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Text: These statements are based upon information that represents the Company's current expectations or beliefs.
The results actually realized may differ materially based on risk factors included in our SEC filings.
As a note, due to the significant impact COVID-19 had on fiscal 2020 financial results, our first quarter fiscal 2021 results are compared to the first quarter of fiscal 2019, which we believe is a more meaningful comparison.
I am extremely pleased with the pace of our business and the outstanding financial performance in the first quarter.
Even as we compare to the pre-pandemic 2019, our results were truly remarkable and validate the strength of our value creation plan.
We exceeded expectations in essentially all areas of the business, giving us a strong start to the year.
We had record first quarter revenue of over $1 billion and the highest first quarter operating income in our history of $133 million, which was up 170% from 2019.
Importantly, we saw strength across both the American Eagle and Aerie brands.
We ran an extremely healthy business as margins hitting the highest levels in many years.
The actions we took in 2020, including our strategic growth pillars, combined with the favorable external environment, are having a very meaningful impact on our business.
Starting with our first pillar, accelerating Aerie to $2 billion, this quarter provided even more evidence that Aerie is the most exciting brand in retail today.
On nearly 90% revenue growth, operating earnings rose well over 700%.
Aerie is truly hitting its stride.
We have increased digital penetration, expanded geographically and pushed new and explosive categories like OFFLINE, leggings and additional apparel items.
As Jen will review, we continued to gain new customers at a fast clip.
We're spending more on our brand.
At this pace, we expect to hit our $2 billion target faster than expected, fueling significant earnings growth.
As I said back in January, American Eagle is a strong and highly profitable brand with significant opportunity for both growth and profit improvements.
The first quarter demonstrated that potential.
We are seeing a favorable response to our product and new marketing.
While the jeans category continues to dominate, across the brand, we hit high margin rates with promotional [Indecipherable].
I'm very proud of the great progress under Jen's leadership.
I know we are only at the beginning of realizing American Eagle store potential.
Next, customer-facing priorities delivered in the first quarter, fueled by our leading omni capabilities.
Digital growth was terrific as momentum continued.
We also saw an improvement in our store business as consumers are starting to get out more.
Our loyalty relaunch was a homerun and producing a stronger customer experience, positive margin contribution and higher ROI.
The supply chain delivered great results, even in the face of logistic headwinds.
Deliveries were on time and we were able to successfully chase into top-performing items.
The multi-year investment we made in these areas continue to pay off.
Our fifth pillar, to strengthen ROI discipline, is clearly evident in our results.
First quarter growth in our profitability is a testament to the incredible collaboration across teams.
We have not taken our eye off the ball and remain focus on ensuring strong financial management as a top priority.
And lastly, ESG initiatives.
I'll highlight our environmental goals, where we continue to make great progress.
We are reducing water, utilizing more sustainable raw materials and reducing energy to ultimately achieve carbon neutrality in our own facilities by 2030.
We know sustainability is important to our customers and [Indecipherable] on our commitment to social responsibility and I&D, this month we awarded our first 15 Real Change scholarships for Social Justice.
We are excited to support educational pursuits of our amazing associates who are actively driving anti-racism, equality and social.
Before I turn to it Jen, clearly 2021 is off to a great start.
I am so proud of the excellent execution across all areas of the Company.
The past several months truly validates my belief that we have more opportunity than at any time in the past.
We have two of the best brands in the industry with significant momentum, and we have the right teams and leadership in place to achieve our goals.
The macro environment is favorable with pent-up demand and new trends that play to our strength.
At this pace, we expect to achieve our 2023 goal of $550 million of operating income way ahead of schedule.
I hope everyone is doing well.
To say the least, we've had an incredible start to the year across both Aerie and American Eagle.
There is clearly strong demand and momentum for our brands.
Our strategies to expand into new categories, strength in product and marketing and fuel our brand platform are having a meaningful impact in our business.
It's truly gratifying to see strong sales and customer growth, and a very high level of profit flow-through.
Let me begin with Aerie.
I am thrilled by the incredible excitement and energy for Aerie and our merchandise collection.
We continue to set records across the brand.
Building on the momentum throughout last year, the first quarter accelerated.
Sales rose an incredible 89% from 2019.
The consistency we are experiencing is truly amazing.
This was the 26th consecutive quarter of double-digit growth.
As aerie.com becomes a go-to destination for our customers, the online business more than doubled, posting a growth of 158%.
Store revenue increased 36% with about one-third from new store opening.
Aerie's active customer file expanded approximately 40% as we entered new markets, and we increased engagement on social channels, including TikTok where we saw tremendous response.
With new customers attracted to our brand and demand for our merchandise accelerating, brand equity scores show growing awareness.
Sales metrics were strong across the board, and notably our AURs were up 50%.
High demand is driving greater pricing power.
A significant reduction in promotions contributed to an over 700% increase in operating profit and a 23.5% operating margin.
Across categories, we saw broad-based strength with all areas rising in the double-digit.
Intimates was terrific as was swimwear, where product innovation and newness are fueling demand.
Aerie signature legging business is exceptional and continues to expand with the success of our new OFFLINE by Aerie activewear brand.
Related categories such as fleece, tanks and sports bras are also tracking very well.
Geographic expansion is a major priority and opportunity for Aerie.
We opened six new stores in the quarter, including a new OFFLINE by Aerie store, bringing our running total of OFFLINE openings to five stores.
We are very pleased with the early results.
As Mike will review, we plan to continue our market expansion strategy.
Shifting gears now to American Eagle.
As I said at our Investor Day in January, AE has a wonderful heritage defined by individuality, purpose and heart.
My goal has been to harness AE's iconic image and update it for today's youth.
Harmonizing the old with the new, we want to leverage our dominance in jeans and focus on more outfitting.
We are also optimizing our inventory for better margin.
I'm so excited with the progress we've made in such a short period of time.
We've achieved the best margins in many years, and customer demand is strengthening across all categories.
This quarter, we saw a 39% increase in operating profit, with operating margins rising 20.8%.
Our focus on inventory optimization and profit improvement drove merchandise margin expansion.
We made better decisions around promotional activity and drove greater full-price selling.
We are also pleased with the improvement in sales, led by a 20% increase in the digital business.
Customer engagement was up 2% with new digital acquisitions up 17%.
Demand across our jeans and bottoms business remains very strong.
We continue to solidify our position as the number one brand within our demo and the number one women's brand across all ages.
With the new denim cycle under way, we are innovating and investing to maintain our leadership position and to offer the absolute best to our customers.
As silhouettes transition, I'm excited for what's in the pipeline.
In the first quarter, I'm pleased to report that we had our best quarter ever in fleece and graphic.
We plan to lean into this momentum in the back half of the year.
As bottoms evolve, we have the opportunity to delight our customers with new styles across tops and greater outfitting.
Just six months into rewriting our strategy, the success we've seen reinforces my excitement for our longer-term opportunity.
The team is energized and I can't wait to share what's in-store for AE in the coming quarters.
Lastly, I can't say enough about the great work our teams continue to deliver.
The dedication and drive of the Aerie team is simply amazing.
They strive for greatness quarter-after-quarter.
It's been terrific to work with the AE as well over the past several months.
We have extraordinary talent, and I look forward to driving our vision together.
I'm really proud of how quickly and enthusiastically our teams embraced our Real Power.
The results out of the gate in 2021 are tremendous, and they affirm that we are positioning our operations in the right way to fuel our next chapter of growth.
At the heart of our operating strategy is a truly customer-centric focus.
The investments we've made in our systems, our data analytics, omni-channel and supply chain are yielding results.
I firmly believe that the strength of these capabilities and our ongoing investments are a unique competitive advantage.
Today, I'm going to talk about three important areas of our business; our selling channels, our customer focus, and our supply chain transformation.
Let me start with digital, which continues to post remarkable result.
Our revenue rose 57% from 2019, producing incremental revenue of $150 million in the first quarter.
Online traffic and transaction -- transactions increased well into the double digit.
We achieved strong AURs and significantly higher margin.
Further fueling an already highly profitable channel, digital penetration increased to 40% of total revenue, up from 30% in 2019.
As customers continue to embrace online shopping, we are delivering an ever-improving experience.
For example, we recently introduced a new tab structure to provide greater ease of shopping across brands while enabling more immersive brand experiences.
We also introduced more personalization and enhanced curbside and in-store pickup features, which yielded great results.
We improved our mobile experience and redesigned our app, resulting in 70% increase in revenue from total mobile.
Stores improved in the first quarter, despite continued COVID-related traffic pressure.
Fleet optimization work is under way and we are pleased with the initial transfer rates from recent store closures, which are running well ahead of our 40% goal.
Proactive customer engagement has been a driving factor in retaining customers, transitioning them to nearby stores or online.
Our customer base is extremely healthy and growing.
Nearly 1 million new customers have been added since 2019.
The average spend per customer is up in the double digits, with a greater number of customers shopping across both brands.
This speaks to the quality of our engagement, our product, our marketing and technology enhancements.
The relaunch of our loyalty program last summer has been highly successful, not only in attracting new customers but fueling more frequent engagement, more purchases and an improvement to margin.
Across the board, our operational teams delivered exceptional results this quarter.
As I've discussed before, we are highly focused on supply chain transformation aimed at improving inventory productivity, delivering efficiency and better and faster customer experience.
This work is yielding result.
For example, we reduced SKU counts across assortments to focus on the most productive styles, which resulted in faster turns and a meaningful increase in product margins in the first quarter.
Our regional fulfillment nodes are resulting in better placed inventory, creating efficiencies and enabling faster service to both stores and to customers.
In the first quarter, we leveraged e-commerce delivery expense, had fewer shipments per order and delivered to customers 1.5 days faster than in the first quarter of 2019.
Our supply chain team anticipated and successfully managed through shipping delays, with very minimal disruption to our business.
We also successfully executed chase strategies to replenish high demand items and supported outperformance of Aerie, OFFLINE, swimwear and a variety of fashion choices.
This really speaks to the strength of our team, our capabilities and our vendor partnerships.
Now, as I look ahead, we are staying in front of ongoing supply chain challenges and we have continued to see favorability in our product cost for the remainder of the year.
In light of our strengthened operations, focus on driving higher margins, inventory optimization, as well as our well-positioned and growing brands, I'm very confident that we're positioning AEO for continued success.
And with that, I'm going to pass the call over to Mike.
I'll start by saying we are obviously extremely pleased with the first quarter during which we had a number of all-time highs and milestone.
Results were well ahead of our expectations across the board.
Our strategies are clearly working and we're making great progress on our Real Power.
This performance reflects a few major factors.
Our brand is strong and our merchandise is in demand, fueling very healthy sales and KPIs.
Our inventory optimization initiatives are working, resulting in lower promotions and significant growth in our merchandise margin.
Both of our selling channels are delivering positive results and our investments in our supply chain capabilities are effectively supporting our growth.
These factors, plus a favorable environment, led to record first quarter performance.
Revenue of over $1 billion and operating income of $133 million marked all-time highs for the Company.
Demand for Aerie continues at a rapid pace, driving significantly higher sales, margins and profitability.
American Eagle saw a slight topline growth and experienced one of the brand's highest merchandise margin rates on record with more runway ahead.
As Judy mentioned, I will review first quarter 2021 against the same period in 2019.
Consolidated first quarter net revenue increased 17%.
Across brands and channels, sales metrics were exceptionally strong with our average unit retail up over 20% fueling a healthy transaction value.
Conversion rates across channels were also favorable.
Digital revenue rose 57%, with Aerie up 158% and AE up 20%.
This strong growth reflects the benefits of our multi-year investments to capitalize on the customer migration to digital and omni-channel e-commerce.
Online sales for the quarter represented approximately 40% of our total mix, increasing significantly from 30% in the first quarter of 2019.
Store revenue was flat, a nice improvement from the fourth quarter.
Additionally, U.S. stores posted positive revenue in the quarter with our stores in Canada affected more by lower traffic and store closures related to COVID-19.
At a brand level, AE revenue increased slightly to $728 million.
Strong demand, lower promotions, along with inventory optimization initiatives, led to a record merchandise margin.
AE's operating profit jumped 39% to $151 million and the operating margin expanded 570 basis points to 20.8%.
These results are a clear proof point of the margin opportunity for AE which we reviewed back in January.
While the quarter showed great progress, the work continues.
Jen reviewed the progress in the product side, and we still have opportunities to maximize inventory productivity.
Aerie had another standout quarter with growth accelerating.
Revenue increased 89% to $297 million.
Operating income hit $70 million, rising over 700%.
The operating margin expanded to 23.5% from 5.3% in 2019.
As I've highlighted quite a few times now, Aerie is at an inflection point in its growth trajectory.
We'll continue to realize significant flow-through of incremental sales to the bottom line.
Total consolidated AEO gross profit dollars were up $111 million or 34% compared to the first quarter of 2019 and gross margin expanded 550 basis points to 42.2%.
Merchandise margin expanded significantly, reflecting continued promotional discipline and benefits from our inventory optimization initiatives.
Our product assortments were well received, which enabled higher full-priced selling.
Rent dollars were lower and leveraged significantly as a result of negotiated savings, store closures and benefits from impairments.
Offsetting this, we saw higher delivery, distribution and warehousing costs, as well as higher incentive compensation.
SG&A leveraged 40 basis points as a rate to sales.
The dollar increase of $34 million from the first quarter 2019 was due to compensation in line with our performance-based incentive program, an increase in corporate salaries and higher variable selling expenses, partly offset by lower travel expense.
Operating income of $133 million increased 170% compared to $49 million in adjusted operating income in the first quarter 2019.
The operating margin of 12.9% expanded 730 basis points, marking a 14-year high for the Company.
Corporate unallocated expense increased 29% to $88 million, primarily due to incentive compensation.
As a result of historically high profit delivered this quarter, incentive accruals are higher than normal and up against the minimal accrual in 2019.
Adjusted earnings per share was $0.48 per share in the quarter, marking a record first quarter outcome for us.
Our diluted share count was 207 million and included 34 million shares of unrealized dilution associated with our convertible notes.
Ending inventory was up 2% compared to the end of the first quarter of fiscal 2019.
American Eagle inventory was down 15% due to continued inventory optimization initiatives and significantly reduced clearance levels.
Aerie's inventory increased approximately 50% versus 2019, supporting the strong sales growth, new stores and product expansion, including OFFLINE by Aerie.
Across brands, inventory is well positioned and below current demand levels.
As Michael said, we're comfortable with our ability to receive goods through our supply chain and have successfully chased into strong items.
I'm very pleased with our liquidity and the health of our balance sheet.
We ended the quarter with $792 million in cash and short-term investments.
Even excluding proceeds from the convertible bond issuance, our liquid, cash balance is up $36 million versus 2019.
Capital expenditures totaled $37 million in the quarter.
For 2021, we continue to expect capital expenditures of $250 million to $275 million, in line with the average annual target we shared at our investor meeting.
We expect this to be back half loaded, given the timing of Aerie and OFFLINE new store openings.
Regarding our store fleet, we are pleased with the transfer rates of recently closed locations and continue to expect incremental closures this year.
We've had productive negotiations with landlords and have continued to secure lower rents and build flexibility into the portfolio.
The vast majority of our 2020 renewals were short term, resulting in almost 450 leases coming to term in 2021.
This year, we plan to open approximately 60 Aerie stores and over 30 OFFLINE by Aerie stores, which will be a mix of stand-alones and Aerie side-by-side locations.
Now as we look ahead, we are encouraged by our continued trend early in the second quarter.
Both brands continue on a healthy pace.
There is still uncertainty ahead, but as we reflect on our 2023 targets provided back in January of $5.5 billion in revenue and $550 million in operating profit, we believe we are on pace to achieve the profit goal this year, obviously well ahead of expectations.
We're excited about this prospect and what it could imply for our future profitability as we continued to implement and execute on our long-term growth strategies.
As a reminder, our reported second quarter 2019 results included a $40 million benefit to revenue and $38 million benefit to operating profit from the termination of our licensing partnership with a third party operator in Japan.
We are extremely pleased with the speed and success with which we are putting our Real Power.
As I said back in January, I believe we're heading into the most exciting period in our history.
Our brand is stronger than ever, our business model is sound and our first quarter results bear testament to the quality of our strategies and strength of our execution.

user
digital momentum continued with revenue up 57% including aerie up 158% and ae up 20% in quarter.
for fiscal 2021, company expects capital expenditures to be in range of $250 to $275 million.
due to impact covid-19 had on fiscal 2020 financial results, q1 fiscal 2021 results are compared to q1 of fiscal 2019.
q1 adjusted earnings per share $0.48.

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