American Eagle Outfitters, Inc. (NYSE:AEO) Q2 2023 Earnings Call Transcript

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So like I said, I’m encouraged by the early reads. In some cases, Michael mentioned, we reduced square footage but went into the 50-yard line. And we’re seeing better sales in smaller square footage. So that’s always a good recipe. So more to come. And again, we’re going to start to incorporate this new design into our strategies going forward.

Corey Tarlowe: That’s great. Thanks. And then was just wondering if you could talk a little bit about what you’re seeing in denim. Thanks so much.

Jen Foyle: Denim is our — denim is everything we do. It’s amazing what this AE team accomplishes. Just when I look at competition, our price points, our quality, our washes, our ability to chase an ebb and flow, a very complex business. As you know, size, intensity, ownership but still allowing us to be fluid in our assortments. Because fashion is definitely changing in that category. We’re seeing fashion mixes go higher than we’ve ever seen, and we’re creating, testing strategies so that we can ebb and flow faster than we’ve ever had. I just got through all the testing for spring for next year. And we’re really able to impact receipts. Definitely wider silhouettes, as I mentioned earlier, in both men’s and women’s. Men’s is seeing an inflection point in fashion, and we’re pretty excited about the future.

So — and I think we’re ready to compete. And it’s not just denim bottoms. It’s denim as a holistic category. Really exciting things happening out there. And we’re starting to show up. If you go into our homepage right now, you’ll see. And we’re going to continue to drive this business home.

Mike Mathias: Hi, it’s Mike. And hopefully, everyone can hear me now. Let me start for those technical difficulties. Let me double back and answer, I think, Adrienne, Matt and Paul had questions on SG&A and just where we are on our profit initiatives. So if you go back to our Q1 guidance, at that point – and well, first, Adrienne, yes, we are incented on EBIT, not revenue. And if you go back to our Q1 guidance, we were not assuming an incentive accrual in the year at that point. With the 30% increase in our guidance range now, we are. We’ve crossed that threshold for accruing incentives. And based on that timing, it will be — it’s back half-weighted, which is the guide you’re getting with mid-teen SG&A growth for the back half.

So on an annual basis, then we’re talking about low double-digit SG&A, call it, 10%, 11% for being projected. And with that, though, we — our initiatives initially — our initiatives on the profit side are very much focused on gross margin and immediacy. We’ve seen some benefit in Q2. Our guidance includes some significant benefit in the back half. But we do have work streams across really every area of the P&L. So work continues. If you think about the OpEx that’s up in gross margin, we actually saw a reduction to those operating expenses in the second quarter. So even with SG&A up high single in the first quarter, our OpEx was only up mid-single. And if you would normalize for the baseline of incentives we’re not talking about, our total OpEx for the second quarter was actually down to last year.

For the back half sort of on an annual basis, then we’re talking about double — low double-digit SG&A growth. Those operating expenses and gross margin that span design and merchandising, compensation, rents, delivery, distribution costs, those expenses are projected to be relatively flat for the year. So with the SG&A in the low double-digit range, OpEx is only up about, call it, high single. And if I would normalize year-on-year on that baseline of incentives, our total OpEx would be up mid-single. From there, like I say, we’ve got initiatives across every area of the P&L, we believe there’s more annual benefit coming through those gross margin expenses. We’ve got work streams as we’re calling them against 80% of our SG&A spend right now across really all the big buckets that make up that — those dollars.

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