Denim domination

American Eagle Outfitters spread its wings this quarter, and the numbers took off.

The retailer crushed expectations, beating earnings and revenue forecasts for its fiscal third quarter while raising guidance. Revenue climbed 6% year-over-year, same-store sales rose 4%, and the company now expects holiday comparable sales to grow 8% to 9%.

The strength came from a “record-breaking Thanksgiving weekend,” powered by its Aerie and Offline brands. Aerie alone posted an 11% jump in comparable sales and saw revenue climb roughly 13%.

The battle for denim dollars

Forget the AI war—the real arms race is the denim war. The value of the jeans market has soared 28% since 2020 to $101 billion, and companies are eager to snap up market share. That’s why brands are burning millions on celebrity-driven ad campaigns to win market share in a brutally competitive category.

The denim spending spree started when Levi Strauss partnered with Beyoncé last fall. Gap fired back in August with K-pop group Katseye and its viral “Milkshake” campaign.

But American Eagle pulled out the big guns over the summer, enlisting Sydney Sweeney and Travis Kelce, whose combined campaigns generated more than 44 billion impressions in total. The Sweeney spot even briefly turned AE into a meme stock, with shares popping 20% in a day after Donald Trump called it “the hottest ad out there.”

The price of the game

The spending behind these campaigns is significant. Levi’s SG&A expenses jumped by nearly $200 million in 2024, the same year it launched its Beyoncé partnership. More than half of that increase landed in the quarter the campaign debuted. For Levi’s, the gamble paid off: the campaign racked up 85 million views.

That partly translated into a return of 29.68% this year for Levi Strauss stock. Gap, too, has made good on its investment: Shares are up 13.63% YTD.

As for American Eagle, its stock is now up 15.07% this year. Most of the gains arrived after last quarter’s earnings confirmed the celebrity campaigns were lifting sales, driving 700,000 newly acquired customers. Before that report in September, the stock had sunk 18% YTD.

Zoom out: If you feel like you’ve been flooded with jeans ads lately, you’re not alone. Nearly 70% more denim advertisements aired on TV this year, per EDO and Euromonitor International. With the stakes rising, brands almost have to place big, splashy bets just to keep pace.

For American Eagle, all this momentum creates a helpful tailwind. Its high-profile campaigns give the brand added visibility heading into the holiday season, setting up a potential halo effect during its busiest stretch of the year.—SY