00:04 Speaker A
American Eagle share soaring after topping Wall Street's estimates in its second quarter, the company citing the success of its controversial ad campaign with Sydney Sweeney, Sweeney as well as its new partnership with NFL star and Taylor Swift's fiance, Travis Kelsey. Joining me now is Corey Tarlo, Jeffrey's senior vice president of Equity Research. Uh so let's start out with this. Corey, can American Eagle expect this celebrity kind of boost to hold through the holiday season? Like how long does the Taylor Swift effect last?
00:46 Corey Tarlow
That's a great question. um, and if I had a a crystal ball, I I I'm sure I would love to give you the answer, but uh, I think that the idea here is that this is something that they're going to continue to leverage throughout the back half. They've committed to amping up marketing spend um over the coming months. so they've guided to high single digit SG&A growth for Q3 and embedded within that is advertising spend. Um, so you are going to see marketing expense grow uh in in the back half here and it's going to be a really key selling season for them. Obviously back to school is critically important for Q3 and for holiday and the effects of the campaign so far have been really profound. I mean, I think I was on the phone with management last night and they had said that they've seen new customer growth in I think every county in the US, which is absolutely amazing.
01:54 Speaker A
That is actually quite stunning. You just mentioned the marketing spend a minute ago. How does this translate into margins? Because I believe so far they've been able to protect their margins, but uh how great, how big does the spending grow? How big does it get? and then what's the uh execution strategy?
02:16 Corey Tarlow
Sure. Um, so this company's historically averaged operating margins of about 8% pre Covid, let's say. and and today they're um at around like mid-single digits, like four to five. And there's an opportunity to scale up even higher. Uh so, so I think that's the opportunity. It's going to be led by top line growth, which is obviously fueled by spending, but the question is, how do they rain in spending? Uh, the other element is promotions and it it's really nice to see that in the quarter, the company actually had lower promotions. Um, but this all comes in the broader context of in the first quarter, they took I think $75 million of inventory write downs to to get the inventory in a really good shape for the back half. So, um there's some puts and takes here as it relates to actually kind of building sustainable, profitable performance in the business. And I think a lot of investors are waiting to see that prove out over time. But obviously the near term uh is is quite exciting.