Good afternoon, everyone. Welcome to the AEO, Inc. Fourth 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. Today, we issued our fourth quarter and fiscal year 2025 press release. Note that included in the release and during this call, certain financial metrics are presented on both a GAAP and non-GAAP adjusted basis. Reconciliations of adjusted results to the GAAP results are available in the tables attached to the earnings release, which is posted on our corporate website at www.aeo-inc.com in the Investor Relations section. Here, you can also find our fourth quarter investor presentation. During today's call, 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. Today, we have a change to our conference call format. Due to the passing of Jay's mother, he is unable to join the question-and-answer section of the call. We extend our deepest condolences to Jay and the Schottenstein family. Today's call will include Jay's overview and highlights, which were prerecorded. Joining me for the call are Jen Foyle, President, Executive Creative Director for American Eagle and Aerie and Mike Mathias, Chief Financial Officer. And now we will begin the call.

Thanks to the hard work of the team, we made meaningful progress this year and delivered a strong fourth quarter. Following a tough start to the year, I'm extremely proud of how the team course corrected with a deliberate action plan that ignited growth, improved profitability and cash flow, fueling a strong finish to 2025. Initiatives across merchandising, operations and marketing, continue to strengthen our company and position our brands for long-term success. We remain committed to driving enduring profitable growth and strong cash flow for our shareholders. Let me walk you through the highlights of the quarter, and Mike will go through the numbers in detail. We delivered double-digit sales growth in the fourth quarter ahead of plan. This represented an acceleration from the third quarter to produce our best quarter of the year. We also achieved record-breaking results through the Thanksgiving and holiday season, building on the approved trends that began last summer. Margin performance was solid and drove enhanced operating efficiencies. We were thrilled to see the remarkable momentum at Aerie and OFFLINE, which delivered 23% comp growth. Robust demand was broad-based across categories and channels. By leveraging our stronger market position and heightened demand, we exited the quarter with record brand awareness. And customer acquisition was up in the double digits. With successful expansion underway across a number of categories, we see significant runway to continue to build Aerie and OFFLINE and capture new audiences in the years ahead. I'm also pleased by the consistent and steady progress we've seen at American Eagle. Comps grew 2%, accelerating from the third quarter with growth across genders. Product initiatives are delivering more newness and fresh trends right collections. Following impactful partnerships with Sydney Sweeny and Travis Kelce, Martha Stewart's holiday campaign, reinforce AE's cross-generational appeal as the ultimate…

Good afternoon, everyone. I want to begin by underscoring how pleased I am with the fourth quarter performance. Our commitment to product leadership continues to be a key engine that's driving our business, and that's true across all brands. As I'll share, we saw a widespread improvement in the majority of our categories. There has been a clear acceleration in demand in certain segments as our customers respond to newness, color and trend-right fashion. Compelling new collections in fleece, tees and knits, coupled with the growing accessories business within AE and Aerie are together supporting our layering and outfitting strategy. As you've heard, following the first quarter 2025, we initiated a number of process changes and the reorganization of the teams and talent. We began to see the results of this work mid-year. I'm proud of the quick execution, and we are excited to carry this momentum forward. I'm confident that we remain very well positioned for profitable growth in 2026 and beyond. Now let's review our wins and opportunities by brand. Turning to Aerie first, where we have experienced strong acceleration in demand, strength has been broad-based across all categories, including intimate, soft dressing and OFFLINE activewear. Fresh flows of new and exciting collections, coupled with category expansions in areas like sleepwear kept the customer engaged throughout the season. We grabbed our community’s attention with must-have products and position them in the most relevant ways. Aerie apparel was strong across both tops and bottoms as a result of great fabrication, on-trend fun prints and winning color stories. I am particularly encouraged by the continued momentum in intimates recording some of our best ever results in the quarter with matchback sets fueling demand. OFFLINE had another incredible quarter with steady sales in active bottoms and double-digit growth in sports bras,…

Thanks, Jen, and good afternoon, everyone. 2025 results reflect the actions we took to strengthen the fundamentals of the business, make operational improvements, introduce new compelling product collections and launch strategic marketing initiatives. These steps strengthened our foundation for long-term success and drove a sharp improvement in trends throughout the year across brands and channels, even as we navigated a dynamic retail industry in an unprecedented tariff backdrop. Our strong performance in the fourth quarter is a testament to this work with results coming in ahead of expectations across margins and profitability. In the quarter, consolidated revenue of $1.8 billion increased 10% to last year, fueled by comparable sales growth of 8% with Aerie up 23% and American Eagle up 2%. We saw across-the-board improvement in trends with an acceleration from the prior quarter. KPIs were favorable with growth in transactions across brands driven by higher traffic. The average unit retail price was flat to last year. Gross profit dollars of $651 million increased 9%. Gross margin declined 30 basis points to 37% from 37.3% last year, which included net tariff pressure of approximately $50 million. On the positive side, the leverage from strong revenue growth, lower costs, favorable currency and overall operational efficiencies partially offset tariffs and higher markdowns. Buying, occupancy and warehousing leveraged 50 basis points due to higher sales and a continued focus on operational improvements. SG&A increased 4% to $418 million and as a rate leveraged 120 basis points to last year, driven by strong revenue growth. Planned investments in advertising were offset by our continued focus on disciplined cost management and lower incentives. Adjusted operating income of $180 million was above our recent guidance of $167 million to $170 million, driven largely by very robust sales and margins at Aerie and OFFLINE. The adjusted operating…

[Operator Instructions] Our first question today comes from Paul Lejuez with Citi.

Two quick ones. Gross margin, can you talk about what you expect once you move past the first quarter where obviously you've got the comparisons. Maybe you could talk 2Q through 4Q. And then you mentioned increased markdowns again this quarter. I'm curious if you could talk more about which brand you saw the higher markdowns, maybe which category is needed to be promoted to drive sales, and how you think about the promotional outlook for the rest of the year?

Paul, on gross margin, yes, I think we know that last year was a little different with where we broke down inventory in the first quarter and pulled markdowns forward. So I think as we talked a little bit different points that if you really look at kind of 2024 gross margin cadence and then the impact of tariffs around that $30 million each quarter, we're looking at gross margin sort of in that mid- to high 30% range in the first quarter, a little lower than that in the second quarter. And actually, 24 less tariffs would get you pretty close to what we're expecting for the first half of the year. Second half then, we're looking to expand our gross margin performance, anniversarying tariffs as is, I mean we're guiding tariffs to essentially the same thing we've been talking about really the IEEPA impact of that $130 million plus per year. We'll know a lot more come May of really what that's going to look like by quarter. But if you start with that as what should be a worst case then we'd look to expand upon the gross margin results we just saw in the third and fourth quarter of this year at, call it, like a mid-single-digit comp results. We've got some early indications on costing for the third quarter time frame at this point. The team is doing a great job there. And controlling costs, all the other costs within gross margin, we've been very successful with that to date and expect to continue that. So we'd look to expand upon gross margin improvement -- on gross margin in the back half. At markdown front, I think you talked about in the January time frame after at ICR and after our holiday sales release around being well controlled across categories for the most part. We talked about bottoms in the jeans business and the jeans category being promoted a little deeper to compete. And that was having kind of a mix impact in the AE brand, where markdowns were up a bit in total. Aerie, on the other hand, the AUR was up in the quarter. With the growth trajectory of the business, they've been able to really control or even reduce promotions a bit, AUR was up mid-single digits in the fourth quarter and markdowns are actually down favorable for Aerie. So the mix of the business is very favorable for us with really a couple of bottoms categories, especially jeans being promoted a little deeper.

Should we expect that to continue, the markdowns to be higher at AE and lower at Aerie?

We -- it's Jen, by the way, Paul. We do expect some pressure in denim. And we feel good about our positioning, though, as we bring in other bottoms. That's what we're really excited about. So there's new bottoms that we've been testing, not only just in long legs, but skirts and shorts, early reads have been positive. As you know, we have a huge spring break customer, and we're just on the cusp of this right now. In fact, we're in Miami right now, and we can see them coming into shops. So we're excited about the way we're positioning. And the beauty about these brands, Paul, is that we have a portfolio of brands, right? We can pulse and throttle categories that we need to, but also get into new categories that are trending. So we feel really good about where we're headed as we get into peak spring break in all brands and some of the new categories that you'll see us introducing more and also just to lean on to Aerie, Mike said it, we've been pulling back on promotions. They've been doing a nice job balancing out competing and pulling back promotions. And it's only just begun here in Aerie. We have a spring break again. I mentioned it already for all brands. It's coming our way and swim, early reads on swim have been strong, but that's a category that we're looking to build margin and not just unit-based promotions.

The next question comes from Jay Sole with UBS.

A few questions for me. Just number one, Mike, how are you thinking about store openings this year? And sort of you gave us comp sales guidance for the first quarter of the year, but how you think about total sales? And then the Middle East business, can you just give us an update on how you're thinking about that business given what's going on? And then can you also explain lastly, the impact of the quiet, the changes to the quiet logistics, what impact is that having on EBIT dollars? Those are my 3 questions, to start.

Sure, Jay. Store openings, we're looking at 35 to 40 openings for Aerie and OFFLINE this year. Just to reiterate, we're probably expecting somewhere in the 25 to 35 in terms of net closings for AE as we continue just to refine and optimize the AE store fleet so you can model that or assume those plans for the year. Total sales then, we do have total sales to comp actually would be pretty similar. So we gave high single-digit comp guidance for the first quarter. Total revenue will be similar to that. Just based on the fact we do have a bit of a comp spread in our brand sales, but then with the disposition or the closing of Quiet, you'll see a reduction in total revenue because of that third-party revenue. So the net-net is that comp result in total revenue should be similar. And yes, I mean, just to expand upon that guidance a bit. We -- high single-digit comp for the first quarter. We're looking at sort of mid- to high in the second quarter and then mid for the back half, so you get to kind of a mid- to high comp expectation for the full year then. And then again, with total revenue and comp being similar for the year. Middle East, our team is doing a nice job just connecting with our business partners there, really Alshaya in the Middle East and then our JV partner with Fox in Israel, definitely some disruption to the business -- their businesses at the moment. Alshaya stores are actually mostly open at this point after some initial disruption, but the stores in Israel are still closed. Reminder that the license business on one hand and a JV on the other. So the EBIT impact to us would be -- quantified what we think assuming that this -- the war wraps up in the first quarter for now that the impact of the first quarter will be very minimal to us from an income or EBIT perspective just based on the structure or the relationships there being kind of licensed and JV. And then for Quiet, again, you'll see some quarterly revenue reduction from what was about a -- probably about a $60 million total number in our 2025 results. So that will wind down here at the beginning of the year and go to zero as we get to end of the year here. And then we talked about the restructuring in total, which Quiet as a part of being around a $20 million benefit annually. Again, we're in a bit of a wind down mode but with the other kind of corporate restructuring and store impairments, we're expecting probably at least 50% of that, maybe a little more to benefit this year, but we'll provide some updated guidance with especially how the cadence of the Quiet business shutting down here in the next several months.

The next comes from Matthew Boss with JPMorgan.

Congrats on another nice quarter. So Jen, with Aerie comps up high teens in the back half of the year, could you break down the inflection in the business if -- maybe if we looked at it by customer file or key category performance? And then so far in the first quarter, have you seen any slowing relative to the low 20s comps that you saw in the fourth quarter?

Very similar, Matt. We're seeing nice momentum headed into Q1. Look, back in Q1 last year, we knew it was the time for all brands, not just Aerie for us to pivot, focus on our product, deliver and gain momentum going into the back half, which is typically our Super Bowl. We have all brands. It's our big quarter, Q3. And I think the team is really -- that's what we did, right? We focused on our product. So if you look at Aerie, certainly, what was really exciting in Aerie, not only new categories, i.e., sleep, which delivered a lot of growth for the brand. OFFLINE is moving faster. Honestly, it's one of our fastest-growing brands in the total portfolio that I've seen in history. So OFFLINE is very exciting. And then, of course, AE. But going back to Aerie, the most important thing is that all categories really worked. And I think that's important as we look forward, Matt, because when you think about just the newer trends and trends are moving faster, I think Aerie then can throttle on either, let's just say that more hard lines become trending, whether it's suiting or more straight line is what I can say. If Aerie is a softer business, we have all the layering pieces. We can support those businesses. And I think that's why we're expanding our offerings in Aerie so that we can lean into other categories when trends change. And I think it's really working. And there's new things to come, too. We have new businesses that we're developing, new ideas. The team is running very flexible. I mean, we're really trying to work on flexibility, newness, and I think that's what's winning, just delivering these new product offerings when it's not expected, seems to be really working for the Aerie brand. So more to come here, but we've seen nice momentum into Q1, and we're going to focus and continue to deliver.

That's great color. And then, Mike, on the expense side, with reinvestments, I think you cited marketing this year. How best to think about the leverage point in the business for SG&A? Or any changes relative to historical flow-through to consider?

Yes. We have another 2 quarters here of this intentional and strategic increase in elevation of our advertising spend. So you're going to see in the first quarter -- or first 2 quarters here, like over 50% increase in advertising dollars, which is, again, is intentional. So I think that's driving SG&A in the first half, up in the low double-digit range with all other expense categories being managed as we have successfully for a few years now, kind of low to mid-single digit and leveraging nicely on the sales expectations. So it's really advertising, driving the dollar increase and advertising is going to drive some deleverage in the first and second quarter. When we get to the back, at this point looking to -- at least our initial plans is for advertising dollars to be relatively flat, maybe a slight increase. So we plan to leverage advertising in the back half of the year, once we're anniversarying the elevated spend that started last year in the third quarter. And then the rest of the -- again, the rest of the SG&A lines being well controlled, may have a little bit of incentive comp increase compared to this year in both the third and fourth quarter, a little more in the fourth quarter. But we're looking to leverage SG&A though, across the back half even with that. So we'll get back into a cycle Matt, then starting in the back half of the year and forward 12 months into '27 that we want to leverage this expense based on a mid- to high single -- sorry, a low to mid-single-digit comp. The plans at the moment and the guidance we're providing, we're looking to expand upon some healthy operating rates in the back half once we anniversary tariffs and this elevated advertising spend, and we want to carry that into '27 on a 12-month basis going forward to get this operating rate back -- going back to the high single digits.

Mike, I think that's a great point, too. When you think about marketing and our strategy, really, it was about relevancy for American Eagle for the American Eagle brand. And I'm sure you've seen many of the tactics that have gone viral out there for American Eagle. And then Aerie, it's really been awareness. And boy, has that strategy worked. We've grown our brand awareness over end points, it's huge. It's a huge number. I'm really proud of the team there. And now the teams are up because keep in mind, we share a platform. Now what we want to do is get that customer shopping back. Coming back to us. We want peak performance from these customers. We want them to come back through our doors or onto the site, and those are the tactics that we're working on.

It's great, Jen. We are 5% this year and our teams work very closely on a week-to-week basis on -- there's a campaign pieces of it, and then there's the week-to-week spend on kind of digital media performance marketing that we're managing very closely. And our teams are doing it very well together and come to Jen and I on those fronts on kind of managing that week-to-week. The intent, as we talked about then is kind of maintain that 5% spend into the sale increase, maintaining that. We think this elevated level, all the metrics Jen just said, moving in the right direction. We like what we're seeing, it's why we're continuing it. We think it's the right new baseline to run the company. We'll make some changes based on what we see, rebalancing some of the spend between kind advertising strategies, maybe across tactics around talent versus media performance spend, just trying to find efficiencies in other line items like content creation, or relooking at some plans into '27 around rebalancing some of those things, and we're continuing to manage it that way. But this kind of 5% new baseline is working for us.

The next question comes from Jonna Kim with TD Cowen.

As you think about American Eagle's brand positioning, what are key opportunities that you see for improvement over time? And then could you just speak to the intimates business performance during the quarter and just quarter-to-date, what you're seeing there? And how do you think that business will evolve over time as well?

Yes. For American Eagle, Mike mentioned it, number one, Street -- our fleet rationalization. We're still working through some lower-tier stores that we need to optimize and actually give back to our best stores. So just so you know, our new remodels in the American Eagle brand are really resonating with the customer. We're seeing nice upticks versus the average base. And so we're working on the remodels where we can justify, and where it make sense depending on the mall. So excited about that. Our new SoHo store has been outperforming, and it's a great visualization to where we're headed for our entire portfolio of brands, but a great representation of the American Eagle brand. So number one, fleet optimization; number two, product, product, product, we focus on product. We're focusing on new innovation, delivering new products, delivering excitement on top of our incredible marketing campaigns that, again are developed -- we have relevancy now, like we needed to get back on the map. That's what American Eagle is up to. We're a more mature brand, and we needed to turn heads. And certainly, the team really has stood out there, and I think some of these new campaigns and getting up to snuff on our marketing spend and competing because we were a little -- we underperformed there versus our competition. And I think yes, we're ready to compete a little bit more. We're building our new franchise businesses. We're excited about men's. Men's has turned around, and now it's just women's and really looking at women's dollar per square foot by store and making sure that we're really optimizing the women's business in our best stores and online. Let's not forget about the direct business. Our direct business has been outperforming last year on the back half…

The next question comes from Dana Telsey with Telsey Advisory Group.

As you think about the advertising, which has been so successful. Obviously, Stagecoach now being the next thing. How do you think of it for the balance of the year? And how do you see lapping whether it's Sydney Sweeney or the others? And then on the refreshes in stores, how many store refreshes are you doing? And what kind of productivity gains have you seen from these refreshes?

Sure. So I didn't mention this before, but also not only are we leveraging talent, more so on the AE side of the business. But in both brands, AE and Aerie, we're really leaning into our community and our customer base, and we're really -- I mean both brands right now are starting new tactics to gain new customers as far as -- well, there's some I can't tell you. There's some I can't share with you, but this creator community that I think we are just encroaching on for both brands, it's real. And that is the difference, okay? So there's a lot of our competitions out there. They're getting -- they're finding tactics, but I think our tactics for our brands are about real and authentic and getting our community that believes in our brands to celebrate our brands, and that's -- and so these influencers that we're leveraging across all brands, I think we're going to really lean into both -- we're excited about it, and we're already starting to see some momentum gaining with this influencer program that we're starting. And again, it's more innate. We own it, and we're excited about it. So the tactics are slightly different than some of what we see our competition doing.

On the store remodels, refreshes, Dana, we've got -- as I said in prepared remarks, we'll do at least around 60, maybe a few more than that this year. We're, I think, in our third to fourth year of that program, where we still have about a 350 to 400 store in total. We're working towards probably about another year away from that. I think we'll get over the 300 mark, close to that with these next 60. Again, the average age of the fleet before we started this was about 12 years. We were behind a little bit due to COVID and in our intentions of refreshing the fleet. The stores we know we want to sign leases for the longer term. And I think once we'll get into a rhythm of keeping the average age more in that 6- to 7-year sweet spot, which we think is the right thing to do. So -- and then on a performance basis, we are seeing a comp result or an increase in these stores that's above the chain average. So we like what we're seeing in terms of payback on that cash. It's a bit of a kind of maintenance/some payback by doing this. We have refined the cost of these down from where we started in the first year. So we're kind of the elements of the store that we need to touch and the biggest bang for our buck is the average has come down on the spend since we started. So we're kind of maybe more than halfway through the program. We like what we're seeing in terms of performance and with the intent on an ongoing basis to kind of maintain the age of the fleet more in that 6-, 7-year range.

The next question comes from Janine Stichter with BTIG.

Just on the tariffs, can you remind us what you've done on pricing in response? Have you raised tickets at all and any thoughts on pricing for the rest of the year?

Yes. I think we've talked about really business as usual. We've approach kind of tickets and pricing, just like we always have, where we -- what's the right price value equation for the customer, where are we not seeing price resistance across items, some strategic intent of increasing tickets a bit, so we can kind of provide that right value equation from a promotion perspective to the customer. . So no specific intent around tariff pass-through. It's really what we've been -- what we've always done from a pricing perspective and maintaining. Again, AUR for the fourth quarter was relatively flat, like down a little bit in AE and up in Aerie. From a margin perspective, it's not a bad place to be with some mix benefits in there, aside from the tariff impact. So we'll continue down that path with whether the opportunistic and kind of opportunities to raise tickets a bit. But just based on customer reaction, and what's right for the price value equation.

Great. And then maybe just back on Quiet Logistics with the $20 million in annualized savings. Are you thinking about reinvesting any of that? Are there areas you potentially spend more, or is that flowing all the way through the bottom line?

No. I think we're looking at reinvesting other than probably advertising. I mean, a lot of what we've been doing with the management of our expense base for several years was to find some funding to do what we're doing on the advertising line. And actually, if you -- we've been measuring that ourselves and just looking at our own sort of internal scorecard over the last several years. We've done a nice job at kind of reducing the rate of sale on the majority of the expense base, the bigger line items that we've -- the project we had a few years ago where we kind of addressed 85% of our overall OpEx base. We've been continued success there to kind of knock that down as a rate of sale, and we have sort of funding that back to advertising right now in total. Again, we anniversary that and start to leverage again starting in the back half of the year. So no reinvestment of those dollars specifically. It's sort of an ongoing program to improve our operating rate, short term here, we're investing some dollars back in advertising, for sure, at least 12 months, but nothing else specific from that savings that we're intending to do.

The next question comes from Jon Keypour with Goldman Sachs.

I just had a question about the low single-digit AE comp in 1Q. Just noticing that the -- if you go from 4Q '24 to 1Q '25, the sequential comparable gets 3 points easier, but the low single digit sort of implies that on a 2-year stack basis, there's a slowdown. So just any commentary around that? And then I have a follow-up.

Yes. And Jon, I think if you look at the improvement to that point, I mean I think we've seen a 5-point improvement from kind of the second quarter of last year through the fourth -- to this fourth quarter result of plus 2%. And the guidance we're providing now is based on what we've seen to date, we know there's been some weather disruptions, some serious storms and things like that in this February this year that we didn't really see that dramatically last year, especially the Northeast getting pounded a bit. And we have obviously our store base is a nice concentration in that area, but we're pleased to see the kind of trend continue from fourth quarter. That being said, Jen said the spring break time is ahead of us, short season is coming. The mark whole time frame is more like 75% of our total first quarter. So we've got a long way to go. But the continuation of the trend we saw and the teams are working hard to capture these next 2 months, and we'll see how the quarter pans out, but it's the right place to be at the moment.

Got it. Okay. And then just in terms of the Aerie comp, which was very impressive, just any way that we can get a sense of buckets that contributed to that 23%. Like I guess, there was a different question to try to get at this, but you mentioned like 14% new customer addition. Just any ways we can piece together the building blocks to get to the 23%?

Yes. That was actually branded witness. I just wanted to let you know. We were roughly at 55% as we increase that, but we do have a new customer base to solidly growing our customer base. In Aerie, I have to say this. Literally, all categories worked, whether it was set dressing, fleece, knit, tees, sweater, sleep really was unbelievable and intimate and layering. We have this new layering business that we're pretty excited about, so, so far so good. And that continues into Q1. And again, we still have some categories that we actually lean on more as we head into the spring break time period. So strategically, we didn't pull swim in as hard as we used to in the past because we believe that there's a different strategy for swim where we can lean on. It's a great margin category. And I think that's what we're looking to do. And we're going to bring in newness monthly, more so than we did in the past, past just like that girl. So I think there's still more to come here because we still have some new category introductions or seasonal introductions that I think are still in play. Early reads on these seasonal categories, including in AE, are strong. Last year, if you remember, we had weather and shorts are really tough across the board. So that's a huge category for us. In Aerie, OFFLINE and in American Eagle. So there's still a lot of volume in front of us, and we're going to set ourselves up for success here.

The next question comes from Corey Tarlowe with Jefferies.

Yes. Mike, on tariff, could you remind us again what the impact is that you're expecting? And then I asked that in the vein that you guided with IEEPA in, how much upside is there to the current guide if that is struck down?

Yes. So just the quarterly impact of how we laid things out with IEEPA tariffs that were in place. So about a $30 million impact each of the first and second quarter. So kind of $60 million total for the spring season. We incurred $20 million of impact in Q3 of '25, but probably more like a $30 million, $35 million on a full quarter basis because of the timing of the effective tariff rates last year. And then we incurred $50 million of impact this past fourth quarter. So that gets you to your $130 million plus number for -- on an annual basis. Obviously, we left that guidance or left the approach to guidance in place because to your second question, I don't think any of us know what's about to happen. We've got this 10% Section 122 in place, all indication is that's going to go to 15% based on kind of recent communication. We know there's things happening on the 301 front that this administration intends to do. So the impact to the total year, we believe the guidance we just gave should be the worst case, knock on wood. I hope I didn't distinct ourselves in the entire industry with that comment. But there would be upside, we've done some back of the envelope math of what it could look like based on the cadence of when we think the Section 122 tariffs expiring after 150 days and if 301 take effect, but it's all guesstimates at this point. So I think we'll know a lot more by the first quarter call at the end of May. I expect to provide a bit of upside to this guidance at that point, but better off to quantify that over the next couple of months once we actually know more than kind of put numbers out there that we're not 100% sure of at the moment.

Got it. That's super helpful. And then just as a quick follow-up, it looks like there's no buyback embedded in the outlook. So I was just curious how you're thinking about that specifically.

Yes. We repurchased about 1 million shares there before the end of the year. Share count in our projection right now would be about 177 million versus -- for the year versus 176 million last year. We are going to look at -- again, we always talk about capital allocation being investing back in the business first. We're committed to our $0.50 per share dividend. And then looking at buybacks to offset dilution minimally. So the January buyback was part of that, if you look at the full year last year, we returned, again, $341 million to shareholders, $85 million in dividends and over $250 million in share repurchases. So we'll continue to look at it, Corey. Minimally offset kind of dilution from internal grants in general. So we kind of prioritize that. Look at anything above and beyond that as we kind of get into the year and see how cash flow is trending?

The next question comes from Marni Shapiro with The Retail Tracker.

Congratulations, and please extend my condolences to Jay. Jen, the stores look fantastic. So I have a couple of quick questions for you. Following on the denim conversation, I'm curious if part of the denim is a shift in what's working in denim from higher rises to lower from very baggy to boot and the customer is a little slower to move. Or is it something else that you're thinking? And then on your collaborations, which have been incredibly successful, and I love the 2 new ones, are you thinking about expanding this into Aerie at all to do something there, along the similar vein, now that Aerie is kind of like, Aerie is back, so are you kind of thinking along the lines there in Aerie?

I like that thinking, Marni. First and foremost, Aerie has great things in store. But again, Aerie has many different tactics, and I just mentioned, we do a little bit more grassroots, the community, and it's just -- they vote for us, and it's a winning recipe. But I will say, Marni, we do have some fun things in store. And as you know, back in October, we leaned into not using AI on our models. And it's a nice uptick to where we were when we launched Aerie Real, I think it's just -- it's a great -- it actually addresses the new generation. I'm quite excited about it, and we've only just begun here. So really, that's what we're up to in Aerie. And again, Marni, with all these new customers, we've got to get them to come back more often. You can't imagine the dollars on the table, if we could just get them to come back one more time annually. So those will be some of our focuses. And can we go back to your first question? I'm sorry, I got so excited about Aerie for a minute.

It was just, I'm curious there are changes happening in denim rises to lower, the baggy is going -- giving way to a cleaner, a little more narrow boot cut. So is that kind of -- I thought there's a confusion with the customers right now because you're not the only ones talking about this, all my peeps are talking about this.

I think you're right. I think definitely, the rises are getting lower. You're seeing more midriffs being shown. But I also think it is about these other bottoms, including skirts, shorts and other clothes, khaki, chino, utility, those ideas, I think, are here. And I think it is about pivoting into those. But you're right, definitely the lower rise is something that we are addressing. And we do have, and that is working for us. So now it's about just moving the business. This business has changed drastically, Marni. There's so many new fits to your point. We are seeing with Ella, we're seeing the boot work for us. For sure. That makes a lot of sense. So right now, we're in the process of our test and scale for back-to-school. So I'll learn more in a couple of weeks as far as -- and we have all these fits out there that we test and learn from, and where we want to place our bets. So there's more to come here, and the team is ready to execute.

Well, the stores look fantastic. Your denim shorts look absolutely fantastic. Congratulations. Best of luck.

Thanks, Marni. Operator, we have time for one more question.

That question will be coming from Janet Kloppenburg with JJK Research Associates, Inc.

I was a little surprised to hear that denim bottoms were not performing. I don't know, maybe I'm misinterpreting it, Jen. Are they performing to your expectations and because you've made investments in other denim areas or maybe denim isn't where you think the brand should be right now. So...

No, no, no. Yes, denim is at the center of everything we do in American Eagle. Like we have maintained our market share, like our positioning, everything we do. That is our core recipe for that business. And those men's and women's did comp on the quarter. It was just, in some cases, what price are they willing to pay for some fashion. So that's some of the pressure that we saw. But we learn that lesson, and we're trying to take that forward, particularly the most important quarter, obviously, is Q3 for this business. So applying those learnings, but denim, it's at the core of everything we do. It's just -- it was more about us leaning into some fits that didn't work at successfully as we were hoping to and learning from that and reapplying those lessons.

Okay, great. And then just for Mike, I think you said AUR was flat. Can you just talk a little bit more about the traffic and unit terms in the quarter? And what -- how we should think about that going forward?

Yes, Janet. So AUR overall at a company level was flat. AE was down slightly, kind of low single and Aerie was up in the mid-single digits. So it kind of ties to the margin color we were providing earlier as well. And what Jen just mentioned about, we've been talking about jeans specifically as being positive, but then a little pressure, a little kind of more promotional to drive those results. We're expecting something similar as we continue, like right now in the beginning of the first -- early in the year here. Again, the Aerie team on the current trajectory is being able to kind of manage intelligently and pull back and be more targeted and then AE is really still probably in the same game we just talked about. So we're expecting something similar in the short term, and we'll see how the rest of the season progresses.

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

Thank you.