April 26, 2022

Dear Fellow Stockholders,

Fiscal 2021 was an exceptional year for AEO, made especially remarkable given the complex challenges the COVID-19 pandemic continued to have on our industry. Our achievements included crossing $5 billion in revenue for the first time in our Company’s history and our strongest profit result in well over a decade. In fact, we exceeded our previously announced three-year Fiscal 2023 operating profit goal of $550 million, ultimately delivering over $600 million in adjusted operating profit during this year alone.

Our “Real Power. Real Growth.” strategic plan fueled our strong results, instilling focus in our operations and a valuable framework to drive sustainable profit growth.

Our corporate purpose is to show the world that there is REAL power in the optimism of youth. By relying on the strength of our people, culture and purpose we will: (1) grow Aerie to $2 billion+ in revenue; (2) drive sustained profitable growth at American Eagle; (3) leverage our customer-focused capabilities; and (4) strengthen our return on investment (“ROI”) discipline.

Our specific priorities for Fiscal 2021, and our remarkable achievements, were centered on the power of our people, brands, and operations.

Power of People: The past year highlighted what we can achieve when we remain focused on our people. With the pandemic still very much a reality across the globe, we built on our learnings from Fiscal 2020 and prioritized the health and well-being of our associates, customers and communities. We continued to enhance our safety protocols in our stores and facilities, opening three new AEO Real Health Centers in our offices and distribution centers, and donating over 40 million face masks to our communities around the world. We also successfully began to shape the future of work for our AEO teams to maximize productivity through new communication tools and technology that allows us to succeed in our hybrid working environment, while at the same time providing needed benefits and financial resources to our associates, including innovative mental health benefits and student loan debt support. Finally, in Fiscal 2021 we increased our representation of persons of color in our corporate, store and distribution center populations; committed to our first-ever Human Rights Policy; and gave back over $15 million to causes and people that support and empower youth. Our charitable contributions for the year set a company record, which includes $1 million in grants from our AEO Foundation, another company record.

“Our charitable contributions for the year set a company record, which includes $1 million in grants from our AEO Foundation.”

“In Fiscal 2021, we formalized our Environmental, Social, and Governance (“ESG”) program, establishing both an internal management-led Steering Committee and Board and Committee oversight of our initiatives.”

Power of Brands: We remained focused on growing the Aerie brand while making AE more profitable, exceeding our expectations for both brands. Aerie’s revenue rose 39% to $1.4 billion compared to Fiscal 2020 and operating profit more than tripled from pre-pandemic Fiscal 2019 levels. In fact, this past fourth quarter marked 29 consecutive quarters of consistent double-digit revenue growth for Aerie, which includes the powerful OFFLINE sub-brand that is showing great potential just a year and a half into its launch. The American Eagle brand delivered a $558 million increase in adjusted operating profit,(1) up over 50% from Fiscal 2019. The transformation in profitability has been incredible. Our talented design and merchant teams, combined with our inventory optimization initiatives, are generating exciting product offerings and more focused assortments, leading to increased full-priced selling while still delivering great value and quality to our customers. We’ve also made early progress in our real-estate optimization strategy, closing unproductive stores and energizing the business around high-quality stores and digital channels. I’m also extremely proud of the performance of our emerging brands, Todd Snyder and Unsubscribed. Todd Snyder’s iconic menswear collections and style leadership and Unsubscribed’s unique platform as a consciously made, slow fashion brand truly complement our powerful portfolio of brands, providing potential future growth opportunities across new customer demographics.

Power of Operations: While the industry grappled with rising domestic delivery costs, we utilized the supply chain capabilities we launched during the pandemic to drive down our expenses and leveraged on delivery costs as a percentage of online sales. We also reduced our delivery times to the benefit of our online customers and our store operations. We completed two acquisitions—AirTerra and Quiet Logistics—solidifying the unique benefits we have seen to date from in-market fulfillment, including faster and more cost-effective shipping. Our supply chain platform has meaningful growth potential, and will be a valuable asset to us going forward.

Our omni-channel selling footprint is one of our most important assets and this couldn’t have been more evident this past year. As consumer mobility recovered, our store channel came roaring back with store revenue growing 53% in the year. Our digital business also saw continued growth with revenue rising 7% following the strong growth we saw in Fiscal 2020. I am proud to note that since Fiscal 2019, we have added almost $600 million in digital revenue to our business. Digital penetration now sits at 36% of our total revenue, compared to 29% in Fiscal 2019.

“In Fiscal 2021, we added over 1.75 million new customers, reaching our highest level of engagement to date.”

“Approximately a third of our customers are engaging across both brands and spending approximately two times that of our average customer annually.”

In Fiscal 2021, we added over 1.75 million new customers, reaching our highest level of engagement to date through direct interactions with 21 million unique customers. We also reached our highest level of annual customer spend as product improvements, improved messaging and category expansion allowed us to gain a higher share of wallet. Approximately a third of our customers are engaging across both brands and spending approximately two times that of our average customer annually. Following a successful relaunch last summer, the loyalty program is growing, with members spending more and staying longer.

And finally, our purpose is grounded in building a better world for future generations by leading with optimism and authenticity. In Fiscal 2021, we formalized our Environmental, Social, and Governance (“ESG”) program, establishing both an internal management-led Steering Committee and Board and Committee oversight of our initiatives. In addition to the impact we were able to have with our charitable giving and inclusion and diversity initiatives, during the past year we also made progress on our previously stated climate goals, including with the expansion of our Real Good product offerings. We look forward to sharing more details about our ESG results with you in Fiscal 2022 when we expect to publish our first-ever ESG annual report.

Fiscal 2021 proved how the power of AEO’s people, brands and operations can enable incredible results. As we move into Fiscal 2022, we are a stronger company—focused, innovative and agile. With ongoing macro challenges, we remain highly focused on the controllables across our business. We are anchored in our “REAL Power. REAL Growth.” value creation plan and will continue to leverage the talent, commitment and passion of our people to deliver results. I’d like to thank each of you for your interest and investment in AEO, and hope that you and your families remain happy and safe.

“We are anchored in our “REAL Power. REAL Growth.” value creation plan and will continue to leverage the talent, commitment and passion of our people to deliver results. “

Thank you for your support.

Jay Schottenstein
Executive Chairman of the Board and Chief Executive Officer