Good morning, everyone. Today, we are hosting an extended earnings call to discuss our fourth quarter and fiscal 2023 financial results as well as our new Powering Profitable Growth strategy and 3-year financial targets. The call will include prepared remarks from Jay Schottenstein, Executive Chairman and Chief Executive Officer; Jen Foyle, President Executive Creative Director for AE and Aerie; and Mike Mathias, Chief Financial Officer. This will be followed by a question-and-answer session. We expect to conclude the call at approximately 1:00. Before we begin, I would like to refer you to our safe harbor statement and additional disclosures around non-GAAP results posted on screen. 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. Following today's call -- this is also where you will find a replay and our fourth quarter investor and Powering Profitable Growth strategy presentations. Now I will turn the call over to Jay to kick it off with a quick review of key highlights of our fourth quarter and fiscal 2023 results. Jay?

Good morning. Thanks for joining us. Earlier today, we unveiled our new long-term strategy and financial road map. Our focus is simple, powering profitable growth. We are excited to share the details of our plan with you. But first, let me begin with a quick overview of last year. I'll start with a huge thanks to our teams for their perseverance and commitment throughout 2023. And I am especially proud of the strength we delivered in the second half of the year as we began to implement actions from our profit improvement project. Building on momentum in the third quarter, we achieved record fourth quarter revenue and adjusted operating income reached the highest in over a decade. With strong execution, we nicely exceeded expectations even after raising guidance in early January. While Mike will provide greater details during the fourth quarter, we took a non-GAAP charge as we look to strengthen overall profitability. Our 2023 revenue reached a record $5.3 billion and we registered $375 million of adjusted operating income. With the exception of 2021, this was our highest adjusted operating income result since 2012. We generated strong cash flow and we entered the year in a very healthy financial position. Cash and investments more than doubled from last year, reaching $454 million at year-end. We exited 2023 with clean inventory, well positioned for our go-forward plans. Reflecting improved financial performance and a healthy balance sheet, in December, we announced a 25% increase in our quarterly cash dividend. And in February, we authorized 30 million shares for repurchase. This underscores our confidence in the strength of the business and our commitment to returning cash to shareholders. We enter 2024 well positioned with industry-leading brands, a solid balance sheet and best-in-class operations. Our profit improvement initiatives are taking hold and we expect to deliver nice revenue and profit growth in 2024, which Mike will detail shortly. We remain steadfast in operating the business with balance, staying agile and flexible to capitalize on demand opportunities while optimizing profitability for the foreseeable future. With that, I will pass it over to Jen for some brief merchandise and marketing highlights of the fourth quarter.

Thanks, Jay and good morning, everyone. I'm very proud of our fourth quarter performance. We saw sequential improvement across brands and channels and we achieved record revenue for both AE and Aerie. Merchandise margins were strong, driven by inventory discipline and favorable product costs. We brought excitement with newness, including a fresh take on some tried and true classics. Collections were on trend, including an amazing array of gifting options that did very well over the holiday season. As I will review on today's strategy presentation, we saw early results from a number of new brand initiatives. Strong product, engaging marketing and an unparalleled shopping experience is delivering customer growth. In fact, at over $22 million, our total customer count expanded across brands, reaching an all-time high. Now some brand highlights. American Eagle revenue grew 11%, fueled by a 6% increase in comps. The extra week contributed approximately 4 points to brand revenue. Strength was broad-based across jeans, pants, tops, sweaters and outerwear. Women's outperformed men's, yet both saw meaningful sequential improvement. The AE brand operating margin expanded 100 basis points to 17%. As we have turned our attention to driving growth at AE, we are placing a renewed emphasis on top sellers and expanding availability across the store base. Our new store design is showing nice results, providing a positive lift to comps. I'll talk more about these initiatives later. However, we are incredibly pleased with the early results. They provide a strong proof point of our strategy to deliver profitable growth, which we are excited to share with you later today. Now turning to Aerie. Revenue grew 16% with comps increasing 13%, locking in yet another record fourth quarter. The extra week contributed approximately 4 points to brand revenue. Growth was led by soft apparel and our flourishing OFFLINE activewear business, both of which posted double-digit growth. Aerie's operating margin of 16.2%, hit an all-time fourth quarter high. This is a 400-basis point expansion to last year as the brand continued to scale. We also saw improved markup and lower markdowns. New stores are providing a tailwind to comp growth as they enter the comp base and are boosting margins as they ramp up through the maturity curve. All in all, we had a very successful holiday season and fourth quarter across our brands. I'd like to thank our amazing teams for their hard work, talent and commitment. We made tremendous progress throughout the year. And I look ahead, I'm very optimistic as we build on positive momentum. I look forward to sharing our go-forward plans in a little bit. And now I'll turn the call over to Mike to review the rest of our financial results.

Thanks, Jen and good morning, everyone. As noted in our press release and earlier in the call, fourth quarter 2023 results are presented for the 14 weeks ending February 3, 2024, compared to the 13 weeks ending January 28, 2023. Comparable sales metrics are presented for the 14 weeks ending February 3, 2024, compared to the 14 weeks ending February 4, 2023. We're very pleased with how we performed during the second half of the year when our profit improvement work began to take hold. We saw a sequential acceleration in revenue growth across brands with an exciting return to growth for American Eagle. This came hand in hand with a significant improvement in profit flow-through, where we saw a 320-basis point improvement in our second half adjusted gross margin over last year. As we'll discuss shortly, the early results from these initiatives gives us tremendous confidence in our go-forward plans. Fourth quarter revenue of $1.7 billion marked a new company record, rising 12% over last year. The 53rd week contributed $57 million or approximately 4 points to growth. The adjusted operating margin increased 200 basis points to 8.4%. Compared to last year, adjusted gross profit dollars increased 23% to $626 million and the gross margin rate expanded 340 basis points to 37.3%. Merchandise margins improved, reflecting strong demand, lower costs and a number of benefits from our profit improvement initiative. Inventory discipline drove lower markdowns and BOW expenses also leveraged. This was led by rent, delivery, distribution and warehousing costs, with a partial offset from higher incentives as we lapped 0 accruals last year. SG&A expense of $427 million was up 22% to last year. Consistent with strong business trends, roughly half of the increase was driven by incentive expense. Store payroll also increased driven by higher wages and…

Thanks, Mike. Building on our strong 2023 performance, I'm pleased to now introduce our long-range strategy and financial plan. This is our multiyear road map for powering consistent profitable growth. Our plan is centered on 3 main pillars: amplify our brands, execute with financial discipline; and optimize our operations. This strategy plan is a direct result of our profit improvement project started last year. We reviewed every area of our businesses at AEO, up for profitable growth moving forward. The early stages of this project helped fuel a significant turnaround in revenue and profit during the second half of 2023. Yet we are just getting started. I'll start with a quick look back. We have a strong history and heritage of building great brands. American Eagle is over $3 billion in revenue. Aerie is closing in on $2 billion. We provide excellent customer service and have best-in-class operations. We've been successful over the past several years, driving fairly steady revenue growth, despite a lot of macro volatility. However, flow through to the bottom line has not been consistent. The plan we are presenting today is designed to address this head on. Building on our strong results in 2023, our target is to generate annual profit growth in the mid- to high teens and 3% to 5% top line. We are transforming how we operate to deliver steady profit growth. We have formalized this change with clear responsibility and accountability. And as Mike will discuss, we've instilled a culture of continuous improvement. Before we get into the details, I'd like to begin with a refresh on who we are today and what I see as our unique competitive strength. This is what gives me confidence in our strategy and future potential. So let's get started. AEO has been on incredible journey…

Thanks, Jay. We have an amazing portfolio of brands and we've made great strides over the past several years. As I will share with you today, we continue to see incredible opportunities to amplify our potential and fuel the next chapter of growth. Let's start with American Eagle. As I said at the last investor meeting in 2021, when I first took responsibility for American Eagle, I love this brand. I love its strong platform and everything AE stands for, true today as it was then. Jay, his father, Jerome and Roger Markfield, built something very special, a brand with heart that has always embraced individuality and diversity. It has truly stood the test of time, American Eagle is the largest, most consistent youth brand addressing generations of customers. And today, I'm going to tell you why I'm more excited than ever about our future. American Eagle is perfectly positioned for growth. But first, I'd like to show you a short video that captures the essence of AE and what we stand for. [Presentation]

In addition to its strong brand positioning, American Eagle is also a financial powerhouse. In fact, it was the fuel that built Aerie with steady growth, strong margins and healthy cash flow, enabling us to invest and grow. As we reviewed back in 2021, we saw potential for even better profit flow-through. Three years later, I could not be more proud of how far we've come. AE's operating margin has expanded nearly 300 basis points relative to 2019. With margins restored, we are excited to turn our sights to growth, once again, while maintaining a firm focus on profitability. So here we are, our pillars to Power Profitable Growth at American Eagle. We will continue to lead in jeans. That's what we're known for, building brand loyalty and repeat purchases. Next, we have a real opportunity to complete the outfit by offering a broader assortment of tops, expanding into adjacencies where we know we have a right to play, modernizing our store fleet with a beautiful new store design to elevate the customer experience. And lastly, enhancing how we allocate inventory to better support our best ideas. So let's get started with jeans. We are the #1 denim brand for 15- to 25-year olds, the go to for women of all ages and a preferred shopping destination. We love this for so many reasons. First, Jeans are a huge driver of new customer acquisition. Almost half of new customers have jeans in their first basket. Second, brand loyalty within jeans and bottoms overall is very sticky. In fact, it's our best retention business across genders. We are upping our focus on test and scale, innovating in new fabrications and ensuring that we're offering the very latest in trends while balancing our tried and true. The acceleration we saw in the…

As we have welcomed more customers into the Aerie community, the brand has seen explosive growth reaching almost $1.7 billion in revenue last year and we are just getting started. Importantly, our growth has come with strong profit flow-through as we have gained scale and introduced new higher-margin categories overall profit margins have expanded significantly. Intimates continues to be the foundation of the Aerie brand, yet 2 of our biggest categories today are soft apparel and activewear. We have seen standout performance in loungewear and cozy collections, benefiting revenue and margins. Looking at the total addressable market for Aerie, we still have significant runway for growth. Our core product lines represent an over $70 billion market. Aerie today commands just over 2% of that pie, making the growth opportunity exponential. Here's our strategy to go after that growth to amplify Aerie. We are focused on winning across the Aerie lifestyle. This includes fueling intimates and soft apparel and building on OFFLINE's explosive growth in activewear. We will also expand awareness of the Aerie brand as we target underpenetrated markets, new customer growth and build the basket across more categories. So let's dig in. Here's a snapshot of Aerie's brand positioning. Aerie is chill, it's effortless. We are famous for intimates, cozy dressing, sleep and swim. In addition to being your favorite first layer, key customer occasions are chill out, girls night in, beach and pool party. Now starting with intimates. This continues to be a very powerful category for Aerie. It's the #1 driver of new customer acquisition. Great fit, quality and comfort are key and Aerie excels at all 3. As trends evolve, we are constantly innovating. For example, in 2022, we launched SMOOTHEZ, a differentiated second skin fabrication, supersoft, barely there and light as air. This is now…

Thanks, Jen. As Jay and Jen described, we are energized by the work we've undertaken over the past year to set us on a path to greater profitability. The focus and drive across the organization is very exciting to see. As part of this project, we uncovered a number of opportunities to sharpen our operations and support profitable growth. I'll provide some key examples today and then we'll round out our presentation with our financial targets and capital allocation plans. Let's get started. As Jen noted, our operations are second to none. As we look ahead, we're focused on elevating our capabilities even further to unlock incremental growth and create greater efficiencies. These are 4 focus areas: stores; digital; supply chain; and marketing. First, I'll talk about our selling channels. Let me start by saying we are channel-agnostic. We operate as a single channel. Our customers shop across stores and digital and we're well positioned to capture demand through both at comparable margins. Just to underscore, we're similarly profitable across both digital and stores. We aim to maximize our profits per transaction regardless of the channel. Now looking at the store portfolio, we have a very healthy and profitable fleet and are 4 wall positive in over 90% of our comp stores. Our average lease term is approximately 2 years, providing good flexibility. We've been pleased to see customers return to in-person shopping, underscoring the importance of having a strong physical footprint. And given our strong portfolio of brands, we've been successful in achieving favorable rent terms. Our investment priorities moving forward start with Aerie and OFFLINE store expansion. This continues to be our highest return on investment with the majority of new stores paying back in under 3 years. We expect to add 100 Aerie, OFFLINE stores over the…

Thanks, Mike. As I hope we conveyed clearly to you today, this is an incredible company with powerful brands, capabilities and talent and we have significant opportunity to scale further. We are at an inflection point in our journey, having undergone a huge cultural transformation over the past year to align our strategy and priorities towards delivering consistent, profitable growth. From here, we are focused on execution and we know we are set up for success. With that, I will open it up for questions. Judy, over to you.

Thanks, Jay. Before we start our question-and-answer session, we'll take a quick 3-minute break. [Break]

Okay. Thanks, everyone, for joining us for the question-and-answer portion of our meeting today. We're back from our break and we want to get right to your questions. So first up is Matt Boss from JPMorgan.

Great. Really appreciate all the color. This was great today. So maybe to start off, Jen, could you speak to the total addressable market and customer file opportunity just as we think about the market share opportunity for the AE brand? Or more specifically, how are you positioning the assortment across key destination categories and price points to drive that consistent profitable growth that Jay cited?

Yes, sure. The total addressable market is $70 billion, which is incredible and there's huge white space here that we can go after. What AE owns is the social casual. I love this new term. It's our new term that we're using to describe our core assortments, which are going to be strong across all of our fleet. That's what we're up to, getting all of our fleet robust, certainly managing the inventory and obviously doing it with prudent discipline. But we've really been up to -- just going back, really rationalizing the fleet, rationalizing our SKU count. So we've really built a baseline now that we can sort of leap up and introduce all these new expanded categories. Men's active, $27 billion market, that we've only just begun. You heard that number, $100 million. We're only just getting at this. Keep in mind, when we launched OFFLINE, that's where it started, $100 million and now look where it is. It's almost over $600 million this year. So think about that. So we have huge expansion there. And we're already seeing results in the 25- to 35-age group there. Men -- our denim category is our rite of passage. We love denim and getting denim on all ages is really what we're up to. But if you noticed in the slides, wow, we have such opportunity to round up the assortments and we're so excited about that, yes. And we didn't even mention the premium denim collection we launched last year. We love the early reads. So we have categories now that we can expand on. We have a great baseline and we're looking forward to building on this.

Great. And then maybe just a follow-up for Mike. With SG&A expected to leverage roughly 200 basis points, I think relative to 2023, maybe just could you elaborate on the expense buckets where you found savings and efficiencies to support the plan, while at the same time, funding brand marketing reinvestments?

Sure. I think -- I mean just to highlight, again, I think the proof point around this initiative this past year was definitely the expenses up in gross margin. That's where we started. We talked about -- articulated that for a few quarters now. Every quarter this past year, not only did we expand product margins but we leveraged expenses within gross margin every quarter even in the first half of the year when revenue was a little tougher. We've expanded that to SG&A now. So we've talked about the big buckets in SG&A. 85% of the total expense is within store compensation, corporate compensation, related incentives and taxes, marketing dollars and services. So the big areas that we have gone after reflected in this '24 plan and the guidance we're providing and then, we're doing this continuous improvement office, program office, as we call it, underneath Project Breakthrough, that work is going to continue and not stop. So those are the buckets. Store labor, we found efficiency offsets to what has been wage growth and wage inflation pressures in the industry. We're looking at flat rate of revenue per store dollar. So it's -- stores and marketing at places where we -- places we will continue to invest to fuel growth but we want to maintain at that rate. The savings or reduction areas or the leverage areas or other compensation, corporate compensation, incentives, taxes. And services is the other bucket that we are going after to actually more aggressively reduce. So that's where your puts and takes are. We continue to invest in store compensation and advertising to fuel growth but will not be looking to deleverage, which maintain rate there. Other compensation areas, along with services and then some other areas -- smaller areas like supplies and repairs and maintenance, we're looking because where the leverage would be continuously providing leverage in those areas.

Okay. Next question comes from Jay Sole from UBS.

Can you hear me now?

There you go.

Okay. Mike -- I want to ask about some of the newer topics that came up in the presentation. One is about Todd Snyder. You mentioned you owned this since 2015. It's grown nicely. Just wanted to talk about what's implied in the guidance from Todd Snyder and what gives you confidence that Todd Snyder can become a bigger business? And also international, how does the international opportunity play into the 3-year outlook and maybe beyond? Like what's the ultimate aspiration for the international business for the company?

Jay here. We bought Todd Snyder around 2015. That time, Todd was doing only $2 million. And here in the last few years, it has grown into a $100-plus million business. We see a big opportunity with it. This year, I think we're setting up 60 to 70 additional stores. And we think when it's all done, it could be a $500 million, $600 million brand in the next couple of years.

I can expand upon that. It's reaching the point of profitability. So nice growth this past year, right around that breakeven mark and our plans for '24 and this 3-year plan is for Todd to contribute profit to the company. So that's a great milestone. Double-digit top line growth is the continued expectation and profit increases from here. For -- the international opportunity, I think the one thing I want to highlight in here, Canada and Mexico from -- our own markets, our biggest contributors from a revenue perspective. Mexico specifically has been a source of growth, especially it's really 90% plus AE brand. The size of the business in Mexico actually contributes -- the trajectories are contributing 1 point to total AE brand revenue growth at this point. So as we talk about AE brand, expectations being in the low single digits, Mexico alone with its growth is providing about 1 point.

Also Mike, part of international goes [indiscernible] company, continue to have [indiscernible] 2014, we were losing money, $20 million, $30 million on the international business. Today, it's been a very good profit center. And we have, we're at sort of tip of the iceberg. We're not in Europe yet. There's good opportunity there. We're only in a couple of countries out of South America, major opportunity. So we see a major opportunity with our international business and it's being very well received.

Very strong partnerships with our franchisees and we're looking to expand with them and with new franchisees. That's the model from here.

With the Mexico business and Canada business that are around this.

Yes. So we're in North America. There is plans for expansion in Latin America [indiscernible] which is a natural progression from the success in Mexico. So there's -- as Jay said, there's runway here. We're not banking on a ton of growth within this next 3 years but there's continual runway for multiple years from here.

[indiscernible] love the brand.

What we'll do -- it's -- I think we mentioned in the presentation, it's asset light outside of North America. We like that model. Franchise revenue drops straight to the bottom line. We have a few joint ventures that are really just in early stages. So we will be ROI oriented with that expansion and not over invest to go after it.

Okay. Next up, we have Janet Kloppenburg, JJK Research.

For Jen, I like the adjacencies I'm seeing in the AE stores. I'm just wondering about maybe a risk of building SKUs. And also as you move a bit older, do you worry at all about losing that young -- that older teen customer that's always had a strong loyalty to your brand? And in the intimates category, which I think you've done a great job on with the SMOOTHEZ line, do you see that category growing? We're hearing from others that the intimate sector is experiencing a downturn in the range of mid-single-digit revenues. And for Michael, when you talk about SG&A going from 27% to 25% to 26%, that's a 3-year period. Do you see more of that coming in the later year or should it be linear as we move along?

Yes. Look, everything we do is with discipline. American Eagle, we went back to our heritage. We completely over the past 3 years -- and by the way, may I add, we rationalized profitably. It's really hard to do that when you're getting rid of thousands of SKUs and we did. We got rid of thousands of SKUs to focus on the core assortments, this new social casual that we're talking about, we are not going to comp with just buying our comp, which means we're not going to just add SKUs randomly. We're going to do it with integrity. There's always trends that ebb and flow. And as we do so, we're going to make sure that we're leaning into the categories that are trending without over assorting. I cannot see an over assortment. We have the most disciplined teams around that. I think you can see it in our stores. They look incredible. And I think we're outfitting better than ever. So certainly not. We're going to do this with integrity and pride and that's what we're up to. As far as intimates is concerned, look, there has been a slowdown but we held our market position, #1. #2, we leaned into new categories that are behaving like intimates. So we started SMOOTHEZ, I mean I hope you love the pictures, SMOOTHEZ collection, it's just amazing. We love it. Not only is it around bras. And by the way, that's our #1 bra within that collection. But other collections outside of just bras, the bodysuits, the crop tops, they're all doing incredible. So there's a little bit of a wear out trend that's been happening and it began last year and we were on it, crop tops were completely trending and we still see that business working. However, intimates, that business is a huge untapped category. And may remind you, it's just incredible the way Aerie tapped into that business. We were disruptive and we did it. I mean, looking at that business, the Aerie business is $1.7 billion. This growth has been exceptional and it's still a huge market that's ripe for the taking. So we're highly focused on new bra launches, undies. We haven't spoken even about undies. There's new categories in undies. So we're going to keep on augmenting there and delivering newness and continue to dominate the way I think we have, leveraging our platform.

The SG&A, yes, I think, first, I want to make sure just that is towards just the results that we're providing in our guidance for '24. Flat operating expense dollars across the entire -- P&L is a milestone for us and flat SG&A dollars also within that is a milestone for us. And providing that guidance of dollar growth being in line with revenue in the first quarter but we're expecting to leverage SG&A every quarter thereafter, even with some of the revenue shifts that we outlined for the day that are based on the calendar shift. The work is continuous. It's not a one and done. So I think -- and then it's very much correlated to revenue. So the guidance we're providing down to that 25% to 26% range is more about sort of probably the low to mid of that 3% to 5% revenue guide. If we achieve the higher end of that guide, we expect to get to 25% faster. So we want to assume linear for now. We'd be assuming sort of -- basically that's achieving the midrange of the revenue guide -- high end of that revenue guide and further [indiscernible] sooner and the expectation is to continue to leverage there -- leverage from there in out years beyond this 3-year plan.

And Jen, I just wanted you to know we all think the stores look -- the assortments look amazing. So good luck.

Thank you. The teams have been really working hard. I'm really proud of them. I love to see AE back on the growth trajectory. And Aerie certainly has growth that we can talk about later when we get questions.

We can see how hard you worked.

Thank you. Thanks, again.

Okay. Up next, we have Kelly Crago from Citi.

Hi, everyone. I'm on for Paul today. One on the long term and one on the near term. First to Jen. Just wondering if you could elaborate on the opportunity to broaden the demo at AE. What percent of your business currently is in that 25- to 34-year-old demo? And where can that go over time? And just curious what tools you're using to market to that customer differently than the core Gen Z consumer? And then secondly to Mike, just on the near term, congrats on the great results. You made a comment that momentum is continuing 1Q quarter-to-date. Wondering if you could elaborate on that comment, just given some of the other retailers calling out weakness in February?

Sure. As we -- as the business grew in 2023 and American Eagle quarter-over-quarter, we actually saw this happening. Roughly about 20% to 30% of our share is in this 25% to 35%. And I think it's because our jeans are so safe. Like I mentioned, jeans are a rite of passage for us. And once you get into our jeans, they grow with us. So we've seen our retention rates continue to accelerate, something that wasn't happening in the past. And I believe the biggest reason right now is because of jeans. Now as we round out the tops business, like I said, I think it's going to really just add on and win new customers. So look, we're leaning up a little bit but it's not to say we're going to ever walk away. Our core is our core. It's our tried and true. But if we still extend new ideas which, 24/7 or 77, some of these new offshoots, I think we're going to gain new customers and win them over time. It's something we're highly focused on. We were losing customers after roughly the age -- between the age of 18 and 25. So we've been focused on this and certainly doing it through those tactics, right? We have new brand collabs that we work on, you saw them on the screen. The summer I Turned Pretty, the #1 hit last summer and we're going to continue to work on these collabs. There's so many exciting ones coming your way. Influencers are certainly a big win for us, leveraging them. But again, we're always going to protect our core work and now we're going to expand into this age demo and we're excited about it. And like I said, we already saw the results. It's happening as we speak. So now we're just going to lean in a little bit more.

Now, on the first quarter guide, we're pleased with the momentum that we saw in February. It's coming off of Q4. As always, at this point, our guidance has some caution in it. February is the smallest month of the quarter. We've got our peak spring break and Easter holiday periods coming up in March and April. And March and April, obviously, bigger months than February. So again, pleased with the momentum and guide reflects that with some caution.

Okay. Next, we have Adrienne Yih from Barclays.

Jen, just let me add. The tops look phenomenal. The denim always looks great. So it's really nice to see the entire kind of top to bottom looking fantastic. So I just want to shout out to your merch team.

Thank you.

So on that -- you're welcome. On that -- so there's a fashion bottom thing that's been happening, it's sort of percolating, simmering. And now it's really happening, right? So you walk the mall and everywhere, it's kind of the wider bottom finally here. Can you just remind us to sort of the denim penetration at AE? I think it's like north of 30 -- mid-30%. And then just remind us, like the skinny legs emerged in 2011 and then it really peaked in the next 2 years and it's been there for a decade. So this could be potentially something that continues to help kind of drive that piece of the business. And then for Mike, on the -- can you give us just the markdown rates relative to mean, like average kind of over the past, where are you in that continuum? And then remind us, AUR is probably up 20% relative to 2019, how much are AURs contributing to the LRP?

Yes. In denim and bottoms, we're seeing wide legs trend. And honestly, it started for us last year. We were ahead of the cargo trend, I would say, first bikini on the beach there and the teams did a great job testing and scaling in wider legs. And the beauty of our denim business and how we approach it is, we have such -- that incredible testing model and we are now on testing so many new silhouettes, not just wide legs, so we're on that, we're ahead of the curve as new fashion silhouettes trends. So I can't tell you just what this team does as we build on new assortments towards the future and learn. And we're just so agile to do it and balance out our assortments. When I started jeggings dominated our business in women's, in particular, huge percentage of the business, over 80%. Now we're seeing fashion emerge and other silhouettes where we can really lean into what's trending. And that's what we're up to. Honestly, it's about as simple as that and the team is executing with style.

[indiscernible] we've been growing since '21. We've been very -- we've been managing the markdown rate very consistently. I think we found a sweet spot. We maintain our AUR that we gained post-pandemic, a couple of fiscal years ago. And then some of our -- a few years prior to even 2019, I'd say we were running markdown rates in the mid-50s. We're now in the mid-40s and we'll do that consistently for a few years. So we know at end of -- while giving any of that back. I think on initial retails, we have seen markup benefits. And I think the mix of our categories, as Jen outlined in the entire amplify section of today's presentation, the mix of categories will continue to be beneficial there with tops being a driver, Aerie apparel being a driver, OFFLINE within Aerie, all those growth drivers have mixed benefits to initial tickets and to margin rate in general. I'll say in these 3-year targets, we actually are not assuming much product margin improvement. Most of this 3-year target calculated today is based on expense leverage, expense leverage within the gross margin line and expense leverage and SG&A and depreciation. Jen outlined a lot of initiatives and a lot of opportunity within categories for that product margin to expand, that would be beneficial to these targets. So I think that's something that we you should all understand, is that when we pushed product margins over the last 3 years up 300 basis points, we're in very healthy place. We're not assuming much improvement in these targets but there is opportunity there on top of the expense leverage that we're seeing.

Next up is Dana Telsey from Telsey Advisory.

Congratulations on a terrific presentation. I could tell the thought and the hard work that went into it. One of the areas that you touched on is modernizing the fleet. As you think about the fleet and modernizing the existing stores, opening new stores, what's the cost model and the return model that you're thinking of for each? And how do you see the role of malls versus open air in your network? And lastly, Jen, with the enhancements of the product offering that you're doing and the category adjustments, what is the impact on margin that you see? Is there a higher merch margin potential from new categories versus existing?

I can start with the fleet remodeling. I think we outlined it very well. I think the average age of the fleet is 12 years, definitely paused on some plans to update the fleet during the pandemic for obvious reasons. Jen and Jean have come up with amazing designs that were well accepted in the test stores that we rolled out in 2023. So nice sales lift as we outlined. When sales doesn't always translate to income and cash, so we have an ROI focus for that investment as well. I think we said 15% is a good target for our remodel. So we are managing inventory, managing store labor, managing investments and beyond underneath the capital investments to generate that kind of type of return to drive income and cash flow generation incremental to what the store was doing prior to the remodel. And then for Aerie, as we outlined, for new store growth, whether it's Aerie stores, repositions of American Eagle stores, Todd Snyder, 3-year payback is our [indiscernible]. We get no better return on investment than the store openings. But we have a very refined process around those decisions. And we know, again, that 3-year payback is consistent, no reason to believe that won't continue to see that kind of payback.

Yes. And as we built into these assortments, we liked what we already saw in Q4. The margins were great. So we're going to be really careful. We're not going to over and short, I already mentioned that. These businesses typically are higher-margin business, tops, t-shirts, wear out tops, typically are, like I said, higher-margin businesses. So the one thing we have to be careful of is not to over and short, okay and turn those items fast. So that's what that business is all about and that's what we're going to be focused on.

Okay. Up next, we have Dan Stroller at BMO Capital Markets.

I just want to see if there's any color for the next several years on how the general corporate expense line should trend or as a percent of sales target? So anyway, if that's a tailwind to margin or any way to think about that?

Yes. I think this past year, the growth in corporate expense bucket, definitely correlated with incentives against no accruals in 2022. We'll see that dollar amount come down in 2024 within our plans. And as I talked about addressing 85% of our expense base, there are definitely expense lines within the corporate segment there that we are looking to continue to optimize all the dollars flat to then leverage that rate down, or I guess, like I've outlined, places where we would be able to reduce sellers. So I know we've been historically around, I think, at 7%, 8%. It's a little higher this past year for all the reasons we just said. As we look to leverage that line item within this 3% to 5% revenue target, we see that rate come down on the higher end of the revenue result faster but sequential leverage from here is the intent for that expense line as well.

Okay. Next, we have Jonna Kim from TD Cowen.

Just curious a little bit more details around promotional strategy. You've mentioned how it changed over time but if you can provide any more colors around that and what the new promotional discipline will look like going forward? And also, if you can just talk to your current lead time now and how much you plan to leave open for buy across both banners going forward? And then just in near term, any color on gross margin cadence will be helpful.

Sure. I think as I just went in -- I reiterate that's our markdown rates used to run in the 50s pre-pandemic. And really for the last 3 years, we've been articulating -- talking about inventory optimization, reduction in choices, in SKUs, which [indiscernible] inventory had a lot of markdowns attached to it. So now it's largely an American Eagle brand initiative, Jen outlined the fact that, that's been the case. We are now resetting the profitability. That inventory work is never done but that tranche of work is completed. So now we're looking to actually expand and grow the brand. But we'll do that prudently and choice counts and SKU counts will represent what's needed there to do that. So there's sort of the end of season impact or that sale of inventory markdown, kind of pre-pandemic phenomenon that will no longer be part of our operating model. And from there, we've learned over these last 3 years how to pace promotions. So we support their jeans almost every day. That team are not doing that anymore. That we don't intend to ever go back to that type of promotional strategy. That was a big markdown driver, a big great driver as well. But then even within key periods, key holidays, key weekends, we have -- we might run our 40% off or whatever the deal but we're doing it with less days, pulsing in a way the customers reacting more positively. So those strategies are intact, in improvement for 3 years now. So this mid-40% is -- we think we've set in our sweet spot in terms of the balance of kind of value to the customer and driving traffic and conversion and not having to overpromote to do that. I think open to buy, we are back…

All right. Next question comes from Chris Nardone of Bank of America.

So within your Aerie growth expectations over the 3 years of mid- to high single digits, can you clarify what you're assuming for comp growth? And then how we should think about growth by category? And then one follow-up on this gross margin topic we've been discussing. Can you remind us how long you have visibility into both freight and cotton costs, given the recent price moves in both of those inputs?

I think [indiscernible] we're only opening 30 stores a year now, that kind of gap between total growth and comp growth closes. We're at 1 to 2 points now. So we're guiding mid- to high single-digit expectations, which is modest. We believe that's modest. There's more opportunity than that. You can assume about 1 point differential. So you're, call it, mid-single-digit comp then on a mid- to high single-digit total growth.

Yes. And I think if you just think about Aerie, this brand platform, you saw the video. It's incredible, this community that we're building. And guess what? We only have 55% brand awareness out there. There's still tons of expansion that we can do to introduce the current categories to our customer fleet. So we're pretty excited about just getting the brand out there in more markets. And secondly, this is another like incredible step. 65% of our customer base only purchase 1 category. So the marketing team is really up to introducing all the other categories that we -- that we're in and ensuring that the customers can see it. But right now, if we can get them to buy 2 of our categories, there, expansion right there. I mean, we see the Aerie business getting to well above $2 billion in the near couple of years. And with that, we're going to definitely introduce our current categories. But again, it's our job to introduce innovation in those categories, excite the customers in those categories and make sure we're expanding trends in those categories. So -- but those are the 2 really important facts that I would love you to hear because it just proves that we have just so much more opportunity.

Okay. Next is Corey Tarlowe at Jefferies.

I was wondering if you could talk a little bit about how you intend to leverage AI within your long-term plan to enhance the customer experience, drive better sales and enhance profitability? And then second question is, within your long-range plan, what's your outlook for wages over the multiyear time horizon? And how do you expect that to trend as we get -- go ahead?

I can address the AI question. I think some of what we've already seen benefits from this past year is continue to expand upon our machine learning forecasting capabilities within our inventory allocation work. And the more data we got in there and the more we kind of see the optimization of that, we're seeing better in-stocks in stores, better fulfillment rates. And we expect those same trends to continue to converge benefits both in stores and digitally.

And also, Mike, if I could add that from the customer standpoint in the next couple of years, we'll be introducing new concepts on our onboarding in the store with AI to make a better shopping experience for the customers.

A combination of those capabilities with our RFID rollout, we'll be able to expand the customer experience, not just the inventory optimization or inventory benefits that we see with those efforts.

We see a big opportunity, tremendous opportunity.

On wage growth, yes, there's 2 components we've talked about historically. One would be in our distribution centers and part of our supply chain, which -- with the expansion and to -- with a fulfillment network and then client nodes, that's mitigated some of our peak needs during like back-to-school and holiday peak hiring, which is where some of that wage pressure has come into play. So there's some mitigation efforts there or some mitigation impact there, expand the supply chain than what we have. On the store front, yes, since the pandemic, wage growth has been a hurdle. That subsided in this last year, 1.5 years, kind of come back to the mean in terms of annual expectations more -- just typical annual increases, minimum wage increases by markets. And that is a massive -- major focus for us within the profit group, we're going to work to offset that wage growth with efficiencies in our stores, especially in the area of kind of nonselling task hours somewhere else where AI can come into -- next to Jay's points, not only just on the customer experience within stores but efficiency from both RFID and AI capabilities in store to mitigate some sort of non-selling tasks, wage -- to offset some of that wage challenge that we had on the stores.

Next is Alex Straton from Morgan Stanley.

I just have two for you. The first is on the American Eagle banner. Can you just break down that businesses? It looks like 300 basis points of improvement versus pre-COVID. Just big picture, what's happened there? And then also explain kind of what your 10% target over time assumes American Eagle can get to? I'm looking at that low 20s, I think, in the pandemic. I'm wondering if that's within the realm. And then I just have a quick follow-up.

Yes, the 300 basis points improvement over the last several years has been very much tied to product margin and gross margin benefits. Both product margin and then the leverage of expenses within gross margin benefiting both brands. And that's been that for a stagnant like, flat to even revenue being down slightly. So we've reset the brand for profitability through all of that inventory work and optimization of gross margin. Now once we're turning our attention to growth, even with modest growth, we can leverage other areas through the P&L and other areas within the brand to drive bottom line operating rate. So as we pass through -- this year's guidance is implying another 100, 150 basis points of operating rate improvement to the mid-8s, we would expect really that the brands can get to the high teen rate and start on the path towards 20%, while we're also optimizing or deleveraging that corporate overhead bucket. So now AE brand growth -- revenue growth will be part of the leverage story and part of the operating rate improvement that we expect to see over the next several years.

Great. That's super helpful. Maybe same question on Aerie in terms of -- and it might be the same story in terms of that profitability improvement versus pre-COVID. And then also what you're assuming in terms of what that business gets to within the 10% target as well?

So it's very similar. I mean Aerie's product margins have reached some new milestones this past year as they've closed the gap to where AE has gotten to. And that's, again, from here, I think with -- even on the modest mid- to high single-digit revenue, we expect that to continue, both leveraging, again, expenses and gross margin, SG&A expenses. But even beyond that, where the growth is coming from in soft apparel and OFFLINE or even product mix benefits on top of that, that product margins should also expand. So I think both brands have their path to this high teens, 20% brand operating rates over the next several years.

Okay. Now we have Marni Shapiro from The Retail Tracker.

Congrats on a great quarter. It's very helpful. Mike, just a couple of housekeeping questions. I just want to make sure, did you just say mid-8s operating margin for '24? And did you put a dollar value to that? You gave out a bunch of numbers and my hands couldn't write as fast as you were speaking.

Yes, the math on 3% to 5% -- or 2% to 4% revenue growth, Marni, is a point of impact from the 53rd week. So we're basically getting 3% to 5% consistently. But then this year, there's is a 1-point impact. The $445 million to $465 million on that growth would put you in the low to mid-8% operating rates range. Different ways to get that income. But -- and just off of that guidance, you get to a low to mid-8% operating rate for 2024.

Great. And then did you guys give any guidance about store openings and closings for '24? I know you talked about some renovations but did you talk about store openings and closings for the year?

Yes, it was about 30 Aerie, OFFLINE that we're expecting and Todd Snyder stores, we're looking, that about 5. And then for the AE brand, still a net closure amount but we are -- as the brand is seeing growth now that's becoming -- the net number will be less because we closed 130 stores over the last 3 years. Another 25 to 30 this past year. Wouldn't be more than that, unless you're actually seeing opportunities in the repositions in some of these markets. So that net number, we expect to continue to come down. So net-net for the year, 30 openings for Aerie, OFFLINE. Net closures for AE still being maybe around that 20 mark but that's been refined and then a handful of other stores for Todd and Unsubscribed.

Very close to the results and the remodels, we work with that still. So hopefully, that can close the gap to continue to do this low single-digit growth for AE.

And then, Jen, I did have a couple of quick questions for you on the product side. The first is just, you made 2 comments, one about skewing a little bit older in spots but then also about the urban stores, would -- will you want to add a little bit more product, a little more variety? Would these -- would this slightly older skewed product just belong in those urban stores, is that how you're thinking about it? I've seen it in some of the other stores as well but I'm just curious. And then can we talk about the tops business? Because Eagle's tops, you started spring off with a bang. Congrats. I'm curious, do you have this ratio issue in Aerie as well? Because I feel like you have a very solid tops business in Aerie. And as you grow back or grow the Eagle tops business, how do you make sure that you can keep Aerie's tops business also very strong?

Yes. Thank you for the compliments. By the way, we're really proud of what we're delivering but look what happened in Q4. I love what we're seeing as we head into Q1. Look, it's not even just about urban. We're going to put the best assortments where they belong. We've done a deep dive on how we approach our assortments by store. Once we use the tier, so we had Tier 1, Tier 2, doesn't really mean anything to you. Now we're calling them clusters, where it's about a market cluster where we can put the best assortments in the best markets. It's essentially that. So it's not just necessarily all of them. So that's what we're up to there. Tops to bottoms, yes, you're right. AE has tons of opportunity here to round this out and the assortments side, look, what I'm seeing, if you even saw our denim launch more recently, as you noticed, it was head-to-toe, really fun to do this because basically, we're leaning into our key category in American Eagle and doing it differently. I love how we showed up with our initial spring campaign, we called it denim on denim. Looking at Aerie, yes, you're right. We're definitely more balanced on the head-to-toe assortments. Leggings are very strong, as you know and it's a very strong pillar for the OFFLINE business. So if you think of OFFLINE, we'll always lean in heavier on the legging side of the business and the bottoms side of the business. But Aerie will always be definitely more balanced. And keep in mind, we still have intimates in other categories, if you think about.

All right. Well, that wraps up our question-and-answer session today. Thanks, [indiscernible] everyone of us and we look forward to speaking to you soon. Have a great day.