As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Judy Meehan, Vice President of Investor Relations for American Eagle Outfitters. Thank you. You may begin.
Thanks. Good morning, everyone. Joining me today for our prepared remarks are Jay Schottenstein, Chief Executive Officer, Chad Kessler, Global Brand President of the AE brand, Jen Foyle, Global Brand President of Aerie, and Bob Madore, Chief Financial Officer . Before we begin today's call, I need to remind you that we will make certain forward-looking statements on the call today. These statements are based upon information that represents the company's current expectations or beliefs. The 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 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 press release, which is posted to the company's website, www.ae.com, in the investor relations section. Here, you can also find the first quarter supplemental online presentation, which we will refer to today. Now I'd like to turn the call over to Jay.
Thank you. Okay, good morning, and thanks for joining us today. During the first quarter, we continued to execute on our priorities to position our brands and organizations for long-term success. In the midst of some of the most challenging times in retail, we are adapting our business model and leveraging our strength. First quarter results reflected a number of wins as well as a few challenges. Margins came under pressure as we increased promotions as per demand during slow traffic periods. This compared to a very positive and largely full-price first quarter last year. This year, we posted a 2% comp increase in the quarter and expenses were well managed. I'm never happy to report earnings below last year, and we're working hard to strengthen results. Now I'll provide you a few insights into the quarter.
We did a good job building our competitive strength in jeans, bottoms and women's apparel, which posted positive comps. Yet we continue to have opportunity to improve the men's business. Momentum in the Aerie brand was strong again this quarter, further demonstrating significant growth potential and strength of Aerie. We posted record volumes in e-commerce, which accelerated from the prior periods. Strong double-digit growth led to an online contribution of 26% to our total revenue, up from 19% last year. Effective digital marketing and increases in mobile contribute to the growth. Investments aimed at a more seamless and positive online shopping experience across digital channels also drove sales. As I look forward, we are intensely focused on our strategic priorities to continue to fuel product innovation, strengthen our brands, and deliver an outstanding customer experience.
Across the organizations, we are seeking efficiencies while ensuring that we are managing the business for long term. This quarter, we repurchased 6 million shares, reflecting the strength of our balance sheet, strong cash flow, attractive valuation, and confidence in our brand and long-term strategies. In this challenging retail landscape, we see tremendous opportunity to capitalize on our strength, including our financials, our brand, and competitive advantages. We have outstanding team across the company, they have embraced the opportunities with enormous energy and passion. For that, I'm extremely grateful. Lastly, let me underscore that during this time of upheaval across our industry, we see great potential for our company and our leading brand. Thank you, now I'll turn it over to Chad.
Thanks, Jay. Good morning, everyone. In the first quarter, the American Eagle brand had some great wins, yet we also faced headwinds. Our brand is stronger than ever and well positioned, but there's lots of turbulence out there. A choppy start to the quarter, combined with a late Easter, resulted in increased promotions. On a positive note, business improved, and we had a positive comp over Easter compared to the holiday last year. For the quarter, the American Eagle brand comp declined 1%, with strength online partially offsetting weakness in stores. This followed a 4% comp increase a year ago. We saw positive comps continue in men's and women's bottoms, with AE jeans achieving record first quarter sales. The teams continue to execute extremely well across our bottoms categories. We have real competitive advantages and offer our customers something truly special.
Looking ahead to the back to school and fall seasons, we will take our AE jeans collection and marketing to the next level, highlighting our strengths in style, fit, innovation, and wash. Jeans embody the ultimate expression of individuality and personal style. With the strength of our product and leadership position, we have a real opportunity to continue to gain share. Women's posted strong results again this quarter, with apparel comps in the positive mid-single digits. We saw growing momentum in the women's tops category. This has been driven by an emphasis on outfitting with a well-balanced tops collection that ties back perfectly to the AE jeans assortment. I'm extremely pleased with how the team continues to deliver trend-right tops supported by an agile process and greater speed to market.
With each season, we continue to gain new fans of our women's assortment, where we are focused on leveraging additional opportunities. As we anticipated, men's tops were challenging in the first quarter, dragging total men's comps to negative mid-single digit. As I said on the last call, we are working on the men's business, which remains a top priority for the team. As the first quarter progressed, we saw some signs of improvement in men's comps, which we hope continue as we approach the back half of the year. AE's online sales accelerated, where we saw exceptional results across a number of categories. Our exclusive online product has also been well-received, driving incremental growth. Continuous improvements to the shopping experience, our advanced omni tools, and digital marketing have driven growth in our online business, which now represents 22% of our sales.
We remain highly focused on delivering improvements across the brands, including innovation, product leadership, and an enhanced customer experience. The American Eagle brand is operating from a position of strength. Our goal is to make sure we are putting the customer at the center of everything we do and giving them reasons to shop our brand. That's how we will continue to win. Thanks to my team for the many successes we achieved this quarter and for their commitment to driving improvements across the brands. Now I'll turn the call over to Jen.
Thanks, Chad, good morning, everyone. Aerie delivered another great quarter, posting a 25 comp increase. I'm pleased to report that this marks our 13th straight quarter of double-digit comp growth. The first quarter also reflected acceleration from the prior year and builds on a 32% comp increase in the first quarter of last year. New to file customers increased and overall traffic to our brand, both online and in stores, was up to last year. Aerie's digital business was especially strong this quarter, showing rapid growth and accelerating from last year. This led to a 47% online penetration in the first quarter, up from 35% last year. Our online swim and bra shops were particularly strong, yet we also saw strength across a broad range of categories.
We expanded our swim collection this year, adding new silhouettes, more fashion, and additional fits, all of which have been extremely well-received by our customers, both in store and online. Our new apparel collections, led by Chill, Play, Move, posted very strong results this quarter, and we continue to see strength in our lightly lined bras and bralettes. We remain extremely excited by the ongoing opportunity to grow and expand the Aerie brand. Our AerieREAL Brand platform continues to resonate with our customers. We look forward to building on our campaign and expanding the Aerie lifestyle with fresh assortments and new products season after season. New store growth is on track, and we are also working hard to take the customer experience to the next level. We are making sure we have the right talent at the store level to ensure an outstanding brand experience.
I'd like to thank my team for driving Aerie's ongoing success and for their great passion and hard work every day. Now, I'll turn it over to Bob.
Thanks, Jen. Good morning, everyone. Although we're dissatisfied to report earnings below last year, we managed the business well through a tough quarter. In response to a slower-than-expected start to the period and challenging mall traffic, our promotions increased, pressuring margins. We managed expenses well, generated healthy cash flow, and saw strong traffic and sales increases in our e-commerce business. In addition to the many positives across the brands, as called out by Chad and Jen, we saw improvement in consolidated traffic and transactions, and the conversion rates in stores and online increased to last year. Looking more closely at the details of the quarter. Total revenue increased 2% to $762 million from $749 million last year. Comparable sales increased 2% for the period. Total net revenue included approximately $5 million received from the termination of a license agreement with a third-party operator.
Additional sales information can be found on pages six and seven of the supplemental online presentation. This quarter, American Eagle comps were down 1% and Aerie comps increased 25%. The average transaction size declined in the low single digits. This was offset by a mid-single-digit increase in the number of transactions. Demand was slow to start the quarter. Business improved as the quarter progressed, which was highlighted by the positive Easter holiday and comp traffic up mid-single digits in the quarter. Total gross profit decreased 5% to $278 million from $293 million last year. The gross margin declined 270 basis points to a rate of 36.5% of revenue. Increased promotional activity caused 200 basis points of the decline. Buying, occupancy, and warehousing deleveraged 70 basis points due primarily to increased shipping costs related to the strong e-commerce business in the quarter. SG&A dollars declined 1% to $195 million.
As a rate to revenue, SG&A expense improved 60 basis points to 25.6% from 26.2% last year. Higher advertising expense was offset by lower compensation expense and favorability across a number of other expense categories. Depreciation and amortization increased $1.6 million to $40 million and deleveraged 10 basis points to 5.3% as a rate of revenue. Adjusted operating income fell 28% to $42 million from $59 million last year. The operating margin declined 220 basis points to 5.6% as a rate to revenue. The effective tax rate decreased to 32.4% compared to 36.4% last year, reflecting the impact of discrete items this quarter. Adjusted EPS of $0.16 decreased 27% from $0.22 last year. Adjusted earnings excluded restructuring-related charges of $5.4 million or approximately $0.02 per diluted share.
This consisted primarily of severance and related charges corresponding to home office restructuring, as well as our initiative to explore closure or conversion of company-owned and operating stores in Hong Kong, China, and the U.K. to licensed partnerships. Regarding inventory, which can be found on page eight of the online presentation. We ended the quarter with inventory of cost of $364 million, up 9% from last year. Ending units were flat to last year, while the average unit cost was up 9%. The increase in cost per unit reflects a greater mix of AE jeans, bottoms, and Aerie apparel driven from our merchandise strategies. Looking ahead, we expect second quarter ending inventory of cost to be up in the mid-single digits. Capital expenditures totaled $40 million in the quarter, and we continue to expect CapEx to be in the range of $160 million-$170 million for the year.
Roughly half of the spend relates to store remodeling projects and new openings, the balance to support the digital business, omni-channel tools, and general corporate maintenance. During the quarter, we returned a total of $110 million to shareholders, including 6 million shares repurchased for a total of $88 million. Additionally, we paid $22 million in cash dividends. 19 million shares remain authorized under the current repurchase program. We ended the quarter with $225 million in cash compared to $239 million last year. With ongoing traffic declines, we're continually reviewing the store fleet and focusing efforts on extracting store efficiencies and productivity. Our fleet is largely profitable. I want to emphasize that this is the case across all mall types: A, B, C malls, as well as our outlet centers. When it makes sense, where we're overstored and have a high likelihood of sales migration, we are closing locations.
We are also building flexibility into our lease terms with over 500 stores and store leases set to expire in the next three years. This year, we plan to close between 25 and 40 store locations. As previously discussed, we're selectively opening new Aerie stores and a handful of American Eagle stores in the U.S. and Mexico, where we believe we have opportunity. Internationally, the company plans to open 45 and close two licensed store locations. Additional store information can be found on pages 11 through 13 in the online presentation. Looking ahead to the second quarter. We expect second quarter earnings per share of $0.15-$0.17, which is based on comparable sales of flat to a low single-digit decline. The guidance assumes a lower merchandise margin due to increased promotions and a low single-digit increase in SG&A dollars compared to last year.
This compares to earnings per share of $0.23 last year and excludes potential impairment and restructuring charges. We remain focused on our strategic priorities centered on improving the customer experience and engagement with our brands. We're also creating efficiencies and strong financial disciplines to strengthen the bottom line and deliver shareholder returns. Thanks. Now we'll take your questions.
Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. To allow for as many questions as possible this morning, we request that you each ask one question. Thank you. Our first question comes from the line of Oliver Chen with Cowen and Company. Please proceed with your question.
Hi. Great job on the denim with the wash, the features. It just looks really market-leading. Our question is on the store-
We can't hear you. You're coming in garbled.
Oliver, you're a little bit difficult to hear. I don't know if you can pick up your line or
Can you hear me better?
That's better.
mobile. I apologize. Is this better?
That's better.
I just wanted to ask about the store footprint. If you can get recaptures, will you potentially decide to close at a faster rate? What are some of the guardrails for thinking about that in terms of how that may proceed versus your annual program of 25 to 40? Just we're all thinking about how to optimize this and what can happen, especially as your online business has been leading and growing nicely. Thank you.
Yeah. Sure, Oliver. As I had pointed out in my prepared remarks, we're constantly evaluating our store footprint and the real estate portfolio. Although we've given some guidance for the year, we are looking to get more aggressive with store closings. We've been experimenting with closures of stores where we are able to really track sales migration, and really analyze the relationship of the stores to our digital business. Just to point out a couple of things. Within our store base, it is the best place for us to drive new customer acquisition still. 80% of our online returns get returned back to stores. There's a very close interplay between brick and mortar and digital. Although you may be seeing continued traffic declines in stores-
It's not the experience
Comp decreases in certain stores, those stores are still very profitable. Although they may not be profitable at a four-wall rate that they experienced, say, three, four years ago, they're driving very significant four-wall profits, and that's across all mall grades, A, B, C, outlet malls, et cetera. The short answer to your question is, yes, we are looking to get a little more aggressive in our store closures than what we've communicated thus far, as we continue to go through our market assessments.
Okay. On the inventory number, it was elevated.
Okay, just to add to that, we want to do it in a smart way, when we do close a store, we pick up those sales, and we pick up those profits. We just don't want to close stores to close stores. We want to figure out how to optimize and maximize those sales, when we do close, we're able to keep the majority of it.
Okay. Thank you. Our next question comes from the line of Anna Andreeva with Oppenheimer & Co.. Please proceed with your question.
Great. Thanks so much, good morning, everyone. Question on the second quarter comp guide, flat to down low singles. I guess, what's driving deterioration versus positive 1Q? What kind of promotional pressure are you guys expecting during the second quarter? Bob, maybe talk about your comfort with inventory levels. What's driving the mid-single digit increase ending 2Q? Thanks so much.
Related to the revenue guidance that we gave for the quarter, it's really based upon what we're seeing quarter to date in trends across channel. I would tell you the guidance is comprised of significant improvements or increases continuing in digital and brick and mortar continuing to be or feeling slight pressure in comps. It's very much in line with not only trends we're seeing currently, but what we anticipate for the remainder of the quarter. From an inventory perspective, what's really driving that is when we announced earnings at the end of Q4 at year end, inventory levels were up 17%. When we guided to inventory levels at that point in time for the end of Q1, we believed that we were going to be closer to about 12%.
We ended the quarter up 9%, better than what we had anticipated in the beginning of the quarter. Looking forward, we're continuing to decrease inventory levels to get them better or more aligned with sales performance. Having said that, we've made strategic investments across roughly three product categories. In the AE brand, in denim and long bottoms, and within the Aerie brand, within the overall apparel category. All of which drive higher AUCs. Those businesses, particularly when you talk bottoms and denims, are extremely SKU extensive. You're talking multiple fabrics, multiple colors, multiple sizes, et cetera. To make sure you're in business, in line with the merchandising strategies we have, particularly as we start moving into back to school season, building inventories for the summer, that's really what was driving inventory. Inventory units at the end of Q1 were flat.
Thank you. Our next question comes from the line of Simeon Siegel with Nomura Instinet. Please proceed with your question.
Thanks. Good morning. Have you guys sized the top-line opportunity for Aerie? How large can you see the business growing? What does that do for company level margins? Just what's the general breakdown of product penetration within Aerie at this point? Jay, can you just share your view on the mall landscape? Any thoughts on the competitive dynamic and maybe any views on consolidation within the industry? Thanks.
Sure. Thank you, Simeon. We are really excited about the Aerie potential. We're not going to stop. I say this on every call. There's a path to actually more than $1 billion easily. What I love about the Aerie composition is that we're not just about bras and undies, which as I always will say, that's our core competency business. We have new product categories, swim, Chill, Play, Move, and all those categories is really resonating with the customer. They're loving these new product offerings. It allows us also to pulse and ebb and flow when various product categories are downtrending. I love that ability in Aerie. That said, bras and undies will still be well positioned at roughly 60% of the business. Then depending on the seasonality, we'll pulse swim and/or the apparel categories.
Just to add to that, there's a lot of white space within the Aerie world. Today, from a store portfolio perspective, we only have 103 standalone Aerie stores. Where some people may say we're over stored in an AE, we're significantly under stored as it relates to Aerie. In addition to the standalone stores, we have only 92 side-by-side Aerie locations. Those are stores that are adjacent, connected to AE stores. Very small store base that we feel gives us an opportunity to be extremely selective in the locations and the markets we're not in and we're not deeply penetrating today. You couple that with the relationship we see between brick-and-mortar retail presence and digital business that's driven by that. Just to highlight what Jen said, we think Aerie represents a large growth opportunity for the company. Jay, you want to handle the mall?
Well, I was walking the mall yesterday. You still see a lot of stores with signs, 40% off, as far as the entire store. It's not a secret. There have been a lot of stores closing. The last 12 months, I think 3,800 sites closed. We have to go fight that. At the same time, our challenge is how do we make our customers feel more special? That we work on every day. We're challenging ourselves, whether it be adding certain product lines in, and what can we do to make a better shopping experience. Also, we're investing in the technology to keep our mobile site very exciting, too. This is what you call the year of the disruption. It's challenging, but our people are up to it. The most important thing is that we still see a major opportunity out there.
Thank you.
We'll take the next question.
Our next question comes from the line of Matthew Boss with JPMorgan. Please proceed with your question.
Thanks. On the gross margin front, how should we think about promotional markdown pressure versus IMU in both the second quarter and the back half of the year? Then just larger picture, as DTC continues to grow, what would be the offsets to the mix headwinds on a multi-year basis?
Yeah. On gross margin, we anticipate gross margin pressure in the second quarter pretty consistent with what we experienced in Q1. We anticipate slight IMU improvement through continued cost reductions on like-for-like product. We do anticipate, and we're currently seeing a continuation in the overall promotional environment. I think you can expect gross margin pressures comparable to what we saw in Q2. Then related to the larger picture, direct-to-consumer continues to grow. What would the options be on a headwinds basis? We're experiencing very significant growth in our e-commerce business. This last quarter, huge traffic increase quarter-over-quarter, year-over-year, and some very significant transaction growth year-over-year. We're going to continue to leverage, we're going to continue to drive that growth. We've been very successful in a lot of our digital marketing initiatives.
A lot of the investments, as Jay pointed out, that we've made in our e-commerce business, really enhancing the experience with the consumer, optimizing our order management systems to really leverage our omni-channel capabilities, are really translating and registering within the performance of the overall digital business. We're obviously going to continue to capitalize on that. We've had a question and a little bit of dialogue on this call around potentially accelerating our store closures from what we've communicated thus far. We're constantly analyzing the portfolio from a store-by-store and an overall market perspective to determine where we feel we're over stores, et cetera. We're going to continue to drive digital the way we have, and we're going to continue to drive rationalization of the real estate portfolio, but at the same time, driving improvement in store productivity across the remainder of the fleet.
Bob, it's also very important to point out that when it comes to our core strength in our denim, it's getting stronger.
Across all channels.
That's right. The men's and women's bottoms are getting stronger.
Exactly.
Thank you. Our next question comes from the line of Brian Tunick with RBC Capital Markets. Please proceed with your question.
Thanks. Good morning. Two questions. I guess maybe, Jay, been a lot of media reports about consolidation, probably much needed in the apparel sector. I was just curious if you could remind us on your capital allocation thoughts and your balance sheet priorities. Then maybe for Chad, can you talk about the lead times on fixing the men's business, and on the women's strength, where do you think your share gains are coming from? Thanks very much.
All right. To give my answer, we have always said that we have a policy of not commenting on rumors or speculation, that remains our response.
Just a little more on capital allocation, we've been pretty consistent with our strategy around this. Obviously, we focus first and foremost on investing in our business. I think we demonstrate that with where we've targeted our capital expense dollars over the years, I think it's really produced very significant returns across that channel in particular. We're going to continue to invest in our business where those investments are going to drive an appropriate level of return. Beyond that, obviously, we look to return or provide returns to shareholders
This quarter, we provided about $110 million of total returns to shareholders via dividends and the $88 million in share buybacks. For share buybacks, in particular, the one strategy that we have pretty consistently followed is that we are constantly looking to mitigate any EPS dilution related to accretion in share count. That's a starting point. Beyond that, we obviously look for opportunistic buying opportunities relative to our share price PE multiples, where we think that we're undervalued relative to our performance versus the remainder of the sector that we participate in. That's a constant evaluation that we do, and that's really how we prioritize our capital allocation strategy.
Hey, Brian, this is Chad. Just jumping in on the questions on men's and women's. I think it's really important to think about first what our total strategy is. I think when I look at the future and how brands are going to evolve and how brands are going to be successful, I think it's going to be about being famous for a category and being a destination. For us, that category is jeans, and from jeans, overall bottoms. Really, every day, what we're focused on primarily is what can we do to drive the bottoms business, and then what are the right tops to go with that bottoms business? When I look at the total men's business, the bottoms business continues to be very healthy. The bottoms business had a record Q1, and the tops business, as we've talked about, has been more challenged.
We're definitely very focused on making sure we have the right tops to go with the bottoms and the right tops that our customer is looking for. I think I said on the last call, we hired a new head of men's merchandising. In Q1, we brought on board a new head of men's design. In addition to that, we're utilizing Todd Snyder in the business to help with the assortment, and he's been very involved in holiday. We are seeing some early improvement out there. In some of the niche businesses, we're starting to see some strength. We're not counting on that to start showing up until the back half. It is very early days. We're starting to see some improvement. I think it's going to take a little time for that to show up.
In terms of women's, where the share is coming from, I think it's coming from all over. I think the bottoms business is driving customers in, she's finding that she can get the exact right tops to go with her bottoms once she's in the store. There are a lot of competitors out there that are giving up share, we're picking it up from whomever we can.
Thank you. Our next question comes from the line of John Morris with BMO Capital Markets. Please proceed with your question.
Thanks. Maybe if you can give us an update on the marketing campaigns and the loyalty programs, some of those initiatives that I think you have into place and where we are on those. I think coupled with that, the work that you guys have been doing on the new prototype stores, some updates there, modernizing the experience, et cetera.
Yeah. Sure. We're excited to see how the We All Can campaign continues to evolve for AE. For back to school, we're going to be very focused on denim and speaking very clearly and loudly to our customer about all the benefits that AE jeans have to offer. We really believe it's the center of everything that we do. Kyle has brought on some fantastic talent across our digital marketing team, a new creative director. She's really strengthened that team, I think we're going to have a much more effective communication strategy to the customers going into back to school. In terms of the store experience, it's something we continue to be working on. We're actually presenting to Jay later today something, a prototype that we hope to get to work on.
I think as Jay mentioned, creating great customer experiences is a very important part of what the stores will be as we go forward. Bob talked about stores being a critical place of customer acquisition and also an important part of the e-commerce channel because they handle exchanges and returns. Having a great experience and having a great destination is important. Loyalty. Our new loyalty program will be launching at the end of back to school, right at the beginning of September. The new program is digital. It's tied more into our strategies of driving bottoms and driving bras in Jen's world. It's going to be a much better experience for the customer. We're excited for that to launch.
The AerieREAL campaign, it's spectacular what we're doing here. I really would say that we own the body positivity platform. It's so interesting to see what a global impact that's having on You read the news and this is a way of life today. I would say even more so than bralettes, we claimed and we own this, and this is our brand DNA. I'm really proud of the work the team's done here. Again, our customer base grew 13%, and we continue to grow double digits. Obviously, this campaign's resonating. What I love about the AerieREAL campaign is it's not just how we portray our brand from the outside, it's what happens on the inside and how every day this team lives by the DNA of our brand. Without that, the customer wouldn't feel the impact.
There's so many new ways we're looking at how to excite the customer using AerieREAL at the helm, and there's a lot of surprises on the way. We're really excited about what this campaign's doing. Based on the store experience, if you have not been to the Spring Street store, please go. It's a pop-up store. It's there for a year. A little bit more than a pop-up, I would say. It's amazing. I was there on Saturday. We had music, and we had a customization machine making T-shirts. I couldn't believe the output. I personally made 20 myself. It was just a blast. What that store's doing for the customer, we're definitely going to pluck some ideas from that and build on that, the learnings that we're seeing at Spring Street. It's an incredible experience.
As Jay mentioned, it's so important today to surprise your customer with something different, and I think this experience is truly unique.
Okay. Thank you.
We'll take the next question.
Our next question comes from line of Janet Kloppenburg with JJK Research. Please proceed with your question.
Good morning, everyone. Jen, that story is quite beautiful in SoHo. Congrats on that.
Thank you, Janet.
For both Jen and Chad, I was wondering if you could talk about margin trends across the board for you, Jen, what kind of promotional push you were seeing. Chad, it sounds like most of the pressure is coming from the tops category, I think men's and women's. Also, if you could comment about your margin trends in bottoms, that would be helpful. Just on the lease renegotiations for either Jay or Bob, is it meaningful enough to help us think that the deleverage on buying and occupancy, that that point of deleverage could improve as we look forward? Thank you.
Hi, Janet. It's Chad. I think in terms of margins and the promotional environment, as you know, it's been very tough out there. February was a tough month for everybody. We started the season, the quarter, with a tough month, and we had to get a little more promotional than we like to be to drive the top line and keep our inventories clean. I think we did that successfully. We delivered a good top line. Our inventories are cleaner than we had anticipated coming out of the quarter. We believe that that's going to continue into Q2. The bottoms margins are very healthy. We had very strong margins in Q1, record margins, actually, in Q1 in men's and women's bottoms. That business continues to be very healthy. The tops business, we are a little more pressured. Those goods are more seasonal.
The men's business, as you know, has been slower. We do anticipate promotions continuing at a similar rate going into Q2. You have to remember, last Q1 was super clean. The promotions, while similar to Q1, should be more similar to last year in Q2. I think that will be a shift we'll see from the quarters.
Oh, sorry, Bob.
That's okay.
The same for Aerie. Chad, we had record high margins last year, still, the flow-through was very healthy in Q1 in Aerie. Still retail leading industry margins, I would say. We're pleased with that. Again, going back to our ability to remix into new businesses, some of the margin pressure was offset by some of the newer businesses, Swim and Chill, Play, Move.
Related to lease negotiations and deleverage on buying occupancy and warehousing. Pretty much all of the deleveraging with buying occupancy and warehousing was really related to online delivery. As that business continues to penetrate greater across the company total. This quarter, digital represented 26% of total sales versus 22% last year. Becoming a more significant percentage. Digital itself was up significantly. If you look just at Jen's Aerie business, digital was up over 60%, and it represents 47% of total sales in the quarter. As that channel becomes a bigger percentage of our business and those transactions grow significantly, that's going to drive higher delivery expense associated with that.
On the lease side of buying or occupancy, as I said, as we get more aggressive with our store closures, we're going to be able to minimize or eliminate any deleverage we're seeing with that fixed rent expense going forward. Then obviously, any improvement in comps at Brick and Mortar obviously would leverage rent too. There's a number of initiatives and the things that we're looking to do or ways that the business is growing that are really impacting buying occupancy and warehousing in the aggregate. You really have to look at each of the elements separately.
Thank you. Our next question comes from the line of Omar Saad with Evercore ISI. Please proceed with your question.
Thanks. Good morning. Thanks for taking my question. A couple quick ones. Wanted to see if you could elaborate on this positive traffic number that you had in the quarter.
You just don't hear a lot of companies talking about positive traffic with apparel exposure and mall exposure. Maybe talk about what you think some of the key drivers were there and the sustainability of it. I think that's probably the best place to start. Thanks.
Yeah. Traffic wise, we feel like one of the things that is going to make us stand out from a lot of our competition is an overall or consolidated traffic increase. A big chunk of that is driven by our e-commerce business. Traffic in brick and mortar was down mid-single digits, but if you look at the digital business, it was up in the 20s. Very significant traffic increase in digital. I think it speaks to a lot of our new digital marketing efforts that are producing very good returns. I think Chad mentioned Kyle really upgrading that team and that team really instituting some great marketing campaigns and traffic drivers that translated in the performance we saw.
Thank you. Ladies and gentlemen, as a reminder, we ask that you please keep to one question each. Our next question comes from the line of Paul Lejuez with Citi. Please proceed with your question.
Hey, sorry. Just to try to understand. Is the simple issue you think that you guys are seeing is that, as you put more make into the product, units flat, inventory dollars up more, that you're just not getting paid for what you're doing to the product in terms of the quality improvements you're making? If that is the simple issue, what adjustments do you make to the product going forward? Does it say something about your customers' willingness to accept what you're doing? Is it a competitive landscape issue? Maybe both. Just if you could talk on that a bit. Thanks.
Yeah. I actually don't think that we're putting too much in the product. I think the customer continues to pay for and respond to better product. As Bob discussed, a lot of the growth in the inventory, the cost is driven by the mix in the bottoms, which that is our category, and we're not going to apologize for investing in bottoms. We're going to drive this business.
Now, we are putting stuff in the product.
Right. We're going to continue to put stuff in the product.
Okay. It didn't come out that way.
Sorry.
It came out opposite.
Sorry. I misspoke. We are going to continue to invest in the product. We're going to continue to invest in bottoms. Bottoms is our number one strategy, and that's going to likely mix AUC up. In terms of women's tops, we continue to invest more in the product, and we're getting paid for that, and we continue to. In men's, is the one place where we maybe reached a little too far with some of the ticket prices without seeing the demand there. We have actually made some strategic adjustments to some of the men's tickets as we try to gain back share. Part of the way that we've won for the past three years is by investing in product, offering a better value to the customer, and investing in bottoms, and we're going to continue to do that.
I think the Q1 to Q1 promotional activity is partly just a tough compare to last year, which was a clean quarter, then also the slow start to this year. We continue to invest in the product, and we're able to do that because we continue to see like-for-like cost improvement. Our goal is to offer the customer the best value we can.
Well, also, Chad, you should talk about the technology too.
Right. Yeah, I think we will. Jay's talking about within our bottoms categories, we continue to innovate the bottoms fabrics that we're delivering in AE jeans. I think our AE jeans, we offer fabrications that you're only going to get at American Eagle and then at premium competitors. No one else in our space has the bottoms technologies and innovation that we have, and we will continue to invest and innovate there with new higher performance fabrics and stretches.
Thank you. Our next question comes from the line of Michael Binetti with UBS. Please proceed with your question.
Hey, guys. Good morning. Thanks for taking my questions. A lot of our questions have been answered. I just wanted to ask any commentary on your early thoughts on the trends in some of the malls, maybe where you've seen an anchor vacate the mall.
Generally, with some of the major anchors that have announced closures, the good news is, out of our entire real estate portfolio, we don't have a significant number of locations in those malls. Where we do and where the store has closed, we have not seen a traffic trend that is significantly different to our store, which is significantly different than what we're seeing across that mall grade average, generally speaking.
Thank you. Our next question comes from the line of Susan Anderson with FBR Capital Markets. Please proceed with your question.
Hi, good morning. Thanks for taking my question. I was wondering if you could talk about any reduction that you're seeing in rent. It sounds like maybe even some of the A malls are starting to get some reductions now. Just wanted to get your thoughts on that, just any analysis that when you're looking at the store closures on the sales retention rate, so the sales that you're keeping either online or in other stores. Thanks.
I think you're right. I think in light of the environment, in light of the continued year-over-year traffic declines, I think even within some of the A mall developer community, there is an understanding that they can't necessarily command the rent increases that they've historically experienced, not to mention, maintain rents at current levels. It's really on a case-by-case, developer-by-developer circumstance. Yes, we obviously pursue that where it makes sense. We have very good partnerships with our mall developers, but where it makes sense in light of performance. In some instances, when we entered a mall, we had a particular footprint that competed specifically with us. In some instances where we find that there are more competitors now in the mall than there were when we initially entered the location, that's very good ammunition for that kind of conversation that I was mentioning, is one example.
When we're looking at store closures, and we've got experience with sales migration and transfer. It's pretty successful relative to most of what we've heard in the market. I'm not going to quote the specific percentage of sales, but depending on the market and store adjacencies and our density of real estate within a marketplace, we can experience anywhere from 5%-10% sales migration, depending on a lot of different circumstances. We have a great CRM database that actually we feel is a competitive advantage, and we're able to use that information to help us determine which stores to earmark for closure or not, where we feel we'll have the best success of sales migration, et cetera. We'll continue to fine-tune that. We continue to build that database and our capabilities to analyze those things appropriately.
It's a big piece of our real estate portfolio review and our overall portfolio strategy.
Okay, Melissa, we have time for one more question.
Thank you. Our final question for today will come from the line of Dana Telsey with Telsey Advisory Group. Please proceed with your question.
Good morning, everyone. As you think about product costs and direct sourcing, what are you seeing out there in terms of the ability for direct sourcing to be able to support product costs and its ability to drive the comp? Where are you seeing raw material costs given the investment in higher quality lately? Thank you.
Yeah. I'll try to answer that first, Chad, Jen, jump in where you feel I missed something. There's a number of things that are really positively impacting our ability to continue to drive unit cost reductions. One is just there's a lot of supply out there from a factory-based perspective, which creates big opportunities. When we look at the percentage of our business that we go direct versus through agents, that clearly represents an opportunity for us to further reduce costs as we look to change that model potentially, or even use that as a, I don't want to say threat, but a negotiating stance as we go forward. We continue to do things like increase our fabric platforming and other sourcing strategies and initiatives that will continue to drive those cost decreases.
We're doing a better job of just consolidating production within factories, committing to capacity levels within factories that, again, all allow us to negotiate lower per unit costs going forward. We see we still have further opportunity to drive that, and we believe we have a number of levers to pull to get there.
Okay.
The only thing I would add to that is I think we balance that we want to offer the customer the best value. We want to pay the best price, and we've been paying less on like for like garments. Doing all that, we want to be even faster than we've been. We're balancing those three things. Speed has been something that we've really, really improved over the last few years. That continues to help us be more right with what the customer wants. All that should pay off.
That's a great point, Chad, because where we historically had placed buys during particular time frames, we have the ability to hold back on what our demand estimates are and not place those orders as early. We can hold back as much as 40% of a potential seasonal buy for just-in-time kind of delivery.
Chasing.
To Chad's point. In chasing. Yeah, building speed and flexibility into our sourcing production function has been a huge focus and represents additional opportunity going forward, too.
Cool. Okay. All right.
Thank you, ladies and gentlemen. This does end our time for questions and concludes today's call. Thank you for your participation.