Adrienne Yih: You’re welcome. So Jen, I want to stick on the theme that things seem to be rebounding. It does seem like the chain space generally seems to be having a little bit of a moment — sort of a recapture moment, maybe a recovery moment. What are the driving forces that you’re seeing in sort of back-to-school? I know you kind of own the bottom space. So if you can talk a little bit about kind of long-standing trends. And then, Mike, on the SG&A dollar growth, just wondering, it would seem that you’re more incented, I guess, on the EBIT side of things versus the top line because it looks like you’re falling through a lot more on the EBIT. So just a little bit of color on kind of the incentive comp going up so much. I think prior guidance was low to mid-single digit, and now it’s low double. So some color there. Thanks so much.
Jen Foyle: Yes, sure. Look, I think we’ve been at this for three years now, rebuilding American Eagle. Michael mentioned we have new store designs. We have new concepts. And quite frankly, out of the gate in Q1, we’ve been chasing women’s. Women’s has gotten better quarter-over-quarter. As we landed this back-to-school assortment, it really came together. Between the marketing and the assortment, we really leaned in there and it’s paying off. I really like what I’m seeing. I don’t know if you got a chance also to see that marketing campaign, The Summer I Turned Pretty. It was incredible. It was a great success story. And I think it was a great launchpad as we headed into back-to-school. Getting into the back-to-school season.
As you know, we do dominate in bottoms. The teams did a great job maneuvering the fits, not only between denim but also non-denim bottoms. We really doubled down there. And we’re definitely in position to continue to see that business grow. And as you know, when this comes back, AE is the winner in bottoms, the fit the quality, the price value equation. I’m really excited to see this come to fruition. And early on, we’ve been still seeing wear-now trends. So we’re not even into – as you know, it’s 90 degrees out there. As we really get into the back half, looking forward to seeing our leg shape and all the adjustments we made to the categories in both men’s and women’s come to life. The trends that we saw early on, we’ve gone back at double downed on.
So looking forward to really capitalizing on this on the back half. And just wanted to mention women’s tops. That came out of the gate really swinging, beating expectations. We’ve been up to chasing there too, excited what I’m seeing there just from owning the key items and then chasing the fashion trends that are working. The team’s at it every morning. I have my conversations. What are we doing now? Love what I’m seeing. I just got through looking at holiday and the adjustments are made. We bring in our first holiday delivery early in October, end of September, and we’ll be able to still react then. So wide legs, of course, are still trending for us, as I’m sure you’ve heard from other retailers. And we’re ready to battle.
Adrienne Yih: The news sounds great.
Jen Foyle: Thank you. Thank you.
Operator: Thank you. Our next question comes from the line of Matthew Boss with JPMorgan. Please proceed with your question.
Matthew Boss: Thanks, and congrats on the quarter and the nice improvement. So maybe two-part question. Jen, maybe relative to a year ago, could you speak to changes in customer behavior that you’re seeing across categories, just how you feel about your ability to chase trends this year in the back half given inventories in the supply chain relative to a year ago? And then, Mike, could you just elaborate on specific areas that you’ve identified so far, supporting the $25 million of savings for this year? And then maybe how best to think about the potential magnitude of savings into next year?
Jen Foyle: I would definitely say, Jay, that we’re in a fashion cycle. And it’s – we’ve been chasing – like I said, in women’s, they’re definitely moving a little faster. But we’re always going to take the position, though, that we are in this for the long haul. We want to have steady, definitely profitable growth, and that’s what we’re up to. So looking at this from a five-year perspective, a 10-year perspective, how do we do this year-over-year? I think we proved so doing that in Aerie, right? The many consecutive quarters of high double-digit growth, getting through COVID and some of the changes in the past couple of years, certainly, that’s changed the customer behavior in both brands. But we’ve been up to just looking at this, as you can see with our results, right, the profits and our net earnings are certainly from all the hard labor and the work we’ve been up to.
And I think now we’re really up to growth in both brands. I think we’ve repositioned American Eagle. As I mentioned, we have new store designs. We have marketing tactics that we’re really leaning into. We’re showing up differently with our marketing. I think better and — bigger and better, and we’re winning there. And I think the same for Aerie. And I think just really looking at both brands and making sure we have disciplines as what each brand stands for in the DNA behind each brand and making sure that we can get that incremental activity from our customer is what we’ve been up to. And I think we’re starting to see the early benefits from all the work the team has been doing. So that’s really it, Jay. I really – we have a lot of weeks in front of us to pull out this year, but I think we’re set up for success.
Operator: Thank you. Our next question comes from the line of Paul Lejuez with Citi. Please proceed with your question.
Paul Lejuez: Hi. Thanks, guys. Curious if you can talk about the profit improvement plan. And as you go through and do all that work, are you finding opportunities on the SG&A line specifically or is it mostly coming from cost of goods? And if you are finding this to cut SG&A, are you also discovering places where you maybe sort of under-invested, which makes it tough for savings to flow through to the bottom line? And I guess just big picture, when you threw all the profit improvements and accruing incentive comp at an appropriate rate, what do you consider the right base level of expense dollars for this business? Thanks.
Michael Rempell: Mike, are you having phone trouble? Yes? Paul, Mike is having some difficulty with his line now. We’ll maybe move on to the next question and then come back.
Paul Lejuez: Sure.
Operator: Our next question comes from the line of Jonna Kim with TD Cowen. Please proceed with your question.
Jonna Kim: Thanks for taking my question. You’re seeing nice growth in terms of digital penetration. Can you just remind us in terms of where the margins are on the digital versus stores and where that can go over time? Thank you so much.
Michael Rempell: Sure. This is Michael. I’ll take that. The way we look at it, our digital margins are pretty comparable to our store margins. What I would tell you is we’ve been able to start to see that nudge even higher as we’ve been focused on some of the delivery initiatives recently. So as I mentioned in the prepared remarks, we’ve been able to drive down and reduce the cost of delivery both in absolute dollars, in cost per shipment, in number of shipments per order while delivering to the customers faster. And that is starting to drive incremental leverage in the direct channel. So we’re certainly excited to see that, and we think there’s more work and more opportunity in front of us. One of the big levers that I talked about in the remarks was the fact that in many parts of retail, in grocery and hard goods, people have been able to leverage their stores as pickup points in a pretty robust way to make a difference in their business.
It’s historically been a very small part of our business, but with some changes that the team made focusing on inventory availability and some of the system changes, we were able to double that in the quarter. And we see a good runway to continue to grow that. That provides a ton of leverage for us because it actually eliminates delivery as a cost and allows us to upsell customers as they come in the store. We’re currently seeing about a 10% attachment rate to those digital sales, and we think we can get that number even higher. So yes, so historically, margins for e-commerce and stores are pretty comparable. We’ve been able to drive the e-commerce margins up in recent quarters, and we see opportunity as we go forward to raise those even higher.