3x or Zero - The Bet We’re Making This Week

**Dave** (0:01)
One week ago, American Eagle Outfitters debuted a new ad campaign featuring Sydney Sweeney, which was widely praised at the time as a good move for the company. The stock market loved it too. The company's shares shot up about 20% that day. The campaign, of course, promoting the new line of jeans called the Sydney, the company's press release called it a bold, playful campaign based on Sydney's girl-next-door charm. The campaign tagline, Sydney Sweeney has great jeans. Barron's reporting that there is a good reason that the stock market is excited about Sydney Sweeney as the company positions itself as a top jean brand for Gen Z consumers for the back-to-school shopping season. Well, over the last few days, that sentiment has shifted. Videos started appearing online questioning the great jeans tagline, saying the company is promoting eugenics, white supremacy and Nazi propaganda, which I don't know if I have to tell you, but that's not a good look for a brand. Those videos have had backlash of their own, though, saying that it's an overreaction, that the ad is a welcome change from a culture that has become overly woke. As of this morning, neither American Eagle or Sydney's people have addressed the controversy. A few days ago, though, American Eagle did post an Instagram with the caption, AE has great genes and photos of a different model who happens to not be white. So are they in damage control mode or is it all just an overreaction? What does this mean for the Sydney gene? More importantly, for investors, what is this going to do to the American Eagle stock price? Today on Dumb Money, our trade that we think is either going to triple or go to zero.

**Chris** (1:28)
This is Dumb Money Live.

**Dave** (1:32)
Hey there, Dave here, along with Chris and Jordan. We are Dumb Money. Welcome to Dumb Money Live. Quick reminder, smash the old like button for the YouTube algorithm. The algorithm just really needs to know that we're on right now. Chris, Jordan, interesting side note. I didn't know this until I started digging into the story, but the Sydney gene is a collab benefiting domestic violence awareness, and there's a non-profit helpline that's going to get apparently all of the revenue from the sales of the Sydney gene, which that was something that they had planned all along, not something that they did in reaction to this backlash. I don't know if that's enough to appease the haters or if this is a problem or not, or what we need to think about with the AEO stock. But Chris, you just sent me another link that had the other side of the story. American Eagle has withdrawn its financial guidance in May of 2025, citing macro uncertainty, projecting a 5% revenue decline, an $85 million operating loss in Q1, with gross margins collapsing from 40.6% to 29.6%. The stock had been kind of just in a freefall for a long time, and the Sydney Sweeney thing was kind of a highlight, and the stock jumped. Maybe it's becoming a meme stock. What do you guys think?

**Chris** (2:45)
You know why I wanted to do this show? Is because when I retweeted, someone had asked me on X if I thought this was, they assumed this was a bullish long play, which initially it obviously was, right? With the whole meme stuff. Oh, now it's playing. It is playing. It's playing on the iPhone.
And obviously, you know, by the way, I thought it was initially.

**Jordan** (3:11)
Well, I mean, look, I think it's reasonable to assume if you get a big social media reaction, you get a big influencer like Sydney Sweeney, you would think that it's a very positive thing for the stock and the stock reacted as such.

**Chris** (3:26)
But but Jordan, the thing I'm getting at right now, and this is my primary motivation for wanting to do this episode beyond this actual trade, is that the reactions on X amongst investors, a lot of them who who, you know, follow our show, do social urban dusting, seem to me to be extraordinarily biased towards their own personal opinions on whether they thought this particular promo was a positive or negative thing for their own beliefs. And I cannot express enough, no matter how you feel about this trade, whether you think this is a long trade or a short trade. And we're going to go through the trade, the pros, the cons, both sides of it, what we ultimately decided and why and what the risk factors are. But the most important thing is to remove your own bias. Whether you think this ad is totally appropriate or you think the ad is evil, is completely irrelevant as an investor.