American Eagle Outfitters Q2 2025 Earnings Call: Contradictions Emerge on Tariff Mitigation, Marketing Campaigns, Inventory Management, SG&A Leverage, and Product Timelines

The above is the analysis of the conflicting points in this earnings call

Date of Call: September 3, 2025

Financials Results

• Revenue: $1.28B, down 1% YOY
• EPS: Not disclosed; diluted EPS up 15% YOY
• Gross Margin: 38.9%, compared to 38.6% in the prior year
• Operating Margin: 8.0%, compared to 7.8% in the prior year

Guidance:

• Q3 comparable sales expected to increase low single digits; operating income $95–$100M, including ~$20M tariffs.
• Buying, occupancy & warehousing to slightly deleverage on higher digital mix and new Aerie/offline stores; SG&A up high single digits on advertising; tax ~25%; shares ~172M.
• Q4 comparable sales to increase low single digits; operating income $125–$130M; tariffs $40–$50M; SG&A slightly down.
• Q3-to-date comps up mid-single digits; record Labor Day weekend.
• FY CapEx ~$275M; plan to open ~30 Aerie/offline, remodel 40–50 AE stores, and close 35–40 AE stores by year-end.

Business Commentary:

• Improved Revenue and Profitability:
• American Eagle Outfitters, Inc. reported revenue of $1.28 billion for Q2 2025, marking the second highest ever posted for a second quarter, which is a meaningful improvement from the first quarter.
• Total company operating income improved by 2% to $103 million, surpassing the previous year, with diluted EPS increasing by 15%.

• The increase was driven by improved product initiatives, strong marketing campaigns, and operational disciplines, despite a dynamic consumer backdrop.

• Aerie and American Eagle Performance:

• Aerie achieved comp growth of 3% in the second quarter, with record revenue for the quarter.
• American Eagle improved in key go-forward categories, particularly in women's jeans, tops, and men's graphics, knit tops, and jeans.

• The improvement was due to a focus on building franchise businesses, successful marketing campaigns, and strong customer engagement.

• Impact of Tariffs and Strategic Mitigation:

• American Eagle Outfitters began to feel the impact of tariffs in the second half of the year, with an estimated $180 million unmitigated impact expected for the back half.
• The company successfully mitigated the impact to a $70 million projection, using strategies such as rebalancing country of origin, cost negotiations, and pricing.

• These measures are expected to continue into the first half of next year, with ongoing efforts to optimize costs and supply chain efficiency.

• Crucial Marketing Campaigns and Customer Acquisition:

• The exclusive product and marketing campaigns with Sydney Sweeney and Travis Kelce generated 40 billion impressions, with significant new customer acquisition.
• These campaigns contributed to record-breaking new customer acquisition and brand awareness, with customer counts up by over 700,000.
• The strategic partnerships with these celebrities aimed to convert buzz into business and drive long-term brand loyalty.

Sentiment Analysis:

• Revenue of $1.28B marked the second-highest Q2; operating income rose 2% to $103M; diluted EPS increased 15% YOY. Gross margin expanded to 38.9% vs 38.6% last year. Q3-to-date consolidated comps are up mid-single digits with a record Labor Day. Guidance calls for low single-digit comp growth in both Q3 and Q4 with operating income of $95–$100M and $125–$130M, respectively.

Q&A:

• Question from Jay Sole (UBS): How will you sustain momentum from the Sydney Sweeney and Travis Kelce campaigns, and are customers buying beyond the celebrity items?
  Response: Campaigns drove unprecedented national new-customer acquisition and denim sellouts; focus now is converting these customers into repeat purchases across categories.

• Question from Jay Sole (UBS): How much of recent improvement is better assortments versus marketing buzz?
  Response: Assortment fixes led the improvement—Aerie fleece and intimates strengthened; AE women’s jeans/tops and men’s categories improved; shorts were the drag in Q2 but trends turned positive in Q3.

• Question from Paul Lejuez (Citi): Provide comp metrics (AUR/UPT) and clarify tariff impact and pricing mitigation.
  Response: Q2 AUR down mid-single digits; digital AUR flat; markdown discipline aided GM. Tariffs: ~$20M Q3, $40–$50M Q4 (mitigated from ~$180M) via sourcing shifts, vendor costs, freight; pricing is a smaller lever.

• Question from Paul Lejuez (Citi): Outlook for AUR in the back half?
  Response: Q3-to-date AUR up low single digits; expect similar low single-digit AUR increase for the back half.

• Question from Jungwon Kim (TD Cowen): What percent of Aerie is intimates, and how will you recapture share? Any read on existing customers?
  Response: Intimates ~one-third of Aerie; relaunch with lace/Parisian collection and Aerie 2.0 campaign to drive share; broad new-customer gains complement existing customer engagement.

• Question from Janet Kloppenburg (JJK Research): Which categories lag at Aerie; sustainability of intimates; denim pricing strategy?
  Response: Shorts were soft across brands; soft apparel and intimates are strong with share gains in undies/bras. Denim uses good-better-best pricing with higher AUR; selective price increases will continue as part of tariff mitigation.

• Question from Alexandra Straton (Morgan Stanley): Why is Q4 gross margin pressured more than Q3; and will sales momentum from campaigns persist?
  Response: Q4 GM faces higher tariff impact plus some promo assumptions and BOW deleverage on digital mix; optimization could offset. Momentum to continue with Travis second drop and ongoing Sydney activations.

• Question from Christopher Nardone (BofA Securities): Tariff impact into next year and offsets to pressure?
  Response: After remixing and cost actions, full-year tariff headwind projected at ~$125–$150M; offsets include supply-chain optimization, delivery efficiencies, and rebalancing store fleet (more closures/repositions).

• Question from Christopher Nardone (BofA Securities): Update on men’s and denim performance vs. AE overall?
  Response: Men’s is recovering with improved tops and denim under new merchandising; denim trends are strong and roughly in line with AE’s overall performance due to high penetration.

• Question from Rakesh Patel (Raymond James): Duration of campaigns and outlook for marketing spend in the back half?
  Response: Sydney campaign continues through year; Travis has a second drop during NFL season. Advertising spend weighted to Q3 (up high single digits in SG&A); Q4 advertising up slightly with total SG&A slightly down.

• Question from Rakesh Patel (Raymond James): How are inventories positioned given August acceleration?
  Response: Inventory units up ~3% and cost up ~8% (tariffs); chasing jeans with long-life, low-markdown risk; overall inventory aligned to plans.

• Question from Corey Tarlowe (Jefferies): How did SG&A leverage on a negative comp, and what’s the leverage point going forward? Incentive comp outlook?
  Response: Multi-year cost work lowered compensation and services, enabling SG&A leverage; target to keep SG&A flat/leverage on 3–5% revenue growth. Incentive comp down this year; will manage total SG&A to maintain leverage.

• Question from Marni Shapiro (The Retail Tracker): Was inventory increase a pull-forward; will there be a fuller Sydney collection; and how are you approaching swim?
  Response: Only minor inventory pull-forward; more Sydney/Travis product activations are planned. Swim was tightly planned, beat plan with low clearance; learnings to guide future seasons under new merchant leadership.