AEO Q3 Deep Dive: Aerie and Marketing Investments Drive Revenue Growth, Margin Pressures Persist

Barchart·12/03/2025 04:40:18

Young adult apparel retailer American Eagle Outfitters (NYSE:AEO) reported Q3 CY2025 results topping the market’s revenue expectations, with sales up 5.7% year on year to $1.36 billion. Its GAAP profit of $0.53 per share was 24% above analysts’ consensus estimates.

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StockStory’s Take

American Eagle’s third quarter was marked by a positive market reaction, as revenue and profit both exceeded Wall Street expectations. Management attributed the acceleration to strong demand across the Aerie and Offline brands, as well as effective merchandising and marketing initiatives. CEO Jay Schottenstein highlighted that recent investments in advertising, particularly high-profile campaigns and collaborations, have led to higher customer engagement and an increase in loyalty program membership. The company also noted operational improvements and cost discipline as key contributors to the quarter’s results, even as tariffs created headwinds for margins.

Looking ahead, management expects momentum to continue, driven by further growth in Aerie and Offline, expanded marketing efforts, and new product launches. CFO Mike Mathias stated that advertising spend will remain elevated, aiming for a 5% rate of sales, as the company seeks to sustain top-line growth and brand awareness. Management acknowledged ongoing tariff pressures and indicated that cost control measures and selective price adjustments will be used to manage profitability. President Jen Foyle emphasized the importance of customer retention and acquisition strategies, supported by continued innovation in product and marketing.

Key Insights from Management’s Remarks

Management cited robust demand for Aerie and Offline, successful marketing campaigns, and strategic investments as primary drivers of the quarter’s performance and raised guidance.

• Aerie and Offline momentum: The Aerie and Offline brands saw accelerated demand, with Aerie posting double-digit comparable sales growth and broad-based category strength, especially in intimates, sleep, and activewear. Management believes these brands remain underpenetrated, with significant growth runway ahead.
• Impactful marketing campaigns: High-profile collaborations, including partnerships with Sydney Sweeney and Travis Kelce, delivered substantial brand visibility and drove customer traffic, particularly within digital channels. Management noted more than 44 billion impressions and a one-million increase in loyalty membership in recent months.
• Inventory and product improvements: The company responded to strong demand by enhancing in-stock positions for core categories such as denim, which experienced supply constraints earlier in the year. This allowed for better sales capture, especially in women’s jeans, and supported a positive holiday kickoff.
• Cost discipline amid tariff headwinds: Even as tariffs provided a $20 million drag on profitability, management offset these impacts through freight savings, operational efficiencies, and careful cost management. Gross margin was only modestly affected, and SG&A leverage improved due to strong sales.
• Store network optimization: American Eagle continued to invest in new Aerie and Offline locations while closing underperforming AE stores. Store remodels, particularly in flagship and high-traffic locations, were highlighted as drivers of improved customer experience and above-average sales performance.

Drivers of Future Performance

Management expects continued growth to be fueled by Aerie and Offline expansion, sustained marketing investment, and operational efficiency, while monitoring tariff and promotional pressures on margins.

• Elevated marketing and brand investment: The company plans to maintain advertising spend at approximately 5% of sales to further boost brand awareness and customer acquisition, with new campaigns and influencer partnerships set for the coming quarters.
• Tariff and cost headwinds: Ongoing tariffs are expected to remain a drag on gross margin, with a projected $25–$30 million impact per quarter in the first half of next year. Management does not plan broad-based price increases but will use targeted price adjustments and cost savings to offset these pressures.
• Store fleet and digital growth: Expansion of Aerie and Offline locations is set to continue, with approximately 40 to 50 new stores planned. Digital channels are projected to outpace physical stores in growth, supported by marketing-driven traffic and enhanced customer engagement strategies.

Catalysts in Upcoming Quarters

In upcoming quarters, the StockStory team will focus on (1) the pace of new customer acquisition and retention, especially at Aerie and Offline, (2) the ability to manage tariff-related margin pressures through operational efficiencies and selective pricing, and (3) the impact of ongoing marketing investments on digital and brick-and-mortar traffic. Progress on store remodels and the rollout of new product categories will also be important markers of execution.

American Eagle currently trades at $22.87, up from $20.92 just before the earnings. Is there an opportunity in the stock?See for yourself in our full research report (it’s free for active Edge members).

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