Greetings, and welcome to American Eagle Outfitters First Quarter 2018 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Judy Meehan, Vice President of Investor Relations for American Eagle Outfitters. Thank you. You may begin.

Good morning, everyone. Joining me today for our prepared remarks are Jay Schottenstein, Chief Executive Officer; Chad Kessler, Global Brand President of the AE Brand; Jen Foyle, Global Brand President of Aerie; and Bob Madore, Chief Financial Officer. Before we begin today's call, I need to remind you that we will make certain forward-looking statements. These statements are based upon information that represents the company's current expectations or beliefs. The results actually realized may differ materially based on risk factors included in our SEC filings. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Also, please note that during this call and in the accompanied 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 to the company's website at www.ae.com in the Investor Relations section. Here you can also find the first quarter investor presentation. Consistent with the retail calendar and the 53rd week last year, the first quarter's financial report and discussion today reflects the quarter ended May 5, 2018, compared to the quarter ended April 29, 2017. Comparable sales are shifted to reflect the comparable period of the quarter ended May 5, 2018, against May 5, 2017. And now I will turn the call over to Jay.

Okay, thanks. Thanks, Judy. Yes, good morning, everyone. Thanks for joining us today. I'm extremely pleased to see our momentum from the back half of fiscal 2017 carry into 2018. Comparable sales increased 9% in the first quarter driven by our strategic initiatives and ability to gain market share through strong brands and compelling merchandise. This quarter marked the 13th consecutive quarter of positive comps, a real milestone for AEO Inc. We achieved gross margin expansion, leverage expenses and drove a higher operating margin, resulting in adjusted earnings per share growth of 44%. I'm incredibly proud of our wins and progress over the past 4 years. During a period of significant industry turmoil and transformation, we have successfully grown market share, built strong brand equity and have launched an incredibly exciting new growth vehicle in Aerie. Now a few quarter highlights. We saw broad-based strength across brands, channels and geographic regions. AE achieved a 4% comp increase, and Aerie delivered a 38% comp, truly outstanding performances. All regions in the U.S. and our global markets, including Canada, Mexico and Asia, were positive in the first quarter. It was very encouraging to see our brick-and-mortar store comp increase in both AE and Aerie stores. We drove improved conversion and outpaced mall traffic. The team's increased focus on elevating the customer experience are driving key sales metrics and having a positive impact on our business. We saw exceptional growth in our digital business with sales rising 20%, marking our 13th straight quarter of double-digit increase. Ongoing investment in technology and omni capabilities are delivering strong returns. The digital business now stands at 29% of our business, 300 basis points above last year. On the last conference call, we introduced key strategies to drive long-term growth and value for AEO. Those growth vehicles…

Thanks, Jay. Good morning, everyone. As Jay indicated, driving growth to the American Eagle brand is a key pillar of our strategic plan. I'm pleased to say we delivered on that pillar once again in this quarter. We posted a 4% comp increase and a higher gross margin. American Eagle continues to attract customers with our strong brand positions and compelling merchandise. We saw broad-based strengths across regions, and it was great to see AE stores comp positively for the second consecutive quarter. Our stores outpaced mall traffic and delivered a positive 3% comp. The digital channel was also strong and double-digit increases continue. I'm thrilled with the ongoing strong performance of our jeans and pants categories. With the power of these core businesses, each season, we widen our competitive moat and set the AE brand apart. During this particularly cool spring, the strength in jeans and bottoms made up for a softer demand in seasonal goods such as shorts and bare knits. As weather improved since the latter part of April, we've seen a meaningful pick up in seasonal spring categories, and I'm pleased with the overall performance of our spring and summer collections. In the first quarter, we delivered healthy sales comps across genders, with women's up 3% and men's rising 7%. Our women's creative teams continue to develop assortments that inspire our customers. An area of opportunity is women's accessories. Similar to men's tops a year ago, I believe we are at an inflection point. With new talent and new product strategies, we are seeing improvement and are focused on rebuilding accessories into the growth category. In men's, we have made great progress. Bottoms remain strong, tops are back on track. And I believe there's significant opportunity ahead for growth and profit improvement. Work on our third…

Thanks, Chad, and good morning, everyone. Well, this is another outstanding quarter for Aerie. We registered a first quarter comparable sales gain of 38%, our highest growth rate yet, and the 38% built on a 25% increase last year. This marked our 14th consecutive quarter of double-digit sales growth, and Aerie is simply on fire. We are so excited, and I remain, and the team, highly focused on fueling ongoing momentum. During the first quarter, I was very pleased to see consistent performance and broad-based strengths across all 4 formats. In fact, this was the second quarter in a row in which both stand-alone and side-by-side store formats posted over 20% comp growth. Aerie's online business is simply spectacular, producing a nearly 50% sales gain in the quarter. All areas of the business are growing. We posted record sales volume in a number of categories, including core bras, undies, apparel and swim in the first quarter. Performance was led by continued newness across all categories and the team's focus on building outfitting and all around the Aerie lifestyle. Our customers appreciate the collection's foundation of cozy, casual, comfortable and active, while also focusing on body positivity and inclusion. We build merchandise assortments for a diverse body type. This is at the very core of our DNA and really loved by our customers. Our brand awareness continues to expand with more impressions and social media followers, #AerieREAL is a very powerful and a movement, and we are reaching new customers every day. Our role models including Yara Shahidi, Aly Raisman and Iskra Lawrence are highly relevant and brand ambassadors. They have been actively supporting Aerie through our campaigns grassroot events such as our in-store Aerie Real Talks. In the first quarter, once again, we registered double-digit increase in our customer file.…

Thanks, Jen, and good morning, everyone. We continue to make excellent progress across our business in the first quarter, building on the momentum we saw in the latter half of last year. Despite cold weather, we saw broad-based sales gains across brands, channels and geographic regions in the quarter. In addition to consistent top line gains, we posted higher margins, achieve expense leverage, grew adjusted operating income by 23% and delivered adjusted EPS growth of the 44%. Our comments will focus on the adjusted first quarter financials, which exclude certain items as detailed in the press release and tables on Pages 4 through 7 of the investor presentation. Total revenue increased $61 million, rising 8% to $823 million from $762 million last year. As a reminder, last year's total net revenue included a one-time benefit of approximately $5 million received from the termination of a license agreement with a third-party operator. Comparable sales, which are based on the shifted retail calendar, increased 9% compared to the same period last year. Additional sales information can be found on Page 9 of the investor presentation. By brand, first quarter, American Eagle comps were up 4%, and Aerie comps increased 38%. I'm pleased to note that brick-and-mortar stores for both brands posted positive comps this quarter, continuing the trend from the fourth quarter. On a consolidated basis, stores increased in the mid-single digits with positive comps across all geographic regions in the U.S. as well as our company-owned international markets, Greater China, Canada and Mexico. Regional sales growth 20%, reaching 29% of total revenue, up 300 basis points from 26% last year. We saw the biggest increases coming from our app in mobile channels with combined -- which combined now represents approximately half of our digital business. Regarding our quality of sales metrics,…

[Operator Instructions] Our first question comes from the line of Brian Tunic with RBC Capital Markets.

This is Kate on for Brian. I guess my first question would be on Aerie. Did any one category lead the way? And just if I could dig a little bit deeper into this swim business and the size of that today and what its growth rate was here in Q1. And then, also, what do you see on margin basis in that brand relative to AE?

It's Jen. And really, as I mentioned in the script or the opening remarks, our every business is really on track and leading the way, I mean. We have so much growth opportunity in all of our categories, including apparel, which is our CHILL. PLAY. MOVE. category. Leggings and sweats, everything is just really outperforming, including swim. It was a tough business seasonally, but I will say swim still really performed for the business. So that said, I mean -- I always say this, but we're only in 15 states. So the majority of our customers haven't even seen what we have to offer in this brand, and we really need to get our brand out there and really show these customers and show the world what we have to offer in all these categories. We're a lifestyle brand and we're proud of that with always bras being at the core of what we do. And from a margin perspective, Aerie's accretive to the company. We had amazing flow-through this year, and we continue to have continued leverage on our expenses and our flow-through we plan on just continuing maximizing as years go on. We've only just begun. We're going to get this brand to $1 billion and we're going to continue to leverage.

Yes, and just to clarify that a little more. On a -- the margin comparison between the 2 brands, they're very comparable. So in addition to what Jen said as far as Aerie continuing to drive positive flow-through, the gross margin rates between the brands are very similar.

But we -- and also to add Bob is what Jen said, it takes a few years to, like, build a certain base like in the volume, and when we did a comparison between Aerie and its current volume and where American Eagle was years ago -- its current volume, it's amazing how, like, similar they are as far as all their metrics. So from my standpoint, we're just in the early stages of Aerie. I'm very proud of the Aerie team. I think Jen and her team has done an excellent job. I mean, this is a real dedicated team. They have all the excitement. They live the life. They believe in the message. And this is a real boom that's going on.

Our next question comes from the line of Oliver Chen with Cohen and Company.

What are your thoughts about the AE Connected program and the opportunities to continue to leverage that and use a lot of that information to continue to engage the customer as well as thinking about managing promotions in a brand accretive way? And just related to that is digital margins on a long-term basis. What are your thoughts on what can happen there as your penetration rate is really impressive and will likely continue to rise?

Data is very, very important to everybody. We have over 20 million members. We take it very seriously. We have data analytics scientists with us, we end up hiring. We have a whole department. We study the analytics day in, day out. And we're figuring out what our customer really likes, how it speak to them, what channels speak to them through and it's a continuing challenge. I mean, at the end of the day, the groups that have the best data wins, and we understand that. And we made a major commitment to whether it be on our digital sites. We're collecting all the data and figuring out what our customer wants and how can we give it -- how can we give them things they want and make our brand more, like, important in their lives.

And on your question, Oliver, on the digital business. Our digital business has been experiencing unbelievable growth. We had 13 consecutive quarters of double-digit sales growth. Our business -- our digital business is very profitable. We continue to improve the operating margins in that business. And I will tell you different than many vertical retailers, our digital business operating margin is accretive to total companies.

Our next question comes from the line of Susan Anderson with FBR Capital Markets.

Just a quick question on the gross margin front. Good performance there despite the weather. You feel like you could have pulled back maybe a bit more in promotions if it was wasn't for the weather? And then, also, what are your expectations for promotions in the second quarter? And then I know you talked about a little bit better gross margin, but how should we think about that magnitude?

I think when we look at just the promotional environment and the weather impact, it is our goal every quarter, every week, every month, to drive market share gains while containing promotions and driving this business as profitably as we can. I think the real -- a huge win for us is the strength of our jeans business and long bottoms in Q1. With a cooler weather we were able to drive strong results in the AE brand even with the cooler weather. And I think we contained our promotions well. And our goal as we go forward in Q2 is to continue to try to contain promotions and leverage markdown expenses year-over-year.

Great, that's helpful. And one last follow-up, if I could. On Aerie, really nice comps there, and it sounds like all the new products are performing well. Just curious, how has intimate side of things been? I know that's been somewhat of a pressure point with some other retailers out there, so maybe if you can give some color on that?

Yes. Intimates has been holding its own as well. We definitely -- we're repositioning bras, and there's more to come in Q3 and Q4, and we are feel really excited about what we're about to present down the road as far as the product and the innovation. But we're seeing some nice build and momentum in core bras and undies have been simply doing great, so -- particularly in our synthetic side of the business. But no, we're pleased with that side of the business as well, and we continually want to dress her from head-to-toe, which is why we have also gone after the apparel side of the business.

Our next question comes from the line of Kimberly Greenberger with Morgan Stanley.

I wanted to check on if you could just -- and I may have missed it because I hopped on the call a little late. If you could give any more color on your e-commerce growth rate here in the first quarter? And did you comment specifically on the spread between comp and total sales if there was a contribution here in the first quarter from the fiscal shift in the calendar? Just understanding that would be helpful in how we should think about the cadence back through the year?

Yes. So -- this is Bob, Kimberly, very good questions. Regarding our e-commerce growth, you may have missed it. We had 20% comp in our digital business. Our digital business represents 29% of total company's revenues. Regarding the comp shift or the difference between total revenues and comps, we had total revenue increase of 8%. Comp -- total comp performance of plus 9%, so a 1 point spread. That 1 point spread was really driven by -- partially by a shift, which was mainly offset by not comping the $5 million termination payment with a licensee operator. So it had very minimal impact on the quarter, total revenue versus comp revenue.

And then just how should we think about the shift in the calendar in the second quarter, third quarter? And what are you thinking about the spread between comp and total sales for fourth quarter given loss for that extra week?

Yes, regarding the shift related to the 53rd week, we do drop a lower volume week in the beginning of the quarter and pick up a higher volume back-to-school week in the beginning of August, which will drive approximately a 5-point spread between total revenues and comps.

Our next question comes from the line of Anna Andreeva with Oppenheimer & Co.

Two questions. First, on SG&A, I think up 8 in dollar terms, a little bit higher than low to mid-single digit guidance. What drove that? And how should we think about the 2Q growth and maybe expectation for the full '18? And then secondly, to Jen and to Chad, maybe remind us what you guys see as the biggest opportunities for back-to-school at both brands?

Yes. Good questions, Anna. Regarding SG&A. Our SG&A expense was up $50 million in the quarter. Half of that was driven by stores payroll. Combination of 2 things: higher comps in brick-and-mortar retail than the prior year and wage rate increases. And then there were some other minor increases. But the biggest second piece contributing to that was higher incentives than Q1 of last year.

For back-to-school, I'm not going to go into detail about the collection, but I will tell you that we would be focused on driving the jeans business in back to school. It's our leading category. It's the leading time of year to sell jeans. We're going to make sure we have every relevant fit, a fit for everybody. We're going to continue to lead the industry with innovation, quality and value. And we're going to have a marketing campaign focused -- highly focused on selling more jeans in back-to-school.

And for Aerie, it's really more of the same. We're going to continue to grow our lifestyle portion of the business, while focusing, of course, on intimates. But the marketing campaign really, I think, is going to be outstanding. Our team has already shown me some previews, and the blood, sweat and tears that have gone into this campaign for back-to-school, I think we're all going to be really proud. So I'm really excited of -- for what's to come.

Our next question comes from the line of Janine Stichter with Jefferies.

A question for Jay. You mentioned the first quarter being the 13th consecutive quarter of positive comps, and that being a milestone for the company. Could you just elaborate a little bit on why you view this as a key point in the company's history? And then how you feel about the level of go-forward stability and just visibility in the business versus other periods in the company's history? And then just I'd like from Chad a little more color on men's. Sounds like bottoms is driving the business. The tops are improving as well. Can you give some more details in performance by category, and then where you see the biggest opportunities?

Okay. Well, first of all, it's 13 straight quarters, which is great. Our goal is to be 14 very shortly. But at this time, I see as much opportunity as I've ever seen in this company. I think we have great focus. I think Aerie is ready to explode. I mean, we're at a point right now that we see the more stores we open, the more volume we do, it becomes much more a creative bite to the earnings. So it's to everyone's interest to open more Aerie stores. We have a -- Jen has a great enthusiasm. She has a great love for the brand. It transcends through her entire organization. They're focused. They have excitement that we see as a big opportunity. American Eagle, we are very excited as far as Eagle itself. We see our bottoms business getting bigger and stronger. It's interesting, when you look at our denim business, when you look at all the stores that sell denim, we're the second-biggest seller of denim in the country, which is amazing because there's other stores that sell 7, 8 brands, and there's some big chains out there, whether it be Walmart, which is maybe #1 for selling denim itself, but we're #2. Levi's is the #1 brand, but they're in thousands of stores, different retailers. And we're the #2 brand in the United States for selling denim. I really believe that we have a great opportunity. I think we have a great team working with denim. I think we're bringing new innovative fabrics there. We know what the customer wants. We're getting great response. And I really believe in the next few years, we could be the #1 brand in the United States of selling denim and be the #1 name for denim. It wasn't that long ago that I didn't have an American Eagle brand. I sold other brands. And in a short period, we went from doing 0 brand 20-something years ago, to today being the #2 brand in the country. We're not satisfied being the #2 brand. Our goal is to be -- we see the opportunity for growth to be the #1 brand in the United States. And that's our goal, and we're committed to be #1.

Definitely. In terms of Men's, bottoms was very strong in the quarter. We saw positive growth in both bottoms and in tops in Men's. Not going to go into the categories within each of those, but both are growing. And tops, I think, is -- bottoms just continues to build the momentum, like Jay just spoke to. And the tops presents as well with recovery with the second quarter of positive comps. So looking forward to back-to-school and the rest of summer.

Our next question comes from the line of Janet Kloppenburg with JJK research.

I wondered if you could talk a little bit about the promotional environment in the quarter. And if you had to react to that? And also a little bit, maybe more for Chad then Jen, on the seasonal inventories, you've mentioned some softness in shorts and some of the summer categories. So I was just wondering if the inventories are aligned and positioned the way you'd like them to be? And just lastly, for both of you, with the momentum in the business and a similar comparison, is there any real reason why comps should be -- should slow down? Just wondering, if you guided to mid-single. You did 9%. It sounds like the momentum is just terrific.

Janet, we're very positive on the business and very happy with how we came out of Q1. In terms of the promotional environment, it has continued to be very promotional out there. But our lease lines, our promotions, especially over the key Easter time period, we were less promotional in our channels than we were last year, and we're very happy with the results. And we continue to be focused on driving sales comp and margin expansion and containing promotions where we can. In terms of the seasonal categories, I did mention that they turned on a little bit later this year based on the cooler weather. But they have accelerated really nicely as the weather's warmed up, and we are not concerned about inventory in those seasonal categories coming through Q2.

And as we progress through the remainder of the year, you'll see -- and relative to the inventory guide that I gave for next quarter, inventory levels will be much more in line as we start comping some of the jeans and long bottom investment that we started last year in Q2 and further out in Q3 and 4.

Our next question comes from the line of Laura Champine with Loop Capital.

The first one's just quick housekeeping. I think Chad mentioned that brick-and-mortar American Eagle comped up 3%. And I'm wondering if traffic was positive there. But my more significant question is on the Aerie brand, which is showing phenomenal growth. Growth at this rate can create some scale challenges. So I'd love to hear from Jen sort of how they're addressing the challenges of such a rapid growth rate in terms of supply chain, in terms of store-level labor, just what are they doing to support a continuation of the phenomenal growth you've had?

Yes, we did say that AE stores were up 3%. Our traffic was slightly negative, but it was better than the traffic in the mall. And the stores team did a fantastic job converting and leveraging the traffic we got to drive that positive comp.

Also, the question about the supply, the beauty about Aerie is that Aerie has the support of the American Eagle Inc.'s sourcing division. So we source a few billion dollars of product a year. So as far as growing the Aerie business, we -- it's already established the...

Yes. And we plan -- we staged this business, we plan this strategically. So when it comes to supply, support, store growth, everything, we've been planning this. So we've been certainly staging the people that we need to support this incredible growth, and we've been well ahead of the curve here. So again, this is -- it's in our strategic plan for the company. So we're certainly ahead of the curve here.

The teams has done a phenomenal job for the growth that we've seen. Our issue now is making sure that we can get enough new store locations to continue and accelerate this growth. As Jen's pointed out in the past, we only really have any real brick-and-mortar retail presence in approximately 15 states. We see a huge halo effect anywhere we open a brick-and-mortar store to our digital business. So any of this whitespace that exists for us is really going to be -- represent significant incremental growth to the business, and we're looking to accelerate that.

Our next question comes from the line of Dana Telsey with Telsey Advisor Group.

As you think about wages and wage pressures that are out there, how does this compare in the store versus what do you see in the distribution center, too? And how you're planning it going forward?

Yes. We obviously have experienced some wage increase really over the course of the last year, a little more than that. We've managed that through leveraging some of our technology and tools. We have a great workforce management tool, really allows us to focus on things like customer to associate coverage ratios. We're really managing our task work outside of those power hours and really trying to eliminate some of the task work that we do or have historically done out in the field to help minimize the -- some of the impact that we've seen on wages. And yes, we've seen, Dana, wage increases, not only in the stores but also in distribution centers as we see more and more competition in some of the areas where we do have our distribution centers. But again, we've been -- we've really been combating that with efficiencies through automation and technology in our distribution centers in addition to our stores that I've mentioned.

Our next question comes from the line of Simeon Siegel with Nomura Instinet.

This is Julie Kim on for Simeon. Just given the continued strength in e-com and the resulting increase in shipping costs pressuring gross margin, what are some of the things you can do in terms of trying to reduce the shipping costs and getting some leverage there? And separately, can you touch on the accessory opportunity you mentioned? What trends on you saw on the quarter? And any improvement you saw there?

Sure. So there are a few levers to shipping expense. One of the bigger ones is, we've made some significant improvements in reducing our shipments per order. We just had a positive impact on overall cost, and we're constantly looking at delivery providers and tweaking our delivery model to combat some of the price increases that we've seen. The -- I'll be honest there, our team's done a phenomenal job managing it through those different levers. We are not just victims of price increases. There's things we can do in how we manage the business to drive more efficiencies and actually, combat some of the pricing increases that we've seen.

And in accessories, I don't want to get into details by category, but we are seeing -- we have new product strategies. We have some new visual merchandising strategies, and we are starting to see green shoots in that business and starting to see it -- recover and come back. So I compared it to men's tops because last year, at this time, I told the group that we were starting to see that improvement in men's tops and expected it to continue throughout the year, which we saw. And I feel the same way about women's accessories. We have opportunity to see that improvement throughout the year and hopefully, see that add to the total business.

Our next question comes from the line of Marni Shapiro with The Retail Tracker.

I was curious, you talked, I think, Chad, you said after the fourth quarter that you're going to continue to go after market share. But yet, you've pulled back on promotions. So I guess, how should we think about the back half of the year, both at Aerie and at Eagle, as you balance a healthier environment, not less competitive, but a healthier environment for momentum and yet, the goals continue to really drive market share. Just you had a fairly lengthy conversation after fourth quarter about that.

Yes. I think it continues to be our goal. Look, we try to drive market share gains and sales growth as well as margins in every quarter. I think my comments after fourth quarter is that fourth quarter's a bit unique in terms of the extreme promotions and the slightly different group of customers that are shopping for gifts than our day-in, day-out customers. But our goal is to continue to grow share, to grow positive comps but to do that in a healthy way. There does seem to be some more strength in retail today. But I think we're really leading that strength with our brands and with our product. And so as we're doing that, and as stores are performing well, and the web continuous to perform, we'll look to be -- to contain promotions where we can.

And we're still marketing, basically promotions. We are spending marketing dollars.

Going to be one of my questions actually. Are you -- on the marketing side, are you looking at influencers, some things like that, that are relevant to your customer to help kind of drive more of this market share?

It's part of the mix We have a great marketing department. That's part of our secret sauce.

Our next question comes from the line of Adrianne Yih with Wolfe Research.

So a couple of questions. So Chad, I wanted to know if you can talk about, number one, the evolution of this fashion shift and kind of the uptake of sort of more of a mass adoption at this point? And how it specifically impacts the tops? If you already have that bottom positioning, how you can kind of generate the tops turn there into velocity? And then, Jen, so with Victoria Secret exiting about $300 million a couple of years ago of the swim business, Pink is now exiting a $90 million roughly swim business, do you think you could have an all-year-round kind of swim offering through the direct channel?

Yes. We are seeing a shift in bottom silhouettes, but it's always our goal to drive -- to have the fit for everybody. So we have customers that are at the forefront of fit. And we have customers that have their favorite fits that they want to stick with. We are seeing, though, as bottom silhouettes evolve, we are seeing it impact tops. And we're able to -- we anticipate that. We're always trying to design the tops and carry the tops assortment to go with the jeans. But as we see that shift in the tops happening, we're able to impact the tops assortment within, from as short as 30 days to maybe 60 days. And we did that within Q1. We had some key learnings in the beginning of February, and we're able to impact new assortments coming in by the end of the quarter. So our tops team is very agile, and we will always make sure that we have the most relevant tops.

And for sure, we definitely see an all-year-round swim business for Aerie. As I mentioned prior -- or on earlier calls, we're still only in 15 states as well. So not only on the direct channel, but as we penetrate some of the southern belt tier in the business, I definitely see a year-round business in swim. And Marni, I didn't get a chance to answer your question prior. But it's a good excuse for me to talk about the power of this platform, #AerieREAL. And I just want to say, we started it years ago, and it's nice to see competition following, but it keeps us ahead of our game. This platform, #AerieREAL, is just so powerful for the brand. And like I said, it keeps us in the forefront, and we're going to continue to surprise these customers with realness and product categories that service her.

Our final question this morning comes from the line of Rebecca Duval with BlueFin Research.

Just a couple of quick questions. One, are you guys -- obviously, denim being such a high penetration of the assortment, are you starting to feel any pressures of some of the rising cotton prices? Or how should we be thinking about that if there's ways to kind of combat that for you guys? And then secondly, another question on tops for you, Chad. How do you feel about the current kind of depth of some of your bestsellers or the SKU count on the tops business for both men's and women's? Or do you see further opportunity for improvement there?

Yes. In terms of the margins in jeans, we continue to see nice expansion year-over-year in the margins. And we -- our sourcing department works very hard to make sure that like-for-like, we see decreases in cost, and we've continued that. Some of our key items, if you've noticed, some of our key items in men's have gone light as that business has accelerated, and we are chasing inventory and pulling forward to try to build some depth around those areas. But we feel good, I think, in total, with the balance in the store between the tops and bottoms choice counts. It feels like a good balance we have there to drive the business. And we do make sure we have enough -- we work to make sure we have enough depth in each of the key items to drive that business.

Okay. That concludes our call today. Thanks for your participation and your continued interest in American Eagle Outfitters. Have a great day.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.