Welcome to the AEO Inc. Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Judy Meehan, Head of Investor Relations and Corporate Communications. Please go ahead.

Good afternoon, everyone. Joining me today for our prepared remarks are Jay Schottenstein, Executive Chairman and Chief Executive Officer; Jen Foyle, President, Executive Creative Director for American Eagle 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. 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. Additionally, please see the second quarter investor presentation on our corporate website at www.aeo-inc.com in the Investor Relations section. And now I will turn the call over to Jay.

Thanks, Judy, and good afternoon, everyone. Before we get into the quarterly results, I want to step back and acknowledge the team's hard work and our conviction in our long-term plans. We had a good quarter. But more importantly, we continue to strengthen our brands, improve our runway for growth and manage the business for higher profitability. The consumer backdrop is dynamic yet we are focused on controlling all that is within our control, providing a leading customer experience while maintaining cost disciplines. I'm pleased to report on the encouraging early results the actions we are taking to reignite performance. Last quarter, I spoke about a series of actions we were implementing, and I'm pleased that the team has moved with urgency to execute. Product initiatives across brands, exciting new marketing campaigns and greater operational disciplines are all contributing to improved business results. We have a lot of hard work ahead yet we are excited about the progress so far. Total revenue of $1.28 billion was our second highest ever posted for the second quarter, marking a meaningful improvement from the first quarter and validating the actions we have taken. Aerie saw a dramatic turn from the first quarter, delivering comp growth of 3%. American Eagle saw a nice improvement in key go-forward categories as Jen will review shortly. Second quarter traffic was positive across brands and channels. And I was pleased to see traffic momentum built throughout the second quarter has continued into August. Following the first quarter inventory write-down, the team was focused on successfully managing through the season, delivering better sell-throughs with less promotions. We also managed the business with financial discipline, with SG&A down compared to last year. Operating income improved 2% to $103 million, significantly exceeding our expectations. Diluted EPS increased 15% to last year.…

Thank you, Jay, and good afternoon, everyone. We saw a clear improvement in the business in the second quarter. Efforts to strengthen collections across brands, lean into best sellers and deliver higher margins are already having an impact. As we work through some of the challenges from the first quarter, we saw progressive improvements with the new deliveries, and I am encouraged that momentum strengthened into August with the arrival of our new back-to-school collections. So let me walk you through some of the new highlights. Starting with Aerie, we drove a nice rebound from the first quarter, delivering comp growth of 3% and achieving record second quarter revenue. Performance was driven by positive demand across a number of major categories, including intimates, soft dressing, sleepwear and our activewear collections at offline. While shorts were the most challenging seasonal category, we are focused on driving improvements here as well. Among the highlights, intimates has been a key area of focus within our long-range plan, and we will recapture share in the return of this category to growth. We are pleased to see customers responding to new fits and fabrics in undies and bras and more regular fashion drops. For example, in July, we introduced the Parisian Romance fashion capsule, which embraced feminine touches like lace and sheet combos of our most loved silhouettes. Our Aerie customers loved it and it was the page turner we needed to enter the fall season strong. Beyond intimates off-line continues to be a positive performer and we remain excited about the growth potential as we continue to increase awareness and further expand our footprint. And now turning to American Eagle. Second quarter comps declined yet demand improved throughout the quarter, and I am confident that we are at an inflection point. Although the second…

Thanks, and good afternoon, everyone. Let me echo Jay and Jen by saying we were very encouraged to see solid progress in the second quarter with results coming in above the expectations that we set back in May. Stronger demand coupled with lower-than-expected promotional activity and well-managed expenses enabled us to stabilize margins and deliver operating income 2% above last year. Consolidated revenue of $1.28 billion declined 1% to last year. Comparable sales also decreased 1%. A lower average unit price was largely offset by growth in transactions, benefiting from positive traffic across selling channels. We saw demand pick up as the quarter progressed. July was our best month of the second quarter as we introduced our initial back-to-school product collections. And as Jay mentioned, we are pleased to see that improvement continue into August consolidated comps turning positive. Gross profit dollars of $500 million reflected a gross margin of 38.9% compared to 38.6% last year. Following the first quarter inventory [Audio Gap] a quarter with lower promotions. This was partially offset by 20 basis points of deleverage on buying occupancy and warehousing as a result of the sales decline. BOW dollars were flat to last year. SG&A was better than expected, down 1% to $342 million and was flat as a rate to sales. Compensation costs were down as a result of recent expense restructuring initiatives, offset by investments in advertising. The balance of expense categories were flat, reflecting our ongoing cost management program. Operating income came in at $103 million, up 2% to last year. This reflected an operating margin of 8% compared to 7.8% last year. Consolidated ending inventory cost increased 8% with units up 3%. The inventory cost increase is primarily due to the impact of tariffs. We're comfortable with inventory positioning for the quarter, which…

[Operator Instructions] Your first question comes from Jay Sole with UBS.

I want to ask about the Sydney Sweeney and the Travis Kelce campaigns. Obviously, I think, Jen, I think you mentioned 40 billion impressions, which is a huge number. The question is, can you tell us more about how you keep the momentum going with these new customers that you've attracted? And can you tell us about what those consumers shop? Do they buy just the specific product associated with the celebrities or did they shop across the store and buy tops as well as bottoms?

Sure, Jay. I wanted to introduce Craig Brommers because we had a feeling that there would be a lot of questions around this very exciting campaign. So let me introduce the American Eagle, CMO, Craig Brommers.

The American Eagle Sydney Sweeney campaign was intended to be a brand and business reset, and it has. Let me be very clear, Sydney Sweeny sells great jeans. She is a winner and in just 6 weeks, the campaign has generated unprecedented new customer acquisition. To be clear, that consumer acquisition is coming from every single county in the U.S. This momentum is national, and it is pervasive. We've experienced denim sellouts of items that Sydney has worn. We have strong positive traffic throughout this quarter and as Jen mentioned, a staggering 40 billion impressions. But a brand campaign is not to be judged in just 1 day, 1 week or even 1 month, a brand campaign endures. We are off to a start beyond our wildest dreams. As we track consumer sentiment over the past 6 weeks, we've seen consideration and purchase intent meaningfully up and now it's our opportunity to continue to convert this buzz into business and to convert these new customers into repeat customers. That's the work of the work ahead.

And to add on, Jay, what they are buying right now. I mean what's great is all brands are really seeing acceleration. As you know, we share a domain on the direct side of the business. So we're obviously driving traffic to our website. Labor Day was record breaking. It was our best Labor Day in history actually. We had a great weekend. But there's work to do in the quarter, of course, you heard that there's some sellouts we need to chase. But really across our key categories, we're seeing great success. Jeans of course, we do it very well and really proud of that assortment. What I love about the jeans assortment is it's diversified. So we're gaining new customers with all different body types and age groups, and we're very excited, and we believe we're getting that market share that we deserve. In Aerie intimates is back. It's so exciting to see, and we saw that acceleration in Q2 and really, it's continuing into Q3 with the launch of our Parisian sheet capsule that I mentioned in my talking points. And lastly, men's acceleration has been more than exciting. We've been really up to repairing the men's business, and we're seeing categories work. And again, in both men's and women's, what's nice is we're selling the outfit. We're selling tops as well.

Maybe, Jen, if I can follow up on that. Obviously, the marketing campaigns have been hugely successful, but you're talking about intimates at Aerie and you're talking about men's. Can you just remind us the transition of the products from where they were in the first half of the year to how the product assortment has evolved now for back-to-school and what you see toward holiday? How much of the improvement in the business is just because the assortment is better, it's more on trend. It's where you want it to be versus kind of where you were in the first half and try to separate it from all the coupon excitement around the marketing campaigns if possible.

Yes. Great question, Jay. Where we started is Aerie had work to do. Our key competency business is fleece, I mean, in the apparel side, and we had work to do on the fleece side. What's nice is the team worked really hard, and we've seen really incredible results in fleece. So as you know, that's a seasonal business as we head into Q3 and build into Q4, but seeing nice uptick there, intimates as well. We started to see intimates turn on actually in Q1. We doubled down in Q2, and we've seen nice acceleration into Q3. That's really basically the Aerie story. There were some seasonal products in Aerie, shorts being one of them, which was the same for American Eagle and both in both men's and women's. Shorts was really the category that we needed to get moving. And as you know, we dominate in that category. And we really couldn't accelerate long bottoms, long legs in both men's and women's to compensate for the miss in shorts. But as the quarter progressed, we saw nice upticks in the AE business, and now we're back in business in Q3. We're very excited for like I mentioned, not only our jeans business, but our tops business, sweaters and fleece in both men's and women's. And again, they're seasonally appropriate. So that's what we've been up to.

The next question comes from Paul Lejuez with Citi.

Can you give a little bit more on the comp metrics, transaction ticket, maybe the components of ticket in terms of AUR and UPT. And then you gave a couple of tariff numbers. Just curious if those were gross or net, whatever they were, if you could provide the other number. And how much are you relying on pricing to get to that net number?

Paul, yes, I can start -- I can actually cover both questions. Metrics for the second quarter, AUR was down mid-single digits. So the negative 1 results, we had actually had some healthy traffic, but with the AUR down 5%, UPD didn't offset that completely. We were able to manage that well. Our AUR on our digital channels was actually flat. And that's where some of the really markdown savings and management promotions came through the quarter, really flowing through the revenue beats pretty much all the way to the gross margin line to be able to manage markdowns pretty well through the second quarter there. On tariffs, yes, we're providing the guidance here for the third and fourth quarter, about $20 million of impact in Q3, $40 million to $50 million in Q4. So that will pressure gross margin a bit on the low single-digit revenue guide. The team has done a tremendous job there. Our unmitigated number was closer to $180 million versus the $70 million we're guiding to. So a combination of rebalancing country of origin, cost negotiations with our vendors, optimizing freight between air and ocean costs, some -- and then some pricing. So I'd say pricing is down the list. We're taking our shots there. We have increased some tickets, just gives us some flexibility in promoting those items where we haven't seen really any customer resistance to some of those increases, but it's not -- it's not the largest mitigation strategy. There's other components I just talked about that the teams have done a great job for mitigating the back half impact and the annual impact go forward.

I guess just relative to that down mid-single-digit AUR in the second quarter, what are you expecting for the backhalf?

Third quarter to date, we're actually up slightly. We're up low single digits on AUR. The combination of AUR and traffic was driving the mid-single-digit increase as of quarter-to-date through literally yesterday. We're expecting that same type of dynamic for the back half on the low single-digit expectation.

The next question comes from Jungwon Kim with TD Cowen.

You mentioned intimate improved during the quarter. Could you just remind us what percentage of sales intimates is now for Aerie? And could you just give us more color around the strategy to recapture share there. And would love additional color around how the existing consumers perform. You mentioned a nice customer -- new customer acquisition, but any color around the existing customer during the quarter would be helpful.

Sure. Intimates is roughly 1/3 of the business. And Look, we felt like it's time for intimates to come back. There's been some trends out there where crop and baby tops, baby tees and cammies were working, and I think they actually took the place of a key category for us. So I think our timing was right on when we launched the Parisian collection with lace. As we know, intimates is lace and it works. So we're excited about just really double downing on that business. We feel like it's time for Aerie 2.0. We just launched a campaign that really highlights bras. It just launched, highlights undies, it highlights our intimates categories. It's pretty exciting. And again, there's not a lot of news there on the campaign as we're only underway, but it really just leans into our customer and letting her speak to our product because our intimates are the softest and they feel the best on your skin. So we're really excited about talking about this whole new idea and leaning into a category that we haven't been up to for a while, and it's time. It's time for intimates to come back.

This is Craig. I want to talk about the new customer acquisition. We decided to level up with talent this season, and we architected with intent. Both of these individuals are generational talents that are aspirational to both men and women. And as I just mentioned, we're seeing a national swell in new customer acquisition in every single county. And we've just moved from one strength to the other. Sydney Sweeney has great jeans with all about our best at category jeans. And as Jen mentioned, our Q3 is off to a significant start in terms of our denim penetration. Within last week, we bring Travis Kelce into the conversation, and Travis is at the intersection of fandom and fashion. Sports is driving culture in a way that it has never done before. And Travis is driving interest in fashion like never before. The launch date was the launch date was the launch date. And despite other news, we started working with Travis almost a year ago. Travis was the Creative Director of this campaign and of this collaboration. He was personally in our design offices, working with our designers. He personally picked up fabulous events. He personally identified the amazing athletes that help tell this story. And this collaboration is off to an incredible start, just dominating our men's business over the course of the Labor Day weekend, building on the men's momentum that started in July. We could not be more excited about these back-to-back campaigns.

The next question comes from Janet Kloppenburg with JJK Research.

Hi, everybody, and I want to extend my congratulations. I'm particularly excited about the intimates business and also about the men's churn. On that note, is there any product category that's not working at Aerie right now, like the sportswear side of the business. Jen, maybe you could talk a little bit about that and about the intimates business and if you're thinking that it's going to sustain these strong comps going forward? And then just lastly, on denim, are your ticket prices higher? Or will they move higher as the quarter unfolds.

Yes, I'll just start with denim. I mean, Mike alluded to it, denim is our key category. So if you focus on the AE business, our AURs are nicely up, but I think we've done a great job just balancing out our price points. That's what we're up to. We have key price points in denim that we always learn from and build into. And that's what we did, obviously, when the tariffs hit, we had to think a little harder. So I think we're well positioned in denim with good, better, best pricing, but really trying to elevate our customer and getting them to pay for the quality that we embed into our product. Going to intimates, there's so much good news in intimates. Undies, we picked up market share, a nice stack in market share actually. And as we know, that's a fire starter to our bundles in Aerie, so to see that business come back is really exciting. But bras, our core bras, again, we've held our share, and we're gaining some more share. And I think that that's our focus. We really want to lean into these categories. It's a category, particularly in bras that the customer comes back for to try on to get to our stores to experience the brand. So honestly, again, that's what the teams are up to. Hopefully, we're going to show up really unique. There's more ideas in the hopper. Like I said, we're only up to Aerie 2.0, and these new learnings are going to help us accelerate into 2026, particularly in intimates as we're just seeing nice new wins there. Off-line is continuing...

Yes, offline is good, right. Yes. And what about the soft apparel, is it good?

Yes. Soft apparel, that's what we were leaning into. That's what our learning was from Q1. I think we went to fashion, there was too much fashion. We needed to balance out the price equation as well as what that customer expects from us. Now we have sets. We have a set called the Jet set. It's amazing. If you don't own it, get into it, it's your best travel set out there. And we have just core competency, crew necks and fleece and it's just really nicely working for us. So soft apparel is great. It really was shorts. And as you know, we even lean into shorts into August. So if I was going to articulate a soft category across all 3 men's, women's and Aerie and off-line actually, all 4, it would be shorts. They were soft.

Okay. Terrific. And with respect to pricing, Mike, will we start to see a broader range of select price increases as we go forward? Or is it over? Did you take them and it's done?

I'd expect that to be ongoing, Jen, I think as we look at our forward plans into the first half of next year, we're going to continue kind of all levers of mitigation for tariffs. So pricing will be a component of that, but kind of optimizing country of origin, cost negotiations, air ocean freight optimization and other expense line items through the -- that embedded in our landed cost will be the bigger levers, pricing will just be one tool in the kit.

The next question comes from Alex Straton with Morgan Stanley.

Congrats on a really nice quarter. I just had a couple of questions here. Maybe first for Mike, just on the back half gross margin where you're guiding to a decline for both the third quarter and the fourth quarter. It looks like fourth quarter decline is maybe 2x worse or so than the third quarter. So can you just walk us through the gross margin pieces? Is that just tariff? Or is there anything else in there? And then maybe separately, just on these recent campaign launches and some of the sales momentum that you've garnered on the back of them. Do you have a sense for how long top line momentum lasts after those? And do you have more sort of in the hopper following these pretty big 2 campaigns?

So I'll start with the gross margin question. Yes, to your point, the fourth quarter impact is a little larger, definitely tied to the tariff impact guidance. So $20 million for the third quarter $40 million to $50 million for the fourth quarter. So you've got a little more pressure there from tariffs in the fourth quarter. And we do have some embedded promotions assumed. We've been managing that really well all the way through the second quarter. August markdowns came in ahead of where we planned them as well. So we're leaving that embedded in our assumptions, but the team has done a nice job of optimizing that -- the promotional levels each week, especially digitally. So could be some upside to that assumption within the gross margin. And then we do with the uptick here in the back half, this mid-single-digit trend, digital is definitely a big driver of that. So you've got your distribution and delivery costs kind of variability in that. So if the mix does lean heavier toward digital, we've got some variable expense in the BOW lines in the expenses and gross margin. So with a low single-digit assumption, we have some BOW deleverage between that line and then sort of the full back half impact of the Aerie and offline openings that are largely second quarter and third quarter weighted. So we'll have a little pressure. So it's equal parts, kind of some expense deleverage on a low single-digit assumption and the tariff impact and some embedded promotions that we believe we can probably -- we believe we have seen actually some optimization of that through the second quarter and through August. So some opportunity there still. On the sales momentum, Craig, I don't know if you want to jump in on that one.

Yes. Thanks, Mike. I'll go ahead and talk about that. The new American Eagle history has just begun. We're excited to introduce new chapters in the future. As we've already publicly announced, there will be a second drop for the American Eagle Tru Kolors by Travis Kelce collection. We've seen incredible interest on this first drop, can expect even more in the second drop as the NFL season begins and Travis is front and center in the national conversation. Additionally, Sydney Sweeney has great jeans, is not going anywhere. Sydney will be part of our team as we get into the back half of the year, and we'll be introducing new elements of the campaign as we continue forward.

[Operator Instructions] The next question comes from Chris Nardone with Bank of America.

Thanks, guys. Good afternoon. I just had a question on the tariff impact. It sounds like the $40 million to $50 million in 4Q is roughly 250 to 300 bps. Is this a fair assumption as we think through the mitigated impact for the first half of next year? And then, Mike, nearer term, on your back half gross margin guidance, just a follow-up on Alex's question. What are some of the positive offsets to drive some muted gross margin expansion to absorb some of the tariffs?

Thanks, Chris. Yes, I think if you play forward the tariff impact, I talked about $180 million unmitigated kind of back half impact here, but the team has done a nice job knocking it down to this sort of $70 million-ish projection we have. If you start with all the country of origin remixing that's happened here in the back half, China, where we know we were -- had a higher penetration coming into the year is mid-single digit now on a full year, but low single digit for the back half. Some other -- India is small for us, rebalancing some things out of Vietnam. So if you start with just even the country of origin remix on an annualized basis next year, that number probably around the $250 million to $300 million number to start. So there's some benefits there initially. And you have continued cost negotiations and all the other components I just talked about as far as levers. So we -- latest projection as we're playing forward '26 numbers now is somewhere in that $125 million to $150 million range on a full year basis with more work to do. And we are. We're uncovering every stone around all other embedded costs in our gross margin. There's still opportunity for delivery optimization. We've got a longer-term supply chain network optimization plan and that we're in the middle of to optimize those expenses and gross margin. We talked about or we updated our store closure number, if you noticed in our prepared remarks, to about 35 to 40 stores this year. That's kind of double where we've been in the last several years. So as we know that our digital penetration is picking up, we're going to continue to rebalance our fixed versus variable expense base by really looking at rebalancing the store fleet, especially on the AE side, so closures with repositions while we're still opening Aerie and offline locations. So we're going to look at every single line item like we have been for a few years kind of on all of our expense management endeavors over the last 2.5 years. We're going to continue to do that to find offsets to this tariff impact through gross margin into next year.

Got it. And then Jen or Mike, can you just talk a little bit about some of the progress you're seeing in the men's side of the business given the campaigns and whether you're seeing greater comp growth in your denim business versus the rest of the AE brand?

Yes. I mean denim has been certainly trending very nicely. It's actually on par because it's such a big penetration to our business, so we obviously love the results. Men's has been a journey for sure. The team has been -- we have -- first of all, we have a new merchant who's come in strong and has some great ideas. And starting in Q1, we really just took charge and really pivoted that business and said, we cannot -- we need to get this business back for obvious reasons. And it was our time. And I think they've done a nice job balancing out the fashion. So tops, graphics, polos, polo sweaters and of course, our bottoms, mostly denim have been significantly on an uptick. So we're here to deliver more, and we know we are still owed more on the men's side of the business, to be perfectly frank. So the team is looking at how fast we can grab that.

The next question comes from Rakesh Patel with Raymond James.

Congrats on the strong execution. I had a question on the duration of the Sydney Sweeny and Travis Kelce campaigns. Are these a 3Q initiative? Or should we expect to run through the rest of the year? And just given the success that you're seeing, how should we think about what's embedded in your marketing spend for the back half of the year?

I'll take the first part of that question. This is Craig again. The Sydney Sweeney Great Jeans campaign is here, and we'll continue with it through the remainder of the year. And again, we'll be introducing new elements along the way. Travis is just getting going. The first week has just been astounding. The traffic, the new customer acquisition, the sell-through is so incredibly strong, and we're excited to drop a second drop in the coming weeks, again, at a height of the NFL season. And so this is a moment to take big swings. And we have big talent, we have big amplification. The world is talking about it. We know that purchase intent is significantly and meaningfully up, and we'll be looking to convert this buzz into business all through the back half of the year.

Yes, I can add on to -- I was just going to address your average advertising expense question. So within SG&A, we -- high single-digit expectation for SG&A growth in the third quarter, largely the advertising increase to support these campaigns. All the line items are up slightly, leading to that high single-digit results. But then for the fourth quarter, we're looking for more of a result similar to the second quarter, meaning SG&A dollars being flat to actually slightly down. Advertising would still be up a bit, and we're going to kind of manage that week to week. So I expect advertising to be up sort of low single digits. A large portion of this expense to support the campaign is hitting the third quarter, even though we will continue some things into the fourth quarter. And then the rest of SG&A outside of advertising is going to be down slightly in the fourth quarter. So yes, the brunt of the advertising expense related to everything Craig is outlining is in the third quarter.

Got it. And then also I had a quick question on inventory. Just curious, given the acceleration that you're seeing in the August comp, how we should think about inventory plans for 3Q and 4Q?

Yes. So we're very pleased with our position coming into the second quarter, as we talked about. Our trend is up mid-single digits. Units were up 3%, costs up 8%. That differential of 5 points pretty much all based on -- driven by the tariff impact. I would expect a similar dynamic through the quarter during Q3 and then into Q4, we -- same idea that there's going to be a tariff impact, unit increase, we think be more commensurate with our sales trend. We are chasing some things at the moment that may have an end-of-quarter impact. But anything we're chasing now is largely in jeans and has long life kind of non-markdown liable goods attached to them for the fourth quarter for holiday and a lot of things don't carry, especially the jeans assortment carrying through the first half of next year. So very pleased with where we sit with inventory, and we'll continue to manage alongside our revenue expectations, especially on the units growth, knowing there's a tariff cost impact to the balance sheet dollars.

Next question comes from Corey Tarlowe with Jefferies.

Great. Mike, I wanted to ask on SG&A. I noticed in a while that SG&A actually leveraged in the quarter on a negative comp. And we haven't seen that in quite some time. So could you maybe talk a little bit about in the quarter about some of the changes that you've made in the business from an SG&A perspective and kind of what sticks, what comes out and then -- and how to think about that going forward? And then maybe what the leverage point might be on comp to actually drive some leverage on SG&A?

Thanks for the question. I think we've been talking about this for a good 2 -- almost 3 years now around our expense management initiatives. SG&A has definitely benefited from work on those major lines that we always talk about. I mean the biggest drivers of SG&A are store salaries, corporate compensation, advertising and our services line. So that's like 80% plus of your SG&A incentives built into that compensation bucket. So we've been hard at work at that for a few years. The second -- really this full year as a result of that, even though there's some -- with advertising kind of being pulsed by quarter. The full year is going to be up in our projections here basically you piece together the guidance, 1% to 2% with advertising being the only thing actually up and everything else being kind of flat to down. So those efforts are in place forever. As we look forward to '26, we'll just be back to what we've been continuing to talk about, which is that longer-term 3% to 5% revenue algorithm. We intend to keep SG&A flat or even leverage SG&A on that kind of revenue result. So a comp in that kind of low to mid-single-digit range with total growth in that 3% to 5%, we intend to leverage SG&A. That's our continued goal go forward.

Got it. Super helpful. And then just a quick follow-up, if I could. I know that you talked about in the release lower compensation costs. So and I think incentive comp might have come out initially. Does it come back? What does it look like this year, next year?

Yes. We definitely -- I mean we did some restructuring things in the first quarter. We had some benefit in the second quarter around that. We'll continue to look at opportunities to optimize compensation in total across the P&L. Incentive comp is down this year. So we'll look for mitigation efforts if there's some sort of normalized number next year. But we'll talk about that when we get to '26 guidance when we actually set those incentives -- annual incentive plans, provide more color at that point. At the end of the day, we're going to look at SG&A as a total bucket. And again, just reiterate that goal that on that 3% to 5% revenue expectation on a longer-term basis, our intent is to leverage SG&A at that level.

Our last question comes from Marni Shapiro with The Retail Tracker.

Congratulations on the improvements and the denim has just looked absolutely outstanding. So I'm curious on a couple of things. I just wanted to clarify in the inventory increase. Was any of that pull-forward inventory? I don't know if I missed that, but I just wanted to check on that. And then Jen, can you talk a little bit just about in the product assortments, Travis Kelce has this full kind of assortment, Sydney Sweeney had her sold out butterfly jean. And then I think Syd's picks, I think that's what you titled it. Are you going to do a real collection with her? And then kind of just thinking into next year, if it's not them, could these things continue with other people is something that you would look to do again?

I can take the inventory quickly. So minor, there's a little bit of pull forward of inventory based on the timing of all the tariffs intentions there in early August, but very minor in the grand scheme of our plus 3 units, plus 8 cost.

Early reads on Travis has been strong, as we mentioned. And the nice thing is we're selling at really high price points. The customer is loving it and it's right price. So we love that. And as Craig mentioned, we have a second drop and we'll see what's in store for the rest. Sydney Sweeney, again, really nice sell through on the butterfly jean. The team have -- we have ideas cooking. Let me just say that, and just moving into great jeans, that's really what I'll say for now. There's more to come. We're thinking about some exciting holiday campaigns and how we leverage the product within these campaigns.

Okay. Don't spill the tea then. Can I just ask you one quick follow-up on swimwear. Now that we're out of swim season, and it's been kind of an up and down category for you. Have you hindsighted '25 and even '24? And how are you thinking about it for spring of '26?

Well, let me just say, based on our short business, I'm glad we didn't overpitched swim. So we really did a great job pitching that business. We sold out of fashion. We planned it accordingly. We actually beat the plan. We didn't have a lot of clearance at the end of the season. So we're going to take those lessons and apply them for future seasons. It is an up-and-down category, and we're going to take those lessons that we've learned, again, over a few seasons now, a few spring seasons and apply them on the go forward. We have a new lens, our new merchant who's in place who's been with us for over 6 to 8 months now. She's doing a great job, and she has some new ideas. She brings some fresh perspectives for the business.

Thanks, Marni. All right, everyone, thanks for your participation tonight, and have a great evening.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.