Thanks, welcome to the American Eagle Outfitters Q1 2023 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 0 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, Jennifer Foyle, President, Executive Creative Director for AE and Aerie, Michael Rempell, Chief Operating Officer, and Mike Mathias, Chief Financial Officer. Before we begin today's call, I need to remind you that we will make certain forward-looking statements. These statements are based upon information that represents the company's current expectations or beliefs. 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. 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 Q1 investor presentation. Now I will turn the call over to Jay. Good afternoon. Thanks for joining us today. Entering 2023, we built our plans for the year cautiously, balancing continued optimism for our brands with the flexibility to navigate uncertainty in the macro environment. Exiting the Q1, I am pleased to note that this strategy delivered for us. Our team successfully managed through the quarter and achieved results in line with plan. Consolidated revenue of $1.1 billion was up to last year and marked a new Q1 high for the company. Adjusted operating income of $44 million improved slightly to last year. We continue to make progress strengthening the balance sheet and redeemed our outstanding convertible debt, ending the quarter with healthy liquidity. By brand, Q1 revenue declined 2% at American Eagle and increased 12% at Aerie. Despite a tough spending environment, both brands demonstrated a sequential improvement from Q4 trends. We made progress at American Eagle with profits up to last year and top line trends moving in the right direction. We remain steadfast in our focus on healthy and profitable growth. Although still early, new expansions like AE.77, our premium capsule, and 24/7 are entering into men's activewear are seeing encouraging results. Aerie remained a fan favorite, delivering record revenue and profitability. Our activewear extension OFFLINE continues to carve out a unique identity in the marketplace with its high quality assortment and vibrant spirit. Investments in new stores are increasing brand reach and awareness, providing a tremendous foundation for Aerie as it continues to scale in the coming years. We took action to restructure Quiet Platforms to strengthen profitability. As I mentioned last quarter, across AEO, we have initiated a formal program to find further cost savings and uncover more efficient ways of working. We have a powerful portfolio of brands with tremendous value still to be unlocked. In the near term, we are highly focused on managing through this macro environment. As Mike will review, we're maintaining strong disciplines and seeking opportunities to optimize profitability this year and in the future. I'll turn the call over to Jen. Thanks, Jay. Good afternoon, everyone. I'm proud of how our brands performed this quarter despite choppiness in the retail environment. We showed up well across stores and online with fresh styles and chased into high demand items profitably. While promotions were up to last year, we participated strategically protecting our multi-year progress in building brand equity. Our Q1 AUR was the second highest in history, down 3% to last year's record result, yet up over 20% to pre-pandemic levels across brands. Our customer KPIs were healthy. In the Q1, we grew our total customer file and also expanded our loyalty customer base. In fact, our Real Rewards loyalty program was recognized by Newsweek as America's fourth best program in apparel this year. Moving on to the brands. Aerie had a strong quarter with double-digit revenue growth and positive comp growth. We saw an incredible customer response to new styles in our core apparel collection across fleece, bottoms, and tops. Seasonal tops and new bottom silhouettes in particular were key drivers of new customer acquisition. Demand for our activewear extension OFFLINE by Aerie also remained healthy with strength in tops, sports bras, active shorts, and fashion items. Swim and intimates were soft this quarter, consistent with trends we've seen in recent periods as our customers focus on other categories. We are continuing to engage our customers with exciting content. In the Q1, our Find Your Own Wonder campaign supporting our Y2K collection included partnerships with key influencers and publications like Who What Wear. This month, Aerie launched the Real You summer campaign celebrating our new summer collection, including our fan favorite Pool-To-Party capsule. Turning to American Eagle, revenue was down to last year, yet profits were up as we continue to focus on healthy sales. We made progress across several major categories. For example, women's tops, I'm pleased to say, returned to growth. We also continue to see exciting comps in non-denim bottoms and denim trends improved throughout the quarter. Men's was a bit soft, where I believe we have opportunity to lead with more newness. As noted last quarter, following several years of work to streamline the AE brand and improve profitability, we're honing our focus on growth. I'm pleased with the response we've received to AE77, our premium denim collection, and 24/7, the me n's activewear line. We are testing and scaling thoughtfully as we position AE for profitable growth. We are continuing to think creatively about how we leverage marketing to drive momentum for AE. In the Q1, our organic partnership with Alix Earle, one of TikTok's fastest-growing influencers, generated strong buzz. Videos promoting AE products have received 6 million views to date and increased sales velocity of promoted products. We introduced an exclusive partnership with e.l.f. Cosmetics, bringing together two powerhouses in the Gen Z world. The collaboration was first of its kind and sold out within minutes of hitting our website. Looking ahead, I am excited by new trends in casual wear. While the macro is clearly tough, we will lean into high-quality innovation and marketing to draw in our customers. I'm incredibly grateful to the AE and Aerie teams for their hard work and solid execution this past quarter. Thank you, now I'll turn the call over to Michael. Thanks, Jen. Good afternoon, everyone. I am encouraged with the progress we are making across our operations, brands, and channels. Given ongoing uncertainty in the macro, we've been very focused on making operational improvements across the business with an emphasis on finding efficiencies in labor, inventory, and expenses. This is a multiyear journey, yet the early impacts we are seeing provide compelling proof points of the work underway. In the Q1, store revenue increased 5% as customers returned to in-person shopping and new Aerie stores continued to ramp up. I am pleased to note that store labor costs declined to last year as we achieved efficiencies in our labor model, offsetting both wage inflation and payroll related to new stores. Our focus on the store fleet is to ensure that we are fueling the best stores in the best locations with the right inventory, the right staff, and the latest new technology, all to deliver outstanding customer experiences and while finding efficiencies and cost savings at the same time. We are taking steps to enhance our operational excellence across all these areas as we focus on maximizing ROI and store productivity. This includes the RFID and AI-based technology I discussed last quarter, which provides accurate inventory and location visibility within our stores. As we roll out this new capability, I believe the benefits to our business will be meaningful, yielding efficiencies and inventory productivity. On the digital side, revenue declined 4% as customers returned to in-person shopping and demand continued to normalize from elevated builds during the pandemic. New leadership is bringing innovative ideas to drive improvements to online KPIs. Specifically, we're looking at greater use of analytics and testing to drive increased engagement, traffic, and conversion. I remain excited about what we have in the pipeline for 2023. We've also seen positives in our supply chain. On the outbound side, Quiet Platforms' innovative fulfillment model continues to drive incremental benefits to our brands. Digital delivery costs in the Q1 were down to last year and leveraged as a percent of digital revenue. We reduced shipments per order and found efficiencies in fulfillment costs, all while delivering orders to customers faster. Since the Q1 of 2019, digital delivery costs have leveraged nearly 100 basis points as a percent of digital revenue. As Mike will review, we took action this quarter to restructure the third-party side of the platform, reduce expenses, and focus on core services that drive value both for American Eagle and Quiet's customers. We now have a leaner organization that will position us well for the future. We see opportunities to leverage Quiet's fulfillment capabilities to unlock even greater efficiencies in our operating model. This includes optimizing inventory placement, buys, and replenishment as we work upstream through our supply chain. As expected, 2023 is providing a much more stable supply chain environment with lead times and product costs normalizing back to pre-pandemic levels. This was incredibly beneficial to us in the Q1. It enabled us to plan cautiously and successfully chase into strong items. With continued choppiness in the macro environment, we are approaching the balance of the year with a similar strategy. From where we sit today, we are leaving a sizable portion of inventory open as we focus on maintaining agility to read and react to demand signals in the market. As I said earlier, we are early in our journey to strengthen our operating model. We still see significant opportunities across both labor and ongoing inventory efficiencies, we are also gonna be keeping a sharp focus on expense reductions. Thanks. With that, I'm gonna turn the call over to Mike. Thanks, Michael. Good afternoon, everyone. As expected, the environment remained choppy in the Q1. I'm pleased with how we managed through monthly variability. We entered the year with a healthy inventory position, product cost favorability, and renewed agility in our supply chain. This enabled us to operate with flexibility, strategically control promotions, and deliver on our Q1 plan. Consolidated revenue of $1.1 billion marked a new Q1 record for the company, increasing 2% to last year. Adjusted operating income of $44 million was up slightly, reflecting an operating margin of 4.1%. Compared to last year, gross profit dollars increased 6% to $413 million, with the gross margin rate up 140 basis points. Merchandise margins increased to last year, led by a favorable transportation environment with a partial offset from higher markdowns. Markdowns remain below pre-pandemic levels as we maintain focus on healthy promotions and preserving the progress we made in rebuilding brand equity over the past several years. Within gross margin, we also leveraged compensation and delivery costs, partially offset by rent expense linked to new store openings. SG&A expense of $312 million was up 5% to last year, driven by corporate compensation and advertising. Store compensation was down despite new store growth, driven by efficiencies in our labor model. We also saw a reduction in professional services, another area that has been a focus over the past several quarters. Depreciation increased primarily due to investments in new stores. In the Q1, we took measures to restructure Quiet Platforms and strengthen profitability. We reset expenses to align with the current pace of growth in the third-party business. This included downsizing the workforce and streamlining costs to focus on areas where we see the greatest long-term runway. In our first year of ownership, we've seen significant benefits to our brands from Quiet Platforms' innovative delivery and fulfillment model. From here, as Michael mentioned, we're focused on the next layer of benefits, includin g rethinking how we buy, place, and replenish inventory. As noted last quarter, we began a company-wide assessment of our entire cost structure as we prioritize unlocking greater profitability in our business and rebuilding long-term operating profit margins back into the double digits over time. This includes a full review of expenses across the P&L, as well as processes such as clearance management as we continue to explore more efficient ways of working. I look forward to sharing more on this in the second half of the year. Adjusted EPS was $0.17 per share. This excluded $0.08 of charges, primarily due to two impairment and restructuring related to Quiet. Our diluted share count was 197 million, down from 220 million last year. Turning to our brands, we were pleased to see trends for both Aerie and American Eagle improve sequentially in the Q1. Aerie revenue increased 12% with comparable sales up 2%. As Jen noted, new product assortments resonated well. Additionally, we saw a nice lift from new stores opened over the last two years as they ramped up along the maturity curve. Aerie's operating margin of 15.8% improved 240 basis points to last year, driven by normalizing freight costs, as well as rent and expense leverage. American Eagle revenue declined 2% and comps were down 4% to last year. As Jen noted, we have rebuilt the foundation of the AE brand over the last several years, eliminating unproductive SKUs and closing down or relocating unprofitable stores. This allowed us to deliver better profitability year-over-year despite lower sales. With the bones of the brand in a healthier place, we're now focused on pursuing new ideas that can drive profitable sales moving forward. Consolidated ending inventory cost was down 8% compared to last year, with units down 9%. AE and Aerie inventory across the U.S. and Canada in particular ended the quarter down double digits to last year as we continue to buy cautiously in the current environment. Looking ahead, we are maintaining inventory discipline and expect Q2 inventory to pace below revenue. In the Q1, we successfully redeemed the remaining balance of the principal associated with our convertible note position. We ended the quarter with $118 million in cash and continue to have healthy access to additional liquidity through our revolver, with total liquidity amounting to $659 million. Capital expenditures totaled $46 million as we continue to prioritize free cash flow generation. We're investing selectively and focusing on leveraging the infrastructure we have. We now expect full year CapEx to be in the range of $150 million to 175 million, down from our prior guidance of $150 million to 190 million at the start of the year. We continue to expect our consolidated store count in 2023 to be roughly flat to last year, reflecting approximately 25 new Aerie store openings, offset by approximately 25 net closures for the AE brand. Moving on to our outlook. As the supply chain continues to normalize, we're seeing product cost favorability and increased agility in our operations. The environment for discretionary spending remains volatile. Over the last several weeks, business has slowed from the Q1. It remains to be seen if this trend will continue, at this time, we are guiding the Q2 revenue down in the low single digits with operating income in the range of $25 million to 35 million. We expect a gross margin recovery from last year as we cycle pressure from end-of-season sell-offs and elevated freight costs. SG&A is expected to increase in the low to mid single digits and depreciation expense is expected to be similar to the Q1. For the year, we see revenues flat to down low single digits and operating income in the range of $250 million to 270 million. As discussed, we're highly focused on finding efficiencies and savings across the organization, and we'll continue to provide updates on our progress. 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 comes from Paul Lejuez with Citi. Please proceed with your question. Thanks, guys. Can you maybe talk about what has changed thus far in the Q2 and where you adjusted your expectations down for the back half as a result of that? Then Mike, you know, talking a lot about cost savings and efficiencies, when are we gonna see that hit? Curious if there's anything coming in the second half or any concrete examples of where you might be finding savings to date as you go through and do that work. Thanks. Yeah. Thanks, Paul. It's Mike. I can talk about the trend of the business. Obviously, we talked about Q1, revenue up 2%, comps down 1.5%. Definitely choppy as we keep using that word to describe it. Felt good about how things were progressing with through the spring break shifts, Easter shifts. Got to the end of April and now into May and things have slowed down a bit. Again, May is just our smallest month of the quarter. We're 4 weeks in. Definitely some for us, we're keeping an eye on when schools are letting out. It looks like it's gonna be later this year. That could have an impact. We're being cautious about what we're seeing these last few weeks. majority of the quarter is ahead of us, still probably 75% plus of the volume, the guide cost is just based on what we've been seeing for the last several weeks. Your second question on cost savings, we're four or five weeks into pretty aggressively laying out a roadmap for opportunities, some of which we haven't waited on. As Michael Rempell talked about, store labor was a good result in the Q1. We've been working on that since last year. Services, also a good story in the Q1. That work continues. We're pulling down our capital spend more to benefit to impact appreciation, looking forward past, you know, future quarters and really next year and beyond. As I mentioned in my prepared remarks, I mentioned clearance inventory. That's something else that is underway as we speak. Could have some benefits, definitely for this year, maybe even the Q2, a little more than we've provided in our guide. That's something we're not locking down right now in terms of plans. It's really just about how we manage through clearance, our end of season sell-off process. It's basically part of the operating model, like I've been talking about within our $4.7 billion cost base, something we've been looking at, and we're changing that process as we speak. Some of those things we think could have more secon d half benefit than what's in our guidance right now, but I'll be talking more about that on the second call to lock down things more specifically. I can answer your question with definitely more specifics at that point. Got it. Was that slowdown at both brands or was it more one than the other, thus far in May? With both brands by a bit, reflecting in our guide. That's why we think there could be some shift happening. We wanna keep an eye on that. Cautious for now. Three and a half weeks into the quarter, was definitely a bit in both brands. Got it. Thanks. Good luck. Thank you. Our next question is from Jay Sole with UBS. Please proceed with your question. Great. Thank you so much. Maybe I'm wondering if you can elaborate a little bit on the intimates business within Aerie. Maybe if Jen can talk about what she's seeing there and maybe what the plan is going forward. Thank you. Sure. We're really excited about this business actually, because, you know, the whole ceiling has lowered in intimates. We held our ground on bras for sure. There's been some shifts in silhouettes, but we're double downing tomorrow. In fact, I have a huge offsite with the team. I know they're gonna present me with tons of new innovation and ideas. Look, the whole category has shifted. Girls are wearing bra tops out, so there's no need for bras, and we're focused on that and how she's wearing her intimates. I think there's gonna be a lot more exciting things to come here. We've certainly seen some plus ups in sports bras. As Mike and team mentioned, OFFLINE is certainly an exciting category for us, and sports bras are really accelerating. We've got a... I don't know if anyone's worn our sports bras. Please do get out there 'cause I wear mine every day to the gym, and it's honestly the most comfortable and supportive sports bra out there. I get pretty excited. I, you know, we're not giving up. Next year's Aerie's anniversary. It's our Aerie REAL anniversary, spring 2024. Let me tell you, we're revving up into that year with new exciting things happening in all of our categories, actually. Great. Thank you so much. Thank you. Our next question comes from Matthew Boss with JPMorgan. Please proceed with your question. Great. Thanks. It's Chris Nardone on for Matt. Jen, you mentioned a focus on driving growth at the American Eagle brand. Could you just elaborate on key initiatives in place today, timing of those initiatives, and any key categories in the assortment you see as an opportunity as we look ahead into back to school? Sure, absolutely. You know, we've been really at rationalizing this brand, as Mike mentioned, too, closing some stores. We've got out of some businesses that were not profitable. We've been focused on the bottom line, certainly we're delivering there. Proud of the margins we've been delivering in American Eagle. Look, we've seen improvements in women's. Really exciting improvements from a comp trend into Q1, a significant shift. We're really leaning in there in that category. In men's, we did see some softness. I think we could be a little bit more aggressive in some of the newer categories, we've tested those categories in Q1. You'll see as we head into, you know, the back half of this quarter, 'cause we launch back to school around June thirtieth. We'll have some new ideas that we were able to react to in men's. Jay mentioned 24/7. That active line is incredible. I just saw all the creative for it. Some of the innovation there and the excitement around that, I think our customer is gonna be very excited and delighted as we, like I said, head into back to school. Also AE77. It's a small test, albeit, but these jeans are not cheap. They're our premier price points, premium price points, and we like what we're seeing early on, and definitely that would entertain an older customer. pretty excited about some new ideas on that side of town too. We've got opportunity in these new categories, you know, to really go after them as we get more momentum in the business. Aerie, the back to school is incredible. I just. It gets better with age, this brand. That's all I can say. Just to remind you, Aerie since 2019 has grown 129%, and I believe that's better than any near and competitor. This team just is an engine, and we have, you know, so much opportunity in front of us, and we're gonna keep on looking for our golden nuggets and driving it. I will say all the teams reacted to the business early. We saw nice momentum coming out of the quarter, you know, in April on. As a reminder, Easter, when we saw that shift, and we got into Easter, you know, the momentum happened. Look, you know, I'm here as the optimist. We haven't hit Memorial Day. Our stores business really performed nicely, as Michael mentioned, in Q1. When these kids get out of school, I'm hoping they like what they see. Great. Thanks. Then Mike, to follow up on the margin side, how best to think about the magnitude of gross margin expansion you see in two Q relative to the Q1? To what extent do you see higher markdowns as a potential headwind for the balance of the year? Thanks, Amanda. Yeah, Q2 gross margin expansion will be. We're assuming or projecting it will be even healthier. If you remember last year, that was our. We recovered similar freight related impacts versus last year, really every quarter. Last year from a markdown perspective, we, you know, did some things to right-size inventory at the end of the quarter last year that we are not obviously in a position to have the anniversary. Gross margin expansion for the Q2 will be healthy. That's largely what we're expecting really every quarter from here is that product costs, freight recovery. We do not have any intention or any plans for higher markdowns on the year. Our inventory is in great shape. Supply chains are back to normal. We have flexibility in our open to buy. Against what we just guided to, our inventory is positioned very appropriately. We can chase into trends as we see them, readjust inventory still for the back half as we need to as well. We're not planning on higher markdowns at all. That's helpful. Thank you. Thank you. Our next question is from Adrienne Yih with Barclays. Please proceed with your question. Great. Thank you very much. Jen, I was wondering on the AE brand, how much higher are initial retails at AE versus 2019 and the ability to, you know, after we get through this kind of, you know, period, the ability to hold on to that pricing based on just elevating the business and, you know, more innovation. For Mike, can you talk about traffic and/or transactions versus ticket/basket for each of the brands? Thank you very much. I mean, I should just say both brands are significantly up to 2019. We're pleased with that, Adrienne. Certainly as you see, too, we're gonna have nice, you know, costing's been coming in really favorably as well. We're gonna really, you know, have a balancing act in both brands on how we're pricing and what our out the door prices look like and ensuring that we're competing on our terms. That's really the answer. I believe that we've really struck gold here in some of these categories and we don't wanna give up that, you know, we don't wanna give up all the work we've done. That's where we've been at, over, you know, the past 3 years. During COVID, we were increasing our prices in specific categories, denim being one. You know, I reflect back, we actually had pulled back on our promotions in denim during some of these peak, you know, tough time periods out there. You know, we believe that there's opportunity in specific categories, like I said, in both brands. Specifically, you know, in American Eagle as the, you know, the two new brands that we just launched in our testing, we've seen no resistance to the pricing. We're gonna use those as test points for us and, you know, hopefully we can scale those businesses as well. Great. Thank you. Adrienne, to your traffic question. Traffic's been relatively healthy. As Jen just said, AUR's up nicely still to pre-pandemic levels, not giving any more of that AUR back. It's down a little bit to last year. Not substantial. The average basket size driven by AUR is down a bit then too. We have some work to do on the conversion line that we think. We believe it could be tied a little bit to macro conditions that mid to low-income consumer traffic is coming through, but not converting maybe as heavily. That's something we're keeping an eye on, something we're trying to move the needle on. That gives you a sense of the metrics that are driving the business right now. That's perfect. Thank you very much and best of luck. Thank you. Our next question is from Dana Telsey with Telsey Advisory Group. Please proceed with your question. Hi. Good afternoon, everyone. As you think about the upcoming back to school period with the cadence of business currently, any shifts that you're making, whether it's marketing, whether it's when you're bringing in goods, and how you're planning promotional levels as we go through 2Q into the back half? Thank you. I mean, Marni, all of the above. You know, everything has to be a full 360 approach. When it comes to back to school, I think we do it best. I'm really proud of the way the stores look out there. Like I said, the store business has been very healthy. We're focusing on stores and I don't know if Michael had mentioned, I know we mentioned on previous calls, but we have a new leader in the digital business, David Zhang, who comes with tons of experience and is already unlocking opportunities for us on that side of the business. Back to school, I go see it live tomorrow, but I've, you know, obviously been through all the product categories, but I see it in our simulated stores tomorrow, at our home base in Pittsburgh. Marnie, like, alls I could tell you is from Q1, we've shifted the businesses significantly with what we saw. I would like to say I thought we were really aggressive on the other bottoms categories in Q1, and that continues into Q2 when we build on it for Q3. We're seeing some bright lights in denim that we're able to respond to, so that's really exciting. We've seen improvements in denim, actually, particularly in women's as we pace throughout the quarter, and building into May, so some bright spots there. I, I think we're ready, Marnie. You know, like I said, I have to be the optimistic one on this call because, you know, it's our job to react to what's happening in the business and push harder as we, you know, head into the balance of the year. We do not plan on, you know, promoting. You know, we're gonna promote with intent and Mike mentioned that we have some opportunity to really look how we clear goods in Q2, hopefully more profitably. I think we have some good plans in place there, and we're gonna come out clean and be ready to fight. Thank you. Yeah, I think Your markdown question or your promotional level, we don't have any plans to be more promotional for back to school. As you know, we are very clean. We are clean going into the back half and back to school last year after, you know, taking measures to clean up inventory in the spring season in July there at the end of the Q2. We were actually pleased with our promotional level through the Q3 last year, and we're looking at something, we're planning similar levels of promotion this year. Dana, I'm sorry. My phone went off. Dana, I know you, and I'm sorry. Thank you for the question. No worries. No No worries. Thank you. Thank you. Thank you. Our next question is from Jonna Kim with TD Cowen. Please proceed with your question. Thanks for taking my question. Just curious about what you're seeing in the loyalty program, how the spending and retention trends have been like versus history, and what are some of the data advantages you can have by leveraging the loyalty program? Thank you. The question. It is star one on your telephone keypad. Our next question comes from Alex Straton with Morgan Stanley. Please proceed with your question. Great. Thanks a lot for taking the question. I just wanted to focus on revenue here. In the sequential top line weakness you've observed, have you seen any variations by household income demographic? Then secondly, I know you're near peak AURs, and I'm just wondering, do you think that's at all contributing to some of the challenges on the top line, or how do you guys gauge price sensitivity? Thank you. Yeah. If I could start on the revenue side. You know, really in May here, we're 3 and a half weeks in, your question is exactly the question we're asking ourselves. I think there's some of this with what's happening externally, and the impact on what we think is the mid to low end, you know, household income cost consumer, which we are susceptible to. You know, that's what we're being cautious about from here. I think if you look at what everyone's reporting at this earnings period, you do see a bit of bifurcation between kind of brands that are appealing to a higher income customer versus those that are more exposed at the mid-lower side. I think that's something that we are gonna navigate. Again, our inventory levels being flexible, supply chain timelines back to normal, those are things we'll navigate as that continues to be a macro external impact that we can't control. We'll control everything that we can. I mean, back to what Michael and I just described in terms of customer base and loyalty program, AUR usually has some kind of impact on that as well. We're not seeing any impact to those customer metrics in that way. Again, we are, you know, we're well ahead of pre-pandemic levels, but we actually haven't grown AUR since last year or 2021. We're actually down a couple points to those peaks. As we sit here today, maybe the combination of those factors is having a longer term impact. It's something we will be assessing. Again, we'll control what we can control in that equation right now, which is really inventory and everything else around our operating model that we're looking at. Okay. We'll take the next question. Thank you. Our next question is from Janet Kloppenburg with JJK Research Associates. Please proceed with your question. Hi, everybody. Just two quick questions. First on housekeeping, Michael, is depreciation now looking to be at mid-teens for the year? Maybe you could help me on that. On the guidance cut on the operating income for the year, that includes a lower outlook for the Q2 as well as for the back half. Could you flush that out for me, please? Jen, was there some change in category investment in May versus it sounds like April was a decent month. You said you had some acceleration in April, maybe after a weak March, I'm guessing. I'd like to understand maybe how the assortment shift may be impacting the response rate right now at both brands. Thanks so much. Hi, Janet. Hi. Hi, how are you? Thank you. Your question on depreciation, as we said for Q2 guidance, similar dollars for Q2. It's really similar dollars every quarter of the year. Based on what's planned, based on the $150 million to 175 million range this year versus what we spent in previous years. Depreciation was pretty consistent month or quarter- to- quarter. You get to roughly a 10% increase on the year based on that. That is something we are focused on. We pulled down capital spending for this year. Made a lot of investments the last few years as we talked about, especially in Aerie and OFFLINE growth. We wanna grow into those investments, optimize those investments in technology, supply chain capabilities. That's part of this project this year and finding efficiencies in our operating model. Part of that is actually leveraging all those investments that we've kind of proactively and aggressively made in the last few years. We are looking for depreciation to kind of normalize and even come down over time. As far as the guide goes, yeah, the full year guidance does contemplate, of course, what we just guided for the Q2 and how we're thinking cautiously, how we're viewing the rest of the year. We talked about flat to low single digits for the year. If you think about Q1 results, Q2 guide, you're relatively flat through the, through the spring season, and we're basically saying relatively flat for the year based on what we know today. The income guide off of that is based on that type of revenue thought process right now. Plus some greater pressure on gross margin or no? Actually, gross margin. It's not as much recovery as you had originally expected? Not as much leverage on expenses then, right. Definite recovery of all freight and related product costs. Seeing that flow through, that's gonna happen every quarter. Even on this revenue expectation, our inventory levels that are planned for the year, we're actually expecting net kind of positive impact from lower markdowns on the year still as we sit here today. Definitely gross margin expansion from those things, but to your point, yes, not as much leverage on the expenses through gross margin, if on the revenue that we guided to. Okay. Thank you. Jen, on the. Yep ... and assortments, and what's resonating- Hi, Janet. How are you, Janet? I'm good. Nice to hear your voice. Thank you. It's nice to hear your voice. no, actually. In fact, you know, we built on the assortment off of April. The only thing I would add is we do need a few of our seasonal categories to turn on right now. We're hoping as we get into the seasonality, Memorial Day weekend on, that we'll see that happen. Just to note, though, I will say, you know, some of our in American Eagle in particular, we've seen bright spots in bottoms, including denim. That's where we really took the business going into Q3. We feel we're really well positioned there, Janet. You know, I'm looking forward to some of these after-school shifts, seeing what those changes do to the business. I'm cautiously optimistic on the quarter, and we're ready to go. No, the assortments did not significantly change. In fact, in some cases, i.e., in women's tops, we could use more. We saw a huge shift in women's tops, Janet. I don't know if I mentioned that earlier, but from where we ended Q2, it's nice to see this business turn around. In fact, we're in the positive comp zone, healthy positive comp in women's tops. Bottoms are very strong. Yeah, just some of these seasonal categories we need to turn on a little bit more. Thank you. Thank you. Our next question is from Chris Nardone with Bank of America. Please proceed with your question. Thanks, guys. Can you help quantify what is driving the low- to mid-single digit percent increase in SG&A in the first half of the year compared to last year? If you can tie that into your expectations for full year SG&A growth embedded in your new EBIT guide, that'd be great. Hi, Chris. Thanks. The SG&A was up 5% for the Q1. We provided Q2 direction of low to mid-single. For the year, you can kinda get your mind around that same range, although, like we've been talking about, that is a big piece of the initiative. We're looking at the entire $4.7 billion cost base, not just SG&A. There are definitely elements of SG&A, of course, that we wanna continue to work on. Store labor, corporate compensation, services, you know, marketing effectiveness in terms of driving revenue for us, few other line items and categories. In the year guide, it is mostly compensation related payroll taxes and benefits that are driving that low- to mid-single digit increase. There is reminder that it's a 53rd week year, so about a point of the growth is also just attributed to that extra week. As I said, you know, I think back to Paul's question, more color on the Q2 call in terms of opportunities against that color, things we're working on now, laying out the priorities and a timeline of how we're going after them. Some things are already underway and we'll have more color on the Q2 call about potential back half benefits and what benefits we're expecting on the go forward. Got it. Just one follow-up on the gross margin. Are the opportunities around freight and cotton recapture, is that just a fiscal 23 thing, or do you expect some of the cost reversal will help you know, looking out into fiscal 24? I'm just trying to understand the cadence of when you expect to fully recuperate that $60 million to 80 million in incremental freight costs you guys have talked about in the past. We'll get most of that back this year. There is some spillover into 2024 as, you know, goods that we sourced in 2022, we're selling in 2023. Goods that we'll be sourcing this year will spill into 2024. You know, look, the sourcing environment's very favorable right now. Demand is weak. Commodities are stable. Transportation is available and back to pre-pandemic levels. You know, I expect, like Mike was saying, we'll see recapture all this year, but we'll also see benefit into early 2024. Got it. Thank you. Thank you. Our final question is from Marni Shapiro with Retail Tracker. Please proceed with your question. Hey, guys. Jen, now you have me for real, but you should know that Dana and I grew up in the same neighborhood, and we shopped at the same bakery. This, you know, mixing us up shouldn't be such a big deal. Actually. I hope you were shopping at American Eagle. I don't think it existed back then. We're the older generation. I just wanted to dig a little bit into the gross margin to make sure I understand the puts and takes here. Because you know, there's obviously the freight recovery, and it sounds like the sourcing environment is better. Were you able to get those AUCs for the back half of this year, or is that for next year? You talked about promotional pressure. Was that pressure coming on mostly the seasonal goods? Was that primarily in places like swimwear, for example, where you've had some issues, or is that across the board? I'm wondering if, you know, is denim as promotional or go forward are the knit tops and things where you've seen the improvement in women, do you have to be promotional in those areas too, or are the promotions a little bit more specific? Yeah, Marni, I can start. I don't think we really talked about promotional pressure. Markdowns were up a little bit in the Q1. ... compared to last year. Last year was definitely on the low end of history. They're just more kind of, historically appropriate in the Q1. As I said earlier, we're not looking at a higher level of promotional activity really any quarter throughout the year based on how we're, you know, I think we're at a good level now, a healthy level now. We like the mix of what that's driving. There's no, there's no inventory reasons or cause to over-promote to get through units, to manage inventories. I don't know if there's any color you wanna add, but, when I. Was the pressure in AUR, I guess maybe? Was it just versus very high AUR last year? Is that what it really is? Yes. We were, again, you know, not, obviously not 2021 peaks- Last year's AUR in the Q1 was still historically high, yes. Got it. Yeah. We do expect both transportation and product cost benefits, you know, similar if not greater to Q1 throughout the year. Can I just follow up on the seasonal products? Are you seeing the same slowdown in those sales across the country? Are there any regions where the weather, I hate to have these conversations about weather, but where the weather has kicked in earlier, or is it across the board? We're definitely seeing better results out of the South and the West. We don't like to talk about weather either, but at the same time. There's a reality to looking at those geographic results every single week, and there's definitely. Yes ... more life in the South and West where those seasonal categories would kick in earlier. Again, with our guides, the guides cautious, some of the other results in the other areas of the country are definitely embedded in our thinking. We are, you know, I think with, again, hopefully even more improved weather. As much as we don't like to use the word. There is something to, I think, our customer and the timing of schools getting out and, you know, mindset around. Yes ... the summer vacations, et cetera, that we think some of these things will kick in for us differently as we move into further into the Q2. That makes sense. Thanks, guys. I'll take the rest offline. Thanks, Marni. Thank you. I would like to turn the floor back over to Jay Schottenstein for closing comments. Okay, thank you. Okay. I think in conclusion, we are staying focused on navigating the near term. Our brands are in good shape, and we know there's opportunity to unlock growth and profit from here. We're staying disciplined on inventory and expenses and looking for additional efficiencies. Thank you for joining the call. I look forward to updating you all on the progress next quarter. Thank you. Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.