American Eagle Outfitters' Q2 2026: Contradictions Emerge on Tariff Mitigation, Inventory Strategies, and Marketing Impact

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

Date of Call: None provided

Financials Results

• Revenue: $1.28B, down 1% YOY; comparable sales down 1%
• EPS: Not disclosed; diluted EPS up 15% YOY
• Gross Margin: 38.9%, compared to 38.6% last year (+30 bps YOY)
• Operating Margin: 8.0%, up from 7.8% last year (+20 bps YOY)

Guidance:

• Q3 comps expected to increase low single digits; QTD comps mid-single digits; strong Labor Day.
• Q3 operating income expected at $95–$100M; includes ~$20M incremental tariffs.
• Q3 BOW to slightly deleverage (Aerie/Offline growth, higher digital mix); SG&A up high single digits (advertising); tax rate ~25%; weighted avg shares ~172M.
• Q4 comps expected to increase low single digits; operating profit $125–$130M; includes ~$40–$50M tariffs; SG&A down slightly.
• FY25 CapEx ~ $275M; plan ~30 Aerie/Offline openings, 40–50 AE remodels, and 35–40 AE closures.

Business Commentary:

• Revenue and Sales Performance:
• American Eagle Outfitters (AEO) reported second highest ever revenue of $1,280,000,000 for the second quarter.

• This marked meaningful improvement from the first quarter, validating the actions taken to reignite performance.

• Brand and Product Initiatives:

• Aerie delivered comp growth of 3% in the second quarter, achieving record second quarter revenue.

• Key drivers included positive demand across categories like intimates, soft dressing, and activewear, with new collections and marketing efforts gaining traction.

• Operational Efficiency and Cost Management:

• Gross profit dollars were $500,000,000, reflecting a gross margin of 38.9%.
• SG&A expenses were down 1% to $342,000,000, flat as a rate of sales.

• Operating income improved by 2% to $103,000,000, exceeding expectations and driven by disciplined cost management.

• Tariff Impact and Mitigation Strategies:

• AEO anticipates $20,000,000 of tariff impacts in Q3 and $40,000,000 to $50,000,000 in Q4.
• Mitigation efforts include rebalancing country of origin, cost negotiations, and optimizing freight, with pricing as a lesser leveraged strategy.

Sentiment Analysis:

• Results exceeded expectations with operating income up 2% to $103M and diluted EPS up 15% YOY. Gross margin expanded to 38.9% vs 38.6% last year. Traffic improved throughout Q2 and comps turned positive into August; Q3-to-date comps are mid-single digits. Management cited record-breaking campaign engagement and strong denim sell-through, and guided to positive comps and profitability in both Q3 and Q4 despite tariff headwinds.

Q&A:

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

• Question from Jay Sole (UBS): How much of the improvement is better assortments versus marketing, and what changed from 1H to back-to-school/holiday?
  Response: Assortment fixes (fleece, intimates, long bottoms) drove improvement beyond marketing; shorts were weak, but Q3 strength is in jeans, tops, sweaters, and fleece.

• Question from Paul Lejuez (Citi): Can you break down comps (transactions, ticket/AUR/UPT) and clarify tariff impacts and pricing mitigation?
  Response: AUR down mid-single digits in Q2 (digital flat); traffic up; markdowns managed. Tariffs ~$20M in Q3 and $40–$50M in Q4 vs ~$180M unmitigated; mitigated via country mix, vendor costs, freight; pricing is a smaller lever.

• Question from Paul Lejuez (Citi): What is your AUR expectation for the back half?
  Response: AUR is up low single digits Q3-to-date, with similar dynamics expected for the back half.

• Question from Jonah Kim (TD Cowen): What percent of Aerie is intimates, how will you recapture share, and how did existing customers perform?
  Response: Intimates ~one-third of Aerie; relaunch with lace capsules and more frequent fashion drops; campaigns driving broad acquisition with focus on converting to repeat.

• Question from Janet Kloppenburg (JJK Research): Which categories underperformed at Aerie, can intimates strength sustain, and are denim ticket prices higher?
  Response: Shorts were soft across banners; intimates gaining share in undies/bras and expected to sustain; denim AURs are up with good-better-best pricing, mindful of tariffs.

• Question from Alex Stratton (Morgan Stanley): What’s driving back-half gross margin pressure, and how long can campaign-led sales momentum last? Any more drops?
  Response: Margin pressure mainly from tariffs (larger in Q4), some BOW deleverage from digital mix, and embedded promos; more drops planned (second Travis release) and Sydney campaign continues.

• Question from Chris Nardone (Bank of America): Is 4Q tariff impact ~250–300 bps and how should we think about mitigated impact into next year? What are offsets?
  Response: Yes, ~250–300 bps in 4Q; FY26 tariff headwind currently modeled at ~$125–$150M after mitigation. Offsets include country remix, cost negotiations, delivery optimization, supply chain/store fleet rebalancing.

• Question from Chris Nardone (Bank of America): Any progress in men’s and denim versus broader AE?
  Response: Men’s is improving in tops and denim, with more runway; denim trends on par due to high penetration.

• Question from Rakesh Patel (Raymond James): Duration of the campaigns and how should we view back-half marketing spend?
  Response: Campaigns run through year with a second Travis drop; advertising up high single digits in Q3, low single digits in Q4, with total Q4 SG&A slightly down.

• Question from Cory Tarlow (Jefferies): How did SG&A leverage on a negative comp and what’s sustainable? What about incentive comp?
  Response: Multi-year expense discipline; plan to keep SG&A flat or leverage on 3–5% revenue growth; incentive comp is down this year and will be managed within total SG&A.

• Question from Marni Shapiro (The Retail Tracker): Any inventory pull-forward, plans for additional Sydney collections, and learnings on swim?
  Response: Minor inventory pull-forward; second Travis drop coming and more Sydney ideas in development; swim was tightly managed, beat plan with low clearance, guiding future buys.