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What changed in AMERICAN EAGLE OUTFITTERS INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of AMERICAN EAGLE OUTFITTERS INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+337 added−351 removedSource: 10-K (2023-03-13) vs 10-K (2022-03-14)

Top changes in AMERICAN EAGLE OUTFITTERS INC's 2023 10-K

337 paragraphs added · 351 removed · 254 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

67 edited+23 added−19 removed34 unchanged
Biggest changeJanuary 29, January 30, 2022 2021 AE Brand: United States 741 773 Canada 78 76 Mexico 48 43 Hong Kong 13 9 Total AE Brand (1) 880 901 Aerie Brand: United States 206 155 Canada 22 17 Mexico 14 2 Hong Kong 2 — Total Aerie Brand (2) 244 174 Todd Snyder 5 2 Unsubscribed 4 1 Total Consolidated 1,133 1,078 (1) Includes 183 Aerie side-by-side stores and two OFFLINE™ side-by-side stores connected to an AE brand location (2) Includes 20 OFFLINE™ stand-alone stores and 12 OFFLINE™ side-by-side stores connected to an Aerie brand location The following table provides the changes in the number of our Company-owned stores for the past five fiscal years: Fiscal Year Beginning of Year Opened Closed End of Year 2021 1,078 103 (48 ) 1,133 2020 1,095 40 (57 ) 1,078 2019 1,055 66 (26 ) 1,095 2018 1,047 29 (21 ) 1,055 2017 1,050 31 (34 ) 1,047 Licensed Operations Our international licensing partners acquire the right to sell, promote, market, and/or distribute various categories of our products in a given geographic area and to source products from us.
Biggest changeThe following table provides the changes in the number of our Company-owned stores for the past five fiscal years: Fiscal Year Beginning of Year Opened Closed End of Year 2022 1,133 87 (45 ) 1,175 2021 1,078 103 (48 ) 1,133 2020 1,095 40 (57 ) 1,078 2019 1,055 66 (26 ) 1,095 2018 1,047 29 (21 ) 1,055 Licensed Operations Our international licensing partners acquire the right to sell, promote, market, and/or distribute various categories of our products in a given geographic area and to source products from us.
Our brands are connected under the core tenet of REAL , which is inclusive, optimistic, empowering and celebrates self-expression. Our purpose is to show the world that there's REAL power in the optimism of youth.
Our brands are connected under the core tenet of REAL , which is inclusive, optimistic, and empowering and celebrates self-expression. Our purpose is to show the world that there's REAL power in the optimism of youth.
International licensees' rights include the right to own and operate retail stores and may include rights to sell in wholesale markets, shop-in-shop concessions and operate online marketplace businesses.
International licensees' rights include the right to own and operate retail stores and may include rights to sell in wholesale markets and shop-in-shop concessions and operate online marketplace businesses.
Our consistently strong internal employee satisfaction scores, corporate exit survey data, and external Glassdoor ratings demonstrate the achievement of this goal. 9 Our culture model is composed of Listening, Observing, Supporting, and Informing: • Listening to our associates, customers and candidates through reviews of culture surveys, exit surveys, Glassdoor reporting, LinkedIn responses, and hotline reporting; we also conduct open door engagement, Company-wide town halls, and roundtables on a periodic basis. • Observing who we are and what our associates are doing by regularly reviewing our demographic data and retention rates. • Supporting a positive Company culture through programs and processes for eligible associates that promote our strong values and address leadership development opportunities, work-life integration, well-being initiatives, fair pay initiatives, family support, and inclusion and diversity programs. • Informing and clearly communicating our values, modeling the behaviors we expect, and providing training and feedback.
Our consistently strong internal employee satisfaction scores, corporate exit survey data, and external Glassdoor ratings demonstrate the achievement of this goal. 8 Our culture model is composed of Listening, Observing, Supporting, and Informing: • Listening to our associates, customers and candidates through reviews of culture surveys, exit surveys, Glassdoor reporting, LinkedIn responses, and hotline reporting; we also conduct open-door engagement, Company-wide town halls, and roundtables on a periodic basis. • Observing who we are and what our associates are doing by regularly reviewing our demographic data and retention rates. • Supporting a positive Company culture through programs and processes for eligible associates that promote our strong values and address leadership development opportunities, work-life integration, well-being initiatives, fair pay initiatives, family support, and inclusion and diversity programs. • Informing and clearly communicating our values, modeling the behaviors we expect, and providing training and feedback.
New garment factories must pass an initial inspection in order to do business with us and we continue to review their performance against 8 our guidelines regarding working conditions, employment practices, and compliance with local laws through internal audits by our compliance team and the use of third-party monitors.
New garment factories must pass an initial inspection in order to do business with us and we continue to review their performance against our guidelines regarding working conditions, employment practices, and compliance with local laws through internal audits by our compliance team and the use of third-party monitors.
Inspections are also made by our employees and agents at manufacturing facilities to identify quality issues prior to shipment of merchandise. We uphold an extensive factory inspection program to monitor compliance with our Supplier Code of Conduct.
Inspections are also made by our employees and agents at manufacturing facilities to identify quality issues prior to shipment of merchandise. 7 We uphold an extensive factory inspection program to monitor compliance with our Supplier Code of Conduct.
Baldwin served in human resources leadership roles focused on the growth and expansion of Starbucks Corporation and building a culture of inclusion at Diageo North America Inc. Jennifer M.
Baldwin served in human resources leadership roles focused on the growth and expansion of Starbucks Corporation and building a culture of inclusion at Diageo North America Inc. 12 Jennifer M.
These include “ship to home,” which can be fulfilled either through our distribution center or our store sites (buy online, ship from stores) when purchased online or through our app; “store pick-up”, which consists of online orders being fulfilled either in store or curbside, and “store-to-door” where customers order within our store, and the goods are shipped directly to their home.
These include “ship to home,” which can be fulfilled either through our distribution center or our store sites (buy online, ship from stores) when purchased online or through our app; “store pick-up,” which consists of online orders being fulfilled either in store or curbside, and “store-to-door” where customers order within our store, and the goods are shipped directly to their home.
Crew Group, Inc., from 2003 to 2009. Early in her career, Ms. Foyle was the Women’s Divisional Merchandise Manager for Gap Inc. from 1999 to 2003 and held various roles at Bloomingdales from 1988 to 1999. Michael A. Mathias , age 47, has served as our Executive Vice President and Chief Financial Officer since April 2020.
Crew Group, Inc., from 2003 to 2009. Early in her career, Ms. Foyle was the Women’s Divisional Merchandise Manager for Gap Inc. from 1999 to 2003 and held various roles at Bloomingdales from 1988 to 1999. Michael A. Mathias , age 48, has served as our Executive Vice President and Chief Financial Officer since April 2020.
Real Rewards by American Eagle and Aerie™ highlights include: • Faster earn rates which equal more rewards; • Exclusive access to member promotions, discounts, and experiences; • Free shipping perks; and • Special card member discounts and tier benefits. Under the Program, members accumulate points based on purchase activity and earn rewards by reaching certain point thresholds.
Real Rewards by American Eagle and Aerie™ highlights include: • Faster earn rates, which equal more rewards; • Exclusive access to member promotions, discounts, and experiences; • Free shipping perks; and • Special cardmember discounts and tier benefits. Under the Program, members accumulate points based on purchase activity and earn rewards by reaching certain point thresholds.
Our compensation programs are composed of three key elements: • Competitive base pay rates , which are aligned to specific roles and skills, local market rates, and relevant experience; • Incentive bonuses for full-time associates , which are structured to deliver financial rewards for the delivery of monthly, quarterly, or annual results; and • Annual stock awards for over 400 leaders and key individual contributors throughout areas of the business, including the senior management team, which provide a commonality of interest between our leaders and shareholders.
Our compensation programs are composed of three key elements: • Competitive base pay rates , which are aligned to specific roles and skills, local market rates, and relevant experience; 10 • Incentive bonuses for full-time associates , which are structured to deliver financial rewards for the delivery of monthly, quarterly, or annual results; and • Annual stock awards for over 450 leaders and key individual contributors throughout areas of the business, including the senior management team, which provide a commonality of interest between our leaders and shareholders.
Although we purchase a significant portion of our merchandise through a single international buying agent, we do not maintain any exclusive commitments to purchase from any one vendor. We maintain a quality control department at our distribution centers to inspect incoming merchandise shipments for overall quality of manufacturing.
Although we purchase a significant portion of our merchandise through a single international buying agent, we do not maintain any exclusive commitments to purchase from any one vendor. We maintain quality control departments at our distribution centers to inspect incoming merchandise shipments for overall quality of manufacturing.
In addition, we have acquired rights in AE TM for clothing products and registered AE® in connection with certain non-clothing products.
In addition, we have acquired rights in AE™ for clothing products and registered AE® in connection with certain non-clothing products.
Schottenstein , age 67, has served as our Executive Chairman, Chief Executive Officer since December 2015. Prior thereto, Mr. Schottenstein served as our Executive Chairman, Interim Chief Executive Officer from January 2014 to December 2015. He has also served as the Chairman of the Company and its predecessors since March 1992.
Schottenstein , age 68, has served as our Executive Chairman, Chief Executive Officer since December 2015. Prior thereto, Mr. Schottenstein served as our Executive Chairman, Interim Chief Executive Officer from January 2014 to December 2015. He has also served as the Chairman of the Company and its predecessors since March 1992.
Foyle , age 55, has served as our President, Executive Creative Officer – AE and Aerie since June 2021 and as Chief Creative Officer, AEO Inc. and Global Brand President – Aerie from September 2020 to June 2021. Prior thereto she served as our Global Brand President - Aerie since 2015. Ms.
Foyle , age 56, has served as our President, Executive Creative Officer – AE and Aerie since June 2021 and as Chief Creative Officer, AEO Inc. and Global Brand President – Aerie from September 2020 to June 2021. Prior thereto she served as our Global Brand President - Aerie since 2015. Ms.
We also have registered or have applied to register substantially all of these trademarks with the registries of the foreign countries in which our stores and/or manufacturers are located and/or where our product is shipped. We have registered AMERICAN EAGLE OUTFITTERS®, AMERICAN EAGLE®, AEO®, LIVE YOUR LIFE®, AERIE®, and various eagle designs with the Canadian Intellectual Property Office.
We also have registered or have applied to register substantially all of these trademarks with the registries of the foreign countries in which our stores, e-commerce sites, and/or manufacturers are located and/or where our product is shipped. We have registered AMERICAN EAGLE OUTFITTERS®, AMERICAN EAGLE®, AEO®, LIVE YOUR LIFE®, AERIE®, and various eagle designs with the Canadian Intellectual Property Office.
AEO Direct We sell merchandise through our digital channels, www.ae.com , www.aerie.com , www.toddsnyder.com , www.unsubscribed.com , and our AEO apps, both domestically and internationally in 81 countries. We also sell merchandise on various international online marketplaces. The digital channels reinforce each particular brand platform and are designed to complement the in-store experience.
AEO Direct We sell merchandise through our digital channels, www.ae.com , www.aerie.com , www.toddsnyder.com , www.unsubscribed.com , and our AEO apps, both domestically and internationally in approximately 80 countries. We also sell merchandise on various international online marketplaces. The digital channels reinforce each particular brand platform and are designed to complement the in-store experience.
Trademarks and Service Marks We have registered AMERICAN EAGLE OUTFITTERS®, AMERICAN EAGLE®, AE®, AEO®, LIVE YOUR LIFE®, AERIE®, and various eagle designs with the United States Patent and Trademark Office.
Trademarks and Service Marks We have registered AMERICAN EAGLE OUTFITTERS®, AMERICAN EAGLE®, AE®, AEO®, LIVE YOUR LIFE®, AERIE®, OFFLINE BY AERIE® and various eagle designs with the United States Patent and Trademark Office.
We are also subject to regulations governing our employees both globally and in the U.S., and by disclosure and reporting requirements for publicly traded companies established under existing or new federal or state laws, including the rules and regulations of the Securities and Exchange Commission (“SEC”) and New York Stock Exchange (“NYSE”).
We are also subject to regulations governing our employees both globally and in the United States, and by disclosure and reporting requirements for publicly traded companies established under existing or new federal or state laws, including the rules and regulations of the Securities and Exchange Commission (“SEC”) and New York Stock Exchange (“NYSE”).
During Fiscal 2021, we purchased substantially all of our merchandise from non-North American suppliers. We sourced merchandise through approximately 260 vendors located throughout the world, primarily in Asia, and did not source more than 10% of our merchandise from any single factory or supplier.
During Fiscal 2022, we purchased substantially all of our merchandise from non North American suppliers. We sourced merchandise through approximately 330 vendors located throughout the world, primarily in Asia, and did not source more than 10% of our merchandise from any single factory or supplier.
Baldwin , age 51, has served as our Chief Human Resources Officer since September 2021. Prior to joining us, Ms.
Baldwin , age 52, has served as our Chief Human Resources Officer since September 2021. Prior to joining us, Ms.
Additionally, our Todd Snyder and Unsubscribed brands and our Supply Chain Platform have been identified as separate operating segments; however, as they do not meet the quantitative thresholds for separate disclosure they have been included in the Corporate and Other category. See Note 16. “Segment Reporting,” of the Notes to the Consolidated Financial Statements included herein for additional information.
Additionally, our Todd Snyder and Unsubscribed brands and Quiet Platforms have been identified as separate operating segments; however, as they do not meet the quantitative thresholds for separate disclosure they have been included in the Corporate and Other category. See Note 16. “Segment Reporting,” of the Notes to the Consolidated Financial Statements included herein for additional information.
Apparel and other products sold by us are under the jurisdiction of multiple governmental agencies and regulations, including, in the U.S., the Federal Trade Commission and the Consumer Products Safety Commission. These regulations relate principally to product labeling, marketing, licensing requirements, and consumer product safety requirements and regulatory testing.
Apparel and other products sold by us are under the jurisdiction of multiple governmental agencies and regulations, including, in the United States, the Federal Trade Commission and the Consumer Products Safety Commission. These regulations relate principally to product labeling, marketing, licensing requirements, and consumer product safety requirements and regulatory testing.
He has also served as a member of the Board of Directors for Albertsons Companies, Inc. (NYSE: ACI) since 2006. He has also served as an officer and director of various other entities owned or controlled by members of his family since 1976. Stacy B.
He has also served as a member of the Board of Directors for Albertsons Companies, Inc. (NYSE: ACI) since 2006 to 2022. He has also served as an officer and director of various other entities owned or controlled by members of his family since 1976.
Benefit programs include: robust well-being programs and incentives promoting an active and healthy lifestyle; innovative student loan debt benefits; financial well-being tools and guidance; gym/online fitness discount program; discounts on AEO merchandise; and a voluntary benefit and discount platform which offers competitive rates for auto insurance, home/renters insurance, legal services, identity theft services, pet insurance and more.
Benefit programs include: robust well-being programs and incentives promoting an active and healthy lifestyle; mental health and meditation benefits; innovative student loan debt benefits; financial well-being tools and guidance; a gym/online fitness discount program; discounts on AEO merchandise; and a voluntary benefit and discount platform, offering competitive rates for auto insurance, home/renters insurance, legal services, identity theft services, pet insurance and more.
Inventory and Distribution Merchandise is shipped directly from our vendors, and deconsolidated through trans loaders to our Company-owned distribution centers in Hazleton, Pennsylvania and Ottawa, Kansas, our six Quiet Logistics regional distribution centers strategically located throughout the U.S., or our Canadian distribution center in Mississauga, Ontario.
Inventory and Distribution Merchandise is shipped directly from our vendors, and deconsolidated through trans loaders to our Company-owned distribution centers in Hazleton, Pennsylvania and Ottawa, Kansas, our Quiet Logistics regional distribution centers strategically located throughout the United States, or our Canadian distribution center in Mississauga, Ontario.
We strive to partner with suppliers who respect local laws and share our dedication to utilize best practices in human rights, labor rights, environmental practices, and workplace safety. We are a certified, validated member of the Customs-Trade Partnership Against Terrorism program (“CTPAT”), a designation we have held since 2004. CTPAT is a voluntary program offered by U.S.
We strive to partner with suppliers who respect local laws and share our dedication to utilize best practices in human rights, labor rights, environmental practices, and workplace safety. We are a certified, validated member of the Customs-Trade Partnership Against Terrorism program (“CTPAT”), a designation we have held since 2004.
Upon eligibility, Associates can participate in AEO’s Employee Stock Purchase Plan and 401(k) plans. • Associates that are eligible for AEO’s medical insurance programs: Full-time associates with 30 days of service, or part-time associates with an average of 30 hours or more (per ACA’s required initial or standard measurement period) are eligible to enroll in medical insurance.
Upon eligibility, associates can participate in AEO’s Employee Stock Purchase Plan and 401(k) plans. • Associates that are eligible for AEO’s medical insurance programs: Full-time associates, or part-time associates with an average of 30 hours or more (per ACA’s required initial or standard measurement period), are eligible to enroll in medical insurance on their hire or rehire date.
Our U.S. and Canadian distribution centers and our Quiet Logistics regional distribution centers are fully omni-channel and service both stores and digital businesses. We offer the ability for customers to return products seamlessly via any channel regardless of where it was originally purchased. We also offer a variety of channels to fulfill customer orders.
Our United States and Canadian distribution centers and our Quiet Logistics regional distribution centers are fully omni-channel and service both stores and digital businesses. We offer the ability for customers to return products seamlessly via any channel regardless of where the products were originally purchased. We also offer a variety of channels to fulfill customer orders.
Item 1. B usiness. Company Overview American Eagle Outfitters, Inc. (the “Company,” "AEO," “we,” and “our”) is a leading global specialty retailer. We operate and license over 1,300 retail stores worldwide and are online at www.ae.com and www.aerie.com in the U.S. and internationally.
Item 1. B usiness. Company Overview American Eagle Outfitters, Inc. (the “Company,” "AEO," “we,”, "us," and “our”) is a leading global specialty retailer. We operate and license over 1,400 retail stores worldwide and are online at www.ae.com and www.aerie.com in the United States and internationally.
Consistent talent reviews, performance evaluations, equitable pay practices and succession planning have contributed to a full-time voluntary turnover rate, including our store associates, of approximately 30% for Fiscal 2021, which is consistent with our retail peer group and compares to a 25% five year Company average.
Consistent talent reviews, performance evaluations, equitable pay practices and succession planning have contributed to a full-time voluntary and mutual turnover rate, including our store associates, of approximately 28% for Fiscal 2022, which is consistent with our retail peer group and compares to a 27% five-year Company average.
Fiscal Year Our fiscal year is a 52- or 53-week year that ends on the Saturday nearest to January 31. As used herein, "Fiscal 2022" refers to the 52-week period that will end on January 28, 2023.
Fiscal Year Our fiscal year is a 52- or 53-week year that ends on the Saturday nearest to January 31. As used herein, "Fiscal 2023" refers to the 53-week period that will end on February 3, 2024.
In the U.S. and in other countries around the world, we also have registered, or have applied to register, a number of other marks used in our business, including TODD SNYDER®, TAILGATE®, UNSUBSCRIBED®, OFFLINE BY AERIE™, AE77™, AIRTERRA™, QUIET LOGISTICS®, and our pocket stitch designs.
In the United States and in other countries around the world, we also have registered, or have applied to register, a number of other marks used in our business, including TODD SNYDER®, TAILGATE®, UNSUBSCRIBED®, AE77®, AIRTERRA™, QUIET LOGISTICS®, and our pocket stitch designs.
Associate development is supported through numerous programs, including AEO Academy, an online training platform that provides eligible associates with continuous learning opportunities. AEO Academy has over 1,000 modules, which aggregate were completed over 1.1 million times during Fiscal 2021, with a total of 8.9 million views on the platform since it was launched in late Fiscal 2019.
Associate development is supported through numerous programs, including AEO Academy, an online training platform that provides eligible associates with continuous learning opportunities. AEO Academy has nearly 2,900 modules, which aggregate were completed over one million times during Fiscal 2022, with a total of 14.9 million views on the platform since it was launched in late Fiscal 2019.
As part of the plan, the Company will leverage customer-focused capabilities and continue to strengthen its return on investment ("ROI") discipline, while building on the power of AEO’s people, culture and purpose. Real Estate We ended Fiscal 2021 with 1,133 Company-owned stores and 248 licensed store locations.
The Company will leverage customer-focused capabilities and continue to strengthen its return on investment ("ROI") discipline, while building on the power of AEO’s people, culture and purpose. Real Estate We ended Fiscal 2022 with 1,175 Company-owned stores and 269 licensed store locations.
Our focus on associate development led to a full-time promotion rate of approximately 28% for Fiscal 2021 and compares to a 23% five year Company average. INCLUSION, DIVERSITY, EQUITY & ACCESS At AEO, we believe our success is the result of our focus on being an inclusive, diverse, equitable and accessible Company.
Our focus on associate development led to a full-time promotion rate of approximately 26% for Fiscal 2022 as compared to a 24% five-year Company average. INCLUSION, DIVERSITY, EQUITY & ACCESS At AEO, we believe that our success is the result of our focus on being an inclusive, diverse, equitable and accessible Company.
As of January 29, 2022, our international licensing partners operated in 248 licensed retail stores and concessions, as well as wholesale markets, online brand sites, and online marketplaces in 25 countries. 7 We plan to continue to increase the number of locations under license agreements or similar arrangements as part of our disciplined approach to global expansion.
As of January 28, 2023, our international licensing partners operated in 269 licensed retail 6 stores and concessions, as well as wholesale markets, online brand sites, and online marketplaces in approximately 30 countries. We plan to continue to increase the number of locations under license agreements or similar arrangements as part of our disciplined approach to global expansion.
It represents an evolution from our previous pillar of culture. Hiring. AEO believes that a diverse workforce makes us stronger as an organization. We are focused on increasing candidate diversity in our recruiting process through implementation and execution of policies, processes, practices and strategies focused on inclusion, equity, and accessibility. 10 Community.
Hiring, Community and Development. Hiring. AEO believes that a diverse workforce makes us stronger as an organization. We are focused on increasing candidate diversity in our recruiting process through implementation and execution of policies, processes, practices and strategies focused on inclusion, equity, and accessibility. 9 Community.
We operate stores in the U.S., Canada, Mexico, and Hong Kong. We also have license agreements with third parties to operate American Eagle and Aerie stores throughout Asia, Europe, India, Latin America, and the Middle East.
We operate stores in the United States, Canada, Mexico, Hong Kong, and Japan. We also have license agreements with third parties to operate American Eagle and Aerie stores and online marketplace businesses throughout Asia, Europe, India, Latin America, and the Middle East.
AirTerra is a logistics and supply chain platform that solves ecommerce fulfillment and shipping challenges in a unique and innovative way for retailers and brands of all sizes.
AirTerra is a logistics service and platform that solves e-commerce fulfillment and shipping challenges in a unique and innovative way for retailers and brands of all sizes.
Customs and Border Protection (“CBP”) in which an importer agrees to work with CBP to strengthen overall supply chain security. As of September 2016, we were accepted into the Apparel, Footwear, and Textiles Center, one of CBP’s Centers of Excellence and Expertise (“CEE”).
CTPAT is a voluntary program offered by United States Customs and Border Protection (“CBP”) in which an importer agrees to work with CBP to strengthen overall supply chain security. In 2016, we were accepted into the Apparel, Footwear, and Textiles Center, one of CBP’s Centers of Excellence and Expertise (“CEE”).
Quiet Logistics is a leading logistics company that operates a network of in-market fulfillment centers in Boston, Chicago, Los Angeles, Dallas, St. Louis and Jacksonville, locating products closer to need, creating inventory efficiencies, cost benefits and affordable same-day and next-day delivery options to customers and stores.
Quiet Logistics is a logistics company that operates a network of in-market fulfillment centers, locating products closer to need, creating inventory efficiencies, cost benefits and affordable same-day and next-day delivery options for customers and stores.
We also operate Todd Snyder New York (“Todd Snyder”), a premium menswear brand, and Unsubscribed, a new brand with a focus on consciously-made, slow fashion. In Fiscal 2021, we acquired AirTerra, Inc. ("AirTerra") and Quiet Logistics, Inc. ("Quiet Logistics"), which together form the foundation of our "Supply Chain Platform".
We also operate Todd Snyder New York (“Todd Snyder”), a premium menswear brand, and Unsubscribed, which focuses on consciously made, slow fashion. In Fiscal 2021, we acquired AirTerra, Inc. ("AirTerra") and Quiet Logistics, Inc. ("Quiet Logistics"), creating a new supply chain platform ("Quiet Platforms”).
In the U.S., our largest market, we also offer the following benefits to our workforce: • All associates are eligible for the following benefits: health and holistic well-being programs that support the physical, emotional, social and financial pillars of well-being.
In the United States, our largest market, we also offer the following benefits to our workforce: • All associates are eligible for the following benefits: comprehensive health and holistic well-being programs, supporting the physical, emotional, social and financial needs of our associates.
Key Business Priorities & Strategy We are focused on our “Real Power. Real Growth.” value creation plan to achieve our long-term financial outlook. To achieve our goals, AEO has the following strategic priorities: o Fueling Aerie to $2 billion in revenue; and o Driving sustained profitable growth for American Eagle.
We offer Unsubscribed products online at www.unsubscribed.com . Key Business Priorities & Strategy We are focused on our “Real Power. Real Growth.” value creation. AEO has the following strategic priorities: o Fueling Aerie to $2 billion in revenue; and o Driving sustained profitable growth for American Eagle.
Our AE brand stores average approximately 6,800 gross square feet and approximately 5,400 on a selling square foot basis. Our Aerie brand stand-alone stores, inclusive of OFFLINE™ stand-alone stores, average approximately 3,900 gross square feet and approximately 3,100 on a selling square foot basis.
Our AE brand stores average approximately 6,400 gross square feet and our Aerie brand stand-alone stores, inclusive of OFFLINE™ stand-alone stores, average approximately 5,800 gross square feet.
Enhanced benefits offered with medical insurance include: behavioral telehealth and medical telemedicine to ensure consistent access to convenient care; a wide selection of behavioral health programs to support mental health; fertility management benefits for our associates who are focused on expanding their families; digital management programs for chronic conditions and digital physical therapy; prescription drug savings programs; access to second opinions; surgical and medical decision support; and claims advocacy; and • For all full-time associates: 10 free, confidential in-person or telephonic sessions per issue through the Employee Assistance Program; paid time off; life insurance, short-term and long-term disability insurance; well-being programs, inclusive of access to health coaches and lifestyle programs to assist with managing chronic conditions, nutrition, smoking cessation and weight loss; flexible spending accounts; benefits to support parents of children with disabilities and/or challenges brought forth by the pandemic; mobile apps for fertility, maternity, and parenting; support for nursing mothers on business travel; and additional caregiver programs.
Enhanced benefits offered with medical insurance include: primary care, behavioral and specialist visits via telehealth to ensure consistent access to convenient, high-quality, low-cost care; a wide selection of behavioral health programs to support mental health; generous fertility management benefits, adoption and surrogacy reimbursement for our associates who are focused on expanding their families; digital management programs for chronic conditions, smoking cessation and digital physical therapy; prescription drug savings programs; access to care navigators and claims advocacy; gender affirmation support programs; free to low-cost primary and specialist visits at four onsite health care centers; and • For all full-time associates: Up to 10 free, confidential in-person or telephonic sessions per issue through the Employee Assistance Program; paid time off; life insurance, short-term and long-term disability insurance; access to health coaches and lifestyle programs to assist with managing chronic conditions, nutrition, smoking cessation and weight loss; flexible spending accounts; benefits to support parents of children with disabilities; neurodiversity inclusion training and resources; mobile apps for fertility, menopause, maternity, and parenting; support for nursing mothers on business travel; paid parental and caregiver leave; and additional caregiver programs.
These numbers reflect a year-over-year increase of 3% in the representation of POC across the organization. These gains were achieved through increased rates of POC hiring in each of the Company’s business units (Corporate, Stores and Distribution Centers), with respective increases of 4%, 3% and 3%. We have three IDEA Pillars. Our newest pillar is Community.
Globally, 79% of our associates self-identified as women. These numbers reflect a year-over-year increase of 1% in the representation of POC across the organization. These gains were achieved through increased rates of POC hiring in each of the Company’s business units (Corporate, Stores and Distribution Centers), with increases of 1% in all three business units. We have three IDEA Pillars.
In the U.S. alone, as of January 29, 2022, approximately 43% of our associates self-identified as people of color (“POC”). Specifically, our U.S. population is approximately 55% White, 25% Hispanic, 9% Black, 4% Asian, 1% American Indian or Native Hawaiian, 4% two or more races or other, and 2% not reported. Globally, 79% of our associates self-identified as women.
In the United States alone, as of January 28, 2023, approximately 44% of our associates self-identified as people of color (“POC”). Specifically, our United States population is approximately 55% White, 25% Hispanic, 10% Black, 4% Asian, 1% American Indian or Native Hawaiian, 4% two or more races or other, and 1% not reported.
The gross square footage of our Company-owned stores increased by 3.5% to 6.9 million during Fiscal 2021. COVID-19 Impacts related to the ongoing COVID-19 pandemic have been significantly negative for the retail industry, our Company, our customers, and our associates.
The gross square footage of our Company-owned stores increased by 5.6% to 7.3 million during Fiscal 2022. 5 COVID-19 Impacts related to the ongoing COVID-19 pandemic have had a significant impact on the retail industry, our Company, our customers, and our associates.
Both acquisitions represent an important step in building our supply chain platform, as part of our ongoing supply chain transformation strategy of leveraging scale and innovation to help us manage costs and improve service. See Note 3, "Acquisitions," of the Notes to the Consolidated Financial Statements included herein for additional information.
Both acquisitions represent an important step in building our supply chain platform, as part of our ongoing supply chain transformation strategy of leveraging scale and innovation to help us manage costs and improve service.
The impacts of the COVID-19 pandemic on our business are discussed in further detail throughout this Business section, Part I, Item 1A Risk Factors, and Part II Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations of this Annual Report. 6 Company-Owned Stores Our Company-owned retail stores are located in shopping malls, lifestyle centers, and street locations in the U.S., Canada, Mexico, and Hong Kong.
The impacts of the COVID-19 pandemic on our business are discussed in further detail throughout this Business section, Part I, Item 1A Risk Factors, and Part II Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations of this Annual Report.
We recognize that benefits are highly personal, and we offer a broad suite of offerings to our workforce, recognizing the varied needs and priorities of our associates. Our full-time associates have access to a variety of medical, dental and vision 11 plan offerings, ensuring they can select plans that satisfy their individual and family needs.
We recognize that benefits are highly personal, and we offer a broad suite of inclusive plans and programs to our workforce, understanding that their needs and priorities vary. Starting on their hire, re-hire, or promotion date, our full-time associates have access to a variety of medical, dental and vision plan offerings.
Aerie inventory increased during the year in line with customer demand. Regulation We and our products are subject to regulation by various federal, state, local, and foreign regulatory authorities. Substantially all of our products are manufactured by foreign suppliers and imported by us, and we are subject to a variety of trade laws, customs regulations, and international trade agreements.
Substantially all of our products are manufactured by foreign suppliers and imported by us, and we are subject to a variety of trade laws, customs regulations, and international trade agreements.
As of January 29, 2022, we employed approximately 40,800 associates throughout the world, of whom approximately 33,600 were part-time or seasonal associates. We employed 34,900 associates in the U.S., of whom approximately 28,800 were part-time or seasonal associates.
As of January 28, 2023, we employed approximately 40,000 associates throughout the world, of whom approximately 32,000 were part-time or seasonal associates. We employed 32,800 associates in the United States, of whom approximately 26,400 were part-time or seasonal associates.
Refer to Note 17. “Impairment, Restructuring and COVID-19 Related Charges,” to the Consolidated Financial Statements included in this Annual Report for additional information regarding impairment and restructuring charges related to our Company-owned stores. The following table provides the number of our Company-owned stores in operation as of January 29, 2022 and January 30, 2021.
Company-Owned Stores Our Company-owned retail stores are located in shopping malls, lifestyle centers, and street locations in the United States, Canada, Mexico, Hong Kong and Japan. Refer to Note 17. “Impairment, Restructuring and COVID-19 Related Charges,” to the Consolidated Financial Statements included in this Annual Report for additional information regarding impairment charges related to our Company-owned stores.
Additionally, product is shipped directly to stores, which reduces transit times and lowers operating costs. We contract with third-party distribution centers in Mexico and Hong Kong to service our Company-owned stores and e-commerce operations in those regions. During Fiscal 2021, we competed inventory optimization initiatives, reflecting reductions in AE, streamlining of assortments, and increasing alignment with sales plans.
Additionally, some products are shipped directly to stores, which reduces transit times and lowers operating costs. We contract with third-party distribution centers in Mexico, Hong Kong and Japan to service our Company-owned stores and e-commerce operations in those regions. Regulation We and our products are subject to regulation by various federal, state, local, and foreign regulatory authorities.
McLean held various roles at Gap, Inc. from 2000 to 2003 and served as a management consultant early in his career. Michael R. Rempell , age 48, has served as our Executive Vice President and Chief Operations Officer since June 2012. His current responsibilities include oversight of our technology, supply-chain, production and sourcing, and sustainability teams.
From 2014 to 2016, he served as President and Managing Partner of SY Ventures. Michael R. Rempell , age 49, has served as our Executive Vice President and Chief Operations Officer since June 2012. His current responsibilities include oversight of our Commercial, Technology, end-to-end Supply Chain, Production and Sourcing, Corporate Strategy, and Todd Snyder Business.
During Fiscal 2021, we included inclusion and diversity and health and safety objectives in our corporate annual incentive compensation goals, reinforcing the Company’s corporate social responsibility priorities. TALENT MANAGEMENT PROGRAMS We utilize an integrated set of talent management tools and programs, rooted in our values, that thread through the entire talent lifecycle.
TALENT MANAGEMENT PROGRAMS We utilize an integrated set of talent management tools and programs, rooted in our values, that thread through the entire talent life cycle.
As of January 29, 2022, we operated five Todd Snyder stores. We offer Todd Snyder products online at www.ToddSnyder.com . Unsubscribed Unsubscribed is a brand with a focus on consciously-made slow fashion. As of January 29, 2022, we operated four Unsubscribed stores. We offer Unsubscribed products online at www.unsubscribed.com .
As of January 28, 2023, we operated 10 Todd Snyder stores. We offer Todd Snyder products online at www.ToddSnyder.com . Unsubscribed A truly unique brand offering consciously-made, slow fashion with timeless clothing and accessories, Unsubscribed offers one-of-a-kind vintage pieces that represent socially conscious and ethically produced practices.
It is about more than simply bringing together people who are different; it is about celebrating what makes us REAL . In January 2022, we officially transitioned from Inclusion & Diversity (I&D) to Inclusion, Diversity, Equity & Access (“IDEA”). The transition to IDEA more accurately reflects the breadth of our priorities but also will drive our strategies moving forward.
It is about more than simply bringing together people who are different; it is about celebrating what makes us REAL . We believe in embedding Inclusion, Diversity, Equity & Access (“IDEA”) into everything we do. Our mission is to achieve sustainable progress in the pillars of hiring, community, and development through strategic, data-supported, and people-centric action.
During Fiscal 2021, in addition to increasing the representation of POC throughout the organization, we believe that we made significant progress on our IDEA initiatives at AEO, including: • The announcement of our inaugural class of 15 recipients of the REAL Change Scholarship for Social Justice, a scholarship program supported by an investment of $5 million, providing annual full scholarships to 15 associates who are who are actively driving anti-racism, equality and social justice initiatives; • Completion of the first company Inclusion & Diversity survey and focus groups which provided important qualitative data regarding inclusive culture and belonging.
During Fiscal 2022, in addition to increasing the representation of POC throughout the organization, we believe that we made significant progress on our IDEA initiatives at AEO, including: • The announcement of our second class of 15 recipients of the Steven Davis Scholarship for Social Justice (renamed in honor of the late Steven Davis, a Director of the AEO Board who passed away in 2022).
As of January 29, 2022, we operated 244 Aerie brand stand-alone stores, inclusive of 20 OFFLINE™ stand-alone stores and 12 OFFLINE™ side-by-side stores connected to an Aerie brand location. We also operated 183 Aerie side-by-side stores connected to an AE brand location and two OFFLINE™ side-by-side stores connected to an AE brand location.
(2) Includes 34 OFFLINE™ stand-alone stores and 28 OFFLINE™ side-by-side stores connected to an Aerie brand location.
“Fiscal 2021” refers to the 52-week period ended January 29, 2022, “Fiscal 2020” refers to the 52-week period ended January 30, 2021, and “Fiscal 2019” refers to the 52-week period ended February 1, 2020. Brands American Eagle American Eagle is an American brand rooted in our denim heritage and passionate about providing the highest-quality products.
“Fiscal 2022” refers to the 52-week period ended January 28, 2023, “Fiscal 2021” refers to the 52-week period ended January 29, 2022, and “Fiscal 2020” refers to the 52-week period ended January 30, 2021. Brands American Eagle American Eagle is a leading American jeans and apparel brand, the go-to destination for casual style, embraced by generations of youth since 1977.
Finally, during Fiscal 2021, we donated approximately 40 million disposable masks to our communities as well as supporting our associates through the continuation of our Covid-19 Associate Relief Fund. 12 Competition The global retail apparel industry is highly competitive both in stores and online.
With the need for sanitizers and disposable masks being reduced in our stores, distribution centers, and offices, we found other organizations that could benefit and made donations of 15 million disposable masks to our communities. Competition The global retail apparel industry is highly competitive both in stores and online.
In addition, Aerie brand merchandise is sold online at www.aerie.com and certain items are sold in AE brand stores. Todd Snyder New York Todd Snyder New York is a premium menswear brand. The Todd Snyder collections are informed by heritage yet updated for today, with an emphasis on versatility and comfort.
We also operated 186 Aerie side-by-side stores connected to an AE brand location, four locations with an AE brand location, Aerie brand location and OFFLINE™ connected as one store, and two OFFLINE™ side-by-side stores connected to an AE brand location. In addition, Aerie brand merchandise is sold online at www.aerie.com and certain items are sold in AE brand stores.
We are not just passionate about making great clothing; we are passionate about making real connections with the people who wear them. As of January 29, 2022, we operated 880 AE stores. We offer American Eagle products online at www.ae.com. 5 Aerie Aerie is a lifestyle brand offering intimates, apparel, active wear, and swim collections.
We offer American Eagle products online at www.ae.com. 4 Aerie and OFFLINE™ by Aerie Built on a platform of power, positivity and no photo retouching - inspiring people to love their real selves. Aerie is a fast-growing lifestyle brand offering intimates, apparel, activewear, and swim collections.
Removed
Since 1977, American Eagle has offered an assortment of specialty apparel and accessories for women and men that enables self-expression and empowers our customers to celebrate their individuality. The American Eagle brand has broadened its leadership in jeans by producing innovative fabric with options for all styles and fits at a value.
Added
We are rooted in authenticity, powered by positivity and inspired by our community. Our collections are designed to inspire self-expression and empower our customers to celebrate their own uniqueness. We have broadened our leadership by producing innovative, sustainable fabrics. As of January 28, 2023, we operated 865 AE stores.
Removed
With the #AerieREAL™ movement, Aerie celebrates its community by advocating for body positivity and the empowerment of all women. Aerie believes in inspiring customers to love their real selves, inside and out. OFFLINE™ by Aerie is a sub-brand offering a complete collection of activewear and accessories built for REAL movement and REAL comfort.
Added
With the #AerieREAL™ movement, we celebrate our community by advocating for body positivity and the empowerment of all women. As part of our Real Good promise, we create swimsuits, bras, and underwear with materials made from recycled polyester, recycled nylon fabric or sustainably sourced cotton.
Removed
We have experienced and may continue to experience significant disruptions to our business due to the COVID-19 pandemic and the related suggested and mandated social distancing and shelter-in-place orders, which initially resulted in the temporary closure of all our stores and furlough of our associates during the first half of Fiscal 2020.
Added
OFFLINE™ by Aerie offers a complete collection of activewear and accessories made for real movement and real comfort.
Removed
During Fiscal 2021 and Fiscal 2020, while stores were impacted by negative mall traffic, we focused on our omni-channel capabilities. As of January 29, 2022, all of our stores have reopened and remain open, although we continue to see residual impacts on foot traffic and in-store revenues.
Added
Built on the success of Aerie's leggings and sports bras, OFFLINE™'s unique take on an active lifestyle celebrates real life - when some days you feel like you can take on the world and other days you need that extra push to get off the couch.
Removed
The transition will help to ensure all of our actions are viewed through a lens that prioritizes fairness in policies, practices, opportunities, and outcomes. Additionally, we will promote access by identifying and removing barriers (both physical and non-physical) that may impede our stakeholders from participating in, and realizing, all that AEO has to offer.
Added
Our Real Good promise extends to the OFFLINE™ collections with some of our best-selling fleece, leggings and tees made with the planet in mind. As of January 28, 2023, we operated 295 Aerie brand stand-alone stores, inclusive of 34 OFFLINE™ stand-alone stores and 28 OFFLINE™ side-by-side stores connected to an Aerie brand location.
Removed
The survey established benchmarks for future measurement of progress; • Expansion of our listening efforts across all three business segments by extending our annual Culture Survey to all associates, including our hourly DC and Store populations for the first time; • The launch of an interactive and data-driven IDEA training platform; • Mandatory training for all leaders and for select departments on topics to promote a more inclusive workforce (e.g., courses on inclusive leadership, unconscious bias, micro-aggression, and cultural appropriation) • The establishment of both internal and external mentorship programs, and • The introduction of an Inclusive Language Guide as a resource for associates.
Added
Todd Snyder New York A premium menswear brand informed by heritage, yet updated for today, with an emphasis on versatility and comfort. Todd Snyder offers signature essentials, statement pieces, custom suiting and iconic accessories reflective of quintessential American style. From bespoke tailoring to innovative capsule collections - good style can be attainable and playful.
Removed
In light of the COVID-19 pandemic, in 2020 we introduced additional caregiver benefits to support those working at home and/or trying to support children attending school virtually by providing access to subsidized back-up care, which has continued into 2021. HEALTH AND SAFETY The health and safety of our workforce and customers is critical to our culture and business.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe may be negatively impacted by changes in consumer preferences and discretionary spending habits such as consumer behavior reallocating to non-retail discretionary consumer spending. • While we do not believe that inflation impacted the success of our operations in Fiscal 2021, inflation could have a material adverse effect on demand based on pricing actions and operating measures taken to mitigate its impact in the future. • We conduct transactions in various currencies, which creates exposure to fluctuations in foreign currency exchange rates relative to the U.S. dollar.
Biggest changeDeclines in consumer spending have and, in the future, may result in decreased demand for our products, increased inventories, lower revenues, higher discounts, pricing pressure and lower gross margins. • We may be negatively impacted by changes in consumer preferences and discretionary spending habits such as consumer behavior reallocating to non-retail discretionary consumer spending. • We may be unable to access financing in the credit and capital markets at reasonable rates. • We conduct transactions in various currencies, which creates exposure to fluctuations in foreign currency exchange rates relative to the United States dollar, in particular the Mexican peso and Canadian dollar.
We face a variety of competitive challenges, including: • Anticipating and quickly responding to changing consumer demands or preferences better than our competitors; • Maintaining favorable brand recognition and effective marketing of our products to consumers in several demographic markets; • Sourcing merchandise efficiently; • Developing innovative, high-quality merchandise in styles that appeal to our customers and in ways that favorably distinguish us from our competitors; • Countering the aggressive pricing and promotional activities of many of our competitors; and • Anticipating and responding to changing consumer shopping preferences and practices, including the increasing shift to digital brand engagement, social media communication, and online shopping.
We face a variety of competitive challenges, including: • Anticipating and quickly responding to changing consumer demands or preferences better than our competitors; • Maintaining favorable brand recognition and effective marketing of our products to consumers in several demographic markets; • Sourcing merchandise efficiently; • Developing innovative, high-quality merchandise in styles that appeal to our customers and in ways that favorably distinguish us from our competitors; • Countering the aggressive pricing and promotional activities of many of our competitors; and • Anticipating and quickly responding to changing consumer shopping preferences and practices, including the increasing shift to digital brand engagement, social media communication, and online shopping.
Our Bylaws provide, to the fullest extent permitted by law, that unless the Company consents in writing to the selection of an alternative forum, the sole and exclusive forum for any (i) derivative action or proceeding brought on behalf of the Company, (ii) action asserting a claim for or based on a breach of a fiduciary duty owed by any current or former director or officer or other employee or agent of the Company to the Company or the Company’s stockholders, including a claim alleging the aiding and abetting of such a breach of fiduciary duty, (iii) any action asserting a claim against the Company or any current or former director or officer or other employee or agent of the Company arising pursuant to any provision of the Delaware General Corporation Law (“DGCL”), or the Company’s Amended and Restated Certificate of Incorporation or Bylaws, (iv) action asserting a claim related to or involving the Company or any current or former director or officer or other employee or agent of the Company that is governed by the internal affairs doctrine of the State of Delaware or (v) action asserting an “internal corporate claim,” as that term is defined in Section 115 of the DGCL shall, in each case, be the Delaware Court of Chancery located within the State of Delaware (or, if the Delaware Court of Chancery located within the State of Delaware lacks jurisdiction over any such action or proceeding, the sole and exclusive forum for such action or proceeding shall be another state or federal court located within the State of Delaware).
Our Bylaws provide, to the fullest extent permitted by law, that unless the Company consents in writing to the selection of an alternative forum, the sole and exclusive forum for any (i) derivative action or proceeding brought on behalf of the Company; (ii) action asserting a claim for or based on a breach of a fiduciary duty owed by any current or former director or officer or other employee or agent of the Company to the Company or the Company’s stockholders, including a claim alleging the aiding and abetting of such a breach of fiduciary duty; (iii) action asserting a claim against the Company or any current or former director or officer or other employee or agent of the Company arising pursuant to any provision of the Delaware General Corporation Law (“DGCL”), or the Company’s Amended and Restated Certificate of Incorporation or Bylaws; (iv) action asserting a claim related to or involving the Company or any current or former director or officer or other employee or agent of the Company that is governed by the internal affairs doctrine of the State of Delaware or (v) action asserting an “internal corporate claim,” as that term is defined in Section 115 of the DGCL shall, in each case, be the Delaware Court of Chancery located within the State of Delaware (or, if the Delaware Court of Chancery located within the State of Delaware lacks jurisdiction over any such action or proceeding, the sole and exclusive forum for such action or proceeding shall be another state or federal court located within the State of Delaware).
The combined company may fail to realize these anticipated benefits for a variety of reasons, including the following: • failure to successfully manage relationships with employees, distributors and suppliers; • revenue attrition in excess of anticipated levels; • potential incompatibility of technologies and systems; • failure to leverage the increased scale of the combined company quickly and effectively; • potential difficulties integrating and harmonizing financial reporting systems; • the loss of key employees; and • failure to effectively coordinate sales and marketing efforts to efficiently utilize the acquired capabilities.
The combined company may fail to realize these anticipated benefits for a variety of reasons, including the following: • failure to successfully manage relationships with employees, distributors and suppliers; • revenue attrition in excess of anticipated levels; • potential incompatibility of technologies and systems; 22 • failure to leverage the increased scale of the combined company quickly and effectively; • potential difficulties integrating and harmonizing financial reporting systems; • the loss of key employees; and • failure to effectively coordinate sales and marketing efforts to efficiently utilize the acquired capabilities.
Because of this seasonality, factors negatively affecting us during the third and fourth fiscal quarters of any year, including adverse weather or unfavorable economic conditions, could have a material adverse effect on our financial condition and results of operations for the entire year. As a result, we may not be able to accurately predict our quarterly sales.
Because of this seasonality, factors negatively affecting us during the third and fourth fiscal quarters of any year, including adverse weather or unfavorable economic conditions, could have a material adverse effect on our financial condition and results of operations for the entire year. As a result, we may not be able to accurately predict our 14 quarterly sales.
If we encounter difficulties with our distribution facilities, or if the facilities were to shut down for any reason, including as a result of fire, natural disaster or work stoppage, we could face shortages of inventory; incur significantly higher costs and longer lead 19 times associated with distributing our products to consumers; and cause consumer dissatisfaction.
If we encounter difficulties with our distribution facilities, or if the facilities were to shut down for any reason, including as a result of fire, natural disaster or work stoppage, we could face shortages of inventory, incur significantly higher costs and longer lead times associated with distributing our products to consumers, and cause consumer dissatisfaction.
Our ability to grow revenue and acquire new customers is contingent on our ability to drive traffic to both store locations and digital channels so that we are accessible to our customers when and where they want to shop. 23 We seek to locate our brick-and-mortar stores in prominent locations within successful shopping malls or street locations.
Our ability to grow revenue and acquire new customers is contingent on our ability to drive traffic to both store locations and digital channels so that we are accessible to our customers when and where they want to shop. We seek to locate our brick-and-mortar stores in prominent locations within successful shopping malls or street locations.
If our marketing and customer experience programs, including our loyalty program, are unsuccessful, or if our competitors are more effective with their programs than we are, our growth and profitability may be negatively affected. Our efforts to execute on our key business priorities could have a negative impact on our growth and profitability.
If our marketing and customer experience programs, including our loyalty program, are unsuccessful, or if our competitors are more effective with their programs than we are, our growth and profitability may be negatively affected. 16 Our efforts to execute on our key business priorities could have a negative impact on our growth and profitability.
Additionally, if these benefits do not meet the expectations of investors or securities analysts, the market price of our common stock may decline. 24 The integration of Quiet Logistics may result in significant accounting charges that adversely affect the results of the combined company.
Additionally, if these benefits do not meet the expectations of investors or securities analysts, the market price of our common stock may decline. The integration of Quiet Logistics may result in significant accounting charges that adversely affect the results of the combined company.
Consumer demand and behavior, as well as tastes and purchasing 18 trends, may differ substantially, and as a result, sales of our products may not be successful, or the margins on those sales may not be in line with those we currently anticipate.
Consumer demand and behavior, as well as tastes and purchasing trends, may differ substantially, and, as a result, sales of our products may not be successful, or the margins on those sales may not be in line with those we currently anticipate.
However, advances in computer capabilities, increasingly sophisticated tools and methods used by hackers and cyber terrorists, new discoveries in the field of cryptography or other developments may result in our failure or inability, or the failure or inability of our vendors, to adequately protect personal or other sensitive information and there can be no assurance that we or our vendors will not suffer a cyberattack, that hackers or other unauthorized parties will not gain access to or exfiltrate personal information or other sensitive data, or that any such data compromise or unauthorized access will be discovered in a timely fashion.
However, advances in information technology capabilities, increasingly sophisticated tools and methods used by hackers and cyber terrorists, new discoveries in the field of cryptography or other developments may result in our failure or inability, or the failure or inability of our vendors, to adequately protect personal or other sensitive information and there can be no assurance that we or our vendors will not suffer a cyberattack, that hackers or other unauthorized parties will not gain access to or exfiltrate personal information or other sensitive data, or that any such data compromise or unauthorized access will be discovered in a timely fashion.
We, and our third-party vendors, have been subject to cyber, phishing and social engineering attacks and other security incidents in the past and may continue to be subject to such attacks in the future.
We, and our third-party vendors, have been 19 subject to cyber, phishing and social engineering attacks and other security incidents in the past and may continue to be subject to such attacks in the future.
The exclusive forum provision in the Company’s Bylaws will not preclude or contract the scope of exclusive federal or concurrent jurisdiction for actions brought under the federal securities laws including the Exchange Act or the Securities Act, as amended, or the respective rules and regulations promulgated thereunder. We may be unable to protect our trademarks and other intellectual property rights.
The exclusive forum provisions in the Company’s Bylaws will not preclude or contract the scope of exclusive federal or concurrent jurisdiction for actions brought under the federal securities laws including the Exchange Act or the Securities Act, as amended, or the respective rules and regulations promulgated thereunder. We may be unable to protect our trademarks and other intellectual property rights.
Although we have developed mitigating security controls to reduce our cyber risk and protect our data from loss or disclosure due to a security breach, including processes designed to reduce the impact of a security breach at a third-party vendor, such measures cannot provide absolute security. We and our third-party vendors regularly experience cyberattacks aimed at disrupting services.
Although we have developed mitigating security controls to reduce our cyber risk and protect our data from loss or disclosure due to a security breach, including processes designed to reduce the impact of a security breach at a third-party vendor, such measures cannot provide absolute security. We and our third-party vendors regularly experience cyber-attacks aimed at disrupting services.
Our business depends on the value and reputation of our brands and our ability to anticipate, identify, and respond to customers’ demands and preferences, and to fashion trends. In addition, the increasing use of social media platforms allows for rapid communication and any negative publicity related to the aforementioned concerns may reduce demand for our merchandise.
Our business depends on the value and reputation of our brands and our ability to anticipate, identify, and respond to consumer demands and preferences, and to fashion trends. In addition, the increasing use of social media platforms allows for rapid communication and any negative publicity related to the aforementioned concerns may reduce demand for our merchandise.
All of these factors may impact our ability to meet our productivity targets and could have a material adverse effect on our financial results. In addition, some malls and shopping centers that were in prominent locations when we opened our stores may cease to be viewed as prominent.
All of these factors may impact our ability to meet our sales targets and could have a material adverse effect on our financial results. In addition, some malls and shopping centers that were in prominent locations when we opened our stores may cease to be viewed as prominent.
Increasingly, consumers are using mobile-based devices and applications to shop online with us and with our competitors, and to do comparison shopping, as well as to engage with us and our competitors through digital services and experiences that are offered on mobile platforms. In Fiscal 2021, digital sales represented 36% of our total revenue.
Increasingly, consumers are using mobile-based devices and applications to shop online with us and with our competitors, and to do comparison shopping, as well as to engage with us and our competitors through digital services and experiences that are offered on mobile platforms. In Fiscal 2022, digital sales represented 36% of our total revenue.
The choice of forum provision may increase costs to bring a claim, discourage claims or limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company or the Company’s directors, officers or other employees, which may discourage such lawsuits against the Company or the Company’s directors, officers and other employees.
The choice of forum provisions may increase costs to bring a claim, discourage claims or limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company or the Company’s directors, officers or other employees, which may discourage such lawsuits against the Company or the Company’s directors, officers and other employees.
If any of these or other factors were to cause a disruption of trade from the countries in which our vendors' suppliers or our private brand products' manufacturers are located, our inventory levels may be reduced or the cost of our products may increase.
If any of these or other factors were to cause a disruption of trade from the countries in which our vendors' suppliers or our products' manufacturers are located, our inventory levels may be reduced or the cost of our products may increase.
Alternatively, if a court were to find the choice of forum provision contained in the Company’s Bylaws to be inapplicable or unenforceable in an action, the Company may incur additional costs associated with resolving such action in other jurisdictions.
Alternatively, if a court were to find the choice-of- forum provisions contained in the Company’s Bylaws to be inapplicable or unenforceable in an action, the Company may incur additional costs associated with resolving such action in other jurisdictions.
Also, changes in laws and regulations could make operating our business more expensive or require us to change the way we do business. Our employees, subcontractors, vendors and suppliers could take actions that violate our policies and procedures which could have a material adverse effect on our reputation, financial condition and on the market price of our common stock.
Also, changes in laws and regulations could make operating our business more expensive 25 or require us to change the way we do business. Our employees, contractors, vendors and suppliers could take actions that violate our policies and procedures which could have a material adverse effect on our reputation, our financial condition and the market price of our common stock.
The impact of any of the previously discussed factors, some of which are beyond our control, and others which we are not aware of or which we do not currently consider material, may cause our actual results to differ materially from our expectations expressed elsewhere in this Form 10-K and other forward-looking statements we may make from time-to-time. 27 Item 1B.
The impact of any of the previously discussed factors, some of which are beyond our control, and others which we are not aware of or which we do not currently consider material, may cause our actual results to differ materially from our expectations expressed elsewhere in this Form 10-K and other forward-looking statements we may make from time to time.
In addition, any significant disruption of our data center could have a material adverse effect on those operations dependent on those systems, specifically, our store and e-commerce operations, our distribution and fulfillment centers and our merchandising team.
Any significant disruption of our data center could have a material adverse effect on those operations dependent on those systems, specifically our store and e-commerce operations, our distribution and fulfillment centers and our merchandising team.
For example, the California Consumer Privacy Act of 2018 ("CCPA"), which took effect on January 1, 2020, imposes certain restrictions and disclosure obligations on businesses that collect personal information about California residents and provides for a private right of action, as well as penalties for noncompliance.
For example, the California Consumer Privacy Act of 2018 ("CCPA"), which took effect on January 1, 2020, imposes certain restrictions and disclosure obligations on businesses that collect personal information about California residents and provides for a private right of action, as well as penalties for non-compliance.
We have made significant capital investments in these areas but there is no assurance that we will realize a return on those investments or be successful in growing our digital channels. As omni-channel retailing continues to evolve, our customers are increasingly more likely to shop across multiple channels that work in tandem to meet their needs.
We have made significant capital investments in these areas but there is no assurance that we will realize expected returns on those investments or be successful in growing our digital channels. As omni-channel retailing continues to evolve, our customers are increasingly more likely to shop across multiple channels that work in tandem to meet their needs.
Trade matters may disrupt our supply chain. Trade restrictions, including increased tariffs or quotas, embargoes, safeguards, and customs restrictions against apparel items, as well as U.S. or foreign labor strikes, work stoppages, or boycotts, could increase the cost or reduce the supply of apparel available to us and adversely affect our business, financial condition, and results of operations.
Trade matters may disrupt our supply chain. Trade restrictions, including increased tariffs or quotas, embargoes, safeguards, and customs restrictions against apparel items, as well as United States or foreign labor strikes, work stoppages, or boycotts, could increase the cost or reduce the supply of apparel available to us and adversely affect our business, financial condition, and results of operations.
If such a tax system were adopted, we could also face higher prices for products manufactured or produced abroad that we purchase from our domestic suppliers if they were subject to such a tax. In addition, the U.S. government periodically considers other restrictions on the importation of products obtained by our vendors and us.
If such a tax system were adopted, we could also face higher prices for products manufactured or produced abroad that we purchase from our domestic suppliers if they were subject to such a tax. In addition, the United States government periodically considers other restrictions on the importation of products obtained by our vendors and us.
Foreign imports subject us to risks relating to changes in import duties, quotas, the introduction of U.S. taxes on imported goods or the extension of U.S. income taxes on our foreign suppliers' sales of imported goods through the adoption of destination-based income tax jurisdiction, loss of "most favored nation" status with the U.S., shipment delays and shipping port constraints, labor strikes, work stoppages or other disruptions, freight cost increases and economic uncertainties.
Foreign imports subject us to risks relating to changes in import duties, quotas, the introduction of United States taxes on imported goods or the extension of United 20 States income taxes on our foreign suppliers' sales of imported goods through the adoption of destination-based income tax jurisdiction, loss of "most favored nation" status with the United States, shipment delays and shipping port constraints, labor strikes, work stoppages or other disruptions, freight cost increases and economic uncertainties.
Public perception about our products or our stores, whether justified or not, could impair our reputation, involve us in litigation, damage our brands and may adversely impact our business, results of operations, and financial condition. The appeal of our brand may also depend on the success of our ESG initiatives, which require company-wide coordination and alignment.
Public perception about our products or our stores, whether justified or not, could impair our reputation, involve us in litigation, damage our brands and may adversely impact our business, results of operations, and financial condition. The appeal of our brands may also depend on the success of our environmental, social and governance ("ESG") initiatives, which require company-wide coordination and alignment.
Furthermore, we could face significantly higher U.S. income and similar taxes with respect to sales of products purchased from foreign suppliers if the U.S. were to adopt a system of taxation, such as a border adjustment tax, under which the cost of imported products was not deductible in determining such products' tax base.
Furthermore, we could face significantly higher United States income and similar taxes with respect to sales of products purchased from foreign suppliers if the United States were to adopt a system of taxation, such as a border adjustment tax, under which the cost of imported products was not deductible in determining such products' tax base.
If our business does not generate sufficient cash flow from operating activities to fund these expenses, due to continued decreases in mall traffic, the highly competitive and promotional retail environment, or other factors, we may not be able to service our lease expenses, which could materially harm our business.
If our business does not generate sufficient cash flow from operating activities to fund these expenses, due to continued decreases in mall traffic, the highly competitive and promotional retail environment, or other factors, we may not be able to service our lease expenses, or may need to incur additional indebtedness, which could materially harm our business.
Fluctuations in our tax obligations and effective tax rate could adversely affect us. We are subject to income taxes in many U.S. and certain foreign jurisdictions. We record tax expense based on our estimates of future payments, which include reserves for uncertain tax positions in multiple tax jurisdictions.
Fluctuations in our tax obligations and effective tax rate could adversely affect us. We are subject to income taxes in many United States and certain foreign jurisdictions. We record tax expense based on our estimates of future payments, which include reserves for uncertain tax positions in multiple tax jurisdictions.
We cannot control the increasing impact of digital channels on shopping center traffic, the loss of an anchor or other significant tenant in a shopping mall in which we have a store, the development of new shopping malls in the U.S. or around the world, the availability or cost of appropriate locations, competition with other retailers for prominent locations, or the success of individual shopping malls.
We cannot control the increasing impact of digital channels on 21 shopping center traffic, the loss of an anchor or other significant tenant in a shopping mall in which we have a store, the development of new shopping malls in the United States or around the world, the availability or cost of appropriate locations, competition with other retailers for prominent locations, or the success of individual shopping malls.
Achieving these key business priorities depends on us executing our strategies successfully, and the initiatives that we implement in connection with these goals may not resonate with our customers, or be successful in their intended goals.
Our success depends on our ability to execute on our key priorities. Achieving these key business priorities depends on us executing our strategies successfully, and the initiatives that we implement in connection with these goals may not resonate with our customers, or be successful in achieving their intended goals.
In light of the competitive challenges we face, we may not be able to compete successfully in the future, resulting in lower market share. Additionally, increases in competition could reduce our sales, which in turn could have a material adverse effect on our results of operations and financial condition.
In light of the competitive challenges we face, we may not be able to compete successfully in the future, which may result in lower market share. Additionally, increases in the number of our competitors could reduce our sales, which in turn could have a material adverse effect on our results of operations and financial condition.
The actual integration of Quiet Logistics may result in additional and unforeseen expenses or delays. If the combined company is not able to successfully leverage Quiet Logistics’ business and operations, these anticipated benefits may not be realized fully or at all or may take longer to realize than expected.
The ongoing integration of Quiet Logistics may experience additional and unforeseen expenses or delays. If the combined company is not able to successfully leverage Quiet Logistics’ business and operations, these anticipated benefits may not be realized fully or at all or may take longer to realize than expected.
In addition, our competitors are also investing in omni-channel initiatives, some of which may be more successful than our initiatives. Our inability to respond to these changes and successfully maintain and expand our omni-channel business may have an adverse impact on our results of operations.
In addition, our competitors are also investing in omni-channel initiatives, some of which may be more successful than our initiatives. Our inability to respond to changes in consumer behavior and our competitive environment, or to successfully maintain and expand our omni-channel business may have an adverse impact on our results of operations.
In addition, the physical changes prompted by climate change could result in changes in regulations or consumer preferences, which could in turn affect our business, operating results, and financial condition. Impairment to goodwill, intangible assets, and other long-lived assets could adversely impact our profitability.
In addition, the impacts of climate change could result in changes in regulations or consumer preferences, which could in turn affect our business, operating results, and financial condition. 15 Impairment to goodwill, intangible assets, and other long-lived assets could adversely impact our profitability.
In uncertain economic environments, we cannot predict whether or when such circumstances may improve or worsen, or what impact, if any, such circumstances could have on our business, results of operations, cash flows and financial position. Seasonality may cause sales to fluctuate and negatively impact our results of operations.
In uncertain economic environments, we cannot predict whether or when such circumstances may improve or worsen, or what impact, if any, such circumstances could have on our business, results of operations, cash flows and financial position.
Furthermore, if our information technology systems are damaged, breached or cease to properly function for any reason, including the poor performance of, failure of, or cyber-attack on third-party service providers, catastrophic events, power outages, cyber-security breaches, network outages, failed upgrades or similar events, and if our disaster recovery and business continuity plans do not effectively resolve such issues, we may suffer interruptions in our ability to manage or conduct business, as well as reputational harm, and we may be subject to governmental investigations and litigation, any of which may adversely impact our business, results of operations, and financial condition.
While we maintain business interruption and property insurance, in the event of a data center shutdown, our insurance may not be sufficient to cover the impact to the business. 18 Furthermore, if our information technology systems are damaged, breached or cease to properly function for any reason, including the poor performance of, failure of, or cyber-attack on third-party service providers, catastrophic events, power outages, cybersecurity breaches, network outages, failed upgrades or similar events, and if our disaster recovery and business continuity plans do not effectively resolve such issues, we may suffer interruptions in our ability to manage or conduct business, as well as reputational harm, and we may be subject to governmental investigations and litigation, any of which may adversely impact our business, results of operations, and financial condition.
State laws are changing rapidly, and new legislation proposed or enacted in a number of other states imposes, or has the potential to impose, additional obligations on companies that process confidential, sensitive and personal information, and will continue to shape the data privacy environment nationally.
State laws are changing rapidly, and new legislation proposed or enacted in a number of other states imposes, or has the potential to impose, additional obligations on companies that process confidential, sensitive and personal information, and will continue to shape the data privacy environment nationally. The United States federal government is also significantly focused on privacy matters.
Laws and regulations at the local, state, federal, and international levels frequently change, and the ultimate cost of compliance cannot be precisely estimated. In addition, we cannot predict the impact that may result from changes in the regulatory or administrative landscape.
Additional legal and regulatory requirements have increased the complexity of the regulatory environment and the cost of compliance. Laws and regulations at the local, state, federal, and international levels frequently change, and the ultimate cost of compliance cannot be precisely estimated. In addition, we cannot predict the impact that may result from changes in the regulatory or administrative landscape.
Additionally, we maintain other confidential, proprietary, or otherwise sensitive information relating to our business and from third parties. 20 The information technology networks and systems owned, operated, controlled or used by us or our vendors may be vulnerable to damage, disruptions or shutdowns, software or hardware vulnerabilities, data breaches, security incidents, supply-side attacks, failures during the process of upgrading or replacing software, databases or components, power outages, natural disasters, hardware failures, attacks by computer hackers, telecommunication failures, user errors, user malfeasance, computer viruses, unauthorized access, phishing or social engineering attacks, ransomware attacks, denial-of-service attacks and other real or perceived cyberattacks or catastrophic events, all of which may not be prevented by our efforts to secure our computer systems.
The information technology networks and systems owned, operated, controlled or used by us or our vendors may be vulnerable to damage, disruptions or shutdowns, software or hardware vulnerabilities, data breaches, security incidents, supply-side attacks, failures during the process of upgrading or replacing software, databases or components, power outages, natural disasters, hardware failures, attacks by computer hackers, telecommunication failures, user errors, user malfeasance, computer viruses, unauthorized access, phishing or social engineering attacks, ransomware attacks, denial-of-service attacks and other real or perceived cyber-attacks or catastrophic events, all of which may not be prevented by our efforts to secure our information technology systems.
Historically, our operations have been seasonal, with a large portion of total net revenue and operating income occurring in the third and fourth fiscal quarters, reflecting increased demand during the back-to-school and year-end holiday selling seasons, respectively.
Seasonality may cause sales to fluctuate and negatively impact our results of operations. Historically, our operations have been seasonal, with a large portion of total net revenue and operating income occurring in the third and fourth fiscal quarters, reflecting increased demand during the back-to-school and year-end holiday selling seasons, respectively.
We design our merchandise, which is manufactured by third-party suppliers worldwide. Because we have a global supply chain, any event that causes the disruption of imports, including the insolvency of a significant supplier, global health crisis, or a major labor dispute including any such actions involving ports, trans loaders, consolidators, or shippers, could have an adverse effect on our operations.
Because we have a global supply chain, any event that causes the disruption of imports, including the insolvency of a significant supplier, global health crisis, or a major labor dispute including any such actions involving ports, trans loaders, consolidators, or shippers, could have an adverse effect on our operations.
The California Privacy Rights Act ("CPRA"), which was passed in November 2020 and will take effect in January 2023 (with a look-back for certain requirements to January 2022), amends and expands the CCPA and places additional restrictions on the "sharing" of personal information for purposes of cross-context behavioral advertising.
The California Privacy Rights Act ("CPRA"), which took effect on January 1, 2023 (with a look-back for certain requirements to January 2022), amends and expands the CCPA and places additional restrictions on the "sharing" of personal information for purposes of cross-context behavioral advertising.
Natural disasters, such as hurricanes, tornadoes, floods, earthquakes, extreme cold events and other adverse weather conditions; public health crises, such as pandemics and epidemics (including, without limitation, the ongoing COVID-19 pandemic); political crises, such as terrorist attacks, war, labor unrest, and other political instability; negative global climate patterns, especially in water stressed regions; or other catastrophic events, such as fires or other disasters occurring at our distribution centers or our vendors' manufacturing facilities, whether occurring in the United States or internationally, could disrupt our operations, including the operations of our licensees, or the operations of one or more of our vendors.
Our operations, those of our licensees, our suppliers, or our customers, could be negatively impacted by various events beyond our control, including, without limitation, natural disasters, such as hurricanes, tornadoes, floods, earthquakes, extreme cold events and other adverse weather conditions; public health crises, such as pandemics and epidemics (including, without limitation, the ongoing COVID-19 pandemic); political crises, such as terrorist attacks, war, labor unrest, and other political instability (including, without limitation, the ongoing conflict between Russia and Ukraine); negative global climate patterns, especially in water-stressed regions; or other catastrophic events, such as fires or other disasters occurring at our distribution centers or our vendors' manufacturing facilities, whether occurring in the United States or internationally.
Insurers may also deny us coverage as to any future claim. Any of these results could harm our growth prospects, financial condition, business, and reputation. Telework measures intended to prevent the spread of COVID-19 may negatively impact our operations or increase our risk exposures. In response to the ongoing COVID-19 pandemic, most of our corporate office associates are working remotely.
Insurers may also deny us coverage as to any future claim. Any of these results could harm our growth prospects, financial condition, business, and reputation. Telework may negatively impact our operations or increase our risk exposures. Most of our corporate office associates are working remotely.
Further, remote work arrangements may increase the risk of security incidents, data breaches or cyber-attacks, which could have a material adverse effect on our business and results of operations, due to, among other things, the loss of proprietary data, interruptions or delays in the operation of our business, damage to our reputation and any government-imposed penalty. 21 Our international merchandise sourcing strategy subjects us to risks that could adversely impact our business and results of operations.
Further, remote work arrangements may increase the risk of security incidents, data breaches or cyberattacks, which could have a material adverse effect on our business and results of operations, due to, among other things, the loss of proprietary data, interruptions or delays in the operation of our business, damage to our reputation and any government-imposed penalty.
The COVID-19 pandemic has negatively impacted the global economy, disrupted consumer spending and global supply chains, created significant volatility and disruption of financial markets, and has had an adverse impact on our business and financial performance, particularly in Fiscal 2020.
The ongoing COVID-19 pandemic has had, and may in the future have, an adverse effect on our business and results of operations. The COVID-19 pandemic has negatively impacted the global economy, disrupted consumer spending and global supply chains, created significant volatility and disruption of financial markets, and has had an adverse impact on our business and financial performance.
Global economic conditions and the effect of economic pressures and other business factors on discretionary consumer spending and changes in consumer preferences could have a material adverse effect on our business, results of operations and financial condition.
Item 1A. Ri sk Factors Macroeconomic and Industry Risks Global economic conditions and the effect of economic pressures and other business factors on discretionary consumer spending and changes in consumer preferences have had and could continue to have a material adverse effect on our business, results of operations and financial condition.
We may be subject to additional privacy regulations in the future, including the Virginia Consumer Data Protection Act and the Colorado Privacy Act, both of which regulate the processing of "personal data" regarding their respective residents and grants residents certain rights with respect to their personal data.
We are and may be subject to additional privacy regulations in the future, including the Virginia Consumer Data Protection Act, which took effect on January 1, 2023, and the Colorado Privacy Act, which will take effect on July 1, 2023, both of which regulate the processing of "personal data" regarding their respective residents and grant residents certain rights with respect to their personal data.
The U.S. federal government is also significantly focused on privacy matters. 25 We are subject to other consumer protection laws, including California's Consumer Legal Remedies Act and unfair competition and false advertising laws, the Fair and Accurate Credit Transactions Act and the Telephone Consumer Protection Act, Canada's Anti-Spam Law, the CCPA, CPRA and other recently enacted consumer data protection laws.
We are subject to other consumer protection laws, including California's Consumer Legal Remedies Act and unfair competition and false advertising laws, the Fair and Accurate Credit Transactions Act and the Telephone Consumer Protection Act, Canada's Anti-Spam Law, the CCPA, the CPRA and other recently enacted consumer data protection laws.
Any of these issues could have a material adverse effect on our operations, financial condition and cash flows. Our inability to implement and sustain adequate information technology systems could adversely impact our profitability. We regularly evaluate our information technology systems and are currently implementing modifications and/or upgrades to the information technology systems that support our business.
Any of these issues could have a material adverse effect on our operations, financial condition and cash flows. Our inability to implement and sustain adequate information technology systems could adversely impact our profitability and the loss of disruption of information technology systems could have a material adverse effect on our business.
Significant negative industry or general economic trends, changes in customer demand for our product, disruptions to our business, and unexpected significant changes or planned changes in our operating results or use of long-lived assets may result in impairments to goodwill, intangible assets, and other long-lived assets. 17 Strategic Risks Our inability to grow our digital channels and leverage omni-channel capabilities could adversely impact our business.
Significant negative industry or general economic trends, changes in customer demand for our product, disruptions to our business, and unexpected significant changes or planned changes in our operating results or use of long-lived assets may result in impairments to goodwill, intangible assets, and other long-lived assets.
This seasonality, along with other factors that are beyond our control, including the COVID-19 pandemic, social or political unrest, general economic conditions, changes in consumer preferences, weather conditions, including the effects of climate change, the availability of import quotas, transportation disruptions and foreign currency exchange rate fluctuations, could adversely affect our business and cause our results of operations to fluctuate. 16 We operate in a highly competitive industry, and we face significant pricing pressures from existing and new competitors.
This seasonality, along with other factors that are beyond our control, including public health events, social or political unrest, general economic conditions, changes in consumer preferences, weather conditions, including the effects of climate change, the availability of import quotas, transportation disruptions and foreign currency exchange rate fluctuations, could adversely affect our business and cause our results of operations to fluctuate.
A failure to implement our expansion initiatives properly, or the adverse impact of political or economic risks in these international markets, could have a material adverse effect on our results of operations and financial condition. We have limited prior experience operating internationally where we face established competitors.
A failure to implement our expansion initiatives properly, or the adverse impact of political or economic risks in our current or new international markets, could have a material adverse effect on our results of operations and financial condition.
Continued volatility in the markets and exchange rates for foreign currencies and contracts in foreign currencies could have a significant impact on our reported operating results and financial condition. • Continued volatility in the availability and prices for commodities and raw materials we use in our products and in our supply chain (such as cotton) and related inflationary pressures could have a material adverse effect on our costs, gross margins and profitability.
Continued volatility in the markets and exchange rates for foreign currencies could have a significant impact on our reported operating results and financial condition. • Continued volatility in the availability and prices for commodities and raw materials we use in our products and in our supply chain (such as cotton) and related inflationary pressures could have a material adverse effect on our costs, gross margins and profitability. • If our suppliers or other participants in our supply chain experience difficulty obtaining financing needed for their operations in the capital and credit markets, it may result in delays or non-delivery of our products.
We have made and expect to continue to make significant investments in building our technologies and digital capabilities in three key areas: mobile technology, digital marketing, and the digital customer experience.
Strategic Risks Our inability to grow our digital channels and leverage omni-channel capabilities could adversely impact our business. We have made and expect to continue to make significant investments in building our technologies and digital capabilities in three key areas: mobile technology, digital marketing, and the digital customer experience.
Lead times for many of our design and purchasing decisions may make it more difficult for us to respond rapidly to new or changing apparel trends or consumer acceptance of our products.
Our future success depends, in part, upon our ability to identify and respond to fashion trends and changing consumer preferences in a timely manner. Lead times for many of our design and purchasing decisions may make it more difficult for us to respond rapidly to new or changing apparel trends or consumer acceptance of our products.
The Company’s amended and restated bylaws (“Bylaws”) provide, to the fullest extent permitted by law, that the Court of Chancery of the State of Delaware will be the exclusive forum for certain legal actions between the Company and its stockholders, which could increase costs to bring a claim, discourage claims or limit the ability of the Company’s stockholders to bring a claim in a judicial forum viewed by the stockholders as more favorable for disputes with the Company or the Company’s directors, officers or other employees.
Additionally, to the extent that multiple state-level laws are introduced with inconsistent or conflicting standards and there is no federal law to preempt such laws, compliance with such laws could be difficult and costly to achieve, or impossible to achieve, and we could be subject to fines and penalties in the event of non-compliance. 24 The Company’s amended and restated bylaws (“Bylaws”) provide, to the fullest extent permitted by law, that the Court of Chancery of the State of Delaware will be the exclusive forum for certain legal actions between the Company and its stockholders, which could increase costs to bring a claim, discourage claims or limit the ability of the Company’s stockholders to bring a claim in a judicial forum viewed by the stockholders as more favorable for disputes with the Company or the Company’s directors, officers or other employees.
Disasters occurring at our vendors’ manufacturing facilities could impact our reputation and consumers’ perception of our brands. To the extent any of these events occur, our operations and financial results could be adversely affected.
In addition, these types of events could negatively impact consumer spending in the impacted regions or, depending upon the severity, globally. Disasters occurring at our vendors’ manufacturing facilities could impact our reputation and consumers’ perception of our brands. To the extent that any of these events occur, our operations and financial results could be adversely affected.
Our product costs may be adversely affected by foreign trade issues (including import tariffs and other trade restrictions with China), currency exchange rate fluctuations, increasing prices for raw materials, political instability, or other reasons, which could impact our profitability.
Our product costs may be adversely affected by foreign trade issues, including import tariffs and other trade restrictions with China, increasing prices for raw materials, political instability, or other reasons, which could impact our profitability. A significant portion of the products that we purchase is manufactured abroad.
The COVID-19 pandemic also has impacted and may continue to impact the financial viability or business operations of some of our third-party vendors and transportation or logistics providers and may in the future interrupt and further increase costs for our supply chain and could require additional changes to our operations.
The COVID-19 pandemic also has impacted and may in the future interrupt and further increase costs for our supply chain and could require additional changes to our operations.
In many of these locations, the real estate, labor and employment, transportation and logistics and other operating requirements differ dramatically from those in the locations where we have more experience.
In certain international markets we have limited prior experience operating our Company-owned stores, and in all international markets we face established local and international competitors. In many of these locations, the real estate, labor and employment, transportation and logistics and other operating requirements differ dramatically from those in the locations where we have more experience.
If our associates are unable to work effectively as a result of the COVID-19 outbreak, including because of illness, quarantines, office closures, ineffective remote work arrangements or technology failures or limitations, our operations would be adversely impacted.
If our associates are unable to work because of ineffective remote work arrangements or technology failures or limitations, our operations would be adversely impacted.
General trade tensions between the U.S. and China have been high, with multiple rounds of U.S. tariffs on Chinese goods implemented in 2018 and 2019. Furthermore, China or other countries may institute retaliatory trade measures in response to existing or future tariffs imposed by the U.S. that could have a negative impact on our business.
Furthermore, China or other countries have and may institute future retaliatory trade measures in response to existing or future tariffs imposed by the United States that could have a negative impact on our business.
Furthermore, the decrease in mall traffic is putting a greater reliance on the digital channel and thus increasing the competitive threat.
Some of these competitors have robust digital consumer experiences and highly efficient delivery systems. Furthermore, the decrease in mall traffic is putting a greater reliance on the digital channel and thus increasing the competitive threat.
The sale of apparel, accessories, intimates, and personal care products is a highly competitive business with numerous participants, including individual and chain specialty apparel retailers, local, regional, national, and international department stores, discount stores and online businesses. Changing consumer preferences has resulted and may continue to result in new competition for our products.
We operate in a highly competitive industry, and we face significant pricing pressures from existing and new competitors. The sale of apparel, accessories, intimates, and personal care products is a highly competitive business with numerous participants, including individual and chain specialty apparel retailers, local, regional, national, and international department stores; discount stores and online businesses.
In particular, these types of events could impact our supply chain from or to the impacted region and could impact our ability or the ability of our licensees or other third parties to operate our stores or websites. In addition, these types of events could negatively impact consumer spending in the impacted regions or, depending upon the severity, globally.
In particular, these types of events could impact our supply chain from or to the impacted region and could impact our ability or the ability of our licensees or other third parties to operate our stores or websites, or could impact our business as a whole if the impacted region includes our corporate offices.
We are subject to numerous domestic and foreign laws and regulations affecting our business, including those related to labor, employment, worker health and safety, competition, privacy, consumer protection, import/export and anti-corruption, including the Foreign Corrupt Practices Act. Additional legal and regulatory requirements have increased the complexity of the regulatory environment and the cost of compliance.
Changes in the regulatory or administrative landscape could adversely affect our financial condition and results of operations. We are subject to numerous domestic and foreign laws and regulations affecting our business, including those related to labor, employment, worker health and safety, competition, privacy, consumer protection, import/export, anti-corruption, including the Foreign Corrupt Practices Act, and climate change.
The specialty retail apparel business fluctuates according to changes in the economy and consumer preferences and trends, which are dictated by fashion trends and season and may shift quickly.
Our inability to anticipate and respond to changing consumer preferences and fashion trends and fluctuations in consumer demand in a timely manner could adversely impact our business and results of operations. The specialty retail apparel business fluctuates according to changes in the economy and consumer preferences and trends, which are dictated by fashion trends and season and may shift quickly.
The substantial sales growth in the digital channel within the last several years has increased competition due to new entrants in the market and has resulted in pricing pressures from new entrants and established competitors. Some of these competitors have robust digital consumer experiences and highly efficient delivery systems.
Changing consumer preferences has resulted and may continue to result in new competition for our products. The substantial sales growth in the digital channel within the last several years has increased competition due to new entrants in the market and has resulted in pricing pressures from new entrants and established competitors.
The effect of international expansion arrangements on our business and results of operations is uncertain and will depend upon various factors, including the demand for our products in new markets internationally.
We are actively pursuing additional international expansion initiatives, which include Company-owned stores and stores operated by third parties through licensing arrangements in select international markets. The effect of international expansion arrangements on our business and results of operations is uncertain and will depend upon various factors, including the demand for our products in new markets internationally.
The metrics we disclose, such as emissions and water usage, whether they be based on the standards we set for ourselves or those set by others, may influence our reputation and the value of our brand. Our failure to achieve progress on our metrics on a timely basis, or at all, could adversely affect our business, financial performance, and growth.
The metrics we disclose in our ESG report, such as emissions and water usage, whether they be based on the standards 17 we set for ourselves or those set by others, may influence our reputation and the value of our brand.
The COVID-19 pandemic also directly threatens the health of our associates and consumers. The operation of all of our stores is critically dependent on our associates who staff these locations.
These supply chain and logistics disruptions have impacted our inventory levels and net revenues in prior periods and could impact our financial results in future periods. The COVID-19 pandemic also directly threatens the health of our associates and consumers. The operation of all of our stores is critically dependent on our associates who staff these locations.
As we pursue our international expansion initiatives, we are subject to certain laws, including the Foreign Corrupt Practices Act, as well as the laws of the foreign countries in which we operate. Violations of these laws could subject us to sanctions or other penalties that could have an adverse effect on our reputation, operating results and financial condition.
Violations of these laws could subject us to sanctions or other penalties that could have an adverse effect on our reputation, operating results and financial condition.
By electing to set and share publicly these metrics and expand upon our disclosures, we may also face increased scrutiny related to ESG activities. As a result, we could experience damage to our reputation and the value of our brands if we fail to act responsibly in the areas in which we report.
As a result, we could experience damage to our reputation and the value of our brands if we fail to act responsibly in the areas in which we report.
We are working to manage risks and costs to us, our licensees and our supply chain of any effects of climate change as well as diminishing fossil fuel and water resources. These risks include any increased public focus, including by governmental and nongovernmental organizations, on these and other environmental sustainability matters, including packaging and waste, animal welfare, and land use.
These risks include any increased public focus, including by governmental and non-governmental organizations, on climate change and other environmental sustainability matters, including packaging and waste, animal welfare, and land use.
These fluctuations can materially impact our sales and gross margins and are exacerbated by the fact that merchandise is typically ordered well in advance of a selling season. 14 While we work to identify trends and consumer preferences on an ongoing basis and offer inventory and shopping experiences that meet such trends and preferences, we may not do so effectively and/or on a timely basis.
While we work to identify trends and consumer preferences on an ongoing basis and offer inventory and shopping experiences that meet such trends and preferences, we may not do so effectively and/or on a timely basis. As a result, we are vulnerable to changes in consumer demand, pricing shifts and the timing and selection of merchandise purchases.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeEach of the above identified properties are shared by all of our reportable and operating segments. Upon the acquisition of Quiet Logistics, we acquired leases for distribution facilities in six cities throughout the United States totaling 2.2 million square feet, with varying terms expiring through 2030. These facilities are used by our Supply Chain Platform operating segment.
Biggest changeEach of the above identified properties is shared by certain of our reportable and operating segments, including American Eagle, Aerie, Todd Snyder and Unsubscribed brands. We lease distribution facilities in seven cities throughout the United States totaling 2.7 million square feet, with varying terms expiring through 2030. These facilities are used by our Quiet Platforms operating segment.
As for our stores, all are leased and generally have initial terms of 5 – 10 years. Certain leases also include early termination options, which can be exercised under specific conditions. Most of these leases provide for base rent and require the payment of a percentage of sales as additional contingent rent when sales reach specified levels.
As for our stores, all are leased and generally have initial terms of 5-10 years. Certain leases also include early termination options, which can be exercised under specific conditions. Most of these leases provide for base rent and require the 26 payment of a percentage of sales as additional contingent rent when sales reach specified levels.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeConsistent with SEC Regulation S-K Item 103, we have elected to disclose those environmental proceedings with a governmental entity as a party where the Company reasonably believes such proceeding would result in monetary sanctions, exclusive of interest and costs, of $1.0 million or more. Refer to Note 2.
Biggest changeConsistent with Item 103 of Regulation S-K, we have elected to disclose those environmental proceedings with a governmental entity as a party where the Company reasonably believes that such proceeding would result in monetary sanctions, exclusive of interest and costs, of $1.0 million or more. Refer to Note 2.
“Summary of Significant Accounting Policies – Legal Proceedings and Claims” of the Notes to the Consolidated Financial Statements included herein for additional information. Item 4. Mine Saf ety Disclosures. Not Applicable. 28 PART II
“Summary of Significant Accounting Policies – Legal Proceedings and Claims” of the Notes to the Consolidated Financial Statements included herein for additional information. Item 4. Mine Saf ety Disclosures. Not Applicable. 27 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAs of the end of Fiscal 2021, this group consisted of the following companies: Abercrombie & Fitch Co., Burberry Group PLC, Capri Holdings Limited, Chico’s FAS, Inc., Express, Inc., Fossil Group, Inc., The Gap, Inc., Guess?, Inc., Hanesbrands Inc., Kontoor Brands, L Brands Inc., Levi Strauss & Co., lululemon athletica, inc., PVH CORP., Ralph Lauren Corporation, Tapestry, Inc., Under Armour Inc., and Urban Outfitters, Inc. 30 Issuer Purchases of Equity Securities The following table provides information regarding our repurchases of common stock during the thirteen weeks ended January 29, 2022.
Biggest changeAs of the end of Fiscal 2022, this group consisted of the following companies: Abercrombie & Fitch Co.; Bath and Body Works, Inc.; Burberry Group PLC; Capri Holdings Limited; Chico’s FAS, Inc.; Express, Inc., Fossil Group, Inc.; The Gap, Inc.; Guess?, Inc.; Hanesbrands Inc.; Kontoor Brands; Levi Strauss & Co.; lululemon athletica, inc.; PVH CORP.; Ralph Lauren Corporation; Tapestry, Inc.; Under Armour Inc.; Urban Outfitters, Inc; and Victoria's Secret & Co.
(2) Average price paid per share excludes any broker commissions paid. (3) During Fiscal 2019, our Board authorized the public repurchase of 30.0 million shares under a new share repurchase program, which expires on February 3, 2024. I tem 6. Reserved 31
(2) Average price paid per share excludes any broker commissions paid. (3) During Fiscal 2019, our Board authorized the public repurchase of 30.0 million shares under a new share repurchase program, which expires on February 3, 2024. I tem 6. Reserved 30
The payment of future dividends is at the discretion of our Board and is based on future earnings, cash flow, financial condition, capital requirements, changes in U.S. taxation and other relevant factors. 29 Performan ce Graph The following performance graph and related information shall not be deemed “soliciting material” or to be filed with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or Exchange Act, except to the extent that we specifically incorporate it by reference into such filing.
The payment of future dividends is at the discretion of our Board and is based on future earnings, cash flow, financial condition, capital requirements, changes in United States taxation, and other relevant factors. 28 Performan ce Graph The following performance graph and related information shall not be deemed “soliciting material” or to be filed with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or Exchange Act, except to the extent that we specifically incorporate it by reference into such filing.
Dividends A $0.1375 per share dividend was paid in the first quarter of Fiscal 2021 and a $0.18 per share dividend was paid in the second, third, and fourth quarters of Fiscal 2021 resulting in a dividend yield of 2.3% for Fiscal 2021.
A quarterly cash dividend of $0.1375 per share dividend was paid in the first quarter of Fiscal 2021 and a $0.18 per share dividend was paid in the second, third, and fourth quarters of Fiscal 2021 resulting in a dividend yield of 2.3% for Fiscal 2021.
Item 5. Market for Registrant’s Common Equity, Related S tockholder Matters, and Issuer Purchases of Equity Securities. Market Information and Holders Our common stock is traded on the NYSE under the symbol “AEO.” As of March 10, 2022, there were 453 stockholders of record.
Item 5. Market for Registrant’s Common Equity, Related S tockholder Matters, and Issuer Purchases of Equity Securities. Market Information and Holders Our common stock is traded on the NYSE under the symbol “AEO.” As of March 8, 2023, there were 448 stockholders of record.
The comparison of the cumulative total returns for each investment assumes that $100 was invested in our common stock and the respective index on January 28, 2017 and includes reinvestment of all dividends.
The comparison of the cumulative total returns for each investment assumes that $100 was invested in our common stock and the respective index on February 3, 2018 and includes reinvestment of all dividends.
Total Number of Maximum Number of Total Average Shares Purchased as Shares that May Number of Price Paid Part of Publicly Yet be Purchased Period Shares Purchased Per Share Announced Programs Under the Program (1) (2) (1) (3) (3) October 31, 2021 through November 27, 2021 — — — 30,000,000 November 28, 2021 through January 1, 2022 515 $ 23.83 — 30,000,000 January 2, 2022 through January 29, 2022 1,680 $ 25.48 — 30,000,000 Total 2,195 $ 25.09 — 30,000,000 (1) There were no shares repurchased as part of our publicly announced share repurchase program during the thirteen weeks ended January 29, 2022 and there were 2,195 shares repurchased for the payment of taxes in connection with the vesting of share-based payments.
Total Number of Maximum Number of Total Average Shares Purchased as Shares That May Number of Price Paid Part of Publicly Yet Be Purchased Period Shares Purchased Per Share Announced Programs Under the Program (1) (2) (1) (3) (3) October 30, 2022 through November 26, 2022 — $ — — 12,977,130 November 27, 2022 through December 31, 2022 547 $ 14.21 — 12,977,130 January 1, 2023 through January 28, 2023 — $ — — 12,977,130 Total 547 $ 14.21 — 12,977,130 (1) There were no shares repurchased as part of our publicly announced share repurchase program during the 13 weeks ended January 28, 2023 and there were 547 shares repurchased for the payment of taxes in connection with the vesting of share-based payments.
Subsequent to the fourth quarter of Fiscal 2021, our Board declared a $0.18 per share dividend, payable on March 24, 2022 to the stockholders of record at the close of business on March 11, 2022.
Subsequent to the fourth quarter of Fiscal 2022, our Board declared a $0.10 per share dividend, payable on April 21, 2023 to stockholders of record at the close of business on April 6, 2023.
The plotted points are based on the closing price on the last trading day of the fiscal year indicated. 1/28/2017 2/3/2018 2/2/2019 2/1/2020 1/30/2021 1/29/2022 American Eagle Outfitters, Inc. 100.00 124.10 151.77 107.97 171.36 173.23 S&P MidCap 400 Index 100.00 114.80 112.04 124.25 147.18 164.23 Peer Group 100.00 110.03 106.91 106.94 126.13 140.52 We compared our cumulative total return to a custom peer group that aligns with our compensation peer group, as disclosed in our Proxy Statement for the 2021 Annual Meeting of Stockholders.
The plotted points are based on the closing price on the last trading day of the fiscal year indicated. 2/3/2018 2/2/2019 2/1/2020 1/30/2021 1/29/2022 1/28/2023 American Eagle Outfitters, Inc. 100.00 122.30 87.00 138.08 139.59 100.12 S&P MidCap 400 Index 100.00 97.60 108.22 128.21 143.05 147.76 Peer Group 100.00 97.17 97.19 114.63 128.37 123.36 We compared our cumulative total return to a custom peer group that aligns with our compensation peer group, as disclosed in our Proxy Statement for the 2022 Annual Meeting of Stockholders.
However, when including associates who own shares through our employee stock purchase plan, and others holding shares in broker accounts under street name, we estimate the stockholder base at approximately 50,000.
However, when including associates who own shares through our employee stock purchase plan, and others holding shares in broker accounts under street name, we estimate the stockholder base at approximately 105,000. Dividends A dividend of $0.18 per share was paid in the first and second quarters of Fiscal 2022 resulting in a dividend yield of 2.5%.
To preserve liquidity, the Company suspended its second, third, and fourth quarter Fiscal 2020 dividends. The Company maintains the right to defer the record and payment dates of its dividends, depending upon, among other factors, the progression of the COVID-19 pandemic, business performance and the macroeconomic environment.
The Company maintains the right to defer the record and payment dates of any declared dividends, depending upon, among other factors, business performance, and the macroeconomic environment.
Removed
A quarterly cash dividend of $0.1375 per share was declared on March 26, 2020 for the first quarter of 2020, but was deferred as part of our efforts to carefully manage the impact of the COVID-19 pandemic.
Added
During the third quarter of Fiscal 2022, the Company announced that, given ongoing external uncertainties and in order to increase financial flexibility, it was temporarily suspending its quarterly cash dividends.
Removed
It was originally payable on May 14, 2020 to stockholders of record at the close of business on April 30, 2020, and was paid on December 30, 2020 to stockholders of record at the close of business on December 16, 2020, resulting in a dividend yield of 1.0% for Fiscal 2020.
Added
Our peer group was updated for Fiscal 2022 to include Victoria's Secret & Co., which separated from L Brands, Inc. in 2021.
Added
After the separation, L Brands, Inc. was renamed Bath & Body Works, Inc., which is also included in the peer group for 2022. 29 Issuer Purchases of Equity Securities The following table provides information regarding our repurchases of common stock during the 13 weeks ended January 28, 2023.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

77 edited+28 added−38 removed20 unchanged
Biggest changeFor the Fiscal Year Ended January 29, 2022 Operating Income Net Income Diluted Earnings per Share GAAP Basis $ 591,065 $ 419,629 $ 2.03 Add: Asset impairment charges (1) 11,944 8,944 0.04 Add: EU license operations reorganization (2) — 8,917 0.04 Add: Convertible debt (3) — 13,867 0.07 Non-GAAP Basis $ 603,009 $ 451,357 $ 2.19 (1) $11.9 million of pre-tax asset impairment charges (2) $11.9 million of pre-tax reorganization charges related to our European Union License operations (3) Amortization of the non-cash discount on the Company's convertible notes Earnings per Share For the Fiscal Year Ended January 30, 2021 Net loss per diluted share - GAAP Basis $ (1.26 ) Add: Impairment, restructuring and COVID-19 related charges (1) 1.20 Add: Convertible debt (2) 0.06 Net income per diluted share - Non-GAAP Basis $ (0.00 ) (1) $279.8 million of pre-tax impairment, restructuring and COVID-19 related charges, which include: - $249.2 million of asset impairment charges - $26.9 million of incremental COVID-19 related expenses - $3.7 million of restructuring charges including corporate and field severance (2) Amortization of the non-cash discount on the Company's convertible notes Comparison of Fiscal 2021 to Fiscal 2020 Total Net Revenue Total net revenue for Fiscal 2021 increased 33% to $5.011 billion compared to $3.759 billion for Fiscal 2020.
Biggest changeFor the Fiscal Year Ended January 29, 2022 Operating Income Net Income Earnings per Diluted Share GAAP Basis $ 591,065 $ 419,629 $ 2.03 Add: Asset impairment charges (1) 11,944 8,944 0.04 Add: EU license operations reorganization (2) — 8,917 0.04 Add: Convertible debt (3) — 13,867 0.07 Non-GAAP Basis $ 603,009 $ 451,357 $ 2.19 (1) $11.9 million of pre-tax asset impairment charges.
If inventory exceeds customer demand for reasons of style, seasonal adaptation, changes in customer preference, lack of consumer acceptance of fashion items, competition, or if it is determined that the inventory in stock will not sell at its currently ticketed price, additional markdowns may be necessary.
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.
If the carrying value of 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 .
If the carrying value of 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") .
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 , which requires the use of the asset and liability method.
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.
Buying, occupancy and warehousing costs 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.
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.
These 35 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.
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.
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 profit and results of operations. Operating Income — Our management views operating income as a key indicator of our performance.
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.
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.
Deferred tax assets and liabilities are measured using the tax 34 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.
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 it's carrying 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.
Cash Flows (Used for) Provided by Financing Activities During Fiscal 2021, cash used for financing activities consisted primarily of $113.9 million for cash dividends paid at quarterly rates of $0.1375 for the 13 weeks ended May 2, 2021 and $0.18 for the 13 weeks ended July 31, 2021, October 30, 2021, and January 29, 2022 and $24.0 million for the repurchase of common stock from employees for the payment of taxes in connection with vesting of share-based payments, partially offset by $13.1 million of proceeds from stock option exercises.
During Fiscal 2021, cash used for financing activities consisted primarily of $113.9 million for cash dividends paid at quarterly rates of $0.1375 for the 13 weeks ended May 2, 2021 and $0.18 for the 13 weeks ended July 31, 2021, October 30, 2021, and January 29, 2022 and $24.0 million for the repurchase of common stock from employees for the payment of taxes in connection with vesting of share-based payments, partially offset by $13.1 million of net proceeds from stock option exercises.
The calculation of the deferred tax assets and liabilities, as well as the decision to recognize a tax benefit from an uncertain position and to establish a valuation allowance require management to make estimates and assumptions.
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.
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 (loss) income. Our impairment loss calculations require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values.
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.
This financial measure is not based on any standardized methodology prescribed by GAAP and is 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.
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.
There was $16.0 million of share-based payment expense, consisting of both time and performance-based awards, included in gross profit this year. This is compared to $15.9 million of share-based payment expense included in gross profit last year.
There was $16.8 million of share-based payment expense, consisting of both time- and performance-based awards, included in gross profit this year. This is compared to $16.0 million of share-based payment expense included in gross profit last year.
We are monitoring the ongoing developments as COVID-19 vaccines are being distributed and administered, and we will take further actions that are in the best interests of our associates and customers, as needed. For further information about the risks associated with the COVID-19 pandemic, see “Risk Factors” in Part I, Item 1A of this Annual Report.
We are monitoring ongoing developments, and we will take further actions that we believe are in the best interests of our associates and customers, as needed. For further information about the risks associated with the COVID-19 pandemic, see “Risk Factors” in Part I, Item 1A of this Annual Report.
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.
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” of the Notes to the Consolidated Financial Statements included herein.
Net income (loss) per diluted share for Fiscal 2021 was $2.03, which included $18.5 million ($0.07 per diluted share) of pre-tax non-cash interest related to our convertible notes, $11.9 million ($0.04 per diluted share) of pre-tax asset impairment charges, and $11.9 million ($0.04 per diluted share) of reorganization charges related to our EU license operations.
Net income (loss) per diluted share for Fiscal 2021 was $2.03, which included $18.5 million ($0.07 per diluted share) of pre-tax amortization of the non-cash discount on the 2025 Notes, $11.9 million ($0.04 per diluted share) of pre-tax asset impairment charges, and $11.9 million ($0.04 per diluted share) of reorganization charges related to our EU license operations.
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.
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.
The change in net income (loss) was attributable to the factors described above. As a percentage of total net revenue, net income (loss) was 8.4% and (5.6%) for Fiscal 2021 and Fiscal 2020, respectively.
The change in net income was attributable to the factors described above. As a percentage of total net revenue, net income was 2.5% and 8.4% for Fiscal 2022 and Fiscal 2021, respectively.
Critical Accounting Policies and Estimates Discusses accounting policies considered to be important to the Company’s results of operations and financial condition, which typically require significant judgment and estimation on the part of the Company’s management in their application.
Critical Accounting Policies and Estimates Discusses where information may be found about accounting policies and estimates considered to be important to the Company’s consolidated results of operations and financial condition, which typically require significant judgment and estimation on the part of the Company’s management in their application.
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 within this MD&A when we believe they enhance the understanding of the matter being discussed. Investors may find them useful as such.
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.
Refer to Note 2 to the Consolidated Financial Statements for a description of our accounting policy regarding cost of sales, including certain buying, occupancy and warehousing expenses. Selling, General, and Administrative Expenses Selling, general, and administrative expenses increased 25% to $1.222 billion for Fiscal 2021, compared to $977.3 million for Fiscal 2020.
Refer to Note 2 to the Consolidated Financial Statements for a description of our accounting policy regarding cost of sales, including certain buying, occupancy and warehousing expenses. Selling, General, and Administrative Expenses Selling, general, and administrative expenses increased 4% to $1.269 billion for Fiscal 2022, compared to $1.222 billion for Fiscal 2021.
Critical Accounting Policies and Estimates Our Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), which require 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.
Critical Accounting Policies and Estimates Our Consolidated Financial Statements are prepared in accordance GAAP, which require 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.
For Fiscal 2022, we expect capital expenditures to be in the range of $315 million to $335 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.
For Fiscal 2023, we expect capital expenditures to be in the range of $150 million to $200 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 and Quiet Platforms.
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.
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.
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 2021 and Fiscal 2020 and provides year-to-year comparisons between Fiscal 2021 and Fiscal 2020.
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.
There was $22.2 million of share-based payment expense, consisting of time and performance-based awards, included in selling, general, and administrative expenses for Fiscal 2021 compared to $16.8 million for Fiscal 2020.
There was $22.2 million of share-based payment expense, consisting of time and performance-based awards, included in selling, general, and administrative expenses for both Fiscal 2022 and Fiscal 2021.
Cash returned to shareholders through dividends and share repurchases was $113.9 million and $42.9 million in Fiscal 2021 and Fiscal 2020, respectively. Capital Expenditures for Property and Equipment Fiscal 2021 capital expenditures were $233.8 million, compared to $128.0 million in Fiscal 2020.
Cash returned to shareholders through dividends and share repurchases was $264.8 million and $113.9 million in Fiscal 2022 and Fiscal 2021, respectively. Capital Expenditures for Property and Equipment Fiscal 2022 capital expenditures were $260.4 million, compared to $233.8 million in Fiscal 2021.
The decrease was attributable to an $11.9 million reorganization charge related to our EU license operations, partially offset by other changes in non-operating income/expense. Income Taxes The effective income tax rate is 24.9% for Fiscal 2021 compared to an effective income tax benefit rate of 28.4% for Fiscal 2020.
The increase was attributable to an $11.9 million reorganization charge related to our EU license operations last year, partially offset by other changes in non-operating income/expense. Income Taxes The effective income tax rate was 29.9% for Fiscal 2022 compared to an effective income tax rate of 24.9% for Fiscal 2021.
Please see “Non-GAAP Information” below. 36 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.
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.
To determine the fair value of our stock option awards, we use the Black-Scholes option-pricing model, which requires management to apply judgment and make assumptions to determine the fair value of our awards.
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.
Cost of sales consists of merchandise costs, including design, sourcing, importing, and inbound freight costs, as well as markdowns, shrinkage and certain promotional costs (collectively “merchandise costs”) and buying, occupancy and warehousing costs. Design costs consist of compensation, rent, depreciation, travel, supplies, and samples.
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.
As of January 29, 2022, we were in compliance with the terms of the Credit Agreement and had $7.9 million outstanding in stand-by letters of credit. Stock Repurchases During Fiscal 2019, our Board of Directors (our "Board") authorized the repurchase of 30.0 million shares under a new share repurchase program, which expires on February 3, 2024.
As of January 28, 2023, we were in compliance with the terms of the Credit Agreement and had $7.9 million outstanding in stand-by letters of credit. Share Repurchases During Fiscal 2019, our Board authorized the repurchase of 30.0 million shares under a share repurchase program.
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.
“Segment Reporting,” of the Notes to the Consolidated Financial Statements included herein for additional information. 31 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.
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.
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.
Past and future impacts of the COVID-19 pandemic also have the ability to disrupt the operations of our partners, suppliers, and vendors, which could lead to supply chain disruption, shipping delays, and freight cost increases.
COVID-19 Past and future impacts of the COVID-19 pandemic may disrupt the operations of our partners, suppliers, and vendors, which could lead to or exacerbate existing supply chain disruptions, shipping delays, freight cost increases, and labor shortages.
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.
We focused our investments in three key areas: making significant advances in mobile technology, investing in digital marketing and improving the digital customer experience.
Cash Flows Used for Investing Activities Investing activities for Fiscal 2021 included $358.1 million for the acquisition of businesses related to our Supply Chain Platform (net of $3.9 million cash acquired), as well as $233.8 million in capital expenditures for property and equipment.
Investing activities for Fiscal 2021 primarily included $358.1 million for the acquisition of businesses related to Quiet Platforms (net of $3.9 million cash acquired), as well as $233.8 million in capital expenditures for property and equipment. For further information on capital expenditures, refer to Capital Expenditures for Property and Equipment below.
Impairment, Restructuring and COVID-19 Related Charges In Fiscal 2021, the Company recorded asset impairment charges of $11.9 million, primarily related to retail store property and equipment, and operating lease right-of-use ("ROU") assets. During Fiscal 2020, total impairment, restructuring and COVID-19 related charges were $279.8 million. We recorded asset impairment charges of $249.2 million.
In Fiscal 2021, the Company recorded asset impairment charges of $11.9 million, primarily related to retail store property and equipment, and operating lease ROU assets. There were no COVID-19 - Related charges recorded in either period.
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). Results of Operations Overview Fiscal 2021 represented a year of strong execution across our "Real Power.
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). Results of Operations Overview Fiscal 2022 demand was soft, reflecting the impact of inflationary pressure and a related shift in consumer spending patterns.
Discussions of Fiscal 2019 and year-to-year comparisons between Fiscal 2020 and Fiscal 2019 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 January 30, 2021.
This MD&A generally discusses Fiscal 2022 and Fiscal 2021 and provides year-to-year comparisons between Fiscal 2022 and Fiscal 2021. Discussions of Fiscal 2020 and year-to-year comparisons between Fiscal 2021 and Fiscal 2020 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.
Additionally, the Company recognizes revenue on unredeemed gift cards based on an estimate of the amounts that will not be redeemed (“gift card breakage”), determined through historical redemption trends. Gift card breakage revenue is recognized in proportion to actual gift card redemptions as a component of total net revenue.
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. Additionally, the Company recognizes revenue on unredeemed gift cards based on an estimate of the amounts that will not be redeemed (“gift card breakage”), determined through historical redemption trends.
“Summary of Significant Accounting Policies . ” of the Notes to the Consolidated Financial Statements included herein. 32 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.
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.
On an adjusted basis, net income (loss) per diluted share this year was $2.19, compared to last year at ($0.00). Adjusted net income per diluted share this year excludes $0.07 of amortization of the non-cash discount on our convertible notes, $0.04 of asset impairment charges, and $0.04 of reorganization charges related to our European Union ("EU") license operations.
Adjusted net income per diluted share last year excluded $0.07 of amortization of the non-cash discount on our convertible notes, $0.04 of asset impairment charges, and $0.04 of reorganization charges related to our European Union ("EU") license operations. Adjusted net income per diluted share is a non-GAAP financial measure. Please see “Non-GAAP Information” below.
Refer to Note 2, “Summary of Significant Accounting Policies, ” and Note 15, “Income Taxes,” to the Consolidated Financial Statements included herein for additional information regarding our accounting for income taxes. Net Income (Loss) Net income increased $628.9 million to $419.6 million for Fiscal 2021, as compared to a net loss of $209.3 million for Fiscal 2020.
Refer to Note 2, "Summary of Significant Accounting Policies," and Note 15, "Income Taxes," to the Consolidated Financial Statements included herein for additional information regarding our accounting for income taxes. Net Income (Loss) Net income decreased $294.5 million to $125.1 million for Fiscal 2022 from $419.6 million for Fiscal 2021.
The effective income tax rate this year is primarily impacted by nondeductible executive compensation, partially offset by excess tax benefits from share-based payments. Our effective income tax rate is also dependent upon the overall mix of earnings in jurisdictions with different tax rates.
The effective income tax rate this year is primarily impacted by nondeductible executive compensation and the Note Exchanges, as a portion of the induced conversion expense was not deductible. Our effective income tax rate is also dependent upon the overall mix of earnings in jurisdictions with different tax rates.
We also maintain an asset-based revolving credit facility that allows us to borrow up to $400 million, which will expire in January 2024. In April 2020, the Company issued $415 million aggregate principal amount of convertible notes due in 2025 in a private placement to qualified institutional buyers. Interest is payable semi-annually.
We also maintain an asset-based revolving credit facility that allows us to borrow up to $700 million, which will expire in June 2027. In April 2020, the Company issued $415 million aggregate principal amount of convertible senior notes due 2025 (the “2025 Notes”). As of January 28, 2023, approximately $8.8 million aggregate principal amount of the 2025 Notes remain outstanding.
As a percentage of total net revenue, selling, general, and administrative expenses decreased 160 basis points to 24.4%, compared to 26.0% for Fiscal 2020. The increase in expenses for Fiscal 2021 was primarily related to the reopening of our stores, including increased store payroll and variable selling expenses, as well as increased advertising, services and compensation costs.
As a percentage of total net revenue, selling, general, and administrative expenses increased 100 basis points to 25.4%, compared to 24.4% for Fiscal 2021. The increase in expenses was primarily related to increased store wages and corporate compensation, professional services and advertising, partially offset by lower incentive compensation accruals.
In the fourth quarter of Fiscal 2020, we revised our reportable segment structure and 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 "Non-GAAP Information" within Part II.
Our Chief Operating Decision Maker (defined as our CEO) analyzes segment results and allocates resources between segments based on adjusted operating income (loss), which is a non-GAAP financial measure. See "Non-GAAP Information" within Part II. Item 7- Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 16.
Additionally, we continued to support our infrastructure growth by investing in information technology initiatives ($83.5 million), e-commerce ($19.4 million) and other home office projects ($10.9 million).
Additionally, we continued to support our infrastructure growth by investing in information technology initiatives ($70.0 million), Quiet Platforms ($26.0 million), our supply chain infrastructure ($13.4 million), and other home office projects ($2.4 million).
For the Fiscal Years Ended January 29, January 30, February 1, 2022 2021 2020 Total net revenue 100.0 % 100.0 % 100.0 % Cost of sales, including certain buying, occupancy and warehousing expenses 60.3 69.5 64.7 Gross profit 39.7 30.5 35.3 Selling, general and administrative expenses 24.4 26.0 23.9 Impairment, restructuring and COVID-19 related charges 0.2 7.4 1.9 Depreciation and amortization expense 3.3 4.3 4.1 Operating (loss) income 11.8 (7.2 ) 5.4 Interest expense (income), net 0.7 0.7 (0.2 ) Other income, net (0.1 ) (0.1 ) (0.1 ) (Loss) income before income taxes 11.2 (7.8 ) 5.7 (Benefit) provision for income taxes 2.8 (2.2 ) 1.3 Net (loss) income 8.4 % (5.6 ) % 4.4 % Business Acquisitions On December 29, 2021, we completed the acquisition of Quiet Logistics, and certain other strategic investments (the "Transaction") pursuant to a Stock Purchase Agreement, dated as of November 1, 2021.
For the Fiscal Years Ended January 28, January 29, January 30, 2023 2022 2021 Total net revenue 100.0 % 100.0 % 100.0 % Cost of sales, including certain buying, occupancy and warehousing expenses 65.0 60.3 69.5 Gross profit 35.0 39.7 30.5 Selling, general and administrative expenses 25.4 24.4 26.0 Impairment, restructuring and COVID-19 – related charges 0.4 0.2 7.4 Depreciation and amortization expense 4.2 3.3 4.3 Operating income (loss) 5.0 11.8 (7.2 ) Debt-related charges 1.3 — — Interest expense, net 0.3 0.7 0.7 Other income, net (0.2 ) (0.1 ) (0.1 ) Income (loss) before income taxes 3.6 11.2 (7.8 ) Provision (benefit) for income taxes 1.1 2.8 (2.2 ) Net income (loss) 2.5 % 8.4 % (5.6 ) % 35 Non-GAAP Information This Results of Operations section contains operating income, net income and net income per diluted share presented on a non-GAAP basis, which are non-GAAP financial measures (“non-GAAP” or “adjusted”).
As a percentage of total net revenue, depreciation and amortization expense was 3.3% compared to 4.3% in Fiscal 2020. 39 Interest Expense, Net Interest expense, net increased $10.0 million to $34.6 million for Fiscal 2021, compared to $24.6 million for Fiscal 2020.
Depreciation and Amortization Expense Depreciation and amortization expense increased 24% to $206.9 million for Fiscal 2022 from $166.8 million for Fiscal 2021, driven by increased capital spending in Fiscal 2022. As a percentage of total net revenue, depreciation and amortization expense was 4.2% compared to 3.3% in Fiscal 2021.
These shares were repurchased for the payment of taxes in connection with the vesting of share-based payments, as permitted under our equity incentive plans. The aforementioned share repurchases have been recorded as treasury stock. Dividends Dividends are disclosed in Part II. Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities.
The aforementioned share repurchases have been recorded as treasury stock. Dividends Dividends are disclosed in Part II. Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities. Recent Accounting Pronouncements Recent accounting pronouncements are disclosed in Note 2 of the Consolidated Financial Statements. 40
In accordance with ASC 360, Property, Plant, and Equipment (“ASC 360”), we evaluate the value of leasehold improvements, store fixtures, and operating lease right-of-use ("ROU") assets associated with retail stores. 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.
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 right-of-use ("ROU") assets associated with retail stores.
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.
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.
We expect to be able to fund our capital expenditures through current cash holdings and cash generated from operations. 41 Credit Facilities In January 2019, we entered into a credit agreement (“Credit Agreement”) for five-year, syndicated, asset-based revolving credit facilities (the “Credit Facilities”).
We expect to be able to fund our capital expenditures through current cash holdings and cash generated from operations. Revolving Credit Facility In June 2022, we entered into an amended and restated credit agreement (the "Credit Agreement").
Fiscal 2021 expenditures included $120.0 million related to investments in our stores, including 103 new AEO stores (23 American Eagle stores, 74 Aerie stand-alone stores (including 16 OFFLINE stores), three Unsubscribed stores and three Todd Snyder stores, 22 remodeled and refurbished stores, and fixtures and visual investments.
Fiscal 2022 expenditures included $148.5 million related to investments in our stores, including 87 new AEO stores (25 American Eagle stores, 56 combined Aerie stand-alone stores and OFFLINE™ stand-alone stores, five Todd Snyder stores, and one Unsubscribed store), and fixtures and visual investments.
Liquidity and Capital Resources Discussion of the Company’s financial condition and changes in financial condition and liquidity for Fiscal 2021 and Fiscal 2020. Non-GAAP Financial Measures Discussion of certain financial measures that have been determined to not be in accordance with accounting principles generally accepted in the U.S. (“GAAP”).
Results of Operations Provides an analysis of certain components of the Company’s Consolidated Statements of Operations for Fiscal 2022 as compared to Fiscal 2021. Non-GAAP Information Discussion of certain financial measures that have been determined to not be in accordance with accounting principles generally accepted in the United States (“GAAP”).
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. Merchandise Inventory. Merchandise inventory is valued at the lower of average cost or net realizable value, utilizing the retail method.
Gift card breakage revenue is recognized in proportion to actual gift card redemptions as a component of total net revenue. The Company recognizes royalty revenue generated from its license or franchise agreements based upon a percentage of merchandise sales by the licensee/franchisee.
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.
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.
Introduction This MD&A is organized as follows: Executive Overview General description of the Company’s business and certain segment information. Key Performance Indicators Overview of key performance indicators reviewed by management to gauge the Company’s results. Current Trends and Outlook Discussion related to the COVID-19 pandemic ’s impact on the Company’s business and the Company’s long-term plans for growth.
Item 7 of our annual report on Form 10-K for the fiscal year ended January 29, 2022. Introduction This MD&A is organized as follows: Executive Overview General description of the Company’s business and certain segment information. Key Performance Indicators Overview of key performance indicators reviewed by management to gauge the Company’s results.
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. No definite-lived intangible asset impairment charges were recorded for all periods presented.
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.
Omni-Channel and Digital Capabilities We sell merchandise through our digital channels, www.ae.com, www.aerie.com, www.toddsnyder.com, www.unsubscribed.com, and our AEO apps, both domestically and internationally in 81 countries. We also sell merchandise on various international online marketplaces. The digital channels reinforce each particular brand platform and are designed to complement the in-store experience.
We also sell merchandise on various international online marketplaces. The digital channels reinforce each particular brand and are designed to complement the in-store experience. Over the past several years, we have invested in building our technologies and digital capabilities.
We expect to be able to fund our future cash requirements through current cash holdings and available liquidity. 40 The following sets forth certain measures of our liquidity: January 29, January 30, 2022 2021 Working Capital (in thousands) $ 554,053 $ 664,161 Current Ratio 1.66 1.77 Working capital as of January 29, 2022 decreased $110.1 million compared to January 30, 2021.
The following sets forth certain measures of our liquidity: January 28, January 29, 2023 2022 Working Capital (in thousands) $ 331,293 $ 554,053 Current Ratio 1.43 1.66 Working capital as of January 28, 2023 decreased $222.8 million compared to January 29, 2022.
Cash Flow and Liquidity — Our management evaluates cash flow from operations, 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.
The key drivers of operating income are net revenue, gross profit, our ability to control 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 Flows Provided by Operating Activities Net cash provided by operating activities totaled $303.7 million during Fiscal 2021, compared to $202.5 million during Fiscal 2020. For both periods, 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.
For both periods, 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. 38 Cash Flows Used for Investing Activities Investing activities for Fiscal 2022 primarily consisted of $260.4 million in capital expenditures for property and equipment.
The increase in expense was primarily attributable to increased non-cash interest expense related to our convertible notes and lower interest income this year, partially offset by no interest expense incurred for borrowings on our revolving credit facilities in Fiscal 2021. Other Income, Net Other income was $2.5 million for Fiscal 2021, compared to $3.7 million for Fiscal 2020.
The decrease in expense was primarily attributable to the adoption of ASU 2020-06 on January 30, 2022 which reduced non-cash interest expense related to amortization of the non-cash discount on our 2025 Notes and the Note Exchanges, which reduced the aggregate principal amount of the 2025 Notes by $403.2 million, partially offset by $5.9 million of interest expense from borrowings under our Credit Facility in Fiscal 2022. 37 Other Income, Net Other income was $10.5 million for Fiscal 2022, compared to $2.5 million for Fiscal 2021.
The Credit Agreement provides senior secured revolving credit for loans and letters of credit up to $400 million, subject to customary borrowing base limitations. The Credit Facilities provide increased financial flexibility and take advantage of a favorable credit environment. All obligations under the Credit Facilities are unconditionally guaranteed by certain subsidiaries.
Before amendment and restatement, the Company's previous credit agreement provided senior secured asset-based revolving credit for loans and letters of credit up to $400 million and was scheduled to expire on January 30, 2024. All obligations under the Credit Facilities are unconditionally guaranteed by certain subsidiaries.
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.
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.
Net income (loss) per diluted share for Fiscal 2020 was ($1.26), which included $279.8 million ($1.20 per diluted share) of pre-tax impairment, restructuring, and COVID-19 related charges and $12.3 million ($0.06 per diluted share) of pre-tax non-cash interest related to our convertible notes.
Net income (loss) per diluted share for Fiscal 2022 was $0.64, which included $64.7 million ($0.24 per diluted share) of debt-related charges and $22.2 million ($0.09 per diluted share) of pre-tax impairment and restructuring charges.
Aerie Total net revenue for Fiscal 2021 for the Aerie brand was $1.376 billion compared to $990.0 million for Fiscal 2020 with average unit retail price increasing in the low twenties. Gross Profit Gross profit increased 73% to $1.992 billion for Fiscal 2021 from $1.148 billion for Fiscal 2020.
Aerie Total net revenue for Fiscal 2022 for the Aerie brand was $1.507 billion compared to $1.376 billion for Fiscal 2021. For Fiscal 2022, Aerie brand comparable sales decreased 3% compared to a 27% increase in Fiscal 2021. 36 Gross Profit Gross profit decreased 12% to $1.745 billion for Fiscal 2022 from $1.992 billion for Fiscal 2021.
The largest decrease came from lower cash and cash equivalents of $415.7 million, primarily related to the acquisition of our Supply Chain Platform totaling $358.1 million (net of $3.9 million cash acquired). This was partially offset by a $148.0 million increase in merchandise inventory and a $140.6 million increase in accounts receivable.
The decrease came from lower cash and cash equivalents of $264.6 million and lower accounts receivable, net of $44.3 million. This was partially offset by an $89.9 million decrease in accrued compensation and payroll taxes.
In addition, this section also provides a summary of the Company’s performance over Fiscal 2021 and Fiscal 2020. Results of Operations Provides an analysis of certain components of the Company’s Consolidated Statements of Operations for Fiscal 2021 as compared to Fiscal 2020.
Current Trends and Outlook Discussion of trends and uncertainties facing the Company, including those related to inflation, recent acquisitions and the Company's long-term plans for growth. In addition, this section also provides a summary of the Company’s performance over Fiscal 2022 and Fiscal 2021.
Our management believes that cash flow will be sufficient to fund anticipated capital expenditures, dividends, and working capital requirements for the next twelve months and beyond. 33 Current Trends and Outlook COVID-19 The ongoing COVID-19 pandemic remains highly volatile and continues to evolve on a daily basis, and we continue to see disruptions and volatility in our business caused by the COVID-19 pandemic.
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.
The remaining shares that may yet be repurchased under this authorization expired on January 30, 2021. During both Fiscal 2021 and Fiscal 2020, we repurchased approximately 0.8 million and 0.4 million shares, respectively from certain employees at market prices totaling $24.0 million and $5.4 million, respectively.
During Fiscal 2022 and Fiscal 2021, we repurchased approximately 0.6 million and 0.8 million shares, respectively, from certain employees at market prices totaling $9.8 million and $24.0 million, respectively. These shares were repurchased for the payment of taxes in connection with the vesting of share-based payments, as permitted under our equity incentive plans.
Quiet Logistics Acquisition and Supply Chain Platform On December 29, 2021, the Company completed the acquisition of Quiet Logistics. With this acquisition, the Company expects to be able to execute on operational efficiencies to create a supply chain platform with significant long-term growth potential.
With these acquisitions, the Company expects to be able to execute on operational efficiencies to create a supply chain platform, which we refer to as Quiet Platforms, with significant long-term growth potential. Omni-Channel and Digital Capabilities We sell merchandise through our digital channels, www.ae.com, www.aerie.com, www.toddsnyder.com, www.unsubscribed.com, and our AEO apps, both domestically and internationally in approximately 80 countries.
Included in this amount are retail store impairment charges of $203.2 million, of which $154.8 million related to operating lease ROU assets and $48.4 million related to store property and equipment (fixtures and equipment and leasehold improvements).
Impairment, Restructuring and COVID-19 Related Charges In Fiscal 2022, the Company recorded $22.2 million of impairment and restructuring charges including asset impairment charges of $20.6 million, primarily related to retail store property and equipment, and operating lease ROU assets as well as $1.6 million of restructuring severance.
Removed
Item 7- Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 16. “Segment Reporting,” of the Notes to the Consolidated Financial Statements included herein for additional information.
Added
Liquidity and Capital Resources Discussion of the Company’s financial condition and changes in financial condition and liquidity for Fiscal 2022 and Fiscal 2021.
Removed
In light of store closures and related disruptions from the COVID-19 pandemic, we have not disclosed comparable sales for Fiscal 2021 or Fiscal 2020, as they are not comparable with prior periods.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThis is primarily related to the strengthening of the US dollar during the 26 weeks ended July 31, 2021, offset by the decline in the US dollar to Mexican peso and US dollar to Canadian dollar exchange rates during the 26 weeks ended January 29, 2022. This sensitivity analysis has inherent limitations.
Biggest changeAn unrealized gain of $8.2 million is included in accumulated other comprehensive loss as of January 28, 2023. This is primarily related to the fluctuations of the U.S. dollar to Mexican peso and US dollar to Canadian dollar exchange rates. This sensitivity analysis has inherent limitations.
Foreign Exchange Rate Risk We are primarily exposed to the impact of foreign exchange rate risk primarily through our Canadian and Mexican operations where the functional currency is the Canadian dollar and Mexican peso, respectively. The impact of all other foreign currencies is currently immaterial to our consolidated financial results.
Foreign Exchange Rate Risk We are exposed to the impact of foreign exchange rate risk primarily through our Canadian and Mexican operations where the functional currency is the Canadian dollar and Mexican peso, respectively. The impact of all other foreign currencies is currently immaterial to our consolidated financial results.
We have estimated our market risk exposure using sensitivity analysis. To test the sensitivity of our market risk exposure, we have estimated the changes in fair value of market risk sensitive instruments assuming a hypothetical 10 percent adverse change in market prices or rates. The results of the sensitivity analyses are summarized below.
We have estimated our market risk exposure using sensitivity analysis. To test the sensitivity of our market risk exposure, we have estimated the changes in fair value of market risk sensitive instruments assuming a hypothetical 10% adverse change in market prices or rates. The results of the sensitivity analyses are summarized below.
We do not utilize hedging instruments to mitigate foreign currency exchange risks. A hypothetical 10% movement in the Canadian dollar and Mexican peso exchange rate could result in a $17.9 million foreign currency translation fluctuation, which would be recorded in accumulated other comprehensive income in the Consolidated Balance Sheets.
We do not utilize hedging instruments to mitigate foreign currency exchange risks. A hypothetical 10% movement in the Canadian dollar and Mexican peso exchange rate could result in a $23.3 million foreign currency translation fluctuation, which would be recorded in accumulated other comprehensive income in the Consolidated Balance Sheets.
The analysis disregards the possibility that rates of multiple foreign currencies will not always move in the same direction relative to the value of the US dollar over time. 44
The analysis disregards the possibility that rates of multiple foreign currencies will not always move in the same direction relative to the value of the U.S. dollar over time. 41
Removed
An unrealized loss of $0.1 million is included in accumulated other comprehensive loss as of January 29, 2022.

Other AEO 10-K year-over-year comparisons