Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: ~~167,716,802~~168,596,724 Common Shares were outstanding at ~~May 28,~~August 30, 2021.

This Quarterly Report on Form 10-Q contains “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are based on the views and beliefs of management, as well as assumptions and estimates made by management. Actual results could differ materially from such forward-looking statements as a result of various risk factors, including those that may not be in the control of management. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. Words such as “estimate,” “project,” “plan,” “believe,” “expect,” “anticipate,” “intend,” “potential,” and similar expressions may identify forward-looking statements. Our forward-looking statements include, but are not limited to, statements about:

Our forward-looking statements surrounding the ~~novel strain of~~ coronavirus (COVID-19) pandemic include, but are not limited to, statements about:

Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, without limitation, the following:

	May 1,			January 30,			May 2,			July 31,			January 30,			August 1,
(In thousands, except per share amounts)	2021			2021			2020			2021			2021			2020
	(Unaudited)						(Unaudited)			(Unaudited)						(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	716,679		$	850,477		$	855,769		$	773,994		$	850,477		$	898,787
Short-term investments		75,000			—			29,956			50,000			—			—
Merchandise inventory		466,698			405,445			421,729			503,507			405,445			421,196
Accounts receivable, net		149,056			146,102			106,751			155,361			146,102			107,243
Prepaid expenses and other		88,347			120,619			144,733			118,721			120,619			155,141
Total current assets		1,495,780			1,522,643			1,558,938			1,601,583			1,522,643			1,582,367
Property and equipment, at cost, net of accumulated depreciation		627,967			623,808			667,258			641,396			623,808			659,351
Operating lease right-of-use assets		1,130,743			1,155,965			1,292,769			1,103,247			1,155,965			1,271,491
Intangible assets net, including goodwill		69,696			70,332			51,973			70,620			70,332			51,432
Non-current deferred income taxes		45,995			33,045			25,612			46,600			33,045			30,224
Other Assets		30,485			29,013			33,561
Other assets											31,576			29,013			33,111
Total assets	$	3,400,666		$	3,434,806		$	3,630,111		$	3,495,022		$	3,434,806		$	3,627,976
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	231,932		$	255,912		$	177,124		$	221,471		$	255,912		$	295,296
Current portion of operating lease liabilities		297,561			328,624			328,366			288,534			328,624			348,921
Accrued compensation and payroll taxes		87,488			142,272			21,622			133,185			142,272			66,131
Other current liabilities and accrued expenses		56,498			55,343			61,451			56,568			55,343			51,281
Unredeemed gift cards and gift certificates		50,754			62,181			48,503			44,095			62,181			43,165
Accrued income and other taxes		20,250			14,150			2,405			25,365			14,150			12,783
Dividends payable		-			-			22,756			—			—			22,837
Total current liabilities		744,483			858,482			662,227			769,218			858,482			840,414
Non-current liabilities:
Non-current operating lease liabilities		1,126,165			1,148,742			1,303,296			1,094,386			1,148,742			1,253,105
Long-term debt, net		329,718			325,290			642,972			331,680			325,290			516,953
Other non-current liabilities		24,737			15,627			24,633			24,207			15,627			19,604
Total non-current liabilities		1,480,620			1,489,659			1,970,901			1,450,273			1,489,659			1,789,662
Commitments and contingencies		—			—			—			—			—			—
Stockholders’ equity:
Preferred stock, $0.01 par value; 5,000 shares authorized; NaN issued and outstanding		—			—			—			—			—			—
Common stock, $0.01 par value; 600,000 shares authorized; 249,566 shares issued; 167,671, 166,335, and 165,500 shares outstanding, respectively		2,496			2,496			2,496
Common stock, $0.01 par value; 600,000 shares authorized; 249,566 shares issued; 168,454, 166,335, and 166,090 shares outstanding, respectively											2,496			2,496			2,496
Contributed capital		648,434			663,718			646,350			630,506			663,718			647,284
Accumulated other comprehensive loss		(37,810	)		(40,748	)		(55,050	)		(36,894	)		(40,748	)		(47,991	)
Retained earnings		1,951,496			1,868,613			1,826,413			2,058,448			1,868,613			1,807,687
Treasury stock, 81,895, 83,231, and 84,066 shares, respectively		(1,389,053	)		(1,407,414	)		(1,423,226	)
Treasury stock, 81,112, 83,231, and 83,476 shares, respectively											(1,379,025	)		(1,407,414	)		(1,411,576	)
Total stockholders’ equity		1,175,563			1,086,665			996,983			1,275,531			1,086,665			997,900
Total liabilities and stockholders’ equity	$	3,400,666		$	3,434,806		$	3,630,111		$	3,495,022		$	3,434,806		$	3,627,976

	13 Weeks Ended						13 Weeks Ended						26 Weeks Ended
	May 1,			May 2,			July 31,			August 1,			July 31,			August 1,
(In thousands, except per share amounts)	2021			2020			2021			2020			2021			2020
Total net revenue	$	1,034,614		$	551,692		$	1,194,156		$	883,510		$	2,228,769		$	1,435,202
Cost of sales, including certain buying, occupancy and warehousing expenses		598,424			523,386			691,765			618,311			1,290,188			1,141,697
Gross profit		436,190			28,306			502,391			265,199			938,581			293,505
Selling, general and administrative expenses		264,492			188,197			293,939			223,711			558,430			411,908
Impairment and restructuring charges		—			155,619
Impairment, restructuring and COVID-19 related charges								—			14,611			—			170,231
Depreciation and amortization expense		38,271			42,730			40,456			39,114			78,727			81,844
Operating income (loss)		133,427			(358,240	)		167,996			(12,237	)		301,424			(370,478	)
Interest expense, net		8,506			146			8,921			8,547			17,426			8,693
Other (income) expense, net		(1,860	)		2,983			(1,363	)		(1,554	)		(3,223	)		1,429
Income (loss) before income taxes		126,781			(361,369	)		160,438			(19,230	)		287,221			(380,600	)
Provision (benefit) for income taxes		31,318			(104,207	)		38,927			(5,478	)		70,244			(109,685	)
Net income (loss)		95,463			(257,162	)	$	121,511		$	(13,752	)	$	216,977		$	(270,915	)

Net income (loss) per basic share	$	0.57		$	(1.54	)	$	0.73		$	(0.08	)	$	1.29		$	(1.63	)
Net income (loss) per diluted share	$	0.46		$	(1.54	)	$	0.58		$	(0.08	)	$	1.04		$	(1.63	)



Weighted average common shares outstanding - basic		167,257			166,781			167,491			166,315			168,036			166,461
Weighted average common shares outstanding - diluted		206,562			166,781			208,933			166,315			208,400			166,461

	13 Weeks Ended					13 Weeks Ended					26 Weeks Ended
	May 1,		May 2,			July 31,		August 1,			July 31,		August 1,
(In thousands)	2021		2020			2021		2020			2021		2020
Net income (loss)	$	95,463	$	(257,162	)	$	121,511	$	(13,752	)	$	216,977	$	(270,915	)
Other comprehensive income (loss):
Foreign currency translation adjustments		2,938		(21,882	)		916		7,059			3,854		(14,823	)
Other comprehensive income (loss):		2,938		(21,882	)		916		7,059			3,854		(14,823	)
Comprehensive income (loss)	$	98,401	$	(279,044	)	$	122,427	$	(6,693	)	$	220,831	$	(285,738	)

13 Weeks Ended July 31, 2021 and August 1, 2020																					13 Weeks Ended July 31, 2021 and August 1, 2020

(In thousands, except per share amounts)																						Shares Outstanding			Common Stock		Contributed Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive (Loss)			Stockholders' Equity
Balance at May 2, 2020																							165,500		$	2,496	$	646,350		$	1,826,413		$	(1,423,226	)	$	(55,050	)	$	996,983
Stock awards																							—			—		11,436			—			—			—			11,436
Repurchase of common stock from employees																							(322	)		—		—			—			(3,785	)		—			(3,785	)
Reissuance of treasury stock																							912			—		(10,624	)		(4,893	)		15,435			—			(82	)
Net loss																							—			—		—			(13,752	)		—			—			(13,752	)
Other comprehensive income																							—			—		—			—			—			7,059			7,059
Cash dividends declared and dividend equivalents ($0.1375 per share)																							—			—		122			(81	)		—			—			41
Balance at August 1, 2020																							166,090		$	2,496	$	647,284		$	1,807,687		$	(1,411,576	)	$	(47,991	)	$	997,900

Balance at May 1, 2021																							167,671		$	2,496	$	648,434		$	1,951,496		$	(1,389,053	)	$	(37,810	)	$	1,175,563
Stock awards																							—			—		8,901			—			—			—			8,901
Repurchase of common stock from employees																							(195	)		—		—			—			(6,567	)		—			(6,567	)
Reissuance of treasury stock																							631			—		(17,770	)		9,580			10,696			—			2,506
Equity portion of partial extinguishment of Convertible Senior Notes, net of tax																							347			—		(9,876	)		6,995			5,899						3,018
Net income																							—			—		—			121,511			—			—			121,511
Other comprehensive income																							—			—		—			—			—			916			916
Cash dividends declared and dividend equivalents ($0.1800 per share)																							—			—		817			(31,134	)		—			—			(30,317	)
Balance at July 31, 2021																							168,454		$	2,496	$	630,506		$	2,058,448		$	(1,379,025	)	$	(36,894	)	$	1,275,531

26 Weeks Ended July 31, 2021 and August 1, 2020																					26 Weeks Ended July 31, 2021 and August 1, 2020

(In thousands, except per share amounts)	Shares Outstanding			Common Stock		Contributed Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive (Loss)			Stockholders' Equity				Shares Outstanding			Common Stock		Contributed Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive (Loss)			Stockholders' Equity
Balance at February 1, 2020		166,993		$	2,496	$	577,856		$	2,108,292		$	(1,407,623	)	$	(33,168	)	$	1,247,853				166,993		$	2,496	$	577,856		$	2,108,292		$	(1,407,623	)	$	(33,168	)	$	1,247,853
Stock awards		—			—		3,919			—			—			—			3,919				—			—		15,354			—			—			—			15,354
Repurchase of common stock as part of publicly announced programs		(1,720	)		—		—			—			(20,000	)		—			(20,000	)			(1,720	)		—		—			—			(20,000	)		—			(20,000	)
Repurchase of common stock from employees		(115	)		—		—			—			(1,430	)		—			(1,430	)			(436	)		—		—			—			(5,215	)		—			(5,215	)
Convertible Notes- Equity portion, net of tax		—			—		68,330			—			-			—			68,330
Convertible Senior Notes - Equity portion, net of tax																							—			—		68,330			—			—			—			68,330
Reissuance of treasury stock		342			—		(4,165	)		(1,961	)		5,827			—			(299	)			1,253			—		(14,788	)		(6,853	)		21,262			—			(379	)
Net loss		—			—		—			(257,162	)		—			—			(257,162	)			—			—		—			(270,915	)		—			—			(270,915	)
Other comprehensive (loss)		—			—		—			—			—			(21,882	)		(21,882	)			—			—		—			—			—			(14,823	)		(14,823	)
Cash dividends declared and dividend equivalents ($0.1375 per share)		—			—		410			(22,756	)		—			—			(22,346	)			—			—		532			(22,837	)		—			—			(22,305	)
Balance at May 2, 2020		165,500		$	2,496	$	646,350		$	1,826,413		$	(1,423,226	)	$	(55,050	)	$	996,983
Balance at August 1, 2020																							166,090		$	2,496	$	647,284		$	1,807,687		$	(1,411,576	)	$	(47,991	)	$	997,900

Balance at January 30, 2021		166,335		$	2,496	$	663,718		$	1,868,613		$	(1,407,414	)	$	(40,748	)	$	1,086,665				166,335		$	2,496	$	663,718		$	1,868,613		$	(1,407,414	)	$	(40,748	)	$	1,086,665
Stock awards		—			—		12,553			—			—			—			12,553				—			—		21,454			—			—			—			21,454
Repurchase of common stock from employees		(396	)		—		—			—			(10,944	)		—			(10,944	)			(591	)		—		—			—			(17,511	)		—			(17,511	)
Reissuance of treasury stock		1,732			—		(28,515	)		11,020			29,305			—			11,810				2,363			—		(46,285	)		20,597			40,001			—			14,313
Equity portion of partial extinguishment of Convertible Senior Notes, net of tax																							347			—		(9,876	)		6,995			5,899			—			3,018
Net income		—			—		—			95,463			—			—			95,463				—			—		—			216,977			—			—			216,977
Other comprehensive income		—			—		—			—			—			2,938			2,938				—			—		—			—			—			3,854			3,854
Cash dividends declared and dividend equivalents ($0.1375 per share)		—			—		678			(23,600	)		—			—			(22,922	)
Balance at May 1, 2021		167,671		$	2,496	$	648,434		$	1,951,496		$	(1,389,053	)	$	(37,810	)	$	1,175,563
Cash dividends declared and dividend equivalents ($0.3175 per share)																							—			—		1,495			(54,734	)		—			—			(53,239	)
Balance at July 31, 2021																							168,454		$	2,496	$	630,506		$	2,058,448		$	(1,379,025	)	$	(36,894	)	$	1,275,531

	13 Weeks Ended						26 Weeks Ended
	May 1,			May 2,			July 31,			August 1,
(In thousands)	2021			2020			2021			2020
Operating activities:
Net income (loss)	$	95,463		$	(257,162	)	$	216,977		$	(270,915	)
Adjustments to reconcile net income to net cash from operating activities:
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation and amortization		39,297			43,419			80,822			83,305
Share-based compensation		12,618			4,101			21,570			15,654
Deferred income taxes		(16,434	)		(791	)		(17,108	)		(5,437	)
Loss on impairment of assets		—			153,617			—			153,617
Changes in assets and liabilities:
Merchandise inventory		(59,770	)		18,134			(96,439	)		22,119
Operating lease assets		77,296			106,627			145,537			142,564
Operating lease liabilities		(106,319	)		(20,597	)		(187,602	)		(70,831	)
Other assets		24,657			(87,575	)		(13,736	)		(94,433	)
Accounts payable		(25,056	)		(109,482	)		(35,628	)		8,591
Accrued compensation and payroll taxes		(54,810	)		(21,598	)		(9,132	)		22,797
Accrued and other liabilities		13,485			(38,587	)		16,626			(43,450	)
Net cash provided by (used for) operating activities		427			(209,894	)		121,887			(36,419	)
Investing activities:
Capital expenditures for property and equipment		(36,806	)		(33,910	)		(86,205	)		(61,402	)
Purchase of available-for-sale investments		(75,000	)		(14,956	)		(75,000	)		(14,956	)
Sale of available-for-sale investments		—			40,000			25,000			69,956
Other investing activities		(381	)		(191	)		(4,199	)		(372	)
Net cash (used for) investing activities		(112,187	)		(9,057	)		(140,404	)		(6,774	)
Financing activities:
Repurchase of common stock as part of publicly announced programs		—			(20,000	)		—			(20,000	)
Repurchase of common stock from employees		(10,944	)		(1,430	)		(17,511	)		(5,215	)
Proceeds from convertible senior notes, net		—			406,108
Proceeds from revolving credit facilities		—			330,000
Proceeds from revolving line of credit and convertible senior notes								—			736,108
Principal payments on revolving line of credit								—			(130,000	)
Net proceeds from stock options exercised		12,086			—			13,065			—
Cash dividends paid		(22,922	)		—			(53,239	)		—
Other financing activities		(345	)		(107	)		(368	)		(682	)
Net cash (used for) provided by financing activities		(22,125	)		714,571			(58,053	)		580,211
Effect of exchange rates changes on cash		87			(1,781	)		87			(161	)
Net change in cash and cash equivalents		(133,798	)		493,839			(76,483	)		536,857
Cash and cash equivalents - beginning of period		850,477			361,930			850,477			361,930
Cash and cash equivalents - end of period	$	716,679		$	855,769		$	773,994		$	898,787

The accompanying Consolidated Financial Statements of American Eagle Outfitters, Inc. (the “Company, ~~“we”,~~” “we,” ”us,” and “our”) at ~~May 1,~~July 31, 2021 and ~~May 2,~~August 1, 2020 and for the ~~13 week~~13- and 26-week periods ended ~~May 1,~~July 31, 2021 and ~~May 2,~~August 1, 2020 have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Certain notes and other information have been condensed or omitted from the interim Consolidated Financial Statements presented in this Quarterly Report on Form 10-Q. Therefore, these Consolidated Financial Statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended January 30, 2021 filed with the Securities and Exchange Commission (the “SEC”) on March 11, 2021 (the “Fiscal 2020 Form 10-K”). In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments and those described in the footnotes that follow) considered necessary for a fair presentation have been included. The existence of subsequent events has been evaluated through the filing date of this Quarterly Report on Form 10-Q.

~~The~~Founded in 1977, the Company is a leading multi-brand, global specialty retailer that operates under the American Eagle^® (“AEAE” or ~~American~~“American Eagle”) and Aerie^®(“Aerie”) ~~brands~~brands. The Aerie brand includes OFFLINE^TM by Aerie, a new sub-brand offering a complete collection of active wear and accessories built for REAL movement and REAL comfort launched in Fiscal 2020 (as defined below). ~~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.~~

We also operate Todd Snyder New York, a premium menswear brand, and Unsubscribed, (aa new brand with a focus on consciously-made, slow fashion launched in Fiscal ~~2020).~~2020.

We offer a broad assortment of high quality, on-trend apparel, accessories, and personal care products at affordable prices for men and women under the AE brand, and intimates, apparel, active wear, and swim collections under the Aerie brand. We sell directly to consumers through our retail channel, which includes our stores and concession-based shop-within-shops. 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.

~~Founded in 1977, the~~The Company ~~is a leading multi-brand specialty retailer that~~ operates more than 1,000 retail stores in the U.S. and internationally, online at www.ae.com and www.aerie.com, as well www.toddsnyder.comand ~~www.toddsnyder.com~~www.unsubscribed.com (which e-commerce operations we collectively refer to as “AEO Direct”), and more than 200 international store locations managed by third-party operators.

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. Our quarterly results of operations also may fluctuate based upon such factors as the timing of certain holiday seasons, the number and timing of new store openings, the acceptability of seasonal merchandise offerings, the timing and level of markdowns, store closings and remodels, competitive factors, weather and general economic and political conditions. During Fiscal 2020, historic seasonal trends were impacted by consumer behavior due to the ~~novel~~ coronavirus ~~global pandemic~~ (“COVID-19”). global pandemic.

Impacts related to the COVID-19 pandemic have been significantly negative for the retail industry, our Company, our customers, and our associates. 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 of our stores and furlough of our associates. During Fiscal 2021 and Fiscal 2020, while stores were impacted by negative mall traffic, we focused on our omni-channel capabilities. As of the 13 and 26 weeks ended ~~May 1,~~July 31, 2021, ~~the vast majority of~~ our stores ~~had~~have re-opened, although we continue to see residual impacts on foot traffic and in-store revenues.

The impacts of the COVID-19 pandemic on our business are discussed in further detail within these notes to the Consolidated Financial Statements and within Item 2 of this Quarterly Report on Form 10-Q, of which these notes form a part.

The Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. At ~~May 1,~~July 31, 2021, the Company operated in 2 reportable segments, American Eagle and Aerie.

Our fiscal year is a 52- or 53-week year that ends on the Saturday nearest to January 31. As used herein, “Fiscal 2021” refers to the 52-week period that will end on January 29, 2022. “Fiscal 2020” refers to the 52-week period ended January 30, 2021. “Fiscal 2019” refers to the 52-week period ended February 1, 2020.

The preparation of financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, our management reviews its estimates based on currently available information. Changes in facts and circumstances may result in revised estimates.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“~~ASU 2016-13”~~ASU”), Financial Instruments–Credit Losses (Topic 326) (“ASU 2016-13”), which modifies the measurement of expected credit losses of certain financial instruments. The Company adopted ASU 2016-13 on February 2, 2020. The adoption did not have a material impact on the Company’s Consolidated Financial Statements.

In December 2019, the FASB amended Accounting Standards Codification ("ASC") 740, Income Taxes (issued under ~~ASU-~~ASU 2019-12, Simplifying the Accounting for Income Taxes). This amendment removes certain exceptions to the general principles of ASC 740, and clarifies and amends the existing guidance to improve consistent application. ~~AEO~~The Company adopted the guidance effective January 31, 2021. The adoption did not have a material impact on the Company’s Consolidated Financial Statements.

In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options (“ASU 2020-06”), which simplifies accounting for convertible instruments. The new guidance eliminates two of the three models in ASC 470-20, ~~Debt-~~ Debt with Conversion and Other Options that require separating embedded conversion features from convertible instruments. The guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation. The guidance is effective for fiscal years beginning after December 15, 2021.

The Company will adopt ASU 2020-06 at the beginning of Fiscal 2022 using the modified retrospective approach.

In April 2020, the Company issued $415 million aggregate principal amount of convertible senior notes due 2025 (the “Notes”). The Notes are currently accounted for under the cash conversion model, which is ~~currently evaluating~~one of the ~~impact~~models being eliminated. The adoption of the standard will result in the Notes being accounted for as a single balance in long-term debt, rather than being accounted for as separate debt and equity components.

Subsequently, the adoption of ASU 2020-06 ~~on its Consolidated Financial Statements,~~is expected to reduce reported interest expense and, correspondingly, increase reported net income. Additionally, the dilutive effect of the Notes will increase to approximately 48 million dilutive shares, or an incremental 12 million shares compared to the dilutive effect of the Notes as of July 31, 2021, which ~~may be material.~~will reflect the assumed conversion of all outstanding Notes. We do not anticipate a material impact to diluted earnings per share, as a result of the adoption of ASU 2020-06.

In accordance with ASC 830, Foreign Currency Matters, the Company translates assets and liabilities denominated in foreign currencies into ~~United States~~U.S. dollars (“USD”) (the Company’s reporting currency) at the exchange rates prevailing at the balance sheet date. The Company translates revenues and expenses denominated in foreign currencies into USD at the monthly average exchange rates for the period. Gains or losses resulting from foreign currency transactions are included in the consolidated results of operations, whereas related translation adjustments are reported as an element of other comprehensive income (loss) in accordance with ASC 220, Comprehensive Income.

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. AnDuring the 13 weeks ended July 31, 2021, an unrealized gain of ~~$2.9~~$0.9 million is included in accumulated other comprehensive income ~~for~~(loss). During the ~~period~~26 weeks ended, ~~May 1,~~July 31, 2021, an unrealized gain of $3.9 million is included in accumulated other comprehensive income (loss), primarily related to the rise in the USD to Mexican peso and USD to Canadian dollar exchange rates.

The Company considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents.

Short-term investments classified as available-for-sale include certificates of deposit ~~and commercial paper~~ with a maturity greater than three months, but less than one year.

Refer to Note 3 to the Consolidated Financial Statements for information regarding cash and cash equivalents and short-term investments.

The Company maintains an allowance for doubtful accounts for estimated losses from the failure of certain of our customers to make required payments for products or services delivered. The Company estimates this allowance based on the age of the related receivable, knowledge of the financial condition of customers, review of historical and expected future receivables and reserve trends, and other pertinent information. If the financial condition of customers deteriorates or an unfavorable trend in receivable collections is experienced in the future, additional allowances may be required. Historically, the Company’s reserves have approximated actual experience.

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

The Company reviews its inventory levels to identify slow-moving merchandise and generally uses markdowns to clear merchandise. Additionally, the Company estimates a markdown reserve for future planned permanent markdowns related to current inventory. Markdowns may occur when 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~~current ticketed price. Such markdowns may have a material adverse impact on earnings, depending on the extent and amount of inventory affected.

The Company also estimates a shrinkage reserve for the period between the last physical count and the balance sheet date. The estimate for the shrinkage reserve, based on historical results, can be affected by changes in merchandise mix and changes in actual shrinkage trends.

Property and equipment is recorded on the basis of cost with depreciation computed utilizing the straight-line method over the asset’s estimated useful life. The useful lives of our major classes of assets are as follows:

As of ~~May 1,~~July 31, 2021, the weighted average remaining useful life of our assets was approximately ~~7.1~~7.0 years.

In accordance with ASC 360, Property, Plant, and Equipment (“ASC 360”), the Company’s management evaluates the value of leasehold improvements, store fixtures, and operating lease right-of-use (“ROU”) assets associated with retail stores, which have been open for a period sufficient to reach maturity. The Company evaluates long-lived assets for impairment at the individual store level, which is the lowest level at which individual cash flows can be identified. Impairment losses are recorded on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the projected undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts. When events such as these occur, the impaired assets are adjusted to their estimated fair value and an impairment loss is recorded separately as a component of operating income under impairment, restructuring and ~~restructuring~~COVID-19 related charges.

When the Company closes, remodels, or relocates a store prior to the end of its lease term, the remaining net book value of the assets related to the store is recorded as a write-off of assets within depreciation and amortization expense. Refer

to Note 6 to the Consolidated Financial Statements for additional information regarding property and equipment and to Note 13 to the Consolidated Financial Statements for additional information regarding impairment charges for the 1326 weeks ended ~~May~~August 2, 2020.

The Company’s goodwill is primarily related to the acquisition of its importing operations, Canada business, and ~~Tailgate brand.~~other immaterial acquisitions. In accordance with ASC 350, Intangibles – Goodwill and Other (“ASC 350”), the Company evaluates goodwill for possible impairment at least annually or more frequently if an impairment indicator exists, by comparing the estimated fair value of each reporting unit to its carrying value. As a result of the Company’s annual goodwill impairment test as of January 30, 2021, the Company concluded that its goodwill was 0t impaired. ~~NaN indicators of impairment were present during the 13 weeks ended May 1, 2021.~~

Definite-lived intangible assets are recorded on the basis of cost 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 15 to 25 years.

The Company evaluates definite-lived intangible assets for impairment in accordance with ASC 350 when events or circumstances indicate that the carrying value of the asset may not be recoverable. Such an evaluation includes the estimation of undiscounted future cash flows to be generated by those assets. If the sum of the estimated future undiscounted cash flows is less than the carrying amounts of the assets, then the assets are impaired and are adjusted to their estimated fair value. NaN definite-lived intangible asset impairment charges were recorded during the 13 or 26 weeks ended ~~May 1,~~July 31, 2021 and ~~May 2,~~August 1, 2020.

Refer to Note 7 to the Consolidated Financial Statements for additional information regarding intangible ~~assets.~~assets, including goodwill.

Revenue is not recorded on the issuance of gift cards. The value of a gift card is recorded as a current liability upon issuance, and revenue is recognized when the gift card is redeemed for merchandise. The Company estimates gift card breakage and recognizes revenue in proportion to actual gift card redemptions as a component of total net revenue.

The Company determines an estimated gift card breakage rate by continuously evaluating historical redemption data and the time when there is a remote likelihood that a gift card will be redeemed. During the 13 weeks ended ~~May 1,~~July 31, 2021 and ~~May 2,~~August 1, 2020, the Company recorded approximately ~~$2.5~~$2.0 million and ~~$1.7~~$1.6 million, respectively, of revenue related to gift card breakage. During the 26 weeks ending July 31, 2021 and August 1, 2020, the Company recorded $4.4 million and $3.3 million, respectively, of revenue related to gift card breakage.

As part of certain lease agreements for retail stores, the Company receives construction allowances from lessors, which are generally comprised of cash amounts. The Company records a receivable and an adjustment to the operating lease ROU asset at the lease commencement date (date of initial possession of the store). The deferred lease credit is amortized as part of the single lease cost over the term of the original lease (including the pre-opening build-out period). The receivable is reduced as amounts are received from the lessor.

The Company uses a combination of insurance and self-insurance mechanisms for certain losses related to employee medical benefits and worker’s compensation. Costs for self-insurance claims filed and claims incurred but not reported are accrued based on known claims and historical experience. Management believes that it has adequately reserved for its self-insurance liability, which is capped by stop loss contracts with insurance companies. However, any significant variation of future claims from historical trends could cause actual results to differ from the accrued liability.

The Company adopted ASC Topic 842, Leases (“ASC 842”), in Fiscal 2019. The standard establishes a ROU model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months.

The Company leases all store premises, some of its office space, and certain information technology and office equipment. These leases are generally classified as operating leases.

Store leases generally provide for a combination of base rentals and contingent rent based on store sales. Additionally, most leases include lessor incentives such as construction allowances and rent holidays. The Company is typically responsible for tenant occupancy costs including maintenance costs, common area charges, real estate taxes, and certain other expenses.

Most leases include one or more options to renew. The exercise of lease renewal options is at the Company’s discretion and is not reasonably certain at lease commencement. When measuring operating lease ROU assets and operating lease liabilities, the Company only includes cash flows related to options to extend or terminate leases once those options are executed.

Some leases have variable payments. However, because they are not based on an index or rate, they are not included in the measurement of operating lease ROU assets and operating lease liabilities.

When determining the present value of future payments for an operating lease that does not have a readily determinable implicit rate, the Company uses its incremental borrowing rate as of the date of initial possession of the leased asset.

Short-term lease payments are recognized on a straight-line basis over the lease term of 12 months or less.

NaN operating lease ROU asset impairments were recorded for the 13 or 26 weeks ended July 31, 2021. There was 0 operating lease ROU impairment ~~was~~ recorded for the 13 weeks ended ~~May~~August 1, ~~2021.~~2020. During the 1326 weeks ended ~~May 2,~~August 1, 2020, the Company recorded impairment of operating lease ROU assets of $84.1 million. Refer to Note 13 to the Consolidated Financial Statements for additional information regarding the impairment of these assets.

The FASB staff issued a Q&A document in April 2020 providing guidance on how to apply the lease modification guidance in ASC 842 to rent concessions arising from COVID-19, allowing companies to elect accounting for the concessions as if enforceable rights and obligations existed, regardless of whether they are explicitly stated in the lease contract. Per the FASB staff Q&A guidance, entities may make the elections for any lessor-provided concessions related to the effects of the COVID-19 pandemic (e.g., deferrals of lease payments, cash payments made to the lessee, reduced future lease payments) as long as the concession does not result in a substantial increase in the rights of the lessor or the obligations of the lessee.

The Company offers a co-branded credit card and a private label credit card under the AE and Aerie brands. These credit cards are issued by a third-party bank (the “Bank”) in accordance with a credit card agreement (the “Agreement”). The Company has no liability to the Bank for bad debt expense, provided that purchases are made in accordance with the Bank’s procedures. We receive funding from the Bank based on the Agreement and card activity, which includes payments for new account activations and usage of the credit cards. We recognize revenue for this funding as we fulfill our performance obligations under the Agreement. This revenue is recorded in other revenue, which is a component of total net revenue in our Consolidated Statements of Operations.

For further information on the Company’s loyalty program, refer to the Customer Loyalty Program caption below.

In June 2020, the Company launched a highly-digitized loyalty program called Real Rewards by American Eagle and Aerie™ (the “Program”). ~~This~~The Program features both shared and unique benefits for loyalty members and credit card holders. Under the Program, members accumulate points based on purchase activity and earn rewards by reaching certain point thresholds. Members earn rewards in the form of discount savings certificates. Prior to ~~this~~the Program’s launch in June 2020, ~~under our previous program, AEO Connected™,~~ we also offered additional rewards for key items such as jeans and ~~bras.~~bras under our previous program, AEO Connected™. Rewards earned are valid through the stated expiration date, which is 60 days from the issuance date of the reward. Rewards not redeemed during the 60-day redemption period are forfeited.

Points earned under the Program on purchases at American Eagle and Aerie are accounted for in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). The portion of the sales revenue attributed to the award points is deferred and recognized when the award is redeemed or when the points expire, using the relative stand-alone selling price method. Additionally, reward points earned using the co-branded credit card on non-AE or Aerie purchases are accounted for in accordance with ASC 606. As the points are earned, a current liability is recorded for the estimated cost of the reward, and the impact of adjustments is recorded in revenue.

The Company defers a portion of the sales revenue attributed to the loyalty points and recognizes revenue when the points are redeemed or expire, consistent with the requirements of ASC 606.

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.

The presentation on a gross basis consists of a separate right of return asset and liability. These amounts are recorded within (i) prepaid expenses and (ii) other current liabilities and accrued expenses, respectively, on the Consolidated Balance Sheets.

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

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

The calculation of 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, requires management to make estimates and assumptions. The Company believes that its estimates and assumptions 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).

Refer to Note 10 to the Consolidated Financial Statements for additional information regarding income taxes.

The Company recognizes revenue pursuant to ASC 606. Revenue is recorded for store sales upon the purchase of merchandise by customers. The Company’s e-commerce operation records revenue upon the customer receipt date of the merchandise. Shipping and handling revenues are included in total net revenue. Sales tax collected from customers is excluded from revenue and is included as part of accrued income and other taxes on the Company’s Consolidated Balance Sheets.

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

Revenue is not recorded on the issuance of gift cards. A current liability is recorded upon issuance, and revenue is recognized when the gift card is redeemed for merchandise. 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. For further information on the Company’s gift card program, refer to the Gift Cards caption above.

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

The Company defers a portion of the sales revenue attributed to loyalty points and recognizes revenue when the points are redeemed or expire, consistent with the requirements of ASC 606. Refer to the Customer Loyalty Program caption above for additional information.

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 are related to the Company's Design Center operations and include compensation, travel and entertainment, supplies, and samples for our design teams, as well as rent and depreciation for our Design Center. These costs are included in cost of sales as the respective inventory is sold.

Buying, occupancy and warehousing costs consist of compensation, employee benefit expenses, and travel and entertainment 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 operation. Gross profit is the difference between total net revenue and cost of sales.

Selling, general and administrative expenses consist of compensation and employee benefit expenses, including salaries, incentives and related benefits associated with our stores and corporate headquarters. Selling, general and administrative expenses also include advertising costs, supplies for our stores and home office, communication costs, travel and entertainment, equipment leasing costs, and services purchased.

Selling, general and administrative expenses do not include compensation, employee benefit expenses and travel for our design, sourcing, and importing teams, our buyers and our distribution centers, as these amounts are recorded in cost of sales. Additionally, selling, general and administrative expenses do not include rent and utilities related to our stores, operating costs of our distribution centers, and shipping and handling costs related to our e-commerce operations, all of which are included in cost of sales.

Interest expense, net primarily consists of interest expense related to the ~~Company’s senior convertible notes (the “Notes”)~~Notes and borrowings under the revolving credit facility, as well as interest income from cash, cash equivalents, and short-term investments.

Other (income) expense, net consists primarily of gains and losses resulting from foreign currency transactions.

We have 2 reportable segments: American Eagle and Aerie. For additional information regarding the Company’s segment and geographic information, refer to Note 12 to the Consolidated Financial Statements.

The following table summarizes the fair market values for the Company’s cash and short-term investments, which are recorded on the Consolidated Balance Sheets:

(In thousands)	May 1, 2021		January 30, 2021		May 2, 2020		July 31, 2021		January 30, 2021		August 1, 2020
Cash and cash equivalents:
Cash	$	466,014	$	524,970	$	149,205	$	498,211	$	524,970	$	124,648
Money market securities		—		—		350,054		—		—		280,098
Interest bearing deposits		225,665		275,507		296,509		275,783		275,507		494,041
Certificates of deposit		25,000		50,000		60,000		—		50,000		—
Total cash and cash equivalents	$	716,679	$	850,477	$	855,769	$	773,994	$	850,477	$	898,787
Short-term investments
Certificates of deposit		75,000		—		15,000		50,000		—		—
Commercial paper		—		—		14,956
Total short-term investments		75,000		—		29,956		50,000		—		—
Total	$	791,679	$	850,477	$	885,725	$	823,994	$	850,477	$	898,787

ASC 820, Fair Value Measurement Disclosures (“ASC 820”), defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosures about fair value measurements. Fair value is defined under ASC 820 as the exit price associated with the sale of an asset or transfer of a liability in an orderly transaction between market participants at the measurement date.

Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. In addition, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

The Company’s cash equivalents and short-term investments are Level 1 financial assets and are measured at fair value on a recurring basis, for all periods presented. Refer to Note 3 to the Consolidated Financial Statements for additional information regarding cash equivalents and short-term investments.

As of ~~May 1,~~July 31, 2021, ~~and May 2, 2020,~~ the Company had ~~$0 and $330 million, respectively, of~~0 outstanding borrowings under its revolving credit ~~facilities.~~facilities, and had $200 million outstanding as of August 1, 2020.

In April 2020, the Company issued $415 million aggregate principal amount of convertible senior notes due in 2025.

The fair value of the Notes is not required to be measured at fair value on a recurring basis. Upon issuance, the fair value of the Notes was measured using ~~a using~~two approaches that consider market related conditions, including market benchmark rates and a secondary market quoted price, ~~which considers market related conditions,~~ and is therefore within Level 2 of the fair value hierarchy.

Refer to Note 8 to the Consolidated Financial Statements for additional information regarding long-term debt and other credit arrangements.

The Company’s non-financial assets, which include intangible assets and property and equipment, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur and the Company is required to

evaluate the non-financial asset for impairment, a resulting impairment would require that the non-financial asset be recorded at the estimated fair value.

Certain long-lived assets were measured at fair value on a nonrecurring basis using Level 3 inputs as defined in ASC 820. ~~During~~There were 0 asset impairment charges recorded during the 13 or 26 weeks ended July 31, 2021. There were 0 asset impairment charges recorded during the 13 weeks ended ~~May 2,~~August 1, 2020. During the 26 weeks ended August 1, 2020, the Company recorded asset impairment charges of $153.6 million. Included in this amount are retail store impairment charges of $109.6 million, of which $84.1 million relates to operating lease ROU assets and $25.5 million relates to store property and equipment (fixtures and equipment and leasehold improvements). This impairment was primarily driven by store closures due to the COVID-19 pandemic. We also recorded $26.0 million of impairment related charges to certain corporate property and equipment, as well as $18.0 million of impairment charges related to certain cost and equity method investments. The assets were adjusted to their fair value and the loss on impairment was recorded within impairment, restructuring and ~~restructuring~~COVID-19 related charges in the Consolidated Statements of Operations. The fair value of the impaired assets, after the recorded loss, was approximately $163.4 million. ~~There was 0 long-lived asset impairment recorded for the 13 weeks ended May 1, 2021.~~

The fair value of the impaired assets was determined by estimating the amount and timing of net future cash flows and discounting them using a risk-adjusted rate of interest and a real estate market participant discount rate for the ROU assets. The Company estimates future cash flows based on its experience and knowledge of the market in which the store is located.

The following is a reconciliation between basic and diluted weighted average shares outstanding:

	13 Weeks Ended				13 Weeks Ended				26 Weeks Ended
	May 1,		May 2,		July 31,		August 1,		July 31,		August 1,
(In thousands)	2021		2020		2021		2020		2021		2020
Weighted average common shares outstanding:
Basic number of common shares outstanding		167,257		166,781		167,491		166,315		168,036		166,461
Dilutive effect of convertible notes		33,798		—		36,367		—		35,083		—
Dilutive effect of stock options and non-vested restricted stock		5,507		—		5,075		—		5,281		—
Diluted number of common shares outstanding		206,562		166,781		208,933		166,315		208,400		166,461
Anti-Dilutive Shares*		93		3,040		130		8,235		130		4,670

*For each of the 13 and 26 weeks ended ~~May 2,~~August 1, 2020, there were ~~0.7~~1.2 million potentially dilutive equity awards that were excluded from diluted earnings per share calculation because the Company incurred a net loss for this period and their inclusion would be anti-dilutive. For each of the 13 and 26 weeks ended August 1, 2020, there were 7.0 million and 3.5 million potentially dilutive shares from the Notes, respectively, that were excluded from the diluted earnings per share calculation because the Company incurred a net loss for this period and their inclusion would be anti-dilutive.

The Company has the right to settle the Notes in any combination of cash and shares of common stock. However, the Company intends to settle the original principal portion of the Notes in cash and any conversion value above the principal in common stock. Because of this repayment policy election, only the conversion spread portion of the amount owed is reflected as dilutive in our weighted average diluted shares outstanding. The Company uses the average of the daily closing prices of its common stock (NYSE: AEO) as reported on the New York Stock Exchange to calculate the conversion spread. The Notes could have a potential dilutive effect in future periods.

Refer to ~~Note~~notes 8 and 9 to the Consolidated Financial Statements for additional information regarding the Notes and share-based compensation, respectively.

	May 1,			January 30,			May 2,			July 31,			January 30,			August 1,
(In thousands)	2021			2021			2020			2021			2021			2020
Property and equipment, at cost	$	2,279,209		$	2,250,974		$	2,232,380		$	2,330,665		$	2,250,974		$	2,225,579
Less: Accumulated depreciation and impairment		(1,651,242	)		(1,627,166	)		(1,565,122	)		(1,689,269	)		(1,627,166	)		(1,566,228	)
Property and equipment, net	$	627,967		$	623,808		$	667,258		$	641,396		$	623,808		$	659,351

	May 1,			January 30,			May 2,			July 31,			January 30,			August 1,
(In thousands)	2021			2021			2020			2021			2021			2020
Goodwill, gross	$	17,591		$	17,463		$	17,164		$	20,561		$	17,463		$	17,310
Accumulated impairment ⁽¹⁾		(4,196	)		(4,196	)		(4,196	)		(4,196	)		(4,196	)		(4,196	)
Goodwill, net	$	13,395		$	13,267		$	12,968		$	16,365		$	13,267		$	13,114

Trademarks, at cost	$	93,039		$	92,663		$	71,879		$	93,335		$	92,663		$	72,057
Accumulated amortization		(36,738	)		(35,598	)		(32,874	)		(39,080	)		(35,598	)		(33,739	)
Trademarks, net	$	56,301		$	57,065		$	39,005		$	54,255		$	57,065		$	38,318

Intangible assets, net, including goodwill	$	69,696		$	70,332		$	51,973		$	70,620		$	70,332		$	51,432

Our long-term debt consisted of the following at each of ~~May 1,~~July 31, 2021, January 30, 2021, and ~~May 2,~~August 1, 2020:

(In thousands)	May 1, 2021		January 30, 2021		May 2, 2020		July 31, 2021		January 30, 2021		August 1, 2020
Convertible notes principal	$	415,025	$	415,025	$	415,025
Convertible senior notes principal							$	412,025	$	415,025	$	415,025
Less: unamortized discount		85,307		89,735		102,053		80,345		89,735		98,072
Convertible notes, net	$	329,718	$	325,290	$	312,972
Convertible senior notes, net							$	331,680	$	325,290	$	316,953
Revolving credit facility borrowings		—		—		330,000		—		—		200,000
Total long-term debt, net	$	329,718	$	325,290	$	642,972	$	331,680	$	325,290	$	516,953

Convertible Notes- Equity portion, net of tax		68,330		68,330		68,330
Convertible Senior Notes- Equity portion, net of tax								58,454		68,330		68,330

In April 2020, the Company issued $415 million aggregate principal amount of convertible senior notes due in 2025 in a private placement to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933. The Notes have a stated interest rate of 3.75%, payable semi-annually. The Company may redeem the Notes, in whole or in part, at any time beginning April 2023. The Company used the net proceeds from the offering for general corporate purposes.

The Company does not have the right to redeem the Notes prior to April 17, 2023. On or after April 17, 2023 and prior to the 40th scheduled trading day immediately preceding the maturity date, the Company may redeem all or any portion of the Notes, at its option, for cash, if the last reported sale price of AEO’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period. Beginning January 2025, noteholders may convert their Notes for approximately ~~115.7~~116.3 shares of common stock per $1,000 principal amount of the Notes, equivalent to a conversion price of approximately ~~$8.65~~$8.60 per share.

The Company has the right to settle conversions in any combination of cash and shares of common stock. However, the Company intends to settle the original principal portion of the Notes in cash and any conversion value above the principal

in stock. Because of this repayment policy, only the conversion spread portion of the amount owed is reflected as dilutive in earnings per share.

The effective interest rate for the Notes is 10.0% and the Company calculated the effective yield using a market approach. The remaining amortization period of the discount is ~~4.0~~3.75 years as of ~~May 1,~~July 31, 2021.

The following table discloses conversion amounts if the Notes were all converted as of the end of the period:

(In thousands, except per share amounts)	May 1, 2021		July 31, 2021
Number of shares convertible		48,000		47,907
Conversion price per share	$	8.65	$	8.60
Value in excess of principal if converted	$	987,652	$	1,272,776

In January 2019, the Company entered into an amended and restated Credit Agreement (the “Credit Agreement”) for five-year, syndicated, asset-based revolving credit facilities (the “Credit Facilities”). 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 expire on January 30, 2024.

All obligations under the Credit Facilities are unconditionally guaranteed by certain subsidiaries. The obligations under the Credit Agreement are secured by a first-priority security interest in certain working capital assets of the borrowers and guarantors, consisting primarily of cash, receivables, inventory, and certain other assets and have been further secured by first-priority mortgages on certain real property.

As of ~~May 1,~~July 31, 2021, the Company was in compliance with the terms of the Credit Agreement and had $7.9 million outstanding in stand-by letters of credit. NaN loans were outstanding under the Credit Agreement as of ~~May 1,~~July 31, 2021. As of ~~May 2,~~August 1, 2020, the Company had ~~$330.0~~$200.0 million of outstanding loans under the Credit Agreement.

The Company accounts for share-based compensation under the provisions of ASC 718, Compensation - Stock Compensation (“ASC 718”), which requires the Company to measure and recognize compensation expense for all share-based payments at fair value.

Total share-based compensation expense included in the Consolidated Statements of Operations for the 13 and 26 weeks ended ~~May 1,~~July 31, 2021 ~~and May 2, 2020~~ was ~~$12.6~~$9.0 million ($~~9.4~~6.8 million, net of tax) and ~~$4.1~~$21.6 million ($~~2.9~~16.4 million, net of tax), respectively, and for the 13 and 26 weeks ended August 1, 2020 was $11.6 million ($7.0 million, net of tax) and $15.7 million ($9.5 million, net of tax), respectively.

The Company has granted time-based stock ~~options.~~option awards. Time-based stock option awards vest over the requisite service period of the award or to an employee’s eligible retirement eligible date, if earlier. A summary of the Company’s stock option activity for the 1326 weeks ended ~~May 1,~~July 31, 2021 follows:

				Weighted- Average		Weighted- Average Remaining Contractual		Aggregate					Weighted- Average		Weighted- Average Remaining Contractual		Aggregate
	Options			Exercise Price		Term		Intrinsic Value		Options			Exercise Price		Term		Intrinsic Value
	(In thousands)					(In years)		(In thousands)		(In thousands)					(In years)		(In thousands)
Outstanding - January 30, 2021		3,940		$	14.87						3,940		$	14.87
Granted		449		$	32.58						449		$	32.58
Exercised (1)		(713	)	$	16.39						(771	)	$	16.33
Outstanding - May 1, 2021		3,676		$	16.74		5.2	$	65,533
Vested and expected to vest - May 1, 2021		2,706		$	16.67		3.6	$	34,033
Exercisable - May 1, 2021 (2)		1,578		$	16.88		1.7	$	27,902
Outstanding - July 31, 2021											3,618		$	16.76		4.9	$	64,071
Vested and expected to vest - July 31, 2021											2,778		$	16.50		3.5	$	28,599
Exercisable - July 31, 2021 (2)											1,788		$	16.28		2.0	$	32,531

Cash received from the exercise of stock options was $~~12.1~~13.1 million for the 1326 weeks ended ~~May 1,~~July 31, 2021. The actual tax benefit realized from ~~stock option exercises~~share-based payments totaled ~~$2.4~~$4.1 million for the 1326 weeks ended ~~May 1,~~July 31, 2021. There were 0 stock options exercised during the 1326 weeks ended ~~May 2,~~August 1, 2020.

As of ~~May 1,~~July 31, 2021, there was ~~$9.8~~$8.6 million of unrecognized compensation expense for stock option awards that is expected to be recognized over a weighted average period of ~~2.4~~2.2 years.

The fair value of stock options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:

	13 Weeks Ended			13 Weeks Ended			26 Weeks Ended	26 Weeks Ended
	May 1,			May 2,			July 31,	August 1,
Black-Scholes Option Valuation Assumptions	2021			2020			2021	2020
Risk-free interest rate (1)		0.9	%		0.6	%	0.9%	0.3 - 0.6%
Dividend yield		1.6	%		6.0	%	1.6%	3.5 - 6.0%
Volatility factor (2)		50.7	%		43.1	%	50.7%	43.1 - 48.7%
Weighted-average expected term (3)	4.5 years			4.4 years			4.5 years	4.4 years

Time-based restricted stock awards are comprised of time-based restricted stock units. These awards vest over three years. Time-based restricted stock units receive dividend equivalents in the form of additional time-based restricted stock units, which are subject to the same restrictions and forfeiture provisions as the original award.

Performance-based restricted stock awards include performance-based restricted stock units. These awards cliff vest at the end of a three-year period based upon the Company’s achievement of pre-established goals throughout the term of the award. Performance-based restricted stock units receive dividend equivalents in the form of additional performance-based restricted stock units, which are subject to the same restrictions and forfeiture provisions as the original award.

The grant date fair value of time-based restricted stock awards is based on the closing market price of the Company’s common stock on the date of grant. A Monte-Carlo simulation was utilized to determine the fair value for performance-based restricted stock awards.

A summary of the Company’s restricted stock activity is presented in the following tables:

	Time-Based Restricted Stock Units					Performance-Based Restricted Stock Units					Time-Based Restricted Stock Units					Performance-Based Restricted Stock Units
	May 1, 2021					May 1, 2021					July 31, 2021					July 31, 2021
(Shares in thousands)	Shares			Weighted- Average Grant Date Fair Value		Shares			Weighted- Average Grant Date Fair Value		Shares			Weighted- Average Grant Date Fair Value		Shares			Weighted- Average Grant Date Fair Value
Nonvested - January 30, 2021		3,698		$	12.42		1,868		$	17.44		3,698		$	12.42		1,868		$	17.44
Granted		619		$	32.58		307		$	39.85		657		$	32.64		320		$	39.93
Vested		(739	)	$	8.83		(275	)	$	19.48		(1,268	)	$	13.45		(275	)	$	19.48
Cancelled		(76	)	$	11.82		(301	)	$	19.09		(163	)	$	12.68		(308	)	$	16.88
Nonvested - May 1, 2021		3,502		$	16.65		1,599		$	21.08
Nonvested - July 31, 2021												2,924		$	16.30		1,605		$	23.67

As of ~~May 1,~~July 31, 2021, there was ~~$41.8~~$36.0 million of unrecognized compensation expense related to non-vested, time-based restricted stock unit awards that is expected to be recognized over a weighted-average period of ~~2.3~~2.2 years. Based on current probable performance, there is ~~$12.0~~$10.9 million of unrecognized compensation expense related to performance-based restricted stock unit awards which will be recognized as achievement of performance goals is probable over a one- to three- year period.

As of ~~May 1,~~July 31, 2021, the Company had 7.6 million shares available for all equity grants.

The provision for income taxes is based on the current estimate of the annual effective income tax rate and is adjusted as necessary for discrete quarterly events. The effective income tax rate for the 13 weeks ended ~~May 1,~~July 31, 2021 was ~~24.7%~~24.3% compared to the effective tax benefit rate of 28.5% for the 13 weeks ended August 1, 2020. The effective income tax rate for the 26 weeks ended July 31, 2021 was 24.5% compared to the effective tax benefit rate of 28.8% for the 1326 weeks ended ~~May 2,~~August 1, 2020. The ~~decrease~~change in the effective tax rate, as compared to the prior period, is primarily due to benefits recognized as a result of the passage of the Coronavirus Aid, Relief, and Economic Security Act ~~(“CARES~~(the “CARES Act”), which occurred in the 13 weeks ended ~~May 2,~~August 1, 2020. The CARES Act allowed net operating losses generated within tax year 2020 to be carried back to periods in which the U.S. federal corporate income tax rate was 35%, as opposed to the current U.S. federal corporate income tax rate of 21%, which resulted in a higher benefit rate applicable to the 13 weeks ended ~~May 2,~~August 1, 2020. The effective tax rate for the current period was also impacted by higher excess tax benefits on share-based payments.

The Company records accrued interest and penalties related to unrecognized tax benefits in income tax expense. The Company recognizes income tax liabilities related to unrecognized tax benefits in accordance with ASC 740 and adjusts these liabilities when its judgment changes as a result of the evaluation of new information not previously available. Unrecognized tax benefits did not change significantly during the 13 weeks ended ~~May 1,~~July 31, 2021. Over the next twelve months, the Company believes that it is reasonably possible that unrecognized tax benefits may decrease by approximately $0.6 million due to settlements, expiration of statute of limitations, or other changes in unrecognized tax benefits.

The Company is subject to certain legal proceedings and claims arising out of the conduct of its business. In accordance with ASC 450, Contingencies (“ASC 450”), the Company records a reserve for estimated losses when the loss is probable and the amount can be reasonably estimated. If a range of possible loss exists and no anticipated loss within the range is more likely than any other anticipated loss, the Company records the accrual at the low end of the range, in accordance with ASC 450. As the Company believes that it has provided adequate reserves, it anticipates that the ultimate outcome of any matter currently pending against the Company will not materially affect the consolidated financial position, results of operations, or consolidated cash flows of the Company. However, our assessment of any litigation or other legal claims could potentially change in light of the discovery of facts not presently known or determinations by judges, juries, or other finders of fact which are not in accord with management’s evaluation of the possible liability or outcome of such litigation or claims.

In accordance with ASC 280, Segment Reporting (“ASC 280”), the Company has identified 2 operating segments (American Eagle and Aerie) that also represent our reportable segments and reflect the Chief Operating Decision Maker’s (defined as our CEO) internal view of analyzing results and allocating resources. Historically, all operating segments were aggregated as permitted by ASC 280 as 1 reportable segment. In the fourth quarter of Fiscal 2020, we revised our reportable segment structure and have 2 reportable segments, American Eagle and Aerie.

Our CEO analyzes segment results and allocates resources based on adjusted operating income (loss). Adjusted operating income (loss) is defined as operating income (loss) excluding impairment, restructuring and ~~restructuring.~~COVID-19 related charges. Adjusted operating income (loss) may not be comparable to similarly titled measures of other companies. Adjusted operating income (loss) on a consolidated basis is presented in the following table to reconcile the segment operating performance measure to operating income (loss) ~~income~~ as presented on the Consolidated Financial Statements.

(in thousands)	American Eagle			Aerie			Corporate⁽¹⁾			Total⁽²⁾			American Eagle			Aerie		Corporate⁽¹⁾			Total⁽²⁾
13 weeks ended May 1, 2021
13 weeks ended July 31, 2021
Total net revenue													$	845,882		$	335,795	$	12,479		$	1,194,156
Operating income (loss)													$	198,896		$	70,646	$	(101,546	)	$	167,996

Capital Expenditures													$	17,189		$	16,641	$	15,569		$	49,399


13 weeks ended August 1, 2020
Total net revenue													$	624,831		$	251,511	$	7,168		$	883,510

Operating income (loss)													$	59,603		$	30,404	$	(102,244	)	$	(12,237	)
Impairment, restructuring, and COVID-19 related charges														-			-		14,611			14,611
Adjusted operating income (loss)													$	59,603		$	30,404	$	(87,633	)	$	2,374

Capital Expenditures													$	6,774		$	8,620	$	12,098		$	27,492


26 weeks ended July 31, 2021
Total net revenue	$	727,702		$	297,487		$	9,425		$	1,034,614		$	1,573,584		$	633,282	$	21,903		$	2,228,769

Operating income (loss)	$	151,232		$	69,978		$	(87,783	)	$	133,427		$	350,128		$	140,624	$	(189,328	)	$	301,424

Capital Expenditures	$	13,439		$	10,819		$	12,548		$	36,806		$	30,628		$	27,460	$	28,117		$	86,205


13 weeks ended May 2, 2020
26 weeks ended August 1, 2020
Total net revenue	$	390,250		$	154,981		$	6,461		$	551,692		$	1,015,081		$	406,492	$	13,629		$	1,435,202

Operating loss	$	(213,749	)	$	(19,129	)	$	(125,362	)	$	(358,240	)
Impairment and restructuring charges		90,926			18,215			46,478			155,619
Adjusted Operating loss	$	(122,823	)	$	(914	)	$	(78,884	)	$	(202,621	)
Operating income (loss)													$	(154,146	)	$	11,275	$	(227,607	)	$	(370,478	)
Impairment, restructuring, and COVID-19 related charges														90,926			18,215		61,090			170,231
Adjusted operating income (loss)													$	(63,220	)	$	29,490	$	(166,517	)	$	(200,247	)

Capital Expenditures	$	8,099		$	8,788		$	17,023		$	33,910		$	14,873		$	17,408	$	29,121		$	61,402

We do not allocate assets to the reportable segment level and therefore our CEO does not use segment asset information to make decisions.

	13 Weeks Ended				13 Weeks Ended				26 Weeks Ended
(In thousands)	May 1, 2021		May 2, 2020		July 31, 2021		August 1, 2020		July 31, 2021		August 1, 2020
Total net revenue:
United States	$	909,659	$	488,876	$	1,030,308	$	780,028	$	1,939,966	$	1,268,904
Foreign ⁽¹⁾		124,955		62,816		163,848		103,482		288,803		166,298
Total net revenue	$	1,034,614	$	551,692	$	1,194,156	$	883,510	$	2,228,769	$	1,435,202

Through its portfolio of brands, the Company offers on-trend clothing, accessories, and personal care products (collectively “merchandise”). The following table sets forth the approximate consolidated percentage of total net revenue from operations attributable to each merchandise category:

The following table represents impairment, restructuring and ~~restructuring~~COVID-19 related charges for the 13 and 26 weeks ended ~~May 2,~~August 1, 2020. There were 0 impairment, restructuring and ~~restructuring~~COVID-19 related charges for the 13 and 26 weeks ended ~~May 1,~~July 31, 2021. All amounts were recorded within impairment, restructuring and ~~restructuring~~COVID-19 related charges on the Consolidated Statements of Operations.

	13 weeks ended		13 Weeks Ended		26 Weeks Ended
	May 2,		August 1,		August 1,
(In thousands)	2020		2020		2020
Impairment charges ⁽¹⁾	$	153,617	$	—	$	153,617
Incremental COVID-19 related expenses⁽²⁾				13,885		13,885
Severance and related employee costs		2,002		726		2,729
Total impairment and restructuring charges	$	155,619
Total impairment, restructuring and COVID-19 related charges			$	14,611	$	170,231

27(1) During the 26 weeks ended August 1, 2020, the Company recorded asset impairment charges of $153.6 million. Included in this amount are retail store impairment charges of $109.6 million, of which $84.1 million relates to operating lease ROU assets and $25.5 million relates to store property and equipment (fixtures and equipment and leasehold improvements). We also recorded $26.0 million of impairment related charges to certain corporate property and equipment as well as $18.0 million of impairment charges related to certain cost and equity method investments.

A roll-forward of restructuring liabilities recognized in accrued compensation and payroll taxes and other current liabilities and accrued expenses in the Consolidated Balance Sheet is as follows:

	13 Weeks Ended			26 Weeks Ended
	May 1,			July 31,
(In thousands)	2021			2021
Restructuring liability as of January 30, 2021	$	2,812		$	2,812
Add: Costs incurred, excluding non-cash charges		—			—
Less: Cash payments and adjustments		(1,102	)		(1,857	)

Restructuring liability as of May 1, 2021	$	1,710
Restructuring liability as of July 31, 2021				$	955

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

The following discussion and analysis of financial condition and results of operations should be read in conjunction with our Management’s Discussion and Analysis of Financial Condition and Results of Operations for Fiscal 2020 which can be found in our Fiscal 2020 Form 10-K.

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

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.

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). See Note ~~12. “Segment Reporting,” of the Notes~~12 to the Consolidated Financial Statements included herein for additional information.

In the first quarter of Fiscal 2021, we realized better than expected sales, primarily due to continued increased strong demand for the Aerie brand. Strategically and operationally, we remain focused on driving our “Real Power. Real Growth” strategic plan. For the American Eagle brand, we continue to be focused on optimizing inventory and reducing promotions.

Financial highlights for the ~~three months~~thirteen weeks ended ~~May 1,~~July 31, 2021 include comparisons to the ~~first~~second quarter of Fiscal ~~2019, which management believes is a more meaningful comparison due to the significant impacts of the COVID-19 pandemic on Fiscal 2020 financial results:~~2020:

•~~All-time high first quarter~~Record revenue of ~~$1.03~~$1.19 billion ~~compared to $886.3 million during the first quarter of Fiscal 2019;~~increased 35%

•~~Record operating~~Operating income hit an all-time high of ~~$133.4 million, compared to $47.8 million for the first quarter of Fiscal 2019;~~

•Revenue for Aerie ~~rose 89%~~increased 34%, with operating income up ~~747%~~132%; and

•American Eagle revenue ~~rose slightly,~~increased 35%, with operating income up ~~39%; and~~

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

Comparable sales — Comparable sales and comparable sales changes provide a measure of sales growth for stores and channels open at least one year over the comparable prior year period. In light of store closures and related disruptions from the COVID-19 pandemic, we have not disclosed comparable sales for ~~the first quarter of~~ Fiscal 2021 or Fiscal ~~2020, as Fiscal 2020 is not comparable with current and prior periods.~~2020.

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 Management’s Discussion and Analysis (“MD&A”) when we believe they enhance the understanding of the matter being discussed. Investors may find them useful as such. Each of these metrics is defined as follows (except comparable sales, which is defined separately above):

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

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.

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 consolidated results of operations.

Operating income — Our management views operating income as a key indicator of our performance. The key drivers of operating income are net revenue, gross profit, our ability to control selling, general, and administrative expenses, and our level of capital expenditures for a reasonable period of time. In light of store closures and disruptions from the COVID-19 pandemic, our operating income may not be comparable ~~this year~~for Fiscal 2021 versus ~~last year.~~Fiscal 2020.

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. Our management believes that cash flow will be sufficient to fund anticipated capital expenditures, dividends, and working capital requirements for the next twelve months.

The COVID-19 pandemic remains highly volatile and continues to evolve on a daily basis, and we continue to see ~~disruption~~disruptions and volatility in our business caused by the COVID-19 pandemic.

As of ~~May 1,~~July 31, 2021, ~~nearly~~ all of our stores have re-opened and remain open. ~~Where opening is permitted, the majority of our~~Our stores are operating with restrictive and precautionary measures in place, such as reduced operating hours, physical distancing, enhanced cleaning and sanitation, and limited occupancy levels. Our consolidated results of operations continued to be significantly impacted by reduced customer traffic in re-opened store locations, partially offset by continued growth in e-commerce. Online sales represented 40% of our revenues for the first quarter of Fiscal 2021. Despite our strength in digital sales, we have historically generated the majority of our revenue through stores. As a result, weWe do not believe that our results for the ~~first~~second quarter of Fiscal 2021 are directly comparable to the same period in Fiscal 2020.

The safety and health of our associates and customers remains of paramount concern. In March 2020, we hired a medical consultant to advise us on health and safety matters and to ensure that we are following ~~science based~~science-based guidance and best practices for associates and customers in all of our locations. We instituted a work-from-home plan in mid-March 2020 ahead of stay-at-home orders. We continue to take various precautions in our stores, which include sanitation stations and masks for all customers to provide a safe and secure environment. Plexiglas health guard partitions have also been installed at the registers along with the implementation of enhanced cleaning routines and protocols.

As of ~~May 1,~~July 31, 2021, we had approximately ~~$791.7~~$824.0 million in cash and cash equivalents and short-term investments, which includes the proceeds from our Notes issuance, discussed in greater detail below and in Note 8 to the Consolidated Financial Statements. We expect to be able to fund our future cash requirements through current cash holdings and available liquidity.

The unpredictability of the trajectory of the COVID-19 pandemic has significantly diminished visibility into the future operating environment, and we believe that the Company may continue to experience degrees of volatility and business disruptions, and remain at risk for periods of closure of our stores, distribution centers and corporate facilities through the remainder of Fiscal 2021. Past and future impacts of COVID-19 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. We are monitoring the ongoing developments as the 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 our Fiscal 2020 Form 10-K.

Our ~~first~~second quarter Fiscal 2021 results reflected ~~an acceleration in our business and excellent progress towards our “Real Power. Real Growth.” strategic plan. The Company recorded~~another quarter of record ~~first quarter~~ revenue and ~~operating income with positive growth across brands. Demand for Aerie’s~~profitability. Performance was underscored by the strength of our brands, outstanding product and ~~powerful brand platform~~a leading customer experience across selling channels.

Aerie continued atto achieve consistent multi-year growth producing a ~~rapid pace, while~~very strong profit flow through. American Eagle ~~initiatives reignited the brand.~~was fueled by re-energized product and brand initiatives.

Absent the impacts of the COVID-19 pandemic, our business is affected by the pattern of seasonality common to most retail apparel businesses. The results for the current and prior periods are not necessarily indicative of future financial results.

Additionally, during the 13 and 26 weeks ended ~~May 2,~~August 1, 2020, our consolidated results of operations were materially impacted by the effects of COVID-19.

Commencing in ~~early~~ March 2020, we experienced a significant reduction in customer traffic and demand resulting from the continued spread of COVID-19 and government actions to combat it. In response, we closed our stores to the public after the close of business on March 17, 2020; however, we continued to operate our digital business. Subsequent to May 1, 2020, we began to reopen our stores, and as of August 1, 2020, nearly all of our stores had reopened; however, we continued to experience reduced customer traffic in re-opened store locations. Accordingly, our results for the ~~first~~second quarter of Fiscal 2020 were significantly impacted.

The following table shows the percentage relationship to total net revenue of the listed line items included in our Consolidated Statements of Operations:

	13 Weeks Ended								13 Weeks Ended								26 Weeks Ended
	May 1,				May 2,				July 31,				August 1,				July 31,				August 1,
	2021				2020				2021				2020				2021				2020
Total net revenue		100.0		%		100.0		%		100.0		%		100.0		%		100.0		%		100.0		%
Cost of sales, including certain buying, occupancy and warehousing expenses		57.8			94.9					57.9			70.0					57.9			79.5
Gross profit		42.2			5.1					42.1			30.0					42.1			20.5
Selling, general and administrative expenses		25.6			34.1					24.6			25.3					25.1			28.7
Impairment and restructuring charges		—			28.2
Impairment, restructuring and COVID-19 related charges										0.0			1.7					0.0			11.9
Depreciation and amortization expense		3.7			7.7					3.4			4.4					3.5			5.7
Operating income (loss)		12.9				(64.9	)			14.1				(1.4	)			13.5				(25.8	)
Interest expense, net		0.8				0.1				0.8				1.0				0.7				0.6
Other (income) expense, net		(0.2	)			0.5				(0.1	)			(0.2	)			(0.1	)			0.1
Income (loss) before income taxes		12.3				(65.5	)			13.4				(2.2	)			12.9				(26.5	)
Provision (benefit) for income taxes		3.1				(18.9	)			3.2				(0.6	)			3.2				(7.6	)
Net income (loss)		9.2		%		(46.6	)	%		10.2		%		(1.6	)	%		9.7		%		(18.9	)	%

	13 Weeks Ended						13 Weeks Ended						26 Weeks Ended
	May 1,			May 2,			July 31,			August 1,			July 31,			August 1,
	2021			2020			2021			2020			2021			2020
Number of stores:
Beginning of period		1,078			1,095			1,074			1,093			1,078			1,095
Opened		11			3			20			16			31			19
Closed		(15	)		(5	)		(4	)		(11	)		(19	)		(16	)
End of period		1,074			1,093			1,090			1,098			1,090			1,098
Total gross square feet at end of period (in '000)		6,816			6,822			6,799			6,828			6,799			6,828
International licensed/franchise stores at end of period (1)		236			215			242			220			242			220

Our operations consist of ~~891~~894 American Eagle retail stores, which include ~~177~~182 Aerie side-by-side locations and 1one OFFLINE side-by-side location, ~~179~~191 Aerie stand-alone locations (including 5five OFFLINE stand-alone locations), and AEO Direct. Additionally, there were ~~two~~three Todd Snyder stand-alone locations and two Unsubscribed locations.

This results of operations section contains net income (loss) per diluted share presented on an adjusted or non-GAAP basis, which is a non-GAAP financial measure (“non-GAAP” or “adjusted”). This financial measure is not based on any standardized methodology prescribed by U.S. generally accepted accounting principles (“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. We believe that this non-GAAP information is useful as an additional means for investors to evaluate our operating performance, when reviewed in conjunction with our GAAP consolidated financial statements, and provides a higher degree of transparency. These amounts are not determined in accordance with GAAP and, therefore, should not be used exclusively in evaluating our business and operations. The table below reconciles the GAAP financial measure to the non-GAAP financial measure discussed above.

Comparison of the 13 weeks ended ~~May 1,~~July 31, 2021 to the 13 weeks ended ~~May 2,~~August 1, 2020

Total net revenue increased ~~88%~~35%, or ~~$483~~$311 million, to a ~~first~~second quarter record ~~$1,034.6~~$1.194 billion compared to ~~$551.7~~$883.5 million last year. ~~The~~As discussed above, the COVID-19 pandemic ~~and the associated closures of our retail stores beginning March 17, 2020~~ negatively affected our financial results for the 13 weeks ended ~~May 2, 2020. As of May~~August 1, ~~2021, nearly~~2020; however all of our stores have ~~reopened~~re-opened and ~~remain opened.~~we experienced increased store traffic, transactions and transaction value, driving a 73% increase in store revenue for the second quarter of Fiscal 2021. This was partially offset by a 5% decline in AEO Direct revenue, reflecting the anticipated channel shift associated with improved store traffic, as well as a significant first quarter shipping back log last year, which resulted in revenue related to these orders not being recognized until the second quarter last year.

Total net revenue for the 13 weeks ended ~~May 1,~~July 31, 2021 for the American Eagle brand ~~was $727.7~~increased 35% to $845.9 million compared to ~~$390.3~~$624.8 million for the 13 weeks ended ~~May 2,~~August 1, 2020. ~~Traffic for AE was up 51% and average unit retail price increased 23%.~~

Total net revenue for the 13 weeks ended ~~May 1,~~July 31, 2021 for the Aerie brand ~~was $297.5~~increased 34% to $335.8 million compared to ~~$155.0~~$251.5 million for the 13 weeks ended ~~May 2,~~August 1, 2020. ~~Traffic for the Aerie brand was up 83% and average unit retail price increased 30%.~~

Gross profit increased ~~$407.9~~$237.2 million, to ~~$436.2~~$502.4 million compared to ~~$28.3~~$265.2 million last year. Our gross margin percentage increased to ~~42.2%~~42.1% of revenue from ~~5.1%~~30.0% of revenue last year.

The 13 weeks ended May 2, 2020 were significantly impacted by disruptions related to COVID-19, which resulted in a decline in revenue from retail store closures; higher markdowns and promotions to clear through spring and summer merchandise, and inventory provisions.

This ~~year’s~~quarter’s gross margin reflected significantly higher merchandise margins across brands, primarily due to higher full-priced sales, lower promotions, and inventory optimization initiatives. ~~Lower rent expense also benefited~~

For the 13 weeks ended August 1, 2020, gross ~~margin. This~~margin was ~~partly offset~~significantly impacted by disruptions related to COVID-19, which reflected a reduction in store revenue and higher delivery and distribution center costs, primarily due to ~~increased~~a strong digital ~~mix~~business and higher cost per shipment, ~~costs, as well as increased performance-based incentive compensation.~~partly offset by lower rent expense and an increase in mark-up.

There was ~~$4.3~~$3.9 million and ~~$2.6~~$4.5 million of share-based payment expense included in gross profit for the 13 week periods ended ~~May 1,~~July 31, 2021 and ~~May 2,~~August 1, 2020, respectively, comprised of both time- and performance-based awards.

Our gross profit may not be comparable to that of other retailers, as some retailers include all costs related to their distribution network, as well as design costs in cost of sales and others may exclude a portion of these costs from cost of sales, including them in a line item such as selling, general and administrative expenses. 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 (“SG&A”) expenses increased ~~41%~~31%, or ~~$76.3~~$70.2 million to ~~$264.5~~$293.9 million from ~~$188.2~~$223.7 million last year. As a percentage of total net revenue, SG&A expenses decreased ~~850~~70 basis points to ~~25.6%~~24.6%, compared to ~~34.1%~~25.3% last year.

The 13 weeks ended ~~May 2,~~July 31, 2021 reflected increased SG&A expenses primarily related to the re-opening of our stores this year, including increased store payroll and variable selling expenses, as well as increased advertising and performance-based incentive compensation.

The 13 weeks ended August 1, 2020 were significantly impacted by ~~the disruption~~disruptions related to COVID-19, ~~including the impact of~~resulting in lower ~~store salaries from furloughs that took effect in early April 2020 related to the retail store closures resulting from COVID-19.~~

~~The 13 weeks ended May 1, 2021 reflected increased SG&A~~operating expenses due to ~~higher levels of performance-based incentive compensation, an increase in corporate salaries~~store closures and ~~higher variable selling expenses.~~other cost reductions.

There was ~~$8.3~~$5.1 million and ~~$1.4~~$7.0 million of share-based payment expense included in SG&A expenses for the 13 week periods ended ~~May 1,~~July 31, 2021 and ~~May 2,~~August 1, 2020, respectively, comprised of both time and performance-based awards.

There were no impairment, restructuring and ~~restructuring~~COVID-19 related charges recorded for the 13 weeks ended ~~May~~July 31, 2021. For the 13 weeks ended August 1, ~~2021. Impairment~~2020, impairment, restructuring and ~~restructuring~~COVID-19 related charges were ~~$155.6~~$14.6 million, or ~~28.2%~~1.7% as a percentage of total net ~~revenue,~~revenue. These charges consisted of $13.9 million of incremental COVID-19 related expenses, including personal protective equipment and supplies for our associates and customers and $0.7 million of severance costs. There were no impairment charges for the 13 weeks ended ~~May 2,~~August 1, 2020. ~~These charges consisted of $153.6 million of impairment charges and $2.0 million of severance costs.~~ For further information, ~~regarding impairment and restructuring charges,~~ refer to Note 13 to the Consolidated Financial Statements.

Based on the uncertainty ~~from~~of the COVID-19 pandemic, we are unable to accurately predict the ultimate impact that COVID-19 will have on our consolidated operations going forward, including, among other things, the length of time that such disruptions will continue and the impact of governmental regulations that may be imposed in response to the COVID-19 pandemic. Accordingly, we may be required to record further impairment and/or restructuring charges in future ~~periods and expect to continue to incur charges for personal protective equipment and supplies for our associates and customers.~~periods.

Depreciation and amortization expense ~~decreased 10%~~increased 3%, or ~~$4.4~~$1.3 million, to ~~$38.3~~$40.5 million for the 13 weeks ended ~~May 1,~~July 31, 2021, compared to ~~$42.7~~$39.1 million for the 13 weeks ended ~~May 2,~~August 1, 2020. As a percentage of total net revenue, depreciation and amortization expense was ~~3.7%~~3.4% for the 13 weeks ended ~~May 1,~~July 31, 2021 compared to ~~7.7%~~4.4% for the 13 weeks ended ~~May 2,~~August 1, 2020. ~~The decrease in expense was primarily attributable to asset impairment recorded in Fiscal 2020 and lower capital spending.~~

Interest expense, net increased ~~$8.4~~$0.4 million to $8.9 million for the 13 weeks ended July 31, 2021, compared to $8.5 million for the 13 weeks ended ~~May~~August 1, ~~2021, compared to $0.1 million for the 13 weeks ended May 2,~~ 2020. The increase in expense was primarily attributable to increased interest expense related to our Notes and lower interest income.

Other income, net was ~~$1.9~~$1.4 million for the 13 weeks ended ~~May 1, 2021. Other expense, net was $3.0~~July 31, 2021, compared to $1.6 million for the 13 weeks ended ~~May 2,~~August 1, 2020. The ~~increase~~decrease was primarily attributable to foreign currency fluctuations and changes in other non-operating items.

The ~~decrease~~change in the effective tax rate, as compared to the prior period, is primarily due to benefits recognized as a result of the passage of the CARES Act, which occurred during the 13 weeks ended ~~May 2,~~August 1, 2020. The CARES Act allowed net operating losses generated within tax year 2020 to be carried back to periods in which the U.S. federal corporate income tax rate was 35%, as opposed to the current ~~U.S~~U.S. federal corporate income tax rate of 21%, which resulted in a higher benefit rate applicable to the 13 weeks ended ~~May 2,~~August 1, 2020. The effective tax rate for the current period was also impacted by higher excess tax benefits on share-based payments.

Net income increased ~~$352.6~~$135.3 million to ~~$95.5~~$121.5 million for the 13 weeks ended ~~May 1,~~July 31, 2021, or ~~9.2%~~10.2% as a percentage of total net revenue, as compared to a net loss of ~~$(257.2)~~$(13.8) million, or ~~(46.6%~~(1.6%) as a percentage of total net revenue for the 13 weeks ended ~~May 2,~~August 1, 2020.

Net income per share increased to ~~$0.46~~$0.58 per diluted share for the 13 weeks ended ~~May 1,~~July 31, 2021, which included $0.02 of ~~the~~ amortization of the non-cash discount on the Notes, compared to a net loss of ~~$1.54~~$0.08 per diluted share, including ~~$0.70~~$0.05 of impairment, restructuring and ~~restructuring~~COVID-19 related charges, and $0.03 of amortization of the non-cash discount on the Notes, for the 13 weeks ended ~~May 2,~~August 1, 2020. The change in net income (loss) was attributable to the factors noted above.

Comparison of the 26 weeks ended July 31, 2021 to the 26 weeks ended August 1, 2020

Total net revenue increased 55%, or $793.6 million, to $2.229 billion compared to $1.435 million last year. The COVID-19 pandemic and the associated closures of our retail stores beginning March 17, 2020 negatively affected our financial results for the 26 weeks ended August 1, 2020.

Total net revenue for the 26 weeks ended July 31, 2021 for the American Eagle brand was $1.574 billion compared to $1.015 million for the 26 weeks ended August 1, 2020.

Total net revenue for the 26 weeks ended July 31, 2021 for the Aerie brand was $633.3 million compared to $406.5 million for the 26 weeks ended August 1, 2020.

Gross profit increased $645.1 million to $938.6 million compared to $293.5 million last year. Our gross margin percentage increased to 42.1% of revenue from 20.5% of revenue last year.

The 26 weeks ended August 1, 2020 were significantly impacted by disruptions related to COVID-19, which resulted in a decline in revenue from retail store closures, higher markdowns and promotions to clear through spring and summer merchandise, and inventory provisions.

This year’s gross margin reflected significantly higher merchandise margins across brands, primarily due to higher full-priced sales, lower promotions, and inventory optimization initiatives. This was partly offset by higher delivery and distribution center costs, due to increased digital mix and higher shipment costs, as well as increased performance-based incentive compensation.

There was $8.2 million and $7.1 million of share-based payment expense included in gross profit for the 26 week periods ended July 31, 2021 and August 1, 2020, respectively, comprised of both time- and performance-based awards.

Selling, general and administrative (“SG&A”) expenses increased 36%, or $146.5 million, to $558.4 million from $411.9 million last year. As a percentage of total net revenue, SG&A expenses decreased 360 basis points to 25.1%, compared to 28.7% last year.

The 26 weeks ended July 31, 2021 reflected increased SG&A expenses primarily related to the re-opening of our stores this year, including increased store payroll and variable selling expenses, as well as increased advertising and higher levels of performance-based incentive compensation.

The 26 weeks ended August 1, 2020 were significantly impacted by the disruption related to COVID-19, including the impact of lower store salaries from furloughs that took effect in early April 2020 related to the retail store closures.

There was $13.4 million and $8.5 million of share-based payment expense included in SG&A expenses for the periods ended July 31, 2021 and August 1, 2020, respectively, comprised of both time- and performance-based awards.

There were no impairment, restructuring and COVID-19 related charges recorded for the 26 weeks ended July 31, 2021. Impairment, restructuring and COVID-19 related charges were $170.2 million, or 11.9% as a percentage of total net revenue, for the 26 weeks ended August 1, 2020. During the 26 weeks ended August 1, 2020, the Company recorded asset impairment charges of $153.6 million. Included in this amount are retail store impairment charges of $109.6 million, of which $84.1 million relates to operating lease ROU assets and $25.5 million relates to store property and equipment (fixtures and equipment and leasehold improvements). We also recorded $26.0 million of impairment related charges to certain corporate property and equipment, as well as $18.0 million of impairment charges related to certain cost and equity method investments. Additionally, there was $13.9 million of incremental COVID-19 related expenses and $2.7 million of severance costs. For further information, refer to Note 13 to the Consolidated Financial Statements.

Based on the uncertainty of the COVID-19 pandemic, we are unable to accurately predict the ultimate impact that COVID-19 will have on our consolidated operations going forward, including, among other things, the length of time that such disruptions will continue and the impact of governmental regulations that may be imposed in response to the COVID-19 pandemic. Accordingly, we may be required to record further impairment and/or restructuring charges in future periods.

Depreciation and amortization expense decreased 4%, or $3.1 million, to $78.7 million for the 26 weeks ended July 31, 2021, compared to $81.8 million for the 26 weeks ended August 1, 2020. As a percentage of total net revenue, depreciation and amortization expense was 3.5% for the 26 weeks ended July 31, 2021 compared to 5.7% for the 26 weeks ended August 1, 2020. The decrease in expense was primarily attributable to asset impairment recorded in Fiscal 2020 and lower capital spending.

Interest expense, net increased $8.7 million to $17.4 million for the 26 weeks ended July 31, 2021, compared to $8.7 million for the 26 weeks ended August 1, 2020. The increase in expense was primarily attributable to increased interest expense related to our Notes and lower interest income, partially offset by no interest expense incurred for borrowings on our revolving credit facilities during the 26 weeks ended July 31, 2021.

Other income, net was $3.2 million for the 26 weeks ended July 31, 2021. Other expense, net was $1.4 million for the 26 weeks ended August 1, 2020. The increase was primarily attributable to foreign currency fluctuations and changes in other non-operating items.

The change in the effective tax rate, as compared to the prior period, is primarily due to benefits recognized as a result of the passage of the CARES Act, which occurred during the 26 weeks ended August 1, 2020. The CARES Act allowed net operating losses generated within tax year 2020 to be carried back to periods in which the U.S. federal corporate income tax rate was 35%, as opposed to the current U.S. federal corporate income tax rate of 21%, which resulted in a higher benefit rate applicable to the 26 weeks ended August 1, 2020. The effective tax rate for the current period was also impacted by higher excess tax benefits on share-based payments.

Net income increased $487.9 million to $217.0 million for the 26 weeks ended July 31, 2021, or 9.7% as a percentage of total net revenue, as compared to a net loss of $(270.9) million, or (18.9%) as a percentage of total net revenue for the 26 weeks ended August 1, 2020.

Net income per diluted share increased to $1.04 for the 26 weeks ended July 31, 2021, which included $0.03 of amortization of the non-cash discount on the Notes, compared to a net loss of $1.63 per diluted share, including $0.76 of impairment, restructuring and COVID-19 related charges and $0.02 of amortization of the non-cash discount on the Notes for the 26 weeks ended August 1, 2020. The change in net income (loss) was attributable to the factors noted above.

We have agreements with multiple third-party operators to expand our brands internationally. Through these agreements, a series of franchised, licensed, or other brand-dedicated American Eagle stores have opened and will continue to open in ~~areas including~~ Asia, Europe, India, Latin America, and the Middle East. These agreements do not involve a significant capital investment or operational involvement from us. We continue to increase the number of countries in which we enter into these types of arrangements as part of our strategy to expand internationally. As of ~~May 1,~~July 31, 2021, we had ~~236~~242 stores operated by our ~~third party~~third-party operators in 3329 countries. International third-party operated stores are not included in the consolidated store data or the total gross square feet calculation.

As of ~~May 1,~~July 31, 2021, we had 92 ~~company-owned~~Company-owned stores in Canada, 4855 in Mexico, ~~nine~~10 in Hong Kong and ~~seven~~7 in Puerto Rico.

ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. Fair value is defined under ASC 820 as the exit price associated with the sale of an asset or transfer of a liability in an orderly transaction between market participants at the measurement date.

As of ~~May 1,~~July 31, 2021, we held certain assets that are required to be measured at fair value on a recurring basis. These include cash and cash equivalents and short-term investments.

In accordance with ASC 820, the following table represents the fair value hierarchy of our financial assets (cash equivalents and investments) measured at fair value on a recurring basis as of ~~May 1,~~July 31, 2021:

	Fair Value Measurements at May 1, 2021								Fair Value Measurements at July 31, 2021
(In thousands)	Carrying Amount		Quoted Market Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Carrying Amount		Quoted Market Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents:
Cash	$	466,014	$	466,014	$	—	$	—	$	498,211	$	498,211	$	—	$	—
Interest bearing deposits		225,665		225,665		—		—		275,783		275,783		—		—
Certificates of Deposit		25,000		25,000		—		—
Total cash and cash equivalents	$	716,679	$	716,679		—		—		773,994		773,994		—		—
Short-term investments
Certificates of Deposit	$	75,000	$	75,000		—		—		50,000		50,000		—		—
Total short-term investments	$	75,000	$	75,000						50,000		50,000
Total	$	791,679	$	791,679		—		—	$	823,994	$	823,994		—		—

The fair value of the Notes is not required to be measured at fair value on a recurring basis. Upon issuance, the fair value of the Notes was measured using two approaches that consider market related conditions, including market benchmark rates and a secondary market quoted price, and is therefore within Level 2 of the fair value hierarchy.

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

Historically, our uses of cash have been funded with cash flow from operations and existing cash on hand. We also maintain an asset-based revolving credit facility that allows us to borrow up to $400 million, which will expire in January 2024. In April 2020, the Company issued $415 million aggregate principal amount of 3.75% convertible senior notes due in 2025 in a private placement to qualified institutional buyers. Interest is payable semi-annually. Refer to Note 8 to the Consolidated Financial Statements for additional information regarding our long-term debt.

As of ~~May 1,~~July 31, 2021, we had approximately ~~$791.7~~$824.0 million in cash and cash equivalents and short-term investments, which includes the proceeds from the Notes. We expect to be able to fund our future cash requirements through current cash holdings and available liquidity.

	May 1,		January 30,		May 2,		July 31,		January 30,		August 1,
	2021		2021		2020		2021		2021		2020
Working Capital (in thousands)	$	751,297	$	664,161	$	896,711	$	832,365	$	664,161	$	741,953
Current Ratio		2.01		1.77		2.35		2.08		1.77		1.88

Working capital increased ~~$87.1~~$168.2 million compared to January 30, 2021 and ~~decreased $145.4~~$90.4 million compared to last year. The ~~$145.4~~$90.4 million ~~decrease~~increase in our working capital, compared to ~~May 2, 2021,~~August 1, 2020, is driven by an $82.3 million increase in inventory, a ~~$94.0~~$73.8 million decrease in ~~cash and short-term investments,~~accounts payable, a ~~$56.4~~$60.4 million ~~decrease in prepaid expenses, a $65.9 million increase in accrued compensation, and a $54.8 million increase in accounts payable; a $45.0 increase in inventory, and a $42.3 million increase~~

~~in net accounts receivable, a $30.8 million~~ decrease in current operating lease liabilities, a $48.1 million increase in accounts receivable, and a $22.8 million decrease due to dividends ~~payable.~~payable, offset by a $74.8 million decrease

in cash and short-term investments,a $67.1 million increase in accrued compensation,and a $36.4 million decrease in prepaid expenses.

Net cash provided by operating activities totaled ~~$0.4~~$121.9 million for the 1326 weeks ended ~~May 1,~~July 31, 2021, compared to net cash used for operating activities of ~~$(209.9)~~($36.4) million for the 1326 weeks ended ~~May 2,~~August 1, 2020. Our primary outflow for the 1326 weeks ended ~~May 1,~~July 31, 2021 was for the payment of operational costs. For the period ended ~~May 2,~~August 1, 2020, our major source of cash from operations was merchandise sales and our primary outflow of cash for operations was for the payment of operational costs.

Net cash used for investing activities totaled ~~$112.2~~$140.4 million for the 1326 weeks ended ~~May 1,~~July 31, 2021, compared to net cash used for investing activities of ~~$9.1~~$6.8 million for the 1326 weeks ended ~~May 2,~~August 1, 2020. Investing activities for the 1326 weeks ended ~~May 1,~~July 31, 2021 primarily consisted of ~~$75.0 million of short-term investment purchases and $36.8~~$86.2 million of capital expenditures for property and ~~equipment.~~equipment and $50.0 million of net short-term investment purchases. Investing activities for the 1326 weeks ended ~~May 2,~~August 1, 2020 primarily included ~~$33.9~~$61.4 million of capital expenditures for property and equipment, partially offset by ~~$25.0~~$55.0 million of net short-term investment sales.

Net cash used for financing activities totaled ~~$22.1~~$58.1 million for the 1326 weeks ended ~~May 1,~~July 31, 2021, compared to net cash provided by financing activities of ~~$714.6~~$580.2 million for the 1326 weeks ended ~~May 2,~~August 1, 2020. Cash used for financing activities for the 26 weeks ended July 31, 2021 consisted primarily of $53.2 million for cash dividends paid at quarterly rates of $0.1375 and $0.18, for the 13 weeks ended May 2, 2021 ~~consisted primarily of $22.9 million for cash dividends paid at a quarterly rate of $0.1375~~ and ~~$10.9~~July 31, 2021, respectively, and $17.5 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 ~~$12.1~~$13.1 million of proceeds from stock option exercises.

Cash provided by financing activities for the 1326 weeks ended ~~May 2,~~August 1, 2020 consisted primarily of $406.1 million of net proceeds from the issuance of the Notes and ~~$330.0~~the $200.0 million of borrowings on our Credit Facilities, net of a $130.0 million pay-down on the Credit Facility during the 13 weeks ended August 1, 2020. This was partially offset by $20.0 million used for purchases of 1.7 million shares of common stock under publicly-announced programs in ~~early-March~~early March 2020, and ~~$1.4~~$5.2 million for the repurchase of common stock from employees for the payment of taxes in connection with the vesting of share-based payments. We borrowed on our Credit Facilities and issued the Notes to strengthen our cash position and provide us with additional financial flexibility during ~~the remainder of~~ the ongoing COVID-19 pandemic.

In January 2019, we entered into a Credit Agreement for five-year, syndicated, asset-based revolving Credit Facilities. 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 expire January 30, 2024.

As of ~~May 1,~~July 31, 2021, the Company was in compliance with the terms of the Credit Agreement and had $7.9 million outstanding in stand-by letters of credit. No loans were outstanding under the Credit Agreement as of ~~May 1,~~July 31, 2021.

Capital expenditures for the 1326 weeks ended ~~May 1,~~July 31, 2021 were ~~$36.8~~$86.2 million, and included ~~$18.9~~$46.6 million related to investments in our stores, including 1120 new AEO stores ~~(four~~(7 American Eagle stores, ~~six~~12 Aerie stand-alone stores, ~~(including one OFFLINE store),~~ and one ~~Unsubscribed~~Todd Snyder store), ~~three~~eight remodeled and refurbished stores, and fixtures and visual investments. Additionally, we continued to support our infrastructure growth by investing in information technology initiatives ($~~10.8~~25.9 million), e-commerce ($~~3.2~~6.3 million), and other home office projects ($~~3.9~~7.4 million).

For Fiscal 2021, we expect capital expenditures to be in the range of $250 million to $275 million related to the continued support of our expansion efforts, stores, information technology upgrades to support growth, and investments in e-commerce. We expect to be able to fund our capital expenditures through current cash holdings and cash generated from operations.

During Fiscal 2019, our Board authorized the repurchase of 30.0 million shares of common stock under a new share repurchase program, which expires on February 3, 2024, bringing our total share repurchases authorization to 30.0 million shares.

In Fiscal 2020, to preserve cash liquidity in response to the uncertainty created by ~~the impact of~~ COVID-19, the Company suspended its publicly-announced share repurchase program. The Company unsuspended its share repurchase program at the beginning of Fiscal 2021, but did not repurchase any shares under this program during the 1326 weeks ended ~~May 1,~~July 31, 2021. ~~During~~In early 2020, prior to the ~~13 weeks ended May 2, 2020, as part~~suspension of our ~~publicly-announced~~ share repurchase program, we repurchased 1.7 million shares for $20.0 million, at a weighted average price of $11.63 per share.

During the 1326 weeks ended ~~May 1,~~July 31, 2021 and ~~May 2,~~August 1, 2020, we repurchased approximately ~~0.4~~0.6 million and ~~0.1~~0.4 million shares, respectively, from certain employees at market prices totaling ~~$10.9~~$17.5 million and ~~$1.4~~$5.2 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. The aforementioned ~~shares~~ repurchased shares have been recorded as treasury stock.

During the 13 weeks ended ~~May 1,~~July 31, 2021, our Board of Directors (“Board”) ~~declared a quarterly cash~~raised our annual dividend ~~of $0.1375~~rate from $0.55 per share ($0.1375 per share on ~~March 2, 2021, which was paid~~a quarterly basis) to $0.72 per share ($0.18 per share on ~~March 26, 2021.~~

~~During the 13 weeks ended May 2, 2020,~~a quarterly basis), a 31% increase. Additionally, our Board declared a quarterly cash dividend of ~~$0.1375~~$0.18 per share on ~~March 26, 2020, originally payable on May 14, 2020 to stockholders of record at the close of business on April 30, 2020.As part of our efforts to carefully manage the impact of COVID-19 on our liquidity, the first quarter dividend payment~~June 3, 2021, which was ~~deferred and~~ paid on ~~December 30, 2020 to stockholders of record at the close of business on December 16, 2020.~~July 23, 2021.

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 ~~outbreak,~~pandemic, business performance, and the macroeconomic environment. 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.

Our critical accounting policies and estimates are described in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in the Notes to our Consolidated Financial Statements for the year ended January 30, 2021 contained in our Fiscal 2020 Form 10-K. Any new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements have been discussed in the ~~notes~~Notes to ~~our~~the Consolidated Financial Statements in this Quarterly Report on Form 10-Q. The application of our critical accounting policies and estimates may require our management to make judgments and estimates about the amounts reflected in the Consolidated Financial Statements. Our management uses historical experience and all available information to make these estimates and judgments, and different amounts could be reported using different assumptions and estimates.

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. An unrealized gain of ~~$2.9~~$0.9 million and $3.9 million is included in accumulated other comprehensive income during the 13 and 26 weeks ended ~~May 1, 2021.~~July 31, 2021, respectively. Our market risk profile as January 30, 2021 is disclosed in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of our Fiscal 2020 Form 10-K, which is unchanged as of ~~May 1,~~July 31, 2021.

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized, and reported within

the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’sof~~American Eagle Outfitters, Inc.~~ management (the “Management”), including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, Management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

In connection with the preparation of this Quarterly Report on Form 10-Q, as of ~~May 1,~~July 31, 2021, the Company performed an evaluation under the supervision and with the participation of our Management, including the principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act). Based upon that evaluation, our principal executive officer and our principal financial officer ~~have~~ concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective in the timely and accurate recording, processing, summarizing, and reporting of material financial and non-financial information within the time periods specified within the SEC’s rules and forms. Our principal executive officer and principal financial officer also concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our Management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

There has been no change in our internal control over financial reporting during the quarter covered by this ~~report~~Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

We are involved, from time to time, in actions associated with or incidental to our business, including, among other things, matters involving consumer privacy, trademark and other intellectual property, licensing, importation of products, taxation, and employee relations. WeAs of the date hereof, we believe at present that the resolution of currently pending matters will not individually or in the aggregate have a material adverse effect on our financial position or results of operations. However, our assessment of any litigation or other legal claims could potentially change in light of the discovery of facts not presently known or determinations by judges, juries, or other finders of fact that are not in accord with management's evaluation of the possible liability or outcome of such litigation or claims. Consistent with ~~SEC~~Item 103 of 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. Applying this threshold, there are no environmental matters to disclose for this period.

Refer to Note ~~11. “Legal Proceedings”~~11 of the ~~Notes~~notes to the Consolidated Financial Statements included herein for additional information.

Risk factors that affect our business and financial results are discussed within Part 1, Item 1A of our Fiscal 2020 Form 10-K. ~~The information presented below updates, and should be read in conjunction with the risk factors and information disclosed in our Fiscal 2020 Form 10-K and any other filings that we make with the SEC.~~ There have been no material changes to our risk factors as disclosed in the Fiscal 2020 Form 10-K and in our subsequent filings with the SEC.

The following table provides information regarding our repurchases of our common stock during the 13 weeks ended ~~May 1,~~July 31, 2021.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Delaware		No. 13-2721761
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

77 Hot Metal Street, Pittsburgh, PA		15203-2329
(Address of principal executive offices)		(Zip Code)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	AEO	New York Stock Exchange

		Page Number
PART I - FINANCIAL INFORMATION
	Forward Looking Statements	3
Item 1.	Financial Statements	7
	Consolidated Balance Sheets: ~~May 1,~~July 31, 2021, January 30, 2021 and ~~May 2,~~August 1, 2020	7
	Consolidated Statements of Operations: 13 and 26 weeks ended ~~May 1,~~July 31, 2021 and ~~May 2,~~August 1, 2020	8
	Consolidated Statements of Comprehensive Income: 13 and 26 weeks ended ~~May 1,~~July 31, 2021 and ~~May 2,~~August 1, 2020	9
	Consolidated Statements of Stockholders’ Equity: 13 and 26 weeks ended ~~May 1,~~July 31, 2021 and ~~May 2,~~August 1, 2020	10
	Consolidated Statements of Cash Flows: 1326 weeks ended ~~May 1,~~July 31, 2021 and ~~May 2,~~August 1, 2020	11
	Notes to Consolidated Financial Statements	12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3739
Item 4.	Controls and Procedures	3839

PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	3941
Item 1A.	Risk Factors	3941
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3941
Item 3.	Defaults Upon Senior Securities	N/A
Item 4.	Mine Safety Disclosures	N/A
Item 5.	Other Information	N/A
Item 6.	Exhibits	4042

	13 Weeks Ended
(In thousands)	May 1, 2021		May 2, 2020
Accrued interest for interest payments	$	3,934	$	215
Amortization of discount		4,428		213
Total interest expense	$	8,362	$	428

	13 Weeks Ended				26 Weeks Ended
(In thousands)	July 31, 2021		August 1, 2020		July 31, 2021		August 1, 2020
Accrued interest for interest payments	$	3,815	$	3,903	$	7,749	$	4,118
Amortization of discount		4,956		3,982		9,384		4,195
Total interest expense	$	8,771	$	7,885	$	17,133	$	8,313

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

	13 Weeks Ended
Total revenue (in thousands)	May 1, 2021			May 2, 2020
American Eagle merchandise	$	727,702		$	390,250
Aerie merchandise		297,487			154,981
Total merchandise⁽¹⁾	$	1,025,189		$	545,231

As a percentage of total revenue
American Eagle merchandise		70	%		71	%
Aerie merchandise		29	%		28	%
Total merchandise⁽¹⁾		99	%		99	%

	Total				Total Number of		Maximum Number of
	Number of		Average		Shares Purchased as		Shares that May
	Shares		Price Paid		Part of Publicly		Yet Be Purchased
Period	Purchased		Per Share		Announced Programs		Under the Program
	(1)		(2)		(1)		(1) (3)
Month #1 (January 31, 2021 through February 27, 2021)		1,431	$	23.92		—		30,000,000
Month #2 (February 28, 2021 through April 3, 2021)		385,041	$	28.07		—		30,000,000
Month #3 (April 4, 2021 through May 1, 2021)		4,252	$	34.57		—		30,000,000
Total		390,724	$	28.13		—		30,000,000


* Exhibit 31.1		Certification by Jay L. Schottenstein pursuant to Rule 13a-14(a) or Rule 15d-14(a)

* Exhibit 31.2		Certification by Michael A. Mathias pursuant to Rule 13a-14(a) or Rule 15d-14(a)

** Exhibit 32.1		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

** Exhibit 32.2		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Exhibit 101		The following materials from the Company’s Annual Report on Form 10-Q for the quarter ended ~~May 1,~~July 31, 2021, formatted as inline eXtensible Business Reporting Language (“XBRL”): (i) Consolidated Balance Sheets as of ~~May 1,~~July 31, 2021, January 30, 2021 and ~~May 2,~~August 1, 2020, (ii) Consolidated Statements of Operations for the 13 and 26 weeks ended ~~May 1,~~July 31, 2021 and ~~May 2,~~August 1, 2020, (iii) Consolidated Statements of Comprehensive Income for the 13 and 26 weeks ended ~~May 1,~~July 31, 2021 and ~~May 2,~~August 1, 2020, (iv) Consolidated Statements of Stockholders’ Equity for the 13 and 26 weeks ended ~~May 1,~~July 31, 2021 and ~~May 2,~~August 1, 2020, and (v) Consolidated Statements of Cash Flows for the 1326 weeks ended ~~May 1,~~July 31, 2021 and ~~May 2,~~August 1, 2020
* Exhibit 104		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~May 1,~~July 31, 2021, formatted in inline XBRL

		American Eagle Outfitters, Inc. (Registrant)

By:		/s/ Jay L. Schottenstein
		Jay L. Schottenstein
		Chief Executive Officer
		(Principal Executive Officer)

By:		/s/ Michael A. Mathias
		Michael A. Mathias
		Executive Vice President, Chief Financial Officer
		(Principal Financial Officer)