outstanding borrowings and the Company was in compliance with the terms of the Credit Agreement and had $7.7 million outstanding in stand-by letters of credit. As of October 29, 2022, the Company had $343.0 million in outstanding borrowings under the Credit Agreement.

Borrowings under the Credit Facility accrue interest at the election of the Company at an adjusted secured overnight financing rate ("SOFR") rate of SOFR plus 0.10% plus an applicable margin (ranging from 1.125% to 1.375%) or an alternate base rate plus an applicable margin (ranging from 0.125% to 0.375%), with each such applicable margin being based on average borrowing availability under the Credit Facility. Interest is payable quarterly and at the end of each applicable interest period. The weighted average interest rate for borrowings during the 39 weeks ended October 28, 2023 was 6.0%. The total interest expense related to the Credit Facility borrowings for the 39 weeks ended October 28, 2023 was $1.1 million. The total interest expense related to the Credit Facility borrowings for the 13 and 39 weeks ended October 29, 2022 was $2.9 million and $3.9 million, respectively.

9. Share-Based Compensation

The Company accounts for share-based compensation under the provisions of ASC 718, Compensation - Stock Compensation, which requires the Company to measure and recognize compensation expense for all share-based payments at fair value.

Total share-based compensation expense included in the Consolidated Statements of Operations for the 13 and 39 weeks ended October 28, 2023 was $9.9 million ($7.3 million, net of tax) and $35.3 million ($25.8 million, net of tax), respectively, and for the 13 and 39 weeks ended October 29, 2022 was $6.8 million ($4.9 million, net of tax) and $30.0 million ($19.7 million, net of tax), respectively.

Stock Option Grants

The Company has granted time-based stock option awards, which vest over the requisite service period of the award. A summary of the Company’s stock option activity for the 39 weeks ended October 28, 2023 follows:


	Options			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term		Aggregate Intrinsic Value
	(In thousands)					(In years)		(In thousands)
Outstanding - January 28, 2023		3,950		$	17.01
Granted		1,051			13.17
Exercised		(100	)		15.38
Cancelled		(275	)		16.75
Outstanding - October 28, 2023		4,626			16.19		4.2		13,807
Vested and expected to vest - October 28, 2023		3,665			16.37		2.9		4,030
Exercisable - October 28, 2023 (1)		1,788			12.20		3.4		9,284

(1)

Options exercisable represent “in-the-money” vested options based upon the weighted-average exercise price of vested options compared to the Company’s stock price on October 28, 2023.

As of October 28, 2023, there was $6.9 million of unrecognized compensation expense for stock option awards that is expected to be recognized over a weighted average period of 1.9 years.

The fair value of stock options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:


	39 Weeks Ended			39 Weeks Ended
	October 28,			October 29,
Black-Scholes Option Valuation Assumptions	2023			2022
Risk-free interest rate (1)		3.4	%		2.5	%
Dividend yield		2.8	%		3.8	%
Volatility factor (2)		55.7	%		52.2	%
Weighted-average expected term (3)	4.5 years			4.5 years

(1)

Based on the United States Treasury yield curve in effect at the time of grant with a term consistent with the expected life of our stock options.

(2)

Based on historical volatility of the Company’s common stock.

(3)

Represents the period of time options are expected to be outstanding. The weighted-average expected option terms were determined based on historical experience.

Restricted Stock Grants

Time-based restricted stock awards are comprised of time-based restricted stock units. These awards vest over three years. Time-based restricted stock units receive dividend equivalents in the form of additional time-based restricted stock units, which are subject to the same restrictions and forfeiture provisions as the original award.

Performance-based restricted stock awards include performance-based restricted stock units. These awards cliff vest at the end of a three-year period based upon the Company’s achievement of pre-established goals throughout the term of the award. Performance-based restricted stock units receive dividend equivalents in the form of additional performance-based restricted stock units, which are subject to the same restrictions and forfeiture provisions as the original award.

The grant date fair value of time-based restricted stock awards is based on the closing market price of the Company’s common stock on the date of grant. A Monte-Carlo simulation was utilized for performance-based restricted stock awards.

A summary of the Company’s restricted stock activity is presented in the following table:


	Time-Based Restricted Stock Units					Performance-Based Restricted Stock Units
	October 28, 2023					October 28, 2023
(Shares in thousands)	Shares			Weighted-Average Grant Date Fair Value		Shares			Weighted-Average Grant Date Fair Value
Non-vested - January 28, 2023		2,749		$	17.00		1,574		$	20.11
Granted		1,893		$	13.05		945		$	14.97
Vested		(1,585	)	$	14.95		(421	)	$	15.95
Cancelled		(204	)	$	15.51		(81	)	$	23.16
Non-vested - October 28, 2023		2,853		$	15.63		2,017		$	18.45

As of October 28, 2023, there was $31.9 million of unrecognized compensation expense related to non-vested, time-based restricted stock unit awards that is expected to be recognized over a weighted-average period of 2.0 years. There is $5.7 million of unrecognized compensation expense related to performance-based restricted stock unit awards that is expected to be recognized over a weighted-average period of 1.8 years.

As of October 28, 2023, the Company had 12.0 million shares available for all equity grants.

10. Income Taxes

The provision for income taxes is based on the current estimate of the annual effective income tax rate and is adjusted as necessary for discrete quarterly events. The effective income tax rate for the 13 weeks ended October 28, 2023 was 26.9% compared to 28.0% for the 13 weeks ended October 29, 2022. The effective income tax rate for the 39 weeks ended October 28, 2023 was 27.0% compared to 34.1% for the 39 weeks ended October 29, 2022. The decrease in the effective tax rate for the 13 weeks ended October 28, 2023 was primarily due to international tax provisions of the Tax Cuts and Jobs Act (the “Tax Act”), overall geographic mix of earnings in jurisdictions in which the Company operates, offset by non-deductible executive compensation. The decrease in the effective tax rate for the 39 weeks ended October 28, 2023 was primarily due to the Note Exchange in Fiscal 2022 as a portion of the inducement charge was not deductible and state legislative changes that occurred in Fiscal 2022.

The Company records accrued interest and penalties related to unrecognized tax benefits in income tax expense. The Company recognizes income tax liabilities related to unrecognized tax benefits in accordance with ASC 740 and adjusts these liabilities when its judgment changes as a result of the evaluation of new information not previously available. Unrecognized tax benefits did not change significantly during the 13 weeks ended October 28, 2023. Over the next twelve months, the Company believes that it is reasonably possible that unrecognized tax benefits may decrease by approximately $1.1 million due to settlements, expiration of statute of limitations, or other changes in unrecognized tax benefits.

11. Legal Proceedings

The Company is subject to certain legal proceedings and claims arising out of the conduct of its business. In accordance with ASC 450, Contingencies (“ASC 450”), the Company records a reserve for estimated losses when the loss is probable and the amount can be reasonably estimated. If a range of possible loss exists and no anticipated loss within the range is more likely than any other anticipated loss, the Company records the accrual at the low end of the range, in accordance with ASC 450. As the Company believes that it has provided adequate reserves, it anticipates that the ultimate outcome of any matter currently pending against the Company will not materially affect the consolidated financial position, results of operations or consolidated cash flows of the Company. However, our assessment of any litigation or other legal claims could potentially change in light of the discovery of facts not presently known or determinations by judges, juries, or other finders of fact which are not in accord with management’s evaluation of the possible liability or outcome of such litigation or claims.

12. Segment Reporting

In accordance with ASC 280, Segment Reporting (“ASC 280”), the Company has identified two operating segments (American Eagle brand and Aerie brand) that also represent our reportable segments and reflect the Chief Operating Decision Maker’s (defined as our CEO) internal view of analyzing results and allocating resources. Additionally, our Todd Snyder brand, Unsubscribed brand, and Quiet Platforms have been identified as separate operating segments; however, as they do not meet the quantitative thresholds for separate disclosure, they are presented under the Other caption, as permitted by ASC 280.

General corporate expenses are comprised of general and administrative costs that management does not attribute to any of our operating segments. These costs primarily relate to corporate administration, information and technology resources, finance and human resources functional and organizational costs, depreciation and amortization of corporate assets, and other general and administrative expenses resulting from corporate-level activities and projects.

Our CEO analyzes segment results and allocates resources between segments based on the adjusted operating income , or the operating income in periods where there are no adjustments, of each segment. Adjusted operating income is a non-GAAP financial measure ("non-GAAP" or "adjusted") that is defined by the Company as operating income excluding impairment, restructuring and other charges. Adjusted operating income is not based on any standardized methodology prescribed by GAAP and is not necessarily comparable to similar measures presented by other companies. Non-GAAP information is provided as a supplement to, not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. We believe that this non-GAAP information is useful as an additional means for investors to evaluate our operating performance, when reviewed in conjunction with our GAAP consolidated financial statements and provides a higher degree of transparency.

Reportable segment information is presented in the following table:


	For the 13 weeks ended						For the 39 weeks ended
	October 28, 2023			October 29, 2022			October 28, 2023			October 29, 2022
Net Revenue:
American Eagle	$	857,378		$	837,575		$	2,295,487		$	2,301,051
Aerie	$	393,042		$	349,712		$	1,132,537		$	1,043,129
Total Segment Net Revenue	$	1,250,420		$	1,187,287		$	3,428,024		$	3,344,180
Other	$	111,805		$	115,346		$	329,480		$	315,332
Intersegment Elimination	$	(61,170	)	$	(62,050	)	$	(174,645	)	$	(165,768	)
Total Net Revenue	$	1,301,055		$	1,240,583		$	3,582,859		$	3,493,745

Operating Income:
American Eagle	$	184,029		$	174,129		$	418,232		$	387,213
Aerie	$	75,850		$	56,487		$	188,772		$	111,414
Total Segment Operating Income	$	259,879		$	230,616		$	607,004		$	498,627
Other	$	(8,601	)	$	(11,650	)	$	(35,250	)	$	(39,381	)
Intersegment Elimination	$	-		$	-		$	-		$	-
General corporate expenses	$	(125,917	)	$	(101,418	)	$	(336,998	)	$	(285,781	)
Impairment, restructuring and other charges(1)	$	-		$	-		$	(21,275	)	$	-
Total Operating Income	$	125,361		$	117,548		$	213,481		$	173,465

Debt related charges	$	-		$	-		$	-		$	60,066
Interest (income) expense, net	$	(2,871	)	$	3,878		$	(1,229	)	$	11,887
Other (income) expense, net	$	(3,984	)	$	782		$	(9,446	)	$	(5,501	)
Income before income taxes	$	132,216		$	112,888		$	224,156		$	107,013

Capital Expenditures
American Eagle	$	17,219		$	20,477		$	48,411		$	55,000
Aerie	$	9,499		$	24,404		$	31,576		$	85,663
Other	$	9,760		$	20,801		$	21,490		$	25,933
General corporate expenditures	$	6,478		$	5,825		$	33,438		$	32,768
Total Capital Expenditures	$	42,956		$	71,507		$	134,915		$	199,364

(1) Represents pre-tax impairment, restructuring and other charges related to Quiet Platforms, including $10.8 million of long-lived asset impairment charges, $5.6 million of severance costs, and $4.9 million of contract related charges for the 39 weeks ended October 28, 2023.

The following table presents summarized geographical information:


	13 Weeks Ended				39 Weeks Ended
(In thousands)	October 28, 2023		October 29, 2022		October 28, 2023		October 29, 2022
Total net revenue:
United States	$	1,114,115	$	1,076,096	$	3,035,573	$	3,011,419
Foreign (1)		186,940		164,487		547,286		482,326
Total net revenue	$	1,301,055	$	1,240,583	$	3,582,859	$	3,493,745

(1) Amounts represent sales from American Eagle and Aerie international retail stores, e-commerce sales that are billed to and/or shipped to foreign countries and international franchise royalty revenue.

13. Impairment Restructuring and Other Charges

The following table represents impairment, restructuring and other charges related to Quiet Platforms. All amounts were recorded within impairment, restructuring and other charges on the Consolidated Statements of Operations during the 39 weeks ended October 28, 2023. There were no impairment, restructuring and other charges recorded for the 13 weeks ended October 28, 2023.


	39 Weeks Ended
	October 28,
(In thousands)	2023
Long-lived asset impairment charges(1)	$	10,759
Employee related costs(2)		5,592
Other commercial related charges(3)		4,924
Total impairment, restructuring and other charges	$	21,275

(1) $10.8 million of impairment of supply chain technology assets due to insufficient prospective cash flows to support the asset value, resulting from the restructuring of Quiet Platforms

(2) $5.6 million of severance costs

(3) $4.9 million of contract related charges, resulting from the restructuring of Quiet Platforms

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following Management's Discussion and Analysis of Financial Condition and Results of Operations (this "MD&A") is intended to help the reader understand the Company, our operations and our present business environment. This MD&A is provided as a supplement to — and should be read in conjunction with — our MD&A for Fiscal 2022, which can be found in our Fiscal 2022 Form 10-K.

In addition, the following discussion and analysis of financial condition and results of operations are based upon our Consolidated Financial Statements and should be read in conjunction with these statements and notes thereto.

Introduction

This MD&A is organized as follows:


Executive Overview	General description of the Company’s business and certain segment information.
Key Performance Indicators	Overview of key performance indicators reviewed by management to gauge the Company’s results.
Current Trends and Outlook	Discussion of trends and uncertainties facing the Company, including those related to inflation, recent acquisitions and the Company's long-term plans for growth. In addition, this section also provides a summary of the Company's performance for the 13 and 39 weeks ended October 28, 2023 and the 13 and 39 weeks ended October 29, 2022.
Results of Operations	Provides an analysis of certain components of the Company’s Consolidated Statements of Operations for the 13 and 39 weeks ended October 28, 2023 and the 13 and 39 weeks ended October 29, 2022.
Liquidity and Capital Resources	Discussion of the Company’s financial condition and changes in financial condition and liquidity for the 13 and 39 weeks ended October 28, 2023 and the 13 and 39 weeks ended October 29, 2022.
Critical Accounting Estimates	Discusses where information may be found about accounting policies and estimates considered to be important to the Company’s consolidated results of operations and financial condition, which typically require significant judgment and estimation on the part of the Company’s management in their application.

Recent accounting pronouncements the Company has adopted or is currently evaluating prior to adoption, including the dates of adoption or expected dates of adoption, as applicable, and anticipated effects on the Company’s audited Consolidated Financial Statements, are included in Note 2. “Summary of Significant Accounting Policies” of the Notes to the Consolidated Financial Statements included herein.

Executive Overview

We are a leading global specialty retailer offering high-quality, on-trend clothing, accessories and personal care products at affordable prices under our American Eagle® and Aerie® brands.

We have two reportable segments, American Eagle and Aerie. Our Chief Operating Decision Maker (defined as our CEO) analyzes segment results and allocates resources based on adjusted operating income (loss), which is a non-GAAP financial measure. See Note 12. “Segment Reporting,” of the Notes to the Consolidated Financial Statements included herein for additional information.

Key Performance Indicators

Our management evaluates the following items, which are considered key performance indicators, in assessing our performance:

Comparable sales — Comparable sales and comparable sales changes provide a measure of sales growth for stores and channels open at least one year over the comparable prior year period. In fiscal years following those with 53 weeks, the prior year period is shifted by one week to compare similar calendar weeks. A store is included in comparable sales in the 13th month of operation. However, stores that have a gross square footage change of 25% or greater due to a remodel are removed from the comparable sales base but are included in total sales. These stores are returned to the comparable sales base in the 13th month following the remodel. Sales from American Eagle, Aerie, Todd Snyder, and Unsubscribed stores, as well as sales from AEO Direct and other digital channels, are included in total comparable sales. Sales from licensed stores are not included in comparable sales. Individual American Eagle and Aerie brand comparable sales disclosures include sales from stores and AEO Direct.

Omni-channel sales performance – Our management utilizes the following quality of sales metrics in evaluating our omni-channel sales performance: comparable sales, average unit retail price, total transactions, units per transaction, and consolidated comparable traffic. We include these metrics in our discussion within this MD&A when we believe that they enhance the understanding of the matter being discussed. Investors may find them useful as such. Each of these metrics is defined as follows (except comparable sales, which is defined separately above):

•

Average unit retail price represents the selling price of our goods. It is the cumulative net sales divided by the net units sold for a period of time.

•

Total transactions represents the count of customer transactions over a period of time (inclusive of Company-owned stores and AEO Direct, unless specified otherwise).

•

Units per transaction represents the number of units sold divided by total transactions over a period of time (inclusive of Company-owned stores and AEO Direct, unless specified otherwise).

•

Consolidated comparable traffic represents visits to our Company-owned stores, limited to those stores that qualify to be included in comparable sales as defined above, including AEO Direct, over a period of time.

Gross profit — Gross profit measures whether we are optimizing the profitability of our sales. Gross profit is the difference between total net revenue and cost of sales. Cost of sales consists of merchandise costs, including design, sourcing, importing, and inbound freight costs, as well as markdowns, shrinkage and certain promotional costs, Quiet Platforms costs to service its customers and buying, occupancy and warehousing costs and services. Design costs consist of compensation, rent, depreciation, travel, supplies, and samples.

Buying, occupancy and warehousing costs and services consist of compensation, employee benefit expenses and travel for our buyers and certain senior merchandising executives; rent and utilities related to our stores, corporate headquarters, distribution centers and other office space; freight from our distribution centers to the stores; compensation and supplies for our distribution centers, including purchasing, receiving and inspection costs; and shipping and handling costs related to our e-commerce operations.

The inability to obtain acceptable levels of sales, initial markups or any significant increase in our use of markdowns could have an adverse effect on our gross consolidated profit and results of operations.

Operating income — Our management views operating income as a key indicator of our performance. The key drivers of operating income are net revenue, gross profit, our ability to control SG&A expenses, and our level of capital expenditures.

Cash flow and liquidity — Our management evaluates cash flow from operations and investing and financing activities in determining the sufficiency of our cash position and capital allocation strategies. Cash flow has historically been sufficient to cover our uses of cash. Our management believes that cash flow and liquidity will be sufficient to fund anticipated capital expenditures and working capital requirements for the next twelve months and beyond.

Current Trends and Outlook

Inflation

During Fiscal 2022 and the 39 weeks ended October 28, 2023, our results were negatively impacted by macro-economic challenges and global inflationary pressures impacting consumer spending behavior, which constrained revenue and increased margin pressure. Given ongoing external uncertainties, we have taken additional actions to improve financial performance, including more extensive expense and capital expenditure reductions. For further information about the risks associated with global economic conditions and the effect of economic pressures on our business, see “Risk Factors” in Part I, Item 1A of our Fiscal 2022 Form 10-K.

Profit Improvement Program

We launched our profit improvement program during Fiscal 2023, which focused on a comprehensive review of our cost structure. Early actions have been focused on the components of gross margin and contributed to margin expansion in

the second and third quarters. Other significant work streams have been identified, actioned and incorporated into the company’s 2024 plans. The results of these initiatives are expected to yield gross margin expansion, as well as SG&A

and depreciation leverage, resulting in an improved operating profit rate.

Results of Operations

During the third quarter, we saw significant strength across both our digital channels and stores, with digital revenue increasing by 10% and store revenue increasing 3% on a year-over-year basis due to strong execution driving improved traffic across AE and Aerie. Additionally, our profit improvement program resulted in profit-flow through due to preliminary actions targeted at improving gross margin. Momentum across our brands has continued into the fourth quarter and we continue to make progress on profit improvement initiatives and our strategic priorities aimed at generating consistent, profitable growth.

Overview

The following table shows the percentage relationship to total net revenue of the listed line items included in our Consolidated Statements of Operations:


	13 Weeks Ended							39 Weeks Ended
	October 28,				October 29,			October 28,					October 29,
	2023				2022			2023					2022
Total net revenue		100.0		%		100.0	%		100.0		%			100.0		%
Cost of sales, including certain buying, occupancy and warehousing expenses		58.2				61.3			60.6					64.5
Gross profit		41.8				38.7			39.4					35.5
Selling, general and administrative expenses		27.8				25.1			28.1					26.3
Impairment, restructuring, and other charges		-				-			0.6			-		-
Depreciation and amortization expense		4.4				4.1			4.7					4.2
Operating income		9.6				9.5			6.0					5.0
Debt related charges		-				-			-					1.7
Interest (income) expense, net		(0.2	)			0.3			(0.0	)				0.3
Other (income) expense, net		(0.3	)			0.1			(0.3	)				(0.2	)
Income before income taxes		10.1				9.1			6.3					3.2
Provision for income taxes		2.7				2.5			1.7					1.2
Net income		7.4		%		6.6	%		4.6		%			2.0		%

The following table shows our consolidated store data:


	13 Weeks Ended						39 Weeks Ended
	October 28,			October 29,			October 28,			October 29,
	2023			2022			2023			2022
Number of stores:
Beginning of period		1,184			1,160			1,175			1,133
Opened		17			24			31			72
Closed		(2	)		(5	)		(7	)		(26	)
End of period		1,199			1,179			1,199			1,179
Total gross square feet at end of period (in '000)		7,333			7,309			7,333			7,309
International licensed/franchise stores at end of period (1)		301			261			301			261

(1)

International licensed/franchise stores are not included in the consolidated store data or the total gross square feet calculation.

As of October 28, 2023, we operated 873 American Eagle retail stores, which includes 187 Aerie side-by-side locations, five locations with AE brand, Aerie brand and OFFLINE™ connected as one store, and 2 OFFLINE™ side-by-side locations, 307 Aerie stand-alone stores (including 38 OFFLINE™ stand-alone stores and 31 OFFLINE™ side-by-side locations), and AEO Direct. Additionally, there were 14 Todd Snyder stand-alone locations and five Unsubscribed locations.

Comparison of the 13 weeks ended October 28, 2023 to the 13 weeks ended October 29, 2022

Total Net Revenue

Total net revenue increased 5% for the 13 weeks ended October 28, 2023 at $1.301 billion, compared to $1.241 billion last year. Digital revenue increased 10%, while store revenue increased 3%. Digital results were driven by increased traffic due to several initiatives to improve customer engagement and experience. Last year included $12 million of revenue from excess end-of-season selloffs, which we did not anniversary this year, impacting revenue growth across brands and channels for the current year. Total comparable sales increased by 5% year-over-year, primarily due to strong traffic and transactions across channels. Average unit retail increased in the low-double digits, partially offset by lower units per transaction.

American Eagle

Total net revenue for the 13 weeks ended October 28, 2023 for the American Eagle brand was $857.4 million, a 2% increase compared to $837.6 million for the 13 weeks ended October 29, 2022. Last year included $6 million of revenue from excess end-of-season selloffs, which we did not anniversary this year. Total comparable sales increased 2% year-over-year, primarily due to digital traffic and transactions increasing in the low-double digits year-over-year.

Aerie

Total net revenue for the 13 weeks ended October 28, 2023 for the Aerie brand was $393.0 million, a 12% increase compared to $349.7 million for the 13 weeks ended October 29, 2022. Last year included $6 million of revenue from excess end-of-season selloffs, which we did not anniversary this year. Average unit retail price was up in the high-single digits year-over-year, partially offset by lower units per transaction. Total comparable sales increased 12% year-over-year driven by strong traffic and transactions.

Other

Total net revenue for the 13 weeks ended October 28, 2023 for our Todd Snyder and Unsubscribed brands, as well as Quiet Platforms declined 3% to $111.8 million compared to $115.3 million for the 13 weeks ended October 29, 2022. The decrease is attributable due to $8 million of lower revenue from Quiet Platforms, partially offset by a $4 million increase in Todd Snyder brand revenue.

Gross Profit

Gross profit increased by $64.0 million, or 13% to $543.8 million for the 13 weeks ended October 28, 2023 compared to $479.8 million for the 13 weeks ended October 29, 2022. As a percentage of total net revenue, our gross margin increased 310 basis points to 41.8% for the 13 weeks ended October 28, 2023 from 38.7% for the 13 weeks ended October 29, 2022.

The increase in gross profit was primarily driven by incremental merchandise margin of $43 million related to the increase in total net revenue, including an improvement in markup, and $20 million of lower markdowns reflecting inventory control.

There was $4.5 million and $3.7 million of share-based payment expense included in gross profit for the periods ended October 28, 2023 and October 29, 2022, respectively, comprised of both time and performance-based awards.

Our gross profit may not be comparable to that of other retailers, as some retailers include all costs related to their distribution network as well as design costs in cost of sales and others may exclude a portion of these costs from cost of sales, including them in a line item such as SG&A expenses. Refer to Note 2 to the Consolidated Financial Statements for a description of our accounting policy regarding cost of sales, including certain buying, occupancy and warehousing expenses.

Selling, General and Administrative Expenses

SG&A expenses increased 16% or $50.9 million to $362.0 million from $311.1 million last year. As a percentage of total net revenue, SG&A expenses increased 270 basis points to 27.8%, compared to 25.1% last year. The increase in expenses was primarily related to $25 million of increased incentive compensation and $10 million of increased store compensation, as well as increases in advertising and corporate related expenses. Incentive compensation increased

as we are accruing performance-based incentives this year based on improvements in trend profitability compared to no accrual last year. Store compensation increased as a result of wage increases and new store openings, partially offset by efficiencies in our store labor model.

There was $5.4 million and $3.1 million of share-based payment expense included in SG&A expenses for the 13 week periods ended October 28, 2023 and October 29, 2022, respectively, comprised of both time and performance-based awards.

Depreciation and Amortization Expense

Depreciation and amortization expense increased 10% or $5.3 million, to $56.4 million for the 13 weeks ended October 28, 2023, compared to $51.1 million for the 13 weeks ended October 29, 2022, which was primarily driven by investments in new stores and technology. As a percentage of total net revenue, depreciation and amortization expense was 4.4% for the 13 weeks ended October 28, 2023 compared to 4.1% for the 13 weeks ended October 29, 2022.

Operating Income

Operating income increased 7% or $7.9 million, to $125.4 million, or 9.6% as a percentage of total net revenue, for the 13 weeks ended October 28, 2023, compared to $117.5 million, or 9.5% as a percentage of total net revenue, for the 13 weeks ended October 29, 2022. The increase was primarily driven by higher gross profit, offset by increased SG&A and depreciation and amortization expenses.

American Eagle

Operating income for the 13 weeks ended October 28, 2023 for the American Eagle brand was $184.0 million, or 21.5% as a percentage of American Eagle total net revenue, compared to $174.1 million, or 20.8% as a percentage of American Eagle total net revenue, for the 13 weeks ended October 29, 2022.

The increase was primarily the result of a $29 million increase in gross profit driven by incremental merchandise margin on the increase in total net revenue, as well as improved markup and lower markdowns reflecting inventory control.

The gross profit improvement was partially offset by a $16 million increase in SG&A costs, primarily from a $7 million increase in incentive and store compensation, as well as increases in advertising, variable selling and other store expenses, and a $3 million increase in depreciation and amortization expense related to new store openings.

Aerie

Operating income for the 13 weeks ended October 28, 2023 for the Aerie brand was $75.9 million, or 19.3% as a percentage of Aerie total net revenue, compared to $56.5 million, or 16.2% as a percentage of Aerie total net revenue, for the 13 weeks ended October 29, 2022.

The increase was primarily the result of a $33 million increase in gross profit driven by incremental merchandise margin on the increase in total net revenue, as well as improved markup and lower markdowns reflecting inventory control, partially offset by incremental rent from new store openings and higher delivery and variable expense from increased digital sales. The gross profit improvement was partially offset by a $12 million increase in SG&A expenses primarily driven by store compensation and increased incentives.

Other

Operating loss for the 13 weeks ended October 28, 2023 for our other operations was ($8.6) million compared to ($11.7) million for the 13 weeks ended October 29, 2022. The increase was primarily the result of a $4 million increase from Quiet Platforms as a result of improved gross profit and lower expenses offset by a $2 million decline in the Todd Snyder brand as a result of increased rent and SG&A costs from new store openings.

General Corporate Expenses

General corporate expenses increased by $24 million for the 13 weeks ended October 28, 2023, primarily due to a $19 million increase in corporate compensation and incentives, as well as various increases in other corporate expenses.

Interest (Income) Expense, net

Interest (income) expense increased $6.8 million, to ($2.9) million, for the 13 weeks ended October 28, 2023, compared to $3.9 million for the 13 weeks ended October 29, 2022. The change was primarily attributable to lower borrowings on our Credit Facility and the elimination of convertible note interest expense on the 2025 Notes due to their Early Redemption this year, as well as a $3 million increase in interest income this year.

Other (Income) Expense, net

Other (income) expense, net was ($4.0) million for the 13 weeks ended October 28, 2023, compared to other (income) expense, net of $0.8 million for the 13 weeks ended October 29, 2022. The increase was primarily attributable to foreign currency fluctuations.

Provision for Income Taxes

Net Income

Net income increased $15.4 million, to $96.7 million for the 13 weeks ended October 28, 2023, or 7.4% as a percentage of total net revenue, compared to net income of $81.3 million, or 6.6% as a percentage of total net revenue for the 13 weeks ended October 29, 2022.

Net income per share increased to $0.49 per diluted share for the 13 weeks ended October 28, 2023, compared to $0.42 per diluted share, for the 13 weeks ended October 29, 2022. The change in net income was attributable to the factors noted above.

Comparison of the 39 weeks ended October 28, 2023 to the 39 weeks ended October 29, 2022

Total Net Revenue

Total net revenue increased 3%, or $89.1 million, to $3.583 billion for the 39 weeks ended October 28, 2023 compared to $3.494 billion for the 39 weeks ended October 29, 2022. Store revenue increased 4% and digital revenue was flat to last year. Last year included $36 million of revenue from excess end-of-season selloffs, which we did not anniversary this year, impacting revenue growth across brands and channels. Total comparable sales increased 1%.

American Eagle

Total net revenue for the 39 weeks ended October 28, 2023 decreased slightly for the American Eagle brand to $2.295 billion as compared to $2.301 billion for the 39 weeks ended October 29, 2022. Last year also included $16 million of revenue from excess end-of-season selloffs, which we did not anniversary this year. For the 39 weeks ended October 28, 2023, total comparable sales decreased by 1%.

Aerie

Total net revenue for the 39 weeks ended October 28, 2023 for the Aerie brand was $1.133 billion, a 9% increase compared to $1.043 billion for the 39 weeks ended October 29, 2022. The increase was primarily due to 53 net new store openings since the first quarter of Fiscal 2022, as well as a 5% comparable sales increase. These amounts were partially offset by $18 million of revenue from excess end-of-season selloffs in the prior year, which we did not anniversary this year.

Other

Total net revenue for the 39 weeks ended October 28, 2023 for our Todd Snyder and Unsubscribed brands, as well as Quiet Platforms, was $329.5 million compared to $315.3 million for the 39 weeks ended October 29, 2022. The increase

was primarily due to an increase in Todd Snyder brand revenue of $23 million offset by a decline in Quiet Platforms revenue of $10 million.

Gross Profit

Gross profit increased 14% or $172.2 million, to $1.410 billion for the 39 weeks ended October 28, 2023 compared to $1.238 billion last year. Our gross margin percentage increased to 39.4% of revenue from 35.5% of revenue last year.

The increase in gross profit was driven by the total net revenue increase in the Aerie brand, as well as $60 million of lower inbound transportation costs and product costs and $46 million of lower markdowns due to inventory control and lower end-of-season selloffs this year. Distribution, warehousing and delivery costs also decreased $22 million, partially offset by $20 million of incremental incentive compensation and increased rent of $7 million primarily related to new store openings.

There was $15.3 million and $13.1 million of share-based payment expense included in gross profit for the 39 week periods ended October 28, 2023 and October 29, 2022, respectively, comprised of both time and performance-based awards.

Selling, General and Administrative Expenses

SG&A expenses increased 10% or $88.5 million to $1.006 billion from $917.7 million last year. As a percentage of total net revenue, SG&A expenses increased 180 basis points to 28.1%, compared to 26.3% last year.

The increase in expenses was primarily related to $41 million of increased incentive compensation and $10 million of increased store compensation, as well as increases in advertising, professional services, corporate and store related expenses. Incentive compensation increased as we are accruing a baseline of performance-based incentives this year based on improvements in trend profitability compared to no accrual last year.

There was $19.9 million and $16.9 million of share-based payment expense included in SG&A expenses for the 39 week periods ended October 28, 2023 and October 29, 2022, respectively, comprised of both time and performance-based awards.

Impairment, Restructuring and Other Charges

During the 39 weeks ended October 28, 2023, the Company recorded $21.3 million of impairment, restructuring and other charges related to Quiet Platforms, including $10.8 million of impairment of supply chain technology assets due to insufficient prospective cash flows to support the asset value resulting from the restructuring of Quiet Platforms, $5.6 million of employee severance, and $4.9 million of contract related charges, resulting from the restructuring of Quiet Platforms. There were no impairment, restructuring and other charges for the 39 weeks ended October 29, 2022.

Depreciation and Amortization Expense

Depreciation and amortization expense increased 15%, or $22.4 million, to $169.0 million for the 39 weeks ended October 28, 2023, compared to $146.7 million for the 39 weeks ended October 29, 2022, which was primarily driven by investments in new stores and technology. As a percentage of total net revenue, depreciation and amortization expense was 4.7% this year compared to 4.2% last year.

Operating income

Operating income increased by 23%, or $40.0 million, to $213.5 million, or 6.0% as a percentage of total net revenue, for the 39 weeks ended October 28, 2023, compared to $173.5 million, or 5.0% as a percentage of total net revenue, for the 39 weeks ended October 29, 2022. The increase was primarily driven by higher gross profit, partially offset by higher

SG&A and depreciation and amortization expenses, as well as $21.3 million of impairment, restructuring and other charges incurred this year.

American Eagle

Operating income for the 39 weeks ended October 28, 2023 for the American Eagle brand was $418.2 million, or 18.2% as a percentage of American Eagle total net revenue, compared to $387.2 million, or 16.8% as a percentage of American Eagle total net revenue, for the 39 weeks ended October 29, 2022.

The increase was primarily the result of a $63 million increase in gross profit from $25 million of lower markdowns reflecting inventory control and $27 million of incremental freight costs incurred last year, as well as a $14 million decrease in distribution, warehousing and delivery costs and a $10 million reduction in rent expense. These improvements were partially offset by an increase in incentive compensation expense. The gross profit improvement was partially offset by a $22 million increase in SG&A costs, primarily from increased incentive compensation of $10 million, advertising and store related expenses, partially offset by lower store salaries, as well as a $10 million increase in depreciation and amortization expense related to new store openings.

Aerie

Operating income for the 39 weeks ended October 28, 2023 for the Aerie brand was $188.8 million, or 16.7% as a percentage of Aerie total net revenue, compared to $111.4 million, or 10.7% as a percentage of Aerie total net revenue, for the 39 weeks ended October 29, 2022.

The increase was primarily the result of a $105 million increase in gross profit driven by incremental margin on the increase in total net revenue, as well as improved markup, including a $34 million benefit from incremental freight costs incurred last year, and $26 million of lower markdowns reflecting inventory control. These improvements were partially offset by $10 million in incremental rent related to new store openings and $5 million of incremental incentive compensation expense. The gross profit improvement was partially offset by a $20 million increase in SG&A costs, primarily from increased store and incentive compensation expense, as well as an $8 million increase in depreciation and amortization expense related to new store openings.

Other

Operating loss for the 39 weeks ended October 28, 2023 for our Todd Snyder and Unsubscribed brands, as well as Quiet Platforms was ($35.3) million, excluding the aforementioned $21.3 million of impairment, restructuring and other charges related to Quiet Platforms, compared to ($39.4) million for the 39 weeks ended October 29, 2022. The improvement was primarily the result of increased operating income from the Todd Snyder and Unsubscribed brands of $3 million and increased operating income of Quiet Platforms of $1 million.

General Corporate Expenses

General corporate expenses increased $51 million due to increased corporate compensation and incentive expense of $33 million, a $6 million increase in corporate office rent and depreciation, as well as various increases in other corporate expenses.

Debt Related Charges

Debt related charges of $60.1 million for the 39 weeks ended October 29, 2022 consists primarily of a $55.7 million induced conversion expense related to the Note Exchange in June 2022, along with certain other costs related to actions taken to strengthen our capital structure. There were no debt related charges for the 39 weeks ended October 28, 2023.

Interest (Income) Expense, net

Interest (income) expense, net decreased $13.1 million, to ($1.2) million, for the 39 weeks ended October 28, 2023, compared to $11.9 million for the 39 weeks ended October 29, 2022. The decrease was primarily attributable to $10 million of lower interest expense on the 2025 Notes as a result of the Note Exchanges and Early Redemption and lower borrowings on our Credit Facility, as well as increased interest income this year.

Other (Income) Expense, net

Other (income) expense, net increased $3.9 million, to ($9.4) million for the 39 weeks ended October 28, 2023, compared to ($5.5) million for the 39 weeks ended October 29, 2022. The increase was primarily attributable to foreign currency fluctuations.

Provision for Income Taxes

Net Income

Net income increased $93.2 million to $163.7 million for the 39 weeks ended October 28, 2023, or 4.6% as a percentage of total net revenue, compared to $70.5 million, or 2.0% as a percentage of total net revenue for the 39 weeks ended October 29, 2022.

Net income per share increased to $0.83 per diluted share for the 39 weeks ended October 28, 2023, including $0.08 of impairment, restructuring and other charges, compared to net income of $0.36 per diluted share, including $0.24 of debt related charges for the 39 weeks ended October 29, 2022. The change in net income was attributable to the factors noted above.

International Operations

We have agreements with multiple third-party operators to expand our brands internationally. Our international licensing partners acquire the right to sell, promote, market, and/or distribute various categories of our products in a given geographic area and to source products from us. International licensees' rights include the right to own and operate retail stores and may include rights to sell in wholesale markets, shop-in-shop concessions and operate online marketplace businesses. As of October 28, 2023, our international licensing partners operated in 301 licensed retail stores and concessions, as well as wholesale markets, online brand sites, and online marketplaces in approximately 30 countries.

As of October 28, 2023, we had 104 company-owned stores in Canada, 79 in Mexico, 18 in Hong Kong, seven in Puerto Rico and three in Japan.

Liquidity and Capital Resources

Our uses of cash have historically been for working capital, the construction of new stores and remodeling of existing stores, information technology and e-commerce upgrades and investments, distribution center improvements and expansion, and the return of value to stockholders through the repurchase of common stock and the payment of dividends. Additionally, our uses of cash have included the development of the Aerie brand, investments in technology and omni-channel capabilities, and our international expansion efforts.

Historically, our uses of cash have been funded with cash flow from operations and existing cash on hand. We also maintain an asset-based revolving credit facility that allows us to borrow up to $700 million, which will expire in June 2027. As of October 28, 2023, there were no borrowings under the Credit Facility. In April 2020, the Company issued $415 million aggregate principal amount of convertible senior notes due in 2025. As of October 28, 2023, the Company's 2025 Notes have been fully redeemed. Refer to Note 8 to the Consolidated Financial Statements for additional information regarding our long-term debt.

As of October 28, 2023, we had approximately $240.9 million in cash and cash equivalents. We expect to be able to fund our future cash requirements through current cash holdings and available liquidity.

The following sets forth certain measures of our liquidity:


	October 28, 2023		January 28, 2023		October 29, 2022
Working Capital (in thousands)	$	522,187	$	331,293	$	591,675
Current Ratio		1.63		1.43		1.86

Working capital increased $190.9 million compared to January 28, 2023 and decreased $69.5 million compared to last year. The $69.5 million decrease in our working capital compared to October 29, 2022, is driven by a $158.8 million increase in cash and cash equivalents offset by a $111.6 million increase in accounts payable, a $60.0 million increase in accrued compensation and payroll taxes, a $42.6 million decrease in prepaid expenses and other, and a $11.5 million decrease in accounts receivable.

Cash Flows Provided by (Used For) Operating Activities

Net cash provided by operating activities totaled $284.3 million for the 39 weeks ended October 28, 2023, compared to net cash used for operating activities of $86.7 million for the 39 weeks ended October 29, 2022. For both periods, our major source of cash from operations was merchandise sales and our primary outflow of cash from operations was for the payment of operational costs.

Cash Flows Used for Investing Activities

Net cash used for investing activities totaled $144.3 million for the 39 weeks ended October 28, 2023, compared to net cash used for investing activities of $200.1 million for the 39 weeks ended October 29, 2022. Investing activities for the 39 weeks ended October 28, 2023 and October 29, 2022 primarily consisted of $134.9 million and $199.4 million, respectively, of capital expenditures for property and equipment.

Cash Flows Used for Financing Activities

Net cash used for financing activities totaled $69.0 million for the 39 weeks ended October 28, 2023, compared to net cash used for financing activities of $64.1 million for the 39 weeks ended October 29, 2022. Cash used for financing activities for the 39 weeks ended October 28, 2023 consisted primarily of $59.1 million used for cash dividends paid at a quarterly rate of $0.10 per share, and $10.7 million for the repurchase of common stock from employees for the payment of taxes in connection with vesting of share-based payments.

Cash used for financing activities for the 39 weeks ended October 29, 2022 consisted primarily of $200.0 million used to repurchase the Company's common stock under the ASR Agreement, $136.1 million used for the principal paid in connection with the Note Exchange, $64.8 million used for cash dividends paid at a quarterly rate of $0.18 per share during the 26 weeks ended July 30, 2022 and $9.8 million used for the repurchase of common stock from employees for the payment of taxes in connection with vesting of share-based payments, partially offset by $343.0 million of proceeds from borrowings under our Credit Facility.

Revolving Credit Facility

In June 2022, we entered into an amended and restated Credit Agreement, which provides senior secured asset-based revolving credit for loans and letters of credit up to $700 million, subject to customary borrowing base limitations. The Credit Facility expires on June 24, 2027. Before amendment and restatement, the Company's previous credit agreement provided senior secured asset-based revolving credit for loans and letters of credit up to $400 million and was scheduled to expire on January 30, 2024.

As of October 28, 2023, the Company was in compliance with the terms of the Credit Agreement and had no borrowings and $7.7 million outstanding in stand-by letters of credit. As of October 29, 2022, the Company had $343.0 million in outstanding borrowings under the Credit Agreement.

Capital Expenditures for Property and Equipment

Capital expenditures for the 39 weeks ended October 28, 2023 were $134.9 million, and included $67.8 million related to investments in our stores, including 31 new stores (14 American Eagle stores, 13 combined Aerie stand-alone stores and OFFLINE™ stand-alone stores, and 4 Todd Snyder stores), and fixtures and visual investments. Additionally, we continued to support our infrastructure growth by investing in information technology initiatives ($44.5 million), Quiet Platforms ($15.7 million), our supply chain infrastructure ($3.9 million), and other home office projects ($3.0 million).

For Fiscal 2023, we expect capital expenditures to be in the range of approximately $150 million to $175 million related to the continued support of our expansion efforts, stores, information technology upgrades to support growth, and investments in e-commerce, as well as to support and enhance our supply chain and Quiet Platforms. We expect to be able to fund our capital expenditures through current cash holdings and cash generated from operations.

Share Repurchases

During Fiscal 2019, our Board of Directors (“Board”) authorized the repurchase of 30.0 million shares under a share repurchase program.

During the 39 weeks ended October 28, 2023, we did not repurchase any shares under our publicly announced share repurchase program. As of October 28, 2023, our total remaining share repurchase authorization was 13.0 million shares.

During the 39 weeks ended October 28, 2023 and October 29, 2022, we repurchased approximately 0.8 million and 0.6 million shares, respectively, from certain employees at market prices totaling $10.7 million and $9.8 million, respectively. These shares were repurchased for the payment of taxes, in connection with the vesting of share-based payments, as permitted under our equity incentive plans.

The aforementioned repurchased shares have been recorded as treasury stock.

Dividends

During the 13 weeks ended October 28, 2023, our Board declared a quarterly cash dividend of $0.10 per share on September 13, 2023, which was paid on October 27, 2023.

The Company maintains the right to defer the record and payment dates of any declared dividends, depending upon, among other factors, business performance and the macroeconomic environment. The payment of future dividends is at the discretion of our Board and is based on future earnings, cash flow, financial condition, capital requirements, changes in United States taxation, and other relevant factors.

Critical Accounting Estimates

Our critical accounting policies and estimates are described in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in the notes to our Consolidated Financial Statements for the year ended January 28, 2023 contained in our Fiscal 2022 Form 10-K. Any new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements have been discussed in the notes to our Consolidated Financial Statements in this Quarterly Report. The application of our critical accounting policies and estimates may require our management to make judgments and estimates about the amounts reflected in the Consolidated Financial Statements. Our management uses historical experience and all available information to make these estimates and judgments, and different amounts could be reported using different assumptions and estimates.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are primarily exposed to the impact of foreign exchange rate risk primarily through our Canadian and Mexican operations where the functional currency is the Canadian dollar and Mexican peso, respectively. The impact of all other foreign currencies is currently immaterial to our consolidated financial results. An unrealized loss of $21.3 million and $0.2 million is included in accumulated other comprehensive income during the 13 and 39 weeks ended October 28, 2023, respectively. Our market risk profile as of January 28, 2023 is disclosed in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of our Fiscal 2022 Form 10-K, which is unchanged as of October 28, 2023.

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the management of American Eagle Outfitters, Inc. (the “Management”), including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, Management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

In connection with the preparation of this Quarterly Report, as of October 28, 2023, the Company performed an evaluation under the supervision and with the participation of our Management, including the principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act). Based upon that evaluation, our principal executive officer and our principal financial officer concluded that, as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were effective in the timely and accurate recording, processing, summarizing, and reporting of material financial and non-financial information within the time periods specified within the SEC’s rules and forms. Our principal executive officer and principal financial officer also concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our Management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

We are involved, from time to time, in actions associated with or incidental to our business, including, among other things, matters involving consumer privacy, trademark and other intellectual property, licensing, importation of products, taxation, and employee relations. We believe at present that the resolution of currently pending matters will not individually or in the aggregate have a material adverse effect on our consolidated financial position or results of operations. However, our assessment of any litigation or other legal claims could potentially change in light of the discovery of facts not presently known or determinations by judges, juries, or other finders of fact that are not in accord with management's evaluation of the possible liability or outcome of such litigation or claims. Consistent with SEC Regulation S-K Item 103, we have elected to disclose those environmental proceedings with a governmental entity as a party where the company reasonably believes such proceeding would result in monetary sanctions, exclusive of interest and costs, of $1.0 million or more. Applying this threshold, there are no environmental matters to disclose for this period.

Refer to Note 11. “Legal Proceedings” of the Notes to the Consolidated Financial Statements included herein for additional information.

ITEM 1A. RISK FACTORS.

Risk factors that affect our business and financial results are discussed within Part I, Item 1A of our Fiscal 2022 Form 10-K. There have been no material changes to our risk factors as disclosed in the Fiscal 2022 Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Issuer Purchases of Equity Securities

The following table provides information regarding our repurchases of our common stock during the 13 weeks ended October 28, 2023:


	Total				Total Number of		Maximum Number of
	Number of		Average		Shares Purchased as		Shares that May
	Shares		Price Paid		Part of Publicly		Yet Be Purchased
Period	Purchased		Per Share		Announced Programs		Under the Program
	(1)		(2)		(1)		(1) (3)
Month #1 (July 30, 2023 through August 26, 2023)		797	$	14.81		—		12,977,130
Month #2 (August 27, 2023 through September 30, 2023)		3,071	$	16.43		—		12,977,130
Month #3 (October 1, 2023 through October 28, 2023)		12,801	$	16.21		—		12,977,130
Total		16,669	$	16.18		—		12,977,130

(1)

There were no shares repurchased as part of our publicly announced share repurchase program and an aggregate of 16,669 shares were repurchased for the payment of taxes in connection with the vesting of share-based payments during the 13 weeks ended October 28, 2023.

(2)

Average price paid per share excludes any broker commissions paid.

(3)

During Fiscal 2019, our Board authorized the public repurchase of 30.0 million shares under a new share repurchase program, which expires on February 3, 2024.

ITEM 5: OTHER INFORMATION

During the fiscal quarter ended October 28, 2023, none of our directors or officers (as defined in Rule 16a-1 under the Exchange Act) adopted, modified or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 105b-1 trading arrangement" (as those terms are defined in Item 408 of Regulation S-K), except as described in the table below:


Name and Position	Action	Date	Rule 10b5-1*	Non - Rule 10b5-1**	Total Shares of Common Stock to be Sold	Expiration Date
Jennifer Foyle, President, Executive Creative Director, AE and Aerie	Adoption	October 13, 2023	X		Up to 80,000	October 16, 2024

* Contract, instruction or written plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act.

** “Non-Rule 10b5-1 trading arrangement” as defined in Item 408(c) of Regulation S-K under the Exchange Act.

ITEM 6. EXHIBITS.



* Exhibit 31.1		Certification by Jay L. Schottenstein pursuant to Rule 13a-14(a) or Rule 15d-14(a)

* Exhibit 31.2		Certification by Michael A. Mathias pursuant to Rule 13a-14(a) or Rule 15d-14(a)

** Exhibit 32.1		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

** Exhibit 32.2		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Exhibit 101		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended October 28, 2023, formatted as inline eXtensible Business Reporting Language (“XBRL”): (i) Consolidated Balance Sheets as of October 28, 2023, January 28, 2023 and October 29, 2022, (ii) Consolidated Statements of Operations for the 13 and 39 weeks ended October 28, 2023 and October 29, 2022, (iii) Consolidated Statements of Comprehensive Income for the 13 and 39 weeks ended October 28, 2023 and October 29, 2022, (iv) Consolidated Statements of Stockholders’ Equity for the 13 and 39 weeks ended October 28, 2023 and October 29, 2022, and (v) Consolidated Statements of Cash Flows for the 39 weeks ended October 28, 2023 and October 29, 2022.

* Exhibit 104		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended October 28, 2023, formatted in inline XBRL

* Filed with this report.

** Furnished with this report.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: November 21, 2023


		American Eagle Outfitters, Inc. (Registrant)

By:		/s/ Jay L. Schottenstein
		Jay L. Schottenstein
		Chief Executive Officer
		(Principal Executive Officer)

By:		/s/ Michael A. Mathias
		Michael A. Mathias
		Executive Vice President, Chief Financial Officer
		(Principal Financial Officer)

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American Eagle Outfitters (AEO) 10-Q2024 Q3 Quarterly report

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