Letter From Our CEO
April 26, 2023
Executive Chairman of the Board
and Chief Executive Officer
Dear Fellow Stockholders:
Fiscal 2022 was another dynamic year. As we lapped outstanding results in Fiscal 2021, we faced numerous external crosswinds. Consumers were experiencing rising inflation and higher interest rates. At the same time, we continued to navigate supply chain disruptions, which drove elevated costs and product delays. Against this backdrop, I’m extremely proud of the quick actions taken by the AEO team to reset the business.
We pivoted swiftly to adjust inventory, seek efficiencies and maximize productivity. Ultimately, this drove a meaningful improvement in operating income and free cash flow in the second half of Fiscal 2022, enabling us to end the year in a healthy financial position. In navigating this environment, all of our associates were agile and remained resilient, leveraging the strength of our people, brands and operations to drive results and preserve our leading brand positions.
As we blocked and tackled over the course of the year, we also continued to make good progress on our longer-term strategic priorities.
We led with innovation—testing and launching new technologies aimed at improving the customer experience and driving efficiencies across our business. We invested in capabilities that will differentiate our family of brands and operations in the long run.
As I look back on the year, I am particularly proud of the following achievements:
- Fiscal Year 2022 revenue of $5 billion was our second highest on record, including our second highest Back-to-School and Holiday sales. This was down only to last year’s record result that benefited from an exceptionally strong demand environment.
- As a result of quick action early in the year, second half adjusted operating income(1) recovered to $213 million compared to $56 million in the first half. Additionally, our long-term “Real Power. Real Growth.” value creation plan fueled second half operating income expansion relative to the second half of pre-pandemic Fiscal 2019.
- Aerie continued to see exceptional multi-year growth. Record revenue of $1.5 billion nearly doubled to Fiscal 2019 with segment adjusted operating income(1) of $167 million, up approximately 150%. We also reached a new milestone of 10 million Aerie customers
- American Eagle achieved profit improvement to Fiscal 2019, with the segment adjusted operating margin(1) expanding 150 basis points, reflecting our progress on improving brand health.
- With improved free cash flow, we fortified our balance sheet, eliminating $403 million of outstanding convertible debt.
- Through a combination of share repurchases and dividends, we returned $265 million in cash to stockholders in Fiscal 2022, our highest level of returns since Fiscal 2015.
- We published our inaugural ESG report, highlighting our “Building a Better World” ESG strategy. The report outlines our actions and progress toward our Planet (environment), People (social) and Practices (governance) goals, demonstrating our commitment to greater transparency. I am pleased to note that we exceeded our water reduction goals two years ahead of schedule and have introduced new water and energy reduction goals to strive for further progress. Additionally, we continued to support causes that are important to us and our customers, donating over $10 million through our AEO Foundation and corporate giving programs and volunteering over 14,000 hours in Fiscal 2022 to organizations paving the way for mental health, youth, women’s empowerment and education.
“Looking ahead, I see no shortage of opportunities for our company.”
Looking ahead, I see no shortage of opportunities for our company. We have been battle-tested in many ways over the past several years and have entered Fiscal 2023 more agile and disciplined. Our brands remain highly sought after and we have not taken our eyes off the potential for future growth. American Eagle continues to be the go-to destination for youth, with strong brand affinity and recognition. I am optimistic about the outlook for Aerie as we continue to grow awareness and drive excitement through innovation. We will continue to lead with a customer-first mindset, embracing innovation and new technologies to deliver the best shopping experience across digital and stores.
Our culture is rooted in excellence, teamwork and passion. As we strive to grow our business and strengthen long-term profit and cash flow, we will harness the power of our talented teams, industry-leading brands and operating excellence to drive results. I am confident that with focus and discipline, we can strengthen our bottom-line and drive continued shareholder returns.
As we forge ahead, I would like to express my utmost gratitude to Steven A. Davis, a cherished member of our Board of Directors who passed away unexpectedly in 2022. Steve was a great friend to many, a trusted advisor to AEO and a tireless champion of diversity, equity and access. In Steve’s honor, we have renamed our REAL change scholarship initiative to the Steven A. Davis Scholarship for Social Justice—advancing educational opportunities for associates working to build a more equal and inclusive society. We endeavor to carry Steve’s insights and ethos forward as we ensure that AEO remains a thriving business and a welcoming place to work for years to come.
On behalf of the Board of Directors and our entire team at American Eagle Outfitters, thank you for your continued support.
Jay L. Schottenstein
Executive Chairman of the Board and Chief Executive Officer