Greetings and welcome to the American Eagle Outfitters third quarter 2022 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, Senior Vice President, Corporate Communications and IR. Thank you, Judy. You may begin. Good morning, everyone. Joining me today for our prepared remarks are Jay Schottenstein, Executive Chairman and Chief Executive Officer. Jen 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. Thank you for joining us today. I'm pleased that we delivered third quarter results well above our expectations despite current macro conditions and tough comparisons as we lap significant pent-up demand and stimulus. While down to last year's record performance, revenue of $1.2 billion was our second highest third quarter in history, and our operating profit of $118 million exceeded the third quarter of 2019. I'm also pleased that our profit margins reflected a material improvement compared to the first half of the year. Our aggressive actions to reset inventory and reduce expenses are paying off. We continue to make progress and enter the fourth quarter very well-positioned. Our brands are strong and customer engagement continues at a healthy pace. Aerie remains a standout in the industry, and I'm very proud of the multi-year growth we've achieved. I'm also encouraged with performance of our new Aerie and OFFLINE stores, which demonstrate strong acceptance by our customers. AE profits and margins improved compared to the third quarter of 2019, reflecting strong product assortment as well as the team's focus on rationalizing unproductive SKUs and closing unprofitable stores. Top sales relative to 2019 were flat, and as Jen will review, we have plans in place to improve the trend. Quiet Platforms is providing significant operational efficiencies and needed capacity for our brands, as Michael will review. The third-party customer base is ramping up as other brands look to upgrade their supply chain operations and drive efficiencies to better compete in the current retail environment. I remain also excited about the potential for Quiet Platforms. As we evaluate go forward plans, we're exploring different options to support future growth. Overall, our third quarter was a strong step in the right direction, yet we remain highly focused on driving further improvement. In an uncertain macro environment, we are leveraging the strength of our operations to control what we can and best position ourselves to respond effectively to changing macro conditions. As the supply chain environment continues to normalize, we're using this to our advantage. We are planning inventories tightly and exercising our capabilities to chase into demand. At the same time, we're also reducing expenses and capital expenditures with a firm focus on improving the bottom line and driving stronger free cash flow. As we navigate the near term, we will cautiously invest across key strategic initiatives that provide a competitive advantage and allow our business to emerge from the current environment even stronger. I want to thank our teams for their hard work and dedication over the past several months. We were swift and took decisive actions across the business, and this is now showing up in our results. Looking ahead, we will remain focused and disciplined. Our brands remain incredibly strong. I am confident we will continue to make great progress. Now I'll turn it to Jen. Thanks, Jay. Good morning, everyone. Although we face difficult comparisons to a stellar year in 2021, we made good progress across our brands. During the third quarter, demand levels improved from August as we cycled past peak weeks of our record back-to-school season last year. Despite a less robust macro, I'm pleased that we delivered results ahead of our expectations. We also saw a meaningful recovery in profit margins compared to the first half for both AE and Aerie. Earlier this year, we took very deliberate steps to adjust forward receipts and clear through spring and summer goods. As a result, inventory is in much better shape, which enabled us to control promotional levels in a highly competitive environment. In fact, we achieved our second-best third quarter AUR, down just 5% to last year's record high, and up nicely across brands to 2019. As I step back and look at the business, our brands are very healthy. Given the current environment, there are clearly different dynamics at play by brands. Aerie remains on a strong multi-year growth path. Since the third quarter of 2019, revenues have nearly doubled, growing roughly $170 million. Record profits have more than tripled since 2019 and also increased to last year. New store expansion and great brand affinity are fueling increased awareness, and I'm excited to note that Aerie crossed two new milestones this quarter, hitting 10 million customers for the first time and achieving an all-time high AUR. Compared to last year, core intimates, fleece, and apparel showed up well. I continue to be extremely pleased with the expansion of OFFLINE, where new stores are performing very well. Aerie's cult-like following in leggings is driving momentum and has given us the ability to expand into adjacent categories like sports bras and active tops. All are seeing great results. We expanded our winning Real Me leggings franchise, introducing a new hold-up technology to our waistbands. We incorporate this fabrication into our sports bras and have seen amazing results for matching sets, which are a big trend. For the holiday season, I'm really excited for the new campaign, I Want Aerie, our broadest campaign positioning Aerie as the gift destination. Turning to American Eagle, pressure was anticipated as we cycled last year's record results, yet we did better than expected. Our actions to intentionally reduce inventory contributed to a nice profit improvement from the first half. As noted at last year's analyst meeting, we've been focused on resetting the brand, reducing SKU counts and promotions, and selectively closing unproductive stores. As a result of these efforts, we are seeing profits improve with operating income up 14% to 2019, and better margins across channels. Rationalizing excess SKUs is providing greater focus. We are making adjustments to address emerging fashion trends and feel really good about the newness we're bringing into the customer. For example, the Strigid denim collection launched last quarter and is doing very well. We've also shifted our assortment to emphasize new trends in woven bottoms such as cords, cargos, and wider silhouettes, which are seeing nice demand. As the supply chain environment continues to improve, we are becoming more nimble. We are getting back into a test-and-chase rhythm, which is a meaningful positive as we plan ahead. With new fashions, fabrics, and silhouettes all emerging on the horizon and our renewed agility to respond to near-term shifts in consumer demand, we should have a great setup going into 2023. We are also excited to launch a new sub-brand in men's, bringing innovation and newness to our men's business. Pre-launch tests have been very encouraging. We continue to leverage social and commerce to explore new ways to engage with our customers. Our efforts across TikTok and the Metaverse continue to drive strong engagement. Additionally, this quarter, we became the first major fashion brand to launch on BeReal. While the macro is certainly not easy, my confidence in our brands and overall consumer affinity for great casual wear is stronger than ever. We remain intensely focused on innovation and seeking opportunities to drive profitable growth across our businesses. A big thank you, as always, to the Aerie and AE team for staying focused and forging ahead. I'm incredibly excited for our holiday collections, and I look forward to updating you on our performance next quarter. Thank you, and wishing everyone a safe and healthy holiday. Now I'll turn the call over to Michael. Okay. Thanks, Jen, good morning, everyone. Overall, I'm pleased with how we managed the business in the third quarter, particularly as we navigated through an unpredictable environment. Let me start with a review of our channel performance. This year, we faced a more constrained macro environment than amplified pressure from tough compares. Store revenue declined 4% to last year, while digital revenue declined 5%. Compared to 2019 pre-pandemic levels, I'm really pleased with what we're seeing in the business. For example, brand revenue is up 14% with growth across both store and digital channels. Our digital business in particular has grown 35% over this period, with digital penetration expanding to 33% from 28%. We continue to invest in the speed and functionality of our digital platforms. Our mobile app business continues to be a powerhouse, driving strong engagement for both brands and approximately 40% of total digital spend. Investments in digital capabilities is going to remain a strategic focus. As we noted last quarter, we've brought together store and digital operations, creating greater efficiencies and better integration of the customer experience. I see incredible opportunities as we ensure our go-to-market strategy is best aligned with how customers are shopping. Lifestyles have changed dramatically over the past several years, and shopping behaviors continue to evolve, including the dramatic shift to digital, the need for speed, and how, where, and when customers are visiting stores. Connecting the experience across all channels and creating a more seamless view of customers are top priorities. Our new mobile point-of-sale system is a great example of innovative technologies that we're leveraging to further elevate the customer experience. All U.S. stores have now upgraded to the new system, and they're seeing improved transaction speeds and shorter checkout lines. This is gonna be especially beneficial as we come up on the holiday rush. The new system's flexible, it provides a compelling mobile checkout experience, and it incorporates several new capabilities, including a much more seamless integration of our loyalty program. We have an exciting roadmap to build out the customer engagement capabilities in 2023. This holiday, AE and Aerie will be offering virtual shopping sessions through Shop Live, a new platform connecting customers to our talented store associates for one-on-one style advice from the comfort of their homes and other one-to-many live stream shopping experiences that we're testing with Aerie. We are also focused on updating and modernizing our most productive stores, relocating in some markets to ensure we're in the best locations, leveraging data to customize our assortments and inventory levels by market, continuing to close our least productive stores where we can confidently consolidate sales to other stores or transition to e-commerce, and investing in new technology and leveraging artificial intelligence to improve inventory visibility, placement, and ultimately productivity across channels. There is significant value to be unlocked by all these focus areas. By approaching our physical store footprint from a variety of angles, we believe we can truly maximize our brands, elevate the customer experience, and operate with a more efficient cost structure. Turning to supply chain, the environment has continued to improve. Although some volatility still remains, lead times have normalized and factory capacity has freed up. This presents a dramatically different planning environment compared to the constraints we were operating under this time last year. We have far greater agility in our operations, which is giving us the option to buy lean, leave more open, and chase into demand. On the sourcing side, costs continue to stabilize. Cotton pricing has eased, and freight costs are down significantly from levels seen over the past 12 months, which is gonna provide a significant tailwind in 2023. On the outbound side, our investment in Quiet Platforms continues to fuel efficiencies and cost savings. I really wanna underscore that the Quiet Node network provided much-needed capacity to AE and Aerie over the past several months, enabling us to seamlessly handle higher inventory levels. Digital delivery costs in the 3rd quarter were down to last year as we fulfilled orders more cost-effectively and with fewer shipments. We're also leveraging Quiet's advanced fulfillment capabilities located near customers to further reduce delivery times with approximately 80% of online orders reaching our customers within 3 business days following checkout. Our third-party customer base serviced with the Quiet Nodes continues to expand. Interest from prospective customers remains strong as awareness of the business continues to grow. We are also signing new transportation, fulfillment, and technology partners onto the platform, which is further expanding our capabilities. As Jay mentioned, we believe Quiet is a very exciting business that's early in its growth curve and has the potential to transform our industry. Thanks. With that, I'm gonna turn the call over to Mike. Thanks, Michael. Good morning, everyone. The third quarter results exceed our expectations across both revenue and profitability. As the team noted, actions to reduce inventory levels, clear through excess spring goods in the second quarter and lower expenses resulted in a profit recovery from the first half of the year. As we continue to manage through the current environment, we remain focused on improving profitability, cash generation, and the health of our balance sheet. Third quarter consolidated revenue was $1.2 billion, down 3% to last year, including 2 points of growth from Quiet Platforms. Brand revenue declined 5%. The gross margin rate of 38.7% was ahead of our expectations of mid-thirties due to better demand and lower than anticipated markdowns. As noted last quarter, we entered the third quarter in a better inventory position with fresh fall goods. As a result of our inventory actions, we were able to control our promotional activity while successfully moving through units. We ended the quarter with more progress on inventories, as I'll review in a moment. Compared to last year, the gross profit dollar declined 15%, with the gross margin rate down 560 basis points against a very strong rate last year. Higher markdowns and increased product costs drove approximately 400 basis points of the decline. The integration of Quiet Platforms drove approximately 70 basis points of incremental deleverage. Rent and warehousing also increased as a rate to sales, offset by lower compensation costs. SG&A dollars declined $3 million compared to last year due to lower incentive accruals and expense actions announced earlier this year. We continue to make progress in resetting our expense base. As noted last quarter, these actions should result in over $100 million in annualized expense reductions from our original plan. We expect SG&A to be approximately flat in the fourth quarter. Operating profit was below third quarter 2021, it was up to 2019. Operating profit of $118 million reflected a 9.5% margin. This included a $10 million loss from Quiet Platforms. As volumes ramp up into the holiday selling season, we expect Quiet's bottom line to improve sequentially. EPS was $0.42 per share, included a $1 million interest add back to net income linked to the outstanding convertible securities. Our diluted share count was 196 million, down from 205 million last year. I'll provide some color by brand. Aerie revenue increased 11%, driven by new stores. Comparable sales declined 3%, following an 18% increase last year. Aerie achieved an operating margin of 16.2%, marking a solid recovery back into the double digits as planned. Compared to 2019, total revenue nearly doubled, with operating income more than tripling to $56 million. Continued strong growth combined with higher merchandise margins are driving improved profitability for Aerie. This combination creates a durable path of profitable growth for the brand. Additionally, as new stores continue to ramp up, we're seeing improved productivity. American Eagle comps declined 10%, following a 21% increase last year, fueled by an exceptionally strong back-to-school season. AE achieved an operating margin of 21%, also showing improved profit flow through relative to the second quarter. Markdowns were more controlled, reflecting more appropriate inventory levels. As Jen mentioned, our continued focus on initiatives to improve profitability is driving results. While revenue was down 4% compared to third quarter 2019, I'm pleased to note that operating profit was up 14% over the same period, and brand operating margin expanded 330 basis points to 20.8%. Consolidated ending inventory at cost was up 8% compared to last year, with units up 7%. This reflects a meaningful improvement from last quarter's increase of 36% as we work to bring receipts more in line with demand. Inventory is turned for the holiday season. We continue to expect sequential improvement with fourth quarter ending inventory planned down to last year. We ended the quarter with $82 million in cash and total liquidity of $423 million. Capital expenditures totaled $71 million in the quarter and $199 million year-to-date. For the full year, we continue to expect CapEx of approximately $250 million. Mentioned last quarter, we've made significant strategic investments to support the future growth of our business. This includes 85 new Aerie and OFFLINE stores over the past year, which should provide comp benefits and fuel profit expansion at Aerie in the coming years. We focus on absorbing and growing into these investments, we expect annual CapEx to be significantly lower in 2023. Before I move on to our outlook, I wanna highlight that our third quarter operating margins for both American Eagle and Aerie surpassed pre-pandemic rates achieved in the third quarter of 2019. We think about the opportunity for margin expansion in the long run, this is a notable point. The quarter we just completed was far from perfect. Product and freight costs, while easing, were still elevated compared to third quarter 2019. We have a significant number of new Aerie and OFFLINE stores that are still in the process of ramping up to reach average fleet profitability. We're operating in an intense promotional environment as the industry works through historical levels of excess inventory. We still see significant opportunities to improve inventory productivity. Assessing these factors, I'm confident that our third quarter margin performance, while reflecting a nice improvement from the first half of the year, is not our ceiling. On to our outlook. Key holiday selling weeks still ahead, the bulk of the quarter is yet to play out. What is likely to be a highly promotional season in the broader market, we're guiding fourth quarter brand revenue down mid-single digits. This implies brand comps trending similar to the third quarter. We expect fourth quarter gross margins to be between 32% and 33% on the higher end of our prior outlook of low 30s%. While we've made significant progress in right-sizing our inventory position, we're taking a cautious view given the factors I just discussed. Our tax rate assumption is in the high 20s% and weighted average share count at approximately 196 million. We've made significant progress over the last two quarters in resetting our business and will continue to prioritize profitability and cash flow improvement moving forward. As the team noted, we've regained agility in our supply chain. We intend to use this to our advantage. For 2023, we're planning expenses in inventory tightly, knowing we have the ability to read and react to the demand signals as they evolve. I look forward to providing more detail on our 2023 outlook on the next call. With that, I'll 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 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. One moment please while we poll for questions. Thank you. Our first question is from Matthew Boss with JP Morgan. Please proceed with your question. Great. Thanks and congrats on a nice quarter. Thanks, Matthew. Thank you, Matthew. Thank you. Maybe one for Jen. Could you just elaborate on the bold inventory actions that you took in the third quarter across both brands and maybe any early read on holiday trend and just? How do you feel your assortments are positioned into the fourth quarter and holiday to potentially take market share in this competitive backdrop? Of course. Thank you, Matt. Look, we really did move swiftly, as we mentioned in the commentary, starting back in... Actually, even back as far as Q1. As a reminder, in the AE brand, just remember what we've been up to. We've been rationalizing SKUs for over two years right now, to ensure that we are just very highly focused on what the items are and what we wanna stand for. Certainly denim and bottoms at the helm of everything we do there. Back for both brands, you know, we knew what was coming and we certainly took, you know, serious action on getting our inventories in shape. I like what I'm seeing in holiday. It's still early. Mike mentioned it. It's a little early right now. We have a big week ahead of us. You know, we just went to all the malls, we saw our competition, and we are certainly playing in our own terms. I'd like to say it that way. While we wanna be competitive, as you can see by our earnings performance, we are certainly ensuring that our promotions are strong. Like I said, on our terms. We don't, you know, we wanna stand, and this is a long-term strategy. Mike mentioned it, and I think we're really living up to what we told the analysts a few years back, a couple years back, I should say, on what our strategy is, and that is to deliver bottom line results. I feel good about our inventory positioning, Matt, because at the end of the day, I think we're gonna be cleaner coming into January, less clearance inventory, and that should, you know, really help us position our earnings again where, you know. We feel confident about that. Maybe just a follow-up for Mike. With your fourth quarter gross margin guidance more or less flat to a year ago, could you just elaborate maybe on the puts and takes if we're thinking about markdowns versus freight versus quiet logistics? I guess even more so, if we think into next year, is there any reason why you couldn't see merchandise margin expansion as we lap these inventory actions? Thanks, Matt. For the fourth quarter, it's a continuation with our revenue guide of the brands being down 5%. As Jen just mentioned, we're being strategic and competitive with our promotions, not being overly promotional. We're ready to be competitive where we need to be. On that revenue guide and with negative comps implied, we've got, you know, BOD leverage that we'd expect again in the quarter. Quiet will have a similar drain on gross margin as well. If you piece those different aspects together, that's. We're on the high end of our higher end of our previous low 30s% guide, but, you know, feel good about that cautious stance at the moment. For next year, and something Michael and I can both maybe tag team here, I think we actually see some tailwind going into next year. Just to recap where we've been for the last four or five quarters, we know last year was The fourth quarter was the start of the significant impact of product costs, both in ocean freight and air freight rates. Incurring that air freight in the fourth quarter to get our goods here, everything we've talked about for a year now. We look forward now with our CapEx capabilities back in place, I think freight costs look like they could be a tailwind into next year. Product costs in general looking beneficial. We think we can get back to almost pre-pandemic types of IMUs, which would be a benefit to gross margin next year. Michael, I don't know if you've anything you wanna add to that? No, you said it well. I think merch margin should be better next year. We have IMU benefit. Supply chains are much tighter, so we could run the business leaner and chase into demand. You know, we're up against a year, Matt, that was really unprecedented. You know, it had very long lead times. We're going against stimulus-fueled demand. Next year we're up against a much more normalized environment. Between IMU benefits and ending this quarter in a very good inventory position, being able to react to the business next year, which is something we couldn't do this year, you know, I absolutely believe that we're gonna have higher merch margins next year. That's great. Best of luck in the holiday. Thank you. Thank you. Our next question is from Jay Sole with UBS. Please proceed with your question. Great. Thank you so much. I have two questions. Jen, my first question is that you made some comments about Aerie in the opening prepared remarks that sounded really bullish. Just talk about what gives you conviction behind that bullishness, given, you know, the comp was negative in the quarter. Secondly for Michael, you know, can you talk about the logistics platform a little bit? Maybe give us an idea of what has developed over the last 90 days and kind of the path to profitability as you see it, if it's next year or beyond. Thank you. Yeah. Mike said it well. You know, Jay, I think we believe that, you know, when we start to anniversary these new store openings, we're gonna gain market share in those particular markets. You know, we believe that that's gonna be something that we're gonna annualize next year, and we really feel good about that. Second of all, you know, there's been a lot of commentary about slowdown on casual wear, we're definitely not seeing it in Aerie. Look, we have this OFFLINE brand. It's amazing. The early on results here, for, you know, a business that we launched during COVID. I've never seen anything like it, to be perfectly honest. Feel really good about that. Product offering, our leggings, it is a cult following. I said that in my opening remarks. I mean, it's true. These leggings are best in show, and that team is innovating year-over-year. I feel so good about the innovation there, and it's something new to talk about to our Aerie customer. We feel strong about these categories. We're not seeing a softness in some of these, you know, more casual type businesses. I think, and, you know, Aerie really has a cornerstone there. Not only a cult-like following on our leggings, but just the brand and what we stand for. You know, we're just gonna continue to deliver and innovate, and we're doing that in both brands, honestly, Jay. Some of the newness in AE I'm so proud about. We're pivoting into the right new bottoms categories, and just some of those qualities and new ideas I think are like no other. I also feel really good about a new launch that we're gonna have, early spring 1. I can't say what it is, but pretty excited around that as well. Yeah. Jay, just, you know, for Aerie, building on what Jen was saying, I just wanna make sure it's totally clear that we've opened a ton of new stores in the last year or so. I think Mike said it in his prepared remarks. That all of those openings were a headwind for comp over the early part of this year and even through third quarter. Starting in fourth quarter, that becomes a tailwind. As these stores anniversary themselves, they become more mature. Those stores should provide actually, those new stores, if history repeats itself, and we believe it will based on what we're seeing, those new stores should provide a multi-year comp tailwind for Aerie, starting in the fourth quarter. As it relates to Quiet, yeah, we continue to be really excited about Quiet. You know, its third party customer revenue is planned to be up significantly. I think it's up in the, in the neighborhood of 60%, 70%, 80% this year. When you look at our results, you look at the American Eagle results, you know, for the quarter, we had a lower cost per order, okay? Fewer split shipments in our results. Again, those results in retail, I think are incredibly unusual. They might be unprecedented. As we're talking to other brands, other retailers, other people in the industry, everyone wants this kind of benefit in their business. We've proven the business case for it. The pipeline for new customers for Quiet is extremely healthy. We'll have more new customers that we'll talk about at the end of the fourth quarter. Again, it's a business that's delivering results for American Eagle and providing very unique benefits in the industry that we're confident that other brands and retailers are gonna want to take advantage of. Got it. Thank you so much. Sure. Thank you. Our next question is from Paul Lejuez with Citi. Please proceed with your question. Hey, thanks guys. Just wanna follow up on that, the response to the last question about Aerie, from being a drag, all those openings being a drag through the first three quarters of this year. I guess curious what the plan is in terms of openings for next year, and if you would expect a similar drag from a new class of openings. Also would love to hear if you can give any detail about standalone performance at Aerie versus the side by sides. I think you mentioned product costs were going to be a tailwind. Curious how that looks first half first, second half of 2023. Thanks. Hey, thanks, Paul. I'll start and Michael can maybe add on to your or answer your product cost question. For the Aerie stores, Michael just said a few things. Let me add on to what we said in my prepared remarks. We have 85 stores over the last year, but if you actually look back across all of 2021 and all of 2022, it'll be over 130 stores. As we've talked about for quite some time, our digital halo impact effect and what happens within the brand as we invest that aggressively. You typically see a digital impact with all that new store growth. In cases where we're adding stores to existing markets, you see an impact to the stores that were already there. Over a six to 12-month period, then we see a bit of a comp... a negative comp impact sometimes in markets. As we're describing after that six to 12-month period, you start to see the total market lift. We play that out over these past two years. As Michael said, we're heading to the fourth quarter, we actually believe that, you know, the comp performance in Aerie could improve. We talked about guiding to similar comps, but depending on the mix of business within Aerie, we could actually see a positive comp or a better result in the fourth quarter. As you play this forward into 2023, we're only contemplating opening maybe 30 locations next year. You won't have any, really any significant comp impact from that growth, many of these 130+ stores coming around in 2023 and ramping up their maturity. That's what we're talking about in terms of the tailwind in the next year and beyond, is some really aggressive openings, really aggressive investment in the brand. That's. Next year, we're excited about what that means to overall growth and comp growth. Standalone and side by side performance, I think you asked about. I don't think we're seeing a significant difference between formats right now. I think you can assume that. Then Michael on product cost in the next year, you can take that piece. Yeah. Paul, the question was, what are we seeing first half, second half? Yep We really haven't, you know, it's too early to comment on the second half of next year. You know, on the first half, we certainly see markup being better than it was this year. We're just seeing a lot of benefit in the business. You know, I think the fact that we're ending the fourth quarter with inventory so clean, we're getting the full benefit of a weak demand environment as we're sourcing spring and summer products. You know, I see markup better than 2022 in the first half. As we're placing with CPC even for spring and summer, in many cases we're seeing markup that's better than pre-pandemic 2019. Thanks, Michael. Good luck. Thanks, Paul. Thank you. Our next question is from Janet Kloppenburg with JJK Research Associates. Please proceed with your question. Hi, everybody, and congrats on the improved results. Jen, can you just talk a little bit about what kind of levels of promotional activity we should see in the fourth quarter on a year-over-year basis? Inventories are in great shape, and you're excited about the product, and the comparison is relatively easy. I'm wondering, you know, what we should be watching for in the fourth quarter. On SG&A, as we look out to next year, are there any investments that were put off for this year that we should consider for next year? Just lastly, Jay, if you could enlighten us on your thoughts about consumer spending next year and how that may impact your business, it would be terrific. Thank you. Hi, Janet. How are you? Good. How are you? Very well. You too. Look, I think what you're gonna see is we're gonna remain competitive through, you know, these next couple weeks. They're big weeks for us, we wanna, you know, step up our A game for sure. We will be competitive. You know, hopefully through my crystal ball, I do believe that we have opportunity in December to run better businesses. If you recall last year, Aerie definitely had opportunity on the margin side in Q4. Yeah. We're definitely gonna step that up and make sure that we're protecting that. December, we believe, you know, that's our opportunity, including January, like I mentioned, where we don't have the inventory levels that some of our competition has, and it will allow us to really pull back on, you know, promotion in January when it's a highly liquidation period, as you know, you know, set us up for success for early spring. I just approved the spring store sets. They look phenomenal. That's when you'll see our new surprise in men's and, yeah, we're just gonna keep on trying to deliver our newness, Janet. Again, Janet, we can compete on our terms. Great. On SG&A, Mike? Look, Jan, we're very pleased with our progress to date. It's been a focus since the beginning of the year. I thank the teams cross-functionally for all their efforts. You know, we achieved flat or slightly down in Q3. We believe we'll be flat again for the fourth quarter. The work's not done. It's still a work in progress. We're working through plans for next year. You know, I think the other fact is that it's not just an SG&A focus, even though that's what we tend to talk about the most, and you guys ask the most questions about SG&A. It's really only half our expense base. As we look at plans for next year and on a sort of longer term basis, even for the next few years, we're looking across every category and every area that impacts gross margin down through SG&A, and even depreciation impacts. Work in progress. We'll talk more next quarter about expectations for 2023 and beyond and just know we're not done. Janet. Hi, Janet. How are you? In this business, you have to be an optimist, otherwise you can't be in the retail business. I'm excited about a lot of things. I think some of these new product launches that Jen was talking about, that's gonna be very exciting for the company. We have the ability, you know, as Michael was saying earlier, we see our costs coming down. We see the cost of freight going down, back to the 2019 levels. There's reason for optimism. We have the ability to work closer to need and be able to chase the merchandise. Everything is, you know, pretty positive, and we can only control what we can control. You know, I'm optimistic. I think that there's a lot of good signs. You know, I was reading that the mortgage rates should start coming down. Hopefully, interest will follow that, and I think it's gonna be better than people expect. Happy Thanksgiving, Jay. Okay. Thank you. You too. Thank you. You too, Janet. Our next question is from Dana Telsey with Telsey Advisory Group. Please proceed with your question. Hi. Good morning, everyone. Almost afternoon. Nice to see the progress. As you think about the tailwinds of some of the freight expenses with cotton costs and what you're seeing, how do you see that unfolding in, in the margins? On the Aerie business, Jen, very exciting about the new spring launch. Anything we should be watching for as we go through the holiday season besides the leggings that could indicate even a further pickup in sales go forward in terms of levels of demand? Just on the core American Eagle business, denim trends in particular for men and women, any differentiation that you're seeing? Thank you. Okay, Dana, on the trends with the, you know, with freight going down, cotton going down, it's all positive. That's good news. You know, the last two years it was the opposite. I remember eight months ago everybody was forecasting freight to keep going up, cotton to keep going up, commodity keep going up, and everybody was positive. Eight months ago prices were gonna keep going higher and higher, and it's gone the opposite way. I think things are positive. I think also that, you know, we just don't compete against stores like in the United States. That, you know, it's a world market. I think that a lot of the factories that we deal with sell other countries, other continents, softer in Europe and softer around the world, and that gives us an advantage at, you know, buying our products at better cost. That's, you know, that's a positive sign to be able to offer... One thing I'm proud is that we give the customer a great selection. I think we have the one of the best lineups in retail. Our quality is A-number one, and our value's A-number one. We're very excited. We think that, you know, the designers and the buyers on our team have done a great job. I know that, you know, as far as what's planned for next year, it's very exciting. I think Jen will talk about that later. You know, I think it's all positive. Yeah. Dana, I agree, Jay. Dana, as far as how it unfolds, you know, I see it getting better throughout the spring season. You know, the reason I keep saying ending, our ending inventory's clean is so important is I think if you're a retailer and you're carrying over, inventory from this year into next year, you're gonna be carrying that, the higher transportation costs and cotton costs with it as it flows through the P&L. For us, you know, we'll have very little of that. You know, we have some fabric platforms that we'll work through, but in general, we're seeing obviously huge benefit in transportation costs, nice benefit, as Jay was saying, in product costs, and as the spring season builds, we're gonna start spring season with a markup benefit, and as it builds, that markup benefit should grow throughout the season. Michael, I just wanna add one thing. You know, you talk about cotton. You know, we play by the rules. You know, we're very careful, you know, what cotton we use. We're very careful where we manufacture our goods, we expect our competition to follow the same way too. I think in fairness to the retailers in America, it should be a level playing field. I think that certain retailers who are not based here, who get advantages of not paying tariffs, shipping their goods in, not being responsible where they're doing their sourcing and not following by the rules should be punished for it. I think it's wrong what's going on. I think the Congress should wake up and make a level playing field for American companies, period. I think you as analysts who follow should be writing that it's not fair for American companies to play by the rules, and other companies to come in this country, violate the rules, and get away with it. Well, that was well said, Jay. That's a tough act to follow there. Yeah, Dana, just let's start with American Eagle. I do wanna make sure that I was clear on my prior answer. We have a new launch in the American Eagle brand, specifically in men's, for the spring one delivery, so we're pretty excited about it. We've had early reads on what we're about to launch and the early results have been great. Certainly we're gonna do it with integrity and caution to ensure that we're not gonna overdrive a new business, but we're pretty excited about what we're seeing. You know, regarding denim, look, denim is the heritage of our brand, but so is bottoms. We're definitely seeing a shift into new bottom silhouettes, cargo, cords, and some wider silhouettes. You know, with what we've been up to as far as rationalizing our denim SKUs, it's allowing us to be more flexible in getting into those businesses as we ride out a slightly softer trend that we're seeing. We strongly believe in denim. It's here to stay. You know, as Jay mentioned, we're an American brand, and certainly denim will always be, you know, at the helm of everything we do in American Eagle, and we're really proud of that category. We have newness there as well, Dana, that we're excited about. You'll see that in early spring. For Aerie, you know, we're just getting going with OFFLINE. It is, you know, as you know, it's a, it's a fairly new business for us. It's a couple years old. I mean, our legging innovation is like no other, and we're focused on that in OFFLINE. We also have incredible other categories. Our fleece categories, they're like no other out there. I'm so proud of that price-value equation that we offer in Aerie, and we're certainly not seeing any softness there, so excited about that category and newness. Again, it's a constant evolution. We're looking at new ways to deliver the business and market it. You know, we rarely talk about it, but our marketing campaigns in Aerie, they're so innovative and so fun, and I think it really sets us apart in the mall. There's a lot more to come there. I just, like I said, for both brands, I just approved the spring, early sets. Oh my gosh, I mean, is it fun and new and just feels? You know, again, hopefully we're gonna stand out in the mall and stand for what we do in each brand. You know, intimate certainly again in Aerie is not an oversight. We're continually invading in our bras. I like what I'm seeing on the Go Forward, so hopefully we can please and delight our customers as well, 'cause that's what we're up to. Thank you. Best of luck in the holiday season. Thank you, Dana. Thanks, Dana. Thank you. Our next question is from Adrienne Yih with Barclays. Please proceed with your question. Great. Thank you. Let me add my congratulations. Well done. Jen, just to go back to your enthusiasm, this is the best you've sounded, you know, I mean, in a while, so I'm really excited about that. It sounds like the supply chain is back to a level where you're able to test and reorder as well as to chase. I guess my question is, as you go into the spring season, how much are you buying up front versus leaving on the table to be able to do that and read demand? For Michael or Mike, on inventory, can you remind us, you know, it was up 37% at the end of 42, 46 and then 37% again in Q1 and Q2. Can you remind us what portion of that was in transit? Because if we see your inventory numbers down double-digit and it was all in transit, I just don't want people to get worried that you can't comp, right? Because it was unavailable for sale, it wasn't very high utility, and de facto, in my opinion, I think you're not gonna order excess inventory. I just wanna make sure that messaging, that part of it's clear. Thank you. We're constantly evaluating our inventory to sales relationship and ensuring that our sales positioning, depending on the plan, is certainly positioned higher than our inventory position. That's what we're up to. That's what we've been up to. It's definitely a best practice for both of our brands. And roughly, we leave about maybe 25% open. And as Michael said, we're just way more flexible right now. We're able to get goods here faster and more swiftly, and we're certainly taking advantage of the supply chain, and we're leveraging that. You know, I would like to say that, you know, what you're seeing for holiday and these... You know, what we just released as far as our inventory, you'll see more of the same on the go forward. With some of the new technologies, we believe we can get even more efficient with our inventory. I hope that answers your question. No, it does. Thank you. Okay, perfect. Perfect. Thank you. Happy holidays. Yeah, you too. Happy Thanksgiving. Thank you. Our next question is from Kimberly Greenberger with Morgan Stanley. Please proceed with your question. Great. Thank you so much. Jen, I wanted to follow up on what you're seeing on trends in the business. If you could just sort of frame the changing consumer preferences, if you're seeing any this year compared to last year. How are those ebbs and flows in what consumers are gravitating to, how is that informing your buying for 2023? Thanks. Sure. You know, I think I've said this before in my past. For both brands, you know, we're up to comfort, soft and, you know. That in conjunction with our price value equation and our quality, I think is like no other. You know, you're hearing there's conversations out there, and there has been some shift into going out. That was earlier on this year, dresses, some of those categories. At the end of the day, you know, our core demographics, they want comfort. You know, we haven't seen a shift in fleece. We're seeing, you know, upticks there for both businesses. You know, American casual comfort is not going away. I think that's the most important thing any brand can do, is stand for what they, you know, what they represent. Both brands are fit intensive, so our bra categories in Aerie and our denim bottoms categories in AE, it's so important. You know, our customers wanna look good in their clothing, that's where I think we stand apart. We focus on the best fits in the industry, comfort, like I said. On the go forward, I think we're just, you know, we're gonna continue to deliver what our customer expects from us. We're a bottoms-based business in American Eagle. We're shifting underneath the covers there. In Aerie, you know, we're still gonna stand for our intimates business, but we like some of these new categories that we're adding. The thing I like about Aerie is customers are demanding more from us every day. I mean, literally, you know, they want more categories from Aerie because they love what we stand for. They love the platform, and they wanna be part of that community. Great. Thank you. Thank you. Thank you. Our next question is from Dan Stroller. Hey, good morning. Can you hear me? Yes. Thank you. Just I think it was brought up in the prepared remarks, AUR versus pre-COVID. Was that quantified at the brands? If not, I guess, where is it, and where do you think, opportunity may exist? Thank you. We didn't cover it in prepared remarks, but it is up to pre-pandemic levels for both brands. We don't have specifics for you right now. Yes, AUR is healthy and up in both brands. Got it. Thank you. Okay. Paul, I think we can take one more question. Thank you. Our next question will come from Jonna Kim with Cowen. Please proceed with your question. Thank you for taking my question. Just one question on marketing costs. We are seeing some elevated costs for customer acquisition. Curious just how you're managing your costs at the moment and what your plans are for next year. Thank you so much. Thank you. Yes. Yes, you're correct. There's definitely some headwinds in terms of advertising and marketing costs. We've got a lot of different moving parts within our advertising spend, so we are prioritizing that spend to make sure that we can offset those costs, not incrementally incur expense for the company, but then redirect spend where we need to for customer acquisition and retention. The teams are hard at work at that. It's a, it's a kind of week to week, month to month conversation in terms of where investments are made, and then on a kind of preseason planning basis. That's definitely the focus they have looking into next year. we believe we can spend to similar levels and similar rate of sales to generate what we need to from an acquisition and retention perspective without incrementally incurring expense as the opportunities we're uncovering. All right. On that note, as Mike has said, we are intently focused on improving profitability and cash flow and will maintain strong discipline around inventory, expenses, and capital expenditures. Our brands are healthy, our operations are resilient, I am confident we will emerge from the current macro stronger. I look forward to updating you on our continued progress and wish everyone a happy and a safe holiday season. On a personal note, go Buckeyes. Thanks, all. Love it. Love it. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.