AMERICAN EAGLE OUTFITTERS INC (AEO)

CIK: 0000919012. SIC: 5651 Retail-Family Clothing Stores. Latest 10-K as of: 2026-03-30.

SIC breadcrumb: Retail Trade > SIC Major Group 56 > SIC 5651 Retail-Family Clothing Stores

SEC company page: https://www.sec.gov/edgar/browse/?CIK=919012. Latest filing source: 0001193125-26-132097.

Selected Fundamentals

Financials

Annual standardized facts from SEC companyfacts as of latest extracted filing date 2026-03-30. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0000919012.json. Derived margins are computed from the extracted annual SEC facts.

Flow metrics use full-year FY periods from 10-K/10-K/A filings; balance-sheet metrics use FY-end instants. Missing metrics are omitted rather than fabricated.

Financial Charts

Quarterly

Quarterly standardized facts from SEC companyfacts as of latest extracted filing date 2026-06-03. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0000919012.json.

Flow metrics use discrete quarter-length periods from 10-Q/10-Q/A filings. Q4 revenue and net income are derived only when annual FY and nine-month YTD facts exist for the same fiscal year; derived Q4 values are labeled. EPS Q4 is not derived.

Quarterly Charts

Macro Cross-References

• CPIAUCSL - Consumer Price Index for All Urban Consumers: All Items in U.S. City Average
• UNRATE - Unemployment Rate
• FEDFUNDS - Federal Funds Effective Rate
• CES0500000003 - Average Hourly Earnings of All Employees, Total Private
• DFEDTARU - Federal Funds Target Range - Upper Limit
• DFEDTARL - Federal Funds Target Range - Lower Limit
• DGS3MO - Market Yield on U.S. Treasury Securities at 3-Month Constant Maturity
• DGS2 - Market Yield on U.S. Treasury Securities at 2-Year Constant Maturity
• DGS10 - Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity
• DGS30 - Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity
• T10Y2Y - 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity
• CPILFESL - Consumer Price Index for All Urban Consumers: All Items Less Food and Energy
• CPIUFDSL - Consumer Price Index for All Urban Consumers: Food
• CPIENGSL - Consumer Price Index for All Urban Consumers: Energy
• CUSR0000SAH1 - Consumer Price Index for All Urban Consumers: Shelter
• PCEPI - Personal Consumption Expenditures: Chain-type Price Index
• PCEPILFE - Personal Consumption Expenditures Excluding Food and Energy: Chain-type Price Index
• PPIACO - Producer Price Index by Commodity: All Commodities
• T10YIE - 10-Year Breakeven Inflation Rate
• U6RATE - Total Unemployed, Plus All Marginally Attached Workers Plus Total Employed Part Time for Economic Reasons
• PAYEMS - All Employees, Total Nonfarm
• CIVPART - Labor Force Participation Rate
• EMRATIO - Employment-Population Ratio
• UNEMPLOY - Unemployed
• CE16OV - Employment Level
• ICSA - Initial Claims
• JTSJOL - Job Openings: Total Nonfarm
• JTSQUR - Quits: Total Nonfarm
• GDPC1 - Real Gross Domestic Product
• A191RL1Q225SBEA - Real Gross Domestic Product: Percent Change from Preceding Period
• INDPRO - Industrial Production: Total Index
• TCU - Capacity Utilization: Total Index
• HOUST - New Privately-Owned Housing Units Started: Total Units
• PERMIT - New Privately-Owned Housing Units Authorized in Permit-Issuing Places: Total Units
• RSAFS - Advance Retail Sales: Retail Trade
• PCE - Personal Consumption Expenditures
• DSPIC96 - Real Disposable Personal Income
• PSAVERT - Personal Saving Rate
• M2SL - M2
• BOPGSTB - U.S. International Trade in Goods and Services: Balance
• MSPUS - Median Sales Price of Houses Sold for the United States
• HSN1F - New One Family Houses Sold: United States
• RHORUSQ156N - Homeownership Rate in the United States
• TTLCONS - Total Construction Spending: Total Construction in the United States
• RRVRUSQ156N - Rental Vacancy Rate in the United States
• TOTALSL - Total Consumer Credit Owned and Securitized
• REVOLSL - Revolving Consumer Credit Owned and Securitized
• DRCCLACBS - Delinquency Rate on Credit Card Loans, All Commercial Banks
• GDP - Gross Domestic Product
• GPDI - Gross Private Domestic Investment
• GCE - Government Consumption Expenditures and Gross Investment
• PCEC - Personal Consumption Expenditures
• NETEXP - Net Exports of Goods and Services
• GFDEBTN - Federal Debt: Total Public Debt
• GFDEGDQ188S - Federal Debt: Total Public Debt as Percent of Gross Domestic Product
• FYFSD - Federal Surplus or Deficit
• FGRECPT - Federal Government Current Receipts
• FGEXPND - Federal Government: Current Expenditures
• MANEMP - All Employees, Manufacturing
• USCONS - All Employees, Construction
• USTRADE - All Employees, Retail Trade
• USFIRE - All Employees, Financial Activities
• USGOVT - All Employees, Government
• AWHAETP - Average Weekly Hours of All Employees, Total Private
• DGORDER - Manufacturers' New Orders: Durable Goods
• NEWORDER - Manufacturers' New Orders: Nondefense Capital Goods Excluding Aircraft
• BUSINV - Total Business Inventories
• EXPGS - Exports of Goods and Services
• IMPGS - Imports of Goods and Services
• IR - Import Price Index (End Use): All Commodities
• PPIFIS - Producer Price Index by Commodity: Final Demand

Latest quarter (10-Q)

Latest 10-Q source: 0001193125-26-255712.

Extracted between Part I Item 2 and the next Item 3/4 or Part II heading after HTML sanitization. Confidence: high. Filing date: 2026-06-03. Report date: 2026-05-02.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following Management's Discussion and Analysis of Financial Condition and Results of Operations (this "MD&A") is intended to help the reader understand the Company, our operations and our present business environment. This MD&A is provided as a supplement to — and should be read in conjunction with — our MD&A for Fiscal 2025, which can be found in Part II, Item 7 of our Fiscal 2025 Form 10-K.

In addition, the following discussion and analysis of financial condition and results of operations are based upon our Consolidated Financial Statements and should be read in conjunction with these statements and notes thereto.

Introduction

This MD&A is organized as follows:

•
Executive Overview

•
Key Performance Indicators

•
Current Trends and Outlook

•
Results of Operations

•
Non-GAAP Information

•
Liquidity and Capital Resources

•
Critical Accounting Estimates

Recent accounting pronouncements the Company has adopted or is currently evaluating prior to adoption, including the dates of adoption or expected dates of adoption, as applicable, and anticipated effects on the Company’s audited Consolidated Financial Statements, are included in Note 2, Summary of Significant Accounting Policies, to the Consolidated Financial Statements included herein.

Executive Overview

We are a leading global specialty retailer offering high-quality, on-trend clothing, accessories and personal care products at affordable prices under our American Eagle® and Aerie® brands.

We have two reportable segments, American Eagle and Aerie. Our Chief Operating Decision Maker (defined as our CEO) analyzes segment results and allocates resources based on adjusted operating income (loss), which is a non-GAAP financial measure. See Note 12, Segment Reporting, to the Consolidated Financial Statements included herein for additional information.

Key Performance Indicators

Our management evaluates the following items, which are considered key performance indicators, in assessing our performance:

Comparable Sales — Comparable sales and comparable sales changes provide a measure of sales growth for stores and channels open at least one year over the comparable prior year period. In fiscal years following those with 53 weeks, the prior year period is shifted by one week to compare similar calendar weeks. A store is included in comparable sales in the 13th month of operation. However, stores that have a gross square footage change of 25% or greater due to a remodel are removed from the comparable sales base but are included in total sales. These stores are returned to the comparable sales base in the 13th month following the remodel. Sales from American Eagle, Aerie, Todd Snyder, and Unsubscribed stores, as well as sales from AEO Direct and other digital channels, are included in total comparable sales. Sales from licensed stores are not included in comparable sales. Individual American Eagle and Aerie brand comparable sales disclosures include sales from stores and AEO Direct.

28

Omni-Channel Sales Performance – Our management utilizes the following quality of sales metrics in evaluating our omni-channel sales performance: comparable sales, average unit retail price, total transactions, units per transaction, and consolidated comparable traffic. We include these metrics in our discussion within this MD&A when we believe that they enhance the understanding of the matter being discussed. Investors may find them useful as such. Each of these metrics is defined as follows (except comparable sales, which is defined separately above):

•
Average unit retail price represents the selling price of our goods. It is the cumulative net sales divided by the net units sold for a period of time.

•
Total transactions represents the count of customer transactions over a period of time (inclusive of Company-owned stores and AEO Direct, unless specified otherwise).

•
Units per transaction represents the number of units sold divided by total transactions over a period of time (inclusive of Company-owned stores and AEO Direct, unless specified otherwise).

•
Consolidated comparable traffic represents visits to our Company-owned stores, limited to those stores that qualify to be included in comparable sales as defined above, including AEO Direct, over a period of time.

Gross Profit — Gross profit measures whether we are optimizing the profitability of our sales. Gross profit is the difference between total net revenue and cost of sales. Cost of sales consists of merchandise costs, including design, sourcing, importing, and inbound freight costs, as well as markdowns, shrinkage and certain promotional costs, buying, occupancy and warehousing costs and services and, until the completion of its operational wind-down, Quiet Platforms costs to service its customers. Design costs consist of compensation, rent, depreciation, travel, supplies, and samples.

Buying, occupancy and warehousing costs and services consist of compensation, employee benefit expenses and travel for our buyers and certain senior merchandising executives; rent and utilities related to our stores, corporate headquarters, distribution centers and other office space; freight from our distribution centers to the stores; compensation and supplies for our distribution centers, including purchasing, receiving and inspection costs; and shipping and handling costs related to our e-commerce operations.

The inability to obtain acceptable levels of sales, initial markups or any significant increase in our use of markdowns could have an adverse effect on our gross consolidated profit and results of operations.

Operating Income — Our management views operating income as a key indicator of our performance. The key drivers of operating income are net revenue, gross profit, our ability to control selling. general, and administrative ("SG&A") expenses, and our level of capital expenditures.

Cash Flow and Liquidity — Our management evaluates cash flow from operations and investing and financing activities in determining the sufficiency of our cash position and capital allocation strategies. Cash flow has historically been sufficient to cover our uses of cash. Our management believes that cash flow and liquidity will be sufficient to fund anticipated capital expenditures and working capital requirements for the next twelve months and beyond.

Current Trends and Outlook

Macroeconomic Conditions, Inflation and Tariffs

During the 13 weeks ended May 2, 2026, our results were negatively impacted by macro-economic challenges and global inflationary pressures impacting consumer spending behavior.

In addition, trade policies and continued uncertainty related thereto, including with respect to tariffs and other restrictions, relating to countries from which we source our merchandise and raw materials, have created a dynamic and unpredictable trade landscape. This has and may continue to adversely impact our business and operations. On February 20, 2026, the U.S. Supreme Court held that the U.S. administration’s imposition of tariffs pursuant to the International Emergency Economic Powers Act (“IEEPA”) was unlawful, striking down the 10% global baseline tariff, as well as the higher tariffs imposed on certain U.S. trading partners. The U.S. Supreme Court’s ruling did not affect all of the recently imposed tariffs, including those imposed following trade remedy investigations by the Department of Commerce or the U.S. Trade Representative. Nor does the ruling prohibit the imposition of future tariffs through alternative trade authorities available to the U.S. administration. Shortly after the U.S. Supreme Court's ruling, effective February 24, 2026, the U.S. administration imposed a new 10% global tariff for a period of 150 days pursuant to a balance-of-payments provision in Section 122 of the Trade Act of 1974, which was invalidated by the Court of International Trade ("CIT") on May 7, 2026, though relief was limited to the named plaintiffs, and litigation is ongoing following the government's appeal. The U.S. administration further announced that it would begin additional trade remedy investigations into certain trading partners pursuant to Section 301 of the Trade Act of 1974 and with respect to certain product sectors pursuant to Section 232 of the Trade Expansion Act of 1962. The U.S. Supreme Court decision invalidating the IEEPA tariffs did not address a remedy or refunds, which instead have been addressed in cases in front

29

of the CIT. The CIT ordered U.S. Customs and Border Protection ("CBP") to issue refunds for all IEEPA tariffs, plus interest. Pursuant to this order from CIT, CBP developed and implemented a process to facilitate refunds through its Consolidated Administration and Processing of Entries (“CAPE”) system, the first phase of which went live on April 20, 2026. As of the date of this Quarterly Report, the Company has submitted all refund claims currently eligible for refund in the first phase of CAPE. While the Company has taken steps to preserve its rights, no assurance can be given that all requests for IEEPA tariff refunds will be realized.

Accordingly, uncertainty with respect to tariffs remains ongoing. The imposition of tariffs by the U.S. government, associated geopolitical tensions, including reciprocal tariffs by trading partners, and uncertainties regarding U.S. import tariffs have and may further affect our margins and operations or could lead to further weakened business conditions for our industry. We continue to evaluate the impact of tariffs and other trade policies on our business. Refer to Note 11, Commitments and Contingencies and Note 14. Subsequent Events to the Consolidated Financial Statements for further information on U.S. tariffs.

For further information about the risks associated with global economic conditions and the effect of economic pressures on our business, see "Risk Factors" in Part I, Item 1A of our Fiscal 2025 Form 10-K.

Omni-Channel Capabilities

The Company operates stores in the United States, Canada and Mexico, with merchandise available in more than 30 countries through a global network of license partners. Additionally, the Company operates a robust e-commerce business across its brands.

Over the past several years, we have invested in building our technologies and digital capabilities. We focused our investments in three key areas: making significant advances in mobile technology, investing in digital marketing and improving the digital customer experience.

Results of Operations

Overview

We entered 2026 with strong momentum and delivered a solid start to the fiscal year, with double-digit revenue growth. The first quarter of Fiscal 2026 reflected the strength of our portfolio and highlighted the strength of the Aerie brand, which delivered exceptional growth and profitability across channels. We continue to prioritize operational excellence and financial discipline to create long-term value for AEO and its shareholders.

Compared to the first 13 weeks of Fiscal 2025:

•
Total revenue increased 10% to $1.195 billion from $1.090 billion, with Aerie revenue increasing 34% year-over-year, and American Eagle revenue decreasing 2% year-over-year. Total comparable sales increased 8%. Aerie's comparable sales increased 25% year-over-year, and American Eagle's comparable sales decreased 2% year-over-year.

•
Gross profit increased 41% to $456 million year-over-year, and increased by 860 basis points to 38.2% as a percentage of revenue.

•
Operating income of $28 million increased 133% compared to an $85 million operating loss last year, and increased 141% compared to the adjusted operating loss of $68 million last year.

•
Diluted earnings per share increased to $0.14 for the 13 weeks ended May 2, 2026, compared to diluted loss per share of ($0.36) and adjusted diluted loss per share of ($0.29) for the 13 weeks ended May

[Excerpt truncated for page length; source filing is linked above.]

Latest 10-K MD&A

Extracted between Item 7 and the next Item 7A/8 heading after HTML sanitization. Confidence: high. Filing date: 2026-03-30. Report date: 2026-01-31.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help the reader understand the Company, our operations and our present business environment. MD&A is provided as a supplement to — and should be read in conjunction with — our consolidated financial statements and the accompanying Notes thereto contained in Part II, Item 8 – Financial Statements and Supplementary Data " — of this report.

This MD&A generally discusses Fiscal 2025 and Fiscal 2024 and provides year-to-year comparisons between Fiscal 2025 and Fiscal 2024. Discussions of Fiscal 2023 and year-to-year comparisons between Fiscal 2024 and Fiscal 2023 that are not included in this Annual Report can be found in "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Part II. Item 7 of our annual report on Form 10-K for the fiscal year ended February 1, 2025.

Introduction

This MD&A is organized as follows:

•
Executive Overview

•
Key Performance Indicators

•
Current Trends and Outlook

•
Results of Operations

•
Non-GAAP Information

•
Liquidity and Capital Resources

•
Critical Accounting Estimates

•
Recent Accounting Pronouncements

Executive Overview

We are a leading global specialty retailer offering high-quality, on-trend clothing, accessories and personal care products at affordable prices under our American Eagle® and Aerie® brands.

We have two reportable segments, American Eagle and Aerie. Our Chief Operating Decision Maker (defined as our CEO) analyzes segment results and allocates resources between segments based on adjusted operating income, which is a non-GAAP financial measure. See "Non-GAAP Information" below and Note 14, Segment Reporting, to the Consolidated Financial Statements included herein for additional information.

Key Performance Indicators

Our management evaluates the following items, which are considered key performance indicators, in assessing our performance:

Comparable Sales — Comparable sales and comparable sales changes provide a measure of sales growth for stores and channels open at least one year over the comparable prior-year period. In fiscal years following those with 53 weeks, the prior-year period is shifted by one week to compare similar calendar weeks. A store is included in comparable sales in the 13th month of operation. However, stores that have a gross square footage change of 25% or greater due to a remodel are removed from the comparable sales base, but are included in total sales. These stores are returned to the comparable sales base in the 13th month following the remodel. Sales from American Eagle, Aerie, Todd Snyder, and Unsubscribed stores, as well as sales from AEO Direct and other digital channels, are included in total comparable sales. Sales from licensed stores are not included in comparable sales. Individual American Eagle and Aerie brand comparable sales disclosures include sales from stores and AEO Direct.

Omni-Channel Sales Performance — Our management utilizes the following quality of sales metrics in evaluating our omni-channel sales performance: comparable sales, average unit retail price, total transactions, units per transaction, and consolidated comparable traffic. We include these metrics in our discussion within this MD&A when we believe that they enhance the understanding of the matter being discussed. Investors may find them useful as such. Each of these metrics is defined as follows (except comparable sales, which is defined separately above):

33

•
Average unit retail price represents the selling price of our goods. It is the cumulative net sales divided by the net units sold for a period of time.

•
Total transactions represents the count of customer transactions over a period of time (inclusive of Company-owned stores and AEO Direct, unless specified otherwise).

•
Units per transaction represents the number of units sold divided by total transactions over a period of time (inclusive of Company-owned stores and AEO Direct, unless specified otherwise).

•
Consolidated comparable traffic represents visits to our Company-owned stores, limited to those stores that qualify to be included in comparable sales as defined above, including AEO Direct, over a period of time.

Gross Profit — Gross profit measures whether we are optimizing the profitability of our sales. Gross profit is the difference between total net revenue and cost of sales. Cost of sales consists of merchandise costs, including design, sourcing, importing, and inbound freight costs, as well as markdowns, shrinkage and certain promotional costs, Quiet Platforms costs to service our customers and buying, occupancy and warehousing costs and services. Design costs consist of compensation, rent, depreciation, travel, supplies, and samples.

Buying, occupancy and warehousing costs and services consists of compensation, employee benefit expenses and travel for our buyers and certain senior merchandising executives; rent and utilities related to our stores, corporate headquarters, distribution centers and other office space; freight from our distribution centers to the stores; compensation and supplies for our distribution centers, including purchasing, receiving and inspection costs; and shipping and handling costs related to our e-commerce operations.

The inability to obtain acceptable levels of sales, initial markups or any significant increase in our use of markdowns could have an adverse effect on our consolidated gross profit and results of operations.

Operating Income — Our management views operating income as a key indicator of our performance. The key drivers of operating income are net revenue, gross profit, our ability to control selling, general, and administrative ("SG&A") expenses, and our level of capital expenditures.

Cash Flow and Liquidity — Our management evaluates cash flow from operations and investing and financing activities in determining the sufficiency of our cash position and capital allocation strategies. Cash flow has historically been sufficient to cover our uses of cash. Our management believes that cash flow and liquidity will be sufficient to fund anticipated capital expenditures and working capital requirements for the next 12 months and beyond.

Current Trends and Outlook

Macroeconomic Conditions, Inflation and Tariffs

During Fiscal 2024 and Fiscal 2025, our results were negatively impacted by macro-economic challenges and global inflationary pressures impacting consumer spending behavior, which constrained revenue and increased margin pressure to clear through excess inventory.

In addition, recent trade policies and uncertainty related thereto, including with respect to tariffs and other restrictions, with respect to countries from which we source our merchandise and raw materials, have created a dynamic and unpredictable trade landscape. This has and may continue to adversely impact our business and operations. On February 20, 2026, the U.S. Supreme Court held that the U.S. administration’s imposition of tariffs unlawful pursuant to the International Emergency Economic Powers Act (“IEEPA”) was unlawful, striking down the 10% global baseline tariff, as well as the higher tariffs imposed on certain U.S. trading partners. The U.S. Supreme Court’s ruling did not affect all of the recently imposed tariffs, including those imposed following trade remedy investigations by the Department of Commerce or the U.S. Trade Representative. Nor does it prohibit the imposition of future tariffs through alternative trade authorities available to the U.S. administration. On February 20, 2026, shortly after the announced U.S. Supreme Court decision, the U.S. administration announced that it would be imposing a new 10% global tariff for a period of 150 days pursuant to a balance-of-payments provision in Section 122 of the Trade Act of 1974, effective February 24, 2026, which is being challenged in court by several US states. The U.S. administration further announced that it would begin additional trade remedy investigations into unidentified trading partners pursuant to Section 301 of the Trade Act of 1974 and with respect to certain unidentified product sectors pursuant to Section 232 of the Trade Expansion Act of 1962. The Court of International Trade subsequently issued an interim order requiring U.S. Customs and Border Protection ("CBP") to process unliquidated entries without the unlawful tariffs and to develop a plan that could result in refunds of duties previously collected. CBP has indicated it is developing a plan within 45 days to implement that order, however the scope, timing, and ultimate availability of any refunds remains uncertain. While the Company has taken steps to preserve its rights should a refund process be established, no assurance can be given that refunds will be realized.

34

Accordingly, uncertainty with respect to tariffs remains ongoing. The imposition of tariffs by the U.S. government, associated geopolitical tensions, including reciprocal tariffs by trading partners, and uncertainties regarding U.S. import tariffs have and may further affect our margins and operations or could lead to further weakened business conditions for our industry. We continue to evaluate the impact of tariffs and other trade policies on our business.

For further information about the risks associated with global economic conditions and the effect of economic pressures on our business, see "Risk Factors" in Part I, Item 1A of this Annual Report.

Results of Operations

Overview

With a deliberate action plan that ignited growth, we improved profitability and cash flow fueling a strong finish to Fiscal 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 continued profitable growth and strong cash flow for our shareholders. Except as otherwise indicated, all comparisons are to Fiscal 2024.

•
Total net revenue increased $219 million to $5.547 billion compared to $5.329 billion last year.

•
Total comparable sales increased 3%. By brand, comparable sales for Aerie increased 9%, and American Eagle comparable sales were flat year-over-year.

•
Gross profit decreased 3% to $2.025 billion and decreased by 270 basis points to 36.5% as a percentage of revenue.

•
Operating income decreased 47% to $226.2 million and decreased by 390 basis points to 4.1% as a percentage of total revenue. Non-GAAP adjusted operating income decreased 26% to $327.8 million and decreased by 240 basis points to 5.9% as a percentage of revenue.

•
Net income attributable to AEO decreased 42% to $192.0 million and decreased by 270 basis points to 3.5% as a percentage of total revenue. Diluted earnings per share attributable to AEO decreased to $1.09 for Fiscal 2025 compared to $1.68 for Fiscal 2024. Non-GAAP adjusted net income attributable to AEO decreased 23% to $266.0 million and decreased by 160 basis points to 4.8% as a percentage of revenue. Non-GAAP adjusted diluted earnings per share attributable to AEO decreased to $1.50 for Fiscal 2025 compared to $1.74 for Fiscal 2024.

The following table shows, for the periods indicated, the percentage relationship to total net revenue of the listed items included in our Consolidated Statements of Operations.

35

Fiscal Years Ending

January 31, 2026

February 1, 2025

(In thousands)

(Percentage of revenue)

(In thousands)

(Percentage of revenue)

Total net revenue

$

5,547,236

100.0

%

$

5,328,652

100.0

%

Cost of sales, including certain buying, occupancy and warehouse expenses

3,521,915

63.5

3,239,719

60.8

Gross profit

2,025,321

36.5

2,088,933

39.2

Selling, general and administrative expenses

1,485,535

26.8

1,431,814

26.9

Impairment, restructuring and other charges(1)

101,603

1.8

17,561

0.3

Depreciation and amortization expense

211,961

3.8

212,255

4.0

Operating Income(1)

226,222

4.1

427,303

8.0

Interest expense (income), net

4,112

0.1

(7,769

)

(0.1

)

Other (income), net

(27,278

)

(0.5

)

(4,685

)

(0.1

)

Income before income taxes

$

249,388

4.5

$

439,757

8.2

Provision for income taxes

63,866

1.2

112,854

2.1

Net Income(1)

$

185,522

3.3

%

$

326,903

6.1

%

Net loss attributable to noncontrolling interests

6,461

0.2

2,477

0.1

Net income attributable to AEO

191,983

3.5

329,380

6.2

Diluted net income per common share attributable to AEO(1)

$

1.09

$

1.68

(1) Please see “Non-GAAP Information” below for non-GAAP financial measures.

Comparison of Fiscal 2025 to Fiscal 2024

Total Net Revenue

Total net revenue for Fiscal 2025 increased $219 million to $5.547 billion compared to $5.329 billion for Fiscal 2024. Total comparable sales increased by 3% and 4% for Fiscal 2025 and Fiscal 2024, respectively. Digital revenue increased 7%, driven by increased transaction volume as a result of increased traffic. Higher average dollar sales and units per transaction also contributed to the increase in digital revenue. Store revenue was flat compared to Fiscal 2024.

Fiscal Years Ending

Increase/(Decrease)

January 31, 2026

February 1, 2025

(In thousands)

(Percentage)

(In thousands)

(Percentage)

(In thousands)

(Percentage)

American Eagle

$

3,411,237

61.5

%

$

3,385,231

63.5

%

$

26,006

1

%

Aerie

1,940,924

35.0

1,738,414

32.6

202,510

12

Other

226,027

4.1

243,907

4.6

(17,880

)

(7

)

Intersegment Eliminations

(30,952

)

(0.6

)

(38,900

)

(0.7

)

7,948

(20

)

Total net revenue

$

5,547,236

100.0

%

$

5,328,652

100.0

%

$

218,584

4

%

36

American Eagle. Net revenue was relatively flat year-over-year. American Eagle comparable sales were flat year-over-year.

Aerie. The increase in net revenue was driven by increased traffic and transactions across channels, as well as increased units per transaction and transaction value. Aerie comparable sales increased 9% year-over-year.

Other. Net revenue decreased compared to Fiscal 2024 primarily due to planned lower revenue from Quiet Platforms due to our change in strategy for this business.

Gross Profit

Fiscal Years Ending

Increase/(Decrease)

January 31, 2026

February 1, 2025

(In thousands)

(In thousands)

(Percentage)

Gross Profit

$

2,025,321

$

2,088,933

$

(63,612

)

-3

%

Gross Margin

36.5

%

39.2

%

-270 basis points

The decrease in gross profit was driven by a decrease of $30 million in merchandise margin due to increased promotional activity and $70 million of incremental tariffs, net of mitigation efforts, as well as an inventory charge taken in the first quarter of Fiscal 2025 related to the write-down of spring and summer merchandise.

Additionally, buying, occupancy, and warehousing costs increased $34 million year-over-year, primarily due to new store openings and digital sales volume. As a percentage of net revenue, buying, occupancy, and warehousing costs leveraged 10 basis points compared to Fiscal 2024, due to higher sales in Fiscal 2025.

Our gross profit may not be comparable to that of other retailers, as some retailers include all costs related to their distribution network, as well as design costs, in cost of sales, and others may exclude a portion of these costs from cost of sales, including them in a line item such as SG&A expenses. Refer to Note 2, Summary of Significant Accounting Policies, to the Consolidated Financial Statements included herein for a description of our accounting policy regarding cost of sales, including certain buying, occupancy and warehousing expenses.

Selling, General, and Administrative Expenses

Fiscal Years Ending

Increase/(Decrease)

January 31, 2026

February 1, 2025

(In thousands)

(In thousands)

(Percentage)

Selling, general and administrative expenses

$

1,485,535

$

1,431,814

$

53,721

4

%

Selling, general and administrative expenses as a percentage of net revenue

26.8

 %

26.9

 %

10 basis points

SG&A expenses increased $54 million year-over-year. The increase was primarily related to planned investments in advertising.

Impairment, Restructuring and Other Charges

For Fiscal 2025, we recorded the following:

Fiscal Year Ended

January 31,

(In thousands)

2026

Quiet Platforms impairment and restructuring charges (1)

58,966

Corporate and store impairment and restructuring charges (2)

42,637

Total impairment and restructuring charges

$

101,603

Impairment and restructuring charges as a percentage of net revenue

1.8

%

(1)
As part of our continued supply chain network optimization project, the Company made the decision to close the Quiet Platforms business and discontinue services for all third-party customers. The Company recorded $59.0 million of impairment and restructuring charges related to closing Quiet fulfillment centers.

37

(2)
The Company recorded $42.6 million of impairment and restructuring charges related to corporate operations and store impairment.

As set forth below, for Fiscal 2024, we recorded $10.7 million of employee severance related to corporate restructuring, and $6.8 million of impairment and restructuring costs due to the sale of our Hong Kong retail operations.

Fiscal Year Ended

February 1,

(In thousands)

2025

Corporate restructuring costs

10,729

Hong Kong retail operations impairment and restructuring costs

6,832

Total impairment and restructuring charges

$

17,561

Impairment and restructuring charges as a percentage of net revenue

0.3

%

Refer to Note 15, Impairment, Restructuring and Other Charges, to the Consolidated Financial Statements included in this Annual Report for additional information.

Depreciation and Amortization Expense

Fiscal Years Ending

Increase/(Decrease)

January 31,

February 1,

2026

2025

(In thousands)

(In thousands)

(Percentage)

American Eagle

$

84,047

$

74,220

$

9,827

13

%

Aerie

59,574

59,097

477

1

Other

68,340

78,938

(10,598

)

(13

)

Total depreciation and amortization expense

$

211,961

$

212,255

$

(294

)

(0

)

%

Total depreciation and amortization expense as a percentage of net revenue

3.8

%

4.0

%

20 basis points

Operating Income

Fiscal Years Ending

Increase/(Decrease)

January 31, 2026

February 1, 2025

(In thousands)

(Percentage of revenue)

(In thousands)

(Percentage of revenue)

(In thousands)

(Percentage)

Operating income

          American Eagle

$

455,113

8.2

%

$

606,507

11.4

%

$

(151,394

)

(25

)

%

          Aerie

345,874

6.2

315,845

5.9

30,029

10

          Other

(44,379

)

(0.8

)

(53,722

)

(1.0

)

9,343

(17

)

General corporate expenses

(428,783

)

(423,766

)

(5,017

)

Impairment, restructuring and other charges

(101,603

)

(17,561

)

(84,042

)

Total Operating Income

$

226,222

4.1

%

$

427,303

8.0

%

$

(201,081

)

(47

)

%

The decrease in total operating income was primarily driven by lower gross profit in the American Eagle brand and increased investments in advertising, as well as an $84 million increase in impairment, restructuring and other charges during Fiscal 2025.

American Eagle. The decrease was primarily the result of the $114 million decline in gross margin, driven by lower merchandise margin due to increased promotional activity and $44 million of incremental tariffs, net of mitigation efforts. SG&A expenses increased $28 million primarily due to planned investments in advertising. Depreciation and amortization expense also increased $10 million primarily as a result of remodeled stores.

Aerie. The increase was primarily the result of the $65 million increase in gross margin, driven by higher merchandise margin on the $196 million, or 12%, increase in total net revenue, which was partially offset by increased promotional activity

38

and $26 million of incremental tariffs, net of mitigation efforts, as well as a $19 million increase in buying, occupancy, and warehousing costs primarily related to delivery and new store rent. SG&A expenses increased $33 million primarily due to store compensation and planned investments in advertising.

Other. The reduction in loss was primarily related to planned lower volume from Quiet Platforms.

Interest Expense (Income), Net

Fiscal Years Ending

Increase/(Decrease)

January 31,

February 1,

2026

2025

(In thousands)

(In thousands)

(Percentage)

Interest expense (income) net

$

4,112

$

(7,769

)

$

(11,881

)

153

%

Interest expense (income) as a percentage of net revenue

0.1

 %

(0.1

)

 %

-20 basis points

The increase in interest expense (income), net was primarily attributable to a $7 million reduction in interest income as a result of lower investable cash balances, as well as a $5 million increase in interest expense as a result of borrowings on our Credit Facility (as defined below) in Fiscal 2025.

Other (Income), Net

Fiscal Years Ending

Increase/(Decrease)

January 31,

February 1,

2026

2025

(In thousands)

(In thousands)

(Percentage)

Other (income), net

$

(27,278

)

$

(4,685

)

$

22,593

482

%

Other (income), net as a percentage of net revenue

(0.5

)

 %

(0.1

)

 %

40 basis points

The increase in other (income), net consists of a $26 million gain on equity method investments, partially offset by foreign currency fluctuations.

Income Taxes

Fiscal Years Ending

Increase/(Decrease)

January 31,

February 1,

2026

2025

(In thousands)

(In thousands)

(Percentage)

Provision for income taxes

$

63,866

$

112,854

$

48,988

43

%

Provision for income taxes as a percentage of net revenue

1.2

%

2.1

%

90 basis points

Effective tax rate

25.6

%

25.7

%

The effective income tax rate was 25.6% for Fiscal 2025, compared to an effective income tax rate of 25.7% for Fiscal 2024.The lower effective income tax rate in Fiscal 2024 was primarily driven by changes in international provisions of the Tax Cut and Jobs Act of 2017 partially offset by changes in non-deductible executive compensation. Our effective income tax rate is also dependent upon the overall mix of earnings in jurisdictions with different tax rates.

The Organization for Economic Cooperation and Development ("OECD") Global Anti-Base Erosion Pillar Two minimum tax rules, also referred to as "Pillar Two", are intended to apply to tax years beginning in 2024 and generally provide for a minimum effective tax rate of 15%. While the U.S. has not enacted legislation to adopt Pillar Two, certain countries in which we operate have enacted such legislation, and other countries are in the process of doing so. We considered the applicable tax laws in relevant jurisdictions and concluded there is no material effect on our effective tax rate or our consolidated results of operation, financial position, and cash flows for the year ended January 31, 2026. The Company

39

will continue to evaluate the potential effect of Pillar Two on future reporting periods and expects the impact to be immaterial.

Refer to Note 2, Summary of Significant Accounting Policies, and Note 13, Income Taxes, to the Consolidated Financial Statements included herein for additional information regarding our accounting for income taxes.

Net Income attributable to AEO

Fiscal Years Ending

Increase/(Decrease)

January 31,

February 1,

2026

2025

(In thousands)

(In thousands)

(Percentage)

Net income attributable to AEO

$

191,983

$

329,380

$

(137,397

)

-42

%

Net income attributable to AEO as a percentage of net revenue

3.5

%

6.2

%

-270 basis points

The change in net income was attributable to the factors described above.

Net income per diluted share attributable to AEO for Fiscal 2025 was $1.09, which included $97.9 million (net of $3.7 million of non-controlling interest), or $0.43 per diluted share, of pre-tax impairment and restructuring charges. Refer to "Non-GAAP Information" below for additional detail.

Net income per diluted share attributable to AEO for Fiscal 2024 was $1.68, which includes $17.6 million ($0.06 per diluted share) of pre-tax impairment and restructuring charges. Refer to "Non-GAAP Information" below for additional detail.

Non-GAAP Information

This Results of Operations section contains operating income, net income and net income per diluted share presented on an adjusted basis, which are non-GAAP financial measures ("non-GAAP" or "adjusted"). These financial measures are not based on any standardized methodology prescribed by GAAP and are not necessarily comparable to similar measures presented by other companies. Non-GAAP information is provided as a supplement to, not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. We believe that this non-GAAP information is useful as an additional means for investors to evaluate our operating performance, when reviewed in conjunction with our GAAP consolidated financial statements and provides a higher degree of transparency. These amounts are not determined in accordance with GAAP and, therefore, should not be used exclusively in evaluating our business and operations. The table below reconciles the GAAP financial measure to the non-GAAP financial measure discussed above for Fiscal 2025:

GAAP to Non-GAAP Reconciliation

(Dollars in thousands, except per share amounts)

Fiscal Year Ended

January 31, 2026

Operating Income

Income Tax Expense

Effective Tax Rate

Net Income Attributable to AEO

Earnings per Diluted Share

GAAP Basis

$

226,222

$

63,866

25.6

%

$

191,983

$

1.09

% of Revenue

4.1

%

3.5

%

Add: Impairment and restructuring charges (1)

$

101,603

$

76,794

$

0.43

Tax effect of the above (2)

$

24,809

Net loss attributable to non-controlling interests

$

(3,707

)

$

(0.02

)

Non-GAAP Basis

$

327,825

$

88,675

25.3

%

$

265,070

$

1.50

% of Revenue

5.9

%

4.8

%

40

(1) Refer to Note 15, Impairment, Restructuring, and Other Charges, to the Consolidated Financial Statements included herein for additional information.

(2) The tax effect of excluded items is the difference between the tax provision calculated on a GAAP basis and on a non-GAAP basis.

The table below reconciles the GAAP financial measure to the non-GAAP financial measure discussed above for Fiscal 2024:

GAAP to Non-GAAP Reconciliation

(Dollars in thousands, except per share amounts)

Fiscal Year Ended

February 1, 2025

Operating Income

Income Tax Expense

Effective Tax Rate

Net Income Attributable to AEO

Earnings per Diluted Share

GAAP Basis

$

427,303

$

112,854

25.7

%

$

329,380

$

1.68

% of Revenue

8.0

%

6.2

%

Add: Impairment, restructuring and other charges (1)

$

17,561

$

12,983

$

0.06

Tax effect of the above (2)

$

4,577

Non-GAAP Basis

$

444,864

$

117,431

25.7

%

$

342,363

$

1.74

% of Revenue

8.3

%

6.4

%

(1) Refer to Note 15, Impairment, Restructuring, and Other Charges, to the Consolidated Financial Statements included herein for additional information.

(2) The tax effect of excluded items is the difference between the tax provision calculated on a GAAP basis and on a non-GAAP basis.

Liquidity and Capital Resources

Our uses of cash have historically been for working capital, the construction of new stores and remodeling of existing stores, information technology and e-commerce upgrades and investments, distribution center improvements and expansion, and the return of value to shareholders through the repurchase of common stock and the payment of dividends. Additionally, our uses of cash have included the development of the Aerie brand, investments in technology and omni-channel capabilities, and our international expansion efforts.

Historically, our uses of cash have been funded with cash flow from operations and existing cash on hand. We also maintain an asset-based revolving credit facility that allows us to borrow up to $700 million, which will expire in June 2027. Refer to Note 8, Long-Term Debt, Net, to the Consolidated Financial Statements included herein for additional information regarding our long-term debt.

We expect to be able to fund our future cash requirements through current cash holdings and available liquidity.

The following sets forth certain measures of our liquidity:

January 31, 2026

Working capital, in thousands

$

446,610

Current Ratio

1.51

The following table sets forth net cash flows in operating, investing, and financing activities for Fiscal 2025 and 2024:

41

Fiscal Years Ending

(Decrease)/Increase

January 31,

February 1,

2026

2025

(In thousands)

Total cash provided by (used for):

Operating activities

$

456.2

$

476.8

$

(20.6

)

Investing activities

(202.7

)

(217.5

)

14.9

Financing activities

(326.9

)

(301.9

)

(24.9

)

Effect of foreign currency exchange rate changes on cash and cash equivalents

3.3

(2.5

)

5.8

(Decrease) increase in cash and cash equivalents

$

(70.0

)

$

(45.1

)

$

(24.9

)

Cash Flows Provided by Operating Activities

For both Fiscal 2025 and Fiscal 2024, our major source of cash from operations was merchandise sales and our primary outflow of cash from operations was for the payment of operational costs.

Cash Flows Used for Investing Activities

For both Fiscal 2025 and Fiscal 2024, investing activities primarily consisted of capital expenditures for property and equipment. For further information on capital expenditures, refer to "Capital Expenditures for Property and Equipment" caption below.

Cash Flows Used for Financing Activities

During Fiscal 2025, cash used for financing activities consisted primarily of $201.8 million, including excise taxes, used to repurchase the Company's common stock under the ASR Agreement (as defined below), $85.3 million for cash dividends paid at a quarterly rate of $0.125 per share for all four quarters of Fiscal 2025, and $56.9 million, including commissions and excise taxes, used for the repurchase of common stock under our publicly announced repurchase program

During Fiscal 2024, cash used for financing activities consisted primarily of $190.9 million, including commissions and excise taxes, used to repurchase common stock under our publicly announced repurchase programs, and $96.5 million for cash dividends paid at a quarterly rate of $0.125 for all four quarters of Fiscal 2024.

Cash returned to shareholders through dividends and share repurchases, including excise taxes, was $344.0 million and $287.4 million in Fiscal 2025 and Fiscal 2024, respectively.

Capital Expenditures for Property and Equipment

For Fiscal 2025, capital expenditures totaled $260.8 million. See below for a breakdown of expenditures:

Fiscal Years Ending

Increase/(Decrease)

January 31,

February 1,

2026

2025

(In thousands)

(In thousands)

(Percentage)

Store, fixture, and visual investments

$

145,643

$

131,938

$

13,705

10

%

Information technology initiatives

50,955

51,399

(444

)

(1

)

Supply chain infrastructure

13,621

17,923

(4,302

)

(24

)

Other home office projects

50,576

21,278

29,298

138

Capital Expenditures

$

260,795

$

222,538

$

38,257

17

%

For Fiscal 2026, we expect capital expenditures to be in the range of $250 to 260 million related to the continued support of our expansion efforts, stores, information technology upgrades to support growth and investments in e-commerce, as well as to support and enhance our supply chain. We expect to be able to fund our capital expenditures through current cash holdings and cash generated from operations.

See below for a breakdown for stores remodeled and new stores opened in Fiscal 2025 and Fiscal 2024:

42

Fiscal Years Ending

January 31, 2026

February 1, 2025

New Stores

Remodels

New Stores

Remodels

American Eagle(1)

12

41

22

46

Aerie(2)

22

2

22

5

Todd Snyder

4

-

4

-

Unsubscribed

2

-

1

-

Total stores

40

43

49

51

(1) American Eagle includes AE stand-alone stores, Aerie side-by-side stores connected to an AE brand location, AE, Aerie, and OFFLINE locations connected as one store, and OFFLINE side-by-side stores connected to an AE brand location.

(2) Aerie includes Aerie stand-alone, OFFLINE stand-alone, and OFFLINE side-by-side stores connected to an Aerie brand location.

Revolving Credit Facility

In June 2022, we entered into an amended and restated credit agreement (the "Credit Agreement"). The Credit Agreement provides senior secured asset-based revolving credit for loans and letters of credit up to $700 million, subject to customary borrowing base limitations (the "Credit Facility"). The Credit Facility expires in June 2027.

All obligations under the Credit Facility are unconditionally guaranteed by certain subsidiaries. The obligations under the Credit Agreement are secured by certain assets of the Company and certain subsidiaries.

As of January 31, 2026, we were in compliance with the terms of the Credit Agreement and had $12 million outstanding in stand-by letters of credit.

Share Repurchases

On March 11, 2025, the Company’s Board of Directors authorized 50 million additional shares for repurchase as part of its existing share repurchase program, which was previously announced in February 2024.

As of January 31, 2026, the Company had a total of 49.0 million shares remaining authorized for repurchase through February 3, 2029. During Fiscal 2025, there were 3.0 million shares repurchased under this authorization.

Subsequent to the end of Fiscal 2025 and through the period ending March 30, 2026, the Company repurchased 3.0 million shares of common stock as part of our publicly announced share repurchase program.

On March 14, 2025, the Company entered into an accelerated share repurchase agreement (the "ASR Agreement") with Bank of America, N.A. ("Bank of America") to repurchase an aggregate of $200 million of the Company’s common stock.

Pursuant to the terms of the ASR Agreement, on March 17, 2025, the Company made an aggregate payment of $200 million to Bank of America and received an aggregate initial delivery of approximately 14.5 million shares of its common stock. At final settlement on June 16, 2025, the Company received an additional 3.9 million shares. The cumulative repurchases under the ASR Agreement totaled 18.4 million shares, in the aggregate, at an average price of $10.86 per share.

Dividends

Dividends are disclosed in Part II. Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities.

Critical Accounting Estimates

Our Consolidated Financial Statements are prepared in accordance with GAAP, which requires us to make estimates and assumptions that may affect the reported consolidated financial condition and results of operations should actual results differ from these estimates and assumptions. We base our estimates and assumptions on the best available information and believe them to be reasonable for the circumstances. We believe that of our significant accounting policies, the following involve a higher degree of judgment and complexity. Refer to Note 2, Summary of Significant Accounting Policies, to the Consolidated Financial Statements included herein for a complete discussion of our significant accounting policies. Management has reviewed these critical accounting policies and estimates with the Audit Committee of our Board.

43

Revenue Recognition. In accordance with Accounting Standard Codification ("ASC") Topic 606, Revenue from Contracts with Customers, we record revenue for store sales upon the purchase of merchandise by customers. The Company’s e-commerce operation records revenue upon the estimated customer receipt date of the merchandise. Shipping and handling revenues are included in total net revenue. Sales tax collected from customers is excluded from revenue and is included as part of accrued income and other taxes on the Company’s Consolidated Balance Sheets.

Revenue is recorded net of estimated and actual sales returns and deductions for coupon redemptions and other promotions. The Company records the impact of adjustments to its sales return reserve quarterly within total net revenue and cost of sales. The sales return reserve reflects an estimate of sales returns based on projected merchandise returns determined using historical average return percentages.

Revenue is not recorded on the issuance of gift cards. A current liability is recorded upon issuance, and revenue is recognized when the gift card is redeemed for merchandise.

The Company recognizes royalty revenue generated from its license or franchise agreements based upon a percentage of merchandise sales by the licensee/franchisee. This revenue is recorded as a component of total net revenue when earned.

Revenue associated with Quiet Platforms is recognized as the services are performed.

Merchandise Inventory. Merchandise inventory is valued at the lower of average cost or net realizable value, utilizing the retail method. Average cost includes merchandise design and sourcing costs and related expenses. The Company records merchandise receipts when control of the merchandise has transferred to the Company.

We review our inventory in order to identify slow-moving merchandise and generally use markdowns to clear merchandise. Additionally, we estimate a markdown reserve for future planned markdowns related to current inventory. If inventory exceeds customer demand for reasons of style, seasonal adaptation, changes in customer preference, lack of consumer acceptance of fashion items, or competition, or if it is determined that the inventory in stock will not sell at its currently ticketed price, additional markdowns may be necessary. These markdowns may have a material adverse impact on earnings, depending on the extent and amount of inventory affected.

We estimate an inventory shrinkage reserve for anticipated losses for the period between the last physical count and the balance sheet date. The estimate for the shrinkage reserve is calculated based on historical percentages and can be affected by changes in merchandise mix and changes in actual shrinkage trends. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our inventory shrinkage reserve. However, if actual physical inventory losses differ significantly from our estimate, our consolidated operating results could be adversely affected.

Impairment of long-lived assets. In accordance with ASC 360, Property, Plant, and Equipment ("ASC 360"), we evaluate the value of leasehold improvements, store fixtures, and operating lease ROU assets associated with retail stores, distribution centers, and corporate operations. We evaluate long-lived assets for impairment at the individual retail store level, which is the lowest level at which individual cash flows can be identified. Impairment losses are recorded on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the projected undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts. When events such as these occur, the impaired assets are adjusted to their estimated fair value and an impairment loss is recorded separately as a component of operating income (loss) in the Consolidated Statements of Operations.

Our impairment loss calculations require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values. The significant assumption used in our fair value analysis is forecasted revenue. We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate long-lived asset impairment losses. However, if actual results are not consistent with our estimates and assumptions, our consolidated operating results could be adversely affected.

Impairment of goodwill and intangible assets. Definite-lived intangible assets are initially recorded at fair value, with amortization computed utilizing the straight-line method over the assets’ estimated useful lives. The Company’s definite-lived intangible assets, which consist primarily of trademark assets, are generally amortized over 10 to 15 years. The Company evaluates definite-lived intangible assets for impairment in accordance with ASC 360 when events or circumstances indicate that the carrying value of the asset may not be recoverable. Such an evaluation includes the estimation of undiscounted future cash flows to be generated by those assets. If the sum of the estimated future undiscounted cash flows is less than the carrying amounts of the assets, then the assets are impaired and are adjusted to their estimated fair value.

In accordance with ASC 350, Intangibles – Goodwill and Other, the Company evaluates goodwill for possible impairment at least annually as of the last day of the fiscal year and upon occurrence of certain triggering events or substantive changes in circumstances that indicate that the fair value of a reporting unit may be below its carrying value. If the carrying value of

44

the reporting unit exceeds the fair value, an impairment charge is recorded in the period of the evaluation based on that difference.

Share-Based Payments. We account for share-based payments in accordance with ASC 718, Compensation – Stock Compensation ("ASC 718"). To determine the fair value of our awards, we use the Black-Scholes option-pricing model for stock option awards and a Monte-Carlo simulation for performance-based restricted stock awards, which requires management to apply judgment and make assumptions to determine the fair value of our awards. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (the "expected term") and the estimated volatility of the price of our common stock over the expected term. We calculate a weighted-average expected term based on historical experience. Expected stock price volatility is based on historical volatility of our common stock. Changes in these assumptions can materially affect the estimate of the fair value of our share-based payments and the related amount recognized in our Consolidated Financial Statements.

Income Taxes. We calculate income taxes in accordance with ASC 740, Income Taxes ("ASC 740"), which requires the use of the asset and liability method. Under this method, deferred tax assets and liabilities are recognized based on the difference between the Consolidated Financial Statements carrying amounts of existing assets and liabilities and their respective tax bases as computed pursuant to ASC 740. Deferred tax assets and liabilities are measured using the tax rates, based on certain judgments regarding enacted tax laws and published guidance, in effect in the years when those temporary differences are expected to reverse. A valuation allowance is established against the deferred tax assets when it is more likely than not that some portion or all of the deferred taxes may not be realized. Changes in our level and composition of earnings, tax laws or the deferred tax valuation allowance, as well as the results of tax audits, may materially impact the effective income tax rate.

We evaluate our income tax positions in accordance with ASC 740, which prescribes a comprehensive model for recognizing, measuring, presenting, and disclosing in the financial statements tax positions taken or expected to be taken on a tax return, including a decision whether to file or not to file in a particular jurisdiction. Under ASC 740, a tax benefit from an uncertain position may be recognized only if it is more likely than not that the position is sustainable based on its technical merits.

The calculation of the deferred tax assets and liabilities, and the decision to recognize a tax benefit from an uncertain position and to establish a valuation allowance require management to make estimates and assumptions. We believe that our assumptions and estimates are reasonable, although actual results may have a positive or negative material impact on the balances of deferred tax assets and liabilities, valuation allowances or net income (loss).

Recent Accounting Pronouncements

Recent accounting pronouncements the Company has adopted or is currently evaluating prior to adoption, including the dates of adoption or expected dates of adoption, as applicable, and anticipated effects on the Company’s audited Consolidated Financial Statements, are included in Note 2, "Summary of Significant Accounting Policies," to the Consolidated Financial Statements included herein.

45