10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
For the fiscal year ended January 31, 2026
OR
Commission file number: 1-33338
AMERICAN EAGLE OUTFITTERS, INC.
(Exact name of registrant as specified in its charter)
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (412) 432-3300
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $0.01 par value AEO New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes☒No☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Sections 15(d) of the Act. Yes☐No☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at the past 90 days. Yes☒No☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒No☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes☐No☒
The aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant as of August 2, 2025 was $1,659,429,666.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 166,674,664 Common Shares were outstanding at March 30, 2026.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company’s definitive proxy statement for the 2026 Annual Meeting of Stockholders are incorporated by reference into Part III herein of this Annual Report on Form 10-K. The registrant expects to file such definitive proxy statement with the Securities and Exchange Commission within 120 days of its fiscal year ended January 31, 2026.
AMERICAN EAGLE OUTFITTERS, INC.
TABLE OF CONTENTS
PageNumber
PART I
Item 1. Business 4
Item 1A. Risk Factors 13
Item 1B. Unresolved Staff Comments 27
Item 1C. Cybersecurity 27
Item 2. Properties 28
Item 3. Legal Proceedings 29
Item 4. Mine Safety Disclosures 29
PART II
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 46
Item 8. Financial Statements and Supplementary Data 47
Item 9A. Controls and Procedures 82
Item 9B. Other Information 85
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 85
PART III
Item 10. Directors, Executive Officers and Corporate Governance 86
Item 11. Executive Compensation 86
Item 14. Principal Accounting Fees and Services 87
PART IV
Item 15. Exhibits, Financial Statement Schedules 88
2
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K ("Annual Report") contains "forward‐looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") that are based on the views and beliefs of management, as well as assumptions and estimates made by management. Actual results could differ materially from such forward‐looking statements as a result of various risk factors, including those that may not be in the control of management. All statements other than statements of historical facts contained in this Annual Report are forward-looking statements. Words such as "estimate," "project," "plan," "believe," "expect," "anticipate," "intend," "potential," and similar expressions may identify forward-looking statements. Our forward-looking statements include, but are not limited to, statements about:
•
the planned opening of approximately five to 10 American Eagle stores and approximately 25 to 40 Aerie and OFFLINE stores, which will be a mix of stand-alone and Aerie side-by-sides, during Fiscal 2026;
•
the anticipated selection of approximately 60 American Eagle and Aerie stores in the United States ("U.S.") and Canada for remodeling during Fiscal 2026;
•
the potential closure of approximately 25 to 30 American Eagle stores at the expiration of their lease term, primarily in North America, during Fiscal 2026;
•
the success of our core American Eagle and Aerie brands through our omni-channel and licensed outlets within North America and internationally;
•
the success of our business priorities and strategies;
•
the continued validity of our trademarks;
•
our performance during the back-to-school and holiday selling seasons;
•
the reduction of operating expenses and capital expenditures, including through our profit improvement program, and impact on our results of operations;
•
the accuracy of the estimates and assumptions we make pursuant to our critical accounting policies and estimates;
•
the payment of a dividend in future periods;
•
our ability to fund our current and long-term cash requirements through current cash holdings and available liquidity, including under our revolving credit facility;
•
the extent to which our product costs are adversely affected by foreign trade issues (including import tariffs and other trade restrictions), increasing prices for raw materials unrelated to tariffs, supply chain issues, the potential for a trade war, currency exchange rate fluctuations, political instability or other reasons, all of which could impact our profitability;
•
the extent to which our suppliers may be impacted by economic conditions and cycles and changing laws and regulatory requirements, including the imposition of, or changes or uncertainties relating to, tariffs, all of which could impact our suppliers' ability to do business with us or cause us to terminate our relationship with them and require us to find replacements, which we may have difficulty doing;
•
the possibility of changes in global economic and financial conditions, and resulting impacts on consumer confidence and consumer spending, as well as other changes in consumer discretionary spending habits;
•
the effect of inflation on our business;
•
the possibility that we may be required to take additional write-downs, impairment or other restructuring charges;
•
the impact of macroeconomic conditions; and
•
the ability of our distribution centers and stores to maintain adequate staffing to meet increased customer demand.
Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause our actual results to differ materially from those in the forward-looking statements. Potential risk factors include the risk factors discussed under the heading "Risk Factors" under Part I, Item 1A of this Annual Report. Any forward-looking statement speaks only as of the date on which such statement is made, and we do not intend to correct or update any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law.
3
PART I
Item 1. Business.
Company Overview
American Eagle Outfitters, Inc. (the "Company," "AEO," "we," "us," and "our") is a leading global specialty retailer with a portfolio of beloved apparel brands. We operate and license nearly 1,500 retail stores worldwide and are online at www.ae.com and www.aerie.com in the U.S. and internationally.
Rooted in optimism, inclusivity, and authenticity, AEO’s brands empower every customer to celebrate their unique personal style. We offer casual, comfortable, timeless outfitting and high-quality products that are made to last under the American Eagle ("AE") brand, and intimates, apparel, activewear, and swim collections under the Aerie and OFFLINE by Aerie brands. We sell directly to consumers through our retail channels, which includes online, stores, and concession-based shops-within-shops. We operate stores in the U.S., Canada, and Mexico. We also have license agreements with third parties to operate American Eagle and Aerie stores and online marketplace businesses throughout Asia (including India), Europe, Latin America, and the Middle East.
We also operate Todd Snyder New York ("Todd Snyder"), a premium menswear brand; and Unsubscribed, which focuses on consciously made, slow fashion. Through the end of Fiscal 2025, we operated Quiet Platforms, which primarily served as AEO's regionalized fulfillment center network while also utilizing excess space to service appropriate third-party customers. In Fiscal 2025, as part of our continued supply chain network optimization project, we made the decision to close the Quiet Platforms business and discontinue services for all third-party customers. Refer to Note 15, Impairment, Restructuring and Other Charges, to the Consolidated Financial Statements included herein for additional information.
Operating Segments
The Company has identified two operating segments (American Eagle brand and Aerie brand) that also represent our reportable segments and reflect the Chief Operating Decision Maker's (defined as our Chief Executive Officer (“CEO”)) internal view of analyzing results and allocating resources. Additionally, our Todd Snyder and Unsubscribed brands have been identified as separate operating segments; however, as they do not meet the quantitative thresholds for separate disclosure they are presented under the Other caption. Refer to Note 14, Segment Reporting, to the Consolidated Financial Statements included herein for additional information.
Fiscal Year
Our fiscal year is a 52- or 53-week year that ends on the Saturday nearest to January 31. As used herein, "Fiscal 2026" refers to the 52-week period that will end on January 30, 2027, "Fiscal 2025" refers to the 52-week period ended January 31, 2026, "Fiscal 2024" refers to the 52-week period ended February 1, 2025, and "Fiscal 2023" refers to the 53-week period ended February 3, 2024.
Brands
American Eagle
Since 1977, American Eagle has offered an assortment of specialty apparel and accessories for everyone that enables self-expression and empowers our customers to celebrate their individuality. American Eagle encourages today’s digital generation to enjoy the world around them through optimism, culture and connection with themselves and others, all while wearing the clothes that make them most confident. The brand has broadened its leadership in jeans by producing innovative fabric with options for styles and fits for all.
As of January 31, 2026, we operated 805 American Eagle stores. We offer American Eagle products online at www.ae.com.
Aerie
Aerie is more than a brand. It’s a movement. Aerie offers the comfiest intimates, apparel, swim and accessories made to wear in and out. Aerie Real stands for inclusivity and real representation. We celebrate our community by advocating for power, positivity and no retouching. Always & forever REALTM.
4
OFFLINE by Aerie offers a complete collection of activewear and accessories built for real movement, designed for real comfort and created for real good. Built on the success of Aerie's leggings and sports bras, OFFLINE's unique take on an active lifestyle celebrates real life.
As of January 31, 2026, we operated 332 Aerie brand stand-alone stores, inclusive of 47 OFFLINE stand-alone stores and 52 OFFLINE side-by-side stores connected to an Aerie brand location. Included in the 805 AE brand store count described above, we also operated 184 Aerie side-by-side stores connected to an AE brand location, ten locations with an AE brand location, Aerie brand location and OFFLINE connected as one store, and six OFFLINE side-by-side stores connected to an AE brand location. These locations are included within the 805 AE store count described above.
In addition, Aerie brand merchandise is sold online at www.aerie.com and certain items are sold in AE brand stores.
Todd Snyder New York
The ultimate menswear destination. Known for its sophisticated take on redefining how to dress the modern gentleman, Todd Snyder’s collections draw from Savile Row tailoring, vintage military apparel and classic American workwear, making timeless pieces relevant for the well-dressed man. Based in New York, Todd Snyder meticulously sources elegant materials from around the world, creating designs that are both smart and refined.
As of January 31, 2026, we operated 23 Todd Snyder stores. We offer Todd Snyder products online at www.toddsnyder.com.
Unsubscribed
Unsubscribed is consciously-made, slow fashion, offering timeless clothing and accessories. The brand designs with purposefully-selected materials to promote comfort and an effortless vibe, with an assortment of laid-back and luxurious pieces made to be worn forever. Our styles are undefined by seasons, elevating everyday into an effortless getaway.
As of January 31, 2026, we operated eight Unsubscribed stores. We offer Unsubscribed products online at www.unsubscribed.com.
Key Business Priorities & Strategy
In Fiscal 2026, we continue to be focused on our strategic framework with the following priorities:
•
Amplify our brands
•
Execute with financial discipline
•
Optimize our operating capabilities
Through these priorities, we will leverage customer-focused capabilities and continue to strengthen our return on investment ("ROI") discipline, while building on the power of AEO’s people, culture and purpose.
Real Estate
We ended Fiscal 2025 with 1,168 Company-owned stores, and 357 licensed store locations. Our AE brand stores average approximately 6,300 gross square feet and our Aerie brand stand-alone stores, inclusive of OFFLINE stand-alone stores, average approximately 5,000 gross square feet. The weighted-average square footage of our Company-owned stores increased by 6% to 7.3 million during Fiscal 2025.
Company-Owned Stores
Our Company-owned retail stores are located in shopping malls, lifestyle centers, and street locations in the U.S., Canada, and Mexico.
Refer to Note 15, Impairment, Restructuring and Other Charges, to the Consolidated Financial Statements included in this Annual Report for additional information regarding impairment charges related to our Company-owned stores.
5
The following table provides the number of our Company-owned stores in operation as of January 31, 2026 and February 1, 2025, respectively.
Fiscal Years Ending
January 31, February 1,
AE Brand:
Aerie Brand:
Unsubscribed 8 6
(1) Includes 184 Aerie side-by-side stores connected to an AE brand location, 10 locations with AE brand, Aerie brand and OFFLINE connected as one store, and six OFFLINE side-by-side stores connected to an AE brand location.
(2)
Includes 47 OFFLINE stand-alone stores and 52 OFFLINE side-by-side stores connected to an Aerie brand location.
The following table provides the changes in the number of our Company-owned stores for the past five fiscal years:
Fiscal Year Beginning of Year Opened Closed End of Year
(1) Includes 13 Hong Kong locations converted to licensed retail stores in the fourth quarter of Fiscal 2024. Refer to Note 15, Impairment, Restructuring and Other Charges, to the Consolidated Financial Statements included in this Annual Report for additional information regarding Hong Kong retail operations.
Licensed Operations
Our international licensing partners acquire the right to sell, promote, market, and/or distribute various categories of our products in a given geographic area and to source products from us. International licensees' rights include the right to own and operate retail stores and may include rights to sell in wholesale markets and shop-in-shop concessions and operate online marketplace businesses. As of January 31, 2026, our international licensing partners operated in 357 licensed retail stores and concessions, as well as wholesale markets, online brand sites, and online marketplaces in approximately 30 countries.
During Fiscal 2026, we plan to continue to increase the number of locations under license agreements or similar arrangements as part of our disciplined approach to global expansion.
6
AEO Direct
We sell merchandise through our digital channels, www.ae.com, www.aerie.com, and our AEO apps, both domestically and internationally in approximately 90 countries. We also sell AE and Aerie brand merchandise on various international online marketplaces. We offer Todd Snyder and Unsubscribed brand products online at www.toddsnyder.com andwww.unsubscribed.com, respectively. These digital channels reinforce each particular brand platform and are designed to complement the in-store experience.
Over the past several years, we have invested in building our technologies and digital capabilities. We focused our investments in three key areas: making significant advances in mobile technology, investing in digital marketing to drive qualified traffic to our site and improving the digital customer experience to drive increased conversion.
Omni-Channel
In addition to our investments in technology, we have invested in building omni-channel capabilities to better serve customers and gain operational efficiencies. These upgraded technologies provide a single view of inventory across channels, connecting physical stores directly to our digital store and providing our customers with a more convenient and improved shopping experience. Our distribution network is fully omni-channel and services both stores and digital businesses. We offer the ability for customers to return products seamlessly via any channel regardless of where the products were originally purchased. We also offer a variety of channels to fulfill customer orders. These include "ship to home," which can be fulfilled either through our distribution center or our store sites (buy online, ship from stores) when purchased online or through our apps; "store pick-up," which consists of online orders being fulfilled either in store or curbside, and "store-to-door" where customers order within our store, and the goods are shipped directly to their home.
Customer Loyalty Program
Real Rewards by American Eagle and AerieTM (the "Program") serves as a major pillar of our customer engagement strategy, providing a highly digitized, omni-channel experience across our physical retail footprint and our e-commerce platforms, www.ae.com and www.aerie.com. The Program is designed to drive brand engagement and increased customer lifetime value through a tiered structure that incentivizes higher spend and frequent engagement.
Key strategic pillars of the Program include:
•
Accelerated Rewards Tiers: A multi-level earn structure that rewards increased annual spend with higher point-accumulation rates.
•
Omni-Channel Integration: Seamlessly integrated member benefits including exclusive promotions, early access to product launches, and curated brand experiences.
•
Tiered Shipping Perks: Enhanced shipping and return benefits designed to streamline the digital shopping experience.
•
Strategic Credit Integration: Special card-member benefits aimed to deepen our financial relationship with our most loyal base through specialized discounts and exclusive tier card-member privileges.
Under the Program, members accumulate points based on purchases and other available activities. In turn, they earn rewards by reaching a point threshold. Members earn dollar rewards in the form of discount savings certificates. Rewards earned are valid through the stated expiration date, which is 60 days from the issuance date of the reward. Rewards not redeemed during the 60-day redemption period are forfeited.
Merchandise Suppliers
We design our merchandise, which is manufactured by third-party factories. During Fiscal 2025, we purchased substantially all of our merchandise from non-North American suppliers. We sourced merchandise through vendors located throughout the world, primarily in Asia, and did not source more than 10% of our merchandise from any single factory or supplier. Although we purchase a significant portion of our merchandise through a single international buying agent, we do not maintain any exclusive commitments to purchase from any one vendor.
We maintain quality control departments at our distribution centers to inspect incoming merchandise shipments for overall quality of manufacturing. Inspections are also made by our employees and agents at manufacturing facilities to identify quality issues prior to shipment of merchandise.
7
We maintain an extensive factory inspection program to monitor compliance with our Supplier Code of Conduct. New garment factories must pass an initial inspection in order to do business with us and we continue to review their performance against our guidelines regarding working conditions, employment practices, and compliance with local laws through internal audits by our compliance team and the use of third-party monitors. We strive to partner with suppliers who respect local laws and share our dedication to utilize best practices in human rights, labor rights, environmental practices, and workplace safety. We are a certified, validated member of the Customs-Trade Partnership Against Terrorism program ("CTPAT"), a designation we have held since 2004. CTPAT is a voluntary program offered by U.S. Customs and Border Protection ("CBP") in which an importer agrees to work with CBP to strengthen overall supply chain security. In 2016, we were accepted into the Apparel, Footwear, and Textiles Center, one of CBP’s Centers of Excellence and Expertise ("CEE"). The CEEs were created to ensure uniformity across industry, create efficiencies, reduce redundancies, enhance industry expertise, and facilitate trade, all with a final goal of reduced costs at the border and allowing CBP to focus on high-risk shipments.
Inventory and Distribution
Merchandise is shipped directly from our vendors and deconsolidated to our Company-owned distribution centers in Hazleton, Pennsylvania and Ottawa, Kansas, our regional distribution centers strategically located throughout the U.S., or our Canadian distribution center in Mississauga, Ontario. Additionally, some products are shipped directly to stores, which reduces transit times and lowers operating costs. We contract with a third-party distribution center in Mexico to service our Company-owned stores and e-commerce operations in the region.
Regulation
We and our products are subject to regulation by various federal, state, local, and foreign regulatory authorities. Substantially all of our products are manufactured by foreign suppliers and imported by us, and we are subject to a variety of trade laws, customs regulations, and international trade agreements. For example, substantially all of our import operations are subject to complex trade and customs laws, regulations and tax requirements such as sanctions orders or tariffs set by governments through mutual agreements or unilateral actions. In addition, the countries in which our products are manufactured or imported may from time to time impose additional duties, tariffs or other restrictions on our imports or adversely modify existing restrictions. Changes in tax policy or trade regulations, or the imposition of new tariffs on imported products, have and could in the future have an adverse effect on our business and results of operations.
Furthermore, apparel and other products sold by us are under the jurisdiction of multiple governmental agencies and regulations, including, in the U.S., the Federal Trade Commission and the Consumer Products Safety Commission. These regulations relate principally to product labeling, marketing, licensing requirements, and consumer product safety requirements and regulatory testing. In addition, we are subject to changing regulatory restrictions and requirements, including in the area of data privacy.
Our licensing partners, buying/sourcing agents, and the vendors and factories with which we contract for the manufacture and distribution of our products are also subject to regulation. Our agreements require our licensing partners, buying/sourcing agents, vendors, and factories to operate in compliance with all applicable laws and regulations including those concerning the prevention of importation of goods manufactured with forced labor like the Uyghur Forced Labor Prevention Act, and we are not aware of any violations that could reasonably be expected to have a material adverse effect on our consolidated business or operating results.
For more information on the potential impacts of government regulations affecting our business and results of operations, see “Item 1A – Risk Factors.”
Human Capital Management
Our people come first. As of February 1, 2026, we employed approximately 45,000 associates throughout the world, including the U.S., of whom approximately 35,000 were part-time or seasonal associates. We employed approximately 39,000 associates in the U.S., of whom approximately 31,000 were part-time or seasonal associates.
Our values of People, Innovation, Passion, Integrity, and Teamwork are the backbone of our Company and are at the center of every decision, every product and every interaction - they represent the foundation of our Better Together culture. We all have a vital role to play in creating an environment where everyone feels respected and empowered while we continue to grow as a community that promotes individuality and difference.
8
To evaluate our Better Together culture, we look holistically at all the beliefs, values and behaviors that reflect how our best work is done. We aim to ensure there is alignment between what is espoused and what is practiced. We believe that our consistently strong internal employee satisfaction scores, corporate exit survey data, and other ratings demonstrate the achievement of this goal.
Our culture model is composed of Listening, Observing, Supporting, and Informing:
•
Listening to our associates, customers and candidates through reviews of culture surveys, exit surveys, on-boarding surveys, associate hotline reporting, LinkedIn responses, and hotline reporting; we also support open door engagement and conduct Company-wide town halls and leader-directed roundtables on a periodic basis.
•
Observing who we are and what our associates are doing by regularly reviewing data that includes retention rates.
•
Supporting a positive Company culture through programs and processes for eligible associates that promote our strong values and address leadership development opportunities, work-life integration, well-being initiatives, fair pay initiatives, and family support, in each case based on role and jurisdiction, and affinity programs that are open to all associates.
•
Informing and through leadership, aiming to clearly communicate our values, model the behaviors we expect, and providing training and feedback.
Our Board of Directors (our "Board") plays an important role in the oversight of our talent and culture and receives regular updates from senior management on human capital management matters that include employee engagement, turnover and retention rates, talent development, leadership, and succession planning initiatives.
TALENT MANAGEMENT PROGRAMS
We utilize an integrated set of talent management tools and programs, rooted in our values, that thread through the entire talent lifecycle. We believe that consistent talent reviews, performance evaluations, and our efforts with respect to equitable pay practices and succession planning contributed to our full-time promotion rate of 19% and a full-time voluntary and mutual turnover rate that was below the five-year Company average in Fiscal 2025. We support associate development by providing Experience, Exposure, and Education through numerous programs, including AEO Academy, an online training platform that provides eligible associates with continuous learning opportunities. AEO Academy has nearly 3,100 modules, which in the aggregate were completed 418,706 times during Fiscal 2025.
IDEA
At AEO, our values are at the center of every decision, product and interaction. Inclusion, Diversity, Equity & Access (“IDEA”) is a key part of our Better Together culture. We believe our differences and individuality make us stronger as an organization. This means making sure that all people are respected and feel that being their authentic selves will not be a barrier to personal or professional fulfillment and growth.
We have three IDEA Pillars: Hiring, Community and Development.
Hiring. AEO understands that finding, attracting, and converting top talent is critical to succeeding in a competitive environment. We believe that talent is everywhere and does not fit one profile or background. Through continual improvement of hiring processes and the strategic expansion of where we find and cultivate candidates, we believe that we can continue to innovate and drive our business forward.
Community. Our goal is for associates to feel they have the freedom to be themselves, uniquely helping to create a vibrant community. We believe that AEO is a place where our people are excited to come to work, believe in the work that they do, feel valued, and are appreciated for their contributions. At AEO we also know we not only have the power to touch lives within our Company but also can make a lasting impact in the communities in which we operate. As a community, our hope is that living our values of People, Innovation, Passion, Integrity and Teamwork will allow us to enrich our internal and external communities and sustain our inclusive culture.
Development. We believe in equipping our leaders and our associates with the necessary resources and opportunities to succeed in an inclusive and dynamic workplace. By investing in our associates, we develop a pipeline of future and emerging leaders.
9
During Fiscal 2025 we continued to strengthen AEO through IDEA initiatives, including:
•
Our Structured Hiring process, an opportunity to operationalize a more thoughtful and standardized approach to hiring.
•
Leveraged partnerships with external organizations for eligible leadership and associates, such as The Advanced Leadership Institute (TALI), Carnegie Mellon University, and the National Retail Federation to expand the scope and reach of development opportunities, particularly focusing on emerging leaders.
•
The continued expansion of our Networks and Connection (our Employee Resource Groups) membership into non-corporate employee populations and an increase in the number of events held. Our Network and Connections are open to all associates and strengthen our culture of inclusion and belonging. In addition to cultural history and heritage month recognitions, our Networks and Connections held more than 20 events, including programming for Mental Health Awareness Month and National Autism Acceptance.
•
Consistent with our goal to strategically expand our sources of talent acquisition, we continued our commitment to exposing high school students with disabilities to job and career opportunities at AEO through our annual Disability Mentoring Day activities.
TOTAL REWARDS
Our compensation programs are designed to attract and retain highly skilled, performance-oriented associates who live our brands and embody our Better Together culture. We focus on delivering simple, straightforward compensation programs that our associates can easily understand. Ensuring that our teams are rewarded for delivering results is a key priority.
We strive to make compensation decisions that are fair and, to this end, regularly evaluate compensation through both an internal and external lens. We conduct regular benchmarking to ensure competitiveness to the external market.
Our compensation programs include three key elements that deliver a balanced opportunity for both the short and long term:
•
Competitive base pay rates, which are aligned to specific roles and skills, market rates, and relevant experience;
•
Incentive bonuses for full-time associates, which are structured to deliver financial rewards for the delivery of monthly, quarterly, or annual results; and
•
Annual stock awards for over 550 leaders and key individual contributors throughout areas of the business, including the senior management team, which provide a commonality of interest between our leaders and shareholders.
As part of a total compensation strategy, we offer a broad suite of plans and programs to our workforce, understanding that their needs and priorities vary. Subject to the satisfaction of certain eligibility requirements, our full-time associates have access to a variety of medical, dental and vision plan offerings. In the U.S., our largest market, we also offer eligible employees holistic well-being programs, a 401(k), Employee Stock Purchase Plan, student loan debt support, onsite health care centers in key locations, and paid parental and caregiver leave.
HEALTH AND SAFETY
Our associates, customers, and partners' health, safety, and security are at the forefront of our Company values and operational priorities. We are steadfastly dedicated to a people-first philosophy and commit to comprehensive health, safety, and security programs that permeate every level of our organization.
Our Health and Safety Management Program is engineered to employ proactive strategies in community health monitoring, accident prevention, and thorough associate training, with the goal of ensuring swift and effective responses to any arising issues. This program ingrains safety as a collective responsibility, with our management team committed to upholding the high standards established by our Company.
We also embrace groundbreaking security technologies as a foundational principle aimed at creating an optimal working and shopping environment at AEO. By employing sophisticated screening techniques for personnel and vehicles and
10
incorporating artificial intelligence ("AI") and advanced analytics, we enhance situational awareness and early detection capabilities to identify any security deviations deserving prompt attention.
Additionally, we continue to invest in global risk and threat intelligence aimed at identifying and mitigating potential threats from various sources, including health pandemics, natural disasters, geopolitical shifts, and global conflicts.
Competition
The global retail apparel industry is highly competitive both in stores and online, characterized by low barriers to entry, brands targeted at specific consumer segments, many regional and local competitors, and an increasing number of global competitors. We compete with various local, national, and global apparel retailers, e-commerce sites, and specialty stores, as well as the casual apparel and footwear departments of department stores and discount retailers, primarily on the basis of quality, fashion, service, selection, and price. Additionally, we compete for our customers’ discretionary spend with businesses in other product and experiential categories, including technology, restaurants, travel, and media content.
Trademarks and Service Marks
We have registered AMERICAN EAGLE OUTFITTERS®, AMERICAN EAGLE®, AE®, AEO®, LIVE YOUR LIFE®, AERIE®, OFFLINE BY AERIE® and various eagle designs with the U.S. Patent and Trademark Office. We also have registered or have applied to register substantially all of these trademarks with the registries of the foreign countries in which our stores, e-commerce sites, and/or manufacturers are located and/or where our product is shipped.
We have registered AMERICAN EAGLE OUTFITTERS®, AMERICAN EAGLE®, AE®, AEO®, LIVE YOUR LIFE®, AERIE®, OFFLINE BY AERIE® and various eagle designs with the Canadian Intellectual Property Office.
In the U.S. and in other countries around the world, we also have registered, or have applied to register, a number of other marks used in our business, including TODD SNYDER®, UNSUBSCRIBED®, AE77®, and AE 24/7TM, and our pocket stitch designs also have been registered as protected marks and/or have been adjudicated by courts in the U.S. as protected marks.
Our registered trademarks are renewable indefinitely, and their registrations are properly maintained in accordance with the laws of the country in which they are registered. We intend to use, renew, and enforce our trademarks in accordance with our business plans.
Seasonality
Historically, our operations have been seasonal, with a large portion of total net revenue and operating income occurring in the third and fourth fiscal quarters, reflecting increased demand during the back-to-school and year-end holiday selling seasons, respectively. Our quarterly results of operations also may fluctuate based upon such factors as the timing of certain holiday seasons, the number and timing of new store openings, the acceptability of seasonal merchandise offerings, the timing and level of markdowns, store closings and remodels, competitive factors, weather and general economic and political conditions.
Information About our Executive Officers
Marisa A. Baldwin, age 55, has served as our Executive Vice President, Chief Human Resources Officer since 2021. Prior to joining us, Ms. Baldwin served as Chief Human Resources Officer at Ascena Retail Group/ANN Inc. from 2019 to 2021; as Senior Vice President, Human Resources & Corporate Communications (ANN INC.) from 2015 to 2019; and as Vice President, Human Resources, ANN INC. from 2011 to 2015. Prior thereto, Ms. Baldwin served in human resources leadership roles focused on the growth and expansion of Starbucks Corporation and building a culture of inclusion at Diageo North America, Inc.
11
Beth M. Henke, age 51, has served as Executive Vice President, Chief Legal Officer since 2025. Prior thereto she served as Senior Vice President - General Counsel and Chief Compliance Officer from 2022 until 2025. Ms. Henke also served as Senior Vice President - Deputy General Counsel & Chief Compliance Officer from 2019 until 2022, and started her career with us in 2017 as Vice President - Deputy General Counsel & Chief Compliance Officer. Prior to joining us, Ms. Henke served as the Chief Compliance Officer and VP of Litigation for EDMC. Ms. Henke began her legal career in the Labor & Employment group of Morgan, Lewis & Bockius LLP and was a partner with Marcus & Shapira LLP and Reed Smith LLP before moving in-house.
Jennifer M. Foyle, age 59, has served as our President, Executive Creative Officer – AE and Aerie since 2021 and as Chief Creative Officer, AEO Inc. and Global Brand President – Aerie from 2020 to 2021. Prior thereto she served as our Global Brand President - Aerie since 2015. Ms. Foyle served as Executive Vice President, Chief Merchandising Officer - Aerie from 2014 to 2015 and Senior Vice President, Chief Merchandising Officer – Aerie from 2010 to 2014. Prior to joining us, Ms. Foyle was President of Calypso St. Barth from 2009 to 2010. In addition, she was the Chief Merchandising Officer at J. Crew Group, Inc., from 2003 to 2009. Early in her career, Ms. Foyle was the Women’s Divisional Merchandise Manager for Gap Inc. from 1999 to 2003 and held various roles at Bloomingdales from 1988 to 1999.
Michael A. Mathias, age 51, has served as our Executive Vice President, Chief Financial Officer since 2020. Prior thereto, he served as Senior Vice President, Financial Planning & Analysis from 2017 to 2020, and in various key financial and operational roles since joining us in 1998 through 2014. From 2016 to 2017, Mr. Mathias served as Vice President, Financial Planning and Strategy at General Nutrition Centers, Inc. From 2014 to 2016, he served as President and Managing Partner of SY Ventures.
Jay L. Schottenstein, age 71, has served as our Chief Executive Officer since 2015. Prior thereto, Mr. Schottenstein served as our Interim Chief Executive Officer from 2014 to 2015. He has served as Chairman of the Board since 1992. He previously served as our Chief Executive Officer from 1992 until 2002. Prior to that time, he served as Vice President and Director of our predecessors since 1980. He has also served as Chairman of the Board and Chief Executive Officer of Schottenstein Stores Corporation (“SSC”) since 1992 and as President of SSC since 2001. Prior thereto, Mr. Schottenstein served as Vice Chairman of SSC from 1986 to 1992. He has been a Director of SSC since 1982. Mr. Schottenstein has also served as Executive Chairman of the Board of Directors of Designer Brands Inc. (f/k/a DSW Inc.) (NYSE: DBI) and formerly served as that company’s Chief Executive Officer from 2005 to 2009. He also served on the Board of Directors for Albertsons Companies, Inc. (NYSE: ACI) from 2006 to 2022. He has served as an officer and director of various other entities owned or controlled by members of his family since 1976.
Available Information
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports, that we electronically file with or furnish to the SEC, pursuant to Section 13(a) or Section 15(d) of the Exchange Act, as well as our definitive proxy materials filed with the SEC pursuant to Section 14 of the Exchange Act, are all available under the Investor Relations section of our website at www.aeo-inc.com. These reports and materials are made available as soon as reasonably practicable, free of charge, after such reports and materials are electronically filed with or furnished to the SEC. Alternatively, you may access these reports at the SEC’s website at www.sec.gov.
Our corporate governance materials, including our Corporate Governance Guidelines, the charters of our Audit, Compensation, and Nominating Governance and Corporate Social Responsibility Committees, and our Code of Ethics may also be found under the Investor Relations section of our website at www.aeo-inc.com. Copies of these corporate governance materials are also available upon written request.
Additionally, our investor presentations are available under the Investor Relations section of our website at www.aeo-inc.com. These materials are available no later than the time they are presented at investor conferences.
We have included the above website addresses and other website addresses throughout this Annual Report as inactive textual references only. The information contained on or accessible through any of our websites or any other websites is not incorporated by reference in this Annual Report and should not be considered part of this Annual Report.
12
Item 1A. Risk Factors
Investing in our common stock involves a high degree of risk. You should consider and carefully read all of the risks and uncertainties described below, as well as other information included in this Annual Report and in our other public filings. The risks described below are not the only ones facing us. The occurrence of any of the following risks or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial could materially and adversely affect our business, financial condition or results of operations. In such case, the trading price of our common stock could decline, and you may lose all or part of your original investment. This Annual Report also contains forward-looking statements and estimates that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of specific factors, including the risks and uncertainties described below.
Macroeconomic and Industry Risks
Global economic conditions and the effect of economic pressures and other business factors on discretionary consumer spending and changes in consumer preferences have had, and will likely continue to have, a material adverse effect on our business, results of operations and financial condition.
The uncertain state of the global economy continues to impact businesses around the world, including ours. The success of our operations is highly dependent on consumer spending, which can be negatively impacted by economic conditions and other factors that affect disposable consumer income, including income taxes, payroll taxes, employment, consumer debt, interest rates, increases in energy costs and consumer confidence. A worsening of economic conditions, in particular in the U.S., could adversely affect discretionary consumer spending, which could, in turn, negatively impact our revenues and operating results. In the past, such as during the COVID-19 pandemic, weakness in consumer discretionary spending has led to a decrease in demand for our products and, correspondingly, in our results of operations and financial condition. Declines in consumer spending have and, in the future, may result in decreased demand for our products, increased inventories, lower revenues, higher discounts, pricing pressure and lower gross margins. Inflation and other macroeconomic pressures in the U.S. and the global economy such as rising or uncertain interest rates, new or increased tariffs imposed by the U.S. government and/or reciprocal tariffs imposed by other countries, changes in trade policies, supply chain disruptions, recession fears, geopolitical conflicts, such as Russia’s invasion of Ukraine, the conflict in the Middle East, and U.S. foreign policy in Latin America, continue to create a complex and challenging retail environment for us and our customers, and consumers may reduce discretionary spending. If global economic and financial market conditions deteriorate, the following factors could have a material adverse effect on our business, operating results and financial condition:
•
During Fiscal 2025, interest rates continued to be volatile, coupled with risks relating to a potential recession, contributed to softness in consumer confidence. Additionally, risks relating to a potential recession during Fiscal 2026 remain. Any of these factors could lead to a decrease in consumer spending.
•
We may be negatively impacted by changes in consumer preferences and discretionary spending habits such as consumers reallocating spending to non-apparel retail discretionary consumer spending.
•
We may be unable to access financing in the credit and capital markets at reasonable rates.
•
We conduct transactions in various currencies, which creates exposure to fluctuations in foreign currency exchange rates relative to the U.S. dollar, in particular the Mexican peso and Canadian dollar. Continued volatility in the markets and exchange rates for foreign currencies could have a significant impact on our reported operating results and financial condition.
•
Continued volatility in the availability and prices for commodities and raw materials we use in our products and in our supply chain (such as cotton) and related inflationary pressures could have a material adverse effect on our costs, gross margins and profitability.
•
If our suppliers or other participants in our supply chain experience difficulty obtaining financing needed for their operations in the capital and credit markets, it may result in delays or non-delivery of our products.
•
The current domestic and international political environment, including volatile trade relations, conflicts in multiple locations, and the related disruption to shipping lanes and civil unrest have resulted in uncertainty surrounding the future state of the global economy. There is uncertainty with respect to potential further changes in trade policy and regulations, sanctions and export controls, which increase volatility in the global economy and foreign currency exchange rates. This environment has affected and may continue to affect production and distribution lead times, increasing our costs and potentially affecting our ability to meet customer demand. If these disruptions persist, they may require us to modify our current sourcing practices, which may impact our product costs, and, correspondingly, could have a material adverse effect on our business and results of operations.
13
•
Trade policies and regulations, such as new, increased, or continuing uncertainty concerning tariffs or other trade restrictions may also increase the costs for imported materials and finished goods. Any resulting increase in prices we charge for our goods could negatively impact demand for our products, our sales and results of operations. Further, increases in consumer expenses more generally, may reduce discretionary spending and heighten price sensitivity, which could similarly negatively impact the demand for our products, our sales, and results of operations.
In uncertain economic environments, we cannot predict whether or when such circumstances may improve or worsen, or what impact, if any, such circumstances could have on our business, results of operations, cash flows and financial position.
Our inability to anticipate and respond to changing consumer preferences and fashion trends and fluctuations in consumer demand in a timely manner could adversely impact our business and results of operations.
The specialty retail apparel business fluctuates according to changes in the economy and consumer preferences and trends, which are dictated by fashion trends and season and may shift quickly. These fluctuations can materially impact our sales and gross margins and are exacerbated by the fact that merchandise is typically ordered well in advance of a selling season. While we work to identify trends for products and product categories, as well as consumer preferences, on an ongoing basis and aim to offer inventory and shopping experiences that meet such trends and preferences, we may not do so effectively and/or on a timely basis. As a result, we are vulnerable to changes in consumer demand, pricing shifts and the timing and selection of merchandise purchases.
Our future success and reputation depends, in part, upon our ability to anticipate, identify and respond to fashion trends and changing consumer preferences, as well as changes in consumer spending patterns, in a timely manner. Lead times for many of our design and purchasing decisions may make it more difficult for us to respond rapidly to new or changing apparel trends or consumer acceptance of our products. Our failure to enter into agreements for the manufacture and purchase of merchandise in a timely manner could, among other things, lead to a shortage of inventory and lower sales. Changes in fashion trends, if unsuccessfully identified, forecasted or responded to with markdowns or write-offs, could negatively impact our reputation and ability to achieve or maintain profitability and have a material adverse effect on our business partners. We expect continuously changing fashion-related trends and consumer tastes to influence future demand for our products. Changes in consumer tastes, fashion trends and brand reputation can have an impact on our financial performance and brand loyalty. If we are unable to anticipate and respond to fashion trends and changing consumer demands, and/or if we are unable to maintain a strong brand reputation, our business could suffer.
Seasonality may cause sales to fluctuate and negatively impact our results of operations.
Historically, our operations have been seasonal, with a large portion of total net revenue and operating income occurring in the third and fourth fiscal quarters, reflecting increased demand during the back-to-school and year-end holiday selling seasons, respectively. Because of this seasonality, factors negatively affecting us during the third and fourth fiscal quarters of any year, including adverse weather or unfavorable economic conditions, could have a material adverse effect on our financial condition and results of operations for the entire year. As a result, we may not be able to accurately predict our quarterly sales. Accordingly, our results of operations are likely to fluctuate significantly from period to period. Our quarterly results of operations also may fluctuate based upon such factors as the timing of certain holiday seasons, the number and timing of new store openings, the acceptability of seasonal merchandise offerings, the timing and level of markdowns, store closings and remodels, competitive factors, weather, and general economic and political conditions.
This seasonality, along with other factors that are beyond our control, including public health events, social or political unrest, general economic conditions, changes in consumer preferences, weather conditions, the availability of import quotas, transportation disruptions and foreign currency exchange rate fluctuations, could adversely affect our business and cause our results of operations to fluctuate.
We operate in a highly competitive industry, and we face significant pricing pressures from existing and new competitors.
The sale of apparel, accessories, intimates, and personal care products is a highly competitive business with numerous participants, including individual and chain specialty apparel retailers, local, regional, national, and international department stores, online businesses, discount stores and fast-fashion retailers. Fast fashion, value fashion and off-price retailers have shifted customer expectations of pricing for well-known brands and have contributed to additional promotional and pricing pressure in recent years. Changing consumer preferences has resulted and may continue to result in new competition for our products. Additionally, competition in the apparel industry is particularly enhanced in the digital marketplace, where there are new entrants in the market as well as established competitors. The substantial sales growth in the digital channel
14
within the last several years has led to greater pricing pressure and heightened customer expectations and competitive pressure related to, among other things, customer engagement, delivery speed, shipping charges and return privileges. Some of our competitors have robust digital consumer experiences and highly efficient delivery systems. Furthermore, an overall decrease in mall traffic continues to place a greater reliance on the digital channel, which in turn increases competitive risks with respect to digital and online sales.
We face a variety of competitive challenges, including:
•
Anticipating and quickly responding to changing consumer demands or preferences better than our competitors;
•
Maintaining favorable brand recognition and effective marketing of our products to consumers in several demographic markets;
•
Sourcing merchandise efficiently;
•
Developing innovative, high-quality merchandise in styles that appeal to our customers and in ways that favorably distinguish us from our competitors;
•
Countering the aggressive pricing and promotional activities of many of our competitors;
•
Anticipating and quickly responding to changing consumer shopping preferences and practices, including the increasing shift to digital brand engagement, social media communication, and online shopping; and
•
Safely evaluating and incorporating new technologies, such as AI, machine learning, and other relevant innovation.
Additionally, our competitors may outpace us in incorporating new technologies, such as AI, into their product offerings and engagement with customers, which could affect our competitiveness and operational outcomes. Our efforts to utilize these technological advancements may not be successful, may result in substantial integration and maintenance costs, and may expose us to additional risks. Personal information within any dataset collected from our business for AI purposes may be vulnerable to unauthorized acquisition or access, compromise or loss, which could lead to heightened business and security costs, reputational damage, administrative penalties, significant legal and financial exposure. The content, analyses, or recommendations generated by AI programs, if deficient, inaccurate, or biased, could adversely impact our business, financial condition, and operational results, as well as our reputation. Moreover, ethical concerns associated with AI could lead to brand damage, competitive disadvantages, or legal repercussions. Any problems with our implementation or use of AI or other technological advancements could negatively impact our business or results of our operations.
In light of the many competitive challenges we face, we may not be able to compete successfully in the future, which may result in lower market share. Additionally, increases in the number of our competitors could reduce our sales, which in turn could have a material adverse effect on our results of operations and financial condition.
Our results could be adversely affected by events beyond our control, such as natural disasters, public health crises, political crises and results of elections, negative global climate patterns, or other catastrophic events.
Our operations, those of our licensees, our suppliers, or our customers, could be negatively impacted by various events beyond our control, including, without limitation, natural disasters, such as hurricanes, tornadoes, floods, earthquakes, extreme cold events, unseasonably warm weather, and other adverse weather conditions; public health crises, such as pandemics and epidemics; political crises, such as terrorist attacks, war, geopolitical uncertainty, labor unrest, and other political instability (including, without limitation, the ongoing war between Russia and Ukraine, the conflict in the Middle East and U.S. foreign policy in Latin America); negative global climate patterns, especially in water-stressed regions; or other catastrophic events, such as fires or other disasters occurring at our distribution centers or our vendors' manufacturing facilities, whether occurring in the U.S. or internationally. In particular, these types of events could impact our supply chain from or to the impacted region, our ability or the ability of our licensees or other third parties to operate our stores or websites, or our business as a whole if the impacted region includes our corporate offices, stores, or distribution centers. In addition, these types of events could negatively impact consumer spending in the impacted regions or, depending upon the severity, globally. Disasters occurring at our vendors’ manufacturing facilities could impact our reputation and consumers’ perception of our brands. To the extent that any of these events occur, our operations and financial results could be adversely affected. In addition, the impacts of climate change could result in changes in regulations or consumer preferences, which could in turn affect our business, operating results, and financial condition.
Impairment to goodwill, intangible assets, and other long-lived assets could adversely impact our profitability.
15
Significant negative industry or general economic trends, changes in customer demand for our product, disruptions to our business, and unexpected significant changes or planned changes in our operating results or use of long-lived assets may result in write-downs or impairments to goodwill, intangible assets, and other long-lived assets.
Strategic Risks
Our inability to grow and optimize our digital channels and leverage omni-channel capabilities could adversely impact our business.
We have made, and expect to continue to make, significant investments in building our technologies and digital capabilities in three key areas: mobile technology, digital marketing, and the digital customer experience. While we have made significant capital investments in these areas, there is no assurance that we will realize expected returns on those investments or be successful in growing and optimizing digital channels.
In addition, digital operations are subject to numerous risks, including reliance on third-party computer hardware/software and service providers, cybersecurity incidents, violations of evolving laws and regulations, including those relating to online privacy, credit card fraud, telecommunication failures, electronic break-ins and similar compromises, AI and machine learning, and disruption of internet service. Changes in U.S. and foreign governmental regulations may also negatively impact our ability to deliver products to our customers through our digital channels. Failure to successfully respond to these risks may adversely affect sales as well as damage the reputation of our brands.
As omni-channel retailing continues to evolve, our customers are increasingly more likely to shop across multiple channels that work in tandem to meet their needs. In addition, our competitors are also investing in omni-channel initiatives, some of which may be more successful than our initiatives. Our inability to respond to changes in consumer behavior and our competitive environment, or to successfully maintain and expand our omni-channel business may have an adverse impact on our results of operations. See "— Operational Risks — Our failure to manage growth in our omni-channel operations and the resulting impact on our distribution and fulfillment networks may have an adverse effect on our results of operations."
Our failure to manage growth in our omni-channel operations and the resulting impact on our distribution and fulfillment networks may have an adverse effect on our results of operations.
Increasingly, consumers are using mobile-based devices and applications to shop online with us and with our competitors, and to do comparison shopping, as well as to engage with us and our competitors through digital services and experiences that are offered on mobile platforms. In Fiscal 2025, digital sales represented 39% of our total revenue. In order to grow and remain competitive, we will need to continue to adapt to future changes in technology to address the changing demands of consumers. For example, customers are increasingly using AI shopping assistant tools to help find products, compare prices and make purchase decisions. Use of these AI tools could transform commerce, including in ways that we fail to anticipate, and affect our ability to efficiently attract potential customers to our digital platforms and retain our customer base.
Any failure on our part or on the part of our third-party providers to provide attractive, effective, reliable, secure, user-friendly digital commerce platforms that offer a wide assortment of merchandise with rapid delivery options and that continually meet the changing expectations of online shoppers or any failure to provide attractive digital experiences to our customers could place us at a competitive disadvantage, result in the loss of digital commerce and other sales, harm our reputation with consumers, have a material adverse impact on the growth of our digital commerce business globally and have a material adverse impact on our business and results of operations.
Our omni-channel operations are subject to numerous risks that could have a material adverse effect on our results. Risks include, but are not limited to, the difficulty in recreating the in-store experience; our ability to anticipate and implement innovations in technology and logistics in order to appeal to existing and potential consumers who increasingly rely on multiple channels to meet their shopping needs; and the failure of and risks related to the systems that operate our web infrastructure, websites and the related support systems, including cybersecurity incidents, theft of consumer information, privacy concerns, telecommunication failures and electronic break-ins and similar disruptions. We are also subject to a variety of laws and regulations that govern the operations and features of our platforms. These include, but are not limited to, laws and regulations imposing specific requirements on consumer opt-outs, notices and mandates for verification of age of minors. The costs of monitoring and responding to such regulations and the consequences of non-compliance could have an adverse effect on our operations or financial condition.
16
Our failure to maintain efficient and uninterrupted fulfillment operations could also have a material adverse effect on our results of operations. The satisfaction of consumers who shop online depends on, among other matters, their timely receipt of merchandise that meets their expectations. If we encounter difficulties with our distribution facilities, or if the facilities were to shut down for any reason, including as a result of fire, natural disaster or work stoppage, we could face shortages of inventory, incur significantly higher costs and longer lead times associated with distributing our products to consumers, and cause consumer dissatisfaction. Any of these issues could have a material adverse effect on our operations, financial condition and cash flows.
Failure to maintain and grow a brand-relevant customer loyalty experience could have a negative impact on our growth and profitability.
We strive to build strong emotional connections with our customers and to enrich the customer experience, including through our loyalty program, Real Rewards by American Eagle and AerieTM, which offers customer incentives including earning points that are converted to reward dollars that can be redeemed on future purchases, in addition to other bonus offers. If our marketing and customer experience programs, including our loyalty program, are unsuccessful, or if our competitors are more effective with their programs than we are, our financial results and profitability may be negatively affected.
Our inability to execute on our key business priorities could have a negative impact on our growth and profitability.
Our success depends on our ability to execute on our key priorities. Achieving these key business priorities depends on us executing our strategies successfully, and the initiatives that we implement in connection with these goals may not resonate with our customers, or be successful in achieving their intended goals. It may take longer than anticipated to generate the expected benefits of our initiatives, and there can be no guarantee that pursuing these key priorities will result in improved operating results or achievement of a given priority. Misalignment and competing initiatives could result in inefficiencies, erroneously prioritized efforts, and resource dilution. Failure to implement our key business priorities successfully could have a negative impact on our growth and profitability.
Our current international operations and efforts to further expand internationally expose us to risks inherent in operating in other countries.
We continue to pursue additional international expansion initiatives, where appropriate, which include Company-owned stores and stores operated by third parties through licensing arrangements in select international markets. The effect of international expansion arrangements on our business and results of operations is uncertain and will depend upon various factors, including the demand for our products in new markets internationally. Furthermore, although we provide store operation training, literature and support, to the extent that a licensee does not operate its stores in a manner consistent with our requirements regarding our brand and customer experience standards, our business results and the value of our brand could be negatively impacted.
As we pursue our international expansion initiatives, we are subject to certain laws, including the Foreign Corrupt Practices Act, as well as the laws of the foreign countries in which we operate, which may impose new or changing regulatory restrictions and requirements, including in the areas of data privacy, sustainability and responses to climate change. Violations of these laws could subject us to actions of government regulatory authorities, including sanctions, import restrictions, and tariffs, or other penalties that could have an adverse effect on our reputation, operating results and financial condition.
A failure to implement our expansion initiatives properly, or the adverse impact of political or economic risks in our current or new international markets, could have a material adverse effect on our results of operations and financial condition. In certain international markets we have limited prior experience operating our Company-owned stores, and in all international markets we face established local and international competitors. In many of these locations, the real estate, labor and employment, transportation and logistics and other operating requirements differ dramatically from those in the locations where we have more experience. Consumer demand and behavior, as well as tastes and purchasing trends, may differ substantially, and, as a result, sales of our products may not be successful, or the margins on those sales may not be in line with those we currently anticipate. Our potential inability to anticipate and address differences that we encounter as we expand internationally may divert financial, operational, and managerial resources from our existing operations, which could adversely impact our financial condition and results of operations. In addition, we are increasingly exposed to foreign currency exchange rate risk with respect to our revenue, profits, assets, and liabilities denominated in currencies other than the U.S. dollar. The instruments we may use to hedge certain foreign currency risks in the future may not succeed in offsetting all of the negative impact of foreign currency rate movements on our business and results of operations.
17
Operational Risks
Our failure to protect our reputation could have a material adverse effect on our brands.
Our business depends on the value and reputation of our brands and our ability to anticipate, identify, and respond to consumer demands and preferences, and to fashion trends. In addition, the increasing use of technology, including AI tools and social media platforms, allows for rapid communication and any negative publicity related to the aforementioned concerns may reduce demand for our merchandise. Further, with the increasing rise of social media as a channel of communication with our customers, the reputation of our brands may be impacted by our social media interactions and campaigns through heightened public focus. Due to the volatile and uncertain nature of consumer reactions to social media messaging, we may face difficulties in predicting messaging that will resonate with consumer expectations and result in positive publicity. If our social media efforts are not successful or result in negative public attention, we may be subject to reputational damage and adverse impacts to our business and financial condition.
The appeal of our brands may also depend on the success of our corporate social responsibility initiatives, which require company-wide coordination and alignment. We are working to manage risks and costs to us, our licensees and our supply chain that are exposed to the effects of climate change as well as diminishing fossil fuel and water resources. These risks include any increased public focus, including by governmental and non-governmental organizations, on environmental sustainability matters, including packaging and waste, animal welfare, and land use. We may receive increased pressure to expand our disclosures in these areas, make commitments, set targets or establish additional goals and take actions to meet them, which could expose us to market, operational and execution costs or risks. The metrics we disclose in our ESG report, such as emissions and water usage, whether they be based on the standards we set for ourselves or those set by others, may influence our reputation and the value of our brand. Our failure to achieve progress on our metrics on a timely basis, or at all, could adversely affect our business, financial performance, and growth. By electing to publicly set and share these metrics and expand upon our disclosures, we may also face increased scrutiny related to these activities. As a result, we could experience damage to our reputation and the value of our brands if we fail to act responsibly in the areas in which we report.
Public perception about us, our products or our stores, whether justified or not, could impair our reputation, involve us in litigation, damage our brands and may adversely impact our business, results of operations, and financial condition.
Failure to continue to obtain or maintain high-quality endorsers of our products, or actions taken by our endorsers, could harm our business.
From time to time, we establish relationships with artists, designers, musicians, athletes, social media influencers and other public figures to develop, evaluate and promote our products. If we are unable to recruit endorsers with consumer appeal or endorsers were to stop using our products contrary to their endorsement agreements, our business could be adversely affected. In addition, actions taken, allegations of wrongdoing or statements made by our endorsers, associated with our products or brand or otherwise, that harm the reputations of those endorsers or our decisions to cease collaborating with certain endorsers in light of actions taken, allegations of wrongdoing or statements made by them, could also seriously harm our brand image with consumers and, as a result, could have an adverse effect on our business.
We rely on third parties to drive traffic to our platform, and these providers may change their algorithms or pricing, or may be subject to new laws and regulations, in ways that could negatively affect our business, financial condition, cash flows, and results of operations.
We continue to invest in digital marketing to drive qualified traffic to our site. Our success with these efforts depends on an ability to attract customers cost effectively and, to do so, we rely heavily on relationships with providers of online services, search engines, social media and other websites and e-commerce businesses to provide content, advertising banners and other links that direct customers to our websites. We also use social media, including Facebook, Instagram, YouTube and others, as well as affiliate marketing, email, SMS, and direct mail, as part of our multi-channel approach to marketing and we expect that our use of social media for marketing purposes will increase over time. We rely on these relationships to provide significant traffic to our website and as important marketing channels and sources of information regarding potential customers. If digital platforms change or penalize us with their algorithms, terms of service, display and featuring of search results, or if competition increases for advertisements, we may be unable to cost-effectively attract customers. Our relationships with digital platforms are not covered by long-term contractual agreements and do not require any specific
18
performance commitments. In addition, many of the platforms and agencies with whom we have advertising arrangements provide advertising services to other companies, including retailers with whom we compete.
As competition for online advertising has increased, the cost for some of these services has also increased. A significant increase in the cost of the marketing providers upon which we rely could adversely impact our ability to attract customers cost effectively and harm our business, financial condition, results of operations and prospects. In addition, laws and regulations governing the use of these platforms and other digital marketing channels are rapidly evolving. It may become more difficult for us or our partners to comply with such laws, and future data privacy laws and regulations or industry standards, as well as related enforcement, may restrict or limit our ability to use some or all of the marketing strategies on which we currently rely. The failure by us, our employees or third parties acting at our direction to abide by applicable laws and regulations in the use of these platforms could adversely impact our reputation or subject us to fines or other penalties.
Our inability to implement and sustain adequate information technology systems could adversely impact our profitability and the loss of disruption of information technology systems could have a material adverse effect on our business.
Our information technology systems are an integral part of our strategies in efficiently operating our business, in managing operations and protecting against security risks related to our electronic processing and transmitting of confidential consumer and associate data. The requirements to keep our information technology systems operating at peak performance may be higher than anticipated and could strain our capital resources, management of any system upgrades, implementation of new systems and the related change management processes required with new systems and our ability to prevent any future information security breaches. We regularly evaluate our information technology systems and continuously implement modifications and/or upgrades to the information technology systems that support our business. Modifications include replacing legacy systems with successor systems, making changes to legacy systems, or acquiring new systems with new functionality. We are aware of the inherent risks associated with operating, replacing, and modifying these systems, including inaccurate system information, including the use of AI tools, and system disruptions. There is a risk that information technology system disruptions and inaccurate system information, if not anticipated and/or promptly and appropriately mitigated, could have a material adverse effect on our results of operations. Additionally, there can be no guarantee that, if any information technology system failure, cyberattack, or security breach occurs, it will be timely detected or sufficiently remediated.
Any significant disruption of our data center could have a material adverse effect on those operations dependent on those systems, specifically our store and e-commerce operations, our distribution and fulfillment centers and our merchandising team. While we maintain business interruption and property insurance, in the event of a data center shutdown, our insurance may not be sufficient to cover the impact to the business.
Furthermore, if our information technology systems are damaged, breached or cease to properly function for any reason, including the poor performance of, failure of, or cyber-attack on third-party service providers, catastrophic events, power outages, cybersecurity breaches, network outages, failed upgrades or similar events, and if our disaster recovery and business continuity plans do not effectively resolve such issues, we may suffer interruptions in our ability to manage or conduct business, as well as reputational harm, and we may be subject to governmental investigations and litigation, any of which may adversely impact our business, results of operations, and financial condition.
To the extent our associates operate under remote work arrangements, they may increase the risk of security incidents, data breaches or cyberattacks, which could have a material adverse effect on our business and results of operations, due to, among other things, the loss of proprietary data, interruptions or delays in the operation of our business, damage to our reputation and any government-imposed penalty.
We face risks related to our electronic processing of sensitive and confidential personal and business data. If such data are lost or disclosed in an unauthorized manner, or if we or our third-party vendors are subject to cyberattacks, data breaches, other security incidents, or disruption of information technology systems or software, such events could expose us to liability, damage our reputation, and have a material adverse effect on our business.
Given the nature of our business, we, together with third parties acting on our behalf, receive, collect, process, use, and retain sensitive and confidential consumer and associate data, in addition to proprietary business information. Our business relies on information technology networks and systems to market and sell our products, process financial and personal information, manage a variety of business processes and comply with regulatory, legal and tax requirements. We also depend on a variety of information systems to effectively process consumer orders and other data and for digital marketing activities and for electronic communications among our associates, consumers, prospective consumers, and vendors. Some of our third-party service providers, such as identity verification and payment processing providers, also regularly have
19
access to consumer data. Additionally, we maintain other confidential, proprietary, or otherwise sensitive information relating to our business and from third parties. Further, with the use of AI and other machine learning technologies, by us or our services providers, there is a risk that the data inputted into such technologies may contain confidential information or personal data, resulting in such information becoming accessible by third parties. The use of AI or machine learning technologies by our third-party service providers in their business activities, whether or not known to use, could also expose us to risks. While we believe we conduct appropriate diligence prior to onboarding third-party service providers, the failure of one or more such service provider to meet our expectations, including by use of AI tools in contravention of agreements with us, inputting our confidential or proprietary information into AI tools, or roll-out of new AI tools without approval, may give rise to issues pertaining to data privacy and data protection.
The information technology networks and systems owned, operated, controlled or used by us or our vendors may be vulnerable to damage, disruptions or shutdowns, software or hardware vulnerabilities, data breaches, security incidents, supply-side attacks, failures during the process of upgrading or replacing software, databases or components, power outages, natural disasters, hardware failures, attacks by computer hackers, telecommunication failures, user errors, user malfeasance, computer viruses, unauthorized access, phishing or social engineering attacks, ransomware attacks, denial-of-service attacks and other real or perceived cyber-attacks or catastrophic events, all of which may not be prevented by our efforts to secure our information technology systems. Any of these incidents could lead to interruptions or shutdowns of our platform, disruptions in our ability to process consumer orders or to track, record or analyze the sale of our products, loss or corruption of data or unauthorized access to or acquisition of personal information or other sensitive information, such as our intellectual property. In addition, certain new technologies, including AI, present new and significant cybersecurity safety risks that much be analyzed and addressed before implementation.
We utilize security tools and controls and also rely on our third-party vendors to use sufficient security measures, including encryption and authentication technology, in an effort to protect personal and other sensitive information. However, advances in information technology capabilities (including AI), increasingly sophisticated tools and methods used by hackers and cyber terrorists, new discoveries in the field of cryptography or other developments may result in our failure or inability, or the failure or inability of our vendors, to adequately protect personal or other sensitive information and there can be no assurance that we or our vendors will not suffer a cyberattack, that hackers or other unauthorized parties will not gain access to or exfiltrate personal information or other sensitive data (including input into a third-party generative AI platform), or that any such data compromise or unauthorized access will be discovered or remediated in a timely fashion.
We rely on associates, contractors and other third parties who may attempt to circumvent our security measures in order to obtain such information and may purposefully or inadvertently cause a breach involving such information. Actual or anticipated attacks may cause us to incur increasing costs, including costs to deploy additional personnel and protection technologies, train associates, pay higher insurance premiums, and engage third-party specialists for additional services. An information security breach involving confidential and personal data could damage our reputation and our customers' willingness to purchase from us. In addition, we may incur material liabilities and remediation costs as a result of an information security breach, including potential liability for stolen consumer or associate data, repairing system damage or providing credit monitoring or other benefits to consumers or associates affected by the breach. In the event we experience an information security breach, our insurance may not be sufficient to cover the impact to the business. Although we have developed mitigating security controls to reduce our cyber risk and protect our data from loss or disclosure due to a security breach, including processes designed to reduce the impact of a security breach at a third-party vendor, such measures cannot provide absolute security.
We and our third-party vendors regularly experience cyber-attacks aimed at disrupting services. Our third-party vendors have been and may be the victim of cyber related attacks that could lead to operational disruptions that could have an adverse effect on our ability to fulfill consumer orders. Security incidents such as ransomware attacks are becoming increasingly prevalent and severe, as well as increasingly difficult to detect. We, and our third-party vendors, have been subject to cyber, phishing and social engineering attacks and other security incidents in the past and may continue to be subject to such attacks in the future. We and our third-party vendors may not anticipate, detect, or prevent all types of attacks until after they have already been launched because the techniques used to obtain unauthorized access are increasingly sophisticated, constantly evolving and may not be known in the market. For example, as AI continues to evolve, cyber-attackers could also use AI to develop or hone their attacks. Security breaches can also occur as a result of non-technical issues, including intentional or inadvertent actions by our associates, our third-party vendors or their personnel or other parties. If we or our third-party service providers experience security breaches that result in marketplace performance problems, availability problems, or the loss, corruption of, unauthorized access to, or disclosure of personal data or confidential information, people may become unwilling to provide us the information necessary to make purchases on our sites, and our reputation and market position could be harmed. Existing consumers may also decrease their purchases or close their accounts altogether. We could also face potential claims, investigations, regulatory proceedings, liability and litigation, and bear other substantial costs in connection with remediating and otherwise responding to any data security breach, all of which may not be adequately covered by insurance, and which may result in an increase in our costs for
20
insurance or insurance not being available to us on economically feasible terms, or at all. Insurers may also deny us coverage as to any future claim. Any of these results could harm our growth prospects, financial condition, business, and reputation.
Our international merchandise sourcing strategy subjects us to risks that could adversely impact our business and results of operations.
We design our merchandise, which is manufactured by third-party suppliers worldwide. Because we have a global supply chain, any event that causes the disruption of imports, including the insolvency of a significant supplier, global health crisis, or a major labor dispute including any such actions involving ports, transloaders, consolidators, or shippers, could have an adverse effect on our operations. Given the volatility and risk in the current markets, our reliance on external vendors leaves us subject to certain risks should one or more of these external vendors become insolvent. The financial failure of a key vendor could disrupt our operations and have an adverse effect on our cash flows, results of operations and financial condition.
Trade matters may disrupt our supply chain. Trade restrictions, including increased tariffs or quotas, embargoes, safeguards, and customs restrictions against apparel items, as well as U.S. or foreign labor strikes, work stoppages, or boycotts, could increase the cost or reduce the supply of apparel available to us and adversely affect our business, financial condition, and results of operations.
We have a Supplier Code of Conduct that provides guidelines for our vendors regarding working conditions, employment practices, and compliance with local laws. A copy of the Supplier Code of Conduct is posted on our website, www.aeo-inc.com, and is included in our vendor manual in English and multiple other languages. There can be no assurance that all violations can be eliminated in our supply chain. Publicity regarding violation of our Supplier Code of Conduct or other social responsibility standards by any of our vendor factories could adversely affect our reputation, sales, and financial performance.
There is a risk of terrorist activity on a global basis. Such activity might take the form of a physical act that impedes the flow of imported goods or the insertion of a harmful or injurious agent into an imported shipment. We cannot predict the likelihood of any such activities or the extent of their adverse impact on our operations.
We are also exposed to risks caused by new or ongoing armed conflicts. For example, the ongoing war between Russia and Ukraine, the conflict in the Middle East, and U.S. foreign policy in Latin America, have caused and continue to cause disruption, instability and volatility in global markets. These conflicts have caused and may continue to cause adverse global economic conditions resulting from escalating geopolitical tensions and inflationary pressures, among other factors.
Our product costs have been and may continue to be adversely affected by foreign trade issues, including import tariffs and other trade restrictions, increasing prices for raw materials, political instability, or other reasons, which could impact our profitability.
A significant portion of the products that we purchase is manufactured abroad. Foreign imports subject us to risks relating to changes in import duties, quotas, the introduction of U.S. taxes on imported goods or the extension of U.S. income taxes on our foreign suppliers' sales of imported goods through the adoption of destination-based income tax jurisdiction, loss of "most favored nation" status with the U.S., shipment delays and shipping port constraints, labor strikes, work stoppages or other disruptions, freight cost increases and economic uncertainties. Furthermore, we could face significantly higher U.S. income and similar taxes with respect to sales of products purchased from foreign suppliers if the U.S. were to adopt a system of taxation, such as a border adjustment tax, under which the cost of imported products was not deductible in determining such products' tax base. If such a tax system were adopted, we could also face higher prices for products manufactured or produced abroad that we purchase from our domestic suppliers if they were subject to such a tax.
In addition, recent trade policies and uncertainty related thereto, including with respect to tariffs and other restrictions, with respect to countries from which we source our merchandise and raw materials, have created a dynamic and unpredictable trade landscape. This has and may continue to adversely impact our business and operations. On February 20, 2026, the U.S. Supreme Court held that the U.S. administration’s imposition of tariffs unlawful pursuant to the International Emergency Economic Powers Act (“IEEPA”) was unlawful, striking down the 10% global baseline tariff, as well as the higher tariffs imposed on certain U.S. trading partners. The U.S. Supreme Court’s ruling did not affect all of the recently imposed tariffs, including those imposed following trade remedy investigations by the Department of Commerce or the U.S. Trade Representative. Nor does it prohibit the imposition of future tariffs through alternative trade authorities available to the U.S. administration. On February 20, 2026, shortly after the announced U.S. Supreme Court decision, the U.S. administration announced that it would be imposing a new 10% global tariff for a period of 150 days pursuant to a balance-of-payments
21
provision in Section 122 of the Trade Act of 1974, effective February 24, 2026, which is being challenged in court by several US states. The U.S. administration further announced that it would begin additional trade remedy investigations into unidentified trading partners pursuant to Section 301 of the Trade Act of 1974 and with respect to certain unidentified product sectors pursuant to Section 232 of the Trade Expansion Act of 1962. The Court of International Trade subsequently issued an interim order requiring U.S. Customs and Border Protection ("CBP") to process unliquidated entries without the unlawful tariffs and to develop a plan that could result in refunds of duties previously collected. CBP has indicated it is developing a plan within 45 days to implement that order, however the scope, timing, and ultimate availability of any refunds remains uncertain. While the Company has taken steps to preserve its rights should a refund process be established, no assurance can be given that refunds will be realized.
Accordingly, uncertainty with respect to tariffs remains ongoing, and U.S. import tariffs and international trade arrangements will continue to change, potentially without warning and to an extent or duration that is difficult to predict. Changing tariff rates and shifting trade policies have created significant uncertainty for suppliers, consumers, and us. If tariffs from countries from which we source products are sustained at heightened levels, it will further increase our merchandise costs, may result in increased prices for our customers, and may negatively impact our margins and consumer demand for our products, any of which could harm our competitive position or otherwise negatively impact our operating results. Moreover, tariff and other trade-related cost pressures and supply chain disruptions may lead to reputational harm if we are unable to deliver our products or services on expected timelines. We may not be able to forecast such impacts accurately.
Although such changes have implications across the entire industry, we may fail to effectively adapt to and manage the adjustments in strategy that would be necessary in response to these changes. We have and are continuing to work with our suppliers to mitigate our exposure to current or potential tariffs, but there can be no assurance that we will be able to offset any increased costs. In addition, U.S. trading partners may take retaliatory measures or may change their business and trade policies in anticipation of or in response to increased import tariffs and other changes in U.S. trade policy and regulations already enacted or that may be enacted in the future. Further, our efforts to mitigate the impacts of tariffs are time-consuming and costly, and may not be effective.
Our suppliers may be impacted by economic conditions and cycles and changing laws and regulatory requirements that could impact their ability to do business with us or cause us to terminate our relationship with them and require us to find replacements, which we may have difficulty doing.
Our suppliers are subject to the fluctuations in general economic cycles, and global economic conditions may impact their ability to operate their businesses. They may also be impacted by the increasing costs or availability of raw materials due to inflationary pressures or rising labor and distribution costs, among other reasons, potentially resulting in demands for less attractive contract terms or an inability for them to meet our requirements or conduct their own businesses. The performance and financial condition of a supplier may cause us to alter our business terms or to cease doing business with a particular supplier, or change our sourcing practices generally, which could in turn adversely affect our business and financial condition.
In addition, we require our suppliers to comply with applicable laws, including labor, safety, anti-corruption, human rights, and environmental laws, and to otherwise meet our Vendor Code of Conduct and other industry standards. Our ability to find qualified suppliers who uphold our standards and provide access to products in a timely and efficient manner in the volume we may demand, in compliance with applicable laws, can present a significant challenge, especially with respect to suppliers located and goods sourced outside the U.S.. Further, U.S. foreign trade policies, tariffs, and other impositions on imported goods, trade sanctions imposed on certain countries and entities, the limitation on the importation of goods containing certain materials from other countries and other factors relating to foreign trade policy are beyond our control and remain uncertain given the current geopolitical landscape.
Failure to properly manage and allocate our inventory could have an adverse effect on our business, sales, margins, financial condition, and results of operations.
In order to better serve our customers and maximize sales, we must properly execute our inventory management strategies by appropriately allocating merchandise among our stores, timely and efficiently distributing inventory to such locations, maintaining an appropriate mix and level of inventory in such locations, and effectively managing pricing and markdowns, and there is no assurance we will be able to do so. In addition, as we continue to take actions to right-size our inventory, there could be disruptions in inventory flow and placement. We are also subject to the risk of loss or theft of our inventory, by employees, customers, or organized retail crime. Failure to effectively execute our inventory management strategies could adversely affect our business, financial condition and results of operations.
22
We base our purchases of inventory, in part, on our sales forecasts. If our sales forecasts do not match customer demand, we may experience higher inventory levels and need to markdown excess or slow-moving inventory, leading to decreased profit margins, or we may have insufficient inventory to meet customer demand, leading to lost sales, either of which could adversely affect our financial performance.
Our inability to achieve planned store performance, gain market share in the face of declining shopping center traffic or attract customers to our stores could adversely impact our profitability and our results of operations.
The results achieved by our stores may not be indicative of long-term performance or the potential performance of stores in other locations. Part of our future growth is dependent on our ability to operate stores in desirable locations with capital investment and lease costs providing the opportunity to earn a reasonable return. We cannot be sure as to when or whether such desirable locations will become available at reasonable costs. The failure of our stores to achieve acceptable results could result in store asset impairment charges, which could adversely affect our results of operations and financial condition.
Additionally, our real estate strategy may not be successful, and store locations may fail to produce desired results, which could impact our competitive position and profitability. Customer shopping patterns have been evolving from brick-and-mortar locations to, increasingly, digital channels. We have Company-owned stores in shopping centers that have experienced declining traffic trends while our digital channels continue to grow. Our ability to grow revenue and acquire new customers is contingent on our ability to drive traffic to both store locations and digital channels so that we are accessible to our customers when and where they want to shop.
We seek to locate our brick-and-mortar stores in prominent locations within successful shopping malls or street locations. Our stores benefit from the ability of the malls’ "anchor" tenants, which generally are large department stores and other area attractions, to generate consumer traffic near our stores. We cannot control the increasing impact of digital channels on shopping center traffic, the loss of an anchor or other significant tenant in a shopping mall in which we have a store, the development of new shopping malls in the U.S. or around the world, the availability or cost of appropriate locations, competition with other retailers for prominent locations, or the success of individual shopping malls. All of these factors may impact our ability to meet our sales targets and could have a material adverse effect on our financial results. In addition, some malls and shopping centers that were in prominent locations when we opened our stores may cease to be viewed as prominent. If this trend away from brick-and-mortar retail continues or if the popularity of mall shopping continues to decline generally among our customers, our sales may decline, which would impact our results of operations and financial condition.
We have significant lease obligations and are subject to risks associated with leasing substantial amounts of space, including future increases in occupancy costs and the need to generate significant cash flow to meet our lease obligations.
Operating lease obligations, which consist primarily of future minimum lease commitments related to store operating leases, represent a significant contractual commitment. All of our stores are leased and generally have initial terms of five-10 years. In the future, we may not be able to negotiate favorable lease terms for the most desired store locations. Our inability to do so may cause our occupancy costs to be higher in future years or may force us to close stores in desirable locations.
Certain leases have early termination options, which can be exercised under certain specific conditions. In addition to future minimum lease payments, some of our store leases provide for additional rental payments based on a percentage of net sales, or "percentage rent," if sales at the respective stores exceed specified levels, as well as the payment of tenant occupancy costs, including maintenance costs, common area charges, real estate taxes and certain other expenses. Many of our lease agreements have defined escalating rent provisions over the initial term and any extensions.
We depend on cash flow from operations to pay our lease expenses. If our business does not generate sufficient cash flow from operating activities to fund these expenses, due to continued decreases in mall traffic, the highly competitive and promotional retail environment, or other factors, we may not be able to service our lease expenses, or may need to incur additional indebtedness, which could materially harm our business. Furthermore, the significant cash flow required to satisfy our obligations under the leases increases our vulnerability to adverse changes in general economic, industry, and competitive conditions, and could limit our ability to fund working capital, incur indebtedness, and make capital expenditures or other investments in our business.
We rely on key personnel, the loss of whom could have a material adverse effect on our business.
Our success depends to a significant extent upon our ability to attract and retain qualified key personnel, including senior management, and, in particular, Jay Schottenstein, our Executive Chairman and CEO, as well as Jennifer Foyle, our President, Executive Creative Officer - AE and Aerie. Collective or individual changes in our senior management and other key personnel could have an adverse effect on our ability to determine and execute our strategies, which could adversely affect our business and results of operations. There is a high level of competition for senior management and other key
23
personnel, and we cannot be assured we will be able to attract, retain, and develop a sufficient number of qualified senior managers and other key personnel.
We must also attract, develop, and retain a sufficient number of qualified field and distribution center personnel. Competition for talent is intense and the turnover rate in the retail industry is generally high, and we cannot be sure that we will be able to attract and retain a sufficient number of qualified personnel in future periods. Our ability to meet our labor needs while controlling costs is subject to external factors such as unemployment levels, prevailing wage rates, minimum wage legislation, and overtime regulations. If we are unable to retain, attract, and motivate talented employees with the appropriate skill sets, or if changes to our organizational structure, operating results, or business model adversely affect morale or retention, we may not achieve our objectives and our results of operations could be adversely impacted. In addition, the loss of one or more of our key personnel or the inability to effectively identify a suitable successor to a key role could have a material adverse effect on our business.
Increases in labor costs, including wages, could adversely impact our operational results, financial condition and results of operations.
Our store and distribution center operations are subject to laws governing such matters as minimum wages, working conditions and overtime pay. As minimum wage rates increase or related laws and regulations change, we may need to increase not only the wage rates of our minimum wage employees, but also the wages paid to our other hourly or salaried employees. Any increase in the cost of our labor could have an adverse effect on our financial condition and results of operations. In addition, we operate in a competitive labor market, in which wage actions by other retailers and companies may require us to increase salary and wage rates, bonuses and other incentives in order to attract and retain talented employees across all of our retail store, distribution and fulfillment center, and home office operations. Labor shortages and increased employee turnover could also increase our labor costs. This in turn could lead us to increase prices, which could adversely impact our sales. We are also subject to risks related to other store and distribution center expenses and operational costs. Conversely, if competitive pressures or other factors prevent us from offsetting increased labor costs by increases in prices, our profitability may decline.
We cannot provide assurance that we will pay dividends, or if paid, that dividend payments will be consistent with historical levels.
We have generally paid quarterly dividends, which are funded through cash flow from operations and available cash on hand. The declaration of dividends is subject to the discretion of our Board and is limited by applicable state law concepts of available funds for distribution, as well as contractual restrictions. As a result, the amount, if any, of the dividends to be paid in the future will depend upon a number of factors, including our available cash on hand, anticipated cash needs, overall financial condition, any future contractual restrictions, future prospects for earnings and cash flows, as well as other factors considered relevant by our Board. In addition, our Board may also suspend the payment of dividends at any time if it deems such action to be in the best interests of the Company and its stockholders.
There can be no assurance that the Company will pay dividends in the future on a regular basis or otherwise. In the event our financial condition or other factors necessitate, our Board may choose to delay or suspend the payment of our dividends again in the future.
Legal, Tax, and Regulatory Risks
We are subject to stringent and changing laws, regulations, and standards, related to data privacy, protection, and security. Our failure to comply with privacy laws and regulations could have a material adverse effect on our business.
State, federal, and foreign governments are increasingly enacting laws and regulations governing the collection, use, retention, sharing, transfer, and security of personally identifiable information and data. A variety of federal, state, local, and foreign laws and regulations, orders, rules, codes, regulatory guidance and certain industry standards regarding privacy, data protection, consumer protection, information security and the processing of personal information and other data apply to our business. The state and federal legislative and regulatory activity in this area may result in new or amended regulation or guidance that may hinder our business, for example, by restricting use or sharing of consumer data (including for marketing and advertising) or otherwise regulating AI (including the use of algorithms and automated processing) which could materially affect our business or significantly increase the cost of compliance. Additionally, the use of AI, including potential inadvertent disclosure of confidential information or personal data, could also lead to legal and regulatory investigations and enforcement actions, or may give rise to specific obligations, including required notices, consents and opt-outs, under various data privacy, protection and cybersecurity laws and regulations in a number of jurisdictions.
24
We also may be subject to other consumer data and protection/privacy laws. Additionally, the regulatory environment is increasingly demanding with frequent new and changing requirements concerning cybersecurity, information security and privacy, which may be inconsistent from one jurisdiction to another. Any failure by us or any of our business partners to comply with applicable laws, rules, and regulations may result in investigations or actions against us by governmental entities, private claims and litigation, fines, penalties or other liabilities. Such events may increase our expenses, expose us to liabilities and impair our reputation, which could have a material adverse effect on our business. Moreover, the increasing adoption of AI technologies has led data protection authorities around the world to consider and adopt new and evolving interpretations of data protection laws. Such laws and regulations focused on the use and provision of AI technologies may impose certain obligations on us (e.g., obligations regarding processing of personal data, including required notices, consents and opt-outs) and could result in monetary penalties or other regulatory actions.
While we aim to comply with applicable privacy and data protection laws and obligations, there is no assurance that we will not be subject to claims that we have violated such laws and obligations, will be able to successfully defend against such claims, or will not be subject to significant fines and penalties in the event of non-compliance. Additionally, to the extent that multiple state-level laws are introduced with inconsistent or conflicting standards and there is no federal law to preempt such laws, compliance with such laws could be difficult and costly to achieve, or impossible to achieve, and we could be subject to fines and penalties in the event of non-compliance.
The Company’s amended and restated bylaws ("Bylaws") provide, to the fullest extent permitted by law, that the Court of Chancery of the State of Delaware will be the exclusive forum for certain legal actions between the Company and its stockholders, which could increase costs to bring a claim, discourage claims or limit the ability of the Company’s stockholders to bring a claim in a judicial forum viewed by the stockholders as more favorable for disputes with the Company or the Company’s directors, officers or other employees.
Our Bylaws provide, to the fullest extent permitted by law, that unless the Company consents in writing to the selection of an alternative forum, the sole and exclusive forum for any (i) derivative action or proceeding brought on behalf of the Company; (ii) action asserting a claim for or based on a breach of a fiduciary duty owed by any current or former director or officer or other employee or agent of the Company to the Company or the Company’s stockholders, including a claim alleging the aiding and abetting of such a breach of fiduciary duty; (iii) action asserting a claim against the Company or any current or former director or officer or other employee or agent of the Company arising pursuant to any provision of the Delaware General Corporation Law ("DGCL"), or the Company’s Amended and Restated Certificate of Incorporation or Bylaws; (iv) action asserting a claim related to or involving the Company or any current or former director or officer or other employee or agent of the Company that is governed by the internal affairs doctrine of the State of Delaware or (v) action asserting an "internal corporate claim," as that term is defined in Section 115 of the DGCL shall, in each case, be the Delaware Court of Chancery located within the State of Delaware (or, if the Delaware Court of Chancery located within the State of Delaware lacks jurisdiction over any such action or proceeding, the sole and exclusive forum for such action or proceeding shall be another state or federal court located within the State of Delaware). Additionally, our Bylaws provide that unless the Company consents in writing to the selection of an alternative forum, the federal district courts of the U.S. of America shall be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. The choice of forum provisions may increase costs to bring a claim, discourage claims or limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company or the Company’s directors, officers or other employees, which may discourage such lawsuits against the Company or the Company’s directors, officers and other employees. Alternatively, if a court were to find the choice-of-forum provisions contained in the Company’s Bylaws to be inapplicable or unenforceable in an action, the Company may incur additional costs associated with resolving such action in other jurisdictions. The exclusive forum provisions in the Company’s Bylaws will not preclude or contract the scope of exclusive federal or concurrent jurisdiction for actions brought under the federal securities laws including the Exchange Act or the Securities Act, as amended, or the respective rules and regulations promulgated thereunder.
We may be unable to protect our trademarks and other intellectual property rights.
We believe that our trademarks and service marks, as described in Part I, Item 1, Business, are important to our success and our competitive position due to their name recognition with our customers. We devote substantial resources to establishing and protecting our trademarks and service marks. We are not aware of any material claims of infringement or material challenges to our right to use any of our trademarks. Nevertheless, the actions we have taken, including to establish and protect our trademarks and service marks, may not be adequate to prevent others from imitating our products or seeking to block sales of our products. Other parties may also claim that some of our products infringe on their trademarks, copyrights or other intellectual property rights. Moreover, the increased prevalence of AI raises potential issues related to unauthorized use of our intellectual property by third parties, as well as potential questions over the ownership of any
25
intellectual property generated through the use of AI tools. The impact of AI on intellectual property rights may result in increased costs with respect to policing and ownership disputes. Use of AI and other machine learning technologies, by us or our service providers, in connection with the creation or development of intellectual property may present challenges in asserting ownership over the resulting output, which may not be eligible for copyright or patent protection under various laws (including those of the U.S.) without sufficient human authorship or inventorship, respectively.
In addition, the laws of certain foreign countries may not protect our proprietary rights to the same extent as do the laws of the U.S. Litigation regarding our trademarks, copyrights and other intellectual property rights could adversely affect our business, financial condition, and results of operations.
The legal and regulatory environment could adversely affect our financial condition and results of operations.
We are subject to numerous domestic and foreign laws and regulations affecting our business, including those related to labor, employment, worker health and safety, taxes, tariffs, competition, privacy, data security, AI, consumer protection, import/export, marketing, pricing, anti-corruption, including the Foreign Corrupt Practices Act, and climate change. Additional legal and regulatory requirements have increased the complexity of the regulatory environment and the cost of compliance. If we fail to comply with these laws, we could become subject to enforcement actions or the imposition of significant fines or penalties, which could harm our operations, our ability to conduct the business and/or our reputation. Laws and regulations at the local, state, federal, and international levels frequently change, and the ultimate cost of compliance cannot be precisely estimated. In addition, we cannot predict the impact that may result from changes in the regulatory or administrative landscape. If these laws change without our knowledge, or are violated by importers, designers, manufacturers, distributors, contractors, vendors, suppliers, or employees, we could experience delays in shipments or receipt of goods or be subject to fines or other penalties, any of which could adversely affect our business, our financial condition and the mark price of our common stock. Also, changes in laws and regulations could make operating our business more expensive or require us to change the way we do business.
We also face the risk of legal actions being filed against us including class actions, and we may be impacted by litigation trends, including class action lawsuits involving current/former employees, consumers and shareholders, which could make a material adverse effect on our reputation, the market price of our common stock and our results of operation, financial condition and/or cash flows.
New tax legislation, including legislation implementing changes in taxation of international business activities, could be enacted at any time and new interpretations or applied laws could increase our compliance, operating and other costs. These costs, together with fluctuations in our tax obligations and effective tax rate could adversely affect us.
We are subject to income taxes in the U.S. and certain foreign jurisdictions. We record tax expense based on our estimates of future payments, which include reserves for uncertain tax positions in multiple tax jurisdictions. At any time, multiple tax years are subject to audit by various taxing authorities. The results of these audits and negotiations with taxing authorities may affect the ultimate settlement of these issues. In addition, the tax laws and regulations in the countries where we operate may change or there may be changes in interpretation and enforcement of existing tax laws. As a result, we expect that throughout the year there could be ongoing variability in our quarterly tax rates as events occur and exposures are evaluated. Our effective tax rate in a given financial statement period may be materially impacted by changes in the mix and level of earnings by jurisdiction or by changes to existing accounting rules or regulations. Recent tax legislation and regulations, including provisions of the 2025 One Big Beautiful Bill Act (“OBBBA”) and potential increases in taxes, make significant changes to the U.S. tax regime and could materially impact how our earnings are taxed.
We are also subject to the examination of our tax returns by the Internal Revenue Service (“IRS”) and state and local taxing authorities in the United States and by taxing authorities in other jurisdictions. The laws and regulations related to tax matters are extremely complex, require significant judgment and are subject to varying interpretations and application. Although we believe our positions are reasonable, they are subject to challenge and the results of audits or related disputes could have an adverse effect on our financial statements for the period or periods for which the applicable final determinations are made. For example, we and our subsidiaries are also engaged in a number of intercompany transactions across multiple tax jurisdictions. Although we believe we have clearly reflected the economics of these transactions and the proper local transfer pricing documentation is in place, tax authorities may propose and sustain adjustments that could result in changes that may impact our mix of earnings in countries with differing statutory tax rates.
The unfavorable outcome of pending or future litigation could have an adverse impact on our business, financial condition, and results of operations.
26
From time to time, we are party to several legal proceedings arising out of various aspects of our business. The outcome of these proceedings may not be favorable, and one or more unfavorable outcomes could have an adverse impact on our business, financial condition, and results of operations.
General Risk Factors
Additionally, other factors could adversely affect our financial performance, including factors such as our ability to successfully acquire and integrate other businesses; any interruption of our key infrastructure systems, including exceeding capacity in our distribution centers; any disaster or casualty resulting in the interruption of service from our distribution centers or in a large number of our stores; any interruption of our business related to an outbreak of a pandemic disease in a country where we source or market our merchandise; extreme weather conditions or changes in climate conditions or weather patterns; activist investors; and the effects of changes in interest rates.
The impact of any of the previously discussed factors, some of which are beyond our control, and others which we are not aware of or which we do not currently consider material, may cause our actual results to differ materially from our expectations expressed elsewhere in this Annual Report and other forward-looking statements we may make from time to time.
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 1C. Cybersecurity
Risk Management and Strategy
The Board as a whole has the responsibility for the Company’s risk oversight and management, which includes a focus on cybersecurity risks. To oversee cybersecurity risk at the management level, we employ a Chief Information Security Officer ("CISO") whose team is responsible for leading our company-wide cybersecurity strategies, policies, standards, architectures, operations, and processes. We have an established an Information Security Program, which is integrated into our overall enterprise risk management system and processes, to assess, identify, and manage material risks from cybersecurity threats. This program is based and built upon, informed by and responsive to industry best practice frameworks such as ISO, NIST, and the Payment Card Industry Data Security Standard. Our program undergoes an internal annual review, conducted by our CISO and internal auditors, as well as third party external review. Additionally, we are a member of an industry cybersecurity intelligence and risk-sharing organization, which enables us to stay informed about developments, trends, and risks in the cybersecurity threat landscape.
As an important component of our overall cybersecurity strategy, we leverage a diverse array of third-party cybersecurity vendors and security firms in different capacities to assess or supplement various aspects of our Information Security Program. Such third parties include cybersecurity monitoring and alerting, penetration testing along with designated external experts (including but not limited to cybersecurity breach counsel, experts in incident response, cyber forensics, and threat intelligence). Additionally, we collaborate with various cybersecurity vendors to conduct regular tabletop exercises and trainings to help fortify our Information Security Program. To elevate cybersecurity education, we supplement internal training with third-party cybersecurity vendors, providing annual security awareness training, phishing exercises, and ongoing security refreshers and reminders throughout the year.
The vendor risk management program is built upon, informed by and responsive to industry best practices, incorporating methodologies such as Standardized Information Gathering (SIG), third-party cyber/privacy attestations (e.g., Systems and Organization Controls (SOC), ISO 27001, and HITRUST), penetration tests conducted by independent security professionals, and integrating appropriate cybersecurity language into legal contracts. This program is designed to conduct appropriate due diligence upon onboarding third-party vendors.
Board Governance and Management
The CISO and designated direct reports meet on a regular basis to discuss pertinent risks, mitigation factors, remediation status, and risk acceptance.Our CISO also serves as our Vice President of Information Security, Disaster Recovery, and Asset Management. He has decades of experience across information technology, information security, and disaster recovery and has received relevant certifications including Certified Information System Auditor (CISA), GIAC Certified Intrusion Analyst (GCIA), GIAC Certified Incident Handler (GCIH), and GIAC Certified Forensic Analyst (GCFA).
27
Our CISO helps ensure the confidentiality, integrity, and availability of information that we possess through our Cyber Incident Response Plan (“CIRP”). We have assembled a cross-functional Incident Response Team with representation from a multitude of internal teams along with third-party experts to support all aspects of incident response, recovery, and reporting. The CIRP outlines processes to evaluate and respond to various cybersecurity threats, assess the severity of potential and actual incidents and their impacts, and procedures around who should be notified and involved in the Company’s responses thereto. For example, cybersecurity incidents that surpass a certain level of severity typically require updates to executive leadership and our Board. The CIRP is reviewed on a regular basis including by industry-leading incident response providers, internal/external auditors, and others. The CIRP is tested regularly through tabletop exercises facilitated by an outside expert. These proactive exercises are intended to help refine and optimize our incident response capabilities and minimize the impact of any cybersecurity incident.
Additionally, we have established a Cyber Incident Materiality Assessment Committee ("C-MAC") that is primarily responsible for conducting a materiality assessment of cybersecurity incidents and determining whether it is material for disclosure and reporting purposes in accordance with applicable rules and regulations. This assessment and determination are separate and distinct from evaluating the cyber severity of an incident, which remains within the purview of the CIRP. The C-MAC is composed of various cross-functional senior members of management, including our Chief Financial Officer, Chief Accounting Officer, Chief Supply Chain, Technology and International Officer, Chief Legal Officer, Chief Technology Officer, CISO, Senior Vice President of Corporate Communications and Investor Relations, Vice President of Internal Audit and certain key outside advisors. The C-MAC will coordinate with our Disclosure Committee in connection with any requisite disclosures.
The Board's Audit Committee receives regular reports from the CISO on pertinent cyber risks exposures, the status of projects designed to fortify our Information Security Program, metrics on the effectiveness of this program, and the emerging threats in this area. Cyber insurance coverage is reviewed annually with the Audit Committee, as part of our overall risk management process. Furthermore, on a regular basis, the CISO provides pertinent cybersecurity risk exposures and updates along with various other business units as part of the enterprise risk management report to the Audit Committee. The Audit Committee is responsible for the review and assessment of cybersecurity risk exposures and the steps taken to monitor and control those exposures. Our senior officers have ongoing engagement with the Audit Committee on cybersecurity issues.
Although the risks from cybersecurity threats have not materially affected our business strategy, results of operations, or financial condition to date, they may in the future, and we continue to closely monitor cyber risk. Overall, the Company has implemented tactical processes for assessing, identifying, and managing material risks from cybersecurity threats to the Company, including governance at the Board level and accountability in our executive management for the execution of our cyber risk management strategy and the controls designed to protect our operations. See "Risk Factors—Operational Risks" in Part I, Item 1A of this Annual Report, which should be read in conjunction with this Item 1C, for additional information regarding the Company’s cybersecurity risks.
Item 2. Properties.
We own two buildings in urban Pittsburgh, Pennsylvania that house our corporate headquarters, totaling 336,000 square feet.
We own distribution facilities in Ottawa, Kansas and Hazleton, Pennsylvania, consisting of approximately 1.2 million and 1.0 million square feet, respectively.
We lease approximately 600,000 square feet of office space in New York, New York. Approximately 200,000 square feet of this space will be vacated upon lease expiration in 2026. Approximately 400,000 square feet of this space will be used to relocate our teams, with the associated lease expiring in 2045.
We lease a building in Mississauga, Ontario with approximately 294,000 square feet, which houses our Canadian distribution center. The lease expires in 2028.
Each of the above identified properties is shared by certain of our reportable and operating segments, including American Eagle, Aerie, Todd Snyder and Unsubscribed brands.
We lease regional distribution facilities in seven cities throughout the U.S. totaling 2.6 million square feet, with varying terms expiring through 2030. These facilities were used by our Quiet Platforms operating segment throughout Fiscal 2025, and primarily serve as AEO's regionalized fulfillment centers. Refer to Note 15, Impairment, Restructuring and Other Charges,
28
to the Consolidated Financial Statements included herein for additional information regarding the closure of Quiet Platforms fulfillment centers.
As for our stores, all are leased and generally have initial terms of five to 10 years. Certain leases also include early termination options, which can be exercised under specific conditions. Most of these leases provide for base rent and require the payment of a percentage of sales as additional contingent rent when sales reach specified levels. Under our store leases, we are typically responsible for tenant occupancy costs, including maintenance and common area charges, real estate taxes and certain other expenses. We have generally been successful in negotiating renewals as leases near expiration.
Item 3. Legal Proceedings.
We are involved, from time to time, in actions associated with or incidental to our business, including, among other things, matters involving consumer privacy, trademark and other intellectual property, licensing, importation of products, taxation, and employee relations. As of the date of this Annual Report, we believe that the resolution of currently pending matters will not individually or in the aggregate have a material adverse effect on our consolidated financial position or results of operations. However, our assessment of any litigation or other legal claims could potentially change in light of the discovery of facts not presently known or determinations by judges, juries, or other finders of fact that are not in accord with management's evaluation of the possible liability or outcome of such litigation or claims. Consistent with Item 103 of Regulation S-K, we have elected to disclose those environmental proceedings with a governmental entity as a party where the Company reasonably believes that such proceeding would result in monetary sanctions, exclusive of interest and costs, of $1.0 million or more. Applying this threshold, there are no environmental matters to disclose for Fiscal 2025.
Refer to Note 2, Summary of Significant Accounting Policies, to the Consolidated Financial Statements included herein for additional information.
Item 4. Mine Safety Disclosures.
Not Applicable.
29
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities.
Market Information and Holders
Our common stock is traded on the NYSE under the symbol "AEO." As of March 12, 2026, there were 439 stockholders of record. However, when including associates who own shares through our employee stock purchase plan, and others holding shares in broker accounts under street name, we estimate the stockholder base at approximately 120,000.
Dividends
A quarterly cash dividend of $0.125 per share was paid in all four quarters of Fiscal 2025, resulting in a dividend yield of 3.3%.
A quarterly cash dividend of $0.125 per share was paid in all four quarters of Fiscal 2024, resulting in a dividend yield of 2.4%.
Subsequent to the fourth quarter of Fiscal 2025, our Board declared a $0.125 per share dividend, payable on April 24, 2026 to stockholders of record at the close of business on April 10, 2026.
The Company maintains the right to defer the record and payment dates of any declared dividends, depending upon, among other factors, business performance, and the macroeconomic environment. The payment of future dividends is at the discretion of our Board and is based on future earnings, cash flow, financial condition, capital requirements, changes in U.S. taxation, and other relevant factors.
30
Performance Graph
The following performance graph and related information shall not be deemed "soliciting material" or to be filed with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or Exchange Act, except to the extent that we specifically incorporate it by reference into such filing.
The following graph compares the changes in the cumulative total return to holders of our common stock with that of the S&P Midcap 400 and our peer group as described below. The comparison of the cumulative total returns for each investment assumes that $100 was invested in our common stock and the respective index on January 30, 2021 and includes reinvestment of all dividends. The plotted points are based on the closing price on the last trading day of the fiscal year indicated.
We compared our cumulative total return to a custom peer group that aligns with our compensation peer group, as disclosed in our Proxy Statement for the 2025 Annual Meeting of Stockholders. For Fiscal 2025, this group consisted of the following companies: Abercrombie & Fitch Co.; Burberry Group PLC; Capri Holdings Limited; Columbia Sportswear Company; The Gap, Inc.; Guess? Inc.; Hanesbrands Inc.; Kontoor Brands; Levi Strauss & Co.; lululemon athletica, inc.; PVH CORP.; Ralph Lauren Corporation; Tapestry, Inc.; Under Armour Inc.; Urban Outfitters, Inc; V.F. Corporation; and Victoria's Secret & Co.
Our peer group was updated for Fiscal 2025 to include Columbia Sportswear Company and V.F. Corporation and to remove Express, Inc. in light of its Chapter 11 bankruptcy in April 2024. Hanesbrands Inc. and Guess? Inc. are included in our peer group until their delistings from the New York Stock Exchange in December 2025 and January 2026, respectively.
31
Issuer Purchases of Equity Securities
The following table provides information regarding our repurchases of common stock during the 13 weeks ended January 31, 2026.
Total Number of Maximum Number of
Total Average Shares Purchased as Shares That May
Number of Price Paid Part of Publicly Yet Be Purchased
Period Shares Purchased Per Share Announced Programs Under the Program
(1)
There were 1.0 million shares repurchased as part of our publicly announced share repurchase program during the 13 weeks ended January 31, 2026.
(2)
Average price paid per share excludes any broker commissions paid.
(3)
On March 11, 2025, the Board authorized the public repurchase of an additional 50 million shares under our existing share repurchase program, which expires on February 3, 2029.
32
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help the reader understand the Company, our operations and our present business environment. MD&A is provided as a supplement to — and should be read in conjunction with — our consolidated financial statements and the accompanying Notes thereto contained in Part II, Item 8 – Financial Statements and Supplementary Data " — of this report.
This MD&A generally discusses Fiscal 2025 and Fiscal 2024 and provides year-to-year comparisons between Fiscal 2025 and Fiscal 2024. Discussions of Fiscal 2023 and year-to-year comparisons between Fiscal 2024 and Fiscal 2023 that are not included in this Annual Report can be found in "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Part II. Item 7 of our annual report on Form 10-K for the fiscal year ended February 1, 2025.
Introduction
This MD&A is organized as follows:
•Executive Overview
•Key Performance Indicators
•Current Trends and Outlook
•Results of Operations
•Non-GAAP Information
•Liquidity and Capital Resources
•Critical Accounting Estimates
•Recent Accounting Pronouncements
Executive Overview
We are a leading global specialty retailer offering high-quality, on-trend clothing, accessories and personal care products at affordable prices under our American Eagle® and Aerie® brands.
We have two reportable segments, American Eagle and Aerie. Our Chief Operating Decision Maker (defined as our CEO) analyzes segment results and allocates resources between segments based on adjusted operating income, which is a non-GAAP financial measure. See "Non-GAAP Information" below and Note 14, Segment Reporting, to the Consolidated Financial Statements included herein for additional information.
Key Performance Indicators
Our management evaluates the following items, which are considered key performance indicators, in assessing our performance:
Comparable Sales — Comparable sales and comparable sales changes provide a measure of sales growth for stores and channels open at least one year over the comparable prior-year period. In fiscal years following those with 53 weeks, the prior-year period is shifted by one week to compare similar calendar weeks. A store is included in comparable sales in the 13th month of operation. However, stores that have a gross square footage change of 25% or greater due to a remodel are removed from the comparable sales base, but are included in total sales. These stores are returned to the comparable sales base in the 13th month following the remodel. Sales from American Eagle, Aerie, Todd Snyder, and Unsubscribed stores, as well as sales from AEO Direct and other digital channels, are included in total comparable sales. Sales from licensed stores are not included in comparable sales. Individual American Eagle and Aerie brand comparable sales disclosures include sales from stores and AEO Direct.
Omni-Channel Sales Performance — Our management utilizes the following quality of sales metrics in evaluating our omni-channel sales performance: comparable sales, average unit retail price, total transactions, units per transaction, and consolidated comparable traffic. We include these metrics in our discussion within this MD&A when we believe that they enhance the understanding of the matter being discussed. Investors may find them useful as such. Each of these metrics is defined as follows (except comparable sales, which is defined separately above):
33
•
Average unit retail price represents the selling price of our goods. It is the cumulative net sales divided by the net units sold for a period of time.
•
Total transactions represents the count of customer transactions over a period of time (inclusive of Company-owned stores and AEO Direct, unless specified otherwise).
•
Units per transaction represents the number of units sold divided by total transactions over a period of time (inclusive of Company-owned stores and AEO Direct, unless specified otherwise).
•
Consolidated comparable traffic represents visits to our Company-owned stores, limited to those stores that qualify to be included in comparable sales as defined above, including AEO Direct, over a period of time.
Gross Profit — Gross profit measures whether we are optimizing the profitability of our sales. Gross profit is the difference between total net revenue and cost of sales. Cost of sales consists of merchandise costs, including design, sourcing, importing, and inbound freight costs, as well as markdowns, shrinkage and certain promotional costs, Quiet Platforms costs to service our customers and buying, occupancy and warehousing costs and services. Design costs consist of compensation, rent, depreciation, travel, supplies, and samples.
Buying, occupancy and warehousing costs and services consists of compensation, employee benefit expenses and travel for our buyers and certain senior merchandising executives; rent and utilities related to our stores, corporate headquarters, distribution centers and other office space; freight from our distribution centers to the stores; compensation and supplies for our distribution centers, including purchasing, receiving and inspection costs; and shipping and handling costs related to our e-commerce operations.
The inability to obtain acceptable levels of sales, initial markups or any significant increase in our use of markdowns could have an adverse effect on our consolidated gross profit and results of operations.
Operating Income — Our management views operating income as a key indicator of our performance. The key drivers of operating income are net revenue, gross profit, our ability to control selling, general, and administrative ("SG&A") expenses, and our level of capital expenditures.
Cash Flow and Liquidity — Our management evaluates cash flow from operations and investing and financing activities in determining the sufficiency of our cash position and capital allocation strategies. Cash flow has historically been sufficient to cover our uses of cash. Our management believes that cash flow and liquidity will be sufficient to fund anticipated capital expenditures and working capital requirements for the next 12 months and beyond.
Current Trends and Outlook
Macroeconomic Conditions, Inflation and Tariffs
During Fiscal 2024 and Fiscal 2025, our results were negatively impacted by macro-economic challenges and global inflationary pressures impacting consumer spending behavior, which constrained revenue and increased margin pressure to clear through excess inventory.
In addition, recent trade policies and uncertainty related thereto, including with respect to tariffs and other restrictions, with respect to countries from which we source our merchandise and raw materials, have created a dynamic and unpredictable trade landscape. This has and may continue to adversely impact our business and operations. On February 20, 2026, the U.S. Supreme Court held that the U.S. administration’s imposition of tariffs unlawful pursuant to the International Emergency Economic Powers Act (“IEEPA”) was unlawful, striking down the 10% global baseline tariff, as well as the higher tariffs imposed on certain U.S. trading partners. The U.S. Supreme Court’s ruling did not affect all of the recently imposed tariffs, including those imposed following trade remedy investigations by the Department of Commerce or the U.S. Trade Representative. Nor does it prohibit the imposition of future tariffs through alternative trade authorities available to the U.S. administration. On February 20, 2026, shortly after the announced U.S. Supreme Court decision, the U.S. administration announced that it would be imposing a new 10% global tariff for a period of 150 days pursuant to a balance-of-payments provision in Section 122 of the Trade Act of 1974, effective February 24, 2026, which is being challenged in court by several US states. The U.S. administration further announced that it would begin additional trade remedy investigations into unidentified trading partners pursuant to Section 301 of the Trade Act of 1974 and with respect to certain unidentified product sectors pursuant to Section 232 of the Trade Expansion Act of 1962. The Court of International Trade subsequently issued an interim order requiring U.S. Customs and Border Protection ("CBP") to process unliquidated entries without the unlawful tariffs and to develop a plan that could result in refunds of duties previously collected. CBP has indicated it is developing a plan within 45 days to implement that order, however the scope, timing, and ultimate availability of any refunds remains uncertain. While the Company has taken steps to preserve its rights should a refund process be established, no assurance can be given that refunds will be realized.
34
Accordingly, uncertainty with respect to tariffs remains ongoing. The imposition of tariffs by the U.S. government, associated geopolitical tensions, including reciprocal tariffs by trading partners, and uncertainties regarding U.S. import tariffs have and may further affect our margins and operations or could lead to further weakened business conditions for our industry. We continue to evaluate the impact of tariffs and other trade policies on our business.
For further information about the risks associated with global economic conditions and the effect of economic pressures on our business, see "Risk Factors" in Part I, Item 1A of this Annual Report.
Results of Operations
Overview
With a deliberate action plan that ignited growth, we improved profitability and cash flow fueling a strong finish to Fiscal 2025. Initiatives across merchandising, operations and marketing continue to strengthen our company and position our brands for long-term success. We remain committed to driving continued profitable growth and strong cash flow for our shareholders. Except as otherwise indicated, all comparisons are to Fiscal 2024.
•
Total net revenue increased $219 million to $5.547 billion compared to $5.329 billion last year.
•
Total comparable sales increased 3%. By brand, comparable sales for Aerie increased 9%, and American Eagle comparable sales were flat year-over-year.
•
Gross profit decreased 3% to $2.025 billion and decreased by 270 basis points to 36.5% as a percentage of revenue.
•