AEO 10-K & 10-Q changes, risk factors and insider trading

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 couldwill 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,government and/or reciprocal tariffs imposed by other countries, changes in trade policies, supply chain disruptions, recession fears ,fears, geopolitical conflicts, such as Russia’s invasion of Ukraine andUkraine, 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 2024,2025, interest rates continued to be volatile, coupled with risks relating to a potential recession, contributed to softness in consumer confidence, which remained below pre-COVID-19 pandemic levels.confidence. Additionally, risks relating to a potential recession during Fiscal 20252026 remain. Any of these factors could lead to a decrease in consumer spending.

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.performance and brand loyalty. If we or 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.

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, including the effects of climate change, 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.

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, fast-fashion retailers, local, regional, national, and international department stores;stores, online businesses, discount stores and onlinefast-fashion businesses.retailers. Competition in the apparel industry is particularly enhanced in the digital marketplace, where there are new entrants in the market, greater pricing pressure and heightened customer expectations and competitive pressure related to, among other things, customer engagement, delivery speed, shipping charges and return privileges. In addition, fastFast 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 within the last several years has increased competition dueled to newgreater entrantspricing pressure and establishedheightened competitors,customer particularlyexpectations inand termscompetitive ofpressure related to, among other things, customer engagement, delivery speed, shipping charges and return privileges. Some of theseour 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.

Countering the aggressive pricing and promotional activities of many of our competitors; and 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.shopping; and Safely evaluating and incorporating new technologies, such as AI, machine learning, and other relevant innovation.

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 andUkraine, 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.

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.

In addition, digital operations are subject to numerous risks, including reliance on third-party computer hardware/software and service providers, datacybersecurity breaches,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.

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 2024,2025, digital sales represented 37%39% of our total revenue. In order to grow and remain competitive, we will need to continue to adapt to future changes in technology, including the development of AI,technology to address the changing demands of consumers. AnyFor failureexample, oncustomers 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 partability to provideefficiently attractive,attract effective,potential 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 experiencescustomers to our customers could place us at a competitive disadvantage, result in the loss of digital commerceplatforms and other sales, harmretain our reputationcustomer 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.base.

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 computercybersecurity viruses,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.

Failure to define, launchmaintain and communicategrow a brand-relevant customer loyalty experience could have a negative impact on our growth and profitability.

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 platformsplatforms, allows for rapid communication and any negative publicity related to the aforementioned concerns may reduce demand for our merchandise. PublicFurther, perceptionwith aboutthe increasing rise of social media as a channel of communication with our productscustomers, orthe ourreputation stores, whether justified or not, could impair our reputation, involve us in litigation, damageof 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 adverselyface impactdifficulties in predicting messaging that will resonate with consumer expectations and result in positive publicity. If our business,social resultsmedia ofefforts operations,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 environmental,corporate social and governance ("ESG")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 climate change and other 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 ESGthese 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. Any such harm to our reputation or any failure or perceived failure by us to adequately address ESG-related activities, including setting of metrics or enhancing disclosures, could adversely affect our business, financial performance, and growth.

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 arecontinuously currently implementingimplement 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 informationinformation, 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.

InTo addition,the most of our corporate office associates are working on a hybrid schedule (in office/telework). Ifextent our associates areoperate unable to work because of ineffectiveunder remote work arrangementsarrangements, or technology failures or limitations, our operations would be adversely impacted. Further, remote work arrangementsthey 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.

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 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.

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 maliciousor codehone andtheir sophisticated phishing attempts.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 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.

We are also exposed to risks caused by new or ongoing armed conflicts. For example, the ongoing war between Russia and Ukraine andUkraine, the conflict in the Middle EastEast, 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 with China,restrictions, increasing prices for raw materials, political instability, or other reasons, which could impact our profitability.

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 pendingcurrent elections.geopolitical landscape.

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.

We arealso alsomay be subject to other consumer data and protection/privacy laws, including California's Consumer Legal Remedies Act and unfair competition and false advertising laws, the Fair and Accurate Credit Transactions Act and the Telephone Consumer Protection Act, and Canada's Anti-Spam Law.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 in all material respects,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.

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. In addition,Moreover, the lawsincreased prevalence of certainAI foreignraises countriespotential mayissues notrelated protectto unauthorized use of our proprietaryintellectual rightsproperty toby third parties, as well as potential questions over the sameownership extentof asany dointellectual property generated through the lawsuse of theAI U.S.tools. LitigationThe regardingimpact ourof trademarks,AI copyrights and otheron intellectual property rights couldmay adverselyresult affectin increased costs with respect to policing and ownership disputes. Use of AI and other machine learning technologies, by us or our business,service financialproviders, condition,in andconnection resultswith the creation or development of operations.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.

We are subject to income taxes in manythe 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.

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 FormAnnual 10-KReport and other forward-looking statements we may make from time to time.

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 and Note 14, Segment Reporting, to the Consolidated Financial Statements included herein for additional information.

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 yearprior-year period. In fiscal years following those with 53 weeks, the prior yearprior-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.

Macroeconomic ConditionsConditions, Inflation and InflationTariffs

During Fiscal 20232024 and Fiscal 2024,2025, 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. Given ongoing external uncertainties, we have taken additional actions to improve financial performance, including more operating efficiency initiatives, as described below under "Profit Improvement Program." 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.

Total comparable sales increased 4%.3%. By brand, American Eagle comparable sales increased 3% and comparable sales for Aerie increased 5%.9%, and American Eagle comparable sales were flat year-over-year.

Gross profit increaseddecreased 3% to $2.089$2.025 billion and increaseddecreased by 70270 basis points to 39.2%36.5% as a percentage of revenue. Gross profit increased by 50 basis points when compared to Fiscal 2023 adjusted gross profit.

Operating income increaseddecreased 92%47% to $427.3$226.2 million and increaseddecreased by 380390 basis points to 8.0%4.1% as a percentage of total revenue. AdjustedNon-GAAP adjusted operating income increaseddecreased 19%26% to $444.9$327.8 million and increaseddecreased by 120240 basis points to 8.3%5.9% as a percentage of revenue.

Net income increased 94%attributable to $329.4AEO decreased 42% to $192.0 million and increaseddecreased by 300270 basis points to 6.2%3.5% as a percentage of total revenue. Diluted earnings per share increasedattributable to AEO decreased to $1.09 for Fiscal 2025 compared to $1.68 for Fiscal 20242024. comparedNon-GAAP to $0.86 for Fiscal 2023. Adjustedadjusted net income increased 14%attributable to $342.4AEO decreased 23% to $266.0 million and increaseddecreased by 70160 basis points to 6.4%4.8% as a percentage of revenue. AdjustedNon-GAAP adjusted diluted earnings per share increasedattributable to AEO decreased to $1.50 for Fiscal 2025 compared to $1.74 for Fiscal 2024 compared to $1.52 for Fiscal 2023.2024.

Total net revenue for Fiscal 20242025 increased $67$219 million to $5.547 billion compared to $5.329 billion compared to $5.262 billion for Fiscal 2023.2024. For Fiscal 2024, totalTotal comparable sales increased by 4% compared to a 3% increaseand 4% for Fiscal 2023.2025 and Fiscal 2024, respectively. Digital revenue increased 5%,7%, driven by increased transaction volume as a result of increased traffic. Higher average dollar sales and units per transaction also contributed to the increase in digital revenue. Store revenue was flat compared to Fiscal 2023.2024.

Aerie.American TheEagle. increase in netNet revenue was drivenrelatively byflat increasedyear-over-year. trafficAmerican across channels. AerieEagle comparable sales increasedwere 5%flat year-over-year.

Other. Net revenue decreased compared to Fiscal 20232024 primarily due to planned lower revenue from Quiet Platforms offset by lower intersegment eliminations of this revenue (net reduction of $25 million) due to our shiftchange in strategy tofor improvethis business profitability.business.

The increasedecrease in gross profit was driven by ana increasedecrease of $51$30 million in merchandise margin due to increased netpromotional revenue from American Eagleactivity and Aerie, partially offset by a $24$70 million increaseof incremental tariffs, net of mitigation efforts, as well as an inventory charge taken in markdownsthe year-over-year.first quarter of Fiscal 2025 related to the write-down of spring and summer merchandise.

Buying,Additionally, buying, occupancy, and warehousing costs wereincreased relatively$34 flatmillion year-over-year, butprimarily improveddue 20to basisnew pointsstore asopenings and digital sales volume. As a percentage of net revenue, drivenbuying, by rentoccupancy, and deliverywarehousing expensecosts leverage.leveraged 10 basis points compared to Fiscal 2024, due to higher sales in Fiscal 2025.

ForAs set forth below, for Fiscal 2024, we recorded $10.7 million of employee severance related to corporate restructuring, and $6.8 million of impairment and restructuring costs due to the sale of our Hong Kong retail operations.

The increasedecrease in total operating income was primarily driven by higherlower gross profit,profit in the American Eagle brand and lowerincreased depreciationinvestments andin amortization expense,advertising, as well as aan $135$84 million reductionincrease in impairment, restructuring,restructuring and other charges during Fiscal 2024.2025.

American Eagle. The increasedecrease was primarily the result of the 1% increase in total net revenue discussed above, leading to the $2$114 million increasedecline in gross profitmargin, driven by an increase inlower merchandise margin anddue decreasedto buying,increased occupancy,promotional activity and warehousing$44 costs.million Theof increaseincremental wastariffs, furthernet drivenof bymitigation a decrease inefforts. SG&A expenses ofincreased $2$28 million,million andprimarily adue decreaseto planned investments in depreciationadvertising. Depreciation and amortization expense ofalso $3increased $10 million toprimarily arriveas ata theresult $7of millionremodeled increase in operating income.stores.

Aerie. The increase was primarily the result of the 4%$65 million increase in gross margin, driven by higher merchandise margin on the $196 million, or 12%, increase in total net revenuerevenue, discussedwhich above,was leadingpartially tooffset by increased promotional activity and $26 million of incremental tariffs, net of mitigation efforts, as well as a $60$19 million increase in gross profit driven by a $47 million increase in merchandise margin and a $14 million decrease in buying, occupancy, and warehousing costs.costs Thisprimarily increaserelated wasto partiallydelivery offsetand bynew anstore increase inrent. SG&A expenses ofincreased $22$33 million,million primarily drivendue byto store compensation,compensation toand arriveplanned at the $40 increaseinvestments in operating income.advertising.

Other. The increasereduction in expenseloss was primarily duerelated to decreasedplanned marginlower volume from emergingQuiet brands.Platforms.

Interest Expense (Income), Net

The increase in interest expense (income), net was primarily attributable to increaseda $7 million reduction in interest income onas deposits,a noresult of lower investable cash balances, as well as a $5 million increase in interest expense as a result of borrowings on our Credit Facility (as defined below), and the elimination of convertible note interest expense on the 2025 Notes (as defined below) due to their early redemption duringin Fiscal 2023.2025.

The decreaseincrease in other (income), net wasconsists primarilyof attributablea to$26 million gain on equity method investments, partially offset by foreign currency fluctuations.

The effective income tax rate was 25.5%25.6% for Fiscal 2024,2025, compared to an effective income tax rate of 29.1%25.7% for Fiscal 2023.The2024.The lower effective income tax rate in Fiscal 2024 was primarily driven by changes in non-deductible executive compensation and non-deductible goodwill impairment charge, partially offset by international provisions of the Tax Cut and Jobs Act of 2017 (thepartially "Taxoffset Act")by andchanges federalin credits.non-deductible executive compensation. Our effective income tax rate is also dependent upon the overall mix of earnings in jurisdictions with different tax rates.

The Organization for Economic Cooperation and Development ("OECD") Global Anti-Base Erosion Pillar Two minimum tax rules, also referred to as "Pillar Two", are intended to apply to tax years beginning in 2024 and generally provide for a minimum effective tax rate of 15%. While the U.S. has not enacted legislation to adopt Pillar Two and it is uncertain if it will do so in the future,Two, certain countries in which we operate have enacted such legislation, and other countries are in the process of doing so. We considered the applicable tax laws in relevant jurisdictions and concluded there is no material effect on our effective tax rate or our consolidated results of operation, financial position, and cash flows for the year ended FebruaryJanuary 1,31, 2025.2026. The Company will continue to evaluate the potential effect of Pillar Two on future reporting periods.periods and expects the impact to be immaterial.

Net Income attributable to AEO

Net income per diluted share attributable to AEO for Fiscal 20242025 was $1.68,$1.09, which includesincluded $17.6$97.9 million ($0.06net of $3.7 million of non-controlling interest), or $0.43 per diluted share)share, of pre-tax impairment, restructuringimpairment and otherrestructuring charges. Refer to “"Non-GAAP information”Information" below for additional detail.

Net income per diluted share attributable to AEO for Fiscal 20232024 was $0.86,$1.68, which includes $152.6$17.6 million ($0.66$0.06 per diluted share) of pre-tax impairment, restructuringimpairment and otherrestructuring charges. Refer to “"Non-GAAP information”Information" below for additional detail.

This Results of Operations section contains gross profit, operating income, net income and net income per diluted share presented on aan non-GAAPadjusted basis, which are non-GAAP financial measures (“"non-GAAP”" or “"adjusted”"). These financial measures are not based on any standardized methodology prescribed by GAAP and are not necessarily comparable to similar measures presented by other companies. Non-GAAP information is provided as a supplement to, not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. We believe that this non-GAAP information is useful as an additional means for investors to evaluate our operating performance, when reviewed in conjunction with our GAAP consolidated financial statements and provides a higher degree of transparency. These amounts are not determined in accordance with GAAP and, therefore, should not be used exclusively in evaluating our business and operations. The table below reconciles the GAAP financial measure to the non-GAAP financial measure discussed above for Fiscal 20242025:

(1) Refer to Note 15, Impairment, RestructuringRestructuring, and Other Charges, to the Consolidated Financial Statements included herein for additional information.

Historically, our uses of cash have been funded with cash flow from operations and existing cash on hand. We also maintain an asset-based revolving credit facility that allows us to borrow up to $700 million, which will expire in June 2027. In April 2020, the Company issued $415 million aggregate principal amount of convertible senior notes due 2025 (the "2025 Notes"). The 2025 Notes were fully redeemed during Fiscal 2023. Refer to Note 8, Long-Term Debt, Net, to the Consolidated Financial Statements included herein for additional information regarding our long-term debt.

For both periods,Fiscal 2025 and Fiscal 2024, our major source of cash from operations was merchandise sales and our primary outflow of cash from operations was for the payment of operational costs.

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 our e-commerce platform, AEO DirectDirect, 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.

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, buying, occupancy and warehousing costs and services and, untilprior to the completion of its operational wind-down, Quiet Platforms costs to service its customers. Design costs consist of compensation, rent, depreciation, travel, supplies, and samples.

During Fiscal 2025 and the 13 and 26 weeks ended MayAugust 2,1, 2026, our results were negatively impacted by macro-economic challenges and global inflationary pressures impacting consumer spending behavior.

In addition, trade policies and continued uncertainty relatedin thereto,connection therewith, including with respect to tariffs and other restrictions, relating 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 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 the ruling prohibit the imposition of future tariffs through alternative trade authorities available to the U.S. administration. Shortly after the U.S. Supreme Court's ruling, effective February 24, 2026, the U.S. administration imposed 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, which was invalidated by the Court of International Trade ("CIT") on May 7, 2026, though relief was limited to the named plaintiffs, and litigation is ongoing following the government's appeal. The U.S. administration further announced that it would begin additional trade remedy investigations into certain trading partners pursuant to Section 301 of the Trade Act of 1974 and with respect to certain product sectors pursuant to Section 232 of the Trade Expansion Act of 1962. The U.S. Supreme Court decision invalidating the IEEPA tariffs did not address a remedy or refunds, which instead have been addressed in cases in front of the CIT. The CIT ordered U.S. Customs and Border Protection ("CBP") to issue refunds for all IEEPA tariffs, plus interest. Pursuant to this order from CIT, CBP developed and implemented a process to facilitate refunds through its Consolidated Administration and Processing of Entries (“CAPE”) system, the first phase of which went live on April 20, 2026. As of the date of this Quarterly Report, theThe Company has submitted all refund claims currently eligible for refund in the first phase of CAPE.CAPE Whileduring the 26 weeks ended August 1, 2026. As of August 1, 2026, the Company hasreceived taken$195.7 stepsmillion to preserve its rights, no assurance can be given that all requests forof IEEPA tariff refundsrefunds, willincluding beinterest, realized.which were recognized primarily as a reduction of cost of sales in the Consolidated Statements of Operations.

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. Refer to Note 11,2, CommitmentsSummary andof ContingenciesSignificant andAccounting Note 14. Subsequent EventsPolicies, to the Consolidated Financial Statements for further information on U.S. tariffs.

We entered 2026 with strong momentum and delivered a solid start to the fiscal year, with double-digit revenue growth. The firstsecond quarter of Fiscal 2026 reflected the overall strength of our portfolio andportfolio, highlighted by the strength of the Aerie brand, which delivered exceptional growth and profitability across channels.channels despite headwinds from ongoing macro-economic challenges and global inflationary pressures impacting consumer spending behavior. We continue to prioritize operational excellence and financial discipline to create long-term value for AEO and its shareholders.

Compared to the first 13 weeks ofended FiscalAugust 2, 2025:

Total revenue increased 10%8% to $1.195$1.380 billion from $1.090$1.284 billion, with Aerie revenue increasing 34%25% year-over-year, and American Eagle revenue decreasingincreasing 2%1% year-over-year. Total comparable sales increased 8%.6% Aerie'shighlighted by a 19% Aerie comparable sales increasedincrease 25%partially year-over-year,offset andby a 1% decrease in American Eagle'sEagle comparable sales decreased 2% year-over-year.

Gross profit increased 41%34% to $456$672 million year-over-year, and increased by 860980 basis points to 38.2%48.7% as a percentage of revenue. Included in gross profit are tariff refunds of $192 million received in the current quarter, partially offset by $13 million of incremental incentive expense attributable to the gain recognized as a result of tariff refunds.

Diluted earnings per share increased to $0.79 for the 13 weeks ended August 1, 2026, which includes a $0.52 per share benefit from net tariff refunds, compared to $0.45 for the 13 weeks ended August 2, 2025, The following table shows the percentage relationship to total net revenue of the listed line items included in our Consolidated Statements of Operations:

The following table shows our consolidated store data for owned stores for the 13 and 26 weeks ended MayAugust 2,1, 2026 and MayAugust 3,2, 2025:

Comparison of the 13 weeks ended MayAugust 2,1, 2026 to the 13 weeks ended MayAugust 3,2, 2025 Total Net Revenue Total net revenue increased 10%8% for the 13 weeks ended MayAugust 2,1, 2026 to $1.195$1.380 billion, compared to $1.090$1.284 billion last year.year, Digitalconsisting of a 20% increase in digital revenue, and 1% increase in store revenue. The increase in total net revenue increasedwas 15%,driven by a mid-single digit increase in transaction value resulting from a mid-single digit increase in units per transaction and storea revenuelow-single increaseddigit 8%.increase in average unit retail price ("AUR"). Total comparable sales increased by 8%,6%, compared to a 3%1% decrease in the same period last year.

American Eagle. The decreaseincrease in net revenue was driven by lowerstrength averagein unitthe retaildigital pricechannel, andoffsetting a decline in store traffic. Digital performance was flat to last year.revenue. American Eagle comparable sales decreased 2%.1% against the 13 weeks ended August 2, 2025.

Aerie. The increase in net revenue was driven by increased transactionsperformance across channels, including increased transactions as well as increaseda transactionlow valuedouble resultingdigit fromincrease higherin average unit retail price.AUR. Aerie comparable sales increased 25%.19% against the prior year period.

During each of the 13 weeks ended MayAugust 2,1, 2026 and MayAugust 3,2, 2025, $7.1$2.6 million and $6.6 million, respectively, of share-based payment expense werewas included in gross profit, representing the issuance of both timetime-based RSU awards and performance-based PSU awards.

Our gross profit may not be comparable to that of other retailers, as some retailers include all costs related to their distribution network as well as design costs inwithin cost of salessales, andwhile others may exclude a portion of these costs from cost of sales, including them in a line item such as SG&A expenses. Refer to Note 2, Summary of Significant Accounting Policies, to the Consolidated Financial Statements included herein for a description of our accounting policy regarding cost of sales, including certain buying, occupancy and warehousing expenses.

There was $15.0$4.2 million and $14.0$3.9 million of share-based payment expense included in SG&A expenses for the 13 weeks ended MayAugust 2,1, 2026 and MayAugust 3,2, 2025, respectively, comprised of both timetime-based RSU awards and performance-based PSU awards.

Operating Income (Loss)

Interest Expense (Income),Expense, net

The increase in interest expense (income),expense, net iswas primarily driven by $7$45 million of accretion expense related to the Participation Agreement for tariff refund claims.claims for the 13 weeks ended August 2, 2026. Refer to Note 14,2, SubsequentSummary Events,of Significant Accounting Policies, to the Consolidated Financial Statements for additional information.

Other (Income) Expense,Loss, net

The increase in other (income) expense,, net primarily consists of a $6$12 million gain on equity method investments.investments recorded during the period.

Provision (Benefit) for Income Taxes

The provision (benefit) for income taxes is based on the current estimate of the annual effective income tax rate and is adjusted as necessary for discrete quarterly events. The effective income tax rate for the 13 weeks ended MayAugust 2,1, 2026 was 16.9%24.9% compared to 23.2%23.6% for the 13 weeks ended MayAugust 3,2, 2025. The change in the effective tax rate, as compared to the prior period, is primarily due to share-based paymentstax and taxstatutory audit adjustments.

Net Income (loss) attributable to AEO

Net income per diluted share attributable to AEO of $0.14$0.79 increased for the 13 weeks ended MayAugust 2,1, 2026, compared to net loss per diluted share attributable to AEO of ($0.36)$0.45 for the 13 weeks ended MayAugust 3,2, 2025. The increase in net income was attributable to the factors noted above.