The following discussion and analysis of financial condition and results of operations are based upon our Consolidated Financial Statements and should be read in conjunction with those statements and notes thereto.

This report contains various "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which represent our expectations or beliefs concerning future events, including the following:

• the planned opening of approximately 50 new American Eagle Outfitters stores in North America and internationally during Fiscal 2013;

• the success of our efforts to expand internationally in Mexico and Asia, engage in future franchise/license agreements, and/or growth through acquisitions or joint ventures;

• the selection of approximately 45 to 55 American Eagle Outfitters stores in the United States and Canada for remodeling and refurbishing during Fiscal 2013;

• the potential closure of approximately 20 to 30 American Eagle Outfitters and 15 to 20 aerie stores in the United States and Canada during Fiscal 2013;

• the planned opening of approximately 20 new franchised American Eagle Outfitters stores during Fiscal 2013;

• the success of our core American Eagle Outfitters and aerie brands through our omni-channel outlets within North America and internationally;

• the possibility that our credit facilities may not be available for future borrowings;

• the possibility that rising prices of raw materials, labor, energy and other inputs to our manufacturing process, if unmitigated, will have a significant impact to our profitability; and

• the possibility that we may be required to take additional store impairment charges related to underperforming stores.

We caution that these forward-looking statements, and those described elsewhere in this report, involve material risks and uncertainties and are subject to change based on factors beyond our control, as discussed within Part I, Item 1A of this Form 10-K. Accordingly, our future performance and financial results may differ materially from those expressed or implied in any such forward-looking statement.

Critical Accounting Policies

Our Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States ("GAAP"), which require us to make estimates and assumptions that may affect the reported financial condition and results of operations should actual results differ from these estimates. We base our estimates and assumptions on the best available information and believe them to be reasonable for the circumstances. We believe that of our significant accounting policies, the following involve a higher degree of judgment and complexity. Refer to Note 2 to the Consolidated Financial Statements for a complete discussion of our significant accounting policies. Management has reviewed these critical accounting policies and estimates with the Audit Committee of our Board.

Revenue Recognition. We record revenue for store sales upon the purchase of merchandise by customers. Our e-commerce operation records revenue upon the estimated customer receipt date of the merchandise. Revenue is not recorded on the purchase of gift cards. A current liability is recorded upon purchase, and revenue is recognized when the gift card is redeemed for merchandise.

Revenue is recorded net of estimated and actual sales returns and deductions for coupon redemptions and other promotions. The estimated sales return reserve is based on projected merchandise returns determined through the use of historical average return percentages. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our sales return reserve. However, if the actual rate of sales returns increases significantly, our operating results could be adversely affected.

We estimate gift card breakage and recognize revenue in proportion to actual gift card redemptions as a component of total net revenue. We determine an estimated gift card breakage rate by continuously evaluating historical redemption data and the time when there is a remote likelihood that a gift card will be redeemed.

We recognize royalty revenue generated from our franchise agreements based upon a percentage of merchandise sales by the franchisee. This revenue is recorded as a component of total net revenue when earned.

Merchandise Inventory. Merchandise inventory is valued at the lower of average cost or market, utilizing the retail method. Average cost includes merchandise design and sourcing costs and related expenses. The Company records merchandise receipts at the time merchandise is delivered to the foreign shipping port by the manufacturer (FOB port). This is the point at which title and risk of loss transfer to us.

We review our inventory in order to identify slow-moving merchandise and generally use markdowns to clear merchandise. Additionally, we estimate a markdown reserve for future planned markdowns related to current inventory. If inventory exceeds customer demand for reasons of style, seasonal adaptation, changes in

customer preference, lack of consumer acceptance of fashion items, competition, or if it is determined that the inventory in stock will not sell at its currently ticketed price, additional markdowns may be necessary. These markdowns may have a material adverse impact on earnings, depending on the extent and amount of inventory affected.

We estimate an inventory shrinkage reserve for anticipated losses for the period between the last physical count and the balance sheet date. The estimate for the shrinkage reserve is calculated based on historical percentages and can be affected by changes in merchandise mix and changes in actual shrinkage trends. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our inventory shrinkage reserve. However, if actual physical inventory losses differ significantly from our estimate, our operating results could be adversely affected.

Asset Impairment. In accordance with Financial Accounting Standards Board ("FASB") Accounting Standard Codification ("ASC") 360, Property, Plant, and Equipment, we evaluate long-lived assets for impairment at the individual store level, which is the lowest level at which individual cash flows can be identified. Impairment losses are recorded on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of the assets. When events such as these occur, the impaired assets are adjusted to their estimated fair value and an impairment loss is recorded separately as a component of operating income under loss on impairment of assets.

Our impairment loss calculations require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values, including forecasting useful lives of the assets and selecting the discount rate that reflects the risk inherent in future cash flows. We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate long-lived asset impairment losses. However, if actual results are not consistent with our estimates and assumptions, our operating results could be adversely affected.

Investment Securities. In accordance with ASC 820, Fair Value Measurements and Disclosures ("ASC 820"), we measure our investment securities using Level 1, Level 2 and Level 3 inputs. Level 1 and Level 2 inputs are valued using quoted market prices. In the event we hold Level 3 investments, we would use a discounted cash flow ("DCF") model to assess fair value of our Level 3 investments. The assumptions in our DCF model include different recovery periods depending on the type of security and varying discount factors for yield and illiquidity. These assumptions are subjective and they are based on our current judgment and our view of current market conditions. The use of different assumptions could result in a different valuation.

We evaluate our investments for impairment in accordance with ASC 320, Investments - Debt and Equity Securities("ASC 320"). ASC 320 provides guidance for determining when an investment is considered impaired, whether impairment is other-than-temporary, and measurement of an impairment loss. An investment is considered impaired if the fair value of the investment is less than its cost. If, after consideration of all available evidence to evaluate the realizable value of its investment, impairment is determined to be other-than-temporary, then an impairment loss is recognized in the Consolidated Statement of Operations equal to the difference between the investment's cost and its fair value. Additionally, ASC 320 requires additional disclosures relating to debt and equity securities both in the interim and annual periods as well as requires us to present total other-than-temporary impairment ("OTTI") with an offsetting reduction for any non-credit loss impairment amount recognized in other comprehensive income ("OCI").

Share-Based Payments. We account for share-based payments in accordance with the provisions of ASC 718, Compensation - Stock Compensation ("ASC 718"). To determine the fair value of our stock option awards, we use the Black-Scholes option pricing model, which requires management to apply judgment and make assumptions to determine the fair value of our awards. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (the "expected term") and the estimated volatility of the price of our common stock over the expected term.

We calculate a weighted-average expected term based on historical experience. Expected stock price volatility is based on a combination of historical volatility of our common stock and implied volatility. We chose to use a combination of historical and implied volatility as we believe that this combination is more representative of future stock price trends than historical volatility alone. Changes in these assumptions can materially affect the estimate of the fair value of our share-based payments and the related amount recognized in our Consolidated Financial Statements.

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

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

The calculation of the deferred tax assets and liabilities, as well as the decision to recognize a tax benefit from an uncertain position and to establish a valuation allowance require management to make estimates and assumptions. We believe that our assumptions and estimates are reasonable, although actual results may have a positive or negative material impact on the balances of deferred tax assets and liabilities, valuation allowances or net income.

Key Performance Indicators

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

Comparable sales - Comparable sales provide a measure of sales growth for stores and channels open at least one year over the comparable prior year period. In fiscal years following those with 53 weeks, including Fiscal 2013, the prior year period is shifted by one week to compare similar calendar weeks. A store is included in comparable sales in the thirteenth month of operation. However, stores that have a gross square footage increase of 25% or greater due to a remodel are removed from the comparable sales base, but are included in total sales. These stores are returned to the comparable sales base in the thirteenth month following the remodel. Sales from American Eagle Outfitters and aerie stores, as well as sales from AEO Direct, are included in total comparable sales. Sales from franchise stores are not included in comparable sales. Individual American Eagle Outfitters and aerie brand comparable sales disclosures represent sales from stores only. Sales from AEO Direct are included only in total comparable sales and not included at the American Eagle Outfitters and aerie brand levels.

We began to include AEO Direct sales in the comparable sales metric in Fiscal 2012 for the following reasons:

• Comparable sales is a key industry operating metric focused on evaluating and understanding sales earned by a retailer's established outlets over a given time period;

• AEO Direct is an established outlet and has a comparable prior period sales amount similar to a comparable store;

• shopping behavior has evolved across multiple channels that work in tandem to meet all customer needs. For example, a customer can place an AEO Direct order within a store location, which will be fulfilled by AEO Direct. Additionally, returns are accepted at multiple locations (i.e., AEO Brand stores, aerie stores or AEO Direct), regardless of origin of the sale, and are recorded as a reduction to sales at the location of the return. As a result, from a customer's perspective, channels are increasingly blurred; and

• while industry practice varies, there has been a move to report e-commerce sales within the comparable sales metric.

Our management considers comparable sales to be an important indicator of our current performance. Comparable sales results are important to achieve leveraging of our costs, including store payroll, store supplies, rent, etc. Comparable sales also have a direct impact on our total net revenue, cash and working capital.

Gross profit - Gross profit measures whether we are optimizing the price and inventory levels of our merchandise and achieving an optimal level of sales. Gross profit is the difference between total net revenue and cost of sales. Cost of sales consists of: merchandise costs, including design, sourcing, importing and inbound freight costs, as well as markdowns, shrinkage, certain promotional costs and buying, occupancy and warehousing costs. Buying, occupancy and warehousing costs consist of: compensation, employee benefit expenses and travel for our buyers and certain senior merchandising executives; rent and utilities related to our stores, corporate headquarters, distribution centers and other office space; freight from our distribution centers to the stores; compensation and supplies for our distribution centers, including purchasing, receiving and inspection costs; and shipping and handling costs related to our e-commerce operation. Merchandise margin is the difference between total net revenue and merchandise costs, which exclude buying, occupancy and warehousing costs. The inability to obtain acceptable levels of sales, initial markups or any significant increase in our use of markdowns could have an adverse effect on our gross profit and results of operations.

Operating income - Our management views operating income as a key indicator of our success. The key drivers of operating income are comparable sales, gross profit, our ability to control selling, general and administrative expenses, and our level of capital expenditures. Management also uses earnings before interest and taxes ("EBIT") as an indicator of successful operating results.

Return on invested capital - Our management uses return on invested capital ("ROIC") as a key measure to assess our efficiency at allocating capital to profitable investments. This measure is critical in determining which strategic alternatives to pursue.

Store productivity - Store productivity, including total net revenue per average square foot, sales per productive hour, average unit retail price ("AUR"), conversion rate, the number of transactions per store, the number of units sold per store and the number of units per transaction, is evaluated by our management in assessing our operational performance.

Inventory turnover - Our management evaluates inventory turnover as a measure of how productively inventory is bought and sold. Inventory turnover is important as it can signal slow moving inventory. This can be critical in determining the need to take markdowns on merchandise.

Cash flow and liquidity - Our management evaluates cash flow from operations, investing and financing in determining the sufficiency of our cash position. Cash flow from operations has historically been sufficient to cover our uses of cash. Our management believes that cash flow from operations will be sufficient to fund anticipated capital expenditures and working capital requirements.

Our management's goals are to drive improvements to our gross profit performance, bring greater consistency to our results and to deliver profitable growth over the long term. Specifically, our planned near-term financial targets are to deliver a total net revenue compounded annual growth rate ("CAGR") of 7% to 9%, an EBIT CAGR of 12% to 15% and a ROIC in the range of 14% to 17%, annually.

Results of Operations

Overview

In 2012, we made significant progress on our near-term goals. We focused on delivering results through our five near-term priorities: (1) driving a competitive top line; (2) generating margin flow-through from improved inventory management; (3) rebalancing our store fleet; (4) accelerating our online business; and (5) gaining leverage on our infrastructure.

Total revenue for the 53 week year increased 11% to a record $3.476 billion, compared to $3.120 billion for the 52 week period last year. Total comparable sales for the 53 week year increased 9% over the corresponding 53 week period last year, with positive comparable sales in all quarters of the year. For the year, AEO Brand comparable sales increased 7%, aerie Brand increased 6%, and AEO Direct increased 25%. Throughout the year, strong merchandise improvements led to comparable sales growth across the assortment. The strength of our brand, combined with a more distinct lifestyle point of view, is broadening our customer appeal.

Lower product costs, improved markdown rates and better inventory management led to a higher gross margin in Fiscal 2012. Gross margin expanded 330 basis points to 40.0%, compared to 36.7% last year.

Operating income for the year was $394.6 million, which includes $42.5 million in restructuring and store impairment charges. Income from continuing operations was $1.32 per diluted share this year, compared to income from continuing operations of $0.89 per diluted share last year. On an adjusted basis, income from continuing operations this year was $1.39 per diluted share, which excludes a ($0.13) per diluted share impact from restructuring and impairment costs and a $0.06 per diluted share tax benefit from audit settlements. This compares to adjusted income from continuing operations last year of $0.97 per diluted share, which excludes an ($0.08) per diluted share impact from restructuring and impairment costs.

The preceding paragraph contains non-GAAP financial measures ("non-GAAP" or "adjusted"), comprised of earnings per share information excluding non-GAAP items. This financial measure is not based on any standardized methodology prescribed by U.S. generally accepted accounting principles ("GAAP") and is not necessarily comparable to similar measures presented by other companies. We believe that this non-GAAP information is useful as an additional means for investors to evaluate our operating performance, when reviewed in conjunction with our GAAP financial statements. These amounts are not determined in accordance with GAAP and therefore, should not be used exclusively in evaluating our business and operations. The table below reconciles the GAAP financial measure to the non-GAAP financial measure discussed above.

                                                           For the Fiscal Years Ended
                                                     February 2,                 January 28,
                                                        2013                        2012
Income from continuing operations per
diluted share-GAAP Basis                           $          1.32              $        0.89
Add: Restructuring and impairment costs(1)                    0.13                       0.08
Less: Tax Benefits(2)                                        (0.06 )                        -

Income from continuing operations per
diluted share-Non-GAAP Basis                       $          1.39              $        0.97

(1)- Restructuring and impairment costs for the 53 weeks ended February 2, 2013 consist of $36.5 million of pre-tax asset impairments and asset write-offs for the AEO and aerie brands and $6.0 million of pre-tax severance and related employee costs. Restructuring and impairment costs for the 52 weeks ended January 28, 2012 consist of $19.2 million of pre-tax store asset impairment charges for the AEO and aerie brands and $6.2 million of pre-tax executive transition costs.

(2)- Tax benefits for the 53 weeks ended February 2, 2013 consist of $11.8 million of benefits from federal and state audit settlements.

We ended Fiscal 2012 with $631.0 million in cash and short-term investments, a decrease of $114.1 million from last year, which primarily reflects cash returned to shareholders through dividends and share repurchases of $577.1 million, partially offset by cash generated from operations. During the year, we generated $499.7 million

of cash from operations. The cash from operations was offset by $93.9 million of capital expenditures and value returned to shareholders through share repurchases of $173.6 million and dividend payments of $403.5 million. Cash returned to shareholders for Fiscal 2011 was $100.8 million. Merchandise inventory at the end of Fiscal 2012 was $332.5 million, a decrease of 8% on a cost per square foot basis. Inventory turns improved year-over-year, underscoring our improved inventory management efforts.

The following table shows, for the periods indicated, the percentage relationship to total net revenue of the listed items included in our Consolidated Statements of Operations.

                                                            For the Fiscal Years Ended
                                            February 2,             January 28,            January 29,
                                                2013                   2012                   2011
Total net revenue                                   100.0 %                100.0 %                100.0 %
Cost of sales, including certain
buying, occupancy and warehousing
expenses                                             60.0                   63.3                   59.9

Gross profit                                         40.0                   36.7                   40.1
Selling, general and administrative
expenses                                             24.0                   23.0                   23.9
Loss on impairment of assets                          1.0                    0.6                      -
Depreciation and amortization
expense                                               3.6                    4.5                    4.7

Operating income                                     11.4                    8.6                   11.5
Realized loss on sale of investment
securities                                              -                      -                   (0.8 )
Other income, net                                     0.2                    0.2                    0.1

Income before income taxes                           11.6                    8.8                   10.8
Provision for income taxes                            4.0                    3.2                    4.1

Income from continuing operations                     7.6                    5.6                    6.7
Loss from discontinued operations,
net of tax                                           (0.9 )                 (0.7 )                 (1.9 )

Net income                                            6.7 %                  4.9 %                  4.8 %