American Eagle Outfitters Q3 2026: Contradictions in Aerie Sales Drivers, Store Fleet Plans, and Tariff Impact

Date of Call: November 30, 2025

Financials Results

• Revenue: $1.36B, up 6% YOY (company also referred to a $1.4B Q3 record)
• EPS: $0.53 diluted, up 10% YOY (adjusted)
• Gross Margin: 40.5%, down 40 bps vs 40.9% prior year
• Operating Margin: 8.3%, down from adjusted 9.6% prior year (operating income $113M)

Guidance:

• Q4 operating income raised to $155M–$160M based on comp growth of 8%–9% and similar revenue growth.
• Comp guidance mix: AE low-to-mid single digits; Aerie high teens.
• Q4 includes approximately $50M of incremental tariff costs; tax rate ~28%; diluted share count ~173M.
• SG&A expected up low- to mid-single digits (advertising investments); BOW and SG&A expected to leverage on strong top line.
• Full-year CapEx ~ $275M (includes ~$40M one-time design center move).

Business Commentary:

• Record Revenue and Positive Comps:
• AEO reported total revenue of $1.4 billion for Q3 2025, a third quarter record, with a 6% increase, and operating income of $113 million, exceeding guidance by $113 million.
• The strong top line was supported by a 4% positive comparable sales growth, marking a return to positive comps after a 1% decrease in the previous quarter. Aerie led the growth with 11% comps.

• The improvement was driven by better demand across all categories in Aerie and stronger marketing campaigns, enhanced brand awareness, and operational efficiencies.

• Aerie's Growth and Market Share Expansion:

• Aerie achieved record revenue with third quarter comps up 11%, driven by strong demand across intimates, apparel, sleep, and Offline categories.
• The brand's growth was attributed to successful product launches, marketing efforts, and expanded brand awareness, particularly among younger consumers.
• The significant expansion in market share, now at less than 5%, indicates substantial long-term opportunities for Aerie.

• Denim and Marketing Impact:
• American Eagle's comp growth was 1%, with strength in jeans and men's categories.
• The denim business benefited from better in-stocks and new product flows, while marketing campaigns, such as collaborations with celebrities like Sydney Sweeney and Travis Kelce, generated measurable benefits and increased customer engagement.

• Advertising and Marketing Investments:
• The company increased investment in advertising, with campaigns generating more than 44 billion impressions, contributing to stronger demand and customer acquisition.
• The strategic marketing efforts aimed to enhance brand awareness and desirability, attracting new customers and boosting customer loyalty growth by 4% in the quarter.
• The successful campaigns were key factors in driving overall revenue growth and building long-term brand awareness and customer engagement.

Sentiment Analysis:

Overall Tone: Positive

• Management repeatedly described a 'meaningful trend change' and 'record revenue' (Q3 record), raised Q4 outlook, and highlighted strong momentum in Aerie and Offline; CFO noted operating income exceeded guidance and the company is 'encouraged by broad-based strength' heading into the holidays.

Q&A:

• Question from Jay Sole (UBS): Can you talk about where you're trending quarter-to-date to be able to guide to 8%–9% comps? What's driving the acceleration? And Jen, can you elaborate on denim silhouettes and durability into 2026?
  Response: Guide is based on quarter‑to‑date strength with AE expected low‑to‑mid single digits and Aerie high teens; both brands are running ahead of those levels now—denim is strong with evolving silhouettes, tested and scaled, and momentum into Q4.

• Question from Matthew Boss (JPMorgan): At Aerie, what are the drivers of the comp improvement and how are you sustaining double‑digit growth (customer acquisition initiatives)?
  Response: Aerie's recovery is product‑led—strength across intimates, apparel, sleep and Offline—plus accelerating customer acquisition driven by campaigns (e.g., '100% real') and community/influencer initiatives.

• Question from Matthew Boss (JPMorgan): Expectations for markdowns in Q4 relative to Q3 and how to think about gross margin levers into next year?
  Response: Inventory is healthy (+11% cost, +8% units); expect Q4 markdowns similar to Q3 with modest upticks to compete on big selling days; tariffs ~ $50M in Q4 (~300bps absolute) but expect offsets across freight, BOW and other costs to limit gross‑margin impact.

• Question from Kelly Crago (Citi): Why didn't the high‑profile AE campaigns accrue more to AE vs. Aerie, and is $50M the right net tariff impact to think about for H1 '26?
  Response: AE campaigns drove traffic and loyalty but AE was partly constrained by out‑of‑stocks (especially women's denim); tariffs expected roughly $25M–$30M per quarter in Q1/Q2 (~200–225bps each), ~$40M–$60M in H1, and company is not broadly passing tariffs to consumers—taking selective price moves.

• Question from Jungwon Kim (TD Cowen): Who are the customers you're acquiring (any higher‑income cohorts) and how are you retaining them?
  Response: Customer file is strengthening with accelerated acquisition across cohorts; retention is improving via product excellence, community/influencer programs and targeted upper‑funnel and performance marketing—strategy is product‑first plus amplified marketing.

• Question from Rakesh Patel (Raymond James): Where do you see AUR landing in Q4 and what are expectations for year‑end inventory (dollars and units)?
  Response: AUR expected roughly flat in Q4 company‑wide (Aerie nudging AUR up, AE jeans driving markdowns); inventory guidance: no specific number but expect inventory/units to be roughly in line with sales growth to support demand.

• Question from Christopher Nardone (Bank of America): Plans for AE and Aerie/Offline store fleets and has recent performance changed that thinking? Also, channels/categories driving Aerie inflection?
  Response: AE plans to close ~35 lower‑productivity stores this year with fewer closures next year; Aerie/Offline planned openings ~40–50 stores (more Offline); Aerie strength is broad‑based with digital outpacing stores and driving much of the recent acceleration.

• Question from Alexandra Straton (Morgan Stanley): Where will marketing expense end the year as a % of sales vs. history, and should it move higher next year?
  Response: Advertising will finish the year in the mid‑4s% of sales and management is planning toward a new baseline near ~5% in the first half of next year to fuel growth, then leverage other expense lines.

• Question from Janet Kloppenburg (JJK Research Associates): You chased product earlier in the year—has that been resolved? Did you leverage buying & occupancy on a 4% comp and are price increases done?
  Response: Denim (women's) supply shortfalls earlier drove out‑of‑stocks; inventory improved into Q4; BOW leveraged ~20bps on the 4% comp; AUR intent is to remain similar to last year—no broad tariff pass‑through planned.

• Question from Janine Hoffman Stichter (BTIG): What are you seeing on conversion with product improvements and thoughts on Gen Z consumer behavior?
  Response: Traffic and UPT have driven the recovery with conversion relatively flat and AUR flat; Gen Z engagement remains strong across brands (campaigns like Martha Stewart also resonating), and they are not seeing a Gen Z pullback.

• Question from Corey Tarlowe (Jefferies): How should we think about SG&A dollars next year (marketing, incentive comp) and what is specifically working for Aerie versus competition?
  Response: Expect continued advertising investment into H1 to reach roughly a 5% ad rate next year with incentive comp TBD (more detail in March); Aerie's outperformance is product‑led (newness, undies, fabric franchises), influencer/community activation and still‑low brand awareness (55%–60%) providing runway.

Contradiction Point 1

Aerie's Sales Growth and Driver Factors

It involves the explanation of key drivers for Aerie's sales growth, which is crucial for understanding the company's strategic focus and potential future performance.

How are Aerie's customer acquisition trends and initiatives addressing the sustainability of double-digit sales growth? - Matthew Boss (JPMorgan Chase & Co, Research Division)

20251203-2026 Q3: Aerie's turnaround focused on core competency businesses, such as intimates and Offline. Customer acquisition has been strong, with higher spending from existing customers. The launch of the '100% Real' campaign has been crucial in driving customer engagement and brand awareness. - Jennifer Foyle(CMO)

What drove Aerie's same-store sales growth, and what measures are in place to sustain it? - Matthew Boss (JPMorgan Chase & Co, Research Division)

2026Q3: Aerie's improvement is driven by strong demand across categories, with a resurgence in intimates and apparel. Newness and marketing campaigns have accelerated growth. New products like sleepwear have become year-round. The customer acquisition strategy includes leveraging influencer programs and community engagement. - Jennifer Foyle(CMO)

Contradiction Point 2

American Eagle Store Fleet Plans

It pertains to the company's strategic planning for its store footprint, which impacts operational efficiency and cost management.

What are your store fleet plans for Aerie and American Eagle next year? Will you maintain the same growth trajectory? - Christopher Nardone (Bank of America)

20251203-2026 Q3: For AE, we expect a lower number of store closings than this year. Aerie and Offline, we see continued growth, with likely acceleration in openings. - Mike Mathias(CFO)

Can you update us on store fleet plans and Aerie's comp expectations? - Christopher Nardone (BofA Securities, Research Division)

2026Q3: AE store closings will likely slow down from this year's 35 stores, due to prior closures. Aerie and Offline growth plans are ongoing with a focus on digital penetration. - Mike Mathias(CFO)

Contradiction Point 3

Tariff Impact and Mitigation Strategies

It involves changes in financial forecasts due to tariffs, which are critical for investors to understand the company's financial resilience and strategic responses to external pressures.

Can you discuss customer acquisition trends and initiatives to sustain double-digit growth? - Matthew Boss (JPMorgan)

20251203-2026 Q3: We have built contingencies into our cost structure, and we are actively working to mitigate the tariff impact through country of origin rebalancing, cost negotiations and pricing actions. The net impact is expected to be approximately $50 million for the fourth quarter. - Mike Mathias(CFO)

Can you provide more details on comp metrics, transaction tickets, and the impact of tariffs? - Paul Lejuez (Citigroup Inc., Research Division)

2025Q2: We are actively working to mitigate the tariff impact through country of origin rebalancing, cost negotiations and pricing actions. We currently estimate that the net impact of the tariffs on our full year results will be approximately $70 million. - Mike Mathias(CFO)

Contradiction Point 4

Marketing Strategy and Impact

The responses indicate differing strategies and expected impacts of marketing on sales performance, which could influence investor perceptions and strategic decisions.

What's driving the acceleration in your 8% to 9% fourth-quarter comp guidance? - Jay Sole (UBS)

20251203-2026 Q3: The 8% to 9% comp guidance includes a nice improvement for both brands. AE brand is expected in the low to mid-single digits, while Aerie is expected in the high teens, contributing to the overall guidance. Both brands are ahead of that trend so far, with store traffic significantly up due to effective marketing campaigns. - Mike Mathias(CFO)

Can you outline current consumer trends and their impact on the retail landscape, especially for the back half of the year? How much of recent performance is driven by macro factors versus execution? - Matthew Boss (JPMorgan)

2025Q1: All right, with the macro situation, look, we're optimistic. We're hoping that this tax plan gets passed sooner than later. And I think that will give a lot of optimism, and it may even stimulate the economy as far as the second-half goes. - Jay Schottenstein(CEO)

Contradiction Point 5

Inventory Management and Demand

The responses show differing perspectives on inventory management and demand, which could impact operational efficiency and financial performance.

What are your expectations for Q4 AUR and year-end inventory levels? - Rakesh Patel (Raymond James)

20251203-2026 Q3: AUR is expected to be flat in Q4, with Aerie driving higher comps on slightly higher markdowns to drive business in denim. Inventory is expected to be in line with sales, with a tariff impact continuing. - Mike Mathias(CFO)

How are you planning inventory for the remainder of the year, and what are your open-to-buy plans for the second half? - Dan Stroller (BMO Capital Markets)

2025Q1: We're planning inventory commensurate with our sales expectations. We made a lot of adjustments through these first few months of the year to right-set things for the rest of the year. Feel very good about how we're positioned as of right now going into the back half. - Mike Mathias(CFO)