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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.
aeo-inc.com in the Investor Relations section.
I hope everyone is doing well.
I'm extremely happy with the continued strength across our business.
It was truly a milestone quarter in which we posted best ever third quarter results and announced an important strategic acquisition.
I'll start with our results, which were simply outstanding.
This quarter, we delivered record revenue of $1.27 billion, reflecting growth at 24% from 2020, and an increase of 19% to 2019.
Healthy sales and merchandise margins combined with cost efficiencies drove profit flow-through, which surpassed our expectations.
Record operating income of $210 million, reflecting a margin at 16.5%, our highest rate since 2007.
We are extremely pleased to see a sustained momentum across our brands and channels, which posted growth versus 2020 at pre-pandemic 2019 levels.
Casualwear remains in high demand, and AE and Aerie are perfectly positioned to benefit.
We are delivering great product and sharper marketing as well as brand [Phonetic] experiences, both in-store and online that are second to none.
AE brand is achieving exceptional results.
Under Jen's leadership, the product style and quality has improved remarkably and customers are noticing.
As back-to-school came rolling back, AE received more than its fair share of growth.
Shopping frequency and spend is up dramatically and we are acquiring and reactivating more customers.
At the same time, we are seeing renewed growth in categories that have been underpenetrated in recent years.
Aerie's growth continues at a fast pace, with momentum across all categories, including our new activewear brand OFFLINE by Aerie.
Customers who try Aerie love it and the brand is just beginning to unlock its true potential.
Healthy acquisition retention are fueling strong sales and we are seeing nice reception as we expand into new markets.
strategic pillars have provided a roadmap and instilled focus across the company.
Simply put, we are running our business better than ever.
Key initiatives such as inventory and real estate optimization and the transformation of our supply chain are driving significant profit flow-through.
The processes, disciplines and capabilities we have put in place over the past 18 months will continue to set us apart, fueling strong returns and taking AEO to even greater heights.
As an organization, innovation is a core value and at the heart of everything we do.
We clearly recognize that many of the changes in our industry over the past year are here to stay.
In order to remain competitive today and in the years to come, we must pivot and think differently about our business.
That brings me to our exciting plan to acquire Quiet Logistics.
This acquisition marks a major milestone for our company, which I believe will be transformative.
Acquiring Quiet allows us to build on the efficiencies we've gained over the past 12 months and position us for success as we grow our business over the coming years.
We also have a broader vision.
We expect the combination of Quiet Logistics and the recent acquisition of AirTerra to create a unique platform that revolutionizes logistics within our business and retail.
Through consolidation and pooled resources, the customer at Quiet and AirTerra will enjoy the agilities and efficiencies that were previously only available to the world's largest brands and retailers.
I believe this will create an exciting new profit center with meaningful growth opportunities for AEO.
Lastly, our efforts around sustainability and building a better world through our ESG initiatives remain front and center at all times.
We continue to increase our most sustainable real good styles across all merchandise categories.
Additionally, we are investing to decrease emissions in our operations as we make progress toward becoming carbon-neutral.
AE's outperformance year-to-date was truly remarkable and exceeded our expectations.
They clearly demonstrated the agility to meet unexpected challenges, while also staying the course toward our long-term goals.
Our results continue to be fueled by a sound and meaningful strategy, resilient operations and focus on innovation and a passionate world-class team.
Strong demand continues and we expect a strong close to 2021.
This was another amazing quarter for AEO.
We saw tremendous excitement around Aerie and AE as customers turned to their favorite brands this back-to-school.
Customer KPIs were very favorable as we brought in new customers and won more of their wallet.
It was a great set up for the holiday season, where I'm happy to note the energy has stayed just as elevated.
Starting with Aerie, we consistently reach new heights each and every quarter.
28% revenue growth in the third quarter following a 34% increase last year demonstrates Aerie's strong growth path.
This marked the 28th consecutive quarter of double-digit growth.
Profit flow-through was also very healthy with a 16.5% operating margin, reflecting new third quarter highs for the brand.
We achieved this despite some unevenness of inventory flow during factory shutdowns in South Vietnam.
This occurred primarily in our high demand legging business, which is also one of our best margin categories.
Sales metrics in the third quarter were incredibly healthy.
The AUR was up in the high teens, driven by higher full price selling and more strategic decision-making around promotions.
Demand was strong across the Aerie portfolio with our core intimates bralettes and apparel leading the charge.
The OFFLINE activewear brand is continuing to generate excitement as it expands its product offering.
We feel great about what's to come as we grow the store footprint and widen the customer base.
Marketing is also playing a key role.
In August, we launched the Voices of AerieREAL.
This was Aerie's largest integrated marketing campaign featured across TikTok and connected TV and Snapchat.
This platform is giving our customers a voice and opportunity to share what makes them real.
The response was truly amazing, hundreds of customers shared their touching and funny real stories and will be featured in our upcoming campaigns.
Year-to-date, Aerie's customer file has expanded 15%.
Customers are transacting more frequently and across more categories.
This is driving higher spend per customer as Aerie becomes the go-to for intimates activewear and cozy apparel.
We opened 29 new Aerie doors in the quarter, including a mix of new stand-alone and side-by-side formats, roughly a quarter of them are OFFLINE doors.
Momentum heading into the holiday season remains strong.
We are focused on driving broad-based scale recognition of Aerie as a must-stop gifting destination, and I am so excited for what we have planned and I look forward to sharing more Aerie highlights in the upcoming quarters.
Now, turning to American Eagle.
I'm thrilled with the great progress we're making just 11 months into the launch of our new strategy.
As I shop our website and walk our stores, I have to tell you the strong AE heritage we all know and love is back.
The assortment has been refreshed, our advertising and messaging is reenergized and it's working.
Sales in the quarter rose 21% compared to 2020 and increased 8% to 2019.
Reigniting our brand product together with inventory optimization and promotional discipline drove strong AUR growth and merchandise margin expansion.
This resulted in significant profit flow-through and operating margin of 27.8% that reflected new highs.
Our strength during back-to-school is clear -- is a clear signal that we are the destination for jeans, which continues to hit new highs.
AE's customer file is up and, here too, customers are buying more frequently and spending more.
As we predicted, current trends and shifts in silhouettes are playing right into AE's strengths as the market leader.
In the quarter, our men's business saw tremendous growth across all categories.
The women's business also posted strong sales, supported by our signature denim category and a focus on outfitting.
AE continues to explore innovative ways to reach and broaden its audience.
I am so proud to share that AE was included in TikTok's pilot of its social commerce program this quarter.
Being a part of the new initiative is a true testament to the growing strength of the AE brand and its importance to customers.
AE also launched a store on Snapchat and became the official partner of twitchgaming, a new channel created by gamers for gamers.
There is so much momentum across the brands as we head into the holiday season.
The teams did a great job getting our product out here and we're positioned to meet strong demand.
It's paying off in spades and I'm so happy how far we have come and how much we've accomplished in such a short period of time.
More to share in the coming quarters.
I'm very pleased with how we executed this quarter.
The teams did a remarkable job managing through a highly disrupted operating environment.
Strong top and bottom line results are a clear indication that our strategies are working.
We are making sustained progress against the strategic pillars outlined in our Real Power.
And with this, we are unlocking structural benefits across our business and building a competitive edge in the industry.
A key pillar of our strategy is to create the best brand experience for our customers and our selling channels really delivered this quarter.
We are pleased to see store traffic rebuild rising in the double-digits, driving a 29% increase in store revenue.
Selling trends were robust across our factory outlets and mainline stores, with both formats also seeing significant profit improvement.
Momentum was broad-based across all regions in the US, and all international markets also posted positive results.
Our digital business continued at a healthy pace with revenues up 10%, successfully lapping 29% growth in the prior year.
I am pleased to note that both our store and digital revenues and profits in the quarter surpassed levels we achieved in the third quarter of 2019.
This is reaffirming that we are emerging from the pandemic stronger.
Year-to-date, digital penetration is 35%, and our trailing 12-month digital revenue is approximately $1.8 billion with very strong profitability.
As we prioritize enhancing the omnichannel shopping experience, we are launching new tools and technologies.
This quarter, we expanded our virtual selling tool, AE Live, which leverages our amazing store teams and local influencers to connect directly with customers looking for inspiration and guidance on the latest trends.
We also launched Afterpay in stores, enhanced our e-gifting for a more engaging experience and expanded both same-day delivery services and customer self-checkout to more geographies.
I am very encouraged by the strength in our customer data.
We closed the third quarter with the highest active customer count and highest average annual spend since 2010.
Over the past 12 and 24 months, we added almost 1.75 million and 2.25 million new customers, respectively.
Approximately a third are engaging across both brands and spending approximately 2 times that of our average customer annually.
Following a successful relaunch last summer, the royalty program is growing, with members spending more and staying longer.
Now, shifting gears to logistics and supply chain, we continue to reap the benefits from our in-market fulfillment model.
Delivery costs leveraged 120 basis points in the quarter.
In fact, delivery cost dollars were down year-on-year, led by efficiencies created in digital delivery.
With product located closer to stores and customers, delivery times and the average cost per shipment declined versus last year.
And with greater control over inventory placement, shipments per order were also down dramatically.
This created enormous cost savings and efficiencies.
As Jay said, we are thrilled to announce the purchase of Quiet Logistics, which will allow us to increase these benefits over time.
In particular, the ability to drive substantially greater sales and margin on far less inventory, create more precision in our inventory allocation decisions and deliver products to customers both faster and at a lower cost.
This comes shortly after our acquisition of AirTerra, which we discussed on last quarter's call.
The combination of Quiet and AirTerra has meaningful growth potential, offering a one-stop shop for cost-effective transportation and fulfillment solutions to a growing customer base.
A technology-led supply chain is the backbone of the successful retail business today and into the future.
We believe we are demonstrating the power of this and that Quiet and AirTerra are providing capabilities that are much needed in today's marketplace.
As we discussed in September, the global supply chain remains highly disrupted with core backlog and shifting production schedules leading to longer delivery times and higher transportation costs.
Overall, we managed effectively through these challenges.
In the third quarter, the AE brand essentially had no disruption.
However, as Jen discussed, Aerie's legging category experienced uneven inventory flows when factory closures in Vietnam created product delays.
As a result, we chose to air the product to ensure we were in stock for the holidays.
Although there is a related cost that Mike will discuss in more detail, we are in a healthy inventory position and are set up for a very strong holiday.
In closing, I'm extremely pleased with our performance year-to-date and I'm looking forward to sharing more details on our new investments in the coming quarters.
In the third quarter, we built on strong momentum from the first half of the year, posting yet another record revenue and profit result.
Even with the global operating environment still in flux, our teams executed with precision, guided by the initiatives we outlined in our Real Power.
value creation plan back in January.
We continued to place strong emphasis on product innovation that strengthens customer affinity for our brands, inventory discipline and focus, and real estate optimization and supply chain investments that build on our leading omnichannel capabilities.
Together, these initiatives are fueling our performance and improving our gross margin for the long-term.
Revenue of $1.27 billion, operating income of $210 million and adjusted earnings per share of $0.76 marked third quarter records for the company.
Gross margin of 44.3% and operating margin of 16.5% hit their strongest levels since 2007.
Growth across the business was also exceptional compared to the pre-pandemic 2019 period.
Consolidated third quarter net revenue increased $242 million or 24% versus third quarter 2020 and is up $208 million or 19% from 2019.
Across brands, sales metrics were very favorable, strong demand, higher full price sales and fewer promotions drove the average unit retail up 15% and fueled a high single-digit increase in our average transaction value.
As Michael noted, our selling strategy as an omnichannel retailer continues to be a competitive advantage fueling growth across channels.
We offer customers the convenience they seek on where and how to shop and continue to work to optimize the costs associated with that convenience.
From a brand standpoint, Aerie continued its industry-leading multiyear growth trajectory.
Revenue rose 28% from third quarter 2020 and over 70% from third quarter 2019.
Aerie's operating profit rose 46% and the operating margin expanded to 16.5%, marking a new third quarter high.
Incremental freight costs were $5 million or a 170 basis point headwind to brand operating margins in the quarter.
Additionally, uneven flow of goods, particularly in our signature leggings business put pressure on volumes as well as product mix as this is one of our highest margin categories.
Despite these headwinds, Aerie posted a significant improvement in profitability compared to prior years, almost tripling versus third quarter 2019.
Moving to American Eagle's brand performance, I cannot be more pleased with our results here.
The third quarter saw a significant profit unlock at AE as top line grew 21% and operating profit jumped 68%.
Operating margins hit a remarkable 27.8%.
As Jen mentioned, with improvements across key categories, the top line grew 8% against 2019.
We are seeing far better profitability even beyond our expectations.
Strong demand for our products is being met with healthier decision-making across all areas of the business, and we are truly benefiting from the inventory optimization work unveiled in January.
With significant progress here, we see -- still see room for further unlock moving forward.
Total company consolidated gross profit dollars were up 36% compared to the third quarter of 2020, reflecting a 44.3% gross margin rate.
A strong top line allowed us to realize expense leverage and rent as we benefited from lease negotiations.
And as Michael indicated, efficiencies in our distribution network fueled leverage and delivery.
Merchandise margins also expanded due to our focus on inventory optimization, promotional discipline and higher full price selling, partially offset by higher freight costs.
As a result of strong sales, we saw SG&A leverage 190 basis points.
The dollar increase of $41 million was due primarily to higher store payroll, especially as we lapped capacity constraints last year as well as new store openings and increased advertising.
This was partially offset by lower incentive compensation due to accruals earlier in the year.
Record operating income of $210 million reflected a 16.5% operating margin, our highest third quarter rate since 2007.
Adjusted earnings per share was $0.76 per share, marking a record third quarter.
Our diluted share count was 205 million and included 34 million shares of unrealized dilution associated with our convertible notes.
Ending inventory was up 32% compared to a 13% decline last year.
The increased freight costs had about a 10 point impact on ending inventory at cost.
We're really happy with our inventory position.
I'd like to take a minute to recognize the hard work our teams put in to get our product here on time to support strong demand this holiday season.
Our balance sheet remains healthy and we ended the quarter with $741 million in cash, up from $692 million in the third quarter 2020.
Capital expenditures totaled $58 million in the quarter and $144 million year-to-date.
For 2021, we continue to capital expenditures to come in on the low end of our $250 million to $275 million guidance range, reflecting cost savings and project timing.
With regards to our real estate strategy, we have significant flexibility in managing our store fleet to support our revenue and profit goals.
As we work toward our long-term target of rightsizing AE store footprint, we are dealing with a sharp eye on maximizing profitability.
For Aerie, we are focused on markets with the greatest opportunity.
Due to backlogs in building materials and fixtures, several of our third quarter store openings shifted into the fourth quarter, we expect the majority of these stores to open by the end of the year.
We're very excited about our recently announced acquisition of Quiet.
This will improve our ability to service both channels and lock in the cost benefits and overall gross margin efficiencies we've consistently seen over the past last year.
To wrap up, our performance year-to-date has been truly phenomenal and even more so in the context of challenges and uncertainties in our external environment.
We're extremely pleased with our record results year-to-date and continued progress on our strategic initiatives.
Sales trends remain strong heading into the key Black Friday and Cyber Week period.
We have met our goal to ensure our customers do not feel any impact from the supply chain disruptions and we're well positioned to meet holiday demand.
However, that has come with additional freight costs in the range of $70 million to $80 million, which will impact the fourth quarter.
Of course, we expect to nicely exceed $600 million of operating income for the year, well above the $550 million 2023 target.
We will be updating our longer-term financial targets at ICR this January.
Our results year-to-date continue to reaffirm that the Real Power.
value creation plan is working and that we're focusing on the right levers to drive financial success and returns to our shareholders.

user
american eagle outfitters exec sees $70 mln to $80 mln of freight cost in q4.
in q3, co saw some unevenness of inventory flow during factory shutdowns in south vietnam.
in q3, aerie's legging category experienced uneven inventory flows when factory closures in vietnam created product delays.
several q3 store openings shifted into q4; expect majority of stores to open by end of year.
co missed some business in aerie's leggings to the tune of an estimated $15 million in quarter.
american eagle exec sees $70 million to $80 million of freight cost in q4.
qtrly earnings per share of $0.74; qtrly adjusted earnings per share of $0.76.
qtrly total net revenue increased $242 million, or 24% to $1.27 billion.
qtrly total digital revenue up 10%; qtrly consolidated store revenue up 29%.
qtrly aerie revenue of $315 million rose 28%; qtrly american eagle revenue of $941 million rose 21%.
quarter-end total consolidated ending inventory at cost increased 32% to $740 million versus 13% decline last year.
confident that we will exceed $600 million of operating income for year, well above $550 million 2023 target.

assistant