American Eagle Outfitters, Inc. ($AEO)

Good afternoon, everyone. Welcome to AEO Inc. First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please -- please note this event is being recorded. I would now like to turn the conference over to [ Alexis ] Stragos, Vice President, Corporate Communications. Please go ahead.

Good afternoon, everyone. Joining me today for our prepared remarks are Jay Schottenstein, Executive Chairman and Chief Executive Officer; Jen Foyle, President, Executive Creative Director for American Eagle and Aerie; and Mike Mathias, Chief Financial Officer. Before we begin today's call, I need to remind you that we will make certain forward-looking statements. 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. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Note that included in our press release and during this call, certain financial metrics are presented on both a GAAP and non-GAAP adjusted basis. Reconciliations of adjusted results to the GAAP results are available in the tables attached to the earnings release, which is posted on our corporate website at www.aeo-inc.com in the Investor Relations section. Here, you can also find our first quarter investor presentation. Now I'll turn the call over to Jay.

Thanks, Alexis, and good afternoon, everyone. This quarter reflected the strength of our portfolio, the power of Aerie and work underway at American Eagle. Overall, we are pleased with performance in the quarter. We delivered revenue of $1.2 billion, up 10% versus last year, with operating income of $28 million ahead of our guidance. Aerie continued to fuel exceptional growth and profitability across channels, surpassing $2 billion on a trailing 12-month basis. AE's performance in men's and women's tops continue their momentum, yet we have identified specific opportunities to better position women's bodies. Over the past year, our teams have moved with urgency to strengthen the business and improve execution, and I am proud of the progress we have made. We are moving with purpose and with a firm understanding of where improvement is needed. We are extremely pleased with the continued momentum in Aerie and OFFLINE with revenue of $481 million, up 34% to last year. Demand remains strong across categories and channels, supported by compelling product collections, high customer engagement and continued expansion of brand awareness. Aerie's winning formula is its real connection with customers, product positioning and its leadership in everyday comfort. OFFLINE also continues to be an important long-term growth opportunity as we build awareness and scale the Activewear brand across stores, digital and social. Together, Aerie and OFFLINE are powerful brands with growing recognition, a loyal customer community and significant runway ahead. American Eagle's results were mixed in the quarter. We had continued strength in men's delivering the third consecutive quarter of positive performance. We saw softer trends in women's bottoms, including denim along with pressure on seasonal categories during a colder spring. These are areas we understand well and we are actively addressing. While May started slowly for the AE brand, we're encouraged by the improvement in the business that we have seen over the last few weeks. We remain highly confident in the relevance and resilience of the overall AE brand and in our ability to strengthen execution and drive better results moving forward. We must improve conversion, sharpen assortments, drive greater productivity in women's and build on the progress in men's. Marketing continues to be an important investment across the portfolio and a key driver of long-term brand health. Supporting both AE and Aerie through initiatives that deepen customer connection, expand our reach and keep our brands at the center of culture and conversation are positioning us well for the future. This value is seen in strong engagement across the portfolio where our product and brand message continues to resonate with both new and existing customers. The attention around key campaigns, talent and customer activation only reinforces the power of our brands. We are leveraging our learnings as we activate go-forward plans and are working to recalibrate spending to maximize our efforts. We will continue investing behind our brands and capabilities where we see the strongest returns. We are excited about the opening of our West Coast distribution center in Phoenix, which went live in early May as we further optimize our distribution network, improve inventory placement and continue to give customers more ways to get what they want when they want it. I am especially proud of our innovation, passion and teamwork that enabled us to bring this facility online in under 1 year. Every investment we make supports our long-term growth agenda and creates value for AEO. We're operating in a dynamic environment and the retail landscape remains highly fluid. This is why execution matters, and we understand the importance of staying disciplined and flexible. We remain fully prepared to utilize the many levers available to us within product, sourcing, marketing and operations to navigate headwinds as a result of macroeconomic uncertainty. Finally, I want to thank our associates across the company. We are proud of the work our teams have done to build a stronger and more agile operating foundation across the organization. Their commitment and dedication to AEO and our brands have been critical to the success and progress we are seeing. We all believe strongly in the opportunities that lay ahead. As America celebrates 250 years, we are incredibly proud of our permanent place in the fabric of American Style. We have powerful brands, a solid operating foundation and a clear pathway to drive profitable growth and deliver long-term value for shareholders. With that, I'll turn the call over to Jen.

Thank you, Jay, and good afternoon, everyone. Before I get into specifics, I want to acknowledge the incredible performance of the Aerie business and extend my appreciation to the entire team. Surpassing $2 billion in revenue reflects years of discipline, brand building, deep customer connection and consistent execution. Turning now to the quarter. We are thrilled by the excitement, energy and customer response to the Aerie and OFFLINE brands. Our results are a direct reflection of when great product, impactful marketing and aligned sales channels work together seamlessly. Aerie is firing on all cylinders, delivering repeatable growth by aligning seasonal trends with elevated brand visibility, perception and a more engaged customer base. Aerie saw broad-based strength across key categories, led by a 45% comp in Aerie apparel. A key driver of this success has been a head-to-toe approach across intimates, sleep and apparel. This cohesive strategy simplifies our customers outfit while increasing basket size and AOV. Intimates delivered a standout quarter with high single-digit comps anchored by a record-setting performance in our undies business, where our leadership in cotton fabrication drove an exceptional customer response. Sleep also continues to scale rapidly, and we view this category as a long-term engine for top line growth. We successfully transitioned away from brand-wide promotions to more disciplined high-margin commercial strategies. This shift was fueled by 3 key levers: targeted promotions, always-on pricing in key categories and investments in marketing to acquire and retain high-value customers. This strategy has resulted in improved AURs and product margins. We drove elevated brand visibility through marketing investments, most notably our 100% Aerie Real campaign featuring Pamela Anderson. The campaign built on our Aerie Real mission to always put inclusivity and authenticity first. This next chapter reinforces Aerie's commitment to transparency and a promise to never use AI-generated bodies or people in our marketing. The strong emotional connection we have built with our customer community is driving deeper resonance, relevance and loyalty. Additionally, our new Aerie Real makers influencer program blew past its 6-month target within weeks, significantly increasing repeat customer engagement. OFFLINE is continuing to prove to be the new breakout brand in our portfolio. We continue to build the OFFLINE community and customers are responding to new silhouettes, styles and fabrications. Matching sets and a strong color story through curated drops are driving excitement. OFFLINE is currently the #2 legging brand within our core demo and is well on its way to becoming its own Activewear brand. While we remain encouraged by the momentum at Aerie, we do recognize the environment remains competitive and sustaining growth at this scale requires continued discipline, innovation and execution. And I am confident that our team is ready and able to deliver in all those areas. Now turning to American Eagle. I believe deeply in this brand and its potential. While results were more mixed, we are not satisfied with where the business performed this quarter, especially in women's. We know what needs to be corrected and the teams are aligned and activated to return AE to growth. Despite a slower start to the year with revenue down 2% to last year, AE's performance in men's alongside with women's keys and fashion tops continues to be highlights again this quarter. We have been dedicated to rebuilding the AE men's business, and our efforts have resulted in its third consecutive quarter of positive growth with growth across tops and bottoms. This reflects the team's efforts to improve product assortments and generate a stronger customer response in key categories. Women's bottoms underperformed our expectations and was the primary driver of AE sales decline. Some of the challenges this quarter reflected the need to distort into specific styles and fits, coupled with a colder spring, which impacted demand in several seasonal wear now categories. That said, we are very focused on the areas within our control and where we need to improve execution and product productivity. As merchants, we move quickly when we see opportunities and when we see misses, and we are already making adjustments. As we head into the crucial back-to-school season, we are refining our bottoms architecture, specifically optimizing key silhouettes and rises while leveraging our chase capabilities to inject fresh newness. At the same time, we are scaling high-demand categories within women's tops to fully maximize ongoing consumer momentum. Looking ahead, we have strong product deliveries and newness on the way for the remainder of the year. I'm also incredibly excited about the new talent in women's merchandising and design as we stack our exceptional existing roster. Building strength across these critical creative and product roles will sharpen our edge as we prepare for AEO's 50th anniversary in 2027. We continue to see strong customer engagement around the AE brand marketing initiatives and partnerships. The customer file is expanding and is larger than ever at more than 19 million customers, up 3% year-over-year. We saw moments of strong engagement through the quarter, and we absolutely believe there is a continued customer loyalty and love for this iconic brand, reinforcing that American Eagle remains top of mind with our core customers. More recently, we introduced our AE creator community and launched a dedicated TikTok shop, which is helping us engage customers in a more relevant and immediate way. We also have a strong pipeline of launches and collaborations that continue to highlight AE, including already announced partnerships with bubbled Skincare and exclusive integration with Prime Videos hit show off-campus. Our strategic marketing investments have driven awareness and consideration, and now we're focused on conversion. As we transition into the summer season, we are encouraged by a recent acceleration in the trend of the business, and we are well positioned to capitalize on the quarter ahead of us. I firmly believe in the power of the AE brand, and our team is highly focused on executing with even greater clarity, speed and discipline. We are confident that we can capture demand and build momentum as we move throughout this year. As I close, I want to echo what you heard from Jay. There is incredible work happening across this entire AEO organization. Building and growing brands in today's environment requires creativity, resilience, speed and constant evolution. I am so proud of the passion and commitment our people continue to pour into our brands every single day. I remain deeply confident in the long-term power of American Eagle, Aerie and OFFLINE. We are staying very close to our customers, moving quickly when we see opportunity and remaining disciplined in the areas where we need to improve. Together, we are actively working to drive healthy, more consistent performance at AEO over time. And with that, I'll turn the call over to Mike.

Thanks, Jen, and good afternoon, everyone. Our first quarter results reflect our continuous actions to strengthen our operational foundation and invest in our brand portfolio for long-term value creation. We delivered on our revenue and operating income expectations driven by the continued outstanding momentum at Aerie and OFFLINE. As Jay and Jen described, we're actioning on the opportunities for improvement within the AE brand performance. We're managing what is in our control with absolute focus and the business remains structurally resilient. First quarter consolidated revenue of $1.2 billion increased 10% to last year with comparable sales growing 8%. Aerie's strong business continued with total sales growing by 34% and comparable sales up 25% with growth across channels. AE total sales declined 2% with comparable sales also declining 2%. AE brand digital performance was flat with the comp result driven by a decline in stores. Gross profit dollars of $456 million rose 41% from last year and gross margin of 38.2% increased 860 basis points. Merchandise margin improved 710 basis points, driven primarily by last year's inventory write-down. Buying, occupancy and warehousing expenses leveraged 150 basis points due to positive sales and expense initiatives to control delivery and distribution costs, including benefits from winding down third-party fulfillment operations. SG&A dollars increased 11% as a result of planned investments in advertising. Interest expense increased due to a transaction agreement under which we sold a portion of our tariff claims and other income increased due to an unrealized gain on investments. Depreciation was flat year-over-year at $51 million. We recorded a first quarter operating profit of $28 million. The first quarter tax rate was approximately 17% and EPS was $0.14. Consolidated ending inventory at cost was up 27% with units up 5%. The increase in costs in relation to units reflects the impact of incremental tariffs this year and the comparison to the inventory write-down taken in Q1 of last year. In the first quarter, as Jay noted, we continue to make long-term investments in our business while returning cash to shareholders. First quarter CapEx totaled $61 million, and the company returned $74 million to shareholders during the quarter, $21 million via the quarterly dividend and $53 million via repurchasing 3 million shares. We ended the quarter with $103 million in cash and approximately $620 million of total liquidity, including our revolver. Now turning to our outlook. For the second quarter, we expect comparable sales growth in the mid-to high single digits with Aerie and OFFLINE continuing in the high teens to low 20s and American Eagle in the flat to negative low single-digit range. Our operating income expectation is in the range of $45 million to $50 million, which includes a $20 million incremental tariff headwind versus last year and SG&A up in the mid-teens, driven primarily by continued investment in advertising, as previously discussed. The tariff rate on imports is planned at 10% for the second quarter and the balance of the year is planned at 15%. We've applied for roughly $190 million in tariff refunds and anticipate a $140 million net cash benefit. However, it's not included in our guidance with a significant portion still outstanding. For the full year, we expect operating profit in the range of $390 million to $410 million based on consolidated comparable sales growth in the mid-single digits. In the second half of the year, we will cycle tariffs and investments in advertising, which began midyear 2025. We expect CapEx to remain in the range of $250 million to $260 million as previously guided. To wrap up our prepared remarks, the year is off to a solid start with strength across the majority of our portfolio. The teams have taken actions to capture opportunities where we see them. We'll continue to manage with discipline, reallocating investment across the portfolio to create value. We'll continue to control what we can control in what is still a complicated and evolving macro environment. And with that, we'll open it up for questions.

[Operator Instructions] And the first question will come from Jay Sole with UBS.

Maybe I'd love to dig into the American Eagle women's business. Ken, you talked about how women's tees and fashion tops are good, but women's bottoms is weak. Can you just give us a little bit more color here? Like what were some of the styles that maybe you need to lean into a little bit more? And last year, when there were issues in the first half of the year, you corrected them real quick and back-to-school ended up being really strong. It sounded like you're saying you're refining your bottoms architecture for back-to-school. Do you think you can get that comp trend to inflect by the time we get to back-to-school. A little bit more color there would be super helpful.

Absolutely. Yes, we're really pleased with the fashion business. We've been really working hard in tops and tees and exceptional run rates there, but not enough to offset a highly focused and concentrated area that we need to turn around and engage in. And the team has already pivoted. In fact, more recently, we've seen some more positive results in the denim side of the business. And we are 100% focused there. We know where the problem is. We are going to pivot, and we've already done testing for back-to-school. We know what rises are working. We know what fits are working. And we're excited to enter into our Super Bowl, which is, as you know, Q3 is when we lead in denim, and it was just highly focused there. That's all I can say. And like I said, the more recent results are proving well for us and excited to see what's to come.

The next question will come from Marni Shapiro with The Retail Tracker.

Congratulations on Aerie stores look great. I was curious if we can dive in a little bit there. Is the traffic or the sales being driven by less shoppers, new shoppers? Or are people just buying more when they come into the store?

All of the above, Marni. It's really striking on all cords, honestly, we really hit a home run here. And I just want to give kudos to the team. Last year at this time, as you know, we really had to pivot and turn this business around. And certainly, we -- as we entered into Q3 and Q4, we really led the way here. This brand looks great, Marni. And the customer engagement is unbelievable. Our brand awareness is up over double digits. That was something that we spoke to on some prior calls. And just all product categories are working. It's just our head-to-toe outfitting. They're engaged in our outfitting. They know what -- we really are set up to win. I mean, I don't know if you've been to the store, but if you look at it, it's really a mix-and-match environment. It's like a candy shop. That's what I say every time I go into the store. It's exciting to see, and we're just highly focused on those wins and how we're going to enter into back-to-school. And I'm really excited what I'm seeing. The marketing gets better with age. The team is -- they never cease to fail me. I mean, every time I look at what's coming next, I can't believe that it even looks better than the last. So -- our winning formula -- as you know, our winning formula is our customer base. They believe in our platform, Real. We launched 100% Real, and they love this campaign. We took a stance on AI, not air brushing our models or using AI to manipulate our imagery, and it is resonating. So I'm excited to see what's to come here. We have more categories coming your way, new categories. We're testing into a lot of new ideas. And yes, we're just going to keep this momentum going.

And Marni, just from a metric perspective, just to add on to what Jen said, it's traffic, it's conversion, it's AUR, it's AOV. It's existing customers, it's new customers. So all the above comments is -- all the metrics are green across the board on that front.

That's fantastic. Best luck. I'll leave it to somebody else. But Jen, the low-rise jp jeans that are in American Eagle right now with the orange flowers on them, you need like 1,300 more pair per store.

The next question will come from Matthew Boss with JPMorgan.

So at Aerie, Jen, could you speak to new customer acquisition that you're seeing with 3 consecutive comps now of double digits and just the opportunity that you see for incremental market share from here? And then, Mike, could you elaborate on the drivers of gross margin contraction in the second quarter if we're thinking about markdowns, freight and tariffs and just puts and takes to consider in the back half of the year?

I can start with that gross margin question, Matt. So for the second quarter, yes, I think when you think about the second quarter against last year, last year, we were a pretty healthy kind of good rate of history with the write-down and the kind of pull forward of markdowns that we executed in the first quarter last year. This year, with the tariff assumption we're using, it's somewhere between 150 basis points to 200 basis points of tariff impact in the quarter still for Q2 against no impact last year. And we are -- and the expenses and gross margin on the kind of mid-to high single-digit revenue guide, we do expect those BOW expenses and gross margin to leverage again in the second quarter. So that's a positive side. Tariffs again being a 150 to 200 basis point impact headwind. And then we are accounting for in the guide some expectation for some needed AE brand markdowns. Just in short clearance inventory at the end of the quarter is in an optimal position as we head into that back-to-school Super Bowl period, as Jen likes to describe it. So those are your puts and takes in terms of gross margin, some headwind in tariffs, a little bit of markdown pressure in AE to get clean for back-to-school and then expense leverage to the good side.

And our new customer acquisition is up roughly $1 million, which is incredible. And the beauty of Aerie is, well we just mentioned it, not only is our new customer acquisitions up, our retained customers are up. They're staying with us. We remain very sticky. And again, it just goes back to our platform, just our emotional connection, it just drives -- it's unbelievable this community. And I didn't mention, but we have a new influencer program that actually hit it out of the ballpark. We beat our expectations 3 weeks in. And this is really hitting home with this community of ours. So we're just going to continue to build on that success.

And then, Matt, just to jump back in on the back half gross margin, just to give you some -- the flavor or some more detail to the guide. Starting with that mid-single-digit comp expectation across the portfolio. As you know, everybody knows we'll be lapping tariffs in the back half. So it becomes apples-to-apples, reason that 15% assumption for tariffs in the back half. And there's some favorability to like our original guide there, which we were thinking about IEEPA tariff rates still at the same time with our original guide back in March. But we did have built in a little bit of expectation into our plans for some potential freight and ocean air freight rate pressure. So that's kind of a wash between the tariff assumptions and that placeholder for freight, and we'll see how that all pans out here as we pass towards the back half of the year. Product margin in total, we're expecting some benefit across the brands and across the portfolio. And at the end of -- so -- and BOW expense leverage and gross margin kind of relatively flat, maybe a bit of leverage. So at the end of the gross margin in total, then we're expecting expansion. We're expecting improvement in the back half. And if you think about our full year guide then, kind of first half, back half, we're positioned at that mid-single digit to get back to operating rate improvement. So income growing ahead of revenue, improving operating rates, and that would be our expectation as we lap tariffs, lap the advertising investments, rebalance those investments, set up advertising to leverage then in the back half really on any revenue growth as the dollars are planned relatively flat. We'll get back to, again, implied in the guide is almost a double-digit income expectation for the back half on the mid-single-digit revenue.

The next question will come from Dana Telsey with Telsey Advisory Group.

As you think about your guide for the second quarter, do you expect a similar breakdown between the brands? Or with the second quarter, the beginning of back-to-school, should we expect to see any uptick in Aerie -- in American Eagle, I mean, Aerie 25%[indiscernible] . And then, Jen, as you think about the other product categories beyond bottoms at American Eagle, what are you seeing? And how do you see the women's business doing? And then just lastly, on [indiscernible] -- on store closures for American Eagle, where are you? And where are you in the refreshes? And how are they performing?

I can start, Dana. I'll start with actually the last part of that first, just I'll work backwards. The store closures, we're still expecting a net 20 to 25 -- around 25 closures in the AE brand for the year. On the opening side, about 40 Aerie and OFFLINE openings. And then the remodel program for AE, around 80 -- could be north of 80 projects there that's still being a refined number, but that will get us almost to the end of that maybe one more year of kind of remodel program for the AE brand on that front. Your Q2 guide for sales, we talked about Aerie continuing this tremendous momentum at a high teen to 20% clip, which would be a tremendous outcome again, but I think could be some upside to that. We'll keep an eye on that. On the American Eagle brand, we said flat to down low single. And the guide is really pretty consistent with what we're seeing May to date. But as I think we said in our prepared remarks, the first couple of weeks of May were a little tougher, almost continuing a couple of tougher weeks in the back half of April, but these last 2 weeks of May have been really encouraging kind of week going into Memorial Day and now on the back end of Memorial Day being still consistent with the uptick in trend. So the mix of the brands is sort of flat to slightly down in AE and high teens to 20% in Aerie. That gets you to your mid-to-high single digits. Could be some play really in either brand in terms of how things continue in June and July.

Yes. And just branching off of what Mike just said, more recently, we've seen a turnaround in women's. We still have the rest of this quarter to go, but some near-term learnings that we're certainly applying for back-to-school. We did have other bottom categories that were highly successful. We just didn't have enough distortion in them. So you'll be seeing some of those other categories, not just denim, but newness in other categories as we -- and penetrated higher as we go into back-to-school. And then, of course, we believe in our denim testing. We do it very well. And we think we have the right fits and silhouettes for back-to-school. You're going to see more excitement in denim, ranking some fashion silhouettes into our top 10. Really a lot of excitement there. So [ Marni, ] we have more excitement for you, but we're very excited about the denim assortment. Shorts have turned on for us. They were slow, definitely slow, but going into Memorial Day weekend, even with the colder climates, shorts had a huge turnaround for us. So look, we have weeks to go here. And then, of course, our big -- as I say, again, our Super Bowl is our back-to-school. And I think the teams are armed and ready. All of this fashion that's working, we've chased back into. We can execute very swiftly on cut and sew, T-shirts, Aerie knits and the team has done a great job getting us back into what's working.

The next question will come from Adrienne Yih with Barclays.

This is Angus on for Adrienne Yih. So you mentioned improving conversion as a key opportunity at AE. Can you just unpack where you're seeing the biggest gap today, whether that's stores versus digital? And what specific actions you're taking to close that gap near term? And then my follow-up is on inventory. Dollars are up meaningfully versus units. Can you help us understand how much of that is mix versus tariffs? I'm sure it's mostly tariffs, but just how comfortable you feel with inventory positioning into the back half?

Yes, sure. It was more -- I would say, we leaned into -- where we have some conversion opportunity were definitely stores. And again, like I said more recently, we've seen the digital channel really have an incredible uptick for the AE business. So what we've been doing is doing, again, testing by store grade, by group seeing the price value quality equation, where it's working for us, where we can compete. And we've had some really good results from some stores, and we applied them more recently, and we've seen some wins. So again, we continually look at -- for these golden nuggets to turn the business around. And I think we've seen some of that, these green shoots, and we're certainly going to apply those learnings.

And then on inventory, yes, we're in a good position at the end of the quarter. I'll start with the units up 5% in relation to our kind of 8% comp and 10% total revenue, up 27% in cost. And as I said on the -- in my prepared remarks there that the impact of tariffs, to your point, is the biggest impact differential between those units -- the units and cost dollars. And then with the write-down last year that we took, normalizing for those 2 things, our cost dollars would be up more in the high single-digit range. So a couple of reconciling items, take your 27 to -- up high single with units up 5%.

The next question will come from Jonna Kim with TD Cowen.

Just one on marketing. How are you allocating the marketing spend across Aerie and an Eagle? Just would love to break down there. And then just second question, and how are you thinking about comping the comp with just Aerie being so strong and posting really good results in the second half? What are key strategies around comping the comp there?

Of course. Look, this is what Aerie does best. I do want to remind you, we grew the business $1 billion in 5 years. I mean I think that's a record number. I'm certainly impressed with this team and how we continue to look at opportunities on how to comp our business. I can't -- I remember maybe 1, maybe 2 quarters where we saw some softness. This business has been unbelievable year-over-year, and we're constantly challenging ourselves. You're only as good as yesterday, and that's how we think about the business every day. We have to have better product, better marketing, better campaigns, quality. That's what this whole company. I mean all of our brands, we continually focus on quality and how we can compete on our terms, and Aerie does it impeccably well. And we have some room to grow on the AE side, but I think the team has leaned in and the Aerie team feels very good about what we're going up against.

On the advertising front, spend is up across both brands. Aerie more commensurate with the sales increase. Those were -- the sales are up 30% and in our forward plans within our guidance, advertising is up in relation to that, a little ahead of sales to fuel, obviously, this pretty tremendous trend. So very good flow-through on that investment. As we've been talking about now for 3 quarters and into the second quarter, this incremental investment in AE that Jen highlighted the benefits of customer file consideration, potentially to spend. The team is doing a lot of evaluation, surveys, et cetera, on the effectiveness of this, not just from a quantitative perspective every day, but what we think those metrics could lead to here for the rest of the summer, but especially in the back-to-school in the back half of the year in terms of customer file growth and that consideration score elevating with the marketing campaigns that we've been investing in. The second quarter here is the last quarter of kind of incrementality on that spend. We get into the third, fourth quarter and total spend across the company is relatively flat for the back half. So on the sales guide, advertising is set up to leverage for the rest of the year. And we are rebalancing then a little bit between brands in the back half, but then definitely in terms of how we're spending the dollars. And Jen mentioned the shift to conversion. So a lot of what we've been doing is these bigger campaigns, the Sydney Sweeney campaign, the Stagecoach stuff in the first quarter with Ella Langley and Bailey Zimmerman. We have Lamine Yamal coming as well, as Jen talked about in her remarks. And -- but the back half spend is more weighted toward digital media, performance marketing, influencer spend, more day-to-day traffic driving elements. So I think that's where the conversion will play in, too, because that traffic has a higher propensity to convert. So we are rebalancing kind of how those dollars will be spent in the third -- starting really in the third quarter which we feel to set us up for success and be able to hit the revenue expectations that we have for ourselves in the back half.

The next question will come from Rick Patel with Raymond James.

It looks like you're planning SG&A growth to be up high single digits for the year versus up mid-single digits 3 months ago. Can you unpack that for us? Is that all marketing? Or are there other factors at play? And then secondly, can you provide additional color on the marketing campaigns that you have planned into back-to-school and the potential for new brand ambassadors as we think about the back half?

Yes. Thanks, Rick. The SG&A result for the year, you've got the 11% increase in Q1. We're guiding mid-teens here for the second quarter. The whole first half is mostly really all driven for the most part by the incremental advertising investment, back half SG&A is really actually in line with sales. So as we talk about a mid-single-digit comp and kind of mid-to-high single-digit total revenue, then total SG&A is right now pretty much in line with revenue. We will leverage the advertising line as we anniversary that spend. We have a couple -- a little bit of compensation that comes into play with a little lower than average incentive accruals last year. Nothing extraordinary, but then really the combination of those 2 factors has SG&A in the back half up again kind of commensurate with that revenue guide. More work happening there on all compensation lines, services, travel, usual suspects to find some more efficiencies in that number, but to hopefully exceed that guide, that work continues like it has been for the last 3 years. But it's a good position to be in at the moment. And then yes, your total year between that the first half being up in the teens, back half being up more like in that commensurate with sales level, you get to, let's say, about a 10% kind of increase in SG&A in this guide. And then looking forward to next year, we'll talk about that later, but work continues on the expense lines. Advertising is not planned to be up in the first half. We're going to kind of manage the same way we're talking about here in the third and fourth quarter, and then we'll provide more color on next year much later this year.

Sure. So our more recent -- some of our initiatives that we're really excited about, one is our new influencer program in AE and Aerie. Both are exceeding expectations. And that's where we really win, right? We have our customers engaged, marketing our brand. And again, it's exceeding expectations. We've made a strategic hire there on the AE side. We're excited for her to join who's going to really take that program to the next level. So that's first. We just announced Lamine. So he's coming our way and welcome World Cup. So we're excited about launching him. He's been great, and he really suits our brand and loves our clothes. So Lamine near in. And then we just had our partnership with Off Campus, the collab with Prime Video. As everyone knows, that show has been a hit. We've really been able to hit pop culture with these shows last year with The Summer I Turned Pretty, and you'll see more of that. So I can't really reveal our colors for back-to-school, but I do want to remind you that our prime focus every day is our product, and that's where we win. So we're up to some really good things on the product side for American Eagle, and I'm really excited to deliver. One of our newest deliveries actually just hit, and that's what I was referring to on -- that we had a pretty nice -- some nice results with that. So more to come.

The next question will come from Jon Keypour with Goldman Sachs.

I just had one around the macro. You guys mentioned, I think, a little bit of uncertainty there. I was just wondering what you're seeing in your consumer base. Any difference between how the consumer is behaving in Eagle versus in Aerie and OFFLINE. And then just if you could break down maybe AUR and volume between the Eagle and Aerie banners, please.

You want to talk about the AUR?

Yes, I can start with the AUR. I think AUR in the second quarter, Aerie was up. Jen talked about that in her remarks. Again, Aerie -- the metrics are positive across the board. So AUR up in Aerie, slightly down low single digit in AE. So for the company, we were up in total. And I think from a consumer perspective, I wouldn't say there's a lot of difference between the brands. Obviously, the engagement with Aerie and the traffic that we're driving in the Aerie brand, along with everything we said earlier on conversion, different customer cohorts all kind of performing for us, clicking on all cylinders. Jen hit the positivity in the American Eagle customer file. So that's all going in the right direction. Again, we've seen, I think, some encouraging things here in the last couple of weeks of May versus how the quarter started. I think it feels like it's all coming together in terms of where we want things to head through the rest of the summer and in back-to-school and be ready to really capitalize on all the spend to move those metrics for the results that we're expecting from the brand in the back half.

Yes. About like Aerie -- about like the macroeconomics, one thing we're very proud, Aerie, we started that brand inside American Eagle around 2012, 2013. And in 7 years, we grew it to a $1 billion brand. In the last 5 years, we grew it to like a $2 billion brand. It's not a brand that we acquired. It's a brand that we created from start. And we're very proud of that -- because I don't know too many companies in such a short period, built a $2 billion a year brand. So I give Jen, I give the team a lot of credit. American Eagle has been around -- this coming year in 2027, this will be our 50th year. So one thing we're proud about is if you went back 50 years ago and saw the different brands in the mall at that time and saw where we were positioned, just a couple of stores then and you go back and you say, who's around and who's not around, I think the majority of those brands aren't around, and we're stronger than ever. So we're very proud of that. The last few weeks have been very encouraging. We're seeing increased traffic in the stores and American Eagle stores. We're seeing increased sales. We're very optimistic. There's -- we think the economy -- the U.S. economy is very strong, and we think it's only going to get better as time goes on. We think with gas prices, hopefully, will start settling down very shortly. And with the current affairs, hopefully, will come to some type of finish. Hopefully, it will be a very good finish for the world. And so we're very optimistic on that. And we think American Eagle is positioned very well. We think we -- our brand offers great value to the consumer, great quality. And we're not seeing the impact of the economy as far as like a negative way. So we're optimistic. And I always said, I never ran this business quarter-to-quarter. I look at the year-end, and I think Jen said it the right way, our Super Bowl comes the third and the fourth quarter. That's where we really gear up, and that's where we always shine. And this team is going to shine.

The next question will come from Janine Stichter with BTIG.

Jen, I wanted to dig a little bit more into the bottom side of the business. I think in the past, you've talked about there being just less consensus around the silhouettes that consumers were wearing in bottoms and having to kind of diversify the assortment. Now it seems like we're kind of going the other direction. Just want to make sure I understand, is the issue now that you need to go deeper into -- there's more consensus you need to go deeper into certain key silhouettes and you just didn't have enough. And then I just wanted to clarify, you mentioned you sold a portion of the tariff claim. Have you said how much that was and what's left on that?

Sure. Exactly what you said. We just needed more distortion in some of our newer silhouettes that we were testing and some of them we owned, and we just could have had more. So that's what we're rightsizing for back-to-school. And Mike, I don't know.

Yes, on the tariff, so we filed $190 million worth of claims. We've gotten over $100 million back at the moment. We did sort of back at the beginning of the year -- not sort of -- at the beginning of the year, we sold about $70 million worth of claims for roughly $20 million. So our net number on the $190 million total filings will be around -- should be $140 million if we do get it all back. And again, we're a little over $100 million back so far, which our portion of that net is around $75 million. So that's a lot of numbers. $75 million, we've actually gotten the bank net of what we kind of owed the third party that we sold some claims off into. And then the $140 million would be if everything is refunded by the end of the second quarter here, that's how much cash we would receive.

And it hasn't been recognized, yet...

Right. So that will be -- so we did not -- yes, we did not guide...

We hasn't recognized it, yet.

Yes. Thanks, Jay. None of that is in our guidance. So the $45 million to $50 million does not include any benefit from that. That would all be an incremental outcome at the end of the quarter when we report.

The last question today will come from Tom Nikic with Needham.

Just wanted to ask, as we look out to the back half of this year, it sounds like you're addressing, I guess, some of the issues that are leading to the declines at the American Eagle brand in the first half. So should we assume that the American -- that embedded in your guidance is that the American Eagle brand gets back to positive comp growth in the back half and against tougher compares, we would get slower comp growth at Aerie relative to what we saw in the first half?

Yes. I'll let Mike answer some of this, but I would tell you this, I expect a positive comp growth. And so does this team. This team under Jen takes everything very seriously. They've been tearing everything apart for the last few months, figuring out how can we get better and stronger, where do we learn? Like Jen said, our third and fourth quarter is where we shine, and she's going to shine, and we expect it to shine in both Aerie and American Eagle, period.

And look, we'll reiterate again. It's very isolated to bottoms and women's bottoms. Men's bottoms was actually positive, jeans and men's was positive. So it's a very targeted area of opportunity, and the teams are all over to back up -- to reiterate Jen's description earlier. The specific brand assumptions for the back half, yes, we're expecting AE to be in the low single-digit range in that guide. If you listen to what Jay just said, he's expecting more than that. We all are. And then Aerie, yes, moderating to more of like a low double digit, maybe even high single to low double depending on the mix. And that would kind of get you to that mid-teen -- or I'm sorry, mid-single-digit total across the portfolio. That's what's assumed in our guide.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.