Welcome to the American Eagle Outfitters Q4 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. Thank you, Ms. Meehan. You may begin. Good afternoon, 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. The results actually realized may differ materially based on risk factors included in our SEC filings. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. 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 Q4 investor presentation. Now I will turn the call over to Jay. Good afternoon. Thanks for joining us today. 2022 was a dynamic year with numerous external crossroads. As we lapped outstanding results in 2021, we faced a difficult macro environment with rising inflation, higher interest rates, continued supply chain disruption, and a highly promotional retail environment. I am proud of how our teams executed throughout the year. Early on, we took swift and aggressive actions to reduce inventory levels, cut expenses, and capital spending. This contributed to a significant recovery in profitability and free cash flow during the second half of the year. We also posted our second highest revenue periods on record in both the Q4 at $1.5 billion and the year at $5 billion. Our Q4 results exceeded expectations and adjusted operating income of $96 million was above last year. We strengthened our financial position and exchanged nearly all of our outstanding convertible debt to end the year with a healthier balance sheet and improved liquidity. Moving to the American Eagle brand, I'm incredibly proud of the work the AE team has done over the last several years to improve profitability, rationalize unproductive SKUs, and close low margin stores. As a proof point, Q4 adjusted operating profit for AE was up 36% to 2019. Jen has made great strides to refresh the brand, re-energizing assortments to capitalize on trends while delivering better profitability. AE is a strong and healthy brand. I'm encouraged by how customers are embracing new styles. I look forward to our continued progress. Aerie has demonstrated exciting multi-year growth with Q4 revenue and adjusted operating income up over 70% to 2019. The rapid success of OFFLINE, our extension into activewear underscores the strength of Aerie's powerful brand platform. We have significant potential as we reach more and more customers, and I cannot be more excited about the future. Our international business performed well in 2022. We will continue to fuel sales and profits, pursuing a multi-year strategy to optimize key company-owned markets and expand our licensed business. In 2022, I was pleased to publish our first ESG report, highlighting over two decades of actions we have undertaken to build a better world. As noted in the report, we have made tremendous progress across our water goals and continue to reduce emissions. ESG responsibility is embedded in our brands and company culture and deeply intertwined with our corporate strategy. As we grow our brands and markets, we will stay disciplined and focused on profitability. Inventory management remains a key focus, and we will use the strength and agility of our supply chain to chase demand. Additionally, we have launched a formal program to further reduce expenses, gain efficiencies, and prioritize high ROI in projects. Given the highly volatile environment we've been operating in over the past several years, now is the time to reset our business. Last year, we made good progress, yet opportunities remain as we strive to break out of the mid-single-digit operating margin range. On Quiet Platforms, we continue to see interest from prospective customers, and remain optimistic about the long-term opportunity. The demand has been pressured this past year. As Michael will review, we are adjusting our go-forward plans to strengthen profitability. Although the macro environment remains uncertain, we enter 2023 better positioned. I see no shortage of opportunities for this company. We will harness the power of our brands in an industry-leading operation, operating models to drive growth and find efficiencies in processes and capabilities. I'm confident with focus and discipline, we can strengthen our bottom line. We're committed to returning cash to our shareholders and are very pleased to reinstate our quarterly dividend. With that, I'll turn the call over to Jen. Thanks, Jay, and good afternoon, everyone. Over the past few years, the dynamic macro has battle-tested us in many ways, and 2022 was another roller coaster of a year. In this environment, American Eagle and Aerie displayed resilience, maintaining their status as fan favorites within our core demographics. In a year where customers pulled back on discretionary spending, we grew our loyalty customer file, further strengthening our relationships. Even in a highly competitive promotional environment, Q4 results exceeded our expectations. With inventory back at healthy levels, we brought exciting new innovation to our customers in stores and controlled markdowns, achieving our second highest Q4 AUR. This was down 7% to last year's record high, yet up over 20% across brands to 2019, highlighting our focus on controlling promotions and building brand equity. Aerie reached a milestone at $1.5 billion in revenue in 2022 as new stores continued to expand awareness. Since 2019, revenue has nearly doubled with operating profit up close to 150%. I am pleased with this accomplishment, especially given the unprecedented macro volatility. For the Q4, Aerie continued to see good growth, yet came in below our expectations. Core apparel showed up well, and we achieved our best sweater season in the brand's history, while also continuing positive growth in fleece. Our activewear extension, OFFLINE by Aerie, remained a standout performer led by our leggings franchise. Leggings continue to be a powerful driver of new customer acquisitions, and we are seeing nice momentum across fashion and performance styles. Intimates was a bit softer than expected, and as we look forward to 2023, our plans include launching more newness in intimates to build great awareness and engagement. As we continue to scale Aerie, we are leveraging creative marketing touch points to drive excitement. In the Q4, our I Want Aerie holiday marketing campaign centered on gifting was a strong success. Additionally, this spring, we launched a new Find Your Wonder campaign with a throwback to Y2K fashion, including real life and digital experiences. Turning to American Eagle, demand in the Q4 exceeded our expectations. As we evolve our assortment with engaging fashion trends, we are seeing a nice reception to new silhouettes such as wide leg and cargo, and renewed excitement in fleece and knit tops. I look forward to capitalizing on new fashion trends as we move through the year. Over the past several years, we have been intently focused on improving the health of the AE brand, tightening our assortments, pulling back on the value-destructive promotions, and selectively closing unproductive stores. These changes are driving better margins. As we maintain our focus on profitability, we are also actively exploring opportunities to drive growth. On that note, in January, we launched AE 24/7, a new men's sub-brand focused on the fast-growing activewear category. Early reception to our limited initial assortment has been very encouraging, and we look forward to scaling the collection later this year. Last month, we also relaunched AE77 as a premium sustainable capsule within the AE brand. Introduced with limited denim choices for now, the assortment spans both men's and women's and will be available predominantly online with brick-and-mortar presence in select stores. The reception has been very encouraging, and I look forward to building on the early success. I'm pleased to note that AE's customer file grew in the Q4 as we retained and reactivated more customers. On the marketing front, we collaborated with the cast of The Summer I Turned Pretty, a Gen Z favorite show, launching a limited edition collection that fully sold out. Buzz around AE is continuing into spring. Last month, our newest denim silhouette, Dreamy Drape, went viral after an organic post by Alix Earle, one of TikTok's fastest-growing influencers. We have also launched an exclusive spring collaboration with the Outer Banks crew, which is off to a good start, drawing in new customers with great reception across social media. In fact, a recent post by one of the stars on the show became our number one Instagram post of all time. Entering 2023, while the macro remains uncertain, emerging trends in casual wear continue to provide new avenues to drive growth across our brands. Innovation is our strength. We will lean into newness and continue to deliver excitement and high quality on trend styles to our customers. Thank you, as always, to the AE and Aerie teams for their tremendous effort this past year. With every season, we are making progress, and I remain very excited about what's to come. Thank you. Now I'll turn the call over to Michael. Thanks, Jen, and good afternoon, everyone. As Jay noted, the past few years have been extremely volatile for the retail industry, highlighted by shifts in consumer spending and operational challenges Navigating through this period has not been easy, yet I'm very proud of how we've responded with both agility and speed. We've added significantly to our capabilities and increased our use of new technologies, which are driving benefits to our operations and the customer experience. As we continue to manage through a dynamic landscape, we'll lean into these capabilities as we strive for productivity improvements and even stronger profitability. Q4 channel performance largely reflected the ongoing macro volatility. It's notable that customers are returning to in-person shopping. Store revenue was flat to last year and up 5% to 2019. Since taking responsibility for stores last fall, I've had the opportunity to visit numerous locations and spend considerable time with our incredible store leadership. We have a powerful fleet and truly a world-class field team, and I've been very impressed with just how well we service the customer and leverage tools and technologies to drive store productivity. For example, this quarter, I am pleased to note that we were tied for the number one specialty retailer for customer satisfaction in the ACSI Customer Satisfaction Survey and actually had the largest year-to-year improvement of any company surveyed. Our new point-of-sale system is providing a better shopping experience and reducing average checkout times by 50%. We expect this to drive improvement to sales per selling hour as we focus on further efficiency gains. I'm also very excited to share that we will start rolling out an innovative RFID and AI-based technology capability across our stores later this year. Our pilot test this holiday proved highly successful, providing visibility into inventory availability and placement at over 99% accuracy. I'm very enthused about the sales opportunities, inventory productivity improvements, and labor efficiencies we can unlock moving forward. As I indicated last quarter, we are also focused on updating and modernizing our most productive stores and relocating certain stores to ensure we are in the best locations. Last month, we consolidated our store footprint in Manhattan. We moved Aerie from Spring Street to the second floor of our AE Soho Broadway location and introduced our full OFFLINE collection to this market. This summer, we are testing a handful of off-mall locations, which are smaller, lower-cost stores in emerging neighborhood outlets. This summer, we are testing a new American Eagle store design, introducing a fresh and modern take on both the aesthetics and functionality that keep stores. As we introduce these changes, we are dissecting all facets of the store channel to optimize how we operate. As we sharpen our focus on store productivity and profitability, this is revealing further opportunities, particularly within our labor model. As a result of channel shift and unnatural builds from COVID, digital revenue was down 9% to 2021. Revenue was up 19% compared to 2019. Digital is a healthy channel representing 36% of total brand revenue, and it continues to be highly profitable. This quarter, I'm happy to say we are hiring new talent to the team, welcoming David Zhang as our new Chief Digital Officer. David brings vast experience in building successful digital commerce, and we're looking forward to his contributions. Now turning to the supply chain, after three years of unprecedented volatility and inflation on the inbound side, we are entering 2023 in a much more stable supply chain environment. Lead times are essentially back to pre-pandemic levels. Product costs have normalized. As we manage through an uncertain macro, we are using this to our advantage, planning cautiously and chasing into demand. Buys for the spring season are down to last year, and a significant portion of our fall still remains open. On the outbound side, our investment in Quiet Platforms continues to provide much-needed capacity, flexibility, and speed for our brands, combined with cost savings. Digital delivery costs in the Q4 were down to last year. We are making progress in reducing fulfillment costs and the number of shipments per order, which resulted in a lower delivery cost per order. As Jay noted, although Quiet's third-party revenue has grown significantly to last year, acquiring new customers has been slower than anticipated due to a tougher macro. For 2023, we are focused on reducing expenses to better align with growth trends. We will streamline investments in the platform and look to leverage Quiet's capabilities to continue to drive benefits both for our brands and for all of Quiet's third-party customers. Thanks. Now I'm gonna turn the call over to Mike. Thanks, Michael. Good afternoon, everyone. As Jen mentioned, in response to changes in the environment, we took early and aggressive actions to reset our plans. We reduced inventory, expenses, and capital expenditures, which enabled us to deliver a meaningful improvement in profit and cash flow in the second half of the year. Margins rebounded, and we generated adjusted operating income of $213 million in the second half compared to $56 million in the first half. We also returned to a positive free cash flow position and further strengthened our balance sheet. Full year consolidated revenue of $5 billion was second only to last year's record result, and adjusted operating income was $269 million. Q4 results exceed our expectations, reflecting improved demand and stronger margins. Consolidated revenue of $1.5 billion declined 1% to last year's record result and included one point of growth from Quiet Platforms. Brand revenue was down 2%, coming in ahead of our outlook for a mid-single digit decline. This includes our second highest holiday sales result in the history of the company, with positive momentum continuing into January. Compared to pre-pandemic Q4 of 2019, consolidated revenue was up 14%. Adjusted operating income of $96 million reflected a 6.4% margin and was up 30 basis points to last year and 60 basis points to 2019. Quiet Platforms produced a $13 million loss, excluding a $4 million impairment and restructuring charge. Demand was lower than anticipated. As Michael reviewed, with macro challenges continuing into this year, we've adjusted plans to reflect a more measured pace and growth for Quiet Platforms and reset expenses aimed at improving profitability this year. The gross margin rate of 33.9% in the Q4 was ahead of our expected range of 32%-33% due to stronger demand and lower markdowns versus plan as we leveraged our healthy inventory position to control promotions. Compared to last year, gross profit dollars increased 4% to $507 million, with the gross margin rate up 150 basis points. Merchandise margins were higher, reflecting lower product and freight costs with a partial offset from higher markdowns. Lower compensation and delivery costs also had a positive impact on margins, offset by higher distribution and warehousing costs and higher rent. Quiet Platforms had an 80 basis point impact as that business continues to scale. Despite a highly promotional operating environment, markdown levels were significantly healthier relative to 2019, reflecting our multi-year focus on improving brand equity and driving profitable growth. SG&A dollars are approximately flat to last year in the Q4, reflecting our ongoing focus on controlling expenses. As Jay noted, we're currently undertaking a company-wide assessment to look for additional savings and efficiencies across our entire cost structure, strengthening our culture to focus on innovation and investment discipline. I'll report on progress over the course of the year. Adjusted EPS was $0.37 per share. Our diluted share count was 197 million, down from 203 million last year. Shifting to the brands, Aerie revenue increased 8%, driven by new stores. Comparable sales declined 2%, following a 17% increase last year. The adjusted operating margin of 12.2% reflected a significant recovery from the Q4 of last year. Aerie remains a strong multi-year growth and profit story. As we move past tough comparisons and new stores ramp up along the maturity curve, we anticipate comps returning to positive territory this year. American Eagle revenue declined 8% and comps were down 9%, following an 11% increase last year. Demand was ahead of our expectations and reflected a sequential improvement from the Q3. I'm particularly pleased to see a significant improvement in the health of the brand since 2019. While revenue was down 7% compared to the Q4 of 2019, adjusted operating profit was up 36% over the same period, brand operating margin expanded 510 basis points to 16%. Consolidated ending inventory cost was up 6% compared to last year, with units up 4%. Inventories reflect current spring product and earlier than expected deliveries as the supply chain continues to normalize. AE&A inventory across the U.S. and Canada is down to last year, with the consolidated increase driven by expansion in Mexico, where we're experiencing growth well into the double digits. We ended the quarter with $170 million in cash and total liquidity of $862 million. Capital expenditures totaled $61 million in the quarter and $260 million for the full year, which is down significantly from our plan at the start of the year. As we focus on strengthening free cash flow and capitalize on the investments made over the past several years, we're reducing annual CapEx to the $150 million-$190 million range in 2023. We plan to open approximately 25 new Aerie stores next year, with net closures at AE of approximately 25 stores. As I reflect on the Q4 performance, despite operating in a highly dynamic environment, I'm pleased by the multi-year improvement in the health of our business. We continue to see opportunity to drive growth and profit improvement over the long term. Moving on to our outlook, as we enter 2023, as the team has discussed, our brands are strong and inventory is healthy. The global supply chain environment continues to normalize, providing improved cost and greater agility, and we have a company-wide focus on expense reduction and operating leverage. That said, visibility into the macro and overall consumer spending behavior is still limited. As a result, we're taking a cautious view. Regarding the current quarter, while we've seen good trends in February with a favorable response to new merchandise, the environment remains choppy. Additionally, it's early in the quarter, with our most important week still ahead. At this point, our outlook for the Q1 is for revenue to be in the range of flat to up low double single digits, and for operating income to be approximately flat to last year. For the year, our outlook reflects annual revenue growth in the range of flat to up low single digits and operating income in the range of $270 million-$310 million. 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 that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we pull for questions. Thank you. Our first question is from Jay Sole with UBS. Please proceed with your question. Great. Thank you so much. Maybe just two-part question. One, just first on Aerie. It sounds like there's a lot of exciting things happening just in terms of fashion. I mean, I think in the slide deck today, you talked about still you see it as a $2 billion brand. Can Can you just talk about the long-term opportunity you continue to see with Aerie? Then maybe, Mike, just on the guidance that you gave for Q1, it sounds like February has started strong. You're looking for flat to low single-digit growth. Oh, sure. Hi Jay, how are you? You know, Mike mentioned it. As we start to hurdle these new store openings, we feel like there's definitely some comp growth in these stores, because as you know, you know, we go into a new market, we have to get the digital side of the business up and going and we're already seeing some new end results, as the quarter. You know, starting Q2, our quarters from a comp perspective, we've increasingly gotten better. I think it's proof of the pudding there that there's some upside as we hurdle these new store openings and really, like, let those businesses mature. We're excited about that. Regarding just the product side, Jay, I mean, we could not be more excited. You know, we've, we have so many new categories, one being OFFLINE. This business is on fire. Let me just say that. Q4 delivered incredible results over last year. We've been hurdling an incredible launch year-over-year of the, of the crossover flare. It's our, it's our first new incoming, and it's our best, and nobody can comp this item because we own it and it's ours. You know, the one thing I wanna say about Aerie, and this is true, our customer awareness. Our customer awareness about this, it's up 25% year-over-year in Q4. That speaks volume. That means that these store openings are really starting to take hold. We're introducing the brand to new customers. Don't forget, we're still in expansion mode. We're about 500 stores right now. We're opening about 20 more this year. All these new stores hopefully pay off as far as brand awareness. From a product standpoint, we're all over it. You know, we're excited about OFFLINE. That is presenting growth for us. New businesses including fleece, which we've owned, but I really think we're dominating there from a competitive standpoint. You know, for the future, we're really gonna double down on intimates. We feel like that's a category that we can hone in on and really innovate. Our SMOOTHEZ launch this year was incredible. In fact, some of those frames have really taken hold for us, and we're really gonna reinvent that business, so more to come. You know, as you know, we're never gonna stop innovating this team. I can give you a little insight. Next year is Aerie's 10-year AerieREAL anniversary. Everyone can be excited to see what's to come because the creative team's not stopping. Great. Sorry, I think I got cut off there at the second of my question. Just for Mike, just on the revenue, it sounds like for Q1, it sounds. February's been good. You said choppy. You're looking for flat to up low single digits. Can you just talk about if your quarter-to-date trend so far is above or below that? Secondly, on gross margin, how are you feeling about gross margin Q1, sort of up or down year-over-year? Hi, Jay. Thanks. Yes, just to confirm the cadence of revenue that applies to our Q1 guidance. Coming out of December into ICR, we talked about, quarter to date. At that point, we were -3% brand revenue. We did mess with the January. We saw some uptick in trend at that point, that continued through the rest of the month, netting us to a -2% brand outcome for the Q4. You know, that trend actually continued through February. The combined January-February result here has had some consistency to it, which is giving us confidence in this flat to up low single digit guidance. For gross margin, yeah, we're looking for, you know, a range of similar to last year, or not range, but our guidance of similar to last year income on that flat to low single-digit revenue implies some gross margin improvement. I think we're still looking at some freight headwinds from last year that we recaptured. Obviously, the air freight in Q4 and some other freight headwinds, expecting some of that to come through in the Q1 again. Definitely some improvement, a bit of improvement assumed in our gross margin within that similar to last year income guide. Got it. Okay. That's very helpful. Thank you. Our next question is from Matthew Boss with JPMorgan. Please proceed with your question. Great. Thanks. Jen, maybe could you elaborate on early spring selling trends that you're seeing across categories? Maybe if we touched on both the American Eagle brand and also Aerie. Sure. Hi, Matt. How are you? As I mentioned, you know, on my last answer, it's nice to see comps in both brands. You know, we're getting better quarter-over-quarter starting in Q3. I'm excited about that. Look, it's early on, it's February. I have to say that there's a lot of encouragement from the teams. AE, you know, I'd like to reflect on American Eagle for a minute. First of all, you know, we've really assembled a world-class team here. I'm very proud of the work they've done. We've been up to really right-sizing that business. You know, during these tough times, it allowed us to do so while also protecting our bottom line, as you can see. We've been up to, you know, building a profitable base, a healthy customer base. I think that's the most important thing I can articulate right now on the American Eagle side. You know, we had a lot of customers in the past that only came to our brand once, and they were promotional customers. We're up to getting the best customers in our brands. Starting with American Eagle, I think we're really here. I think we've right side-sided the business, and now we're looking for growth opportunities. Early on, Matt, we launched 24/7, and another new line, 77. Let me take a step back to say that women's, we're starting to see a nice turnaround here. I think we're getting into the right balance of the assortments, and I just really wanna highlight that. It is about the balance. Denim had been a little softer, we saw other trends happening out there and other bottoms, and I think the teams did a nice job adjusting and really going after, and we're starting to see some nice results there. As well as just outfitting. We're seeing great tops, you know, come to life. Our tops business has turned around in women's, which is so exciting to see. In men's, just going back to we're learning. Men's, you know, that customer is a little slower to take off, I like some of the early reads in our new AE 24/7 athletic business, as well as AE77 is a little bit of a surprise. It's premium denim. We really worked on it. We wanted to perfect that line. We believed in a higher priced business. We own denim as a company, and why not service, a new customer. Early reads have been spectacular. We have two new potential growth vehicles for the company, as well as it's just nice to see women's, that business round out, Matt. All as I can say is because of our test and scale and our new you know, our logistics platform and our, you know, ability to get goods here, we're pretty pleased on how we can chase these goods and get back into business on the American Eagle side. Aerie, look, it's a little early to read swim, but we've seen some nice momentum starting in February, but coming out of the end of February, some really nice results there. I can't even talk enough about the apparel side. What we're up to is really going after intimates for the future. Great. Maybe Mike, as we break down your full year operating margin guidance, could you just help bucket the embedded assumptions if we're thinking markdown rate versus IMU recapture, maybe relative to just potential offsets to consider on the expense front? Sure, Matt. I think we're definitely assuming freight cost recapture. We saw it in Q4. We'll start to see it here in Q1. Our guide for the year includes the assumption that we know that product costs are improving. Speed and agility in the supply chain is here now. We're back to chase mode. We're leaving significant open to buy, so that should allow us to ensure inventory levels are appropriate for the full year. Both freight cost recapture and then not repeating that charge we took in Q2 associated with cleaning up the first half inventory. The offset would be some expense growth, some level of incentive assumption that we did not incur at all in 2022. Just some you know, typical annual wage costs that we're looking to offset, and some other just annual expense growth categories. That's what's embedded in our assumptions. Great. Best of luck. Thanks, Matt. Thank you. Our next question is from Paul Lejuez with Citigroup. Please proceed with your question. Hey, thanks, guys. Curious if you could talk about the performance of Aerie new stores from this most recent year, compare that to previous years, just what you're seeing in terms of a new store ramp. Then also curious if you could size for us the size of the OFFLINE business within Aerie, and just what are you counting on that business to do in terms of growth for 2023 versus the rest of that Aerie business? Thanks. Yeah, Paul, I can start with the Aerie new store productivity. I think we're actually really pleased with the new stores out of the gate. I think we described it as they're achieving pro forma expectations, which ties to our two to three year payback on those investments. That's what we've seen out of the gates, I think, really in this last the back half of the year, recent quarter, and what we're continuing to see here in the spring as we've described and others are too, a return to stores. I think that's actually having a positive impact on the performance of these new stores. Store traffic is healthy in general. As we know, you know, business coming through stores a little, a little more right now than digital. Digital traffic's under pressure, but stores are really healthy. It's contributing to that Aerie performance. OFFLINE size of the business, Jen, I don't know if you wanna take that piece of the question. Just about. Sorry, I might have missed that. I fell off the line for a minute. OFFLINE, meaning are we encouraged by the early results? Absolutely. No, just the size of the business, Jen. The size of the business, Jen. Oh, okay. The size of the OFFLINE business contributing to Aerie. Let me, let me just say it feels like Aerie in early days, we're growing at a very rapid rate. We are, you know, learning about the business. We have, you know, some different store formats, so that we can really learn to leverage. It's interesting. Our new stores we're feeling very encouraged by, but we still have a portion of the business inside of the Aerie, you know, inside of select Aerie stores. Whether there's an OFFLINE store in the mall or not, we still are learning in the Aerie stores. What that, you know, tells me is that as we build out OFFLINE, we're looking and testing new businesses inside of the Aerie store. The only thing I can say is that every day I get a letter from a customer asking, "Why can't Aerie do this category?" Or, "Why don't we have more in this intimates business?" Or why or why. I'm pretty excited about having a new business that we can really scale. I think, if I look at the run rates, if it's not faster, it's equal to Aerie's extreme, you know, quarter-over-quarter double-digit growth year-over-year prior to getting into the pandemic, and even during some of those years, I mean, the pandemic years, we still did great. Look, the business is about 30% of Aerie, more to come, we are testing new categories every day. What's great about our OFFLINE business and the way we set it up, it's not only just lifestyle, they're really starting to trust us in the performance side of the business. Again, that really opens up new opportunities. Right. Paul, this is Michael Rempell. I just wanna stress what Jen said earlier. I think it's really important for the conversation, which is we've seen sequential comp improvement in Aerie stores each quarter from Q2 and, you know, even here at the start of Q1. You know, what that really does is it supports our hypothesis that we opened over 130 Aerie stores in the last two years. Those stores, as they mature, they're going to, they're gonna start comping. They're gonna start a multi-year trajectory of comp, which is what all our data and all our history tells us, and they're gonna bring new customers into the brand and grow not just the store comp, but also the digital comp. You know, early signs, if you look at the last few quarters and you look at these stores as we're anniversarying them, are very positive that what these stores are doing for the business is gonna mirror history, which is going to give us multi-years of growth. We got into these stores obviously during COVID, you know, at a very advantageous time to get long-term deals done for that brand. It's very encouraging what we're seeing right now, in the Aerie business. Got it. Thanks, guys. Good luck. Thanks, Paul. Thank you. Our next question is from Adrienne Yih with Barclays. Please proceed with your question. Great. Thank you. Nice end to the quarter, everybody. Jen, I'll start with you. Kind of in other kind of conversations, there's been talk about the teen consumer, tight wallet there and a level of price sensitivity. It does not seem like that that is necessarily impacting your customer. In fact, you're pulling back on promos. Just wondering, you know. I'm sure it's the product. So that's, you know, first and foremost. What are you doing differently to engage and create that loyalty? Then how much higher are the AURs versus 2019? How much of that is promo versus initial retail? Thanks so much. The stores look great, by the way. Thank you. Our AURs are up. Do you mean on the year or on the quarter? Mike can get a little bit more specific for you. Regarding what we are doing differently, first of all, we've been highly focused on loyalty customers, our loyalty files up, but again, in total. Again, it's about the health of our file, right? Because they're our best spenders. They come back the most to our brands, and we want more of those customers. That's why we're just incredibly focused on our loyalty program, and you'll see more there. We have some really great findings in how we can even build that program stronger and better. Adrienne, I'd like to say that, first of all, as I mentioned, Aerie doesn't quit. Like, we've been going after that brand year over year, inventing, reinventing newness. As I mentioned, as you can see, our customer base is growing at an incredible rate. In fact, I just looked at a chart, I believe it's over $10 million customers at this stage, like quadrupling the base. It's incredible what we've done in Aerie, and it is about building that brand awareness, as I mentioned, and getting into new markets, and learning about those customers and building that community, Adrienne. Like, we do this grassroots in both brands, and I'll get to AE in a minute. We have ambassadors, and those tentacles, and Sunny and the store team have done an amazing team using our associates to reach our customers. Michael said it even best, right? Like, you know, our store experience and our customer experience, you heard those results, they're like no other, and that's a winning edge for us, and it's a place that we're not gonna quit. That's the Aerie story. In AE, as I mentioned, we're sort of rebirthing the brand, sort of pulling back to go forward. We're seeing new opportunities now. In doing so, I'd like to say we kicked off January with our new launch of AE 24/7, but let's not forget what we're up to, okay? Some of the new stats are saying over the past 2 years, more recently, so January into February, we are seeing Gen Z take a greater hold on the AE brand. I'm saying this, and I mean this. Like, the Outer Banks, we just did a collab with Outer Banks. It's the number one teen show out there. The product sold out. We're gonna do collabs. We are gonna get this customer into our brand. What we've been doing so great, Adrienne, is they're living with us. They're staying with us. We've mastered that. Now what we're up to is getting this customer into American Eagle, seeing the new American Eagle, seeing all the work that we've done and the trends. We're liking what we're seeing. You know, we just had a jean that just went viral on TikTok with I mean, the number one TikToker out there, Alix Earle. Every girl watches her, and this jean is on fire. It reminds me of the old days of the crossover, you know, legging and Aerie. We are chasing that jean. You know what I love about it most? The most important thing is if you can get organic winners into your brand, organic customers and organic play, organic social media, all of that means more to our customers and what our brand stands for, which is 100%. We're authentic, you know, that's what we stand for. Aerie's real, AE's authentic, and if we can get more of those customers and we can get that buzz, that's what we're doing. Tons of positive signs. We have collabs you're gonna see left and right. Back to school, we have another great collab. We just have some really exciting things coming, and we're gonna now use this new base in AE to kind of launch ahead and move forward. Great. That is super helpful. And- Go ahead. Adrienne just answered the second part of your question on AUR. AUR just still up over 20% to 2019. As we talked about that being a combination of controlled promotions, more targeted promotions versus full box offers, some structural changes in our loyalty program, in terms of, you know, giving away free jeans historically that we eliminated during the pandemic, which we don't plan on going back to. I think targeted increases in ticket where we have not seen price resistance and where we can see the customers willing to pay for it, and that's the continued strategy. We built up that brand equity through the pandemic, and our plans are set to not give that back. Thank you very much. Super comprehensive and super helpful. Best of luck. Thanks, Adrienne. Thank you. Our next question is from Alex Straton with Morgan Stanley. Please proceed with your question. Great. Thanks so much for taking my question. I know last year you guys had mentioned this path to kind of $6 billion in sales and a low teens EBIT margin, and obviously that's very different from where you guys are landing this year just given what's happened in the last year or so. Just taking a step back, are those numbers still in play at all, or how should we think about those targets and the revenue and margin trajectory longer term? Thanks. Thanks, Alex. I think at some point we'll come back out and talk about longer term targets. We're obviously very focused in just navigating the current environment and our guide for 2023 includes that. I think we've got the firepower in the company and across our brands to get to $6 billion over time. Again, we can discuss later. We'll provide maybe cart more color when we think that's possible. Double-digit operating margin is still our goal. You know, the guidance we just provided for this year is kind of keeping us in that mid-single digit range, call it 6%, maybe 6%-7%. As Jay noted in our prepared remarks and in our press release, we're embarking on a project here this year to really unlock across our entire cost structure, the opportunity for us to leverage that continued revenue growth in a different way than we've been able to, in the last few years or in our history. More to come on that project. It's geared toward exactly that, structural changes to our operating model that allow us to leverage revenue in a different way and path us towards that 10% or double-digit goal. Great. Thanks so much. As a reminder, it is star 1 if you would like to ask a question. Our next question is from Marni Shapiro with Retail Tracker. Please proceed with your question. Hey, guys. Congratulations on a great end to the year. Jen, that jean. That jean. Whenever we're looking for it, that jean. Marni, it's the best. We just got a new delivery in. That jean. Jay, I actually have a big picture question for you. I completely understand the caution about 2023. You know, there are still some headwinds out there, and comparing to 2022 is not, which wasn't a normal year by any stretch. And I appreciate reviewing the costs for the company in 2023. You know, you did reinstate the dividend, which suggests you and the board have a level of confidence about the business. I'm curious, you know, from your vantage point, what are you seeing that's maybe not yet in the numbers that you can share with us? Well, you know, we see, like, good momentum going the right way. You know, as we said, like, last month was a good month. You know, we feel very. You know, even though we don't know what the future's gonna look like, you know, we are very optimistic. Our. You know, it was, you know, it was very interesting this past week, we had our international partners in. I got a call from one of our major partners who said to me, "I've been coming for, like, 10 years, and this is the best I've seen the line look." We're very optimistic. I mean, I think our. You know, as Jen was saying, you know, we developed a new AE77. We're getting a good traction on that. This 24/7 we think is gonna be very big. It's mostly product-based, which is really where you guys shine anyway. Yeah. It's gonna be product-based, so product-based will help drive it. At the same time, you know, as Michael Rempell was saying and Mike Mathias was saying, we're looking at the real estate strategy a little different. We're looking about how we take each market separate and where the best locations in those markets are, and our goal is to make sure that we have stores in the best locations in those given markets. Makes a lot of sense. Jen, if I could just ask one quick follow-up to the AE jeans situation. You've had some very big hits in the store that I've seen, and I'm curious, Has the market opened up enough that you can chase back into that product? I'm not calling out the product in the public forum for a reason. Do you have that ability to now chase what I'm seeing selling out very quickly? Yes, absolutely. We've really changed our testing process in American Eagle so that we can be a little bit more nimble, and we can be a little bit more flexible, not only with silhouette, but with wash. You know, I've learned a lot in my, you know, couple years in American Eagle, and it's not just about one thing in a jean. You know, sometimes it's about wash, sometimes it's about a new fit. That's where I think we can really dominate because of the way we test and go to market. We are seeing a lot more agility there, Marni, to your point. Great. We're seeing trends improve in denim, which is good news, at least in American Eagle. Albeit we're offsetting it with newer ideas at this stage, that was intentional. We sort of forecasted this, we have other new ideas to help offset. I'm looking forward. Jeans never go away. That was the funniest, you know, commentary. I could actually quote Roger Markfield from years ago. When jeans and T-shirts in America ever go away. It's just, you know, they soften, we have to be prepared for the next trend. I think this team did an outstanding job with the spring assortment, making sure that we're leveraging the new trends in bottoms where we do an incredible job. Now, as I mentioned, Marni, we have new tops and other things that are working and that we can really trend and chase. Look, there's good news here. It's early on. Yeah. We like what we saw in February, but I also like, our ability to react and what we're reacting to and the nimbleness. There's more to come here, you know, and, you know, hopefully, you'll hear this enthusiasm with me at the end of Q1. Thank you so much, guys. Also, Jen, like we have other businesses too that we're very excited on. We have our Todd Snyder business, which is growing very strongly, and we're very excited about that. Unsubscribed, we're excited about. We have a lot of positive things going on. Thanks, guys. Thank you. Our next question is from Jonna Kim with TD Cowen. Please proceed with your question. Thank you for taking my question. Just curious about the Quiet Logistics platform and how you're thinking about long term. You mentioned that the revenue growth and profitability, you're revisiting that for 2023. You know, what's sort of your assumption there, and how do you still think about the long-term trajectory? In terms of the Aerie comp growth, how should we think about the cadence as we start to lap the impact of these stores? Thank you so much. Yeah, yeah. You know, you talk about Quiet, it was a valuable, like, acquisition. We need the capacity to be able to fulfill our orders for our brand, Quiet gave us the efficiencies and speed. At the end of the day, we still believe that if you don't, if you don't win it at the logistics, you're not gonna win the model, especially in retail, in order to compete against everybody. We're still committed to that. You know, we wanna get, you know, we wanna get, like, a better bottom line there, and Michael Rempell could talk about that for a second. Yeah. No, thanks, Jay. I mean, you really can't separate the two issues. One is Quiet provides tremendous support for our brand and our business. You know, it gave us capacity, like Jay mentioned, faster delivery times. Of course, we've consistently reduced our delivery cost per order to customers over the last couple years, which is pretty unique in retail. Like I said, the third-party business just hasn't ramped to our expectations. It saw great growth. It grew almost 40%, that was below what we expected, and it did it at a margin that was below what we expected. While we're not giving up on the business at all, we still think it's gonna be a very valuable business someday, we are resetting our plans, and we're gonna pull expense out of that business. We're going to eliminate unprofitable service lines in that business, and we're very committed to reducing the loss on a full year basis. You know, from a year-on-year basis, it's gonna go from something that was a headwind in 2022 to something that provides benefit in 2023. Again, over time, we still believe this is gonna be a successful and profitable business for us. Was there a second part to the question? Yeah, just on the Aerie comp. Aerie comp. Yeah. Yeah. I think, if you think about the -2% for Q4, Jonna, I think we've talked about the fact is all that non-comp, the 150 stores that we've added over the last couple years, the 60 we added this past year, even more specifically, as those anniversary, that comp gap that, if you do the math on Q4, was a 10-point gap, with total revenue up 8%, comp -2%. That's gonna close even further into the Q1 as we anniversary some of the Q1 openings last year. On a similar kind of total growth rates, we do expect Aerie comps to turn positive as early as this Q1 and definitely positive for the year. Michael described earlier how that ramp is gonna impact the business as a whole. From a GAAP perspective, just to kind of give you that specific metric, the total growth versus comp, GAAP will close and will be in positive range, and 23 is our expectation. Got it. Thank you. Thank you. Our next question is from Janet Joseph-Kloppenburg with JJK Research. Please proceed with your question. Hi, everybody. It's nice to see the improvement going on. I'll be quick. I wanted to ask Jen what her overview is on the intimates category. There seems to be softness across the industry, Jen, maybe you could tell me what's going on there. Also on basic leggings, black leggings, I'm starting to see a lot more promotions in the industry, and I'm wondering, you know, are customers gravitating more to fashion leggings? Just lastly for Mike, given your guidance for, you know, flattish revenues this year, or flat to low single, I think, should we expect inventory to track in line with that? Thank you. Yeah. Hi, Janet. How are you? Hi. Good, thank you. You know, intimates has been a little volatile, I will say. You know, we're holding our own as far as market share, but it has been a little up and down. With the launch of SMOOTHEZ, as I mentioned, we're learning new things in the business that I think gives us the gateway into new ideas. Honestly, that's what we really need to do. I think the team is up for new challenges and new innovation in intimates, and it's something you're gonna hear me talk a lot about in the future. It has been a little bit interesting. It's the tale of two cities. There is, you know, sort of a built-up business that's happening again, but then it's really almost nothing. You know, what we wanna do is play in what is meant for Aerie well, right? What's right for our business. I think we've learned some things over the last year, I think you'll see us start to pick up momentum in some of these new ideas and really attack, you know, what we own, you know, what I think we are famous for, including, you know, bralettes being one of the businesses that I would like to say we really, you know, we're one of the first to really, you know, dominate in that business. When it comes to black leggings, yeah, there are a lot of black leggings out in the industry. You are right. I think, we are starting to see more fashion, interestingly, not just in black leggings or leggings, but in other parts of the OFFLINE business. I do wanna congratulate the team, Abby and team, for really, going after some new ideas in that business. You'll start to see us really marketing to them. Early reads, we're feeling really good about it. Again, you know. How do we reinvent the black leggings? We have new launches coming forward, starting in Q3, a really exciting launch in Q4 that I think will definitely separate us from our competition. We're gonna continue to, you know, to build on all the equity that we've built on in both brands as far as building our AURs, building that quality. You know, the customer's willing to pay. We're seeing that because they trust us. I think that's when it comes to the legging business, that's what we have to just continue to work on, and get that trust, and hopefully they'll grow with us the way they already have, those customers. Thanks, Janet. Hi, Janet. On inventory, by the time we get to the end of the Q1, as we talked about, total inventory is projected to be down. As we sit today, and actually at the end of the Q4, AE and Aerie U.S. and Canada inventory was down high single digits. We're expecting that to actually, by the time we get to end of Q2, to be down even further, which really it should be, right? We were against the elevated inventories last spring, that we had to clean up. You'd expect us to be down pretty significantly on this guide of flat to low single digit revenue increase. by the. when you get to the back half of the year, knowing all the actions we took last year to right that inventory for the back half, which drove the positive results we saw in Q3 and Q4 in general, it'd be really just philosophically back to inventory growth being below sales growth expectations, similar to below, and that's what we're planning as of now. Okay, we are running up on time now, so I'll turn it back over to Jay for some closing remarks. Okay. Entering 2023, we are in better position. Our brands and operations are healthy. Given macro uncertainties, our outlook is cautious. We will stay disciplined on expenses and inventory. If demand is stronger, we will strive to deliver better results. Thank you for joining the call. I look forward to updating you on our progress next quarter. Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.