Aerie and OFFLINE are becoming AEO’s principal growth engines, while American Eagle remains comparatively soft and underlying merchandise margins face tariff pressure.
AEO Inc. reported record second-quarter revenue of $1.38 billion, up 8% year on year, as comparable sales increased 6%, powered by rapid growth at its Aerie and OFFLINE businesses.
For the quarter ended August 1, Aerie comparable sales jumped 19%, while combined Aerie and OFFLINE revenue increased 25%. By contrast, comparable sales at the core American Eagle brand declined 1%, although management said men’s delivered a fourth consecutive quarter of growth.
Aerie changes the portfolio mix
The divergence between brands is increasingly important for suppliers. Aerie’s momentum strengthens demand in intimates, activewear, loungewear and performance-oriented apparel, while American Eagle still needs greater consistency, particularly in women’s.
AEO CEO Jay Schottenstein said the company plans to continue expanding Aerie while accelerating improvement at American Eagle during the second half.
Tariff refunds inflate headline margins
Gross profit climbed 34% to $672 million, lifting gross margin 980 basis points to 48.7%. However, the quarter included a $179 million tariff-refund benefit, which alone added 1,300 basis points to gross margin.
Underlying merchandise margins actually deleveraged 330 basis points, with improvement at Aerie offset by pressure at American Eagle. Operating income reached $211 million, but included a net $161 million benefit from IEEPA tariff refunds.
This distinction matters: the headline profitability improvement significantly overstates the underlying operational margin trend.
Inventories require watching
Inventory at cost increased 14%, while units rose 9%. AEO said it will rebalance inventory between brands and categories through the remainder of the year.
For fiscal 2026, AEO now expects mid-single-digit comparable-sales growth and operating income of $540–550 million, including tariff refunds. Third-quarter comparable sales are projected to rise by mid-to-high single digits.
For apparel suppliers, AEO’s results point to stronger opportunities around Aerie and OFFLINE but continued purchasing discipline elsewhere. The key indicators will be whether Aerie can sustain near-20% comparable growth and whether rising inventories convert into sell-through rather than heavier promotional activity.
