April 21, 2021
Dear Fellow Stockholders,
The past 12 months tested us like no other period in our Company’s history, yet, thanks to the resilience and innovation of our teams, we emerged from 2020 stronger than ever. Our purpose-driven culture, our values, and our real optimism guided us through the difficult macroeconomic period caused by the COVID-19 pandemic and allowed us to end the year with exceptional results, significant stockholder returns, and a strong cash position. I have never been as optimistic about our future as I am today.
Last March, in light of a looming global health pandemic, we immediately set three goals for our Company: protect our people, preserve our financial strength, and prepare for a new future.
“Our purpose-driven culture, our values, and our real optimism guided us through the difficult macroeconomic period allowed us to end the year with exceptional results, significant stockholder returns, and a strong cash position.”
Protecting Our People: Recognizing that we were facing unprecedented challenges to the health and safety of our associates, customers and communities, we took immediate steps to ensure that we had the very best health and safety measures in place across our stores and facilities. We secured masks, gloves, sanitizers, state-of-the art cleaning and air filtration systems and thermometers for our corporate offices, distribution centers and stores. We hired a medical consultant and placed nurses in our offices and distribution centers. We offered mental health programs and support to all of our teams. We also redesigned the store experience, removing fixtures, installing safety glass at the cash wrap, creating touchless experiences and self-checkout, and simplifying returns, as well as offering curbside pickup, to create the best and safest customer experience. We spared no expense to ensure that our people-our most valuable asset-were both physically and mentally secure.
“With its unique and wildly popular brand position of positivity and acceptance, Aerie has emerged as one of the most exciting brands in retail today, with meaningful runway for future growth.”
Preserving Financial Strength: In light of the macroeconomic changes brought by 2020, we reviewed all of our processes and expenses with an eye to improving our bottom line while navigating store closures, myriad capacity restrictions, and increasing supply chain complexity and rising costs caused by growing digital demands. We narrowed and focused our investments in inventory, wisely managed our promotional cadence, and invested in our supply-chain capabilities. We ended the year in excellent financial health, well positioned for the future.
Preparing for a New Future: Our third major priority in 2020 was to prepare for a new future of retail. We saw that 2020 would accelerate trends that were already a focus for AEO, such as a growing demand for digital commerce, improved store technology and supply-chain innovations. We also recognized the importance of our corporate purpose and on having a positive impact on all of our stakeholders as well as our society. We executed all of our initiatives in 2020 with an eye to the future, and I believe that our willingness to embrace change and remain agile drove our success throughout the year.
A few of our specific milestones from 2020 include the following:
- Aerie reached its first billion dollars in revenue, fueled by 24% growth in 2020. The fourth quarter marked 25 consecutive quarters of double-digit growth for the Aerie brand. With its unique and wildly popular brand position of positivity and acceptance, Aerie has emerged as one of the most exciting brands in retail today, with meaningful runway for future growth. Entering new markets, building on core intimates and growing the customer base remained our focuses. We introduced an active wear sub-brand, OFFL/NE by Aerie, which expanded our presence in an exciting new growth category. We believe we can double Aerie to $2 billion by 2023, and that is just the beginning of a several-billion-dollar future opportunity.
“Our online business grew 36% to $1.7 billion in profitable revenue.”
“The investments we made over the past several years in technology and our omni platform delivered results.”
- Our online business grew 36% to $1.7 billion in profitable revenue. Our brands have a meaningful digital presence, which has been expanding at a double-digit pace for several years. In 2020, when stores closed, online demand quickly accelerated and represented 45% of our total revenue for the year. Our teams and platform seamlessly managed significantly higher traffic and transactions. The investments we made over the past several years in technology and our omni platform delivered results. (one quote)
- Margins and profitability sequentially improved throughout 2020 and the fourth-quarter adjusted operating profit(1) rose 38% from 2019 to $106 million. This is a remarkable achievement in the face of pandemic-related traffic pressures in stores – and it demonstrated the strength of our brands and product – and exceptional execution by our teams. We saw rising profitability across brands, which is a testament to our return on investment (“ROI”) mindset and strategic execution. We expect to achieve 10% operating margins by 2023. As demonstrated in the most recent quarter, we are on a solid path toward this goal.
- Cash flow was strong, and we ended Fiscal 2020 with $850 million in cash and approximately $1.2 billion in total liquidity. In March, we reinstated the quarterly cash dividend and unsuspended share repurchases. I am very proud of our long history of returning cash to stockholders
- We generated strong Total Stockholder Returns (“TSR”). As of this writing, our TSR has meaningfully outpaced the peer group median for the past one-, three- and five-year periods.
- We made significant progress on our environmental, social, and governance initiatives in 2020:
- In support of our comprehensive sustainability goals, which includes a plan to be carbon-neutral in our operations by 2023, we are using more sustainable raw materials and reducing water and energy usage. Our factories are saving more than one billion gallons of water each year. We also recently launched our environmentally positive Real Good product lines in American Eagle and Aerie to a very favorable customer response.
- In 2020, we appointed a Chief Inclusion and Diversity Officer to formalize our focus on equity and diversity through hiring, career development and a strong and inclusive corporate culture. In keeping with this work, last year we introduced the Real Change Scholarship for Social Justice, a $5 million commitment to advance educational opportunities for associates who are actively driving anti-racism and social justice initiatives. We look forward to awarding our first round of scholarships this spring.
- Through AEO and the AEO Foundation, we support numerous causes that further enable our corporate purpose, giving back to our local communities. In 2020, we donated more than one million face masks to first responders and health-care providers. We also contributed more than $1 million for COVID-19 relief efforts. Together with our customers, we donated more than $5.4 million in support of causes that empower teens and young adults and combat hatred and violence.
- I was thrilled to welcome Steven Davis to our board of directors last year, expanding the board to nine and building on our knowledge, expertise and diversity. Our board is highly engaged, providing regular counsel on strategic initiatives and priorities.
Our success this past year would not have been possible if not for the power of our people, the power of our brands, and the power of our operations. Building on these capabilities, we have developed a long-term value-creation plan aimed at fueling our brands for significant growth and profitability.
“I want to thank all of our amazing associates, customers and stakeholders for their optimism, innovation and support in 2020; together we will accomplish great things no matter what adversity confronts us.”
Thank you for your support.
Executive Chairman to the Board and Chief Executive Officer