AEO
#So the easy part's the comp.
The comp for the merchandise sold at an American Eagle store is in the American Eagle comp.
We're definitely growing the side-by-sides.
We'll have 90 by the end of 2017 which is a nice growth.
We love that operating model; it's great for the Aerie business.
And I always say it opens up new doors and new customers for us.
The AE girl naturally moves over to Aerie and learns about our business and loves what she's seeing.
So side-by-side is definitely part of our strategy.
Thinking about the standalone business, we're going to be highly strategic on where we open up new stores.
We have a game plan in place.
We have density models that we're looking at to make sure that we don't overdo it.
But we have very pointed strategies on the stores that we're going to open.
What we see is there's a nice leverage on the direct business where we have locations.
So as a reminder, we're only in 11 states right now.
We're only in 11 states, so we have lots of expansion opportunity.
But the growth in direct, which has been dynamic, we've had a huge direct growth, and it's been explosive, as I mentioned.
We see 60% of the growth in direct coming from those 11 states.
So that's what I really think the opportunity is for Aerie.
Hi.
In terms of promotions, we continue to be strategic in trying to contain the promotions.
The landscape, however, continues to be incredibly promotional.
And so we feel like we need to compete on the lease line with something to engage the customer.
We are finding that the promotions we're running ---+ clearly as you see in the results ---+ the promotions we're running are contained, but have also been effective at helping to drive the metrics that we need to drive.
In terms of the financial aspect of the inventory composition, we are cleaner than last year.
And, again, the markdowns were in line with last year from a profit standpoint.
Let me spend a few minutes on that.
In terms of gross margin in comparison to historical, we're getting right up there with historical levels, historical highs.
And in terms of is it applicable, I think what's happening is we've got a refined DNA and going back to and executing better to our traditional roots.
So we certainly have more opportunity in gross margin.
And for Aerie, Aerie is about on par with American Eagle.
As their productivity continues to increase and with their growth and our ability to deploy some more effective sourcing opportunities within their product line, we should see continued expansion in their gross margin.
And over the long term, we'd hope them to be accretive to the total.
Good morning.
I would say first, I'll just start with the second question in terms of denim.
It's really definitely talking a lot about denim.
I think it's important to recognize that it's our entire bottoms business that is really strong.
So we've leveraged our strength and our customer's loyalty in jeans and taking that across shorts and pants and see really strong business across that whole section of the business.
In terms of new fashion trends, the business is constantly evolving.
I think we find the most important thing for us is to provide the best outfitting and trend-right product for the customer.
We're seeing strength both in more oversized stops, as well as more shrunken tops.
I think we're seeing potentially some shift there, not as dramatic I think, as some other people have talked to.
But with the way we run the business and the way we're constantly testing for what's the future as well as our Don't Ask Why capsule which gives us a glimpse into where our customer's headed, I think we'll be prepared as we start to see changes there.
Whether it means meaningful impact to the business, I think that's ---+ it's always great when things start to shift.
Whenever she feels like she needs to update her closet, it's always an opportunity.
It just means that we need to be positioned ---+ we need to time it right with the customer and have the right inventory behind it and that's what we work on season after season.
I'll let <UNK> talk to some of the technologies around it, but I think for us, I think it's not just a matter of does it continue for a few quarters or a year or whatever it is.
This is the way the customer behaves; this is the way the customer is shopping going forward.
And as a customer-focused Company we want to make sure we're always leading there and making it as easy as possible for her to participate in the brand.
We've talked about our profitable store fleet, as well as the flexibility we have in that store fleet.
But the stores, as <UNK> mentioned, and for the AE brand as well, the stores are a terrific opportunity for us to take advantage of omni-channel technologies and omni-channel experience.
The customer can participate with the brand in a physical way that is not possible with single-channel brands.
So we really believe that the future is mobile.
The future is digital; the future is stores.
And we're going to be prepared and do everything we can to be at the forefront of that to make the customer's experience as easy as possible.
In terms of Aerie productivity, side-by-side stores are our most productive in terms of operating profit.
There's not a significant difference in terms of operating profit across the stores in terms of how we run them.
It really comes down to square footage and how we staff those stores and the rent tied to them.
I'll let <UNK> talk about the merchandising differences.
Yes, the side-by-sides are smaller.
So what we do when we position the merchandise strategy by format, is we make sure that the customer has the same experience in all formats.
So we go after the key items of the season and we make sure those are represented in every format.
Albeit it's a smaller format, she still gets the same experience.
And just to circle off on your question around advertising.
We do expect advertising to be up.
However, a reminder, we do expect to be able to leverage our expense base.
And advertising investments have really been two-fold here for the back half.
Continued investment in our digital marketing, which has driven large traffic increases to our websites.
By the way, about 100% of our customers shop on their mobile devices before they shop the store.
Unquantifiable, but we do believe that we're driving customers into the store with that marketing as well.
And then the marketing campaign that we've talked about.
But again, expense leverage expected.
Michelle, we have time for one more question.
Okay, sure.
Happy to.
Not going to get into the specifics of revenue by channel but in terms of profitability, Mexico, nicely profitable.
Asia, improved profitability over last year, in line with our expectations and targets for their growth.
And UK, small business, three stores, not yet profitable, wait and see approach there.
Franchise is wonderfully profitable and will continue to grow.
Okay, that concludes our call today ---+ are you done, <UNK>nifer.
Is that it.
All right.
Okay.
That concludes our call.
Thanks for joining us, everybody.
Have a great day.
And appreciate your interest in American Eagle Outfitters.
Thank you.
Bye-bye.
