American Eagle Outfitters' Q3 2026 Earnings Call: Contradictions Emerge on Inventory, Pricing, Tariffs, Marketing, and Customer Retention Strategies

Date of Call: December 2, 2025

Financials Results

• Revenue: $1.36B, up 6% YOY
• EPS: $0.53 per diluted share, up 10% YOY (adjusted)
• Gross Margin: 40.5%, down 40 bps YOY (40.9% prior year); includes ~$20M tariff impact (~150 bps in Q3)
• Operating Margin: 8.3%, down from 9.6% last year (declined ~130 bps YOY)

Guidance:

• Operating income for Q4 raised to $155M–$160M; comp sales expected +8%–9% with similar total revenue growth.
• Guidance includes ~ $50M incremental tariff costs for Q4; expect ~$25M–$30M impact in each of Q1 and Q2 (H1 ~$40M–$60M).
• BOW to increase (new Aerie/Offline stores, higher digital penetration); SG&A to rise low‑to‑mid single digits from advertising but both expected to leverage on stronger top line.
• Estimated tax rate ~28%; weighted average share count ~173M.
• FY CapEx ~ $275M (includes ~$40M one‑time relocation).
• Store strategy: close ~35 lower‑productivity AE stores and continue Aerie/Offline expansion (~40–50 openings planned next year).

Business Commentary:

• Revenue and Profit Growth:
• American Eagle Outfitters reported record revenue of $1.4 billion for Q3 2025, marking a 6% increase year-on-year, exceeding their guidance of 95 million to $100 million.

• The growth was driven by higher-than-expected demand, strategic marketing campaigns, and improved operational efficiency.

• Brand-Specific Performance:

• Aerie's revenue increased by 11% in the third quarter, driven by strong demand across all categories, including intimates, apparel, and Offline.

• The growth was attributed to greater depth and breadth in product offerings, effective marketing campaigns, and improved brand awareness.

• Digital Sales and Customer Acquisition:

• The company saw strong sales growth across digital channels, with a particularly high performance during the Thanksgiving weekend.

• This was supported by high-profile marketing campaigns, increased digital traffic, and successful customer engagement strategies.

• Adjusted Operating Income and Cost Management:

• Operating income of $113 million exceeded guidance by $13 million, fueled by controlled costs and efficient sourcing despite tariff impacts.
• The results were achieved through operational improvements, markdown management, and effective cost optimization strategies.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted a "record revenue" quarter, said "very strong momentum" has continued into Q4 and stated "we are raising our fourth quarter outlook." CFO noted operating income beat guidance and management repeatedly described "exceptional demand" at Aerie and Offline and raised near‑term guidance, indicating an upbeat, constructive tone across the call.

Q&A:

• Question from Jay Sole (UBS): My first question... can you talk about where you're trending quarter-to-date to be able to guide to 8%–9% comp, what's driving the acceleration? And on denim, what silhouettes are working and durability into 2026?
  Response: Q4 comp guide is 8%–9% composed of AE low‑to‑mid singles and Aerie high teens; both brands are running ahead quarter‑to‑date and denim is strong with evolving silhouettes tested/scaled by the team.

• Question from Matthew Boss (JPMorgan Chase & Co): Can you dig into drivers of Aerie's same‑store improvement and customer acquisition initiatives to sustain double‑digit comps?
  Response: Aerie's rebound is product‑led (intimates, apparel, sleep, Offline) plus accelerating customer acquisition driven by community‑focused marketing (e.g., '100% real') and influencer activity.

• Question from Matthew Boss (JPMorgan Chase & Co): How should we think about markdowns in Q4 vs Q3 and gross margin levers into next year?
  Response: Expect Q4 markdowns modestly elevated to compete (similar to Q3); Q4 tariffs ~ $50M but management expects offsets (freight and other non‑tariff cost efficiencies) to limit gross‑margin erosion.

• Question from Kelly Crago (Citigroup Inc.): Given high‑profile AE campaigns, why hasn't AE benefited more vs Aerie; and is $50M tariff impact the right number to think about for H1 '26?
  Response: Marketing produced halo effects and loyalty gains, but AE earlier faced women's out‑of‑stocks limiting lift; tariffs are expected roughly $25M–$30M per quarter in Q1/Q2 (H1 ~$40M–$60M).

• Question from Jungwon Kim (TD Cowen): Who are the newly acquired customers (income cohorts, share wins) and how are you retaining them?
  Response: Management sees strong acquisition and improving retention across cohorts, using influencer/upper‑funnel and community strategies plus product assortment to retain new customers (specific tactics not disclosed).

• Question from Rakesh Patel (Raymond James): Where do you see AUR landing in Q4 and expectations for year‑end inventory dollars and units?
  Response: AUR expected to be relatively flat in Q4; inventory planned to be in line with sales/units growth (no specific year‑end dollar/unit guidance provided).

• Question from Christopher Nardone (BofA Securities): Plans for Eagle and Aerie store fleets heading into next year and has recent performance changed that thinking? Also, where is the Aerie inflection occurring by channel/category?
  Response: Plan to close ~35 lower‑productivity AE stores (slowing thereafter) while accelerating Aerie/Offline expansion (~40–50 openings next year); digital is outpacing stores and Aerie strength is broad‑based across categories.

• Question from Alexandra Straton (Morgan Stanley): Where will marketing expense end the year as a % of sales, and should it remain higher next year?
  Response: Advertising reset pushes FY advertising to the mid‑4% range; management plans to target ~5% as a new baseline next year to drive reach and will seek to leverage other SG&A lines as sales scale.

• Question from Janet Kloppenburg (JJK Research): What resolved the earlier 'chase product' issue and did you leverage BOW on a 4% comp; any more price increases to come?
  Response: Earlier denim under‑stocking drove chasing; inventories improved entering Q4; BOW leveraged ~20 bps in Q3 and expected to leverage again with stronger comps; no broad tariff pass‑through—AUR intent is flat.

• Question from Janine Hoffman Stichter (BTIG): With traffic/new acquisition, what are you seeing on conversion and the Gen Z consumer?
  Response: Traffic and UPT drove gains while conversion remained roughly flat with AUR flat; management is not seeing meaningful pullback from Gen Z—momentum spans age groups and campaigns (including Martha Stewart) resonate broadly.

• Question from Corey Tarlowe (Jefferies): How should we think about SG&A dollars for Q3/Q4 and structurally for next year (advertising, incentive comp)? Also, what's specifically working at Aerie vs competitors?
  Response: Expect continued ad investment into H1 to reset toward ~5% of sales next year with incentive comp TBD; Aerie's outperformance is product‑led (undies, new drops), influencer/community marketing, and still sizable awareness runway (~55–60%).

Contradiction Point 1

Inventory Planning and Pricing Strategy

It involves changes in inventory planning and pricing strategy, which directly impact operational efficiency and profitability.

What is the current status of inventory and pricing strategy? - Janet Kloppenburg (JJK Research Associates, Inc.)

2026Q3: Our approach to pricing again, we've said that we're not going to pass these costs onto consumers. We are managing our pricing strategy to ensure that the customer is paying for value. - Jay Schottenstein(CEO)

Can you clarify your embedded assumptions for gross margins, required promotional activities, and the timeline to return to a clean inventory position across brands? - Matthew Boss (JPMorgan)

2025Q1: We believe that the 7% decline in gross margin reflects the business as expected. This decline was primarily due to higher markdowns. We believe most of this markdown activity is temporary in nature. - Mike Mathias(CFO)

Contradiction Point 2

Marketing Campaign Impact

It highlights the differing accounts of the impact of marketing campaigns on brand performance, which is crucial for understanding the company's growth strategy and marketing effectiveness.

What drove Aerie's same-store sales growth and customer acquisition trends? - Matthew Boss (JPMorgan Chase & Co, Research Division)

2026Q3: Marketing campaigns have had a significant impact, with 44 billion impressions. The effect is starting to be seen, especially in denim. More results are expected as we continue to invest. - Jennifer Foyle(President and Executive Creative Director of AE & Aerie)

Could you provide more details on how the digital business performed vs. stores during the quarter? How are you adjusting pricing strategies to mitigate the tariff impact by passing higher costs to customers? - Johnna Kim (TD Cowen)

2025Q1: Marketing is working, and we're seeing a nice uptick on the AE side. - Jay Schottenstein(Executive Chairman and CEO)

Contradiction Point 3

Tariff Impact

It involves differing accounts of the financial impact of tariffs, which are crucial for understanding the company's financial outlook and cost management strategies.

What are your markdown expectations for Q4 compared to Q3? - Matthew Boss (JPMorgan Chase & Co, Research Division)

2026Q3: Tariff impact will be about $25 million to $30 million each in Q1 and Q2, and $35 million to $40 million in Q3 next year, with ongoing offsets. - Mike Mathias(Executive VP & CFO)

What factors would give you confidence to reinstate guidance, and what KPIs are you monitoring in Q2 to track progress from Q1 issues? - Alex Straton (Morgan Stanley, Research Division)

2025Q1: The tariffs have a mitigated impact this year, a couple of million dollars in the second quarter, with the full-year number around $40 million. - Mike Mathias(Chief Financial Officer)

Contradiction Point 4

Customer Acquisition and Retention Strategies

It involves the strategies and success of customer acquisition and retention, which are crucial for sustaining business growth and market share.

What are the characteristics of new customers you're gaining, and how do you retain them? - Jungwon Kim (TD Cowen, Research Division)

2026Q3: Our customer file is stronger than ever, with significant new customer acquisitions. We're leveraging brand platforms and community engagement while executing retention strategies, including influencer programs, to maintain growth. - Jennifer Foyle(President and Executive Creative Director of AE & Aerie)

Can you provide comp metrics for transaction ticket, AUR, UPT, and the gross/net tariff impact? How much are you relying on pricing to mitigate tariff impacts? - Paul Lejuez (Citigroup Inc., Research Division)

2025Q2: We're seeing strong consumer acquisition, and we're seeing a solid mix and good conversion on that. And traffic levels are strong as well. So we're seeing a very good combination of those two. - Mike Mathias(Executive VP & CFO)

Contradiction Point 5

Inventory Position and Management

It involves changes in inventory management strategies, which are critical for operational efficiency and sales performance.

What are your Q4 AUR expectations and year-end inventory levels? - Rakesh Patel (Raymond James & Associates, Inc., Research Division)

2026Q3: Inventory ended the third quarter up 11% with units up 8%, supporting Aerie and Offline growth. We'll chase demand to ensure profitability. - Mike Mathias(Executive VP & CFO)

Can you share details on inventory planning for the rest of the year and how open-to-buy planning for the back half compares to historical levels? - Dan Stroller (BMO Capital Markets)

2025Q1: We've been hard at work to adjust our inventory for the rest of the year, especially in the back half. Our inventory is in better shape for the back half, in line with sales expectations. - Mike Mathias(Chief Financial Officer)