Greetings, and welcome to the American Eagle Outfitters Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] A brief question-and-answer session will follow the formal presentation. As a reminder, this call is being recorded. I would now like to turn the call over to Judy Meehan, Senior Vice President, Corporate Communications and Investor Relations. Thank you, Judy. You may begin.

Good morning, everyone. Joining me today for our prepared remarks are Jay Schottenstein, Executive Chairman and Chief Executive Officer; Jen Foyle, President, Executive Creative Director for AE and Aerie; and Mike Mathias, Chief Financial Officer. Before we begin today's call, I need to remind you that we will make certain forward-looking statements. These statements are based upon information that represents the company's current expectations or beliefs. Results actually realized may differ materially based on risk factors included in our SEC filings. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Consistent with the retail calendar and the 53rd week last year, second quarter 2024 results and today's discussion are presented for the 13 weeks ending August 3, 2024, compared to 13 weeks ending July 29, 2023. Comparable sales metrics are presented for 13 weeks ending August 3, 2024 compared to the 13 weeks ending August 5, 2023. Additionally, you can find the second quarter investor presentation posted on our corporate website at www.aeo-inc.com in the Investor Relations section. And now I'll turn the call over to Jay.

Thanks Judy, and good morning, everyone. During the second quarter, we continued executing on our strategy plan, powering profitable growth, removing our iconic brands forward and strengthening our operating capabilities to continue driving shareholder value. Our second quarter results were strong proof, consolidating financial results showed improvement across the majority of our key performance metrics. We delivered our sixth consecutive quarter of record revenue, while also achieving meaningful operating income growth. Second quarter results built on our strong first quarter performance locking in a solid first half. We make consistent progress across our strategic priorities align with our multi-year plan. As a reminder, our three key pillars are first, amplify our brands. Second, optimize our operations and third, execute with financial discipline. Touching on the strategic and financial highlights for the quarter. To start, second quarter revenue of $1.3 billion was a new record for the company. We achieved 4% comp growth and a total revenue increase of 8% for the quarter. Notably, both brands and channels posted nice growth. We have two of the most beloved brands in retail, American Eagle and Aerie. Each with their own exciting roadmap for expansion. AE has defined American casual fashion for countless generations and I love seeing it come to life in new ways, as we leverage our powerful legacy and execute on our growth initiatives. AE comp grew 5% in the second quarter. We are gaining momentum and growing market share and a number of our focus categories. Our new lived in store design has now been rolled out to approximately 30 locations, and we are seeing great results with remodeled stores outperforming the balance of the fleet. Aerie is a very special brand, anchored embody positivity and woman empowerment, as we build brand awareness and expand into new categories, we…

Thanks, Jay, and good morning, everyone. I'm really pleased with our second quarter performance. Our brand strategies are guiding us in delivering strong results. Across brands we offered trend rate collections and exciting new marketing. We stayed disciplined on inventory and chased into fan favorites profitably, which contributed to higher merchandise margins and we are actively engaging with our customers more than ever. Both AE and Aerie saw double digit growth in their customer files, further demonstrating the widening appeal of our brands. Let me start today with American Eagle. As Jay noted, AE is a mainstay in casual fashion that has brought joy to generations of customers. And one incredible journey we've been on over the past year, modernizing AE's legacy of optimism and individual style anchored in an exciting new growth agenda. In fact, this was the fourth consecutive quarter of revenue and profit growth for AE, with revenue rising 8% and comps up 5%. Operating profit also continues to rise with every quarter we are making steady progress, amplifying American Eagle with exciting collections. I'm particularly pleased with the momentum in women's, which once again led growth for the quarter. We continue to drive tops, a category that has now seen six consecutive quarters of growth. As I reviewed in March, completing the outfit is a huge focus for us and I love seeing new fashion check across knits, tees and shirts. Skirts, dresses and shorts were also very strong. We have seen a great response to new looks targeting social casual occasions and our widening age demo, both of which are key growth opportunities. In men's, we were very pleased with improving trends in tops and strength in twill bottoms. Additionally, our Activewear collection 24/7 is gaining traction, offering a new active casual option defined by…

Thanks Jen and good morning, everyone. Our strong second quarter results speak to the power of our brands and the work behind our powering profitable growth plan announced back in March. Foundational improvements to our cost structure are driving nice leverage across the P&L, leading to strong operating profit growth and margin expansion. Banning on a few highlights, consolidated revenue of $1.3 billion was up 8% to last year, driven by a 4% increase in comparable sales growth. As discussed last quarter, the shift in the retail calendar contributed approximately $55 million to revenue, reflecting the capture of a higher volume back to school selling week. Operating income was $101 million, increasing 55% to last year. This included a contribution of approximately $20 million related to the calendar shift. The operating margin rose 240 basis points to 7.8%. Gross profit of $499 million rose 10%. The gross margin expanded 90 basis points to a rate of 38.6%. Merchandise margins were healthy and up to last year, led by favorable product costs. Additionally, we maintained strict cost discipline, leveraging BOW costs by 40 basis points, driven by rent and digital delivery where we saw lower cost per order. SG&A expense of $345 million was up 4% to last year consistent with our guidance. SG&A as a rate to sales declined 90 basis points driven by leverage across compensation including incentives, store and corporate payroll, professional fees and services, supplies and maintenance also leveraged. I'm pleased with the progress that teams are making across key focus areas. We're challenging how we work and driving efficiencies in how we operate every day and remain on track to leverage SG&A over the balance of the year. Depreciation was down year-over-year, leveraging 60 basis points. The second quarter tax rate was 25% in line with…

[Operator Instructions] Our first question is from Adrienne Yih with Barclays.

Great to see the progress. Jen, I was wondering, you had mentioned that you were happy with the early reads on back-to-school, sort of quarter-to-date month-to-date. I was wondering if you can go a little bit deeper into that between kind of Aerie versus American Eagle and if you're seeing some of the silhouette shift impact thus far, and then following up, like how do you think about the duration of back-to-school in terms of having a second wind after September after Labor Day? And then Mike, can you talk about the estimate down slightly? Is that a change from kind of last quarter? If so, what has shifted there, because you are up against a pretty big up 16% last year for that same quarter.

Really pleased with second quarter results and really, we're delivering on this strategy. I am so pleased with our results and as we look ahead very excited about the acceleration into back-to-school. As when we think about denim, it's our mainstay. Jeans are a rite of passage for American Eagle. We have an incredible denim business. We're number one for 15 year to 25 year olds and number one for women of all ages. We're really leaning into women's particularly. Denim is our mainstay, I'm going to reiterate and we love the new trends that are emerging. We are not just a one fit brand anymore. Women's is so nimble these days and we are leaning into all the new silhouettes feel really good about lower and looser silhouettes, and we're seeing really nice results there. As we think about the future, we're modifying our trends that we're seeing. We're making sure that we're leaning in as we go into the back half of Q3 and Q4 and we're ready to play. Going into Aerie, I mentioned it, a little softness in swim in Q2, but we are seeing really nice results as we head into August. Still many weeks ahead of us, but very similar to what we saw outside of swim. In fact, we're seeing some nice growth in our categories, including soft dressing, really amazing results there. We launched Sleep, I don't know if you saw it, but early on in July, and we are chasing that business. It's done fantastic for us. And also, of course offline. Offline is our business right now. We are not seeing any slowness in the athletic category. In fact, we were high double-digits on last year's double-digit increase. And we are going to continue to lean into that category.

So we've a great result here in the second quarter. We guided the mid-single digit increase in SG&A. We came in on the low side of that guidance, just an indication of how our expense initiatives have taken hold. And we're continuing to strengthen that muscle even further. And then for the remainder of the year, we're expecting SG&A to be down slightly in the third quarter, down in the fourth quarter leveraged for the rest of the year. And that's really consistent with the previous guidance we've given. And then your question on just the elongation of the back-to-school season, we have seen that in recent years where, especially in the Northeast, I think as you get into Labor Day and into the early September period, have seen, I think demands stretch a little bit. We're assuming similar type something similar that happened this year.

Our next question is from Matthew Boss with JP Morgan.

Jen maybe could you speak to the poor consumer relative to new customer acquisition? I think you talked about expanding the customer file at American Eagle by double-digits, actually across both brands. So maybe what are you seeing from your existing customer? What do you think is driving new customer acquisition and how best to think about where we stand today on assortments relative to where you see assort opportunities as the year progresses?

Look, we're really leaning into our marketing campaigns for sure. If I think about American Eagle and we're amplifying our strategic growth initiatives and we have new categories in American Eagle. We have 24/7 we have AE77. We're getting nice early reads on those businesses and we're offering new categories that were not in existence from prior years. So we're leaning into social casual. I think we're going to own this category. We're doing it better than other competition out there and this is what we do best, right? Quality and value. And I want to highlight quality for our brands. We, our quality is like no other and we spend a lot of time leaning in and ensuring that we have the best quality out there at the best price. And I missed your second question. Can you just please reiterate that, please?

Just on new customer acquisition and relative to opportunities within the assortment as the year progresses that you see.

Yes, and it's not just acquisition, it's also retention in both brands. We saw in past years, honestly that our customer dumped out really when you think of post ‘21 and now just with these assortments in both brands that we're really able to keep that customer with us and they're growing with us. Such an important key factor for us as we grow these businesses.

And then, Mike, just on gross margin, how best to think about third quarter relative to fourth quarter expectations relative to the 90 basis points of expansion you saw in the second quarter?

Yes, Matt, I think with the revenue shift in the calendar, we're not expecting gross margin to expand as much as we have seen in the first half, really because of the leverage of the expenses and gross margin. Nothing tied to product margin. We still see favorability in our initial markup and we're managing promotions and markdowns as we always have. So it's really just about what the revenue shift, not leveraging those expenses. So we're not looking for the margin improvement like we've seen in the first quarter and the second quarter.

Our next question is from Jay Sole with UBS.

Just to maybe expand on that a little bit on the gross margin, like are you -- what are you expecting from the promotional environment from other subsidiaries marked up promotion take up? I mean, is that -- are you expecting a more competitive environment? Is that different from what you expected 90 days ago?

Yes, it's always competitive. Jay. I think it's a good question, but I think we've been managing things consistently for multiple years now. We manage markdowns intelligently. We compete when we need to compete in peak periods. We've refined, how the depth of our discounts or the length of our promotions to just maintain a very disciplined approach to markdown. So we don't see that changing at all based on kind of what we're seeing in the business right now. And then on gross margin in general, I think it's the year here is a great equalizer because of these shifts create some nuances that we don't want to get into details around. So on the year, we are seeing a total gross margin improvement based on what we've seen so far in the first half and the color, I just gave Matt a minute ago, and we are tracking toward our longer term goal is 39% to 40% for gross margin, and we're seeing nice improvement on a full year basis toward that goal. And so I think the other piece of it is the value equation on promotions as well. So we know our price quality equation is in a great spot in the industry. So even if there's more deeper or more aggressive promotions from other retailers, we're managing things intelligently with that price value equation as a great starting point.

Our next question is from Dana Telsey with the Telsey Advisory Group.

As you think about the stores channel versus the digital channel, what are you seeing in each? I mean, you had mentioned in terms of the stores business, some of the new formats. How are you seeing traffic in stores versus digital? And then just expanding on the gross margin. The puts and takes in terms of the components and what you're seeing also with freight costs and also cotton costs as we move through the back half of the year.

Yes. So for second quarter, Dana, we saw strength across both brands, as we've outlined, and channels. So both stores and digital were positive in the quarter. We're seeing the same thing continue into the third quarter here with a nice start or a good back-to-school peak season and strength in August that we're seeing. Both channels are positive still, with traffic being healthy in both stores and on the digital side. Gross margin puts and takes are similar. I think we're seeing flow-through of finished product margin benefits. There has been some freight disruption in the industry, but our teams have gotten ahead of that, really just changing time lines, handover dates. So that we've mitigated any issues there with some of the recent disruption. And again, it just comes down to quarterly with the revenue shifts, how we're leveraging the expenses and gross margin, tracking nicely to a full year improvement in our gross margin rate as planned.

Our next question is from Paul Lejuez with Citi.

Maybe give a little bit more specifics on what you're seeing quarter-to-date by brand, also just how you're thinking about the composition for each in terms of what comp assumptions you bake in the second half. And then separately, we're seeing some SG&A improvements down in the back half. How should we be thinking about SG&A dollar growth for F'25?

Trends by brand, we have -- second quarter, both brands were positive, as we've outlined. Jen mentioned Aerie was plus 7 without swim. So as we've entered August here, that trend has been consistent. So AE sort of maintaining the trend from the second quarter and Aerie has picked up in total, similar to that result without swim. So happy to see that start at the beginning of the quarter here and some strong performance through the back-to-school peak weeks here in August. And then SG&A, I think we're basically saying we're going to leverage the rest of the year. Dollars are relatively flat, on the low end of our guide, maybe up slightly on the high end of the guide this year. And then for '25, we are in the middle of those plans. So we've got our muscles built around managing every single expense line item. We've got targets for every expense line item. All the decisions we're making in managing things for the short-term have a '25 lens toward them to make sure we're passing to the targets we need for 2025. I think, in general, as we talked about a 3% to 5% total revenue growth rate that we're going after year-over-year, SG&A dollars will be planned and managed down or below that growth rate. That's what the line of sight we have for '25 right now.

Our next question is from Jonna Kim with TD Cowen.

Could you talk about the monthly cadence during the quarter, how each month performed? And also just comment on the consumer health, if you saw anything notable there? And would love any color on how you're planning for the holiday as well?

So for Q2, May and June were the stronger months. We did see July moderate a bit. I think that's been an industry topic. The data -- traffic data and other kind of indicators were July did slow down a bit. But again, August has kind of reaccelerated right back to the pre-July trend. And our guidance for the rest of this quarter, coming off of August, we are planning for the middle periods between peak selling periods and peak traffic periods between back-to-school and holiday. We're using the assumption that things might moderate again within our 3% to 4% comp guidance for the full quarter.

Our next question is from Janet Kloppenburg with JJK Research.

I have a question for everyone. Jay, we've been hearing from a lot of CEOs about their outlook on the consumer as we move forward in these uncertain times and with the election coming up. So I'd love to hear your thoughts there. Jen, I was wondering about your -- the stores look terrific, just terrific. I was wondering about Aerie's opportunity to accelerate now that swim has become seasonally less important. And also on the men's denim business at AE, I mean, the silhouettes look great to me, but you're not calling it out. And Michael, I was just wondering, on the merchandise margin, what are the puts and takes there as we go forward, maybe with the AUC levels normalizing and also perhaps with some pressure on the freight side. So maybe you could address that and the inventory levels look really good to me. Do they keep improving?

Janet, first of all -- well, first of all, we see a lot of opportunity out there. We have great brands in American Eagle. We have great sub-brands. And as Jen has emphasized, we work very hard on giving great value to our customers. Not only are we proud of our quality, we're also proud of our fits, our comfort and what we've developed. In all the years I've been in this business, I probably see the greatest opportunity in the history of the company. Because number one, we've got American Eagle growing the right way. We have Aerie growing in the right way. We have a hot brand in the athletic area with OFFLINE, which is just getting started. We're only in a few states. We see great opportunity. Even with Aerie, we're only in half the country. We see great opportunity there to grow this business. We developed great sub-brands in our 24/7, which is like Aerie was 10 years ago, which has great potential to be a great brand within its own and within OFFLINE. At the same time, we have our AE77, which is our better, more sophisticated, appealing to a more sophisticated customer, a more mature customer. So we will have the ability in the future not only to take the customer from the 15 to 25 group, but to keep that customer in 25 plus. So from our standpoint, today we're a $5 billion business, we think in the next few years we could be a $10 billion business.

That's really exciting.

I'm going to emphasize this, we are committed to making the investment to become that business. We're putting together our plans now, what it's going to take, what we have to add. Because we're going for it. We see the opportunity. We're excited about our business. You can walk in the malls today, and I'll put my stores as the best-looking stores in the malls, the best shopping experience. We believe we have the best experience between the online where we make it seamless for the customer, whether they're online or whether they walk in the store, it's a seamless experience. The last couple of years, we've invested money in innovation. We're not going to play second fiddle to anybody. My goal is to have the best experience shopping experience, whether online or in the stores. Now I know everybody goes quarter-to-quarter, I can't ride a business quarter-quarter. I'm looking for the future. And I'm committed to do whatever it takes to build this thing to where it deserves to be built. And we put together a world-class team. I cannot emphasize the quality of our designers, our merchants that we put together. I'm very pleased, I'm very proud of what we have.

That's a hard one to top, Jay. Thanks. As I think of Aerie, the best thing is we've run 17 quarters of record revenue in Aerie. And on top of it, the profits are exceeding even the top line. So really focused on a profitable, healthy business. As we look forward, look, we get our early reads in July, and we react to the business for the back half. The new reads are looking very strong in some of our new businesses, including Sleep, as I mentioned. OFFLINE was outstanding in Q2. So this is just about building on innovation there and owning that business. And by the way, our legging business, we have a cornerstone and market share there. We're the number four in sports bras actually. And think about how young this business is in OFFLINE. So lots of opportunity to grow that business and compete with the likes of higher-end competitors. So I'm very excited about that business. Men's denim. First of all, I'm going to work with my marketing team and we're going to make sure that that signage looks amazing in stores because we deserve it. The business is starting to turn around, particularly on the top side. I will say we have some more work to do in denim. But we like the fits that are coming through. We like our nimbleness to impact the business. And other bottoms are really checking too. As a reminder, men's, that business, we tend to sell short a little bit deeper into the Q3 side of the business. So more to come on long legs, but we have a lot of read and react and we're here to deliver.

On the margin puts and takes, consistent with what we've been describing, we're managing markdowns intelligently. We'll compete when we need to. We are seeing -- we have line of sight to our initial margins that are positive and up over last year for the rest of this year. So looking to flow through that benefit. And then line of sight into early initial buys for the spring season and the first half of next year looks favorable as well. I know there's some freight disruption and some conversations around freight. Right now, we're not seeing -- we're managing that and we're not seeing any impact or decline to last year. We've got line of sight into improvements for the remainder of this year and into early next. And you're right, inventory, we felt great about the plus 4% at the end of the quarter, is in good position. It's where we want it between AE and Aerie, and categories that are driving the business. And as we look at our inventory plans for the rest of the year here, we feel the same about the remainder of this quarter and Q4.

Our next question is from Chris Nardone with Bank of America.

Can you talk through the moving pieces of your updated sales guidance for the full year relative to how you were planning the business last quarter? It looks like you took down the high end of the range. You've also talked extensively about strong quarter-to-date trends. So I'm just trying to tie it all together. And then one quick follow-up on your store growth plans. Can you reconfirm what the plans are for net store openings for both Eagle and Aerie this year?

Yes, sure, Chris. Full year sales guidance, we really -- I think the thing to focus on is the approximate 4% comp for the year. Narrowing the -- we've narrowed our range on the high end of our earnings guidance, $455 million to $465 million. That's tied to that approximately 4% comp, and then with the expense efficiencies we're seeing come through the business, feel good about kind of narrowing to that high end. And then the 2% to 3%, sort of narrowing from 2% to 4% to 2% to 3%, nothing to do with our AE and Aerie core business, obviously at a 4% comp. Just other revenue components that we have some line of sight to and just tightening some of those components up. For store plans, we've got 25 to 30 Aerie, OFFLINE still planned for this year, around 20-ish to 25 AE closings, so kind of net neutral on total stores. On the remodel front, Jay mentioned some of that in his comments, leading into the call, we're doing 70 to 80 remodels. We're seeing great results from those initial stores. We've got over 30 opened as of the end of the second quarter. Consistently seeing a lift across those stores, which is creating a lift for the brand. So excited about where that is heading. We'll be at about 70 to 80 by the end of the year. So we're executing quite a few more of those during the third quarter. And we'll be minimally doing that number next year, even talking about kind of accelerating that. Maybe more, which based on the lift we're seeing to the brand, has exciting -- excited about what that could mean to next year in 2026.

Our next question is from Marni Shapiro with Retail Tracker.

Congrats on the great quarter. And I will echo Janet's comments, Jen, the stores look amazing. So I just have a couple of questions for you, and Jay, one for you. Your fashion on -- especially on the women's side and American Eagle is turning very quickly, dresses, some of your fashion tops. So I'm curious where you guys stand on chasing, or are you pulling forward deliveries? What does that look like from your standpoint? And then you referenced some of the extensions of product categories. I'll just you pants like trousers as an example. Is that helping you to keep the consumer longer? Or are you getting a new consumer in? And then, Jay, I just want to follow-up on the real estate conversation because you guys are having great success with these new store formats and you are still a net store either opener or a remodeler. I'm curious what your thoughts are about the real estate environment out there right now. You've been doing this a long time. Do you feel like it's favorable right now? And are you able to get the deals you want?

Sure. Regarding chase, absolutely, this team is very nimble. I mentioned it in my early response. And I do like a fast turn, by the way, because it does bode well for our demand on the brand. So very excited about what we're seeing in women’s. And we are double-downing on fashion. It's really where we're getting a ton of the growth. And not only are we able to pull in these new items and do it relatively fast, we're also actually creating capsules. So it's not just random chase. I'm not in that business. What we like to do is focus on the right ideas and pull them together and curate them and deliver a new concept. And I think you're starting to see it, whether it's -- well, Coco Gauff was a collaboration, but we are bringing in capsules bimonthly and they mean something to the business, and they're really resonating to the customer. As far as thinking of new ideas, i.e., trousers, I think it's both. We're getting new customers certainly with some of these new categories, but then they are sticking around, as I mentioned. Double-digit growth in both brands on our customer file, and we've only just begun. Certainly, we have new tactics on the digital side, which is our bulletin board to the world, and we are only scratching the surface there. So a lot more to come. Jay?

Right now, we have a very healthy, kind of comfortable fleet. 80% of our stores are like Aerie sub malls. Between the combination of Aerie and now with OFFLINE, we're able to go to the mall developers and offer them some fresh products. Everybody wants freshness in the mall. And I think there'll be a lot of opportunities out there, because we have a lot of exciting things. Our new store design, as far as American Eagle goes is a very fresh design, very sharp-looking design. I think that the mall developers all will want one. Our standby stores are great stores, we put American Eagle, Aerie, OFFLINE altogether. So we have a lot of exciting things to offer the developer, and now with the potential of expanding certain categories within our stores and developing certain sub-brands, it keeps us relevant to developers and makes us one of the important people in the mall.

I'm curious if you guys -- you've had such success with these new remodels, so you're able to take parts of it and put it into some of the other stores in lieu of just a full remodel.

We do is when the store leases come up, it's a perfect time to do it. We could go with the package with the different developers, because we like to have prime -- not only do we want to have the best-looking store in the mall, we want the prime location soon. So sometimes we have to wait a little bit in order to get a certain size store that we could put all three together. So we're patient that way. But at the same time, we have a staff that's just dedicated to this, and that's all they do all day is working on these opportunities.

And Marni, we do have multiple formats. So there's -- this new design is different -- we have different options. So we can go into certain centers with a $25, $30 a foot version, keep our lease terms flexible if -- which gives us advantages or in centers, in these AE centers where we know we're going to be for a long time, we go in and do a full remodel, it could be $100, $125 a foot. Signing up with some longer lease terms which are favorable. So we do have the option to do multiple versions at different costs, do lighter touches versus full guts and full rebuilds.

And just to reiterate -- mentioned it, Marni, I briefly mentioned it, but the Aerie new store design, we have a side-by-side in Tysons, great location, right, when you come off the escalator. And we love the results here. We're definitely going to roll this out. It's definitely outperforming the average. So really exciting new design. The team really pulled through and there'll be more to come.

Our next question is from Corey Tarlowe with Jefferies.

Mike, I just wanted to ask on SG&A. Within the framework that you've outlined, how best to think about the different buckets where you see the most opportunity? And how do you stack-rank those opportunities relative to one another?

We've been talking about this for a little over a year now, the focus on core line items across the P&L, not just in SG&A, but expenses and gross margin as well, delivery rents, distribution costs. In SG&A specifically, I think we talked about 85% of our cost are in compensation lines, so store labor, corporate compensation and related expenses, advertising, services purchase, maintenance. So those continue to be the key focus areas as where we saw the leverage in the second quarter. We're managing those expenses tightly. So those continue to be the key buckets that the teams are focused on and managing to the targets we set for ourselves not just this year but out to the next two years as well.

Okay. I think we have time for one more question in queue.

Our final question comes from Alex Straton with Morgan Stanley.

Just a couple for me here. One, just a quick one on the full year revenue guidance, I wanted to follow-up on. It sounds like even though you're lowering that, it's not reflective of the worst AE or Aerie back-half outlook, is just tightening up somewhere. Can you just elaborate a little bit on that? And then I just want to make sure I understood the third quarter to fourth quarter operating income cadence. It feels like a bit of a big step down and then a bigger improvement. So I just wanted to understand the drivers there.

Sure, Alex. On full year revenue, yes, it's nothing to do with our core brand trajectory. We're talking about the strength we're seeing here in August across the business and what our 3% to 4% comp guide for the rest of this quarter considers tightening from 2% to 3% from 2% to 4% is other revenue components in our -- there's other moving parts that we're just seeing more accurate line of sight to just narrow this down a bit. So you've got license revenue, other emerging brands and some other revenue components. It's all that is. Nothing to do with AE and Aerie core business. And then yes, operating rate for the remainder of the year, we're guiding Q3 essentially flat revenue and similar income. So we hit about a 9.5% rate, 9.6% operating rate for the third quarter last year. So we're looking at something similar this year impacted by the revenue shift. We're essentially guiding flat revenue and flat income. Q4, on revenue sort of flat to slightly down, we are going to see based on SG&A leverage and expense leverage, we're expecting operating rate improvement in the fourth quarter. And then really the great equalizer is the year. So we are guiding the year to approximately 4% comp at the $455 million to $465 million range on that 2% to 3% total revenue growth. We will see nice operating rate expansion as well. The math on that gets you to somewhere around the mid-8%, so call it 8.5%. That will be a 140 basis point improvement to last year as we pass toward our ultimate goal of 10%. That's a nice improvement on top of last year's improvement. So we're well on our way to setting ourselves up to achieve those targets.

Thank you. There are no further questions at this time. This does conclude today's conference call. You may disconnect your lines at this month. Thank you for your participation.