Greetings. Welcome to the American Eagle Outfitters first quarter 2021 earnings conference call. At this time, all participants are in listen- only mode. A question- and- answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Judy Meehan. You may begin.
Good afternoon, everyone. Joining me today for our prepared remarks are Jay Schottenstein, Executive Chairman and Chief Executive Officer. Jen Foyle, President, Executive Creative Director for American Eagle and Aerie. Michael Rempell, Chief Operating Officer, and Mike Mathias, Chief Financial Officer. Before we begin today's call, I need to remind you that we will make certain forward-looking statements. These statements are based upon information that represents the company's current expectations or beliefs.
Results actually realized may differ materially based on risk factors included in our SEC filings. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. Also, please note that during this call and in the accompanying press release, certain financial metrics are presented on both a GAAP and non-GAAP adjusted basis.
Reconciliations of adjusted results to the GAAP results are available in the tables attached to the earnings release, which is posted on our corporate website at aeo-inc.com in the investor relations section. Here you can also find the first quarter investor presentation. As a note, due to the significant impact COVID-19 had on fiscal 2020 financial results, our first quarter fiscal 2021 results are compared to the first quarter of fiscal 2019, which we believe is a more meaningful comparison. Now I will turn the call over to Jay.
Good afternoon, and thanks for joining us today. I'm extremely pleased with the pace of our business and the outstanding financial performance in the first quarter. Even as we compare to the pre-pandemic 2019, our results are truly remarkable and validate the strength of our value creation plan. We exceeded expectations in essentially all areas of the business, giving us a strong start to the year. We hit record first quarter revenue of over $1 billion and the highest first quarter operating income in our history of $133 million, which was up 117% from 2019.
Importantly, we saw strength across both the American Eagle and Aerie brands. We ran an extremely healthy business with margins hitting the highest levels in many years. The actions we took in 2020, including our strategic growth pillars, combined with the favorable external environment, are having a very meaningful impact on our business. Starting with our first pillar, accelerating Aerie to $2 billion. This quarter provided even more evidence that Aerie is the most exciting brand in retail today.
On nearly 90% revenue growth, operating earnings rose well over 700%. Aerie is truly hitting its stride. We have increased digital penetration, expanded geographically, and pushed new and explosive categories like OFFLINE, leggings, and additional apparel items. As Jen will review, we continue to gain new customers at a fast clip, who are spending more on our brand. At this pace, we expect to hit our $2 billion target faster than expected, fueling significant earnings growth.
Second, reigniting AE. As I said back in January, American Eagle is a strong and highly profitable brand with significant opportunity for both growth and profit improvement. The first quarter demonstrated that potential. We are seeing a favorable response to our product and new marketing. While the jeans category continues to dominate, across the brand, we hit high margin rates with promotional well contained. I'm very proud of the great progress under Jen's leadership. I know we are only at the beginning of realizing American Eagle's full potential.
Next, customer-facing priorities delivered in the first quarter fueled by our leading omni capabilities. Digital growth was terrific as momentum continued. We also saw an improvement in our store business as consumers are starting to get out more. Our loyalty relaunch is a home run and producing a stronger customer experience, positive margin contribution, and higher ROI. The supply chain delivered great results even in the face of logistic headwinds. Deliveries were on time, and we were able to successfully chase into top performing items.
The multi-year investment we made in these areas continue to pay off. Our fifth pillar to strengthen ROI discipline is clearly evident in our results. First quarter growth in our profitability is a testament to the incredible collaboration across teams. We have not taken our eye off the ball, and remain focused on ensuring strong financial management is a top priority.
Lastly, ESG initiatives. I'll highlight our environmental goals where we continue to make great progress. We are reducing water, utilizing more sustainable raw materials, and reducing energy to ultimately achieve carbon neutrality in our own facilities by 2030. We know sustainability is important to our customer and it's important to us, too. Joining our commitment to social responsibility at I&D, this month, we awarded our first 15 REAL Change Scholarships for Social Justice. We are excited to support educational pursuits of our amazing associates who are actively driving anti-racism, equality, and social.
Before I turn it to Jen, clearly 2021 is off to a great start. I'm so proud of the excellent execution across all areas of the company. The past several months truly validates my belief that we have more opportunity than at any time in the past. We have two of the best brands in the industry with significant momentum, and we have the right teams and leadership in place to achieve our goals. The macro environment is favorable with pent-up demand and new trends that play to our strength. At this pace, we expect to achieve our 2023 goal of $550 million of operating income way ahead of schedule. With that, I'll turn the call over to Jen.
Thanks, Jay, and good afternoon. I hope everyone is doing well. To say the least, we've had an incredible start to the year across both Aerie and American Eagle. There is clearly strong demand and momentum for our brands. Our strategies to expand into new categories, strengthen product and marketing, and fuel our brand platforms are having a meaningful impact in our business. It's truly gratifying to see strong sales and customer growth and a very high level of profit flow-through.
Let me begin with Aerie. I am thrilled by the incredible excitement and energy for Aerie and our merchandise collection. We continue to set records across the brand. Building on the momentum throughout last year, the first quarter accelerated. Sales rose an incredible 89% from 2019. The consistency we are experiencing is truly amazing. This was the 26th consecutive quarter of double-digit growth.
As aerie.com becomes a go-to destination for our customers, the online business more than doubled, posting a growth of 158%. Store revenue increased 36%, with about 1/3 from new store openings. Aerie's active customer file expanded approximately 40% as we entered new markets, and we increased engagement on social channels, including TikTok, where we saw tremendous response. With new customers attracted to our brand and demand for our merchandise accelerating, brand equity scores show growing awareness.
Sales metrics were strong across the board, notably, our AURs were up 50%. High demand is driving greater pricing power. A significant reduction in promotions contributed to an over 700% increase in operating profit and a 23.5% operating margin. Across categories, we saw broad-based strength, with all areas rising in the double digits. Intimates was terrific, as was swimwear. Our product innovation and units are fueling demand.
Aerie's signature legging business is exceptional and continues to expand with the success of our new OFFLINE by Aerie activewear brand. Related categories such as fleece, tanks, and sports bras are also tracking very well. Geographic expansion is a major priority and opportunity for Aerie. We opened six new stores in the quarter, including a new OFFLINE by Aerie store, bringing our running total of OFFLINE openings to five stores. We are very pleased with the early results. As Mike will review, we plan to continue our market expansion strategy.
Shifting gears now to American Eagle. As I said at our Investor Day in January, AE has a wonderful heritage defined by individuality, purpose, and art. My goal has been to harness AE's iconic image and update it for today's youth. Harmonizing the old with the new, we want to leverage our dominance in jeans and focus on more outfitting. We are also optimizing our inventory for better margins. I'm so excited with the progress we've made in such a short period of time. We've achieved the best margins in many years, and customer demand is strengthening across all categories.
This quarter, we saw a 39% increase in operating profit, with operating margins rising to 20.8%. Our focus on inventory optimization and profit improvement drove merchandise margin expansion. We made better decisions around promotional activity and drove greater full-price selling. We are also pleased with the improvement in sales, led by a 20% increase in the digital business. Customer engagement was up 2% with new digital acquisitions up 17%. Demand across our jeans and bottoms business remains very strong. We continue to solidify our position as the number one brand within our demo and the number one women's brand across all ages.
With a new denim cycle underway, we are innovating and investing to maintain our leadership position and to offer the absolute best to our customers. As silhouettes transition, I'm excited for what's in the pipeline. In the first quarter, I'm pleased to report that we had our best quarter ever in fleece and graphics. We plan to lean into this momentum in the back half of the year. As bottoms evolve, we have the opportunity to delight our customers with new styles across tops and greater outfitting.
Just six months into rewriting our strategy, the success we've seen reinforces my excitement for our longer-term opportunity. The team is energized, and I can't wait to share what's in store for AE in the coming quarters. Lastly, I can't say enough about the great work our teams continue to deliver. The dedication and drive of the Aerie team is simply amazing. They strive for greatness quarter- after- quarter. It's been terrific to work with the AE team as well over the past several months. We have extraordinary talent, and I look forward to driving our vision together. Thanks. Now I'll turn the call over to Michael.
Thanks, Jen, good afternoon, everyone. I'm really proud of how quickly and enthusiastically our teams embraced our Real Power. Real Growth. value creation plan. The results out of the gate in 2021 are tremendous, and they affirm that we are positioning our operations in the right way to fuel our next chapter of growth. At the heart of our operating strategy is a truly customer-centric focus. The investments we've made in our systems, our data analytics, omni-channel, and supply chain are yielding results.
I firmly believe that the strength of these capabilities and our ongoing investments are a unique competitive advantage. Today, I'm going to talk about three important areas of our business. Our selling channels, our customer focus, and our supply chain transformation. Let me start with digital, which continues to post remarkable results. Our revenue rose 57% from 2019, producing incremental revenue of $150 million in the first quarter. Online traffic and transactions increased well into the double digits.
We achieved strong AURs and significantly higher margins, further fueling an already highly profitable channel. Digital penetration increased to 40% of total revenue, up from 30% in 2019. As customers continue to embrace online shopping, we are delivering an ever-improving experience. For example, we recently introduced a new tab structure to provide greater ease of shopping across brands while enabling more immersive brand experiences. We also introduced more personalization and enhanced curbside and in-store pickup features, which yielded great results. We improved our mobile experience and redesigned our apps, resulting in a 70% increase in revenue from total mobile.
Stores improved in the first quarter, despite continued COVID-related traffic pressures. Fleet optimization work is underway, and we are pleased with the initial transfer rates from recent store closures, which are running well ahead of our 40% goal. Proactive customer engagement has been a driving factor in retaining customers, transitioning them to nearby stores or online. Our customer base is extremely healthy and growing. Nearly 1 million new customers have been added since 2019. The average spend per customer is up in the double digits, with a greater number of customers shopping across both brands.
This speaks to the quality of our engagement, our products, our marketing, and technology enhancements. The relaunch of our loyalty program last summer has been highly successful, not only in attracting new customers, but fueling more frequent engagement, more purchases, and an improvement to margins. Across the board, our operational teams delivered exceptional results this quarter. As I've discussed before, we are highly focused on supply chain transformation aimed at improving inventory productivity, delivering efficiencies, and better and faster customer experience. This work is yielding results.
For example, we reduced SKU counts across assortments to focus on the most productive styles, which resulted in faster turns and a meaningful increase in product margins in the first quarter. Our regional fulfillment nodes are resulting in better-placed inventory, creating efficiencies, and enabling faster service to both stores and to customers. In the first quarter, we leveraged e-commerce delivery expense, had fewer shipments per order, and delivered to customers one- and- a- half days faster than in the first quarter of 2019. Our supply chain team anticipated and successfully managed through shipping delays with very minimal disruption to our business.
We also successfully executed chase strategies to replenish high-demand items and supported outperformance of Aerie, OFFLINE swimwear, and a variety of fashion choices. This really speaks to the strength of our team, our capabilities, and our vendor partnerships. Now, as I look ahead, we are staying in front of ongoing supply chain challenges, and we have continued to see favorability in our product costs for the remainder of the year. In light of our strengthened operations, focus on driving higher margins, inventory optimization, as well as our well-positioned and growing brands, I'm very confident that we're positioning AEO for continued success. With that, I'm going to pass the call over to Mike.
Thanks, Michael. Good afternoon, everyone. I'll start by saying we are obviously extremely pleased with the first quarter, during which we had a number of all-time highs and milestones. Results were well ahead of our expectations across the board. Our strategies are clearly working, and we're making great progress on our Real Power. Real Growth. plan. This performance reflects a few major factors. Our brands are strong, and our merchandise is in demand, fueling very healthy sales and KPIs. Our inventory optimization initiatives are working, resulting in lower promotions and significant growth in our merchandise margin.
Both of our selling channels are delivering positive results, and our investments in our supply chain capabilities are effectively supporting our growth. These factors, plus a favorable environment, led to record first quarter performance. Revenue of over $1 billion and operating income of $133 million marked all-time highs for the company. Demand for Aerie continues at a rapid pace, driving significantly higher sales, margins, and profitability. American Eagle saw slight top-line growth and experienced one of the brand's highest merchandise margin rates on record, with more runway ahead.
As Judy mentioned, I'll review first quarter 2021 against the same period in 2019. Consolidated first quarter net revenue increased 17%. Across brands and channels, sales metrics were exceptionally strong, with our average unit retail up over 20%, fueling a healthy transaction value. Conversion rates across channels were also favorable. Digital revenue rose 57%, with Aerie up 158% and AE up 20%. The strong growth reflects the benefits of our multi-year investments to capitalize on the customer migration to digital and omni-channel e-commerce. Online sales for the quarter represented approximately 40% of our total mix, increasing significantly from 30% in the first quarter of 2019.
Store revenue was flat, a nice improvement from the fourth quarter. Additionally, U.S. stores posted positive revenue in the quarter, with our stores in Canada affected more by lower traffic and store closures related to COVID-19. At a brand level, AE revenue increased slightly to $728 million. Strong demand, lower promotions, along with inventory optimization initiatives led to a record merchandise margin. AE's operating profits jumped 39% to $151 million, and the operating margin expanded 570 basis points to 20.8%.
These results are a clear proof point of the margin opportunity for AE, which we reviewed back in January. While the quarter showed great progress, the work continues. Jen reviewed the progress on the product side, and we still have opportunities to maximize inventory productivity. Aerie had another standout quarter with growth accelerating. Revenue increased 89% to $297 million. Operating income hit $70 million, rising over 700%.
The operating margin expanded to 23.5% from 5.3% in 2019. As I've highlighted quite a few times now, Aerie is at an inflection point in its growth trajectory. We'll continue to realize significant flow-through of incremental sales to the bottom line. Total consolidated AE gross profit dollars were up $111 million, or 34% compared to the first quarter of 2019, and gross margin expanded 550 basis points to 42.2%. Merchandise margin expanded significantly, reflecting continued promotional discipline and benefits from our inventory optimization initiatives.
Our product assortments were well received, which enabled higher full-price selling. Rent dollars were lower, and levered significantly as a result of negotiated savings, store closures, and benefits from impairments. Offsetting this, we saw higher delivery, distribution, and warehousing costs, as well as higher incentive compensation. SG&A leveraged 40 basis points as a rate to sales.
The dollar increase of $34 million from first quarter 2019 was due to compensation in line with our performance-based incentive program, an increase in corporate salaries, and higher variable selling expenses, partly offset by lower travel expense. Operating income of $133 million increased 170% compared to $49 million in adjusted operating income in the first quarter of 2019. The operating margin of 12.9% expanded 730 basis points, marking a 14-year high for the company.
Corporate unallocated expense increased 29% to $88 million, primarily due to incentive compensation. As a result of historically high profits delivered this quarter, incentive accruals are higher than normal and up against the minimal accrual in 2019. Adjusted EPS was $0.48 per share in the quarter, marking a record first quarter outcome for us. Our diluted share count was 207 million, and included 34 million shares of unrealized dilution associated with our convertible notes.
Ending inventory was up 2% compared to the end of the first quarter of fiscal 2019. American Eagle inventory was down 15% due to continued inventory optimization initiatives and a significantly reduced clearance level. Aerie's inventory increased approximately 50% versus 2019, supporting the strong sales growth, new stores, and product expansion, including OFFLINE by Aerie. Across brands, inventory is well- positioned and below current demand levels. As Michael said, we're comfortable with our ability to receive goods through our supply chain and have successfully chased in strong items.
I'm very pleased with our liquidity and the health of our balance sheet. We ended the quarter with $792 million in cash and short-term investments. Even excluding proceeds from the convertible bond issuance, our liquid cash balance is up $36 million versus 2019. Capital expenditures totaled $37 million in the quarter. For 2021, we continue to expect capital expenditures of $250 million-$275 million, in line with the average annual target we shared at our investor meeting. We expect this to be back-half loaded given the timing of Aerie and OFFLINE new store openings.
Regarding our store fleet, we are pleased with the transfer rates of recently closed locations and continue to expect incremental closures this year. We've had productive negotiations with landlords and have continued to secure lower rents and build flexibility into the portfolio. The vast majority of our 2020 renewals were short-term, resulting in almost 450 leases coming to term in 2021. This year, we plan to open approximately 60 Aerie stores and over 30 OFFLINE by Aerie stores, which will be a mix of standalones and Aerie side-by-side locations.
Now, as we look ahead, we are encouraged by our continued trend early in the second quarter. Both brands continue on a healthy pace. There's still uncertainty ahead, but as we reflect on our 2023 targets provided back in January of $5.5 billion in revenue and $550 million in operating profit, we believe we are on pace to achieve the profit goal this year, obviously well ahead of expectations. We're excited about this prospect and what it could imply for our future profitability as we continue to implement and execute on our long-term growth strategies.
As a reminder, our reported second quarter 2019 results included a $40 million benefit to revenue and $38 million benefit to operating profit from the termination of our licensing partnership with a third-party operator in Japan. We're extremely pleased with the season of success with which we are putting our Real Power. Real Growth. Plan into action. As I said back in January, I believe we're heading into the most exciting period in our history. Our brands are stronger than ever, our business model is sound, and our first quarter results bear testament to the quality of our strategy and strength of our execution. With that, we'll open it up for questions.
At this time, we'll be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. If you would like to remove your question from the queue. For participants using speaker equipment please unmute before pressing the star key. Our first question comes from Matthew Boss with JPMorgan. Please proceed with your question.
Great. Thanks, and congrats on the momentum.
Thanks, Matt.
Maybe to kick off, Jay, I guess help us to characterize the magnitude of business momentum acceleration that you're seeing in the second quarter relative to the 17% growth in the first. I think larger picture, I don't know, I'm just curious, your view, how sustainable, in your opinion, is this demand recovery for overall apparel and just any thoughts then on the potential for a denim-led fashion cycle on top as we think forward?
Okay. I think first of all, everything is still rolling as strong as it did in the first quarter. So far from momentum, we're very pleased. Look, I'm very optimistic. I think our best days are ahead of us. I see great potential. I see great potential in American Eagle by itself. Aerie's on fire. Our goal was by 2023 to be a $2 billion Aerie company, and I think we'll be there within the next 12 months. It's very strong, and OFFLINE's starting out great. We think OFFLINE has the potential to be like another Aerie. We're very optimistic.
Thank God everything's going the right way. It's not just one area of the business. It's not just merchandise drives the business. You have to have strong logistics with it. You have to have strong sourcing. In every area, it's strong right now. We're gathering more customers. Our loyalty program's getting bigger, and this may be the greatest time in this company's history.
Wow. Just maybe a follow-up. On the accelerated operating margin target commentary, to be clear, and as we think about being ahead of the schedule, just kind of making sure, as you talk about being ahead of schedule, you're also not citing the target as a ceiling. Maybe what do you see as pie in the sky or any structural impediment as we look back, 2012 was 14% operating margin. Just maybe any thoughts on where could you see operating margins for this company over time?
Thanks, Matt. It's Mike. Look, I think we just gave guidance that we think we will hit this $550 million this year that we put out just four months ago for the end of 2023. We couldn't be more excited about that and then what that would mean in terms of probably re-rolling plans and talking to you at the end of this year about what the new targets for 2023 should be. Within that guidance, we're not talking about the revenue line of hitting the $5.5 billion for a reason. That's not completely out of the realm of possibility, but I think things would really have to kick in the back half of the year to hit that number. We are basically saying we will be a 10% or double-digit company this year and t here's a good chance that that could be.
We just hit almost 13% in the first quarter. Typically, the first and third quarters are a little higher operating margin because the second and fourth quarters are our sort of inventory end-of-season write-down periods. Not out of the realm of possibility we could actually hit double digits every quarter this year, I think. We're basically saying that this year, double digit, that 2023 goal also met with the $550 million target. I guess the other thing I will say, and I don't know if anyone else is doing the same math we're doing here on Aerie flow-through, but if you go back to January, we talked about the Aerie target for 2023 implied about a 20% flow-through of Aerie revenue to the bottom line.
I think you and others asked if that was conservative. You think it could be higher. Well, we just generated over 40% flow-through in the first quarter. Now, I'm not saying that's going to happen every quarter, that's something we should expect to happen every quarter. The flow-through of Aerie basically has me to answer your question directly, I'm not really sure how high is high. I think those will be things we'll address later in the year when we come back around with targets. We're going to be in the double digits this year. I think it just means that as we re-roll 2023, 10% is going to be way too low. We'll see what double digit means. We'll talk about that later.
All right, great. That's the point.
Thank you. As a reminder, please limit to one question and one follow-up question. Our next question is from Jay Sole with UBS. Please proceed with your question.
Great. Thank you so much. I guess, if you could just elaborate a little bit and take us through some of the categories at Aerie, maybe through the intimate apparel and then some of the other, swim and more seasonal stuff. Tell us how those did. That would be super helpful. Thank you.
Yes. Hi, Jay. Look, I'm sitting here looking at this incredible spreadsheet, looking at the numbers, I have to proudly say that every category in Aerie delivered high double-digit comps, if not triple-digit comps. We are just seeing such great acceleration in this brand. Think about it. We picked up $150 million, essentially over the past, looking at Q1, just this incredible momentum and e verything's green. I love when I see green, right? It's incredible. This team is just working so diligently. I wasn't kidding when I said in my script that we continue to drive harder, faster, and smarter and t hat's what we can do, just stay in our lane and look ahead. I do want to hit on swim, though. Who would've thought?
I still don't think we're fully ready for spring break. I have faith that next year we're going to even have a better spring break because people will be vaccinated. We sold swim like it was our best swim year ever. The margins were the highest ever. In fact, in all of our categories, margins were the highest ever. Still outpacing our inventories in sales and s wim just was exceptional. The team really delivered there. I'm proud to say 60% of that line is sustainable. We'll continue to grow that business in a greener way. It's incredible what I'm seeing. Don't forget about OFFLINE. That business, we only have a few stores out there but t he momentum that we're seeing, again, we're in the triple-digit zone here. There's so much more work to do. It's an immature brand, and we just see opportunity ahead of us.
Got it. If I could just ask one more. Mikey gave us a lot of great color on the year in terms of getting to your goals ahead of schedule. Is there any color you can give us on second quarter gross margin and SG&A, just to round out the guidance a little bit more, and give people a feel for what you're seeing in the near term?
Sure. I think, start with SG&A first. I think the growth in SG&A will be similar. We were about mid-teens in Q1. Obviously, sales trajectory, variable expenses, incentive compensation will probably be part of the story again. It'd be similar from an SG&A growth perspective in the second quarter. On gross margin, the 42+% that we just hit in the first quarter, I think the improvements over 2019 could be similar, but that implies like a 39%+, something more in that range. Again, second quarter being end of season, spring inventory write-down period for us. We'll see how it progresses here into the quarter. Rest of the quarter, July's still a big month for us, but similar gross margin improvement, but the 42%, I'm not expecting to hit that. Probably something more in the high 30s.
Got it. Okay. Thank you so much.
I think the flow-through to operating margin, Jay, when we think about, I think there's SG&A leverage implied there, significant gross margin improvement. I think the operating rate commentary just gave earlier, we have our sights on double digits again.
Understood. Thank you so much.
Thank you. Our next question comes from Adrienne Yih with Barclays. Please proceed with your question.
Good afternoon. I have to add my congratulations on the story. Both concepts look great. Jen, I actually wanted to talk to you about this oft-talked-about now silhouette shift, going from big over little to little over big. We're seeing a lot of it. We knew that was happening, right, in 2017, 2018, 2019, but it seems like it's really coming into the mass adoption phase. How strong are you seeing that trend emerge now and w hat percent of the denim offering is currently in kind of wider legs and non-skinny bottoms? Thanks.
Hi, Adrienne. How are you?
Good.
Look, I feel just incredibly excited about the denim opportunity. Back in September, we were seeing the shift, wider, looser denim fits, more fashion accelerating. I'd like to say my timing was of the essence because in September, we immediately shifted into these silhouettes. We've seen these bodies in both men's and women's. We can't forget about men's. Their active swim is doing great, but mostly, predominantly women's, we're really seeing the shift. Again, we were able to react. This team has just an amazing test and scale strategy in denim.
The diligence there and our ability to respond and react to this trend is like no other. We've been capturing it. The denim trends certainly exceeded expectations in Q1 because of this, and we're going to continue to drive that business as we look ahead. We've completely shifted our mix. We feel really with the new incentives for customers back to school. Look, our mix, I'm not going to share that secret. Thank you, Chair. I will tell you that it's definitely penetrating higher than we've seen in years, and we're pretty excited about it, Adrienne.
Think about the opportunity in outfitting now, too. We're doing things that we've never done before, testing the outfit, testing what goes back to the denim. We're fitting with the tops. We're doing all the things that are right, so that she can go out looking perfect. That's the work that's underway right now. I can tell you, I think it's only going to continue. I'm sitting in the office right now with an incredibly excited American Eagle team. I reviewed spring men's and women's assortments, and boy, we've got some great things in store. It's up to us to continue to learn, remain humble, and go for it when the timing's right.
Excellent. Mike, really quickly, just on inventory. Just a clarification, the down 15% was what period of time? It sounds like you're very comfortable with supply going into the back half of the year. You've managed through the supply chain disruptions quite nicely. Confidence that you'll have visibility and access to all the inventory that you need from a chase perspective, is business ready to be better?
Yeah. In fact, I can hit the specifics, and Michael can take the second part. Team in the American Eagle brand at the end of the quarter, and Aerie was up 50%, with the result being +6% in total. I think that's versus 2019. Yeah. That's your question you're asking. Everything we're talking about here is against 2019-
Yeah.
...not a whole lot relevant compared to talking about anything. AE brand down 15 against 2019, on the flat revenue result. Aerie inventory up 50 against 2019 on the +89% revenue.
Yep. Super clean.
Michael.
Adrienne, I would just say on the inbound side. Like I said before, our team's reacting very quickly, very aggressively. Worked with our factories and diversified our carriers. While we do have longer inbound transit times, we have had fairly predictable inbound transit times. We see a very clean flow of product coming in for summer and back to school. I expect the way we're operating, the way we're booking, and with the agility that the team's executing with, we're not anticipating delays to be an issue for us at all. In fact, the ports have more or less cleared up, and the flow of goods now is better than it's been all year.
Great to hear. Best of luck.
All right. Thank you.
Thank you. Our next question is from Dana Telsey with Telsey Advisory Group. Please proceed with your question.
Hi, good afternoon, and congratulations on the nice progress. One of the things that you had been talking about is SKU rationalization. Where are you in the SKU rationalization, and where do you see that developing? I think you had once mentioned that around 95% of revenues at AE comes from 40% of SKUs. How do you see that transitioning this year and the progress there? Any further update on the logistical improvements with supply chain? Are you getting the inventory that you need when ordering for the stuff coming back to school and holiday? Thank you.
All right. Hey, Dana. Thanks for the question. It's Michael. I'll take that. First of all, on SKU rationalization is a great question. If you look at the first half of the year, what our team has really done brilliantly is reduce the number of customer choices we have in the business. If you look at what's happened within this inventory mix, what's hidden is that we reduced customer choices about 25%, but yet bought the choices that we did buy 25% deeper.
Okay? What that means is we cut out a hugely unproductive tail of choices that had lower markups, lower maintained margins, and funneled it into the items that Jen and the team were most passionate about, that we had the best costing on, that we knew we could maintain good in-stock levels on and t hat's part of what fueled our results in the first half and we see a ton more opportunity to do this in the back half.
To tie it into your question about logistics, it's really driven by the confidence we have in the new logistics capabilities that we built. I've talked before about the fact information. We opened these distribution nodes in the fourth quarter. We implemented new systems. We brought in new talent, and to the customer. In doing that, we actually pulled three weeks of supply out of stores and were able to maintain in-stock while really having a lot more flexibility with that inventory. The inventory that we bought, we made way more productive. We replenished stores much faster. We shipped to customers about two days faster.
We reduced our delivery costs because our e-commerce shipments were coming from local markets, in some cases using regional carriers. In all cases, we reduced the number of shipments that we were sending for each order a customer placed. I know it's a lot. I could go on all day about supply chain transformation, but I guess the point is the inventory reduction. The changes we made to supply chain are structural, and they're capabilities that we deployed last year, that we expanded in the first quarter, and we're going to be able to build on throughout the year.
Thank you.
Thank you. Our next question is from Janine Stichter with Jefferies. Please proceed with your question.
Hi, congratulations, thanks for taking my question. I'd like to ask specifically about the American Eagle brand. I think in the outlook that you've given, you're talking about Eagle revenues being flat with 2019, but now we're starting to see the brand grow again. Just curious how you think about maybe the upside potential for the Eagle brand and then I would also love a little bit more color on the quarter-to-date trend. I think you said that business has accelerated. Just curious if you could opine on what might be driving that. It would seem that May results would be the cleanest performance we can get without any sort of impact from stimulus. Just some thoughts on what you think is driving that acceleration. Thank you.
Sure. We set a plan back during our Investor Day with AE, and I feel like it's a really solid plan, and we're over-delivering to this plan, which is really nice to see. It was about bottom-line growth in American Eagle and accelerating the Aerie brand. Now, that said, it doesn't mean that we're not going to try to continue to grow AE and I love what I'm seeing. First of all, we've assembled a team. Much talent already existed here, and I'd like to say now we have some new additions, including a new head of design with the team, that we are going to continue to innovate and develop the best product out there in the marketplace.
I can tell you right now, I said it in my last answer, I am seeing spring 2022 as I sit here in this office, and this is a measured approach with our inventory. Learnings that we've had from the pandemic, post-pandemic, as we head into 2000. Inventory, we have such great learnings, and then how are we going to grow these categories that we potentially under-penetrated in a smart and thoughtful way, while we are, of course, at any time, maintain our margins that we've just developed that are incredible in today's world.
That said, as I look ahead, we do have some nice improvements, even as we look into May. Shorts and some other categories have improved, and we continue to work on our marketing strategies. We're going to market better than ever. We had one of the best marketing strategies, actually, we've had. In fact, the best. The Outer Banks campaign with American Eagle brought much brand awareness, incredible social awareness to our brand. I like to see what I'm seeing in retention.
Customer spend is through the roof here. Our AURs are up so t his is what we have to think about for the future and continue to deliver that product, that they want to see quality first always, and continue to look ahead in the future. I'm excited about what I see. Janine, the only thing I'll add to that, Janine, is just that Matt asked about Target, but he needs updated too. That's something we'll be talking
Okay, great. Thanks for the color.
Thank you. Our next question comes from Oliver Chen with Cowen and Company. Please proceed with your question.
Hi, thanks. Supply chain optimization, just would love your view on key catalysts there going forward. Then at the AE brand, would love to hear about the men's product and what innovations ahead and where you would say it is relative to where you want to be at tops and bottoms. Thank you.
Right. Hey, thanks, Oliver. As far as supply chain optimization goes, we have a great start, and we're delivering results. We're really just scratching the surface on what the potential. Making our inventory more productive, improving service to our customers, and reducing the cost of doing business is something that Jay, myself, our head of supply chain, we're extremely focused on, and expand the distribution presence, improve the systems we have. We're looking at some other pretty interesting capabilities that I can't talk about now, but perhaps on the next call, that we think are going to add both scale and ultimately cost savings to what we're delivering in supply chain. There's a lot more opportunity. I expect that we're going to see continued improvement throughout the year. The second part of the question was?
Yes. Hi, Oliver. How are you? Oliver, as I mentioned, we continue to outpace our best-evers in jeans. It's incredible, Oliver. We've seen such an incredible business in men's jeans as well as women's. Really proud of that momentum. Look, our focus is on getting those outfits right. Fleece certainly had an incredible quarter. Our graphic tees are really getting a resurgence, and we've really focused on that for the go-forward deliveries, and we keep on innovating there.
We're taking that business to, what I would say, more of a three-dimensional business. Our tees have been really outperforming incredibly well, and we're focusing on new qualities there for the future. I guess my point here is we still have some opportunity here, and we're going to certainly deliver and again, pace our inventory so that we can outpace the sales with underpacing our inventory. That's where we're going to continue to win with just this incredible business model that we've developed. More to come here. I think you're going to be really excited with what you see for back to school. I hope our customer loves it as much as we do.
Hey, Oliver, just to come back to that supply chain question one more time. One thing I wanted to mention that we haven't talked much about, I do think is a huge strategic lever for our business is we're looking at returns and the opportunities around returns as actually a big strategic opportunity for the company. Obviously, we make that a great experience for the customer. How can we refund money quickly? How can we get that inventory returned quickly and back into the spot where we're most likely to sell it?
Our team onboarded a new partner to help us meet some of those challenges. We implemented some new technologies in the quarter, and we're seeing both digital returns as a percent of sales go down, as well as we're getting that inventory back much faster than ever in our history. I think as the business grows, that's going to be an increasingly big opportunity for us.
Very helpful. Jen, just a last question. Body positivity and authenticity, you've been a real leader there. What do you think is next to stay innovative, and what do your customers want as the community across the banners?
Yeah. I think in both brands, we have to drive that side of our platforms, AE with individuality and Aerie being Aerie Real. When we think of the communities, Oliver, you can see competition is following close behind. Look, we were there first. We owe it to our customers to continue to excite her in new ways from a marketing perspective. This last Real campaign that we launched, Oliver, it was incredible. 8 billion impressions from our customers, from our community, coming into our Aerie business. No surprise that our customer acquisition was up 40%. That's how we have to stay ahead of our competition.
We need to get new customers into our brand in Aerie. Retaining customers in American Eagle is a huge strategy for us. As we get these new customers into Aerie, that's how we're accelerating this top line. As Jay mentioned, we're going to hit this $2 billion, if nothing else fails out there and we can continue to deliver with what we're doing earlier than said, I think it's because we are attracting new customers. We're going into new markets. We're turning around with our platform, the platform that we own in Aerie, and the platform that we're certainly proud about but w e certainly have new ideas in store. Oliver, I can't.-
Jen , if I could add one thing. It was only three months ago January celebrating our $1 billion mark in Aerie. Here we're talking about in the next 12 months, we'll be celebrating a $2 billion mark. It's a major accomplishment.
The new brand that we launched in the pandemic. Who would've thought? It speaks volumes how this team is so dedicated to our platform, to a business that certainly and I think there's just so much in store. Let me just say, starting to see that passion heritage come back to that brand and that just drive to deliver quality over quantity, the quality of the sales, the quality of our product. I think that's where we're going to win, Oliver.
Thank you. Our next question comes from Paul Lejuez with Citi. Please proceed with your question.
Hey, thanks, guys. Jen, how are you thinking about gaining share in denim, just to take advantage of the trend? How are you thinking about share versus targeting margin improvement, both near-term, but also second half and beyond? I think you said the AUR was up 50% at Aerie. How did that break down between lower markdowns versus mix? Just where are merch margins at Aerie now versus Eagle, sorry if I missed that.
We took the biggest risk ever. Competition will be fierce, as you can see by the numbers out there. There are some tailwinds for all the brands out there, and that's a great thing for the retail sector, I can only say that. We stand apart, though, I'd like to say, with the numbers that we just delivered. Look, it is about the mix. It's about being smart about the way we mix the business. The AURs at 50% certainly are impressive. I'd like to add, as you said, in AE, our AURs were up 23%.
As I think about denim and the future of denim, look, it's our job to maintain our market share in denim. We talk about this daily. We want to be the go-to denim destination, not only in this country, but in the world. Lots of opportunity out there. As we deliver new fits and new categories in denim, they trust us. They come to us for our fits, for our quality, for our price-value equation. We're not going to walk away from the market share overnight. It's something that we continue to focus on, as I mentioned.
Women's, we're the number one in all ages, and in men's, opportunity there. That's something that I am excited about. As we deliver some new washes that might be a little bit more long-term for an older customer, I think we'll see new customer acquisition there as well. Pretty excited about that. Again, talking back to just the outfitting opportunity with this denim business on the rise, and we're seeing this acceleration. Certainly, there's opportunity in tops in both genders. Coming deliveries-
Right.
And Paul-
Those things are not mutually exclusive to us. We're very confident that we can grow market share in jeans as well as grow margin in jeans. We believe we proved that in Q1. Look, it's a great setup for the back half of the year knowing how strong the denim trend is, the fact that we're the number on denim retailer in America. Jen has a beautiful, and the team's created a beautiful assortment. We're going to sell a lot of jeans. We're going to get paid for the product. We feel like it's a perfect setup for us to both gain share and grow our margin.
Paul just to add here, I don't have in front of me the exact mix between, or the exact contribution to AUR from mix and AUR. The AUR growth in both brands, we look at 20% in AE and 50% in Aerie on a dollar basis, so similar increases. Both brands contributing significantly to total company merch margin expansion and gross margin expansion. I will say that the penetration of OFFLINE to Aerie is a nice add to AUR and margin mix. As OFFLINE continues to penetrate higher, we'll continue to see benefits there. I can say that actually merch margins are similar. Aerie in the first quarter is actually a little bit higher merch margin rate than AE.
Thanks, [Kash]. Appreciate it.
Thank you. Ellis, we can take one more call. Ellis?
Thank you. Our final question is from Janet Kloppenburg with JJK Research Associates. Please proceed with your question.
About the cost structure, the lower rents, how much more opportunity there is there, and the favorable input costs. Others are seeing some pressure. To what extent those advantages exist for the remainder of the year. For Jen, I was wondering if you could give us a glimpse at OFFLINE and how it's performing and whether you see, o bviously it's performing well, but whether you think there's a big distinction between AE or as opposed to it as a standalone. Thanks so much.
Yeah, I can start with the rent piece of it. The rent dollars were down in the quarter, in the first quarter, which meant rent. We're expecting the same thing to continue, frankly, all year. With rent dollars I think there's still more to be had. We're definitely, as we talked about, evaluating the closing from this past year. We will be closing more stores. As we look at this in the future, we do believe rent dollars will continue to be a tailwind for us and rent leverage, a continuous contribution to gross margin opportunity.
Jen, on the markup and the input costs. We do see higher input costs. Like I said, we had markup benefit in the first quarter, and we're expecting markup benefit all year. Our sourcing teams did a great job negotiating. We platformed fabrics and yarns very aggressively and very early. The assortment strategies, like I was talking about, again, we cut off a tail of inventory that was a lot less productive, had lower markups, had lower maintained margins, and we're leaning into the stuff that has higher markups and margins so t hat's working in our favor. Finally, Aerie. Just the growth of Aerie provides natural markup benefits for the business. The more we get economies of scale in that business, the more markup benefit for the company. I'm expecting a benefit that's able to overcome the raw material costs and the higher inbound freight costs all year.
Yes. Hi, Janet, how are you?
Hi. Good. How are you?
I'm doing well, Janet. Let me just say that, we tested various store formats and all of them exceeded our performance and our expectations. We've been in the same malls as Aerie, OFFLINE and Aerie. It only allowed us to actually build a more robust assortment in Aerie, and really allowed us to leverage some of our tried and true businesses in Aerie, i.e. bras, undies, fleece, so we could actually add dimension there. Then with OFFLINE in the same mall, we saw same comps in Aerie as we did on the average base.
Then again, like I said, OFFLINE just exceeding our expectations. We're opening 60 stores this year, combined OFFLINE roughly 30. Some of those will be side-by-sides, Janet. Obviously we like what we're seeing. The comps are incredible, and we've had some viral activity. I'm not sure if you saw that. We can't keep that legging in stock, and we built that franchise business into other categories as well. It's just been a breakaway for Aerie this quarter, and we're certainly going to accelerate that into the next but o ur leggings are like no other. Honestly, the quality-price value equation, and think about just this market cap opportunity in activewear. I think we launched it at the right time. We were ready to go, and now we're going to continue to accelerate.
Thank you. Ladies and gentlemen, we have reached the end of the question- and- answer session. I will now turn the call over to Jay Schottenstein for closing remarks.
Okay. Thank you, operator. I'd like to reiterate, we are really thrilled with the momentum we are seeing across our business. As Mike said, we are on track to achieve our $550 million operating profit goal for the total company this year ahead of expectations. Coming off a record first quarter, demand for our brands remains very healthy with business accelerating quarter- to- date in the second quarter. Our Real Power. Real Growth. value creation plan to improve profitability at AE and fuel Aerie's expansion is driving results, and we know we have the right strategy, and as you can hear, the passion and the people in place to win. Thank you for your support and your investment in AEO. I hope everyone stays healthy. I look forward to updating you on the strength of our business next quarter. Thank you.
This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation. Have a great day.