Greetings, welcome to the American Eagle Outfitters Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Judy Meehan. Thank you, Judy. You may begin. Good afternoon, everyone. Joining me today for our prepared remarks are Jay Schottenstein, Executive Chairman and Chief Executive Officer, and Mike Mathias, Chief Financial Officer. Jen Foyle, Chief Creative Officer for AEO Inc. and Aerie Global Brand President, and Michael Rempell, Chief Operations Officer, will join us for Q&A. 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. 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. Also, please note that during this call and in the accompanying press release, 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 the fourth quarter investor presentation. Now I'd like to turn the call over to Jay. Thanks, Judy. Good afternoon, everyone. I hope you and your families are safe and healthy. I am extremely proud of our results in the fourth quarter and throughout 2020. COVID-19 severely tested us. Our success is a testament to the power of our people, our brands, and our operations. Early on, we took decisive action to protect our associates and customers, preserve cash, and prepare for a new future. These actions enabled AEO to thrive and deliver positive results while also developing our plan for consistent profit growth. Looking back on 2020, after a difficult start with the abrupt closure of all stores, we saw substantial improvement in each quarter. We ended the year on a very strong note. 4th quarter adjusted operating profit grew 38% compared to 2019. This is a remarkable achievement in the face of a pandemic-related traffic pressures in stores. Cash flow was strong, and we ended the year with $850 million in cash and approximately $1.2 billion in total liquidity. I am very pleased that today we announced the reinstatement of our quarterly cash dividend. We have a strong and long tradition of returning cash to shareholders and are very proud of this commitment. Last year, we also spent time preparing for a new future and developing our Real Power. Real Growth Value Creation Plan. As you heard at our Investor Meeting in January, our strategy is centered on five key pillars, which we believe will support top-tier financial results over the next few years. I will briefly discuss each of these now, as well as initial progress in each area. Our first pillar is to double Aerie to $2 billion in revenue by 2023. Aerie had an exceptional 2020. During the fourth quarter, revenue grew 25%, marking our 25th consecutive quarter of double-digit growth. Aerie's adjusted operating profit grew at an incredible 52% as merchandise margins expanded, and it leveraged the expense base. Consistent with the trend throughout the year, Aerie's momentum was broad-based across categories. This speaks to the incredible power of our lifestyle brand. Activewear was a clear standout in the quarter and our highest growth category. In July, we consolidate our active assortment into a new sub-brand, OFFLINE by Aerie, as part of our strategy to maximize our potential in this exciting growth category. We have been extremely pleased with the customer response. In addition to OFFLINE's strong growth, our data shows the sub-brand is attracting new customers to the Aerie brand. At the same time, Aerie's core categories continue to perform. For example, intimates grew at a double-digit rate in the fourth quarter, led by bralettes and undies. We continue to be amazed with all Aerie has accomplished and see significant future runway. Our second pillar is to ignite American Eagle for profit growth. As you heard a few weeks ago, the AE brand's most meaningful opportunity is to drive stronger and more consistent profitability and cash flow. This was a clear focus in 2020. I am pleased with the progress made over the course of the year. AE's fourth quarter's results sequentially improved from the third quarter. With continued pressure on stores, AE's revenue declined 9%. Digital grew 20%, and overall adjusted operating profit increased 29%. We ran a very healthy business, and that remains a major priority as we look to the future. Our leading jeans franchise was yet again a standout in the quarter. We gained share even as we meaningfully reduced holiday promotions and saw AUR grow. AE continues to introduce product-focused marketing campaign that showcase our relatable and positive spirit. Last week, we announced our Jeans Are Forever Spring 2021 campaign, featuring stars of the hit Netflix show, "Outer Banks." We also launched a new innovative shopping experience in partnership with Snapchat. We are really excited about this launch as we continue to introduce new ways to fuel customer engagement. Overall, I am proud of the AE team's execution and confident we will continue to see great progress in 2021. Our third priority is to continue to invest in customer-focused operations. The digital fulfillment capabilities we developed over the past year were critical during the holiday. Our digital channel revenue grew by $155 million during the fourth quarter, a growth rate of 35%. I'm really proud that we were able to handle the increases in site traffic and shipment volumes while still maintaining excellent customer experience and service levels. Our regional distribution network also ensured we had inventory located at the right places at the right time. Despite industry cost increases, the team did a nice job mitigating delivery cost pressures. Our supply chain transformation initiative is a significant competitive advantage that will continue to drive efficiencies and support bottom-line growth. Fourth, strengthening ROI discipline. This was a focus throughout the year and evident in our results. During the fourth quarter, we drove meaningful gross and operating margin expansion and generated robust cash flow. This performance reflects strong inventory optimization and expense management, which will remain major priorities. In addition, we will continue to invest in our growth businesses as I see more opportunity for AEO than ever before. Finally, our fifth pillar is to embrace the power of our people, culture, and purpose. At AEO, we are a purpose-led company with enduring brands, an inclusive and optimistic culture. There's a lot of great work going on across the company. In the coming months, we look forward to awarding our first REAL Change Scholarships for Social Justice. We also continue to focus on the environment across our operation, and we are thrilled with the customer response to our Real Good product lines. In closing, although we still face an uncertain macro environment, we are entering 2021 with great momentum, and I am optimistic about the future. The promotional environment is more rational than we've seen in recent years. We have two of the most loved and in-demand brands in retail, a favorable real estate environment, strong operational capabilities, and improving competitive backdrop. The disruptive retail landscape has created many opportunities, and we have the right strategy and leaders to capture sustainable, profitable market share gains in the future. I am pleased to have Jen Foyle and Michael Rempell joining us today. During Q&A, they can provide further insights on our brands and channels. Now I'll turn the call over to Mike Mathias to review the financial results. Thanks, Jay. Good afternoon, everyone. I am pleased to report that the fourth quarter and year were far better than expected at the onset of the pandemic. We saw sequential improvement in each quarter, ending on a positive note with fourth quarter adjusted operating income up 38% to last year, driven by strong merchandise margins across brands and channels. Our performance really speaks to the quick action, vision, and strong execution of our teams. In the fourth quarter, total company revenue declined 2%, with strong online sales mostly offsetting declines in stores. Digital revenue rose 35%, with Aerie up 75% and AE up 20%. Online sales for the quarter and the year represented approximately 45% of our total mix, increasing significantly from 29% for the full year 2019. Digital KPIs were very strong, with double-digit traffic growth, improved conversion, and a high single-digit increase in AUR. Our focus on tightening assortment breadth and optimizing inventory levels enabled us to control promotions and drive greater full price sell-through. Store channel revenue decreased 20%, reflecting mall traffic declines. As anticipated, store revenue declined across both brands as we lapped high volume seasonal store events like Black Friday and Super Saturday, which were meaningfully impacted by the pandemic. We also dealt with the impacts of store closures across Canada, California, and other regions that reduced total selling days by 6% relative to last year's fourth quarter. Continuing a trend throughout the year, these pressures were partly offset by strong conversion in AUR. By brand, Aerie continued to demonstrate strong momentum. Revenue increased 25% to $337 million in the fourth quarter. Comparable sales grew 29%, building on a 26% increase last year. With AE's greater store penetration, the brand was more affected by the store channel headwinds. However, we were pleased to see improvement from the third quarter. Brand revenue declined 9% to $943 million. AE comparable sales declined 8%. Total AEO gross profit dollars increased $32 million or 8% during the quarter, and gross margin expanded 300 basis points to 34%. Merchandise margins expanded significantly, reflecting the benefit from continued promotional discipline in our inventory optimization initiatives. Our product assortments were well received, which enabled higher full-price selling. As Jay mentioned, rent leverage as a result of negotiated savings and benefits from recent impairments. Offsetting this, we saw higher delivery, distribution, and warehousing costs, as well as higher incentive compensation. Yet the impact of delivery cost pressure was less significant than expected, reflecting strong execution and efficiency benefits from new fulfillment capabilities. SG&A expense increased 2% due to higher incentive compensation. This was better than our expectation due to our ongoing focus on expense management across labor and other store-related costs. In the absence of incentive compensation, SG&A would have declined 4%. Adjusted operating income of $106 million increased 38% compared to last year. Adjusted operating margin of 8.2% expanded 240 basis points. Adjusted EPS was $0.39 per share in the quarter. Our diluted share count was 197 million and included 26 million shares of unrealized dilution associated with our convertible notes. Now some detail on our brands. I'm really pleased to see both brands generate strong increases in operating income, which is a testament to our ROI mindset and strategic execution. American Eagle adjusted operating income increased 29% to $145 million, despite the revenue decline. Adjusted brand operating margin improved 450 basis points to 15.4%, due to merchandise margin expansion and rent savings. While we have made incredible progress at American Eagle, I want to underscore that there is still meaningful opportunity for future profit improvement. Aerie adjusted operating income grew 52% to $48 million. Adjusted brand operating margin expanded 250 basis points to 14.3%, reflecting merchandise margin improvement and expense leverage from revenue growth. Corporate unallocated expense increased 28% to $87 million, primarily due to incentive compensation. Ending inventory was down 9%. American Eagle inventory declined 21% due to continued inventory optimization initiatives as well as lower end-of-season clearance. Aerie's inventory increased 10% to support demand growth, though clearance was lower to last year. We are very pleased with our inventory discipline during 2020, which has validated my long-held view that we can meet customer demand and deliver an exceptional experience while generating higher returns on inventory investments. This work is ongoing, and I believe will have a material impact on our profit improvement over the next several years. Our balance sheet was an advantage during 2020 and continues to strengthen. During the fourth quarter, we generated $213 million in operating cash flow and ended the period with $850 million in cash and short-term investments. At year-end, our total available liquidity, including our undrawn revolver, was approximately $1.2 billion. Our only debt currently outstanding is our convertible note. As Jay mentioned, we are pleased to reinstate our dividend and have also unsuspended our share repurchase program. In 2021, we expect capital expenditures of $250 million-$275 million, which is up from $128 million in 2020 and in line with the average annual target we shared at our investor meeting. We will continue to actively monitor our store fleet. We closed 57 total locations in 2020, including over 50 American Eagle stores. The sales and customer transfer rates from these locations will inform our decision-making around our 2021 lease expirations. The vast majority of our 2020 store renewals were for one year, so we have significant flexibility, including almost 450 leases expiring this year. We expect to continue to negotiate material rent savings and plan to open approximately 60 Aerie locations, including 25-30 OFFLINE stores, which will be a mix of standalones and Aerie side-by-sides. At our Investor Day in January, we laid out a path to $5.5 billion in revenue and a 10% operating margin by 2023. Our back half results increase our confidence in these goals, and we expect to make continued progress in the coming year. Looking ahead, we are pleased with how we started the year and expect our 2021 results to put us on a strong path to our 2023 targets. Yet the operating environment remains uncertain, so we are not providing annual guidance at this time. Regarding the first quarter, we expect revenue and operating income to exceed our results from the first quarter of both 2020 and 2019. In closing, we began implementing our go-forward strategies to drive Aerie's growth, optimize AE's profitability, establish leading capabilities, and continue to focus on investment returns. Our strong performance during the fourth quarter is a key proof point that validates our approach and strengthens our confidence in our future opportunity. With that, we will open it up for questions. Thank you. We will now be conducting a question and answer session. If you would like to ask a question please press star one on your telephone keypad. A confirmation tone will indicate that your is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipments, it may be necessary to pick up your handset before pressing star key. In the interest of time we ask all participants to limit themselves to one question and one follow-up. One moment please while we poll for question. Thank you. Our first question comes from Adrienne Yih with Barclays. Please proceed with your question. Good afternoon. Let me just say well done on a really tough year and exiting with good momentum. Congrats. I guess my first question is going to be on the commentary about- ...could the quarter having sales higher than 2019? Can you give us any color on February trends? The notion of, at the end of the quarter, being able to chase that inventory once stores would open, inventory access relative to the port congestion that is often talked about these days? For Jen, can you talk about the Aerie side-by-side locations vis-a-vis the standalone, and how you're thinking about the growth of the core business of the standalone locations and the impact on the side-by-side. Thank you very much. Thanks. Thank you, Adrienne, and thanks for the compliments on the quarter. I can take the first part of the question on quarter to date. We're really pleased with how the quarter started, and obviously there's a lot of noise out there with weather, and you mentioned port congestions, which Michael maybe add some color to that part of the answer. We are definitely pleased with what we've seen so far here in the last week or two, especially since the weather has broken. We were all keeping tabs on just how much of a challenge February was in general, and the amount of snowfall and impact even on the Southwest, Texas being shut down for a week or two. I think, we're hopefully past all of that. As we sit here today, and as we're into early March, we're seeing really good signs, in terms of where we're headed for the quarter, which really just reiterates why we gave the general guidance on what we're expecting at a total quarter level against 2019 results, both on the sales line and operating income line. Yeah. Any color on gross margin. Go ahead. Go ahead, Mike. Sorry. Sorry, Adrienne, what was that follow-up? Sorry. The follow on, follow through on that, if you're on that was just, any color on the gross margin flow through of those sales? Yes. We're still I mean, the formula is intact. Our inventory is in great shape. The merch margin improvement we've been talking about, we feel really good about that continuing in the first quarter. We are seeing that to date. From a benefit to the P&L and where we're seeing leverage, both from a gross margin and operating rate perspective, we are continuing what we saw in the back half of the year in both third quarter and fourth quarter, is our expectation. Great. Adrienne, regarding our store growth opportunity, right now, we're about even, equal. We have 170 standalone stores and 178 side-by-side. Almost 350 stores. We're approaching this mall by mall. In some cases, we're exiting a side-by-side and opening up a standalone where we can have more square footage and get the true experience of Aerie. Again, this is mall based, depending on the mall and depending on the opportunity and the deal that comes before us. 50 Aerie stores are to open this year, and then we are gonna open 30 offline stores this year. We're really excited about our growth opportunity. As you know, Adrienne, what we see is that beautiful halo effect. When we enter a new market, we just reap the benefit online as well, and we're gonna continue to use that approach as we approach every market. All right. Great. That's helpful. Thank you. Adrienne, it's Michael. Just touching real quickly on your question about inventory. We did experience like you were suggesting, the congestion, both at the U.S. ports and at the overseas ports. That did cause us to delay our floor sets for both AE and Aerie from January into February. I have to tell you, our teams did a terrific job. They were very proactive, very aggressive, in terms of quickly identifying the situation and moving up our handovers, adding additional carriers, calling on different ports, and we feel very good about our inventory flow now. While transit times are longer, it's all accounted for in our guidance, and we don't see an issue with the sales. Great. Thank you very much. Sure. Thank you. Our next question comes from Matthew Boss with JPMorgan. Please proceed with your question. Great. Thanks, congrats on another nice quarter. Thanks, Matt. Maybe first, Jen, at Aerie, how would you rank top areas of the assortment that you're leaning into to drive continued momentum and new customer acquisition, more as we think about the other side of the pandemic and the market share opportunity that you see from here? First, I just feel like the team, I think we really excelled during a very challenging year. Not only did Aerie excel, but we opened two new brands, one OFFLINE, and then a small brand, Unsubscribed, which is a tiny concept. Certainly we've seen great results in the OFFLINE business, and I think that that will remain a killer category for us, and we're gonna continue to grow, as I mentioned, 30 stores this year. Various formats we're still testing and learning. Really we've seen just unbelievable results there. I have to say, it was pretty impressive throughout this year. All categories really fired. We're seeing nice results in intimates, and we continue to dominate in comfort intimates, really what that generation wants today, but still pretty and feminine. We're gonna continue to innovate in that category and dominate every category. Apparel had great results, tops and fleece. I just really would like to consider us the intimate lifestyle destination. We are going to continue to grow. Our customer continues to ask for more. Speaking of customers, we did grow that base 16%. Really nice uptick there considering when stores were closed, we were still able to leverage direct and that business to entertain new customers to our brand. Great. Just on gross margin, help us to think about merchandise margin opportunity this year. Meaning, can you build on the performance that we saw in 2020 as we think about costing IMU and inventory management? Or are there any structural impediments to gross margin exceeding 2019 levels as we think back to historical gross margins, which were even higher? Thanks, Matt. It's Mike. I think, we talked about it in Investor Day, too. We still see significant opportunity in our inventory optimization work and initiatives. I think the benefits and the results we saw in the back half, we're very pleased with. That was just the starting point, I think. We still have a lot of opportunity in the first half of the year here for those initiatives to benefit us, and we haven't really tackled every category yet. I think we talked a lot about the AE brand and tops and refining SKU counts and choice counts. Jen and team are working on some other fronts, bottoms being a category there's opportunity in. I think that we still see a runway in terms of merch margin expansion beyond what we achieved in 2020. The gross margin side of things is, we don't see any impediments to the continuing the benefit in 2021. There's one piece to remind everybody about, since you asked, which we did have that one-time benefit in Q2 of our licensed partner payments. That was about a $40 million benefit to the top line, $35+ million or so to our gross margin line. That's a one-time hurdle from if we're grounding ourselves in 2019, just a reminder that that's out there, but nothing else. Everything else we're doing in terms of inventory optimization, inventory position to sales, the formula is still intact. Essentially, sales outpacing inventory and margin outpacing sales. That's our goal. Yeah. Mike, I would just add on to that since he specifically asked. We do see markup as a benefit at least through back to school right now. Despite higher shipping costs, we feel very good about our ability to achieve higher markups through the first three quarters of the year. Great. Congrats again. Thank you. Thank you. Thank you. Our next question comes from Oliver Chen with Cowen and Company. Please proceed with your question. Hi, thank you very much. Great quarter. Looking ahead with inventory management and the opportunities you have there, what's some of the lower hanging fruit, particularly as you think about localization and making sure the digital and physical inventory is where you want it? Would also love your takes on the AE tops, men's and women's, and contrasting the opportunity between men's and women's and just where you are with your roadmap to continue to innovate there. Thank you. Okay, Oliver, I'll take the first part of your question about inventory management. We've talked extensively about our supply chain transformation, the nodes we set up, and the potential that has. What I would tell you is we're very pleased with our results in fourth quarter. We did de-leverage delivery expense, we de-leveraged less than we had expected to because we had that inventory closer to customers and because we had more consolidated digital shipments. Really, like Mike was saying, we feel like we're just scratching the surface. When you look under the covers of that strategy, there's a lot that we could do better, and that we're going to do better in the coming years. Making sure we have better in-stocks by store, by size, even though we're doing it on less inventory, making that inventory so much more productive and profitable. We feel great about that. We're expanding our same-day pilot that we did in fourth quarter to 50 markets over the next few months. Again, it's another great opportunity for a business like ours that has strong digital channel, strong stores channel to leverage both to provide great experiences for customers. There's a lot on our roadmap. Inventory productivity is top of mind, but there's a lot that we're going to do also to dramatically improve the customer experience. Jen, do you want to take the question on tops? Thanks, Oliver. How are you, Oliver, by the way? Nice to hear from you. Tops, near and dear to my heart, Oliver. Let me just go back. When I started in September, I want to first say that I'm just so impressed with the AE team and the talent that really resides on that team, from design to merchandising. Full throttle, I really have been more than impressed. Look, men's was underway over a year and a half ago. We really buckled down there and really looked at really getting back to key items and famous for items, and we are just really seeing nice results from that hard work with the team. Fast forward on the women's, and let me start with bottoms first, because where there's a great bottom, there's always a great top. We really realigned the team, we're really thinking full outfitting, Oliver, that's one first shift that we've made that I think is really important and also brought in some new talent, a new woman to run merchandising, who we're thrilled with, Renee Branches. Really excited with that move. With that, going back to denim, back in September, we started to see a shift in bottoms, Oliver. We're seeing looser fits, more fashion. I would just say we're getting into a little bit of a fashion cycle here, maybe a bigger fashion cycle. We've done a nice job. That bottoms team, Oliver, really tests and scale. Denim just is a true machine, and I think we're underway to really have a great balanced bottoms assortment. That said, we're going to have those tops that really work with the bottoms. Really that's how we're going to look at it, Oliver. We're really getting back to best practices in women's too. That would be key items again, just great quality. I'd like to say we're headed into a fashion cycle, Oliver, but that said, we're not going to turn our back on the quality and the value price that we're known for in American Eagle. Thank you so much, Jen. A follow-up on ESG. Eagle ranks really well on a lot of the talent surveys for ESG. Just would love your take on what's important for investors to prioritize or know about in terms of what American Eagle is focused on with respect to ESG. Yeah, Oliver, this is Michael. We put out very aggressive goals in terms of our carbon reduction in the coming years. We feel like it's important to be a leader. Our associates care about it, our customers care about it, and we're going to achieve those goals. We recently launched a Real Good campaign with taking our iconic jeans and making sure that they were made in a much more sustainable way, and we've received great results. Customers really like the product. I know Jen's building on that concept, and our design teams are both inspired by and excited by designing and developing product in a more sustainable way. For us, that's the future. That's what our customers expect. That's what our associates expect. We think it's both going to be good for the environment and good for business. Thanks, Jen. Thanks, Michael. Best regards. Thanks, Oliver. Take care. Thank you, Oliver. Thank you. Our next question comes from Dana Telsey with Telsey Advisory Group. Please proceed with your question. Good afternoon, everyone. Nice to see the progress. You had mentioned about delivery costs being a little bit less than expected due to some new fulfillment initiatives. Can you expand on that and how you're planning on delivery going forward? On inventory levels, how are you planning them for Aerie and for American Eagle as we go through this first half of the year? Just any thoughts on the spring break. Jen, I've seen some of the new products you're having both on the jeans side and what you're talking about with new styles and on the Aerie side. Anything to highlight in particular that we should be watching for? Thank you. Sure, Dana. I'll talk about delivery costs first. Yeah, look, we did absorb cost increases as every retailer did last season. We were able to offset some of those cost increases by shipping fewer shipments per order, by shipping closer to customer, and by using some regional carriers. That strategy was very effective for us. It's been a maniacal focus of the team. We've hired a lot of new talent to supplement the great talent that we had on that team. They have a great roadmap this year to really look to offset delivery increases wherever possible. It's actually a big opportunity for us as I think about the year. In the first quarter is when we shut down our stores, and we were shipping product from the stores, and we were shipping product all over the place as we were trying to liquidate. That creates an opportunity for delivery. In the second quarter, we absorbed much higher delivery costs as we had our highest rates actually of the year. Again, we were shipping individual units from stores all across the country. That creates an opportunity for us. Like I said before, in the third and fourth quarter, we feel like although we're extremely proud of the job that our team did with supply chain transformation and the job we did localizing inventory, we feel like it's early days for that strategy. We feel like there's so much opportunity to leverage our stores more for curbside and same-day delivery, to do a better job regionalizing the inventory and using local carriers to deliver the inventory and still shipping to customers in fewer packages. Delivery is a huge focus for the company. It's obviously a growing expense. We feel like we have a really good path to mitigate much of the increase and much of the deleverage going forward. Dana, I can take the inventory piece really quick just from the numbers side of it, which at the end of the fourth quarter there, you saw the spread. We were down 9% on fourth quarter revenue, down 2%, and then each brand being really commensurate with the individual performance. AE down 21% in inventory on down 9% sales. Aerie inventory up 10%. On call 25%- 30% growth. First quarter in the first half of the year, really that spread really for the brands and definitely the total level is something we're looking to maintain. Then we're refining our back half plans. Really, this is the time of year we're looking in still at Q3 and still have some time ahead of us for Q4, but we're refining those as we speak. Dana, regarding spring break, look, I'm really excited we have some tailwinds in our favor right now. The stimulus package, tax returns, and the weather is starting to break. Without unveiling all of our secrets, when the weather did break, we were seeing some nice results in key categories for us. Swim and shorts are starting to open up. I'd like to say, in AE, we just launched our Outer Banks campaign, which is really a nod to all of our new fashion and our products, that really happened at the end of last week, we're seeing great results from that campaign. Three million organic views, which is a big number for us, which is pretty impressive, some of the best Instagram likes ever, we love the comments that we're receiving. It's pointing to that these kids are ready to get out with their masks on, so to speak, but they're ready to get out. Look, we're just entering our spring break time period, and I think we have all guns ready to fire. Thank you. Dana, one clarification. It's Mike again. Just as I talk about the inventory levels for this first half, we are looking at 2019 compares, just so you understand that both on the, not only revenue, but inventory as well. Obviously, our 2020 inventory for Q1 and Q2 was probably not a good benchmark to look at with all the activity once the pandemic hit. Those are to 2019 inventory compares. Thank you. Thank you. Our next question comes from Janet Kloppenburg with JJK Research Associates. Please proceed with your question. Good evening, everyone. Congratulations on a great year and a lot of good change. First, Jen, if you could talk a little bit about this fashion shift, I'm hearing about it as well, and maybe how it pertains to jeans and any change in styling there, how you're positioned, and if you're starting to see a spend shift away from comfy casual to a little bit more dress up and go out. Love to hear about those trends. Also for Jay and for Mike, I'm wondering what you're thinking about store productivity levels, if you're seeing them improve, and what your threshold will be this year as the stores reopen and traffic returns. I'm just wondering where you'll be satisfied. Are you looking for those levels to match fiscal 2019, or can you settle at a lower level because of rent abatements, et cetera? Just lastly, should we expect digital growth to slow as store productivity rebounds? Thank you. Thanks, Janet. Look, regarding trends, I mentioned it earlier in denim, we definitely are seeing a shift into looser denim for women's and flares. It's really a fashion cycle. However, I think comfort will always be at the forefront of everything we do. Our jeans are the most comfortable jeans. I think we really posted great results in our jeans businesses, both in men's and women's. I think it speaks volume for this time period where everyone assumed that we were only selling sweatpants. We really had a nice run in denim as well. Really pleased with the results there. We're going to continue to always have that innovation and that comfort in everything we do in bottoms as well as tops. When I think about that shift in bottoms, we really have to think about the rises, right? Rises are still high, what are the tops that work with that? Certainly fashion tops are, we're getting hints of it, and we're seeing some nice results. Again, we're always going to make sure that our assortments are balanced with our key items and the right fashion. In Aerie, look, the stars were certainly aligned with the pandemic and what we stand for, lounge. What I really am excited for, and I've been talking to the teams about this, is balancing out both brands, right? What are the foundations, what are the intimates that can support some of these new trends that we're seeing? I mentioned we have 178 side-by-sides. When you think about that, we're going to leverage the Aerie brand and no pun intended, but support the AE brand with intimates and great fashion there too. Where I sit today, it's great because I get to really try to maximize both brands and both outlets for both brands. Thank you. Yeah. Janet- Yeah. We're very optimistic. This was great news this past week about J&J. I'm very proud that on the J&J shot, that the first dose was given in Columbus, Ohio, at the Schottenstein Center in the world for the first J&J shot. We are very proud of that. Well, congratulations on that. You should be. Yeah. Thank you. My feeling is that in the next 60 days, this country's going to be vaccinated at a very rapid pace. That'll give people a lot of confidence to go out. We're already seeing people going out right now. People want to get out. They can't wait to get out. We're very excited about the malls. I could tell you that this is probably the best opportunity for us to pick up new locations that we're being offered. Some new great locations, at affordable rents for us. We're very optimistic. I believe that in the next few months, things will start getting back to normal. I think going into next year, we're going to see a boom in this country. It's going to be like the roaring 2020s. You're going to see a lot of excitement. You're going to see people getting out. Look, and our challenge would be, is to get people good enough experiences that they want to shop with us. At the same time, people are getting more and more used to digital. It's part of life today. The last several years, if you look at the online business, it keeps growing. It hasn't gone down. Yeah. Mike, any sort of, yes, go ahead. I would just say, it goes without saying, I think change of trends in bottoms is great for the AE business. Anything that gives people a reason to go out and refresh their bottoms wardrobe should be really strong for the AE business. I know Jen and Chad and their teams, they're all over it. Okay. Just lastly, any concerns around cotton pricing right now? It's definitely something that we're watching. Like I said, we feel good about all the prices that we have locked in through back to school. There's definitely raw material cost increases that we're dealing with. We are trying to book early platform fabrics and yarns and fibers whenever we can. There's some merchandising strategies that are helping us also. Jen's strategy of narrowing the assortment and being narrower and deeper actually gets rid of a lot of the fringe styles that cost more, that had lower markups, and that were less productive. We're watching cotton. We're taking aggressive action to try to mitigate increases. It's definitely something we're paying attention to. Lots of luck, everyone. Thank you. Thank you. Our next question comes from Simeon Siegel with BMO Capital Markets. Please proceed with your question. Thanks. Good afternoon, everyone, and nice cap to the year. Obviously, great revenue growth for Aerie. Just a quick clarification, can you just speak to the sales to comp spread? I'm just trying to think through, I assume I'm missing something, but why is revenue growth lagging comps with new stores? Similarly, I guess, Mike, can you help us understand the Aerie impairment charges that are going on? What are those? How do you think about them go forward? I just had a quick follow-up on international. Thank you. You still have to remember one thing. We're still operating in most of our stores at a 50% capacity. In some states, we're operating at 25% capacity. There's still a pandemic going on. Even though we're optimistic and we're excited and we're seeing great progress, we're still in the middle of the pandemic. Yeah, for sure, Jay, that actually explains the spread because total revenue is total revenue. We're reporting GAAP external reported results, total revenue versus last year, versus the comp calc excludes all the closure activity, right? With California, Canada, for comp reporting purposes, you're pulling out this year and last year for total revenue. In a lot of cases, you're reporting no revenue this year against revenue last year. That's why the total revenue is a little lower than comp, if that helps explain that piece. Definitely makes sense. On the Aerie impairment front, if you think about most of the activity or the activity this year being in Q1, and then what we just reported or disclosed here in Q4. Q1, we took care of, when you think about the mall-based stores, the lower tiered stores, a lot of the stores that would be tied up in what we talked about in our closure activity and flexible lease terms, short term renewals. A lot of the impairment had to do with that mall-based lower tier group. The Q4 here, now almost nine, 10 months later, we had some assumptions back in Q1 around tourist locations, flagships, some of the more urban locations that have not actually reopened or opened back up. We came back around and really impairment calc being a bit of an accounting exercise and the assumptions you're using, that was the change, and that's what we did again this time around, which for Aerie specifically, some of the locations that were part of that impairment were flagship and sort of urban tourist locations. Got it. Thank you. You have a nice international licensed business. What's the EBIT or EPS contribution this year, and how do you think about that going forward? Thank you. Yeah. For 2021, if you go back to 2019, the EBIT bottom line contribution was in the probably low double digits, somewhere around that. Without that Sumikon benefit in Q2, the international contribution from an EBIT perspective would have been in the low double digits. I think for 2021, we're looking to get back to those 2019 levels and even surpass that. I think, as we said in the Investor Day, we're not all that bullish, or we're not counting on sort of big growth in international, although we think that could be an opportunity, we're likely being conservative around our targets. Short term for 2021, kind of getting back to 2019 levels or just a little bit above beyond 2019 levels is what we believe is achievable again, possibly conservative. Great. Thanks a lot. Very conservative. Best of luck for the year. Right. Yeah. Could be very conservative. We'll see. Yeah. I would say very conservative towards our international business. Great. Thanks a lot. Best of luck for the year. Thank you. Thank you. Our next question comes from Marni Shapiro with Retail Tracker. Please proceed with your question. Hey, guys. Congrats. I guess welcome back to North Carolina after 20+ years. Wasn't Dawson's Creek that long ago? Great memory. Everything comes back around eventually. Yeah. Yeah. Still love that show. Jay, I actually have a big picture question for you. You guys have a very strong balance sheet now. You have a lot of growth ahead of you in Aerie and OFFLINE, which are on solid ground. Over the last couple of years, the company has invested in a lot of different things, from Dormify and Urban Necessities to Todd Snyder. I guess, how are you thinking about those kinds of investments today, where there are a lot of small cool companies that have had a tough go at it during the pandemic? I've been stalking Unsubscribed, actually, because of a friend of mine, and I'm just curious what you guys are doing with it. I know it's tiny and meaningless. It's curiosity, because you guys dabble in a lot of these random things. All right. I'll answer the first part of the question. I'll let Jen answer the other question about Unsubscribed, which is her baby. Well, first of all, it's better to have a good cash in the bank than not having cash. We're very happy that we're sitting on position that we're spinning off. That's number one. Number two, if we see the opportunity for something that complements us, we are interested. We had our Investor Day last month. We laid out our goals of doubling Aerie's business. We see a big upside even in American Eagle business, we see that upside. We even have the tsar appointed, we call it our strategy tsar, to make sure that we stay focused. I think you could hear on this call, the way that Jen answers the questions, the way that both Mike's answer the questions, is that they're very focused on the initiatives that we're doing. We believe that if we do what we have right now in our wheelhouse, we could create tremendous shareholder value. That's our major game plan. If the right opportunity came along, we do have a very good balance sheet, we could take advantage of it, but it has to be something that makes it worthwhile for us and complements us, and it's something that's beneficial to us. Have the ones you've invested in been successful in your view, like Dormify or Urban Necessities? Have they been successful? Well, Urban Necessities was a test store. Yeah. Look, it showed us a lot of things. Whether we operate it or not, we learned a lot of things from it. Dormify, we're still working with. We have Todd Snyder that we think has good opportunity too. OFFLINE was something that we experimented on. I think OFFLINE's gonna be very big. I mean, big upside for OFFLINE. Unsubscribed, I'll let Jen talk to that. That has an opportunity too because it's been very well received. Jen? Yes. We opened up during the pandemic. Our first store is in East Hampton, and we do open up another store in Westport at the end of this month. We're on track for that opening, slightly a little tiny delay, but we're excited about that opening in Westport. Look, Unsubscribed was concepted, after all this fast retail, and just really understanding this next generation, what they're gonna be craving. We felt like there was room for what we call slow retail, right? Thoughtful retail. Yeah. Slow fashion, upcycled, recycled. Everything has a nod to, whether it's a third party artisan, or v-pin or you name it, we really try to make sure that everything in that store, and we're not 100% there, but our plan is to get 100%, is green and organic and retail. All the things that are happening right now. Yeah. Our results have been great. The product looks amazing. The team was just out there yesterday. We just received our new spring delivery. It looks amazing. Dara and team were out there working at the store, and the customer response has been amazing. We're really proud of that little concept. We've leveraged the team to launch this brand. Right now, we don't find it disruptive at all. In fact, it's complementary because it's a little higher end, and we can learn there, and learn, and test and scale for our other brands. Yeah. I sort of like that positioning. Great. we're gonna really open up gracefully with that line. It's definitely not the opportunity right now that we see in OFFLINE. When I looked at the numbers year to date in OFFLINE, it's spectacular. I hear some other numbers in the business out there and some competitors, and we have far surpassed that number already. We know that this is a brand that really is going to resonate with the customer in the store. I can't wait to get those stores open to get back to normal business again because I think the OFFLINE stores, it's special. We're just really excited about all the growth opportunities in Aerie. We're on our path to $2 billion now. We hit our $1 billion mark and right on time. Now we're looking for this next three years of growth. We have our eye on the prize on that $2 billion growth and Abby and team, they're ready. We're going to remain humble along the way, but we're pretty excited about these opportunities. That's great. Wonderful. What's the size of the OFFLINE stores? To add, we're going to have a special celebration this Friday with the Aerie team to celebrate that $1 billion mark. Oh, so cool. What's the size of the OFFLINE stores that you're building on average? We're still in the process of testing various formats. We're about to open up a shop within shop on Greenwich Avenue. We have a side by side. We're actually still playing with the perfect square footage, but we're in the zone of 2,500 sq ft, I should say, 2,500 sq ft-3,500 sq ft. Brilliant. Best of luck, guys. Thanks. Thank you. Thank you. Our next question comes from Kate Fitzsimons with RBC Capital Markets. Please proceed with your question. Yes. Hi. Congratulations on the results. I guess, Jay or Jen, I guess speaking about this fashion cycle that you see that we're on the tip of, I mean, in your experience, what is the duration of some of these cycles when we are seeing the silhouette shift meaningfully? Jen, you're really excited about the OFFLINE opportunity within Aerie. You noted OFFLINE is bringing new customers into the brand. We often speak of Aerie cross-shopping with AE. What is the OFFLINE cross-shopping with Aerie? Are you seeing those customers go to AE? Any insight there would be helpful. Thank you. Yeah. I'll answer the first part, the second, and then I'll let Jen answer the rest. The important thing is we see denim as strong as ever. Jen? Yeah. I mean, I have to say, I think I'm aging myself when I say this, one of my first, well, when I was at the Gap, I saw this fashion denim cycle. I definitely have been there and have experience in that shift and that transition. I'm pretty excited about what we're about to face, and Michael said it really well. If we get into this fashion denim cycle and where we sit from our market share, I feel like we have a lot of opportunity. Look, I feel like the opportunity demo I keep on saying this, but I want to make sure I'm answering your question right. We are about to embark on a fashion cycle. Again, I think the brands that thrive and that have longevity also have a nod to timeless. You see it, the fast fashion retailers come and go, but the ones that survive are the ones that balance, and I keep on using that word today, but really have that assortment that's well-oiled, that we still have our key items and our focus and really able to leverage those items and drive our profits and our IMUs, and that's important. Again, it is about making sure we strike a balance. We're a heritage brand. I'm pretty excited because I feel like that's part of the trend that's happening right now. What I saw for back to school is really exciting. Again, it's not fast fashion, it's just the right fashion. Okay. I think, Paul, we have time for one more question. Thank you. Our last question comes from Paul Lejuez with Citi. Please proceed with your question. Thank you. This is Kelly Crago along for Paul. Quick question on the 1Q guidance. Is there any way you could get a bit more granular when you think about what you expect sales in 1Q to be versus FY 2019, any way to quantify that? When you think about that on a brand level, do you expect American Eagle brand sales to be above 1Q 2019 as well as Aerie's? Kelly, thanks for the question. Yeah, we're not really providing any more specific guidance than the general guidance at this point, just because of continued uncertainty. We're comfortable with what we said around at a total quarter level exceeding revenue and bottom line, but no real granularity beyond that at this point. Got it. Okay. Just on SG&A, any high level thoughts on where you think that shakes out this year versus FY 2019? Anything to think about on a quarterly basis? What are some of the big buckets to think about as far as cost savings versus marketing? Any detail around that would be great. Just lastly, on the gross margin strength in 4Q, was that mainly merchandise margin expansion, or did you see some occupancy leverage in the fourth quarter as well? If so, can you quantify, and how should we think about that line item in FY 2021? Thank you. Yeah. I'll take the second question first. Gross margin in fourth quarter, significant occupancy leverage, yes. Now, it was the combination of the impact from the impairment we took, also rent reductions, rent negotiations. It was both. We saw significant leverage within our buying occupancy costs. The bottom line or the drop to gross margin was largely from merchandise margin because we did offsetting the rent leverage within buying occupancy was delivery and distribution costs headwinds. To SG&A for 2021, again, I'll give you a little bit of flavor against 2019. Right now, it's a bit of a moving target, as you can imagine, because as we talk about the full year being uncertain, there's a lot of variable costs within SG&A. As we sit here now, we're looking at it in that mid to high single-digit growth call it against 2019. Implying a low single-digit growth rate over a two-year period from 2019. Again, there's a couple things to keep in mind when going back to 2019. We didn't pay any cash incentives, so you can imagine we have a placeholder there in that growth rate I just gave you, which could move. The other things I would say is we have a pretty robust rolling forecast approach that we're implementing in terms of how we're managing across the year. As we look at revenue and we look at demand shifting, and we reset our expectations from a top line perspective and inventory around that, we're doing the same thing on the expense line. Advertising, store labor, other variable expenses could definitely move with that. That mid single digit to higher range I'm giving you is based on current revenue expectations, but there's a lot of moving parts and variability to that. Got it. Thank you so much. Okay. All right. Thank you everybody. That concludes our call today. Thanks for your participation. I'll talk to you soon. Bye-bye. Everyone, stay safe. Stay safe. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.