Greetings, and welcome to the American Eagle Outfitters third quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A 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. I would now like to turn the conference over to your host, Judy Meehan. Thank you. You may begin. Good morning, everyone. Joining me today for our prepared remarks are Jay Schottenstein, Executive Chairman and Chief Executive Officer. Jennifer Foyle, President, Executive Creative Director for AE and Aerie. Michael Rempell, Chief Operating Officer, and Mike Mathias, Chief Financial Officer. Before we begin today's call, I need to remind you that we will make certain forward-looking statements. These statements are based upon information that represents the company's current expectations or beliefs. 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 third quarter investor presentation. Now I'll turn the call over to Jay. Good morning, and thanks for joining us today. I hope everyone is doing well. I'm extremely happy with the continued strength across our business. It was truly a milestone quarter in which we posted best ever third quarter results and announced an important strategic acquisition. I'll start with our results, which were simply outstanding. This quarter, we delivered record revenue of $1.27 billion, reflecting growth of 24% from 2020 and an increase of 19% to 2019. Healthy sales and merchandise margins, combined with cost efficiencies for a profit flow through to surpass our expectations. Record operating income of $210 million, reflecting a margin of 16.5%, our highest rate since 2007. We are extremely pleased to see sustained momentum across our brands and channels which posted growth versus 2020 at pre-pandemic 2019 levels. Casual wear remains in high demand and AE and Aerie are perfectly positioned to benefit. We are delivering great product and sharper marketing as well as brand experiences both in store and online that are second to none. The AE brand is achieving exceptional results. Under Jen's leadership, the product style and quality has improved remarkably and customers are noticing. As back-to-school came rolling back, AE received more than its fair share of growth. Shopping frequency and spend is up dramatically, and we are acquiring and reactivating more customers. It's exciting to see the consistency in our signature jeans business, which continues to reach new heights across genders. At the same time, we are seeing renewed growth in categories that have been under-penetrated in recent years. Aerie's growth continues at a fast pace with momentum across all categories, including our new activewear brand OFFLINE by Aerie. Customers who try Aerie love it, and the brand is just beginning to unlock its true potential. Healthy acquisition and retention are fueling strong sales, and we are seeing nice reception as we expand into new markets. Our Real Power, Real Growth strategic pillars have provided a roadmap and instilled focus across the company. Simply put, we are running our business better than ever. Key initiatives such as inventory and real estate optimization and the transformation of our supply chain are driving significant profit flow through. The processes, disciplines, and capabilities we have put in place over the past 18 months will continue to set us apart, fueling strong returns and taking AEO to even greater heights. As an organization, innovation is a core value and at the heart of everything we do. We clearly recognize that many of the changes in our industry over the past year are here to stay. In order to remain competitive today and in the years to come, we must pivot and think differently about our business. That brings me to our exciting plan to acquire Quiet Logistics. This acquisition marks a major milestone for our company, which I believe will be transformative. Acquiring Quiet allows us to build on the efficiencies we've gained over the past 12 months and position us for success as we grow our business over the coming years. We also have a broader vision. We expect the combination of Quiet Logistics and the recent acquisition of AirTerra to create a unique platform that revolutionizes logistics within our business and retail. Through consolidation and pooled resources, the customer at Quiet and AirTerra will enjoy the agilities and efficiencies that were previously only available to the world's largest brands and retailers. I believe this will create an exciting new profit center with meaningful growth opportunities for AEO. Lastly, our efforts around sustainability and building a better world through our ESG initiatives remain front and center at all times. We continue to increase our most sustainable Real Good styles across all merchandise categories. Additionally, we are investing to decrease emissions in our operations as we make progress towards becoming carbon neutral. AEO performance year-to-date was truly remarkable and exceeded our expectations. I'd like to thank our teams across AEO for how well they have executed the quarter and throughout the year. They clearly demonstrated the agility to meet unexpected challenges while also staying the course towards our long-term goals. Our results continue to be fueled by a sound and meaningful strategy, resilient operations, a focus on innovation, and a passionate world-class team. Strong demand continues, so we expect a strong close to 2021. With that, I'll turn it over to Jen. Thanks, Jay, and good morning, everyone. This was another amazing quarter for AEO. We saw tremendous excitement around Aerie and AE as customers turned to their favorite brands this back to school. Customer KPIs were very favorable as we brought in new customers and won more of their wallet. It was a great setup for the holiday season, where I'm happy to note the energy has stayed just as elevated. Starting with Aerie, we consistently reach new heights each and every quarter. 28% revenue growth in the third quarter, following a 34% increase last year demonstrates Aerie's strong growth path. This marked the 28th consecutive quarter of double-digit growth. Profit flow-through was also very healthy, with a 16.5% operating margin reflecting new third-quarter highs for the brand. We achieved this despite some unevenness of inventory flow during factory shutdowns in South Vietnam. This occurred primarily in our high demand legging business, which is also one of our best margin categories. Sales metrics in the third quarter were incredibly healthy. The AUR was up in the high teens, driven by higher full price selling and more strategic decision-making around promotions. Demand was strong across the Aerie portfolio, with our core intimates, bralettes, and apparel leading the charge. The OFFLINE activewear brand is continuing to generate excitement as it expands its product offerings. We feel great about what's to come as we grow the store footprint and widen the customer base. Marketing is also playing a key role. In August, we launched AerieREAL Voices. This was Aerie's largest integrated marketing campaign featured across TikTok and connected TV and Snapchat. This platform is giving our customers a voice and opportunity to share what makes them real. The response was truly amazing. Hundreds of customers shared their touching and funny real stories and will be featured in our upcoming campaigns. Year to date, Aerie's customer file has expanded 15%. Customers are transacting more frequently and across more categories. This is driving higher spend per customer as Aerie becomes the go-to for intimates, activewear, and cozy apparel. We opened 29 new Aerie doors in the quarter, including a mix of new standalone and side-by-side formats. Roughly a quarter of them are OFFLINE doors. Momentum heading into the holiday season remains strong. We are focused on driving broad-based scale recognition of Aerie as a must-stop gifting destination, and I am so excited for what we have planned, and I look forward to sharing more Aerie highlights in the upcoming quarters. Now, turning to American Eagle. I'm thrilled with the great progress we're making just 11 months into the launch of our new strategy. As I shop our website and walk our stores, I have to tell you, the strong AE heritage we all know and love is back. The assortment has been refreshed. Our advertising and messaging is re-energized, and it's working. Sales in the quarter rose 21% compared to 2020 and increased 8% to 2019. Reigniting our brand and product together with inventory optimization and promotional discipline drove strong AUR growth and merchandise margin expansion. This resulted in significant profit flow through an operating margin of 27.8% that reflected new highs. Our strength during back-to-school is a clear signal that we are the destination for jeans, which continues to hit new highs. AE's customer file is up, and here, too, customers are buying more frequently and spending more. As we predicted, current trends and shifts in silhouettes are playing right into AE's strength as the market leader. In the quarter, our men's business saw tremendous growth across all categories. The women's business also posted strong sales, supported by our signature denim category and a focus on outfitting. AE continues to explore innovative ways to reach and broaden its audience. I'm so proud to share that AE was included in TikTok's pilot of its social commerce program this quarter. Being a part of the new initiative is a true testament to the growing strength of the AE brand and its importance to customers. AE also launched a store on Snapchat and became the official partner of Twitch Gaming, a new channel created by gamers for gamers. There is so much momentum across the brands as we head into the holiday season. The teams did a great job getting our product out here, and we're positioned to meet strong demand. To the teams across AE and Aerie, I can't thank you enough for all your hard work. It's paying off in spades, and I'm so happy how far we have come and how much we've accomplished in such a short period of time. More to share in the coming quarters. Thank you. Now I'll turn the call over to Michael. Thanks, Jen, and good morning, everyone. I'm very pleased with how we executed this quarter. The teams did a remarkable job managing through a highly disrupted operating environment. Strong top- and bottom-line results are a clear indication that our strategies are working. We are making sustained progress against the strategic pillars outlined in our Real Power, Real Growth value creation plan. With this, we are unlocking structural benefits across our business and building a competitive edge in the industry. A key pillar of our strategy is to create the best brand experience for our customers, and our selling channels really delivered this quarter. We are pleased to see store traffic rebound rising in the double digits, driving a 29% increase in store revenue. Selling trends were robust across our factory outlets and mainline stores, with both formats also seeing significant profit improvements. Momentum was broad-based across all regions in the U.S., and all international markets also posted positive results. Our digital business continued at a healthy pace, with revenues up 10%, successfully lapping 29% growth in the prior year. I am pleased to note that both our store and digital revenues and profits in the quarter surpassed levels we achieved in the third quarter of 2019. This is reaffirming that we are emerging from the pandemic stronger. Year to date, digital penetration is 35%, and our trailing 12-month digital revenue is approximately $1.8 billion with very strong profitability. As we prioritize enhancing the omni-channel shopping experience, we are launching new tools and technology. This quarter, we expanded our virtual selling tool, AE Live, which leverages our amazing store teams and local influencers to connect directly with customers looking for inspiration and guidance on the latest trends. We also launched Afterpay in stores, enhanced our e-gifting for a more engaging experience, and expanded both same-day delivery services and customer self-checkout to more geographies. I am very encouraged by the strength in our customer data. We closed the third quarter with the highest active customer count and highest average annual spend since 2010. Over the past 12 and 24 months, we added almost 1.75 million and 2.25 million new customers, respectively. Approximately a third are engaging across both brands and spending approximately two times that of our average customer annually. Following a successful relaunch last summer, the loyalty program is growing, with members spending more and staying longer. Now, shifting gears to logistics and supply chain, we continue to reap the benefits from our in-market fulfillment model. Delivery costs leveraged 120 basis points in the quarter. In fact, delivery cost dollars were down year-over-year, led by efficiencies created in digital delivery. With product located closer to stores and customers, delivery times and the average cost per shipment declined versus last year. With greater control over inventory placement, shipments per order were also down dramatically. This created enormous cost savings and efficiencies. As Jay said, we are thrilled to announce the purchase of Quiet Logistics, which will allow us to increase these benefits over time. In particular, the ability to drive substantially greater sales and margin on far less inventory, create more precision in our inventory allocation decisions, and deliver products to customers both faster and at a lower cost. This comes shortly after our acquisition of AirTerra, which we discussed on last quarter's call. The combination of Quiet and AirTerra has meaningful growth potential, offering a one-stop shop for cost-effective transportation and fulfillment solutions to a growing customer base. A technology-led supply chain is the backbone of a successful retail business today and into the future. We believe we are demonstrating the power of this and that Quiet and AirTerra are providing capabilities that are much needed in today's marketplace. We're going to continue to grow both of these businesses and are excited to welcome their highly skilled and experienced teams into our family. As we discussed in September, the global supply chain remains highly disrupted, with port backlogs and shifting production schedules leading to longer delivery times and higher transportation costs. Overall, we managed effectively through these challenges. In the third quarter, the AE brand essentially had no disruption. However, as Jen discussed, Aerie's legging category experienced uneven inventory flows when factory closures in Vietnam created product delays. As a result, we chose to airfreight the product in to ensure we were in stock for the holiday. Although there's a related cost that Mike will discuss in more detail, we are in a healthy inventory position and are set up for a very strong holiday. In closing, I'm extremely pleased with our performance year-to-date, and I'm looking forward to sharing more details on our new investments in the coming quarters. With that, I'm gonna turn the call over to Mike. Thanks, Michael. Good morning, everyone. In the third quarter, we built on strong momentum from the first half of the year, posting yet another record revenue and profit result. Even with the global operating environment still in flux, our teams executed with precision, guided by the initiatives we outlined in our Real Power. Real Growth. value creation plan back in January. We continued to place strong emphasis on product innovation that strengthens customer affinity for our brands, inventory discipline, and focus, and real estate optimization and supply chain investments that build on our leading omni-channel capabilities. Together, these initiatives are fueling our performance and improving our gross margin for the long term. Revenue of $1.27 billion, operating income of $210 million, and adjusted EPS of $0.76 marked third quarter records for the company. Gross margin of 44.3% and operating margin of 16.5% hit their strongest levels since 2007. Growth across the business was also exceptional compared to the pre-pandemic 2019 period. Consolidated third quarter net revenue increased $242 million or 24% versus third quarter 2020, and is up $208 million or 19% from 2019. Across brands, sales metrics were very favorable. Strong demand, higher full price sales, and fewer promotions drove the average unit retail up 15% and fueled a high single-digit increase in our average transaction value. As Michael noted, our selling strategy as an omni-channel retailer continues to be a competitive advantage, fueling growth across channels. We offer customers the convenience they seek on where and how to shop and continue to work to optimize the costs associated with that convenience. From a brand standpoint, Aerie continued its industry-leading multi-year growth trajectory. Revenue rose 28% from third quarter 2020 and over 70% from third quarter 2019. Aerie's operating profit rose 46% and the operating margin expanded to 16.5%, marking a new third-quarter high. Incremental freight costs were $5 million or a 170 basis points headwind to brand operating margins in the quarter. Additionally, uneven flow of goods, particularly in our signature leggings business, put pressure on volumes as well as product mix, as this is one of our highest margin categories. Despite these headwinds, Aerie posted a significant improvement in profitability compared to prior years, almost tripling versus third quarter 2019. Moving to American Eagle's brand performance, I cannot be more pleased with our results here. The third quarter saw a significant profit unlock at AE as top line grew 21% and operating profit jumped 68%. Operating margins hit a remarkable 27.8%. As Jen mentioned, with improvements across key categories, the top line grew 8% against 2019. We are seeing far better profitability even beyond our expectations. Strong demand for our products is being met with healthier decision-making across all areas of the business, and we are truly benefiting from the inventory optimization work unveiled in January. With significant progress here, we still see room for further unlock moving forward. Total company consolidated gross profit dollars were up 36% compared to the third quarter of 2020, reflecting a 44.3% gross margin rate. A strong top line allowed us to realize expense leverage in rent as we benefited from lease negotiations. As Michael indicated, efficiencies in our distribution network fueled leverage in delivery. Merchandise margins also expanded due to our focus on inventory optimization, promotional discipline, and higher full price selling, partially offset by higher freight costs. As a result of strong sales, we saw SG&A leverage 190 basis points. The dollar increase of $41 million was due primarily to higher store payroll, especially as we lacked capacity constraints last year, as well as new store openings and increased advertising. This was partially offset by lower incentive compensation due to accruals earlier in the year. Record operating income of $210 million reflected a 16.5% operating margin, our highest third quarter rate since 2007. Adjusted EPS was $0.76 per share, marking a record third quarter. Our diluted share count was $205 million and included $34 million shares of unrealized dilution associated with our convertible notes. Ending inventory was up 32% compared to a 13% decline last year. Increased freight costs had about a 10-point impact on ending inventory at cost. We're really happy with our inventory position. I'd like to take a minute to recognize the hard work our teams put in to get our product here on time to support strong demand this holiday season. Our balance sheet remains healthy, and we ended the quarter with $741 million in cash, up from $692 million in third quarter 2020. Capital expenditures totaled $58 million in the quarter and $144 million year to date. For 2021, we continue to expect capital expenditures to come in on the low end of our $250 million-$275 million guidance range, reflecting cost savings and project timing. With regards to our real estate strategy, we have significant flexibility in managing our store fleet to support our revenue and profit goals. As we work towards our long-term target of right-sizing AE's store footprint, we are doing it with a sharp eye on maximizing profitability. For Aerie, we are focused on markets with the greatest opportunity. Due to backlogs in building materials and fixtures, several of our third quarter store openings shifted into the fourth quarter. We expect the majority of these stores to open by the end of the year. We're very excited about our recently announced acquisition of Quiet Logistics. This will improve our ability to service both channels and lock in the cost benefits and overall gross margin efficiencies we've consistently seen over the past year. To wrap up, our performance year-to-date has been truly phenomenal and even more so in the context of challenges and uncertainties in our external environment. We're extremely pleased with our record results year-to-date and continued progress in our strategic initiatives. Sales trends remain strong heading into the key Black Friday and Cyber Week period. We have met our goal to ensure our customers do not feel any impact from the supply chain disruptions, and we're well positioned to meet holiday demand. However, that has come with additional freight costs in the range of $70 million-$80 million, which will impact the fourth quarter. Of course, we expect to nicely exceed $600 million of operating income for the year, well above the $550 million 2023 target. We will be updating our longer-term financial targets at ICR this January. Our results here to date continue to reaffirm that the Real Power. Real Growth. value creation plan is working and that we're focusing on the right levers to drive financial success and returns to our shareholders. With that, I'll open it up for questions. Thank you. At this time, we'll be conducting a question-and-answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. To allow for as many questions as possible, we request that you each keep to one question. Thank you. Our first question comes from the line of Jay Sole with UBS. Please proceed with your question. Great. Thank you so much. You know, Jay, I wanted to ask you about your comments on the recent acquisitions of Quiet Logistics and AirTerra. You know, you called them transformative and said they'd be profitable. Can you talk about why you're using those type of words? I mean, can you give us a sense of what kind of revenue and profit these acquisitions can generate for the company and also why you see it as transformative? All right. We have a problem that your voice came in all, ruffled up. We couldn't hear the question. Yeah. Jay, can you try to repeat that? There's something wrong with your line. Yeah. I think he was asking about Quiet and AirTerra. Yeah. Can you hear me better now? There you go. Yes. Now we can hear you much better. Okay. Sorry about that. The questions were about the acquisitions. You know, you used the words transformative and profitable. Just can you elaborate on why you see this transformative and what kind of profit potential you see from these businesses, also revenue potential as well as profit potential? Thank you. First of all, this is an acquisition that we've been using for the last six, 15, 16 months ourselves. We saw this year, part of our success of getting higher margin is ability to have the right merchandise in the store at the right time in the most efficient manner. A part of it is because of using Quiet. We've had very good success with it. We've had such success that we didn't toot our horn, but this past quarter, our operating costs on our logistics were lower percentages than the last couple of years, probably the best lower percentages, and actual dollars for the quarter were less dollars than the previous year. I don't think any retailer can make that statement, that their costs of merchandise, not the cost of merchandise, but the cost of the handling was less than the year before with what's going on in the market and the environment they're working on. First of all, the systems in Quiet are the most up-to-date systems. You got these little robots walking around pulling. We have the ability to deliver to the customer fast. The big thing that we have is that this system follows our model that we set up. We were the first people when we built our distribution center a few years ago, to have the ability to handle stores and direct to the customer in the same facility. Most people do not build their facilities. They built separate facilities for the online business and separate facilities for the store. We really made a true omni experience where our facilities can handle both. This same system that Quiet has gives us the ability to even do it better. You know, if you ask me what I see, I see us expanding Quiet with more locations, that we'll have all these micro centers around the country and be able to deliver faster, better, and more efficient. Also, you know, the big thing is we only have 60 customers handling other people, other retailers. We're giving great service. I look at us getting a platform which will be able to allow ourselves and our partners in it, whoever, you know, different retailers, between AirTerra that come aboard and the ones that are coming aboard in Quiet, to really be able to compete against the Amazons of the world and the Walmarts of the world in an efficient manner. Because in the future, and I say this to our team, logistics are distance. If you're not efficient there, you're not gonna win. We can have the best merchandise in the world and the best looks, but if we don't have the ability to get it there in an efficient manner, we're not gonna win. This will give us ability to stay on top. We have great teams we brought in. The quality of our teams, I'll put against anybody in the industry, period. Well, thank you for that. Maybe if I could just follow up, if you could offer some ideas on revenue and profit potential, because you mentioned you have 60 customers. Do you see that customer count growing, and what does that mean for revenue and profit potential of the business? Yeah, Jay, this is Michael. I'll let Michael reply after that, but you know, we're very excited about that. When you say about growing the Aerie, people contact us, we wanna become customers with the bikes, we could talk about the potential. It's big potential. I mean, this is a true high-tech story. Yeah. Jay, we're actually gonna defer that answer till next year. Like Jay is saying, we see tremendous potential for this business. As we said in the quiet release, we see this business not only being very large, but being very profitable and having margins that are incremental to the company. We'll give more color at the beginning of next year. You know something, Michael? Yes. I think the big thing we're pointing out is we're taking what's normally been a cost center, and we're gonna turn into a profit center. Right. Great. Okay. Thank you. Let's go to the next question. Yes. Our next question comes from the line of Matthew Boss with JP Morgan. Please proceed with your question. Great. Thanks, and congrats on a nice quarter. Thanks, Matt. At Aerie and American Eagle, could you speak to demand that you're seeing across categories exiting the third quarter as we enter holiday, how you feel about overall momentum at each concept so far in November, maybe, and just comfort with your inventory across the assortments as we think about the fourth quarter as a whole and exit the year? Hi. It's Jen. How are you doing, Matt? Happy Thanksgiving to everybody. Look, I first want to start with inventory and congratulate the supply chain. You know, I'm hearing from competition that you know, they really leaned on direct, which is indicative to me that they couldn't probably support their store base. Keep in mind that we have a decent sized store fleet across our chain, and we were able to not only meet the customer demand there, but also on direct. Our store business was fantastic. With just real discipline and inventory, we were able to get that product based on some of what Jay just spoke about to the customer at the right time. I do want to add in one thing there. When I think about doing that, I love the reactivation rates we're seeing on our customer base. We're +40 in both brands on customer reactivation, which again tells me, plus forty percent, I should say, tells me that our customers are highly engaged. They're excited to go to the store and see what we have to offer. We're in great supply there, and I think we're ready to hit the road into the holiday. I love what I'm seeing. I was just in the mall. I saw all three brands. Excuse my voice. I'm a little throaty today. I saw our OFFLINE store in Aerie. I saw Aerie, and I saw American Eagle Outfitters. I have to tell you, we are ready for the holiday season. It looks like there wasn't a blip in the road as far as I'm concerned, and I think we look best in show. I'm really proud of what these teams are able to deliver, just to really deliver onto the season. Like, look, this is definitely continued momentum so far. You know, we have a few weeks ahead of us, meaning this week is our big one. You know, we're buckling up and I'm pretty excited about our execution to date. That said, look, in American Eagle, we have reignited that customer. You know, we set out a strategy a year ago and look at these results. I mean, the earnings are spectacular. The execution on low inventory levels. Of course, there's a denim trend out there and, you know, those cycles last for a long time. I love that they're incredibly, you know. It's not just one fit. That's the best part. What we're seeing in that is that she's aging, she and he, they're aging up with us, and they're growing with us. We're pretty excited about that. I love what I see in the future, the way we're mixing denim. This marks almost a full year of really not promoting denim 365 days a year. Look at those results. The promotional cadence is lower than ever. Again, just the thoughtfulness and, you know, our strategies around exciting the customers is right on. All categories have really been performing nicely, and we see continued opportunity in both men's and women's for outfitting in the future in AE. I love what spring is going to bring us. I saw early on you know some of the photo shoots and what our marketing campaigns are gonna be, and it's better with age. Lastly, I will say, don't forget we have a brand new design team, a new head merchant, and they're really putting together a fabulous assortment strategy for the future. I could not be more proud of that team. Looking to Aerie. Well, number one, we have a whole new business category OFFLINE. You heard about the leggings. Incredible, those results. It's one of our highest demand categories and our highest margin category. We were able to hurdle that, you know, potential, you know, a bump in the road, and I think we did a great job doing so. Watch out because those leggings are here, and they're ready for holiday. Look, the new brand is certainly exceeding expectations OFFLINE. We have a lot of learnings, and we had a lot of learnings. I always love a learning because it means there's upside for next year. The team's really disciplined right now and focused on delivering incredible results in Aerie. All categories have fired, though. In Q3, we've seen nice acceleration in our core intimates business as well as lounge. You know, many people scratched their heads and wondered if lounge was still gonna be a desired category, and it certainly is. We're very excited with what we've been seeing, so more to come, we're excited about holiday in the future. Great color, Jen. Maybe Mike, just as a follow-up on profitability. So kinda twofold. Can you speak to drivers of AE's operating margin expansion? I think it was up over a thousand basis points in the third quarter relative to two years ago. Then just to Aerie, is 20% operating dollar flow through? Is that still the right rate to think about for the concept as we move forward? Yeah, thanks, Matt. I'll answer the second question first. I think we talked about 25% for our longer term targets. We flowed through about 25% in Aerie this quarter over a two-year basis. But I think if you do the math on the freight in that we incurred in the brand, which on a proportionate basis was a bigger deal to Aerie, we definitely missed some business in leggings that Jen was just talking about to the tune of probably $15 million on the quarter, maybe a little over $1 million a week in leggings business. So if you do the math on that, you'd be at a probably 20% operating rate or so for the quarter versus the 16.5%. If you think about the flow through then, would have been probably 30% or higher in the quarter versus the 25. I think we'll talk about the longer term goals in January again. 25% is what we communicated last January. We got the question around that being conservative. The answer to that was likely conservative. We've been flowing through, I think in the first half of the year, more like 40%. We'll talk about it. I think 30% is probably a good number to have in your mind now, and we'll refine that for January at ICR. On the operating rate expansion in AE, it's really the story of what everything we're talking about at a company level too. We saw some nice merch margin gains on top of really strong gains last year. The bigger story is the gross margin was rent and delivery. Majority of our leverage, the majority of the gross margin expansion, which then benefit AE on some nice revenue growth, were those two categories. Then again, AE growing 21% to last year, but then up 8% to 2019, has leveraging other expenses too. Rent and delivery were definitely standouts for us, and I think that's continued work that we'll see. That's the quiet conversation. That's the logistics capabilities, efficiencies and leverage we expect to continue to see and we'll continue to provide more details around that in the future. Thank you. Our next question comes from the line of Paul Lejuez with Citi. Please proceed with your question. Hi, this is Kelly Crago on for Paul. Thanks for taking our question. I'm just curious if you could elaborate on your outlook for the gross margin line in the fourth quarter, just in light of the $70 million-$80 million in additional freight costs. What are your AUR assumptions in the fourth quarter? Are you expecting, you know, as strong of AUR that we saw so far this year? Just secondly on the AUC, just curious what you're looking at for FY 2022, what sort of price increases would you expect to help offset? Thank you. Thanks, Kelly. I'll take the gross margin pieces, and maybe Michael can take some of the other 2022 questions. At first AUR, we're expecting similar type of results in AUR. Again, we have a lot of business ahead of us in the fourth quarter here, navigating week to week, but our expectations are similar in terms of what we saw in the third quarter. Gross margin piece of your question for the fourth quarter, we disclosed, we talked about the $70 million-$80 million in freight costs. The number for the year is more like over $90 million. We did incur, as we talked about in the Aerie comments, we incurred some incremental freight costs in the first or in the third quarter. You can think about maybe 100 basis points of impact there to the company. Fourth quarter, it's $70 million-$80 million. If you do the math on, you know, rounding what you're expecting in revenue or what we're probably expecting in revenue, it's probably close to 500 points of gross margin. I think the benefits we're seeing in rent, delivery, we'll expect those things again. We did what we said we were going to do, which was get our inventory here, make sure the customer didn't feel any impacts of the supply chain disruptions, of Vietnam shutdown, and we spent money to get it here. That's about 500 basis points to the fourth quarter. If you do the math, then really add to guidance, I mean, I'll just hit that question maybe now, which if you model out what you would expect us to probably been guiding to in the fourth quarter and subtract $70 million-$80 million, you're probably in the right place. Just to say it proactively, it's not tough to put it in a press release, but we'd be talking about a $700 million number or higher if not for that freight cost. Thank you. Our next question comes from the line of Adrienne Yih with Barclays. Please proceed with your question. Good morning. Congrats. I just have to say from personal experience, the digital ship-from-store are remarkably fast, like a day. Good for you. You're experiencing the efficiency firsthand then. Thank you. Yeah. Thanks, Adrienne. I have. Exactly. You're welcome. Maybe Jay or Jen or whomever wants to take this one. Can you talk about, you know, AE brand's number two denim selling position in the U.S., how that's changed maybe from five years ago? I seem to recall annually it was sort of in that 20% of sales, but it seems like it's, like, significantly higher than that. So if you can talk about where that is. Any comment on, you know, fourth-quarter-to-date holiday, we've heard about acceleration, massive acceleration in the space into the first part of November. Any quarter-to-date by brand would be super helpful. Thank you. Yes. You know, in denim, we still remain number one in women's for all ages, and we sit number one in men's for our age demo. 20% market share, we're still in that zone. I would like to just add, though, it's really about the health of the business. I mentioned it on my prior answer, the AURs in denim are at record highs, and they've surpassed the total AE brand AURs. It's pretty impressive as a percentage growth. It's pretty impressive when you see our ability to sell full price denim. Honestly, it's about time because the love and the detail and the workmanship that goes into our denim at this price value equation is like no other. I'd like to say that we're in this for the long haul. I like what we've done over the past year. I like that we're, you know, demanding the retails that warrant, you know, the quality that I just spoke about because I think it bodes well for our future, where many retailers are going to face a lot of headwinds. We have that, you know, beauty of, again, delivering quality, less units, and we're gonna keep on looking at what else we can offer this customer and grow that AUR, where it's warranted, so only where it's warranted. We're seeing no resistance. If they love the fit and they love the silhouette, they're spending. That will give us a lot of leverage in the future, if you think about it. Eventually these, you know, headwinds are gonna come down. Our costs are gonna be, you know, more advantageous. You know, I think we're gonna be in good position to take advantage of some of that, but also continue to better our quality year over year. That's truly the strategy. You know, we're trending up over the past five years as far as market share, and our customer is aging with us, which I mentioned as well. Love that because in the past, we used to see the customers dump out, you know, around, you know, 19, 20 years old. We are in there as the number one solid denim offering in specialty from age 15 to 25. Really excited about that. Headed into holiday, you know, we're continuing the momentum. I like what I'm seeing, but again, it's early on, Adrienne, to tell. You know, it's obviously a big quarter, but you know, we definitely saw some acceleration early on in the quarter. Now we're here. We call it Green Week. We are ready to fight and, most importantly, delight our customers. Just wanted to wish you a happy Thanksgiving as well. Great job. Happy Thanksgiving. Take care, Adrienne. Thank you. Our next question comes from the line of Oliver Chen with Cowen and Company. Please proceed with your question. Hi. Thank you. Happy holidays, everybody. The topic of ESG and sustainability is really important to Cowen and a lot of the research that we've been doing for Gen Z and Gen Alpha. What would you say distinguishes you in terms of your competitive advantages? One of the risk factors we see around denim is clearly and the future of water as well as dyeing and thinking about transparency and the consumer's preference for transparency as well. Thank you. Hey, Oliver. This is Michael Rempell. I would just build on what Jen was saying, which is we've invested over the last few years a lot of time and money and resources in building the best product that we can. Part of doing that is investing in how that product is manufactured, whether it's using better dye stuff, more sustainable dye stuff, more sustainable cotton, reducing water usage as part of the manufacturing process. We're working very closely with our factories. We set ambitious goals. In fact, our water goal that we set earlier last year, we believe we're likely to accomplish that this year or next year in terms of water reduction. We're gonna continue to raise the bar and make sure that our product is as sustainable as possible, because if there's something our customers care about, it's great quality, it's great fit, it's great innovation, it's great value, but it's also the way our product is manufactured and the impact on the environment. It's something we take very seriously. We're gonna continue to raise the bar and improve the sustainability of our product and believe that in this environment where people are dealing with inflation and other pressures, that the sustainability of our product, along with the quality of our product, is gonna be a significant competitive advantage for us. Also, Michael Rempell and Jennifer Foyle, I think you could tell them about the T-shirt program you have coming up for the spring with the special dyes or the special, seaweed dyes. Yeah, I mean, you know, the design team in both brands obviously have Real Good top of mind for all of our product categories, I mean, from swim as a swim category being almost 100% denim. Again, there's many variables under that, you know, what 100% means. You know, our swim and denim for back to school, we're gonna be almost 90% there as far as 90% of our denim being Real Good. We're just innovating under the covers. I mean, Jay, I don't wanna tell everyone what we have on order. You know, we have some really cool T-shirts coming your way. I can't tell them the ingredients, though, Jay. I'll say no. There are special ingredients there. The design team definitely knows that this could be a top of mind question when we go to design and the sketch point and, you know, raw materials, what can we do? You know, what part of this garment could be Real Good? Everything we do You know, every part of it, something that we do is better than doing nothing. I mean, that's my position on this, subject matter. We are, you know, continuing to innovate in all of our categories, whether it's, you know, BMI Con, whatever it may be, you'll see more and more of this coming from, you know, AEO Inc Really it's what our customer cares about. It's top of mind for this next generation. It's the number one idea or concept that these generations talk about. Trust me, I have a 14-year-old, and she's always reminding me that I need to go recycle my shoes. I will say it's something that we care about in AEO Inc, and there's gonna be some great report outs, and I'm sure we're gonna talk about it when we go into the investor meetings in ICR at the beginning of the year. Thank you. Thanks, Oliver. Thank you. Our next question comes from the line of Simeon Siegel with BMO Capital Markets. Please proceed with your question. Hey, everyone. Congrats on the ongoing strengths, and I hope you all have a great holiday season. Thanks. The two-year revenue growth is fantastic. It's a great job. You've clearly been enjoying the higher full price sell through. Just curious, how are units versus 2019 for AE and Aerie? And then, sorry if I missed it, did you speak to how you're approaching wage inflation from here? Thanks, guys. Yeah, I can answer. I mean, for AE brand, units are down. When you think about the AUR growth, margin growth we've seen, we're doing more with less units. This revenue growth you're seeing is significant unit efficiency. That's what we're seeing through the P&L and other places like delivery, in terms of costs, efficiencies. That's the continued story. Aerie, of course, on the growth we're seeing there, units are up, but it's always AUR. It's not all driven by unit growth, it's as much or more driven by AUR growth. Again, that's just inventory optimization. That's the way Jen and the teams are buying with Pep. We're seeing AUR growth then, less promotional stance. That's, I think we've talked about it, profit equals less units. The more we can drive revenue with less units, the more profit we'll see all the way through the P&L. There's more efficiency, higher sustainability, you name it. It's all a good story when you're selling less units. Great. Thanks. Anything on wage inflation? We have not seen. I mean, I think we are in good shape there, Simeon. I think, in our stores and our distribution centers, we are not seeing anything that's, you know, beyond, especially in the stores, typical sort of market or local minimum wage increases. That's par for the course, things we deal with over and over. We're not seeing a significant impact there in stores. I think we've done a nice job in our distribution centers as well to mitigate wage inflation there. Michael, I don't know if there's any other color you want to add on the DC side, but. No, actually, our labor situation in our distribution centers is in good shape. We have raised wages in the DCs to attract talent, but we've been able to attract all the labor that we need for the season. We believe that we're largely gonna offset any of the wage increases with efficiencies in the distribution center. We feel good about how we're positioned going into the holiday. Maybe one. We levered our own DC costs and labor, we leveraged in the third quarter, Simeon. We're seeing as much, you know, Michael just hit the points on sort of how we're handling labor and making sure we're staffed appropriately. But we, on a total basis, our DCs, we leverage costs. Mm-hmm. Thank you. Thanks. Thank you. Our next question comes from the line of Dana Telsey with Telsey Advisory Group. Please proceed with your question. Good morning, and congratulations on the nice results. I think the acquisitions of Quiet and AirTerra are very interesting. As you think of this becoming a separate business line on your income statement and a potentially a revenue and profit driver, does this lead to more acquisitions? What fits in this, and how do you see the margin profile compared to the base business? Does the base business grow because of having these businesses that help drive logistics leverage? Thank you. Great. Hey, Dana, it's Michael. I'll answer that. You know, first, just to reiterate what Jay said, clearly this is working, okay? Our total delivery leverage, digital delivery leverage is a percent of sales. Delivery dollars are down, and our packages are getting to customers 10%-15% faster. We couldn't be more thrilled about seeing these acquisitions that we have, these partnerships that we have, and the impact they're having on our business. You know, and clearly we were acquiring Quiet and we acquired AirTerra because we believe that this combination of scale, speed, and cost advantages is needed in the market. What we're finding, we haven't closed on Quiet yet. We're planning to close at the end of December. What we're finding is we're going out to AirTerra is that there's a massive unmet need in the market. Brands and retailers of all sizes are anxious to sign up with us. We're again, we'll give more color on that at the beginning of next year because previously they didn't have these kind of capabilities. They couldn't access local delivery networks. They couldn't position their inventory closer to customers and stores. The combination of what we're doing with Quiet and AirTerra gives brands and retailers of all sizes the ability to do both, the ability to better position inventory, the ability to serve stores, and the ability to deliver e-commerce to customers faster and cheaper than they could previously. We're excited to give you color on it. Clearly, we invested in it. Jay is a great entrepreneur. He worked with us. He saw the opportunity, but we invested in it, not just because it's supporting our American Eagle business, but because we believe that this is gonna be a big business in its own right. As we went out and we talked about this before, but as we went out and we're building our plans, not only is there substantial top line growth, not only is there, you know, nice profit associated with that, but it's actually accretive to our margin rates. We're gonna talk about it more at the beginning of next year, but you're seeing the results in the American Eagle business. It gives us a lot of confidence that, T he conversations we're having with other brands and retailers give us a lot of confidence that there's a huge unmet need here and that this is gonna be a big business in its own right. We're looking forward to giving you more color at the beginning of next year. Okay. Melissa, we can take one more question. Yeah. Well, you know, just a minute. I'll just add, like, one thing to what Michael said. We believe that in the logistics business, bulk is very important. You know, in getting better rates and to you know, as far as the shipping costs. We also believe that this platform, and we look at this thing as a platform, not just a business. Someone's gonna develop it, and we figured it might as well be us, that this will be a platform that will be shared by our competition and make them stronger. Because if we have stronger competition, it's better for us. The more people that are attracted in the malls, it helps our stores too. This is really gonna be the answer to certain other retailers who have really been out trying to destroy retail in this country. We think we have an answer against that, and we're prepared to lead the charge. Thank you. Our final question this morning comes from the line of Susan Anderson with B. Riley Securities. Please proceed with your question. Hi. Good morning. Nice job on the quarter. Just to follow up on the denim AUR, it sounds like you've been pretty pleased with what you're seeing there. I'm curious if the consumers are shopping, you know, your more middle price point denim or if they're also kind of biting at those higher price points that we're seeing in the stores that approach $80 at full price. Then also, I'm curious how you're thinking the sales play out for this holiday. We're hearing, you know, a lot of consumers will shop earlier. Do you think that the results you've seen so far in fourth quarter reflect some earlier shopping and, you know, potentially we'll get that December lull? Thanks. Sure. You know, I love retail because it's art and commerce, right? You know, I think the team's doing a great job, painting a beautiful picture for our customers, but it's also about how we invest. When we think of pricing, and we look at our tiered price points, we ensure that our investments make sense. Regarding the higher price points, as we learn, we will scale. We've seen no resistance at this stage, which gives us some runway for the future. As I just mentioned, you know, with sustainability being at the forefront, it's important that we think about that because, you know, it's not cheap to be green, shall I say that. I think we're paving a great way ahead of us, even in just denim, but in all of our categories because it'll allow us, you know, to be able to face some of these cost increases, which then again, we will be able to leverage once we get through some of these headwinds. To our benefit, I love what we're seeing in our ability to sell higher prices in a nutshell. Denim, certainly like I said, the team's investing accordingly based on where we think the demand is by price point. Certainly we've seen some great opportunities for the future. As far as holiday, look, we're coming into Q4 with great momentum. You know, certainly the beginning of this month, we definitely saw that. I do believe we're gonna win throughout the season. You know, we have goods here right now to sell for this week coming up, but we also are gonna be in good position in December. We have newness flowing in December, and we have flow strategies that are exciting that will keep the customer engaged. You know, without having a crystal ball in front of me, I like where we're positioned. I think the teams have done an outstanding job getting us here. Now it's our job to maximize the potential. Thank you. Ladies and gentlemen, this concludes our question- and- answer session. I'll turn the floor back to Mr. Schottenstein for any final comments. Okay. In closing, this was an excellent quarter for AEO with record revenue and profit performance. The strategic initiatives we laid out as part of our Real Power. Real Growth. value creation plan are clearly working. Momentum heading into the holidays is strong, and we feel confident with sufficient inventory to meet the very healthy demand we are seeing from our customers. We wanna thank everyone for the investment in our company and for joining us this morning. At this time, we wanna wish everyone a happy holiday. Everyone should stay safe. We look forward to seeing everyone in January at the ICR to update our report as far as updating our numbers and bring everyone along with our strategy. Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.