Prepared remarks
Good afternoon, everyone. Welcome to AEO Inc. First Quarter 26 Earnings Conference Call. All participants will be in a listen-only mode. Please signal a conference specialist by pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions. To withdraw your question, please press star and then 2. Please note this event is being recorded. I would now like to turn the conference over to Judy Meehan, Vice President, Corporate Communications. Please go ahead.
Good afternoon, everyone. Joining me today for our prepared remarks are Jay L. Schottenstein, Executive Chairman and Chief Executive Officer; Jen Foyle, President and Executive Creative Director for American Eagle and Aerie; and Mike Mathias, Chief Financial Officer. Before we begin today's call, I need to remind you that we will make certain forward-looking statements. These statements are based upon information that represents the company's current expectations or beliefs. The results actually realized may differ materially based on risk factors included in our SEC filings. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. Note that included in our press release and during this call certain financial metrics are presented on both a GAAP and non-GAAP adjusted basis. Reconciliations of adjusted results to the GAAP results are available in the tables attached to the earnings release, which is posted on our corporate website at www.aeo-inc.com in the Investor Relations section. Here, you can also find our first quarter investor presentation. Now I will turn the call over to Jay.
Thanks, Alex, and good afternoon, everyone. This quarter reflected the strength of our portfolio and the power of Aerie and work underway at American Eagle. Overall, we are pleased with performance in the quarter. We delivered revenue of $1.2 billion, up 10% versus last year, with operating income of $28 million, ahead of our guidance. Aerie continued to fuel exceptional growth and profitability across channels, surpassing $2 billion on a trailing 12-month basis. AE's performance in men's and women's tops continues its momentum, yet we have identified specific opportunities to better position women's bottoms. Over the past year, our teams have moved with urgency to strengthen the business and improve execution. I am proud of the progress we have made. We are moving with purpose and with a firm understanding of where improvement is needed. We are extremely pleased with the continued momentum in Aerie and Offline, with revenue of $481 million, up 34% versus last year. Demand remains strong across categories and channels, supported by compelling product collections, high customer engagement, and continued expansion of brand awareness. Aerie's winning formula is its real connection with customers, product positioning, and its leadership in everyday comfort. Offline also continues to be an important long-term growth opportunity as we build awareness and scale the activewear brand across stores, digital, and social. Together, Aerie and Offline are powerful brands with growing recognition, a loyal customer community, and significant runway ahead. American Eagle's results were mixed in the quarter. We had continued strength in men's, delivering the third consecutive quarter of positive performance. We saw softer trends in women's bottoms, including denim, along with pressure on seasonal categories during a colder spring. These are areas we understand well, and we are actively addressing them. While May started slowly for the AE brand, we are encouraged by the improvement in the business that we have seen over the last few weeks. We remain highly confident in the relevance and resilience of the overall AE brand and in our ability to strengthen execution and drive better results moving forward. We must improve conversion, sharpen assortments, drive greater productivity in women's, and build on the progress in men's. Marketing continues to be an important investment across the portfolio and a key driver of long-term brand health, supporting both AE and Aerie through initiatives that deepen customer connection, expand our reach, and keep our brands at the center of culture and conversation. This value is seen in strong engagement across the portfolio where our product and brand message continues to resonate with both new and existing customers. The attention around key campaigns, talent, and customer activation only reinforces the power of our brand. We are leveraging our learnings as we activate Go Forward plans and are working to recalibrate spending to maximize our efforts. We will continue investing behind our brands and capabilities where we see the strongest returns. We are excited about the opening of our West Coast distribution center in Phoenix, which went live in early May, as we further optimize our distribution network, improve inventory placement, and continue to give customers more ways to get what they want when they want it. I am especially proud of our innovation, passion, and teamwork that enabled us to bring this facility online in under one year. Every investment we make supports our long-term growth agenda and creates value for AEO. We are operating in a dynamic environment and the retail landscape remains highly fluid. This is why execution matters, and we understand the importance of staying disciplined and flexible. We remain fully prepared to utilize the many levers available to us within product sourcing, marketing, and operations to navigate headwinds as a result of macroeconomic uncertainty. Finally, I want to thank our associates across the company. We are proud of the work our teams have done to build a stronger and more agile operating foundation across the organization. Their commitment and dedication to AEO and our brands have been critical to the success and progress we are making. We all believe strongly in the opportunities that lie ahead. As America celebrates 250 years, we are incredibly proud of our permanent place in the fabric of American style. We have powerful brands, a solid operating foundation, and a clear pathway to drive profitable growth and deliver long-term value for shareholders. With that, I will turn the call over to Jen.
Thank you, Jay, and good afternoon, everyone. Before I get into specifics, I want to acknowledge the incredible performance of the Aerie business and extend my appreciation to the entire team. Surpassing $2 billion in revenue reflects years of disciplined brand building, deep customer connection, and consistent execution. Turning now to the quarter: we are thrilled by the excitement, energy, and customer response to the Aerie and Offline brands. Our results are a direct reflection of what happens when great product, impactful marketing, and aligned sales channels work together seamlessly. Aerie is firing on all cylinders, delivering repeatable growth by aligning seasonal trends with elevated brand visibility, perception, and a more engaged customer base. Aerie saw broad-based strength across key categories led by a 45% comp in Aerie apparel. A key driver of the success has been a head-to-toe approach across intimates, sleep, and apparel. This cohesive strategy simplifies how customers outfit themselves while increasing basket size and average order value. Intimates delivered a standout quarter with high single-digit comps anchored by a record-setting performance in our undies business, where our leadership in cotton fabrication drove an exceptional customer response. Sleep also continues to scale rapidly and we view this category as a long-term engine for top-line growth. We successfully transitioned away from brand-wide promotions to more disciplined, higher-margin commercial strategies. This shift was fueled by three key levers: targeted promotions, always-on pricing in key categories, and investments in marketing to acquire and retain high-value customers. This strategy has resulted in improved average unit retail and product margins. We drove elevated brand visibility through marketing investments, most notably our 100% Aerie Real campaign featuring Pamela Anderson. The campaign builds on our Aerie Real mission to always put inclusivity and authenticity first. This next chapter reinforces Aerie's commitment to transparency and a promise to never use AI-generated bodies or people in our marketing. The strong emotional connection we have built with our customer community is driving deeper resonance, relevance, and loyalty. Additionally, our new Aerie RealMakers influencer program blew past its six-month target within weeks, significantly increasing repeat customer engagement. Offline is continuing to prove to be the new breakout brand in our portfolio. We continue to build the Offline community and customers are responding to new silhouette styles and fabrications. Matching sets and a strong color story through curated drops are driving excitement. Offline is currently the number two legging brand within our core demo, and it is well on its way to becoming its own activewear brand. While we remain encouraged by the momentum at Aerie, we do recognize the environment remains competitive and sustaining growth at scale requires continued discipline, innovation, and execution. I am confident our team is ready and able to deliver in all those areas. Now turning to American Eagle. I believe deeply in this brand and its potential. While results were more mixed, we are not satisfied with where the business performed this quarter, especially in women's. We know what needs to be corrected, and the teams are aligned to return AE to growth. Despite a slower start to the year with revenue down 2% versus last year, AE's performance in men's, along with women's tees and fashion tops, continues to be a highlight again this quarter. We have been dedicated to rebuilding the AE men's business and our efforts have resulted in its third consecutive quarter of positive growth with gains across tops and bottoms. This reflects the team's efforts to improve product assortments and generate stronger customer response in key categories. Women's bottoms underperformed our expectations and were the primary driver of AE's sales decline. Some of the challenges this quarter reflected the need to double down on specific styles and fits, coupled with a colder spring which impacted demand in several seasonal categories. That said, we are very focused on the areas within our control and where we need to improve execution and product productivity. As merchants, we move quickly when we see opportunities and when we see misses, and we are already making adjustments. As we head into the crucial back-to-school season, we are refining our bottoms architecture, specifically optimizing key silhouettes and rises while leveraging our chase capabilities to inject fresh newness. At the same time, we are scaling high-demand categories within women's tops to fully maximize ongoing consumer momentum. Looking ahead, we have strong product deliveries and newness on the way for the remainder of the year. I am also incredibly excited about the new talent in women's merchandising and design as we stack our exceptional existing roster. Building strength across these critical creative and product roles will sharpen our edge as we prepare for AEO's 50th anniversary in 2027. We continue to see strong customer engagement around AE brand marketing initiatives and partnerships. The customer file is expanding and is larger than ever at more than 19 million customers, up 3% year-over-year. We saw moments of strong engagement through the quarter, and we absolutely believe there is continued customer loyalty and love for this iconic brand, reinforcing that American Eagle remains top of mind with our core customers. More recently, we introduced our AE creator community and launched a dedicated TikTok Shop which is helping us engage customers in a more relevant and immediate way. We also have a strong pipeline of launches and collaborations that continue to highlight AE, including already announced partnerships with Bubble Skincare and exclusive integration with Prime Video's hit show Off-Campus. Our strategic marketing investments have driven awareness and consideration and now we are focused on conversion. As we transition into the summer season, we are encouraged by a recent acceleration in the trend of the business, and we are well positioned to capitalize on the quarter ahead of us. I firmly believe in the power of the AE brand and our team is highly focused on executing with even greater clarity, speed, and discipline. We are confident that we can capture demand and build momentum as we move throughout this year. As I close, I want to echo what you heard from Jay: there is incredible work happening across this entire AEO organization. Building and growing brands in today's environment requires creativity, resilience, speed, and constant evolution. I am so proud of the passion and commitment our people continue to pour into our brands every single day. I remain deeply confident in the long-term power of American Eagle, Aerie, and Offline. We are staying very close to our customers, moving quickly when we see opportunity, and remaining disciplined in the areas where we need to improve. Together, we are actively working to drive healthier, more consistent performance at AEO over time. And with that, I will turn the call over to Mike Mathias.
Thanks, Jennifer, and good afternoon, everyone. Our first quarter results reflect our continuous actions to strengthen our operational foundation and invest in our brand portfolio for long-term value creation. We delivered on our revenue and operating income expectations, driven by the continued outstanding momentum at Aerie and Offline. As Jay and Jennifer described, we are actioning on the opportunities for improvement within the AE brand performance. We are managing what is in our control with absolute focus and the business remains structurally resilient. First quarter consolidated revenue of $1.2 billion increased 10% versus last year with comparable sales growing 8%. Aerie's strong business continued with total sales growing by 34% and comparable sales up 25% with growth across channels. The AE brand was down 2% with comparable sales also declining 2%. AE brand digital performance was flat; the comp results were driven by a decline in stores. Gross profit dollars of $456 million rose 41% from last year and gross margin of 38.2% increased 860 basis points. Merchandise margin improved 710 basis points driven primarily by last year's inventory write-down. Buying, occupancy, and warehousing expenses leveraged 150 basis points due to positive sales and expense initiatives to control delivery and distribution costs, including benefits from winding down third-party fulfillment operations. SG&A dollars increased 11% as a result of planned investments in advertising. Interest expense increased due to a transaction agreement under which we sold a portion of our tariff claims, and other income increased due to unrealized gains on investments. Depreciation was flat year over year at $51 million. We recorded a first quarter operating profit of $28 million. The first quarter tax rate was approximately 17% and EPS was $0.14. Consolidated ending inventory at cost was up 27% while units were up 5%. The increase in cost relative to units reflects the impact of incremental tariffs this year and the comparison to the inventory write-down taken in Q1 of last year. In the first quarter, as Jay noted, we continued to make long-term investments in our business while returning cash to shareholders. First quarter CapEx totaled $61 million. The company returned $74 million to shareholders during the quarter: $21 million via the quarterly dividend and $53 million via repurchasing 3 million shares. We ended the quarter with $103 million in cash and approximately $620 million of total liquidity, including our revolver. Now turning to our outlook. For the second quarter, we expect comparable sales growth in the mid- to high-single digits, with Aerie and Offline continuing in the high teens to low twenties and American Eagle in the flat to negative low-single-digit range. Our operating income expectation is in the range of $45 million to $50 million, which includes a $20 million incremental tariff headwind versus last year and SG&A up in the mid-teens driven primarily by continued investment in advertising as previously discussed. The tariff rate on imports is planned at 10% for the second quarter and the balance of the year is planned at 15%. We have applied for roughly $190 million in tariff refunds and anticipate a $140 million net cash benefit; however, it is not included in our guidance with a significant portion still outstanding. For the full year, we expect operating profit in the range of $390 million to $410 million based on consolidated comparable sales growth in the mid-single digits. In the second half of the year, we will cycle tariffs and investments in advertising that began midyear 2025. We expect CapEx to remain in the range of $250 million to $260 million as previously guided. To wrap up our prepared remarks, the year is off to a solid start with strength across the majority of our portfolio. The teams have taken actions to capture opportunities where we see them. We will continue to manage with discipline, reallocating investment across the portfolio to create value. We will continue to control what we can control in what is still a complicated and evolving macro environment. And with that, we will open it up for questions.
Questions and answers
Thank you. We will now begin the question-and-answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star and then 2. Please limit yourself to one question. At this time, we will pause momentarily to assemble the roster. The first question will come from Jay Sole with UBS. Please go ahead.
Great. Thank you so much. Maybe I would love to dig into the American Eagle women's business. Jennifer talked about how women's tees and fashion tops were good, but women's bottoms were weak. Can you just give us a little bit more color here? What were some of the styles that maybe you need to lean into a bit more? Last year, when they were off in the first half of the year, you corrected them real quick and back-to-school ended up being really strong. It sounded like you are refining your bottoms architecture for back-to-school. Do you think you can get that comp trend to inflect by the time we get to back-to-school? A little bit more color there would be super helpful. Thank you.
Absolutely. We are really pleased with the fashion business. We have been working hard in tops and tees and it is an exceptional run rate there, but not enough to offset a highly focused and concentrated area we need to turn around and engage in. The team has already pivoted. More recently, we have seen some positive results on the denim side of the business and we are 100% focused there. We know where the problem is. We are going to pivot and we have already done testing for back-to-school. We know what rises are working and what fits are working, and we are excited to enter into our Super Bowl, which as you know, is Q3 when we lead in denim. That is all I can say. The more recent results are proving well for us and we are excited to see what is to come. All right. Thank you so much.
Next question will come from Marni Shapiro with Retail Tracker.
Hey, guys. Congratulations on Aerie and Offline. Stores look great. I was curious if we can dive in just a little bit there. Is the traffic or the sales being driven by last shoppers, new shoppers, or are people just buying more when they come into the store?
All of the above, Marni. We are striking on all chords. Honestly, we really hit a home run here. Last year at this time, we had to pivot and turn this business around. As we entered into Q3 and Q4, we really led the way here. This brand looks great and the customer engagement is unbelievable. Our brand awareness is up over double digits. All product categories are working. It is our head-to-toe outfitting: customers are engaged with our outfitting and know what to buy. If you visit a store, it is a mix-and-match environment like a candy shop; it's exciting to see and we are highly focused on those wins and how we are going to enter into back-to-school. The marketing continues to get better. The team consistently delivers stronger campaigns. Our winning formula is our customer base; they believe in our Aerie Real platform. We launched a 100% real campaign and they love it. We took a stance against AI manipulation and that is resonating. We have more categories coming, new categories, and are testing many new ideas. We are going to keep this momentum going.
And Marni, just from a pure metrics perspective, to add on what Jennifer said: it is traffic, conversion, AUR, AOV; it is existing customers and new customers. All the metrics are green across the board on that front.
That is fantastic. Best of luck. I will leave it to somebody else, but Jennifer, the low-rise drapey jeans that are in American Eagle right now with the orange flowers on them — you need, like, so many more pairs per store. Thanks, guys. Goodbye.
The next question will come from Matthew Boss with JPMorgan. Please go ahead.
Great. So at Aerie, Jennifer, could you speak to new customer acquisition that you are seeing with three consecutive comps now of double digits? And just the opportunity that you see for incremental market share from here. And then, Mike, could you elaborate on the drivers of gross margin movement in the second quarter if we are thinking about markdowns, freight, and tariffs? And the puts and takes to consider in the back half of the year?
I can start with the gross margin question, Matthew. For the second quarter, when you think about the comparison against last year, last year we were relatively healthy after the write-down and the markdowns we executed in the first quarter. This year, with the tariff assumption we are using, it's somewhere between a 150 to 200 basis point tariff impact in the quarter versus no impact last year. On the positive side, we expect buying, occupancy, and warehousing expenses to leverage again in the second quarter due to positive sales and expense initiatives. We are also accounting in the guide for some needed AE brand markdowns to ensure clearance inventory is in the optimal position as we head into the back-to-school period. So the main puts and takes for gross margin: tariff headwind of roughly 150 to 200 basis points, some markdown pressure in AE to clean up before back-to-school, and expense leverage on the other side.
Our new customer acquisition is up roughly one million, which is incredible. The beauty of Aerie is not only is our new customer acquisition increasing, but our retained customers are up — they are staying with us. We remain very sticky. It goes back to our platform and emotional connection; it drives an incredible community. I didn't mention earlier, but our new influencer program hit our expectations in three weeks and is resonating strongly with our community. We're going to continue to build on that success.
And Matthew, to add flavor on the back half gross margin: starting with the mid-single-digit consolidated comp expectation, we will be lapping tariffs in the back half, so it becomes more apples-to-apples. We had a placeholder for some potential freight pressure, which is kind of a wash with the tariff assumptions. Product margin overall is expected to get some benefit across the brands and, combined with buying and occupancy expense leverage, we expect gross margin improvement in the back half. For the full year, the plan reflects first-half pressure and back-half improvement as we lap tariffs and anniversary the advertising investments.
Thank you. The next question will come from Dana Telsey with Telsey Advisory Group. Please go ahead.
Hi. Good afternoon, everyone. As you think about your guide for the second quarter, do you expect a similar breakdown between the brands? Or with the second quarter being the beginning of back-to-school, should we expect to see any uptick in AE? Aerie at 25% is amazing. And then, Jennifer, as you think about the other product categories beyond bottoms at American Eagle, what are you seeing and how do you see the women's business doing? And then just lastly, on new stores and store closures for American Eagle — where are you, and where are you in the refreshes and how are they performing? Thank you.
I can start with the last part first. On store closures, we are still expecting a net 20 to 25 closures for the AE brand for the year. On the opening side, about 40 Aerie and Offline openings. The remodel program for AE is around 80 projects and could be north of 80 — that number is still being refined and may extend another year to complete. For Q2 sales guidance: we expect Aerie to continue its tremendous momentum in the high teens to low twenties, which could present upside. For the American Eagle brand, we guided flat to down low-single digits. That guidance is consistent with what we have seen in May to date. Early May was tougher, but the last two weeks of May have been encouraging, including the week going into Memorial Day. So the mix of brands in the guide is Aerie strong and AE flat to slightly down, which gets you to mid- to high-single-digit consolidated comps. There could be variability depending on how trends continue.
More recently we have seen a turnaround in women's. We still have the rest of this quarter to go, but there are near-term learnings that we are applying for back-to-school. Some bottom categories were highly successful; we just did not have enough distribution in them. You will see those other categories — not just denim, but newness in other categories — penetrate higher as we go into back-to-school. We believe in our denim testing; we think we have the right fits and flares for back-to-school and you will see more excitement in denim and fashion silhouettes moving into the top assortment. Shorts had been slow but turned on for Memorial Day weekend even in colder climates. We have weeks to go in this quarter and then our Super Bowl is back-to-school. The teams are armed and ready.
The next question will come from Adrianne Shapira with Barclays. Please go ahead.
This is Angus on for Adrianne Shapira. You mentioned improving conversion as a key opportunity at AE. Can you unpack where you are seeing the biggest gap today, whether that is stores versus digital, and what specific actions you are taking to close that gap near term? And then my follow-up is on inventory. Dollars are up meaningfully versus units. Can you help us understand how much of that is mix versus tariffs? I am sure it is mostly tariffs, but how comfortable do you feel with inventory positioning into the back half?
I would say the biggest conversion opportunity was definitely in stores. More recently, digital has had an incredible uptick for the AE business. We have been testing by store grade and by groups to see the price-value-quality equation where it is working for us and where we can compete. We have had some very good results from certain stores, applied those learnings recently, and seen wins. We continually look for those 'golden nuggets' to turn the business around and we have seen green shoots that we are applying more broadly.
On inventory, we are in a good position at the end of the quarter. Units were up 5% relative to an 8% comp and 10% total revenue. Cost dollars were up 27%, and the biggest driver of that differential is tariffs. In addition, last year's write-down impacts the comparison. Normalizing for tariffs and the prior write-down, our cost dollars would be up more in the high-single-digit range. So the reconciled picture is units up 5% with cost dollars impacted by tariffs and the prior-year write-down comparison.
The next question will come from Jonah Kim with TD Cowen. Please go ahead.
Just one on marketing: how are you allocating the marketing spend across Aerie and AE? I'd love a breakdown there. And then, second question: how are you thinking about comping the comp with Aerie being so strong — what are the key strategies around comping the comp there? Thank you so much.
Of course. We have grown Aerie a tremendous amount over recent years — a billion-dollar brand in five years and $2 billion more recently — so the team is very deliberate in how we continue to comp our business. We are constantly challenging ourselves: better product, better marketing, better campaigns, and quality. Aerie does this impeccably well and we have room to grow AE. We continually look at opportunities and the Aerie team feels very good about what we're up against.
On advertising, spend is up across both brands, with Aerie's advertising more commensurate with its sales increase. As Aerie sales are up about 30%, advertising in our forward plan is increased relative to that trend to fuel the momentum. We are also incrementally investing in AE to build the customer file and consideration. The second quarter is the last quarter of incrementality on that investment. For the back half of the year, total spend across the company is relatively flat versus the first half. We are rebalancing spend between brands and shifting toward digital performance marketing and influencer spend in the back half to drive day-to-day traffic and conversion. That shift is part of our plan to improve conversion and more directly monetize the marketing investment as we get into back-to-school and the rest of the year.
The next question will come from Rick Patel with Raymond James. Please go ahead.
Thank you. Good afternoon. It looks like you are planning SG&A growth to be up high single digits for the year versus up mid-single digits three months ago. Can you unpack that for us? Is that all marketing or are there other factors at play? And then secondly, can you provide additional color on the marketing campaigns you have planned into back-to-school and the potential for new brand ambassadors as we think about the back half?
Thanks, Rick. The SG&A result reflects the first quarter being up 11% and the second quarter guide being up in the mid-teens, driven primarily by incremental advertising investment. For the year, the first half is up in the teens, and the back half is roughly in line with sales, so total SG&A in the guide is roughly in line with revenue for the back half. There are also some compensation timing dynamics, but the primary driver is incremental advertising investment earlier in the year. The back half is expected to leverage as we anniversary that spend. We continue to find efficiencies across compensation, services, and travel. Overall, the guide implies roughly a 10% increase in SG&A for the year, and we will provide more color on next year later this year.
On initiatives, our influencer programs for AE and Aerie are exceeding expectations and are a key part of our marketing strategy. We've also made a strategic hire on the AE influencer side to scale that program. We recently announced Lamine Yamal as a partner; he suits our brand and genuinely loves our clothes. We also have the Off-Campus collaboration with Prime Video and other pop-culture integrations, which have historically driven engagement for us. Our primary focus remains product — that's where we win — and we have strong product plans for AE that we are excited to deliver.
The next question will come from Jon Keypour with Goldman Sachs. Please go ahead.
I just had one around the macro. You guys mentioned a little bit of uncertainty. What are you seeing in your consumer base? Any differences between how the consumer is behaving in AE versus Aerie and Offline? And then could you break down AUR and volume between the AE and Aerie banners, please? Thank you.
Start with AUR: Aerie AUR was up in the quarter, which Jennifer highlighted in her remarks. Metrics for Aerie are positive across the board: traffic, conversion, AUR, AOV. AE is slightly down low-single digits. From a consumer perspective, I wouldn't say there's a big fundamental difference in behavior between the brands. Engagement with Aerie is very strong, and the customer file growth for AE is also encouraging. The last couple weeks of May were better, which gives us confidence heading into the back half and back-to-school.
I will add: we are very proud of Aerie. We started that brand inside American Eagle around 2012 to 2013 and in a relatively short period we've grown it into a $2 billion brand — not by acquisition but by building it. We are proud of that. American Eagle will celebrate its 50th year in 2027. If you go back 50 years to the mall set, many brands are not around anymore; we are stronger than ever. The last few weeks have been encouraging with increased traffic in American Eagle stores and improved sales. We are optimistic about the U.S. economy and believe it will be better as time goes on. We believe American Eagle is well positioned, offering great value and quality to the consumer, and we're not seeing a meaningful negative impact from the macroeconomy. I don't run this business quarter-to-quarter — I look to year-end — and our third and fourth quarters are when we really shine. This team will shine.
The next question will come from Janine Stichter with BTIG. Please go ahead.
Yes. Hey. Thanks for taking my question. Jennifer, I want to dig a little bit more into the bottoms side of the business. In the past you talked about less consensus around silhouettes and having to diversify the assortment. Now it seems like you are going the other direction. Do you need to go deeper into certain key silhouettes and simply didn't have enough distribution? And I just wanted to clarify: you mentioned you sold a portion of the tariff claim. Have you said how much that was and what is left on that? Thank you.
Exactly what you said. We needed more distribution and depth in some of the newer silhouettes we were testing — we owned some of them but could have had more distribution. That is what we are rightsizing for back-to-school.
On the tariff claim: we filed roughly $190 million worth of claims. We have gotten over $100 million back so far. At the beginning of the year we sold about $70 million worth of claims for roughly a $20 million net benefit. Our net number on the $190 million total filings will be around $140 million if we get it all back. We are a little over $100 million back so far, and our portion of that net is around $70 million. None of this is in our guidance. So the $45 to $50 million Q2 operating income guidance does not include any benefit from the tariff refunds; that would be an incremental outcome when recognized.
The last question today will come from Tom Nikic with Needham & Company. Please go ahead.
Thanks for taking my question. As we look out to the back half of this year, it sounds like you are addressing some of the issues leading to the declines at the American Eagle brand in the first half. Should we assume that the AE brand embedded in your guidance gets back to positive comp growth in the back half, and that Aerie moderates versus the strong first half such that total company comps are mid-single digits? Thanks.
Yes. I expect positive comp growth, and this team expects that as well. Jennifer and her team take everything very seriously; they have been analyzing and improving the business for months. Our third and fourth quarters are when we shine, and I expect them to shine in both Aerie and American Eagle.
To reiterate, the issue is very isolated to women's bottoms. Men's bottoms were positive. It is a very targeted area of opportunity, and the teams are all over it.
Yes, the specific brand assumptions for the back half in our guide assume AE in the low-single-digit range and Aerie moderating to more of the low-double-digits (or high-single to low-double depending on mix). That gets you to mid-single-digit consolidated comp for the company. We all hope for even stronger outcomes — Jay and the team are optimistic — but that is the assumption built into the guide.
Thank you. Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.