Welcome to the AEO second quarter 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 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 Rempel, Chief Operating Officer, and Mike Mathias, Chief Financial Officer. Before we begin today's call, I need to remind you that we will make certain forward-looking statements. These statements are based upon information that represents the company's current expectations or beliefs. Results actually realized may differ materially based on risk factors included in our SEC filings. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. Additionally, you can find the second quarter investor presentation posted on our corporate website at www.aeo-inc.com in the Investor Relations section. Now I will turn the call over to Jay. Good afternoon, thanks for joining us today. I am pleased to report second quarter revenue and operating profit that exceeded our expectations, reflecting stronger demand and improved profit flow through. Business picked up in June across brands and channels, with strength sustaining into July as our early back-to-school collections rolled out. The teams executed well during the period. We made quick product adjustments, chasing to demand profitably, while also maintaining healthy inventories and controlling promotions. Record revenue of $1.2 billion was up slightly to last year, while operating income of $65 million increased significantly to last year. We generated strong cash flow, ending the quarter with a healthy balance sheet and cash of $175 million, up $77 million to last year. As previously discussed, we have spent this past several months reviewing our cost structure to find areas where we can be more efficient as we continue to grow. We have identified opportunities to improve profitability over the next 12-24 months. We began to take action on these items in the second quarter and are starting to see results, which Mike will review. Now on to a few highlights of the quarter. American Eagle continues its leadership in casual wear, and that's evident in recent performance, where demand has been strong, particularly during peak shopping periods. We are seeing encouraging results across genders as new products are introduced. Extensions like AE77, our premium capsule in 24/7, our entry into men's activewear are injecting new energy and expanding our reach. As the teams will discuss, we are excited about the launch of the new store design to update and modernize the shopping experience. The online channel is also being enhanced with new features, which is driving better overall metrics. Aerie achieved yet another record revenue quarter with strong profit. As Jen will review, we saw incredible demand across our core apparel collections, and our activewear extension continues to be on fire. We are also seeing renewed momentum in intimates, where we've introduced new collections. I see a very bright future for the Aerie and OFFLINE brands, where we are just beginning to see the real potential. I'd also like to comment on our Todd Snyder brand, where we have been seeing strong growth. Over the past year, we have selectively expanded into high-fashion metros, bringing Todd's modern creations and upscale experience to new customers. We expect to reach over $100 million in revenue this year. I cannot be more excited for what's ahead. Entering the third quarter, it's been encouraging to see sustained strength across our entire brand portfolio. As we continue to fuel this momentum with strong merchandise and innovative marketing, we will stay focused on delivering efficiencies across the business and improve profit flow through. Before I turn the call over to Jen, I want to touch on the leadership transition announced last month. As noted, Michael Rempel, our Chief Operating Officer, has made the decision to leave the company at the end of the fiscal year. While I'm personally sad to see him go, I want to thank Michael for his incredible leadership and partnership over the last 23 years. Michael has been a tremendous asset to the company, investing in technology and infrastructure to create our world-class operations. He leaves AEO with a strong foundation to build on from here, including excellent teams to help support a successful transition. With that, I'll turn the call over to Jen. Thanks, Jay, and good afternoon, everyone. I am pleased with how the second quarter shaped up, including a significant improvement in operating profit across brands. As Jay noted, June was an inflection point. ... Business improved as we brought in new fashion, and July was our best month, with both AE and Aerie comping positively. We were able to chase into high demand items at a strong margin. With inventory at appropriate levels, promotions and end of season clearance were down dramatically to last year. Our second quarter AUR was the second highest in history. Customer KPIs remained solid, with growth in our total customer file, as well as our loyalty customer base. Aerie continues to expand its reach, with the customer file growing to another all-time high this quarter. Turning to the brands, Aerie revenue was up to last year, led by new store growth. With the exception of swimwear and intimates, comps were very solid across categories, with most major businesses up in the double digits. As we move past peak swim season, comps strengthened further as we introduced new merchandise, turning positive in July and accelerated into the third quarter. Reception to new styles in our core apparel collection has been incredible, especially in fleece, bottoms, and tops. Our activewear extension, OFFLINE by Aerie, also had a standout quarter across tops, sports bras, active shorts, and fashion items. I am also pleased to note that our intimates business turned positive with the arrival of updated collections. As discussed on previous calls, we have been focused on leading with greater innovation and offering more match backs. Our newly launched SMOOTHEZ styles and extended bodysuit collections have been a tremendous success. Coupled with refreshed marketing, I am pleased to see the intimates attract new customers and drive higher sales. Building brand awareness and amplifying our products through unique marketing is a priority. Through our Hidden Gems campaign, we are bringing to life a more mature point of view within intimates this fall. We are emphasizing high quality, beautiful designs, while maintaining the playful spirit that makes Aerie distinctive. This is a 360-degree campaign, including partnerships with the dating app, Bumble, celebrity influencers, active social campaigns, and live events. Now turning to American Eagle. Revenue was down to last year, yet with a significant improvement in profitability. Here, too, we were pleased to see trends improve sequentially throughout the quarter, with AE exiting July with positive comps, which has sustained into the third quarter as well. Women's tops had another quarter of growth, with continued improvement in comp trends across denim and non-denim bottoms as well. Men's also saw improvement in bottoms, driven by pants. Over the past several quarters, with brand margins restored to healthier levels, we are now focusing on growth. As Jay noted, we are pleased with the expansion of newer collections like AE77 and 24/7, and we'll continue to build on our learnings. I am also very excited about the launch of our new AE store design, with modern aesthetics that celebrate our strong heritage in denim and casual wear. We've seen strong results so far and look forward to updating additional locations. On the marketing front, AE collaborated with The Summer I Turned Pretty, a Gen Z favorite, with a live shopping experience on Amazon. The campaign and collections were a strong success, and we continue to chase items. Looking ahead, I am really excited by the trends I am seeing in casual wear. Emerging new trends provide exciting opportunities to fuel growth, and I believe we will be well positioned for upcoming seasons. As we said, the business has shown material improvement this summer. Across brands, recent trends have been stronger, with greater consistency in performance. We are continuing to build on the areas with high demand while keeping a sharp eye on the consumer environment and planning appropriately. Before I turn the call over to Michael, I want to say thank you to my incredible AE and Aerie teams for staying focused and delivering this quarter. We are energized, and I look forward to updating you on our performance next quarter. Thank you, and now I'll turn the call over to Michael. Thanks, Jen, and good afternoon, everyone. I am very pleased with how the teams are executing against our initiatives and delivering stronger results. We are leveraging flexibility in our supply chain to chase high demand items. Across channels, we're making improvements and seeing a real difference in key performance metrics, which I believe will enhance the customer experience and support sales growth. For the quarter, store revenue increased 4% as customers continued to return to in-person shopping. It's encouraging to see demand improve over the course of the quarter as our new floor sets hit stores. I'm also very pleased with the progress we're making on our store payroll model, which is creating efficiencies and allowing us to leverage expense. Upgrading our fleet and store operations remains a top priority. Our new store design was introduced in three locations: Oakbrook in Chicago, Palisades in New York, and Polaris in Columbus. In Oakbrook, we coupled the remodel with a relocation to a better area of the mall, and while it's early days, the combination of these actions has driven a nice lift to store sales. This is a great example of the 360 degree approach we are taking to improve store productivity while also ensuring our brands are showcased in the best way possible. We also rolled out a new AI-based technology to optimize size profiling and inventory replenishment. Early results are showing quicker and more accurate placement with improved in-stock levels. This is allowing us to better service demand with lower inventory across the network.... Turning to digital, revenue declined 7% in the quarter as demand continued to normalize from elevated builds during the pandemic. Yet here, too, we are very pleased to see the business accelerate month to month and turn positive in August. New leadership has brought a fresh set of eyes to how we can continue to elevate our online shopping experience. We have put new processes in place to test, learn, and scale ideas with greater precision and speed. This new rhythm and the culture of experimentation is creating an exciting avenues for us to improve our KPIs. As an example, updated messaging and more strategic customer engagement are leading to higher conversion rates. We are just scratching the surface, and I see plenty of opportunity for more improvement as we build on our learnings. We are also taking action to create a more seamless customer experience across channels as we further integrate our store and digital operations. This quarter, we enhanced our buy online, pickup in store offering, providing increased visibility to customers and optimizing order fulfillment. The initial read has been very positive. We've doubled our pickup penetration, which is generating savings on shipping costs and creating additional sales. Altogether, this is allowing us to better leverage our store fleet and our associates to provide a great cross-channel customer experience. Our network of distribution centers and in-market nodes continues to drive efficiencies in our fulfillment model. Second quarter delivery costs were down year-over-year and leveraged as a percent of digital revenue. In fact, we achieved multiyear lows in both our cost per shipment and the number of shipments required to fulfill an order, all while delivering product faster to our customers. On the inbound side, we continue to see a favorable environment. We expect product costs and freight to continue to be a tailwind in the second half of 2023. Additionally, we are leveraging shorter lead times to stay nimble and chase. Before I turn the call over to Mike, I want to thank Jay for his kind words on my decision to leave the company. It's hard to move on from a place that has been my second home for the last 23 years, especially one where I have made so many lifelong friendships. The only thing that makes it easier is knowing that I am leaving the company in very capable hands. It has truly been a privilege to work with such a high caliber and talented team over the years. Thank you for your support, your hard work, and your camaraderie. We will work closely together to ensure a smooth transition in the coming months. AEO has a bright future ahead. I know there's no better team to take this company to the next level. With that, I'm going to turn this call over to Mike. Thanks, Michael. Good afternoon, everyone. We are pleased with our second quarter results, which reflected early progress on our journey to improve long-term profitability. Despite a slow start, we saw a real inflection point with the arrival of new merchandise over the summer. We remained nimble, managed markdowns effectively, and leveraged our ability to chase into demand profitably. With the initiation of our profit improvement program, we also saw some early benefits, which I'll touch on shortly. Overall, we managed the quarter well and were able to nicely exceed our outlook provided back in May. Consolidated revenue of $1.2 billion was up slightly to the second quarter of last year. It's important to note that we cycled approximately $22 million in revenue from last year's excess end-of-season sell-offs, which impacted second quarter revenue growth across brands and channels. Operating income came in at $65 million for the quarter, reflecting a strong recovery year-over-year and a 5.4 operating margin. Compared to last year, gross profit dollars increased $83 million, or 22% to $453 million, with the gross margin rate up 680 basis points to 37.7%. The majority of the improvement was driven by better merchandise margins. Inventory discipline drove lower markdowns as we maintain our focus on healthy promotions. Additionally, we lapped $25 million of freight headwinds and $30 million of incremental markdowns related to end-of-season sell-offs last year. As I will discuss shortly, we made a structural change to our end-of-season clearance process this quarter, which we expect to positively impact gross margin over the next year. As Michael noted, lower delivery and distribution expenses also provided tailwinds to gross margin this quarter as we drove efficiencies across our outbound network. SG&A expense of $332 million was up 8% to last year. We continue to drive efficiencies in our store labor model, providing a partial offset to incentive accruals compared to zero last year, higher costs from store growth and other corporate expense. Depreciation was up year over year and in line with guidance provided last quarter. EPS was $0.25 per share, and our diluted share count was 196 million. Turning to our brands. Following the lull in May, we were pleased to see trends for both Aerie and American Eagle improve sequentially through the quarter. Aerie revenue increased 2% in the second quarter. Comparable sales were flat, and Aerie's operating margin of 15.1% expanded approximately 12 points to last year, driven by improved markup and lower markdowns. American Eagle revenue declined 1%, with comps down 2%. AE operating margin of 16.8% expanded nearly 3 points to last year. Consolidated ending inventory cost was down 7% compared to last year, with units down 11%. Inventory levels remain healthy and controlled across geographies as we continue to maintain buying discipline and chase demand. We generated strong cash flow and ended the quarter with $175 million in cash. We continue to have healthy access to additional liquidity through our revolver, with current liquidity over $800 million. Capital expenditures totaled $46 million, and we continue to expect full year CapEx to be in the range of $150 million-$175 million. Our plan for our consolidated store count in 2023 remains roughly flat to last year, reflecting approximately 25 new Aerie store openings, offset by approximately 25 net closures for the AE brand. Before I move on to our outlook, I'd like to provide an update on the positive progress being made on our profit improvement initiative. We have highly motivated cross-functional teams making structural changes to our operating model to capture permanent efficiencies. As I've discussed on previous calls, we're working across all areas of the P&L. With roughly 70% of our costs spread across product, markdowns, rent, warehousing, and inbound and outbound delivery, our initial actions are positively impacting our gross margin. Michael pointed out the benefits we're seeing in distribution and warehousing. In addition to this, in the second quarter, we optimized our clearance strategy, which we expect to drive approximately $50 million in benefits to gross margin on an annualized basis. Another area of near-term focus is a structural change to optimize our loyalty program with a focus on driving more profitable sales. We're also working on longer term benefits in SG&A across all areas. We will keep you updated on what this could contribute to long-term profitability as we solidify those work streams. Moving on to our outlook. Quarter to date, product acceptance and overall demand has been very encouraging. Trends through the back-to-school shopping period have been strong, with AE positive and Aerie delivering a double-digit comp quarter to date. Yet with significant business still ahead, we're maintaining a cautious view. For the year, we're raising our outlook to reflect better than expected business performance in the second quarter, in addition to improved demand and continued profit recovery in the back half of the year. We expect total revenue to be up low single digits and operating income in the range of $325 million-$350 million. We expect gross margin expansion, reflecting improved freight and product costs, lower markdowns, and approximately $25 million in savings tied to early profit improvement initiatives. Based on improvements in trend and profitability, we are accruing a baseline of incentives this year. As a result, we expect full year SG&A to be up in the low double digits, with the second half up in the mid-teens. We expect the 53rd week to contribute a point to full-year top line growth. We expect third quarter total revenue to be up in the low single digits and operating income in the range of $115 million-$125 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. So that we may address as many questions from as many participants as possible, we ask that you limit yourself to one question, and if you have additional questions, you may re-queue, and, time permitting, those questions will be addressed. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Jay Sole with UBS. Please proceed with your question. Great. Thank you so much. You know, my question is about the intimates business. Jay mentioned that there's some new momentum in intimates. Jen, I think you mentioned that, intimates turned positive with the updated collections, and you said, I think Mike said, Aerie, Aerie's up double digits, third quarter so far. Can you just maybe help us understand, like, how much momentum you're seeing in intimates? Maybe elaborate on those comments. Give us an idea of where you see that business going. Can you sustain that momentum? And is that how big of a contributor is that to the improvement in the Aerie comp that you've seen so far in Q3 versus Q2? Sure. You know, what I like about the intimates business is, I mean, when we just think about our brand's awareness, Jay, Aerie still... You know, the intimates business is roughly an $80 billion industry out there, and Aerie still has only, like, 50% brand awareness. So we're still getting this brand out there and becoming famous for intimates. So there's a lot of runway here, Jay. Look, it was down, you know, there was a downtrending cycle in intimates, and I think the team did an incredible job mitigating any risks there. But as we looked ahead, and I mentioned on prior calls, Jay, that we were really up to really innovating in that category and showing up with what she wants now. I think the teams did an excellent job relaunching SMOOTHEZ, and tying it in with an amazing campaign. We just... Oh, it was incredible, Jay. We were down in the Meatpacking District. We took over the district. We, we had girls bringing in their bras and, and trying on our bras, and, ugh, it was just the momentum I saw there. So what I can tell you is, our head designer, that's her expertise, we're double-downing there, and, Aerie's maintained market share, in fact, gained some share in some specific categories, tucked in the intimates business. So, you know, we're gonna keep at this, Jay. And as I mentioned, we saw excitement in other categories, too. Apparel, fleece, OFFLINE is not slowing down, Jay. The new store design for OFFLINE and the new stores, we're seeing nice momentum in malls where we coexist, Aerie and OFFLINE. That's really exciting. And, you know, as we, anniversary these new store openings in both brands, we're starting to see that, you know, halo effect happen and that momentum coming to fruition. So I love, I love having Aerie back, so, let's hope these next weeks in the quarter deliver what we intend to, and more to come. Sounds great. Thank you so much. Thank you. Our next question comes from the line of Adrienne Yih with Barclays. Please proceed with your question. ... Great. Thank you very much. Congratulations, and Michael, thanks for all the hard work you've done over the years. So really appreciate that. Good luck. Thank you. You're very welcome. So Jen, I wanna stick on the theme that things seem to be rebounding. It does seem like the teen space generally seems to be having a little bit of a moment, sort of a recapture moment, maybe a recovery moment. What are the driving forces that you're seeing in sort of back to school? I know you kind of own the bottom space, so if you can talk a little bit about, you know, kind of long-standing trends. And then, Mike, on the SG&A dollar growth, just wondering, it would seem that you're more incentive, like, I guess, on the EBIT side of things versus the top line, 'cause it looks like you're flowing through a lot more on the EBIT. So just a little bit of color on kind of the incentive comp going up so much. I think prior guidance was low to mid-single digit, and now it's low double. So some color there. Thanks so much. Yeah, sure. Look, I think we've been at this, you know, for three years now, rebuilding American Eagle. Michael mentioned we have new store designs, we have new concepts, and, quite frankly, out of the gate in Q1, we've been chasing women's. Women's has gotten better quarter over quarter. As we landed this back-to-school assortment, it really came together between the marketing and the assortment. We really leaned in there, and it's paying off. I really like what I'm seeing. I don't know if you got a chance also to see that marketing campaign, The Summer I Turned Pretty. It was incredible. It was a great success story, and I think it was a great launchpad as we headed into back to school. Getting into the back-to-school season, as you know, we do dominate in bottoms. The teams did a great job, maneuvering the fits, not only between, you know, denim, but also non-denim bottoms. We really doubled down there, and we're definitely in position to continue to see that business grow. And as you know, when this comes back, AE is the winner in bottoms. The fit, the quality, the price-value equation, I'm really excited to see this come to fruition. And early on, you know, we've been still seeing wear-now trends, so we're not even into... You know, as you know, it's 90 degrees out there. As we really get into the back half, looking forward to seeing our leg shape and all the, you know, adjustments we made to the categories in both men's and women's come to life. The trends that we saw early on, we've gone back at, doubled down on. So looking forward to really capitalizing on this on the back half. And just wanted to mention women's tops, you know, that came out of the gate, you know, really swinging, beating expectations. So we've been up to chasing there, too. Excited what I'm seeing there, just from, you know, owning the key items and then chasing the fashion trends that are working. The team's at it. Every morning, I have my conversations: "What are we doing now?" Love what I'm seeing. I just got through looking at holiday, and the adjustments are made. You know, we bring in our first holiday delivery early in October, end of September, and we'll be able to still react then. So, you know, wide legs, of course, are still trending for us, as I'm sure you've heard from other retailers, and we're ready to battle. The new styles are great. Thank you. Thank you. Thank you. Our next question comes from the line of Matthew Boss with J.P. Morgan. Please proceed with your question. Thanks, and congrats on the quarter and, and the nice improvement. So, maybe two-part question. Jen, maybe relative to a year ago, could you speak to changes in customer behavior that you're seeing across categories and just how you feel about your ability to chase trends this year in the back half, given inventories in the supply chain relative to a year ago? And then, Mike, could you just elaborate on specific areas that you've identified so far, supporting the $25 million of savings for this year? And then maybe how best to think about the potential magnitude of savings into next year. I would definitely say, Jay, that we're in a fashion cycle. You know, it's... You know, we've been chasing, like I said, in women's, they're definitely moving a little faster. But, you know, we're always gonna take the position, though, that we are in this for the long haul. We wanna have steady, you know, definitely profitable growth, and, that's what we're up to. So, you know, looking at this, you know, from a five-year perspective, a ten-year perspective, how do we do this year-over-year? I think we proved so doing that in Aerie, right? The many consecutive quarters of, you know, high double-digit growth, you know, getting through COVID and some of the changes in the past couple of years, certainly that's changed the customer behavior in both brands. But, you know, we've been up to just looking at this, you know, as you can see with our results, right? The profits and our net earnings are certainly, you know, from all the hard labor and the work we've been up to. And I think now we're really up to growth in both brands. I think we've repositioned American Eagle. As I mentioned, we have new store designs. We have marketing tactics that we're really leaning into. We're showing up differently with our marketing, I think, better and bigger and better, and we're winning there. And I think the same for Aerie. I think just really looking at both brands and making sure we have disciplines, as, you know, what each brand stands for and the DNA behind each brand, and making sure that we can get that incremental activity from our customer is what we've been up to. And I think we're starting to see the early benefits from all the work the team's been doing. So, that's, that's really it, Jay. I really, you know, we have a lot of weeks in front of us to pull out this, you know, year, but I think, we're set up for success. Thank you. Our next question comes from the line of Paul Lejuez with Citi. Please proceed with your question. Hey, thanks, guys. Curious if you can talk about the profit improvement plan, and as you go through and do all that work, are you finding opportunities on the SG&A line specifically, or is it mostly coming from cost of goods? And if you are finding ways to cut SG&A, are you also discovering places where you maybe have underinvested, which makes it tough for savings to flow through to the bottom line? And I guess, just big picture, when you're through all the profit improvements and, you know, accruing incentive comp at an appropriate rate, what do you consider the right base level of expense dollars for this business factoring? Mike, are you having phone trouble? Yes. You know, Paul, Mike's having some difficulty with his line now. We'll maybe move on to the next question, then come back. Sure. Our next question comes from the line of Jonna Kim with TD Cowen. Please proceed with your question. Thanks for taking my question. You're seeing nice growth in terms of digital penetration. Can you just remind us in terms of where the margins are on the digital versus stores and where that can go over time? Thank you so much. Sure. This is Michael. I'll take that. You know, the way we look at it, our digital margins are pretty comparable to our store margins. What I would tell you is, we've been able to start to see that nudge even higher as we've been focused on some of the delivery initiatives recently. So, as I mentioned in the prepared remarks, we've been able to drive down and reduce the cost of delivery, both in absolute dollars, in cost per shipment, in number of shipments per order, while delivering to the customers faster. And that is starting to drive incremental leverage in the direct channel. So we're certainly excited to see that, and we think there's more work and more opportunity in front of us. One of the big levers that I talked about in the remarks was the fact that, you know, in many parts of retail, in grocery and hard goods, people have been able to leverage their stores as pickup points in a pretty robust way to make a difference in their business. It's historically been a very small part of our business, but with some changes that the team made, focusing on inventory availability and some of the system changes, we were able to double that in the quarter, and we see a good runway to continue to grow that. That provides a ton of leverage for us because it actually eliminates delivery as a cost and allows us to upsell customers as they come in the store. We're currently seeing about a 10% attachment rate to those digital sales, and we think we can get that number even higher. So, so yeah. So historically, margins for e-commerce and stores are pretty comparable. We've been able to drive the e-commerce margins up in recent quarters, and, and we see opportunity as we go forward to raise those even higher. Got it. Thank you. Thank you. Thank you. Our next question comes from the line of Corey Tarlowe with Jefferies. Please proceed with your question. Great. Thanks so much for taking my question. I was wondering if you could talk a little bit about the new store design that you have, and it sounds like it's early days, but it does also seem like you're witnessing some pretty promising results from that. So could you maybe talk a little bit about what you're doing differently in this new store design? Sure. First and foremost, we've—I, you know, Mike, Michael mentioned it, we're in three malls, as he stated, Polaris, Palisades, and Oakbrook in Illinois. So, they're all semi-different formats, but it's very focused on more of a modern design, approachable design. The opening, just the entrance alone is very inviting. I was really pleased to see when I went to Palisades, to see all three brands in the mall. I mean, just our store designs really are like incredibly inviting. They're bright. We definitely needed a new concept for American Eagle. It was time. We've been working fast and furiously on this design, and we're calling it Lived In. I really like what I'm seeing. The results are definitely at this stage, you know, it's only been a few weeks now, but above, well above average. And we really feel excited about it. So, we're in the middle of some of these new strategy sessions with some of the new learnings between not only the store design, but AE77, AE 24/7, which is our men's active concept. Early reads there are very encouraging, to the point where we're launching some of the product that was tested in fewer stores to all stores. We're up to a lot over here. Also, just to add on, Soho, our store there now has all brands consolidated into it, including AE77. And we just did our first pass at a remodel there. It'll be in full swing, headed into November, but just I love what I'm seeing early on. The teams, we only set forth on this initiative about two months ago. This shows you how swiftly our teams work, and they've already put together an entire concept around the store. It looks beautiful. I'm gonna go revisit it, after this call, and I invite everyone to go see it. It's, we're calling it the Gateway. It has all of our house of brands, and it's the entrance into Soho. So I think it's just really an exciting concept, and there's more to come here. So like I said, I'm encouraged by the early reads. In some cases, Michael mentioned we reduced square footage but went into the 50-yard line, and we're seeing, we're seeing better sales in smaller square footage. So, that's always a good recipe, so more to come. And again, we're gonna start to incorporate this new design into our strategies going forward. That's great. Thanks. And then I was just wondering if you could talk a little bit about what you're seeing in denim. Thanks so much. Yeah, denim is our... Denim is everything we do. It's amazing what this AE team accomplishes. You know, just when I look at competition, our price points, our quality, our washes, our ability to chase and ebb and flow, a very complex business, as you know, size, intensity, ownership, but still, you know, allowing us to be fluid in our assortments because fashion's definitely changing in that category. We're seeing fashion mixes go, you know, higher than we've ever seen, and we're creating testing strategies so that we can ebb and flow faster than we've ever had. I just got through all the testing for spring, for next year, and we're, you know, we're really able to impact receipts. Definitely wider, you know, silhouettes, as I mentioned earlier, in both men's and women's. Men's is seeing an inflection point in fashion, and we're pretty excited about the future. You're not working. Your phone's on? So, um- Great. Thank you so much. I think we're ready to compete, and it's not just denim bottoms. It's denim as a holistic category. Really exciting things happening out there, and we're starting to show up. If you go onto our homepage right now, you'll see. We're gonna continue to drive this business home. Hey, it's Mike, and hopefully, everyone can hear me now. Let me... Sorry, sorry for those technical difficulties. Let me double back and answer. I think Adrian, Matt, and Paul had questions on SG&A and just where we are on our profit initiatives. So if you go back to our Q1 guidance, at that point, and well, first, Adrian, yes, we are incented on EBIT, not revenue. And if you go back to our Q1 guidance, we were not assuming an incentive accrual in the year at that point. With the 30% increase in our guidance range now, we are. We've crossed that threshold for accruing incentives, and based on that timing, it'll be back half weighted, which is the guide you're getting with mid-teen SG&A growth to the back half. On an annual basis then, we're talking about low double-digit SG&A, call it 10, 11%, for being projected. And with that, though, we. You know, our initiatives initially, our initiatives on the profit side are very much focused on gross margin and immediacy. We've seen some benefit in Q2. Our guidance includes some significant benefit in the back half. But we do have work streams across really every area of the P&L. So work continues. If you think about the OpEx that's up in gross margin, we actually saw a reduction to those operating expenses in the second quarter. So even with SG&A up high single in the first quarter, our OpEx was only up mid-single. If you would normalize for the baseline of incentives, we're not talking about our total OpEx for the second quarter was actually down to last year. But the back half for the—on an annual basis then, we're talking about low double-digit SG&A growth. Those operating expenses and gross margin that span design and merchandising, compensation, rent, delivery, distribution costs, those expenses are projected to be relatively flat for the year. So with the SG&A in the low double-digit range, OpEx is only up about, call it, high single. And if I would normalize year to year on that baseline of incentives, our total OpEx would be up mid-single. From there, like I said, we've got initiatives across every area of the P&L. We believe there's more annual benefit coming through those gross margin expenses. We've got work streams, as we're calling them, against 80% of our SG&A spend right now across, really all the big buckets, that make up that, those dollars. We've got a lot of positive momentum happening there, but the SG&A piece takes a little longer to get at. We've got contractual obligations. We've got RFPs out. We're bidding expense categories. We're looking at consolidating vendors for things, across services, across maintenance. We've got org design and labor model changes that we're testing into, that we look want to implement things into 2024. So there's a lot of work, positive work happening across our teams right now. We'll have more updates in November and the end of the year on the progress on the SG&A front, but we're really pleased with all the OpEx progress we've made down through gross margin at this point. That's coming through our results. If you look at the gross margin guidance that we're implying for the year. If other than 2021, it would be the highest back to, like, 2012 or even 2008, 2009 periods. So we're seeing a lot of benefits come through there with more to come through SG&A. We'll provide more updates on coming calls. Thank you. Our next question comes from the line of Janet Joseph Kloppenburg with JJK Research Associates. Please proceed with your question. Hi, hi, everybody, and congratulations on the progress. Mike, you just gave out a lot of different numbers on SG&A, including incentive comp and all of that. I guess what I'd like to understand is, you know, like the SG&A outlook for the second half is different than we all expected and versus your prior guidance. So what I'd like to understand is, as we look into fiscal 2024, should we expect that on a total basis, there's opportunity for meaningful SG&A reduction, or is the incentive comp going to continue to push the SG&A levels higher, or other factors like Aerie's store rollout? I'd like you to flesh that out a little bit for us. Jen, I think your guidance assumes that comps decelerate from current trends. So perhaps you could talk about what's driving that. Maybe clearance levels would be lower year-over-year, or other factors that are influencing the third quarter outlook versus current trends. Thank you so much. Hi, Jan. Let me just simplify. I know I said a lot earlier, but so with SG&A, guidance being up low double digits for the year, let's just focus on this year, to your point. Uh-huh. About 40% of the dollar growth is related to incentives against no accrual last year. The expectations for next year would be that we're really kind of looking at a baseline accrual this year, and that we would look to probably anniversary something similar next year. So it wouldn't be any additional pressure on 2024 based on what we know today. From here, we are looking at progress and outline and have a roadmap in place where we believe we can provide some significant leverage next year, knowing that we wouldn't have that headwind or that sort of apples to oranges compare for incentives. Again, 80% of our SG&A is kind of under a microscope right now, with a lot of work happening cross-functionally between our finance teams, supply chain, IT, merchandising, and planning. We've got a lot of great momentum happening across our entire expense base. We're seeing some benefits in our new guidance this year, but we expect even more on an annual basis, so between next year and the... and even into 2025. So more, more to come, but we would expect OpEx leverage off of all this work and leveraging even incentives, at this point next year. Thank you, Mike. Jen? And Janet. Yeah, and Aerie, I'll start with Aerie. You know, I mentioned that we're really encouraged, actually in both brands, just by the early reads for back to school. Aerie was really just, you know, our ability to double down coming off of swim, you know, with all the work we've done around intimates and, just our fleece and OFFLINE categories, Janet, it's incredible what we're seeing. So, and like I said, the halo effect of going up against these non-comp stores and going comp and, and just our customer acquisition is healthy. Our total file is, definitely up. We've seen, you know, incredible acquisition, again, in both brands. AE really has seen some incredible growth in customer acquisition, so they like what they're seeing. So that's encouraging. Basically, it's intimates and, you know, what Aerie stands for. Honestly, it's firing on all cylinders right now, so I can't say it's one business over the other. Some are definitely stronger than others. We saw wear-now categories still trending as we headed into August, and we own them. So, we were, you know, we were there for the customer. And then AE, early on in Q1, we saw nice reads in tops, and we were able to chase, and we continued to chase women's consecutively. Sorry, got better consecutively, quarter-over-quarter. And then as we launched back to school again, the stars were aligned there. We were able to remix a little bit more into women's versus men's, and really reposition men's, focused on back, on the holiday for men's and really gearing up women's for back to school, and it's starting to pay off. So I like the early trends. We still have, you know, several weeks ahead of us, so we're gonna proceed fast, but honestly, with a lot of intelligence, profit-minded. We don't wanna give up everything we've earned over the past few years of working towards these incredible margins that we're delivering. And so, we're ready to go. I hope it continues, we like what we're seeing, though. But does your guidance assume that it will continue, or is there some moderation? Mike can answer that for you. Okay, thank you, Jen. Okay. Thank you. Hi, Mike. For revenue guidance, Janet? Yeah. Doesn't it? I'm not sure it embeds the current trend. I get why you might not wanna do that, but I'm just wondering, you know, if you could talk us through it. No, I thought you—you're exactly right. It's a little more cautious than the. We've got about 50%, about half the quarter in from a revenue perspective, 7.5 weeks to go, and it does have a little more of a cautious side of the current quarter to date trends, yes. Thank you. Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Our next question comes from the line of Chris Nardone with Bank of America. Please proceed with your question. Thanks, guys. Good afternoon. Just have a couple questions on the gross margin. Can you confirm if there is any more freight recapture left in your guidance this year? And can you also help quantify the benefit you expect to receive from lower cotton costs? Then as a follow-up, I think you identified $25 million of identified savings so far. Is that only isolating the changes you made to the end-of-season markdown process, or is there more embedded in that $25 million dollar number? Thank you. Hey, Chris. Yes, no, I think we've pretty much anniversaried the majority of the freight headwinds that we had through the first half of last year. Your answer on cotton, we do see line of sight to not only continued IMU benefit this year, but we've already have plans laid out for majority of first half of next year, and we continue to see markup gains in our future plans, including, I think, just the benefit from cotton or any other commodity pricing. So our team is doing a great job there. We see kinda tailwinds on product costs into the beginning of 2024 at this point. The $25 million, just maybe add a little more color there. That, that's really a net number. We're actually seeing, you know, with the incentive accrual, there's actually more benefit we're getting through, not just the kinda clearance end-of-season sell-off process, but other operating expenses. Michael hit on a bunch of them, delivery, warehousing costs, some headway in store payroll, and a lot more to come. But so there is more benefit embedded in the guidance, and really, that the you know, the impact of incentives is offsetting that a little bit. Got it. Thank you. Thank you. Our next question comes from the line of Alex Straton with Morgan Stanley. Please proceed with your question. Great. Thanks so much for taking the question. Really, two from me. One, just on the gross margin in the quarter, did you guys quantify how much of the outperformance you would attribute to the cost savings initiative? And then I just wanted to make sure I understood, were there just one or two of the things you had identified that flowed through this quarter, and then there's still more to come there in the back half? Just trying to understand all the moving pieces there because it sounds like a lot of different initiatives. And then just secondly, on the full year guide, I wanted to just dig into the components of the raise and how you're kinda thinking about Aerie versus AE, growth in the back half. Thanks so much. Yeah, so the gross margin in the second quarter, we had benefits both from the acceleration or across a bunch of different fronts. The acceleration in the business really it started in June through the back through July, like we've described. Then we did have cost savings initiatives. The change to our deck clearance, sell-off of the end-of-season goods, had a benefit in the second quarter. It'll have an annual benefit beyond what we were able to book in the second quarter or capture in the second quarter. And you know, we obviously did. We captured the freight headwinds from last year, as well as the impact of selling off you know, extraordinary amount of units or not higher than historical amount of units last year in the second quarter. On the, in the full year guide then, we do have continued growth, really, the gross margin benefits that we're rolling through this forecast, continued its benefits through, you know, the delivery savings we're seeing with a wider network, including the capabilities we have with Quiet warehousing costs alongside that, so compensation as well as other DC-related costs, and benefits through just gross margin in general from, you know, continued benefits to markups and controlling markdowns with, very healthy inventory levels. So the guide really reflects, a low single-digit revenue trend. Aerie still at this accelerated pace. I think it's probably a low double-digit trend, AE, flat to positive, with the gross margin benefits that we've been able to see through the second quarter continuing through the back half of this year. Thanks a lot. Thank you. Our next question comes from the line of Marni Shapiro with Retail Tracker. Please proceed with your question. Hey, everybody. Congratulations on all the improvements. The stores look great. Jen, I just wanted to dig in on two quick things. The fashion in the stores, particularly on the women's side, seems to be moving at a very quick pace, like a few days on hand, it seems. It's turning very quickly. So I'm curious if you could just talk a little bit about the balance of the fashion, your ability to... how quickly you will be able to chase back in, and do you feel well set for holiday in that balance? And then just on the expense line, I'm assuming, you know, the Ziegler sisters and everything that you guys are doing to capture attention, I'm assuming all of that is embedded in the marketing costs and the forward guidance on SG&A. Is that correct? I can answer that. Yeah. That is correct. Yes. Yes. Okay. And just, you know, as I think about just the pace of the, I mean, the turns, right? It's just amazing how women's is turning. And it should- Mm-hmm. -turn fast. Mm-hmm. We're up to getting at tops, and tops turn a lot faster than bottoms. Mm-hmm. And there's been some channel shifts. The new direct, the direct business and this team, what they're able to, we're really seeing a dramatic improvement on that channel. And, you know, we're up to making sure that we can maximize that channel and moving our best stores fast and getting back into goods. The team's been at it every day, Marni. Every day, we have new learnings. There's not a day that goes by that we're not chasing. We definitely beat plan early on, as I mentioned early on, at the, you know, at the end of June- Mm-hmm. When we were starting getting, you know, getting in new receipts, and so we've been chasing that. We exceeded plan, and now we're up to getting back on what we think is our new plan and making sure that we can deliver this number. Do you feel the fashion is balanced, though, for holiday, or is that less of a- I do. Okay, fantastic. I do. I'll take the rest later. I feel good about that. In men's, too, Marni, you know- Yeah ... we had to reset in men's. I just saw the holiday delivery, and it feels way more balanced. We have outerwear. We have categories that we hadn't been in business in. So we're pretty excited about the offerings that are coming. That's exciting. Thanks so much, guys. Thank you. Thank you. Thank you. There are no further questions at this time, and I would like to turn the floor back over to Mr. Jay Schottenstein for closing comments. I thank you. Our brands are strong, and we remain focused on unlocking additional growth and profit moving forward. Thank you for joining the call, and I look forward to updating you on our progress next quarter. Thank you.