AÉROPOSTALE 2008 ANNUAL REPORT
Aéropostale is more
highly recognized
and respected today
than at any other
time in our 21-year
history. Our future
has never been
brighter.
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pg
02
It’s a basic formula: we listen to the customer and give
them what they want.
Year after year, fashion and value prove to be the winning
combination for our teen customers. In 2008, we achieved
a same-store sales increase of 8% – marking our 11th
consecutive year of same-store sales – and we generated
record financial performance with a net sales increase of
19% and an earnings per share increase of 28%.
During the year, we maintained strong brand momentum
as we gained significant market share. Aéropostale is now
more highly ranked as a favorite brand among teenagers.
We are consistently featured in national teen, lifestyle and
fashion publications.
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03
the
DESTINATION
More than a bright spot in the retail sector in 2008,
Aéropostale was one of its shining stars – achieving
another record-setting year for financial performance.
All of our new stores in 2008 were opened using our new
architectural formula. The new store design incorporates
elements that are truly innovative and is a perfect comple-
ment to our fresh and balanced merchandise assortment.
Our new store format brings
newness to Aéropostale and
positions us powerfully for
the next generation of teens.
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the
mOTIvATION
We continue to succeed because we strive to understand and listen
to our customer better than anyone else. It’s the motivation that built
our company and keeps us going strong.
Our culture is special and unique. Our employees value our determi-
nation to succeed, our commitment to them and our support of those
in need through our social responsibility programs.
Our consistent performance is a reflection
of an organization that is driven by success
and never complacent with success.
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05
Our momentum is undeniable. We are well positioned to gain
additional market share with our organization’s dedication,
determination and expertise.
Investing in our people as well as our brands, with progressive
incentive programs for corporate and storeline employees, we
will continue to achieve greatness.
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pg
06
I am pleased to report that Fiscal 2008 was another
extraordinary year for Aéropostale. For the 11th con-
secutive year we achieved positive same-store sales
and once again generated record earnings. While our
results would be impressive in any economic climate,
they are truly exceptional given the uncertain and
challenging times in which we are operating. Our per-
formance underscores the vitality and momentum of the
Aéropostale brand, the strength and flexibility of our
operating model and the unique and special corporate
spirit that characterizes our organization and its culture.
Very briefly, some of the key financial highlights from
the year are:
• Total net sales increased 19% to almost $1.9 billion
• Same-store sales increased 8% for the year, compared
to a 3% increase last year
• Net sales from our e-commerce business increased
85% to $79 million
• Earnings per share reached $2.21, a 28% increase over
earnings of $1.73 per share last year.
As you may remember, at this time last year, we clearly
delineated our strategic initiatives for the year. We
believed that it was imperative to identify the right goals
and to execute flawlessly if we were to have another year
of consistent and outstanding performance. We believe
that we accomplished all of the goals that we set forth.
These included:
• Listening to our customer
• Delivering a fresh and balanced merchandise
assortment
• Offering compelling values
• Creating a dynamic and exciting shopping experience
through preplanned promotions and innovative
marketing programs
• Focusing on controlling inventory levels
• Maintaining a strong balance sheet and managing
costs effectively
• Developing a new brand concept
• And, continuing our expansion plans.
It is very gratifying to acknowledge that our consistent
performance throughout the year indicates that we
have been successful in achieving these objectives. I am
so proud of the entire organization’s dedication to our
business, its determination to succeed and ultimately its
ability to excel.
Throughout the year, we gained significant market share
by continuing to offer the customer the best combina-
tion of fashion and value. Retail teen surveys indicate
that the Aéropostale brand has continued to advance
and is now recognized as a top brand of choice for our
target customer. From a merchandising perspective,
we continue to be aligned with all appropriate trends,
and deliver the right merchandise at the right price.
Our tee shirts and hoodies emblazoned with either the
“Aéropostale” or “Aero” name consistently remain our
top sellers, underscoring the strength of the brand. In
terms of marketing, we offered new and fresh promo-
tions to drive traffic and create excitement in our stores.
We believe that our unique promotional specialty store
model, which enables us to spur demand on an item and
classification basis, has enabled us to navigate successfully
through the dynamic retail landscape in which we live.
Throughout the year, we gained significant market
share by continuing to offer the customer the best
combination of fashion and value.
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In 2008, we continued our store expansion program by
opening 72 new stores in the United States, including
our first 3 stores in Puerto Rico. We continued our
growth outside the country by opening 17 new stores in
Canada, and by announcing that we would be opening
our first licensed store outside North America in the
spring of 2009 when we open in Dubai, UAE.
During the year we also made the difficult decision to
close the Jimmy’Z concept. The decision was made after
a comprehensive review of the current macro-economic
environment, and after assessing the long-term pros-
pects of the brand. We believe that closing the concept
enables us to focus on businesses which are aligned
more closely with our core competencies, and which
generates longer-term shareholder value. Once again,
I would like to thank the entire Jimmy’Z organization for
its hard work, commitment and dedication to the brand.
Moving into 2009, we are committed to, and excited by,
future initiatives that will keep Aéropostale growing for
years to come. We are continuing with our growth plans
in North America, expanding our internet reach and
launching our new concept “P.S. from Aéropostale.”
We are extremely excited about the upcoming launch
of this new concept. “P.S. from Aéropostale” will target
elementary school kids, ages 7 to12, and will comple-
ment our Aéropostale business which targets an older,
high-school demographic. Our P.S. stores will be innova-
tive, playful and fun to shop in. We believe that both the
merchandise assortment and the store environment
will be loved by kids and endorsed by moms. Over the
summer we will be opening our first group of stores
around the metropolitan New York area.
As our results in 2008 demonstrated, Aéropostale con-
tinues to be a bright spot in the retail sector. Our current
success is not the by-product of a struggling economy or
the need for a value proposition. No retailer can win on
price alone.
Aéropostale is more highly recognized and respected
today than at any other time in its 21-year history. It is a
true destination, lifestyle brand.
Our consistent performance is a result of an outstanding
organization, driven by success – never complacent
with success. We listen to our customers, we deliver a
fresh and balanced merchandise assortment, we have
a nimble and flexible operating formula and most
importantly, we have an incredible corporate culture that
can never be copied. We will continue to be committed
to the ideals that differentiate us from our competitors.
We are dedicated to challenging ourselves every day to
make our business even more vibrant and more profit-
able than ever before. Our brand is strong, our momen-
tum is undeniable and even in these times of economic
challenge, Aéropostale’s future has never been brighter.
Julian R. Geiger
Chairman and CEO
Sales Growth (in millions)
$964.2
$1,204.3
$1,413.2
$1,590.9
$1,885.5
04 0605 07 08
Sales Per Square Foot
$526
$534
$543
$545
$572
04 0605 07 08
Store Count
04 0605 07 08
561
671
742
828
914
Earnings Per Share
04 0605 07 08
$0.98
$1.00
$1.32
$1. 73
$2.21
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pg
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• Our net sales increased 19% to almost $1.9 billion
• Total net sales from our e-com business increased 85% to $79 million
• Our same-store sales for the year increased 8%, compared to a 3%
increase in 2007 – marking our 11th consecutive year of positive
same-store sales
• Earnings per share reached $2.21, a 28% increase over earnings of
$1.73 per share last year
10 Selected Financial Data
11 Management’s Discussion and Analysis of
Financial Condition and Results of Operations
19 Reports of Independent Registered Public
Accounting Firm
21 Management’s Report on Internal Control over
Financial Reporting
22 Consolidated Balance Sheets
23 Consolidated Statements of Income and
Comprehensive Income
24 Consolidated Statements of Stockholders’ Equity
25 Consolidated Statements of Cash Flows
26 Notes to Consolidated Financial Statements
40 Corporate and Stock Information
2008
financials
10 Aéropostale, Inc. 08 AR
SELECTED FINANCIAL DATA
Fiscal year ended January 31, February 2, February 3, January 28, January 29,
(in thousands, except per share 2009 2008
(1)
2007
(2) (3)
2006 2005
and store data)
Statements of Income Data:
Net sales
$1,885,531
$1,590,883 $1,413,208 $1,204,347 $964,212
Gross profit, as a percent of sales
34.7%
34.8% 32.2% 30.1% 33.2%
SG&A, as a percent of sales
21.5%
21.7% 20.5% 18.9% 19.1%
Net income, as a percent of sales
7.9%
8.2% 7.5% 7.0% 8.7%
Net income
$ 149,422
$ 129,197 $ 106,647 $ 83,954 $ 84,112
Diluted earnings per common share
$ 2.21
$ 1.73 $ 1.32 $ 1.00 $ 0.98
Selected Operating Data:
Number of stores open at end
of period
914
828 742 671 561
Comparable store sales increase
8%
3% 2% 4% 9%
Comparable average unit
retail change
2%
(3)% 3% (8)% (2)%
Average net sales per store
(in thousands)
$ 2,042
$ 1,932 $ 1,924 $ 1,890 $ 1,849
Average square footage per store
3,594
3,546 3,540 3,537 3,512
Net sales per average square foot
$ 572
$ 545 $ 543 $ 534 $ 526
As of January 31, February 2, February 3, January 28, January 29,
(in thousands) 2009 2008 2007 2006 2005
Balance Sheet Data:
Working capital
$ 218,444
$ 87,300 $ 233,995 $ 212,986 $182,493
Total assets
657,919
514,169 581,164 503,951 405,819
Long-term liabilities
127,422
119,506 104,250 92,808 70,574
Total debt
–
– – – –
Retained earnings
693,333
543,911 414,916 308,269 224,315
Total stockholder’s equity
355,060
197,276 312,116 284,790 238,251
Cash dividends declared per
common share
–
– – – –
(1)
Includes initial gift card breakage income of $7.7 million ($4.8 million, after tax, or $0.07 per diluted share), other operating income of $4.1 million ($2.6 million, after
tax, or $0.04 per diluted share) as a result of an agreement with our former Executive Vice President and Chief Merchandising Officer, partially offset by an asset
impairment charge of $9.0 million ($5.7 million, after tax, or $0.08 per diluted share).
(2)
Includes $7.4 million ($4.5 million, after tax, or $0.05 per diluted share), net of professional fees, representing concessions, primarily from South Bay Apparel, Inc., to
us for prior purchases of merchandise and other operating income of $2.1 million ($1.3 million, after tax, or $0.02 per diluted share) from the resolution of a dispute
with a vendor regarding the enforcement of our intellectual property rights.
(3)
53-week fiscal year.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Aéropostale, Inc. 08 AR 11
Introduction
Aéropostale, Inc. is a mall-based specialty retailer of casual
apparel and accessories. Our target customers are both young
women and young men from age 14 to 17, and we provide our
customers with a selection of high-quality, active-oriented, fashion
basic merchandise at compelling values in a high-energy store
environment. We maintain control over our proprietary brand
by designing and sourcing all of our own merchandise. Our
products can be purchased in our stores, which sell Aéropostale
merchandise exclusively and on-line through our e-commerce
website, www.aeropostale.com. As of January 31, 2009, we
operated 914 stores, consisting of 874 Aéropostale stores in
48 states and Puerto Rico, 29 Aéropostale stores in Canada
and 11 Jimmy’Z stores in 10 states. We plan to close all of the
Jimmy’Z stores by the end of the second quarter of fiscal 2009.
Our fiscal year ends on the Saturday nearest to January 31.
Fiscal 2008 was the 52-week period ended January 31, 2009,
fiscal 2007 was the 52-week period ended February 2, 2008
and fiscal 2006 was the 53-week period ended February 3, 2007.
Fiscal 2009 will be the 52-week period ending January 30, 2010.
The discussion in the following section is on a consolidated basis,
unless indicated otherwise. In addition, comparable store sales
data included in this section are compared to the corresponding
period in the prior year, due to the 53rd week in the fiscal 2006
calendar. We believe that the disclosure of comparable store
sales data on a pro-forma basis due to the 53rd week in fiscal
2006, which is a non-GAAP financial measure, provides investors
useful information to help them better understand our results.
Overview
We achieved net sales of $1.886 billion during fiscal 2008,
an increase of $294.6 million or 19% from fiscal 2007. Gross
profit, as a percentage of net sales, decreased by 0.1 percent-
age points for fiscal 2008. Selling, general and administrative
expense, or SG&A, as a percentage of net sales, decreased by
0.2 percentage points in fiscal 2008. Interest income decreased
by $6.0 million in fiscal 2008. The effective tax rate was 39.9% for
fiscal 2008, compared with 38.2% for fiscal 2007. Net income
for fiscal 2008 was $149.4 million, or $2.21 per diluted share,
compared with net income of $129.2 million, or $1.73 per
diluted share, for fiscal 2007.
As of January 31, 2009, we had working capital of $218.4 mil-
lion, cash and cash equivalents of $228.5 million, no short-term
investments and no third party debt outstanding. We repurchased
0.2 million shares of common stock for $6.7 million during
fiscal 2008 compared to 11.7 million shares of common stock
for $266.7 million during fiscal 2007. Merchandise inventories
decreased by 17% on a square foot basis as of January 31, 2009
compared to last year, reflecting the impact of stronger sell-
through of fall merchandise and timing of floor-set receipts.
Cash flows from operating activities were $202.1 million for
fiscal 2008. We operated 914 total stores as of January 31, 2009,
an increase of 10% from the same period last year.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
12 Aéropostale, Inc. 08 AR
We use a number of key indicators of financial condition and operating performance to evaluate the performance of our business,
including the following:
Fiscal year ended January 31, February 2, February 3,
2009 2008 2007
Net sales (in millions)
$1,885.5
$1,590.9 $1,413.2
Total store count at end of period
914
828 742
Comparable store count at end of period
811
734 664
Net sales growth
19%
13% 17%
Comparable store sales growth
8%
3% 2%
Comparable average unit retail change
2%
(3)% 3%
Comparable units per sales transaction change
3%
2% (2)%
Comparable sales transaction growth
4%
3% 1%
Net sales per average square foot
$ 572
$ 545 $ 543
Average net sales per store (in thousands)
$ 2,042
$ 1,932 $ 1,924
Gross profit (in millions)
$ 654.2
$ 553.2 $ 455.4
Income from operations (in millions)
$ 248.3
$ 202.5 $ 167.8
Diluted earnings per share
$ 2.21
$ 1.73 $ 1.32
Total average square footage growth
12%
10% 14%
Change in total inventory at end of period
(7)%
35% 10%
Change in inventory per square foot at end of period
(17)%
20% 0%
Percentages of net sales by category
Women’s
71%
72% 73%
Men’s
29%
28% 27%
Results of Operations
The following table sets forth our results of operations expressed as a percentage of net sales. We also use this information to
evaluate the performance of our business:
Fiscal year ended January 31, February 2, February 3,
2009 2008 2007
Net sales
100.0%
100.0% 100.0%
Gross profit
34.7
34.8 32.2
SG&A
21.5
21.7 20.5
Jimmy’Z asset impairment charges
–
0.6 –
Other operating income
–
0.3 0.2
Income from operations
13.2
12.8 11.9
Interest income, net
–
0.4 0.5
Income before income taxes
13.2
13.2 12.4
Income taxes
5.3
5.0 4.9
Net income
7.9%
8.2% 7.5%
Sales: Net sales consist of sales from comparable stores, non-
comparable stores and from our e-commerce business. A store
is included in comparable store sales after 14 months of operation.
We consider a remodeled or relocated store with more than a
25% change in square feet to be a new store. Prior period sales
from stores that have closed are not included in comparable
store sales, nor are sales from our e-commerce business.
Net sales increased by $294.6 million, or by 19% in fiscal 2008,
as compared to fiscal 2007. This increase was due to total
average square footage growth of 12%, as well as an increase
in comparable store sales. Comparable store sales increased
by $117.0 million, or by 8%, reflecting comparable store sales
increases in our young men’s and women’s categories. The
comparable store sales increase reflected a 3% increase in
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Aéropostale, Inc. 08 AR 13
units per sales transaction and a 4% increase in the number of
sales transactions. Non-comparable store sales increased by
$177.7 million, or by 11%, due primarily to 86 more stores open
at the end of fiscal 2008 versus fiscal 2007. Total non-comparable
sales includes net sales from our e-commerce business which
increased by 85% to $79.1 million in fiscal 2008. Net sales for
the fourth quarter of fiscal 2007 also included $7.7 million of
sales related to our initial recognition of gift card breakage,
of which $5.9 million related to gift cards issued in periods
prior to fiscal 2007 (see Note 1 to the Notes to Consolidated
Financial Statements for a further discussion).
Net sales increased by $177.7 million, or by 13% in fiscal 2007
(52 weeks), as compared to fiscal 2006 (53 weeks). This increase
was due to total average square footage growth of 10%, as well
as an increase in comparable store sales. Comparable store sales
increased by $43.8 million, or by 3%, reflecting comparable store
sales increases in our young men’s and women’s categories. The
comparable store sales increase reflected a 2% increase in units
per sales transaction, a 3% increase in the number of sales trans-
actions and a 3% decrease in average unit retail. The decrease
in the average unit retail reflected lower pricing in certain cate-
gories, in addition to a shift in sales mix. Non-comparable store
sales increased by $126.1 million, or by 9%, due primarily to 86
more stores open at the end of fiscal 2007 versus fiscal 2006. Total
non-comparable sales includes net sales from our e-commerce
business which increased by 100% to $42.8 million in fiscal 2007.
Net sales for the fourth quarter of fiscal 2007 also included
$7.7 million of sales related to our initial recognition of gift
card breakage, of which $5.9 million related to gift cards issued
in periods prior to fiscal 2007 (see Note 1 to the Notes to
Consolidated Financial Statements for a further discussion).
Cost of Sales and Gross Profit: Cost of sales includes costs
related to merchandise sold, including inventory valuation
adjustments, distribution and warehousing, freight from the
distribution center to the stores, payroll for our design, buy-
ing and merchandising departments, and occupancy costs.
Occupancy costs include rent, contingent rents, common area
maintenance, real estate taxes, utilities, repairs, maintenance
and all depreciation.
Gross profit, as a percentage of net sales, decreased by 0.1 per-
centage points in fiscal 2008 compared to fiscal 2007. The
decrease was due to higher transportation costs and deprecia-
tion, which offset higher merchandise margin of 0.5 percentage
points. Merchandise margin decreased during the fourth quarter
of fiscal 2008, primarily due to increased promotional activity.
The fourth quarter decrease partially offset a 1.9 percentage
point increase in merchandise margin through the first 39 weeks
of fiscal 2008.
Gross profit, as a percentage of net sales, increased by 2.6 percent-
age points in fiscal 2007. This increase was due to a 2.8 percentage
point increase in merchandise margin, primarily from lower unit
costs from graphic tee shirts and improved levels and composi-
tion of our merchandise assortment. This increase was partially
offset by a 0.2 percentage point increase in depreciation, pri-
marily as a result of store growth and strategic investments,
and occupancy costs.
SG&A: SG&A includes costs related to selling expenses, store
management and corporate expenses such as payroll and
employee benefits, marketing expenses, employment taxes,
information technology maintenance costs and expenses,
insurance and legal expenses, store pre-opening and other
corporate expenses. Store pre-opening expenses include
store payroll, grand opening event marketing, travel, supplies
and other store pre-opening expenses.
SG&A increased by $60.1 million, and decreased by 0.2 per-
centage points, as a percentage of net sales, during fiscal 2008.
The increase in SG&A was largely due to a $23.9 million increase
in store-line expenses and a $22.0 million increase in corporate
expenses, which included higher stock-based compensation
of $7.3 million, incentive compensation of $7.2 million and
benefits of $4.9 million. Additionally, the increase was due to
higher store transaction costs of $9.7 million resulting primarily
from new store growth and increased sales and $4.5 million of
higher marketing costs. The SG&A decrease during fiscal 2008,
as a percentage of net sales, was due primarily to a 0.6 percent-
age point decrease in store-line expenses, resulting primarily
from payroll; and was partially offset by a 0.3 percentage point
increase in corporate incentive and stock-based compensation;
and a 0.1 percentage point increase in e-commerce expenses,
resulting from sales growth.
SG&A increased by $56.1 million, or by 1.2 percentage points,
as a percentage of net sales, during fiscal 2007. The increase in
SG&A was largely due to a $26.7 million increase in store-line
expenses. The remainder of the increase was due to higher
store transaction costs and store operations costs of $13.4 mil-
lion resulting primarily from new store growth and increased
sales. The balance of the increase in SG&A was due primarily
to a $13.8 million increase in corporate expenses consisting
of higher incentive compensation of $4.9 million, stock-based
compensation of $3.5 million, and other corporate expenses
of $5.4 million. The SG&A increase during fiscal 2007, as a
percentage of net sales, was due primarily to a 0.5 percentage
point increase in store-line expenses, resulting primarily from
increased payroll due to minimum wage increases and loss
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
14 Aéropostale, Inc. 08 AR
prevention initiatives, a 0.5 percentage point increase in corporate
incentive and stock-based compensation and a 0.4 percentage
point increase in e-commerce expenses, resulting from growth
in related sales.
Jimmy’Z Asset Impairment Charges: During the fourth quarter
of fiscal 2007, we recorded asset impairment charges of $9.0 mil-
lion (see Note 3 to the Notes to Consolidated Financial
Statements for a further discussion).
Other Operating Income: We recognized $4.1 million in net
other operating income during the fourth quarter of 2007 as a
result of an agreement with our former Executive Vice President
and Chief Merchandising Officer (see Note 4 to the Notes to
Consolidated Financial Statements for a further discussion).
We recognized $2.1 million in other operating income during the
second quarter of fiscal 2006 in connection with the resolution
of a dispute with a vendor regarding the enforcement of our
intellectual property rights.
Interest Income: Interest income, net of interest expense,
decreased by $6.0 million in fiscal 2008. The decrease was
due to the cumulative impact of cash used for share repur-
chases in the fourth quarter of 2007 of $266.7 million and
lower interest rates.
Interest income, net of interest expense, decreased by
$0.5 million in fiscal 2007. The decrease was due primarily
to the cumulative impact of cash used for share repurchases
of $266.7 million during fiscal 2007.
Income Taxes: Our effective tax rate was 39.9% for fiscal 2008,
compared to 38.2% for fiscal 2007, and 39.0% for fiscal 2006. The
increase in the effective tax rate during fiscal 2008 is due primarily
to nondeductible officers’ compensation and less tax exempt
interest, as well as a lower rate in fiscal 2007, mainly due to
favorable tax provision adjustments.
Net Income and Earnings Per Share: Net income was
$149.4 million, or $2.21 per diluted share, for fiscal 2008,
compared with net income of $129.2 million, or $1.73 per
diluted share, for fiscal 2007 and net income of $106.6 mil-
lion, or $1.32 per diluted share, for fiscal 2006.
Net income for fiscal 2007 was favorably impacted by $7.7 mil-
lion ($4.8 million after-tax, or $0.07 per diluted share), resulting
from our initial recognition of gift card breakage (see Note 1 to
the Notes to Consolidated Financial Statements for a further
discussion). Net income for fiscal 2007 was also favorably
impacted by $4.1 million ($2.6 million after-tax, or $0.04 per
diluted share), from the above mentioned other operating
income. The asset impairment charges unfavorably impacted
net income for fiscal 2007 by $9.0 million ($5.7 million after-
tax, or $0.08 per diluted share) (see Note 3 to the Notes to
Consolidated Financial Statements for a further discussion).
Liquidity and Capital Resources
Our cash requirements are primarily for working capital, con-
struction of new stores, remodeling of existing stores, and the
improvement and enhancement of our information technol-
ogy systems. Due to the seasonality of our business, we have
historically realized a significant portion of our cash flows from
operations during the second half of the year. Most recently, our
cash requirements have been met primarily through cash and cash
equivalents on hand during the first half of the year, and through
cash flows from operations during the second half of the year.
We expect to continue to meet our cash requirements for the
next 12 months primarily through cash flows from operations,
existing cash and cash equivalents and our credit facility. At
January 31, 2009, we had working capital of $218.4 million,
cash and cash equivalents of $228.5 million and no debt out-
standing under our $150.0 million credit facility.
On February 23, 2009, we announced plans to close all of our
11 Jimmy’Z stores by the end of the second quarter of fiscal
2009. We do not believe that the closures will have a material
impact on our liquidity.
The following table sets forth our cash flows for the period
indicated (in thousands):
Fiscal year ended January 31, February 2, February 3,
2009 2008 2007
Net cash provided by
operating activities
$202,135
$ 171,081 $ 177,445
Net cash used for
investing activities
(83,035)
(6,083) (101,135)
Net cash used for
financing activities
(1,445)
(253,153) (81,481)
Effect of exchange
rate changes
(1,052)
18 –
Net increase (decrease)
in cash and
cash equivalents
$116,603
$ (88,137) $ (5,171)
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Aéropostale, Inc. 08 AR 15
Operating Activities: Cash flows from operating activities,
our principal form of liquidity on a full-year basis, increased
by $31.1 million in fiscal 2008 and decreased by $6.4 million
in fiscal 2007, as compared to the prior fiscal year. The primary
components of cash flows from operations for fiscal 2008
included an increase in net income, as adjusted for depreciation
and amortization and other non-cash items, of $45.4 million and
lower merchandise inventories which were partially offset by the
timing of the payment of liabilities.
Cash flows from operating activities decreased by $6.4 million
in fiscal 2007 as compared to the prior fiscal year. The primary
components of cash flows from operations for fiscal 2007 included
an increase in net income, as adjusted for non-cash items, of
$41.5 million which was more than offset by an increase in cash
used for accounts payable and accrued expenses, which resulted
from the timing of income tax payments.
Working capital increased to $218.4 million at January 31, 2009
from $87.3 million at February 2, 2008 due primarily to the cumu-
lative impact of cash used for share repurchases of $266.7 million
in fiscal 2007. Consolidated merchandise inventories decreased
by 7%, and by 17% on a square foot basis, as of January 31, 2009
compared to last year. These decreases were primarily due to
stronger sell-through of merchandise and a shift in the timing
of floor-set receipts.
Investing Activities: We invested $83.0 million in capital expen-
ditures in fiscal 2008, primarily for the construction of 89 new
Aéropostale stores, to remodel 18 existing stores and for certain
other information technology investments. Our future capital
requirements will depend primarily on the number of new stores
we open, the number of existing stores we remodel and other
strategic investments. We plan to invest approximately $55.0 mil-
lion in capital expenditures in fiscal 2009. These plans include
investments of approximately $25.0 million to open approxi-
mately 40 new Aéropostale stores in our new store format
including approximately 15 in Canada and 10 new P.S. from
Aéropostale stores. Capital expenditure plans also include
approximately $15.0 million to remodel approximately 23
existing stores to our new store format and approximately
$15.0 million for other initiatives which includes $6.0 million
for our new allocation system.
Financing Activities: We repurchase our common stock from
time to time under a stock repurchase program. The repur-
chase program may be modified or terminated by the Board
of Directors at any time, and there is no expiration date for the
program. The extent and timing of repurchases will depend upon
general business and market conditions, stock prices, opening
and closing of the stock trading window, and liquidity and capital
resource requirements going forward.
We repurchased 0.2 million shares for $6.7 million during
fiscal 2008, as compared to repurchases of 11.7 million shares
for $266.7 million during fiscal 2007 and 4.7 million shares for
$91.4 million during fiscal 2006.
We have approximately $127.1 million of repurchase authoriza-
tion remaining as of January 31, 2009 under the $600.0 million
share repurchase program.
In November 2007, we entered into an amended and restated
revolving credit facility with Bank of America, N.A., as Lender
which expanded our availability from a maximum of $75.0 mil-
lion to $150.0 million (the “Credit Facility”). The Credit Facility
provides for a $150.0 million revolving credit line. The Credit
Facility is available for working capital and general corporate
purposes. The Credit Facility is scheduled to mature on
November 13, 2012, and no amounts were outstanding
as of January 31, 2009.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
16 Aéropostale, Inc. 08 AR
The real estate operating leases included in the above table
do not include contingent rent based upon sales volume, which
amounted to approximately 20% of minimum lease obligations
in fiscal 2008. In addition, the above table does not include
variable costs paid to landlords such as maintenance, insurance
and taxes, which represented approximately 60% of minimum
lease obligations in fiscal 2008.
Our open purchase orders are cancelable without penalty and
are therefore not included in the above table.
In addition to the above table, we project making a benefit pay-
ment of approximately $16.9 million from our supplementary
executive retirement plan in 2010, which assumes expected future
service until retirement at age 65 (see Note 10 to the Notes to
Consolidated Financial Statements for a further discussion).
There were no financial guarantees outstanding as of January 31,
2009. We had no commercial commitments outstanding as of
January 31, 2009.
Our total liabilities for unrecognized tax benefits were $2.6 mil-
lion at January 31, 2009. We cannot make a reasonable estimate
of the amount and period of related future payments for these
liabilities. Therefore these liabilities were not included in the
above table.
Off-Balance Sheet Arrangements
Other than operating lease commitments set forth in the table
above, we are not a party to any material off-balance sheet
financing arrangements. We have not created, and are not a
party to, any special-purpose or off-balance sheet entities for
the purpose of raising capital, incurring debt or operating our
business. We do not have any arrangements or relationships
with entities that are not consolidated into the financial state-
ments that are reasonably likely to materially affect our liquidity
or the availability of capital resources. As of January 31, 2009,
we have not issued any letters of credit for the purchase of
merchandise inventory or any capital expenditures.
Critical Accounting Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements. These estimates and assump-
tions also affect the reported amounts of revenues and expenses.
Estimates by their nature are based on judgments and available
information. Therefore, actual results could materially differ from
those estimates under different assumptions and conditions.
Critical accounting policies are those that are most important
to the portrayal of our financial condition and the results of
operations and require management’s most difficult, subjective
and complex judgments as a result of the need to make estimates
about the effect of matters that are inherently uncertain. Our
most critical accounting policies have been discussed in Note 1
of the Notes to Consolidated Financial Statements. In applying
such policies, management must use significant estimates that
are based on its informed judgment. Because of the uncertainty
inherent in these estimates, actual results could differ from
estimates used in applying the critical accounting policies.
Changes in such estimates, based on more accurate future
information, may affect amounts reported in future periods.
Contractual Obligations
The following table summarizes our contractual obligations as of January 31, 2009:
Payments due by period Less than 1–3 3–5 More than
(in thousands) Total 1 year years years 5 years
Contractual Obligations:
Real estate operating leases $646,187 $ 98,782 $186,245 $162,638 $198,522
Equipment operating leases 4,165 2,273 1,892 – –
Employment agreements 20,818 11,534 9,284 – –
Total contractual obligations $671,170 $112,589 $197,421 $162,638 $198,522
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Aéropostale, Inc. 08 AR 17
Merchandise Inventory: Merchandise inventory consists of
finished goods and is valued utilizing the cost method at lower
of cost or market on a weighted average basis. We use estimates
during interim periods to record a provision for inventory short-
age. We also make certain assumptions regarding future demand
and net realizable selling price in order to assess that our inven-
tory is recorded properly at the lower of cost or market. These
assumptions are based on both historical experience and current
information. We believe that the carrying value of merchandise
inventory is appropriate as of January 31, 2009. However, actual
results may differ materially from those estimated and could
have a material impact on our consolidated financial state-
ments. A 10% difference in our estimate of inventory at the
lower of cost or market as of January 31, 2009 would have
impacted net income by $1.0 million for the fiscal year ended
January 31, 2009.
Income Taxes: Income taxes are accounted for in accordance
with Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (“SFAS No. 109”). Under SFAS
No. 109, income taxes are recognized for the amount of taxes
payable for the current year and deferred tax assets and liabili-
ties for the future tax consequence of events that have been
recognized differently in the financial statements than for tax
purposes. Deferred tax assets and liabilities are established
using statutory tax rates and are adjusted for tax rate changes.
We consider accounting for income taxes critical to our opera-
tions because management is required to make significant
subjective judgments in developing our provision for income
taxes, including the determination of deferred tax assets and
liabilities, and any valuation allowances that may be required
against deferred tax assets.
Effective at the beginning of the first quarter of fiscal 2007, we
adopted FASB Interpretation No. 48, Accounting for Uncer-
tainty in Income Taxes (“FIN 48”). This interpretation clarifies
the accounting for uncertainty in income tax recognized in an
entity’s financial statements in accordance with SFAS No. 109.
FIN 48 requires companies to determine whether it is “more
likely than not” that a tax position will be sustained upon
examination by the appropriate taxing authorities before any
part of the benefit can be recorded in the financial statements.
For those tax positions where it is “not more likely than not”
that a tax benefit will be sustained, no tax benefit is recog-
nized. Where applicable, associated interest and penalties
are also recorded. This interpretation also provides guidance
on derecognition, classification, accounting in interim periods
and expanded disclosure requirements (see Note 12 to the
Notes to Consolidated Financial Statements).
Long-Lived Assets: We periodically evaluate the need to recog-
nize impairment losses relating to long-lived assets. Long-lived
assets are evaluated for recoverability whenever events or changes
in circumstances indicate that an asset may have been impaired.
Factors we consider important that could trigger an impairment
review include the following:
• significant changes in the manner of our use of assets or
the strategy for our overall business;
• significant negative industry or economic trends;
• store closings; or
• under-performing business trends.
In evaluating an asset for recoverability, we estimate the future
cash flows expected to result from the use of the asset and
eventual disposition. Management makes assumptions and
applies judgment to estimate future cash flows. These assump-
tions include factors such as both historical and forecasted
results and trends. If the sum of the expected future cash flows
is less than the carrying amount of the asset, we would write
the asset down to fair value and we would record an impair-
ment charge. Accordingly, we recorded asset impairment
charges of $9.0 million related to our Jimmy’Z store concept
during fiscal 2007 (see Note 3 to the Notes to Consolidated
Financial Statements for a further discussion). Additionally,
we have recorded Aéropostale store impairment charges of
$3.7 million in fiscal 2008 compared to $1.7 million in fiscal
2007 and $0.1 million in fiscal 2006, which were included in
depreciation and amortization expense, which is a component
of cost of sales. We believe that the carrying values of finite-lived
assets, and their useful lives, are appropriate as of January 31,
2009. However, actual results may differ materially from those
estimated and could have a material impact on our consoli-
dated financial statements.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
18 Aéropostale, Inc. 08 AR
Defined Benefit Pension Plans: We maintain a Supplemental
Executive Retirement Plan, or SERP, which is a non-qualified
defined benefit plan for certain officers. The plan is non-
contributory, is not funded and provides benefits based on
years of service and compensation during employment. Pension
expense is determined using various actuarial cost methods to
estimate the total benefits ultimately payable to officers, and
this cost is allocated to service periods. The actuarial assump-
tions used to calculate pension costs are reviewed annually.
We believe that these assumptions have been appropriate
and that, based on these assumptions, the SERP liability of
$21.2 million is appropriately stated as of January 31, 2009.
However, actual results may differ materially from those estimated
and could have a material impact on our consolidated financial
statements. If we had changed the expected discount rate
by 0.5% in fiscal 2008, pension expense would have changed
by less than $50,000. We adopted Statement of Financial
Accounting Standards No. 158, Employer’s Accounting for
Defined Benefit Pension and Other Postretirement Plans – an
amendment of FASB Statements No. 87, 88, 106, and 132(R)
(“SFAS No. 158”) during fiscal 2006.
Recent Accounting Developments
See the section “Recent Accounting Developments” included
in Note 1 in the Notes to Consolidated Financial Statements for
a discussion of recent accounting developments and their impact
on our consolidated financial statements.
Quantitative and Qualitative Disclosures about Market Risk:
As of January 31, 2009, we had no outstanding borrowings
under our Credit Facility. In addition, we had no stand-by or
commercial letters of credit issued under the Credit Facility.
To the extent that we may borrow pursuant to the Credit
Facility in the future, we may be exposed to market risk
related to interest rate fluctuations.
Unrealized foreign currency gains and losses, resulting from
the translation of our Canadian subsidiary financial statements
into our U.S. dollar reporting currency are reflected in the equity
section of our consolidated balance sheet in accumulated other
comprehensive loss. The balance of the unrealized loss included
in accumulated other comprehensive loss was $2.7 million as of
January 31, 2009. A 10% movement in quoted foreign currency
exchange rates could result in a fair value translation fluctuation
of approximately $1.5 million, which would be recorded in other
comprehensive loss as an unrealized gain or loss.
We also face transactional currency exposures relating to mer-
chandise that our Canadian subsidiary purchases using U.S. dollars.
These foreign currency transaction gains and losses are charged
or credited to earnings as incurred. We do not hedge our expo-
sure to this currency exchange fluctuation, and transaction gains
and losses to date have not been significant.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Aéropostale, Inc. 08 AR 19
To the Board of Directors and Stockholders of Aéropostale, Inc.
New York, New York
We have audited the accompanying consolidated balance
sheets of Aéropostale, Inc. and subsidiaries (the “Company”)
as of January 31, 2009 and February 2, 2008, and the related
consolidated statements of income, comprehensive income,
stockholders’ equity, and cash flows for each of the three years
in the period ended January 31, 2009. These financial statements
are the responsibility of the Company’s management. Our respon-
sibility is to express an opinion on the financial statements based
on our audits.
We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial state-
ments are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant esti-
mates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of the Company
and subsidiaries as of January 31, 2009 and February 2, 2008,
and the results of its operations and its cash flows for each of
the three years in the period ended January 31, 2009, in confor-
mity with accounting principles generally accepted in the
United States of America.
As discussed in Note 1 to the Notes to Consolidated Financial
Statements, the Company adopted (1) Financial Accounting
Standards Board Interpretation No. 48, Accounting for Uncer-
tainty in Income Taxes, effective February 4, 2007 and (2) State-
ment of Financial Accounting Standards No. 158, Employers’
Accounting for Defined Benefit Pension and Other Postretire-
ment Plans, relating to the recognition and related disclosure
provisions, effective February 3, 2007.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
the Company’s internal control over financial reporting as of
January 31, 2009, based on the criteria established in Internal
Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our
report dated March 30, 2009 expressed an unqualified opinion
on the Company’s internal control over financial reporting.
Deloitte and Touche LLP
New York, New York
March 30, 2009
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
20 Aéropostale, Inc. 08 AR
To the Board of Directors and Stockholders of Aéropostale, Inc.
New York, New York
We have audited the internal control over financial reporting
of Aéropostale, Inc. and subsidiaries (the “Company”) as of
January 31, 2009, based on criteria established in Internal
Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. The
Company’s management is responsible for maintaining effective
internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to express
an opinion on the Company’s internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of
the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that
a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that
our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process
designed by, or under the supervision of, the company’s principal
executive and principal financial officers, or persons performing
similar functions, and effected by the company’s board of directors,
management, and other personnel to provide reasonable assur-
ance regarding the reliability of financial reporting and the prepa-
ration of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the trans-
actions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance
with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition
of the company’s assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over financial
reporting, including the possibility of collusion or improper
management override of controls, material misstatements due
to error or fraud may not be prevented or detected on a timely
basis. Also, projections of any evaluation of the effectiveness
of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate
because of changes in conditions, or that the degree of com-
pliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of January 31,
2009, based on the criteria established in Internal Control –
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
the consolidated financial statements as of and for the year
ended January 31, 2009, of the Company and our report dated
March 30, 2009 expressed an unqualified opinion on those
financial statements.
Deloitte and Touche LLP
New York, New York
March 30, 2009
Aéropostale, Inc. 08 AR 21
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as defined in
Rules 13a-15(f ) and 15d-15(f ) under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”). Our internal
control over financial reporting is a process designed to provide
reasonable assurance to our management and board of directors
regarding reliability of financial reporting and the preparation and
fair presentation of published financial statements in accordance
with generally accepted accounting principles.
All internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined to
be effective can provide only reasonable assurance with respect
to financial statement preparation and presentation. Because of
its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. In addition, projections
of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of
changes in condition, or that the degree of compliance with
policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal
control over financial reporting as of January 31, 2009. In making
this assessment, management used the criteria set forth by
the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control – Integrated Frame-
work. Based on that assessment, our management believes
that, as of January 31, 2009, our internal control over financial
reporting is effective.
22 Aéropostale, Inc. 08 AR
CONSOLIDATED BALANCE SHEETS
January 31, February 2,
(in thousands) 2009 2008
Assets
Current assets:
Cash and cash equivalents
$ 228,530
$ 111,927
Merchandise inventory
126,360
136,488
Prepaid expenses
17,384
13,604
Deferred income taxes
10,745
12,961
Other current assets
10,862
9,707
Total current assets
393,881
284,687
Fixtures, equipment and improvements – net
248,999
213,831
Deferred income taxes
12,509
13,073
Other assets
2,530
2,578
Total assets
$ 657,919
$ 514,169
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$ 77,247
$ 99,369
Accrued expenses
98,190
98,018
Total current liabilities
175,437
197,387
Deferred rent and tenant allowances
102,393
96,888
Retirement benefit plan liabilities
22,470
18,919
Uncertain tax contingency liabilities
2,559
3,699
Commitments and contingent liabilities
Stockholders’ equity
Common stock – par value, $0.01 per share; 200,000 shares authorized,
90,472 and 89,908 shares issued
905
899
Preferred stock – par value, $0.01 per share; 5,000 shares authorized,
no shares issued or outstanding
–
–
Additional paid-in capital
145,951
124,052
Accumulated other comprehensive loss
(8,998)
(4,650)
Retained earnings
693,333
543,911
Treasury stock at cost (23,542 and 23,224 shares)
(476,131)
(466,936)
Total stockholders’ equity
355,060
197,276
Total liabilities and stockholders’ equity
$ 657,919
$ 514,169
See Notes to Consolidated Financial Statements.
Aéropostale, Inc. 08 AR 23
CONSOLIDATED STATEMENTS OF INCOME
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Fiscal year ended January 31, February 2, February 3,
(in thousands, except per share data) 2009 2008 2007
Net sales
$1,885,531
$1,590,883 $1,413,208
Cost of sales (includes certain buying, occupancy
and warehousing expenses)
1,231,349
1,037,680 957,791
Gross profit
654,182
553,203 455,417
Selling, general and administrative expenses
405,883
345,805 289,736
Jimmy’Z asset impairment charges
–
9,023 –
Other operating income
–
4,078 2,085
Income from operations
248,299
202,453 167,766
Interest income
510
6,550 7,064
Income before income taxes
248,809
209,003 174,830
Income taxes
99,387
79,806 68,183
Net income
$ 149,422
$ 129,197 $ 106,647
Basic earnings per common share
$ 2.24
$ 1.74 $ 1.33
Diluted earnings per common share
$ 2.21
$ 1.73 $ 1.32
Weighted average basic shares
66,832
74,315 79,928
Weighted average diluted shares
67,576
74,846 80,637
Fiscal year ended January 31, February 2, February 3,
(in thousands) 2009 2008 2007
Net income
$149,422
$129,197 $106,647
Pension liability (net of tax of $321, $229, and $69)
(474)
(582) 110
Foreign currency translation adjustment
(3,874)
1,206 –
Comprehensive income
$145,074
$129,821 $106,757
See Notes to Consolidated Financial Statements.
24 Aéropostale, Inc. 08 AR
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Accumulated
Additional Treasury stock, other
Common stock paid-in Deferred at cost comprehensive Retained
(in thousands) Shares Amount capital compensation Shares Amount loss earnings Total
Balance, January 29, 2006 87,897 $879 $ 87,920 $(2,577) (6,822) $ (108,144) $ (1,557) $308,269 $ 284,790
Net income – – – – – – – 106,647 106,647
Stock options exercised 1,078 11 2,343 – – – – – 2,354
Minimum pension liability
(net of tax of $69) – – – – – – 110 – 110
Adoption of SFAS No. 123(R) – – (2,577) 2,577 – – – – –
Excess tax benefit from
stock-based compensation – – 7,568 – – – – – 7,568
Adoption of SFAS No. 158
(net of tax of $2,413) – – – – – – (3,827) – (3,827)
Repurchase of common stock – – – – (4,709) (91,404) – – (91,404)
Stock-based compensation – – 5,878 – – – – – 5,878
Vesting of stock 23 – – – – – – – –
Balance, February 3, 2007 88,998 890 101,132 – (11,531) (199,548) (5,274) 414,916 312,116
Net income – – – – – – – 129,197 129,197
Stock options exercised 805 8 8,020 – – – – – 8,028
Minimum pension liability
(net of tax of $229) – – – – – – (582) – (582)
Excess tax benefit from
stock-based compensation – – 5,519 – – – – – 5,519
Adoption of FIN 48 – – – – – – – (202) (202)
Repurchase of common stock – – – – (11,665) (266,692) – – (266,692)
Stock-based compensation – – 9,381 – – – – – 9,381
Foreign currency translation
adjustment – – – – – – 1,206 – 1,206
Vesting of stock 105 1 – – (28) (696) – – (695)
Balance, February 2, 2008 89,908 899 124,052 – (23,224) (466,936) (4,650) 543,911 197,276
Net income – – – – – – – 149,422 149,422
Stock options exercised 252 3 3,751 – – – – – 3,754
Minimum pension liability
(net of tax of $321) – – – – – – (474) – (474)
Excess tax benefit from
stock-based compensation – – 1,482 – – – – – 1,482
Repurchase of common stock – – – – (208) (6,681) – – (6,681)
Stock-based compensation – – 16,666 – – – – – 16,666
Foreign currency translation
adjustment – – – – – – (3,874) – (3,874)
Vesting of stock 312 3 – – (110) (2,514) – – (2,511)
Balance, January 31, 2009 90,472 $905 $145,951 $ – (23,542) $(476,131) $(8,998) $693,333 $ 355,060
See Notes to Consolidated Financial Statements.
Aéropostale, Inc. 08 AR 25
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal year ended January 31, February 2, February 3,
(in thousands) 2009 2008 2007
Cash Flows Provided by Operating Activities
Net income
$149,422
$ 129,197 $ 106,647
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization
45,773
36,756 30,029
Stock-based compensation
16,666
9,381 5,878
Amortization of tenant allowances and above market leases
(11,745)
(10,315) (9,195)
Amortization of deferred rent expense
2,357
2,427 2,333
Pension expense
2,757
2,202 2,246
Deferred income taxes
3,022
(12,990) (10,474)
Jimmy’Z asset impairment charges
–
9,023 –
Excess tax benefits from stock-based compensation
(1,482)
(5,519) (7,568)
Other
–
1,217 –
Changes in operating assets and liabilities:
Merchandise inventory
9,063
(35,002) (9,568)
Prepaid expenses and other assets
(5,202)
(4,447) 2,646
Accounts payable
(21,717)
35,451 6,753
Accrued expenses and other liabilities
13,221
13,700 57,718
Net cash provided by operating activities
202,135
171,081 177,445
Cash Flows Used for Investing Activities
Capital expenditures
(83,035)
(82,306) (44,949)
Purchase of short-term investments
–
(313,572) (513,909)
Proceeds from sale of short-term investments
–
389,795 457,723
Net cash used for investing activities
(83,035)
(6,083) (101,135)
Cash Flows Used for Financing Activities
Purchase of treasury stock
(6,681)
(266,692) (91,403)
Proceeds from stock options exercised
3,754
8,020 2,354
Excess tax benefits from stock-based compensation
1,482
5,519 7,568
Borrowings under revolving credit facility
–
31,300 –
Repayments under revolving credit facility
–
(31,300) –
Net cash used for financing activities
(1,445)
(253,153) (81,481)
Effect of exchange rate changes
(1,052)
18 –
Net Increase (Decrease) in Cash and Cash Equivalents
116,603
(88,137) (5,171)
Cash and Cash Equivalents, Beginning of Year
111,927
200,064 205,235
Cash and Cash Equivalents, End of Year
$228,530
$ 111,927 $ 200,064
Supplemental Disclosures of Cash Flow Information:
Interest paid
$ –
$ 110 $ –
Income taxes paid
$112,469
$ 102,051 $ 48,352
Non-cash operating and investing activities
$ 785
$ 313 $ 1,984
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
26 Aéropostale, Inc. 08 AR
01. Summary of Significant Accounting Policies
Organization: References to the “Company,” “we,” “us” or
“our” means Aéropostale, Inc. and its subsidiaries, except as
expressly indicated or unless the context otherwise requires.
We are a mall-based specialty retailer of casual apparel and
accessories for young women and men. As of January 31, 2009,
we operated 914 stores, consisting of 874 Aéropostale stores
in 48 states and Puerto Rico, 29 Aéropostale stores in Canada
and 11 Jimmy’Z stores in 10 states. We plan to close all of the
Jimmy’Z stores by the end of the second quarter of fiscal 2009.
Fiscal Year: Our fiscal year ends on the Saturday nearest to
January 31. Fiscal 2008 was the 52-week period ended January 31,
2009, fiscal 2007 was the 52-week period ended February 2, 2008
and fiscal 2006 was the 53-week period ended February 3, 2007.
Fiscal 2009 will be the 52-week period ending January 30, 2010.
Use of Estimates: The preparation of the consolidated financial
statements in conformity with accounting principles generally
accepted in the United States requires us to make estimates
and assumptions that affect the amounts reported in our
consolidated financial statements and accompanying notes.
Actual results could differ materially from those estimated.
The most significant estimates made by management include
those made in the areas of merchandise inventory, defined
benefit retirement plans, long-lived assets and income taxes.
Management periodically evaluates estimates used in the
preparation of the consolidated financial statements for con-
tinued reasonableness. Appropriate adjustments, if any, to
the estimates used are made prospectively based on such
periodic evaluations.
Seasonality: Our business is highly seasonal, and historically
we have realized a significant portion of our sales, net income
and cash flow in the second half of the fiscal year, attributable
to the impact of the back-to-school selling season in the third
quarter and the holiday selling season in the fourth quarter.
Additionally, working capital requirements fluctuate during the
year, increasing in mid-summer in anticipation of the third and
fourth quarters.
Translation of Foreign Currency Financial Statements and
Foreign Currency Transactions: The financial statements of
our Canadian subsidiary have been translated into United
States dollars by translating balance sheet accounts at the
year-end exchange rate and statement of income accounts
at the average exchange rates for the year. Foreign currency
translation gains and losses are reflected in the equity section
of our consolidated balance sheet in accumulated other com-
prehensive loss and are not adjusted for income taxes as they
relate to a permanent investment in our subsidiary in Canada.
The balance of the unrealized foreign currency translation adjust-
ment included in accumulated other comprehensive loss was a
loss of $2.7 million as of January 31, 2009 compared to a gain
of $1.2 million as of February 2, 2008. Foreign currency trans-
action gains and losses are charged or credited to earnings
as incurred.
Cash Equivalents: We include credit card receivables and all
short-term investments with an original maturity of three months
or less in cash and cash equivalents.
Fair Value of Financial Instruments: The fair value of cash and
cash equivalents, receivables and accounts payable approxi-
mates their carrying value due to their short-term maturities.
Merchandise Inventory: Merchandise inventory consists of
finished goods and is valued utilizing the cost method at the
lower of cost or market determined on a weighted average
basis. Merchandise inventory includes warehousing, freight,
merchandise and design costs as an inventory product cost.
We make certain assumptions regarding future demand and
net realizable selling price in order to assess that our inventory
is recorded properly at the lower of cost or market. These
assumptions are based on both historical experience and cur-
rent information. We recorded adjustments to inventory and
cost of sales for lower of cost or market of $9.5 million as of
January 31, 2009 and $8.1 million as of February 2, 2008.
Vendor Rebates: We receive vendor rebates from certain
merchandise suppliers. The vendor rebates are earned as we
receive merchandise from the suppliers and is computed at
an agreed upon percentage of the purchase amount. Vendor
rebates are recorded as a reduction of merchandise inventory,
and are then recognized as a reduction of cost of sales when the
related inventory is sold. Vendor rebates recorded as a reduction
of merchandise inventory were $0.9 million as of January 31, 2009
and $1.0 million as of February 2, 2008. Vendor rebates recorded
as a reduction of cost of sales were $8.3 million for fiscal 2008,
$7.4 million for fiscal 2007 and $6.4 million for fiscal 2006.
Fixtures, Equipment and Improvements: Fixtures, equip-
ment and improvements are stated at cost. Depreciation and
amortization are provided for by the straight-line method over
the following estimated useful lives:
Fixtures and equipment 10 years
Leasehold improvements Lesser of 10 years or lease term
Computer equipment 5 years
Software 3 years
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Aéropostale, Inc. 08 AR 27
Evaluation for Long-Lived Asset Impairment: We periodically
evaluate the need to recognize impairment losses relating to
long-lived assets in accordance with Statement of Financial
Accounting Standards No. 144, Accounting for the Impairment
or Disposal of Long-lived Assets (“SFAS No. 144”). Long-lived
assets are evaluated for recoverability whenever events or changes
in circumstances indicate that an asset may have been impaired.
In evaluating an asset for recoverability, we estimate the future
undiscounted cash flows expected to result from the use of the
asset and eventual disposition. If the sum of the expected future
cash flows is less than the carrying amount of the asset, we write
the asset down to fair value and we record impairment charges,
accordingly. We recorded asset impairment charges of $9.0 mil-
lion in fiscal 2007 related to our Jimmy’Z store concept (see
note 3 for a further discussion). Additionally, we have recorded
Aéropostale store impairments of $3.7 million in fiscal 2008 for
11 stores, $1.7 million in fiscal 2007 for five stores and $0.1 mil-
lion in fiscal 2006 for one store, which were included in deprecia-
tion and amortization expense, which is included as a component
of cost of sales.
Pre-Opening Expenses: New store pre-opening costs are
expensed as they are incurred.
Leases: Our store operating leases typically provide for fixed
non-contingent rent escalations. Rent payments under our store
leases typically commence when the store opens. These leases
include a pre-opening period that allows us to take possession
of the property to construct the store. We recognize rent expense
on a straight-line basis over the non-cancelable term of each
individual underlying lease, commencing when we take posses-
sion of the property (see note 13 for a further discussion).
In addition, our store leases require us to pay additional rent
based on specified percentages of sales, after we achieve
specified annual sales thresholds. We use store sales trends
to estimate and record liabilities for these additional rent
obligations during interim periods. Most of our store leases
entitle us to receive tenant allowances from our landlords.
We record these tenant allowances as a deferred rent liability,
which we amortize as a reduction of rent expense over the
non-cancelable term of each underlying lease.
Revenue Recognition: Sales revenue is recognized at the “point
of sale” in our stores, and at the time our e-commerce customers
take possession of merchandise. Allowances for sales returns are
recorded as a reduction of net sales in the periods in which the
related sales are recognized. Also included in sales revenue is
shipping revenue from our e-commerce customers.
Gift Cards: We sell gift cards to our customers in our retail
stores, through our website and through select third parties.
We do not charge administrative fees on unused gift cards
and our gift cards do not have an expiration date. We recog-
nize income from gift cards when the gift card is redeemed
by the customer. In addition, in the fourth quarter of fiscal
2007, we relieved our legal obligation to escheat the value
of unredeemed gift cards to the relevant jurisdiction. We
therefore determined that the likelihood of certain gift cards
being redeemed by the customer was remote, based upon
historical redemption patterns of gift cards. For those gift
cards that we determined redemption to be remote, we
reversed our liability, and recorded gift card breakage income.
In fiscal 2008, we recorded $2.9 million in net sales related to
gift card breakage income compared to the initial recognition
of $7.7 million in the fourth quarter of fiscal 2007, of which,
$5.9 million was related to gift cards issued prior to fiscal 2007.
Cost of Sales: Cost of sales includes costs related to merchan-
dise sold, including inventory valuation adjustments, distribution
and warehousing, freight from the distribution center to the
stores, payroll for our design, buying and merchandising
departments, and occupancy costs. Occupancy costs include
rent, contingent rent, common area maintenance, real estate
taxes, utilities, repairs, maintenance and all depreciation.
Selling, General and Administrative Expenses: Selling, general
and administrative expenses, or SG&A, include costs related to
selling expenses, store management and corporate expenses such
as payroll and employee benefits, marketing expenses, employ-
ment taxes, information technology maintenance costs and
expenses, insurance and legal expenses, store pre-opening
and other corporate level expenses. Store pre-opening expenses
include store level payroll, grand opening event marketing, travel,
supplies and other store pre-opening expenses.
Self-Insurance: We self-insure our workers compensation claims
and our employee medical benefits. The recorded liabilities for
these risks are calculated primarily using historical experience and
current information. The liabilities include amounts for actual
claims and estimated claims incurred but not yet reported.
Retirement Benefit Plans: Our retirement benefit plan costs are
accounted for using actuarial valuations required by Statement
of Financial Accounting Standards No. 87, Employers’ Account-
ing for Pensions (“SFAS No. 87”) and Statement of Financial
Accounting Standards No. 106, Employers’ Accounting for
Postretirement Benefits Other Than Pensions (“SFAS No. 106”).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
28 Aéropostale, Inc. 08 AR
We adopted Statement of Financial Accounting Standards No. 158,
Employer’s Accounting for Defined Benefit Pension and Other
Postretirement Plans – an amendment of FASB Statements No.
87, 88, 106, and 132(R) (“SFAS No. 158”), during fiscal 2006.
SFAS No. 158 requires an entity to recognize the funded status
of its defined pension plans on the balance sheet and to recog-
nize changes in the funded status that arise during the period
but are not recognized as components of net periodic benefit
cost, within other comprehensive income, net of income taxes.
Marketing Costs: Marketing costs, which include e-commerce,
print, radio and other media advertising and collegiate athletic
conference sponsorships, are expensed at the point of first
broadcast or distribution, and were $9.5 million in fiscal 2008,
$7.6 million in fiscal 2007 and $11.3 million in fiscal 2006.
Stock-Based Compensation: On January 29, 2006, the first
day of our 2006 fiscal year, we adopted the provisions of
Statement of Financial Accounting Standards No. 123(R),
Share-Based Payment, a revision of SFAS No. 123, Accounting
for Stock-Based Compensation (“SFAS No. 123(R)”), as inter-
preted by SEC Staff Accounting Bulletin No. 107. Under SFAS
No. 123(R), all forms of share-based payment to employees
and directors, including stock options, must be treated as
compensation and recognized in the income statement.
Segment Reporting: Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enter-
prise and Related Information (“SFAS No. 131”), establishes
standards for reporting information about a company’s operating
segments. It also establishes standards for related disclosures
about products and services, geographic areas and major
customers. We operate in and report as a single aggregated
operating segment, which includes the operation of our
Aéropostale retail stores and our Aéropostale e-commerce
site. Revenues from external customers are derived from mer-
chandise sales and we do not rely on any major customers as a
source of revenue. Our consolidated net sales mix by merchan-
dise category was as follows:
Fiscal 2008 2007 2006
Merchandise Categories:
Young Women’s
71%
72% 73%
Young Men’s
29
28 27
Total Merchandise Sales
100%
100% 100%
During fiscal 2008, we sourced approximately 76% of our mer-
chandise from our top five merchandise vendors. During fiscal
2007, we sourced approximately 69% of our merchandise from
our top five merchandise vendors. The loss of any of these sources
could adversely impact our ability to operate our business. We
ceased doing business with South Bay Apparel, Inc., one of our
largest suppliers of graphic T-shirts and fleece, in July 2007 (see
note 4 for a further discussion). We have replaced this business
both with new vendors and our existing vendor base.
Income Taxes: Income taxes are accounted for in accordance
with Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (“SFAS No. 109”). Under SFAS
No. 109, income taxes are recognized for the amount of taxes
payable for the current year and deferred tax assets and liabili-
ties for the future tax consequence of events that have been
recognized differently in the financial statements than for tax
purposes. Deferred tax assets and liabilities are established
using statutory tax rates and are adjusted for tax rate changes.
Effective at the beginning of the first quarter of fiscal 2007, we
adopted FASB FIN 48. This interpretation clarifies the account-
ing for uncertainty in income tax recognized in an entity’s financial
statements in accordance with SFAS No. 109. FIN 48 requires
companies to determine whether it is “more likely than not”
that a tax position will be sustained upon examination by the
appropriate taxing authorities before any part of the benefit can
be recorded in the financial statements. For those tax positions
where it is not “more likely than not” that a tax benefit will be
sustained, no tax benefit is recognized. Where applicable, asso-
ciated interest and penalties are also recorded.
Recent Accounting Developments: In December 2008, the
Financial Accounting Standards Board (“FASB”) issued FASB
Staff Position (“FSP”) No. FAS 132(R)-1, “Employers’ Disclo-
sures About Pensions and Other Postretirement Benefit Plan
Assets.” This FSP amends Statement 132(R) to require more
detailed disclosures about employers’ plan assets, including
employers’ investment strategies, major categories of plan
assets, concentrations of risk within plan assets and valuation
techniques used to measure the fair value of plan assets. FSP
No. FAS 132(R)-1 will be effective for fiscal years ending after
December 15, 2009. We expect that the adoption will not have
a material impact on our consolidated financial statements.
In December 2007, the FASB issued the Statement of Financial
Accounting Standards No. 141(R), Business Combinations
(“SFAS No. 141(R)”). SFAS No. 141(R)’s objective is to improve
the relevance, representational faithfulness and comparability
of the information that a reporting entity provides in its financial
reports about a business combination and its effects. SFAS
No. 141(R) applies prospectively to business combinations for
which the acquisition date is on or after December 31, 2008.
We expect that the adoption of SFAS No. 141(R) will not have
a material impact on our consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Aéropostale, Inc. 08 AR 29
In December 2007, the FASB issued the Statement of Financial
Accounting Standards No. 160, Noncontrolling Interest in Con-
solidated Financial Statements (“SFAS No. 160”). SFAS No. 160’s
objective is to improve the relevance, comparability and trans-
parency of the financial information that a reporting entity provides
in its consolidated financial statements by establishing account-
ing and reporting standards for the noncontrolling interest in
a subsidiary and for the deconsolidation of a subsidiary. SFAS
No. 160 is effective for fiscal years and interim periods within
those fiscal years, beginning on or after December 15, 2008.
We expect that the adoption of SFAS No. 160 will not have a
material impact on our consolidated financial statements.
In December 2007, the Securities and Exchange Commission
(“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 110 to
extend the use of “simplified method” for estimating the
expected terms of “plain vanilla” employee stock options for
the awards valuation. The method was initially allowed under
SAB 107 in contemplation of the adoption of SFAS 123(R) to
expense the compensation cost based on the grant date fair
value of the award. SAB 110 does not provide an expiration
date for the use of the method. However, as more external
information about exercise behavior will be available over
time, it is expected that this method will not be used when
more relevant guidance is available (see note 9 for a further
discussion).
In February 2007, the FASB issued Statement of Financial
Accounting Standards No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities – Including an
amendment of FASB Statement No. 115 (“SFAS No. 159”).
This statement permits entities to choose to measure many
financial instruments and certain other items at fair value.
SFAS No. 159 is effective at the beginning of an entity’s first
fiscal year that begins after November 15, 2007. The adoption
of SFAS No. 159 has not had a material impact on our
consolidated financial statements.
In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 157, Fair Value Measurements
(“SFAS No. 157”). This statement defines fair value, establishes
a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value
measurements. This statement applies under other accounting
pronouncements that require or permit fair value measurements,
the FASB having concluded in those other accounting pronounce-
ments that fair value is the relevant measurement attribute. This
statement is effective in financial statements issued for fiscal years
beginning after November 15, 2007. However, in February 2008,
the FASB issued FSP SFAS 157-2, “Effective Date for FASB State-
ment No. 157” which delayed application of SFAS 157 for all
nonrecurring fair value measurements of non-financial assets
and non-financial liabilities until fiscal years beginning after
November 15, 2008. We will adopt FSP SFAS 157-2 at the
beginning of fiscal 2009. The adoption of SFAS No. 157 as it
relates to financial assets and liabilities has not had a material
impact on our consolidated financial statements.
02. Short-Term Investments
As of January 31, 2009 and February 2, 2008, we did not
have any short-term investments. As of February 3, 2007, short-
term investments consisted of auction rate debt and preferred
stock securities. We sold all of our short-term investments in
auction rate debt and preferred stock securities during fiscal
2007. Auction rate securities are term securities earning income
at a rate that is periodically reset, typically within 35 days, to
reflect current market conditions through an auction process.
These securities were classified as “available-for-sale” securities
under the provisions of Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities (“SFAS No. 115”). Accordingly,
these short-term investments were recorded at fair-value, with
any related unrealized gains and losses included as a separate
component of stockholders’ equity, net of tax. Investment
income is included in interest income and was $4.0 million in
fiscal 2007 and $6.4 million in fiscal 2006. There was no invest-
ment income in fiscal 2008.
03. Jimmy’Z Store Concept Closing and
Asset Impairment
On February 23, 2009, we announced our plans to close all
of our 11 Jimmy’Z stores by the end of the second quarter of
fiscal 2009. Three additional Jimmy’Z stores had previously
closed during fiscal 2008.
During the fourth quarter of fiscal 2007, we reduced the carrying
value of the assets related to our Jimmy’Z store concept to fair
value, and recorded asset impairment charges of $9.0 million
($5.7 million after-tax, or $0.08 per diluted share). These impair-
ment charges were as a result of a review of the operating per-
formance, and changes in the forecasts of future performance,
of each of the 14 Jimmy’Z stores. As a result of that review, we
determined that each of the 14 Jimmy’Z stores would not be
able to recover the carrying value of the store property and
equipment through expected undiscounted cash flows over
the remaining life of the related assets.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 Aéropostale, Inc. 08 AR
04. Other Matters
In January 2008, we learned that the SEC had issued a formal
order of investigation with respect to matters arising from the
activities of Christopher L. Finazzo, our former Executive Vice
President and Chief Merchandising Officer, as discussed below.
The SEC’s investigation is a non-public, fact-finding inquiry to
determine whether any violations of law have occurred. We
are cooperating fully with the SEC in its investigation.
On November 30, 2007, we entered into an agreement (the
“Agreement”) with Mr. Finazzo settling disputes between us.
In the fourth quarter of fiscal 2007, pursuant to the terms of
the Agreement, Mr. Finazzo paid us $5.0 million and in turn,
we paid to Mr. Finazzo approximately $0.9 million, which repre-
sented the value of Mr. Finazzo’s benefits under our Supplemental
Executive Retirement Plan. We recorded net other operating
income of approximately $4.1 million in the fourth quarter of
fiscal 2007.
On November 8, 2006, we announced that Mr. Finazzo had
been terminated for cause, based upon information uncovered
by management and after an independent investigation was
conducted at the direction, and under the supervision, of a
special committee of our Board of Directors. The investigation
revealed that Mr. Finazzo:
• concealed from management and our Board of Directors,
and failed to disclose in corporate disclosure documents,
his personal ownership interests in, and officer positions of,
certain corporate entities affiliated with one of our primary
vendors at the time, South Bay Apparel, Inc.,
• without the knowledge or authorization of our management,
executed a corporate Guaranty Agreement in March 1999,
that, had it been enforceable, would have obligated us to
guarantee any payments due from South Bay Apparel, Inc.
to Tricot Richelieu, Inc., an apparel manufacturer and vendor
to South Bay Apparel, Inc., and
• failed to disclose unauthorized business relationships and
transactions between immediate and extended family
members of Mr. Finazzo and certain other of our vendors.
On December 5, 2006, we entered into an agreement with
South Bay Apparel, Inc. and Douglas Dey, South Bay Apparel,
Inc.’s President, whereby the parties resolved certain outstand-
ing matters between them. As such, South Bay Apparel, Inc. paid
us $8.0 million, representing (i) a concession of $7.1 million by
South Bay Apparel, Inc. and Mr. Dey concerning prior purchases
of merchandise by us, which was reflected as a reduction in the
cost of merchandise in fiscal 2006, and (ii) reimbursement by
South Bay Apparel, Inc. of $0.9 million, which offset profes-
sional fees that we incurred associated with the negotiation
of the Agreement and the investigation of the underlying facts.
In addition, South Bay Apparel, Inc. and Mr. Dey reduced the
price of merchandise sold to us to a price that we believed
represented fair value, based on costs of comparable mer-
chandise. We also agreed to purchase excess merchandise
held at the time by South Bay Apparel, Inc. Once the excess
inventory was fully depleted during the third quarter of fiscal
2007, we ceased doing business with South Bay Apparel, Inc.
05. Fixtures, Equipment and Improvements
Fixtures, equipment and improvements consist of the following
(in thousands):
January 31, February 2,
2009 2008
Leasehold improvements
$248,724
$206,693
Fixtures and equipment
109,158
92,297
Computer equipment and software
55,503
37,655
Construction in progress
1,339
2,330
414,724
338,975
Less accumulated depreciation
and amortization
165,725
125,144
$248,999
$213,831
Depreciation and amortization expense was $45.8 million in fiscal
2008, $36.8 million in fiscal 2007 and $30.0 million in fiscal 2006.
Included in depreciation and amortization expense are Aéropostale
store impairment charges of $3.7 million in fiscal 2008, $1.7 mil-
lion in fiscal 2007 and $0.1 million in fiscal 2006.
06. Accrued Expenses
Accrued expenses consist of the following (in thousands):
January 31, February 2,
2009 2008
Accrued compensation
$30,043
$23,076
Accrued gift cards
19,349
16,965
Accrued rent
13,748
11,025
Income taxes payable
10,862
27,401
Other
24,188
19,551
$98,190
$98,018
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Aéropostale, Inc. 08 AR 31
07. Revolving Credit Facility
In November 2007, we entered into an amended and restated
revolving credit facility with Bank of America, N.A., as Lender
which expanded availability from a maximum of $75.0 million
to $150.0 million (the “Credit Facility”). The Credit Facility
provides for a $150.0 million revolving credit line. The Credit
Facility is available for working capital and general corporate
purposes, including the repurchase of the Company’s capital
stock and for its capital expenditures. The Credit Facility is
scheduled to expire on November 13, 2012 and is guaran-
teed by all of our domestic subsidiaries (the “Guarantors”).
Loans under the Credit Facility are secured by all our assets
and are guaranteed by the Guarantors. Upon the occurrence
of a Cash Dominion Event (as defined in the Credit Facility)
among other limitations, our ability to borrow funds, make
investments, pay dividends and repurchase shares of its com-
mon stock would be limited. Direct borrowings under the Credit
Facility bear interest at a margin over either LIBOR or a Base
Rate (as each such term is defined in the Credit Facility).
The Credit Facility also contains covenants that, subject to
specified exceptions, restrict our ability to, among other things:
• incur additional debt or encumber assets of the Company;
• merge with or acquire other companies, liquidate or dissolve;
• sell, transfer, lease or dispose of assets; and
• make loans or guarantees.
Events of default under the Credit Facility include, subject to grace
periods and notice provisions in certain circumstances, failure
to pay principal amounts when due, breaches of covenants, mis-
representation, default of leases or other indebtedness, excess
uninsured casualty loss, excess uninsured judgment or restraint
of business, business failure or application for bankruptcy, insti-
tution of legal process or proceedings under federal, state or
civil statutes, legal challenges to loan documents and a change
in control. If an event of default occurs, the Lender will be
entitled to take various actions, including the acceleration of
amounts due thereunder and requiring that all such amounts
be immediately paid in full as well as possession and sale of all
assets that have been used as collateral. Upon the occurrence
of an event of default under the Credit Facility, the lenders may
cease making loans, terminate the Credit Facility and declare
all amounts outstanding to be immediately due and payable.
As of January 31, 2009, we are not aware of any instances of
noncompliance with any covenants or any other event of default
under the Credit Facility. As of January 31, 2009, we had no out-
standing balances or stand-by or commercial letters of credit
issued under the Credit Facility.
08. Earnings Per Share
In accordance with Statement of Financial Accounting Standards
No. 128, Earnings Per Share (“SFAS No. 128”), basic earnings
per share has been computed based upon the weighted average
of common shares during the applicable fiscal year. Diluted net
income per share includes the additional dilutive effect of our
potentially dilutive securities, which include certain stock options,
restricted stock units and performance shares.
Earnings per common share has been computed as follows (in
thousands, except per share data):
Fiscal 2008 2007 2006
Net income
$149,422
$129,197 $106,647
Weighted average
basic shares
66,832
74,315 79,928
Impact of
dilutive securities
744
531 709
Weighted average
diluted shares
67,576
74,846 80,637
Per common share:
Basic earnings per share
$ 2.24
$ 1.74 $ 1.33
Diluted earnings per share
$ 2.21
$ 1.73 $ 1.32
Options to purchase 1,048,509 shares in fiscal 2008, 511,000
shares in fiscal 2007 and 629,000 in fiscal 2006 were excluded
from the computation of diluted earnings per share because
the exercise prices of the options were greater than the
average market price of the common shares.
09. Stock-Based Compensation
We have stock option plans under which we may grant qualified
and non-qualified stock options to purchase shares of our com-
mon stock to executives, consultants, directors or other key
employees. As of January 31, 2009, a total of 3,433,412 shares
were available for future grant under our plans compared to a
total of 3,692,666 shares as of February 2, 2008. Stock options
may not be granted at less than the fair market value at the date
of grant. Stock options generally vest over four years on a pro
rata basis and expire after eight years. All outstanding stock
options immediately vest upon change in control.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
32 Aéropostale, Inc. 08 AR
The fair value of options is estimated on the date of grant using
the Black-Scholes option-pricing model. The Black-Scholes model
requires certain assumptions, including estimating the length
of time employees will retain their vested stock options before
exercising them (“expected term”), the estimated volatility of
our common stock price over the expected term and the number
of options that will ultimately not complete their vesting require-
ments (“forfeitures”). Changes in the subjective assumptions
can materially affect the estimate of fair value of stock-based
compensation and consequently, the related amount recog-
nized in the consolidated statements of income.
We determined expected volatilities based on our past four years
of historical volatilities. We have elected to use the simplified
method for estimating our expected term as allowed by SAB 107,
and extended by SAB 110, to determine expected life. We have
concluded that we cannot yet rely on our historical exercise data
to estimate the future exercise behavior of our employees.
Therefore, in accordance with SAB 110, we have continued
to utilize the simplified method to estimate the expected term
for our stock options granted and will continue to evaluate the
appropriateness of utilizing such method. The risk-free interest
rate is indexed to the five-year Treasury note interest at the
date of grant and the expected forfeiture rate is based on
our historical forfeiture information.
In accordance with SFAS No. 123(R), the fair value of each option
grant is estimated on the date of grant using the Black-Scholes
option-pricing model based on the following assumptions for
grants in the respective periods:
Fiscal 2008 2007 2006
Expected volatility
43%
45% 50%
Expected term
5.25 years
5.25 years 5.25 years
Risk-free interest rate
2.68%
4.49% 4.86%
Expected dividend yield
0%
0% 0%
Expected forfeiture rate
25%
25% 20%
The effects of applying SFAS No. 123(R) and the use of the
Black-Scholes option-pricing model results in estimates that
may not necessarily be indicative of future values.
We have elected to adopt the simplified method to establish
the beginning balance of the additional paid-in capital pool
(“APIC Pool”) related to the tax effects of employee share-
based compensation, and to determine the subsequent
impact on the APIC Pool and condensed consolidated state-
ments of cash flows of the tax effects of employee and director
share-based awards that were outstanding upon adoption of
SFAS No. 123(R).
Stock Options: The following tables summarize stock option transactions for common stock for fiscal 2008:
Weighted average Aggregate
remaining intrinsic
Shares Weighted average contractual term value
(in thousands) exercise price (in years) (in millions)
Outstanding as of February 2, 2008 1,659 $19.58
Granted 109 $28.57
Exercised (251) $14.94
Cancelled (67) $23.71
Outstanding as of January 31, 2009
1,450 $20.87 4.91 $3.9
Exercisable as of January 31, 2009
717 $17.11 3.90 $3.6
We recognized $3.7 million in compensation expense related
to stock options in fiscal 2008, $4.7 million in fiscal 2007 and
$3.7 million in fiscal 2006. The weighted average grant-date fair
value of options granted was $12.10 during fiscal 2008, $12.35
during fiscal 2007 and $9.73 during fiscal 2006. The intrinsic
value of options exercised was $1.7 million in fiscal 2008,
$15.4 million in fiscal 2007 and $19.3 million in fiscal 2006.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Aéropostale, Inc. 08 AR 33
The following tables summarize information regarding non-vested
outstanding stock options as of January 31, 2009:
Weighted
average
Shares grant-date
(in thousands) fair value
Non-vested as of February 2, 2008 1,120 $10.80
Granted 109 $12.10
Vested (437) $10.23
Cancelled (59) $11.19
Non-vested as of January 31, 2009
733 $11.31
As of January 31, 2009, there was $5.2 million of total unrecog-
nized compensation cost related to non-vested options that we
expect to be recognized over the remaining weighted average
vesting period of 2.1 years. We expect to recognize $2.7 million
of this cost in fiscal 2009, $1.9 million in fiscal 2010, $0.5 mil-
lion in fiscal 2011 and $0.1 million in fiscal 2012. Based on our
forfeiture experience, we expect that approximately 587 of the
above non-vested options will vest.
Non-Vested Stock: Certain of our employees and all of our
directors have been awarded non-vested stock, pursuant to
non-vested stock agreements. The non-vested stock awarded
to employees cliff vest after up to three years of continuous
service with us. Initial grants of non-vested stock awarded to
directors vest, pro-rata, over a three-year period, based upon
continuous service. Subsequent grants of non-vested stock
awarded to directors vest in full one year after the grant-date.
The following table summarizes non-vested shares of stock
outstanding at January 31, 2009:
Weighted
average
Shares grant-date
(in thousands) fair value
Outstanding as of February 2, 2008 907 $24.31
Granted 164 $28.65
Vested (313) $24.76
Cancelled (30) $23.69
Outstanding as of January 31, 2009
728 $25.13
Total compensation expense is being amortized over the vesting
period. Compensation expense was $11.4 million for fiscal 2008,
$4.1 million for fiscal 2007 and $2.2 million for fiscal 2006. As
of January 31, 2009, there was $6.7 million of unrecognized
compensation cost related to non-vested stock awards that is
expected to be recognized over the weighted average period
of 1.0 year.
Performance Shares: Certain of our executives have been
awarded performance shares, pursuant to performance shares
agreements. The performance shares vest at the end of three
years of continuous service with us, and the number of shares
ultimately awarded is contingent upon meeting various cumula-
tive consolidated earnings targets. Compensation cost for the
performance shares assumes that the performance goals targets
will be achieved. If the probability of achieving targets changes,
compensation cost will be adjusted in the period that the proba-
bility of achievement changes.
The following table summarizes performance shares of stock
outstanding at January 31, 2009:
Weighted
average
Shares grant-date
(in thousands) fair value
Outstanding as of February 2, 2008 76 $26.73
Granted 42 $28.29
Vested – –
Cancelled – –
Other 41 $27.33
Outstanding as of January 31, 2009
159 $27.30
Total compensation expense is being amortized over the vest-
ing period. Compensation expense was $1.5 million for fiscal
2008, $0.6 million for fiscal 2007 and none in fiscal 2006. As
of January 31, 2009, there was $2.1 million of unrecognized
compensation cost related to performance shares awards
that is expected to be recognized over the weighted average
period of 1.5 years.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
34 Aéropostale, Inc. 08 AR
10. Retirement Benefit Plans
We maintain a qualified, defined contribution retirement plan
with a 401(k) salary deferral feature that covers substantially all
of our employees who meet certain requirements. Under the
terms of the plan, employees may contribute up to 14% of gross
earnings and we will provide a matching contribution of 50%
of the first 5% of gross earnings contributed by the participants.
We also have the option to make additional contributions. The
terms of the plan provide for vesting in our matching contribu-
tions to the plan over a five-year service period with 20% vesting
after two years and 50% vesting after year three. Vesting increases
thereafter at a rate of 25% per year so that participants will be
fully vested after year five. Contribution expense was $0.8 mil-
lion in fiscal 2008, $0.7 million in fiscal 2007 and $0.8 million in
fiscal 2006.
We adopted SFAS No. 158 in fiscal 2006, which impacted our
Supplemental Executive Retirement Plan (“SERP”), and our post-
retirement benefit plan. Since the full recognition of the funded
status of an entity’s defined benefit pension plan is recorded on
the balance sheet, an additional minimum liability (“AML”) is no
longer recorded under SFAS No. 158. However, because the
recognition provisions of SFAS No. 158 were adopted in fiscal
2006, we first measured and recorded changes to our previously
recognized AML through other comprehensive income and then
applied the recognition provisions of SFAS No. 158 through
accumulated other comprehensive income to fully recognize
the funded status of our defined benefit pension plans.
Our SERP is a non-qualified defined benefit plan for certain
officers. The plan is non-contributory and not funded and
provides benefits based on years of service and compensation
during employment. Participants are fully vested upon entrance
in the plan. Pension expense is determined using various actuarial
cost methods to estimate the total benefits ultimately payable to
officers and this cost is allocated to service periods. The actuarial
assumptions used to calculate pension costs are reviewed annually.
The following information about the SERP is provided below
(in thousands):
January 31, February 2,
2009 2008
Change in benefit obligation:
Benefit obligation at
beginning of period
$ 17,830
$ 15,147
Service cost
655
534
Interest cost
1,146
901
Plan amendments
–
–
Actuarial loss
1,593
1,248
Benefits paid
–
–
Settlements
–
–
Special termination benefits
–
–
Benefit obligation at end of period
$ 21,224
$ 17,830
Change in plan assets:
Fair value of plan assets at
beginning of period
$ –
$ –
Actual return on plan assets
–
–
Employer contributions
–
–
Benefits paid
–
–
Settlements
–
–
Fair value of plan assets at end of period
$ –
$ –
Funded status at end of period
$(21,224)
$(17,830)
Amounts recognized in the
statement of financial position:
Noncurrent assets
$ –
$ –
Current liabilities
–
–
Noncurrent liabilities
(21,224)
(17,830)
$(21,224)
$(17,830)
Amounts recognized in accumulated
other comprehensive loss:
Net loss
$ 9,107
$ 8,108
Prior service cost
833
907
Total
$ 9,940
$ 9,015
Information for pension plans with
an accumulated benefit obligation
in excess of plan assets:
Projected benefit obligation
$ 21,224
$ 17,830
Accumulated benefit obligation
17,240
13,294
Fair value of plan assets
–
–
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Aéropostale, Inc. 08 AR 35
Pension expense includes the following components (in thousands):
Fiscal 2008 2007 2006
Components of net
periodic benefit cost:
Service cost
$ 655
$ 534 $ 492
Interest cost
1,146
901 932
Expected return on
plan assets
–
– –
Amortization of prior
service cost
74
74 74
Amortization of net loss
594
421 568
Net periodic benefit cost
$2,469
$1,930 $2,066
Other changes in
plan assets and
benefit obligations
recognized in other
comprehensive loss:
Net loss
$1,593
$1,248 N/A
Prior service cost
–
– N/A
Amortization of loss
(594)
(421) N/A
Amortization of prior
service cost
(74)
(74) N/A
Change in Additional
Minimum Liability
prior to application
of SFAS No. 158
N/A
N/A (253)
Total recognized in other
comprehensive loss
$ 925
$ 753 $ (253)
Total recognized in
net periodic benefit
cost and other
comprehensive loss
$3,394
$2,683 $1,813
Weighted average
assumptions used:
Discount rate to
determine benefit
obligations
6.75%
5.75% 5.75%
Discount rate to
determine net periodic
pension cost
5.75%
5.75% 5.50%
Rate of compensation
increase
4.50%
4.50% 4.50%
The estimated net loss and prior service cost for the defined
benefit pension plan that will be amortized from accumulated
other comprehensive income into net periodic benefit cost over
the next fiscal year are $544,000 and $74,000, respectively. The
estimated net loss and prior service cost for the other post-
retirement plan that will be amortized from accumulated other
comprehensive income into net periodic benefit cost over the
next fiscal year are $5,000 and $17,000, respectively.
The discount rate was determined by matching a published
set of zero coupon yields and associated durations to expected
plan benefit payment streams to obtain an implicit internal rate
of return.
We currently do not expect to make any contributions to the
SERP in fiscal 2009. We project making a benefit payment of
approximately $16.9 million in 2010, which assumes expected
future service until retirement at age 65.
We have a long-term incentive deferred compensation plan
established for the purpose of providing long-term incentives
to a select group of management, with liabilities of $0.6 million
as of January 31, 2009 and $0.4 million at February 2, 2008. The
plan is a non-qualified, defined contribution plan and is not
funded. Participants in this plan include all employees desig-
nated by us as Vice President, or other higher-ranking positions
that are not participants in the SERP. We record annual monetary
credits to each participant’s account based on compensation
levels and years as a participant in the plan. Annual interest
credits are applied to the balance of each participant’s account
based upon established benchmarks. Each annual credit is
subject to a three-year cliff-vesting schedule, and participants’
accounts will be fully vested upon retirement after completing
five years of service and attaining age 55.
We have a postretirement benefit plan for certain executives.
The projected benefit obligation of $0.7 million is recorded
as a liability as of January 31, 2009 and February 2, 2008.
11. Stock Repurchase Program
We repurchase our common stock from time to time under a stock
repurchase program. The repurchase program may be modified
or terminated by the Board of Directors at any time, and there
is no expiration date for the program. The extent and timing
of repurchases will depend upon general business and market
conditions, stock prices, opening and closing of the stock trading
window, and liquidity and capital resource requirements going
forward. During fiscal 2008, we repurchased 0.2 million shares
for $6.7 million, as compared to repurchases of 11.7 million
shares for $266.7 million during fiscal 2007 and 4.7 million shares
for $91.4 million during fiscal 2006.
As of January 31, 2009, we have approximately $127.1 million of
repurchase authorization remaining under our $600.0 million
share repurchase program.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
36 Aéropostale, Inc. 08 AR
12. Income Taxes
The provision for income taxes consists of the following
(in thousands):
Fiscal 2008 2007 2006
Current:
Federal
$78,823
$ 77,489 $ 63,561
State and local
17,376
15,227 15,096
Foreign
166
80 –
96,365
92,796 78,657
Deferred:
Federal
4,012
(8,831) (8,253)
State and local
(756)
(3,775) (2,221)
Foreign
(234)
(384) –
3,022
(12,990) (10,474)
$99,387
$ 79,806 $ 68,183
Reconciliation of the U.S. statutory tax rate with our effective
tax rate is summarized as follows:
Fiscal 2008 2007 2006
Federal statutory rate
35.0%
35.0% 35.0%
Increase (decrease) in
tax resulting from:
State income taxes,
net of federal tax benefits
4.2
3.6 4.8
Other
0.7
(0.4) (0.8)
Effective rate
39.9%
38.2% 39.0%
The components of the net deferred income tax assets are as
follows (in thousands):
January 31, February 2,
2009 2008
Current:
Inventory
$ 1,212
$ 543
Unredeemed gift cards
1,261
7,485
Accrued compensation
7,597
4,393
Other
675
540
$ 10,745
$12,961
Non-current:
Furniture, equipment
and improvements
$(11,813)
$ (6,677)
Retirement benefit plan liabilities
8,901
7,172
Stock-based compensation
6,887
4,687
Deferred rent and tenant allowances
3,720
4,507
Net operating loss
carry-forwards (“NOL’s”)
2,364
2,138
Valuation allowances for NOL’s
(551)
(462)
Insurance reserves
1,694
–
Other
1,307
1,708
12,509
13,073
Net deferred income tax assets
$ 23,254
$26,034
As of January 31, 2009, we had approximately $37.1 million of
NOL’s from certain states that were generated principally by our
Jimmy’Z subsidiary and approximately $1.7 million of foreign
NOL’s generated by our Canadian and Puerto Rico subsidiaries.
The NOL’s will expire between 2011 and 2028. We have recorded
valuation allowances against certain of the state NOL’s. Subse-
quent recognition of these deferred tax assets that were previously
reduced by valuation allowances would result in an income tax
benefit in the period of such recognition.
We have not recognized any United States (“U.S.”) tax expense
on undistributed foreign earnings as they are intended to be
indefinitely reinvested outside of the U.S.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Aéropostale, Inc. 08 AR 37
On February 4, 2007, the first day of our 2007 fiscal year,
we adopted FIN No. 48, which clarifies the accounting and
disclosure for uncertainty in income taxes. As a result of the
adoption, we recorded a decrease to beginning retained
earnings of approximately $0.2 million and increased our net
liabilities for uncertain tax positions and related interest and
penalties by a corresponding amount. As of the adoption
date, we recorded liabilities of $10.7 million for uncertain tax
positions, which includes interest and penalties. Also as of the
adoption date, we recorded deferred tax assets of $7.9 million
for federal and, if applicable, state benefits related to the
uncertain tax positions. Net uncertain tax positions of $2.8 mil-
lion as of the adoption date, $2.4 million as of February 2, 2008
and $2.6 million as of January 31, 2009, which is inclusive of
interest and penalties, would favorably impact our effective
tax rate if these net liabilities were reversed.
We recognize interest and, if applicable, penalties, which could
be assessed, related to uncertain tax positions in income tax
expense. As of the adoption date, the total amount of accrued
interest and penalties was $1.7 million before federal and, if
applicable, state effect. We recorded approximately $0.3 mil-
lion and $0.2 million in additional interest and penalties, before
federal and, if applicable, state tax effect in fiscal 2008 and 2007,
respectively. We had liabilities for accrued interest and penalties
of $0.7 million as of January 31, 2009 and $2.0 million as of
February 2, 2008.
In May 2007, the FASB issued FASB Staff Position No. FIN 48-1,
“Definition of Settlement in FASB Interpretation No. 48” (“FSP
FIN 48-1”). This FSP amends FIN 48 to provide guidance on
how an enterprise should determine whether a tax position is
effectively settled for the purpose of recognizing previously
unrecognized tax benefits. There was no impact to our financial
statements in connection with the adoption of this guidance.
Below is a reconciliation of the beginning and ending amount
of the gross unrecognized tax benefits relating to uncertain tax
positions, which are recorded in our Consolidated Balance Sheets.
Unrecognized
tax benefits
(in thousands)
Balance at February 3, 2007 $ 8,956
Increases due to tax positions related to prior years 94
Increases due to tax positions related to current year 448
Increases due to settlements with taxing authorities 286
Decreases due to tax positions related to prior years (78)
Decreases due to expiration of statute of limitations (112)
Balance at February 2, 2008 9,594
Increases due to tax positions related to prior years 485
Increases due to tax positions related to current year 316
Increases due to settlements with taxing authorities 229
Decreases due to settlements with taxing authorities (8,487)
Decreases due to tax positions related to prior years (180)
Decreases due to expiration of statute of limitations (20)
Balance at January 31, 2009
$ 1,937
We file U.S. and Canadian federal and various state and
provincial income tax returns. Our U.S. federal filings for the
years 2002 through 2005 were examined by the IRS and were
settled in the fourth quarter of fiscal 2007. We paid approxi-
mately $7.7 million relating to this settlement in the first quarter
of fiscal 2008. This liability was included in the above balance of
uncertain tax position liabilities at February 2, 2008, which was
included in accrued expenses on our consolidated balance sheet
as of that date. The examination liability related to the timing of
taxable revenue from non-redeemed gift cards. Our tax returns
remain open for examination generally for our 2005 through
2007 tax years by various taxing authorities. However, certain
states may keep their statute open for six to ten years.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
38 Aéropostale, Inc. 08 AR
13. Commitments and Contingencies
We are committed under non-cancelable leases for our entire
store, distribution centers and office space locations, which
generally provide for minimum rent plus additional increases
in real estate taxes, certain operating expenses, etc. Certain
leases also require contingent rent based on sales.
The aggregate minimum annual real estate rent commitments
as of January 31, 2009 are as follows (in thousands):
Due in fiscal year Total
2009 $ 98,782
2010 95,377
2011 90,868
2012 84,872
2013 77,766
Thereafter 198,522
Total $646,187
Additionally, as of January 31, 2009, we were committed to
equipment leases in aggregate of $4.2 million through fiscal 2012.
Rental expense consists of the following (in thousands):
Fiscal 2008 2007 2006
Minimum rentals for stores
$88,031
$77,640 $69,733
Contingent rentals
18,793
13,384 12,164
Office space rentals
3,923
2,819 2,255
Distribution centers rentals
3,181
3,080 1,539
Equipment rentals
1,981
1,234 408
Employment Agreements – As of January 31, 2009, we had
outstanding employment agreements with certain members
of our senior management totaling $20.8 million. These
employment agreements expire at the end of fiscal 2009
through March 2010, except for the employment agreement
with our Chairman and Chief Executive Officer, which expires
at the end of fiscal 2010.
Legal Proceedings – In January 2008, we learned that the
SEC had issued a formal order of investigation with respect
to matters arising from the activities of Christopher L. Finazzo,
our former Executive Vice President and Chief Merchandising
Officer. The SEC’s investigation is a non-public, fact-finding
inquiry to determine whether any violations of law have occurred.
We are cooperating fully with the SEC in its investigation.
On November 30, 2007, we entered into an agreement (the
“Agreement”) with Mr. Finazzo settling disputes between us.
Pursuant to the terms of the Agreement, Mr. Finazzo has paid
us $5.0 million, and in turn, we paid Mr. Finazzo, simultane-
ously with his payment to us, approximately $0.9 million, which
represented the value of Mr. Finazzo’s benefits under our
Supplemental Executive Retirement Plan.
On December 5, 2006, we entered into an agreement with
South Bay Apparel, Inc. and Douglas Dey, South Bay Apparel,
Inc.’s President, whereby the parties resolved certain outstand-
ing matters between them. As such, South Bay Apparel, Inc. paid
us $8.0 million, representing (i) a concession of $7.1 million by
South Bay Apparel, Inc. and Mr. Dey concerning prior purchases
of merchandise by us, which was reflected as a reduction in the
cost of merchandise in fiscal 2006, and (ii) reimbursement by
South Bay Apparel, Inc. of $0.9 million, which offset professional
fees that we incurred associated with the negotiation of the
Agreement and the investigation of the underlying facts
associated with those outstanding matters.
We are also party to various litigation matters and proceedings
in the ordinary course of business. In the opinion of our manage-
ment, dispositions of these matters are not expected to have
a material adverse affect on our financial position, results of
operations or cash flows.
Guarantees – We had no financial guarantees outstanding
at January 31, 2009. We had no commercial commitments
outstanding as of January 31, 2009.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Aéropostale, Inc. 08 AR 39
14. Selected Quarterly Financial Data (Unaudited)
The following table sets forth certain unaudited quarterly financial information (in thousands, except per share amounts):
13 weeks ended May 3, August 2, November 1, January 31,
2008 2008 2008 2009
Fiscal 2008
Net sales
$336,332 $377,145 $482,037 $690,017
Gross profit
111,278 125,936 173,451 243,517
Net income
17,498 21,053 42,646 68,225
Basic earnings per share
0.26 0.31 0.64 1.02
Diluted earnings per share
0.26 0.31 0.63 1.01
13 weeks ended May 5, August 4, November 3, February 2,
2007 2007 2007 2008
(1)
Fiscal 2007
Net sales $275,782 $311,236 $412,576 $591,289
Gross profit 88,703 96,878 143,844 223,778
Net income 13,752 14,702 36,008 64,735
Basic earnings per share 0.18 0.19 0.48 0.96
Diluted earnings per share 0.18 0.19 0.48 0.95
(1)
Includes gift card breakage income of $7.7 million ($4.8 million, after tax, or $0.06 per diluted share), other operating income of $4.1 million ($2.6 million, after tax,
or $0.04 per diluted share) as a result of an agreement with our former Executive Vice President and Chief Merchandising Officer, partially offset by Jimmy’Z asset
impairment charge of $9.0 million ($5.7 million, after tax, or $0.08 per diluted share).
40 Aéropostale, Inc. 08 AR
CORPORATE AND STOCK INFORMATION
Transfer Agent
American Stock Transfer & Trust Company
59 Maiden Lane
New York, NY 10038
212-936-5100
Independent Auditors
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Investor Inquiries
If you would like general information on Aéropostale, Inc.
as a publicly traded company, please call Kenneth Ohashi,
Vice President, Investor and Media Relations, at 646-452-1876
or e-mail at [email protected].
Website
Information regarding Aéropostale, Inc. and our products is
available on our Internet website: www.aeropostale.com.
Form 10-K
Shareholders may obtain without charge a copy of the Company’s
annual report on Form 10-K, as filed with the Securities and
Exchange Commission, by accessing Investor Information on
the Company’s website.
Market Data
Shares of Aéropostale, Inc. common stock are traded on the
New York Stock Exchange under the symbol ARO.
Corporate Headquarters
Aéropostale, Inc.
112 West 34th Street, 22nd Floor
New York, NY 10120
646-485-5410
Market Price of Common Stock
Our common stock is traded on the New York Stock Exchange
under the symbol “ARO.” The following table sets forth the range
of high and low sales prices of our common stock as reported
on the New York Stock Exchange since February 4, 2007. The
stock prices below have been revised to reflect a three-for-
two stock split effected in August 2007.
Market Price High Low
Fiscal 2008
4th quarter
$24.18 $12.75
3rd quarter
36.79 20.76
2nd quarter
35.78 30.25
1st quarter
33.07 24.17
Fiscal 2007
4th quarter $29.03 $21.88
3rd quarter 24.35 18.37
2nd quarter 31.65 23.77
1st quarter 28.97 23.34
Stock Performance Graph
The following graph shows the changes, for the period
commencing January 31, 2004 and ended January 30, 2009
(the last trading day during fiscal 2008), in the value of $100
invested in shares of our common stock, the Standard & Poor’s
MidCap 400 Composite Stock Price Index (the “S&P MidCap
400 Index”) and the Standard & Poor’s Apparel Retail Compos-
ite Index (the “S&P Apparel Retail Index”). The plotted points
represent the closing price on the last trading day of the fiscal
year indicated.
Cumulative Total Return
Based upon an initial investment of $100 on January 31, 2004
with dividends reinvested.
Jan Jan Jan Jan Jan Jan
2004 2005 2006 2007 2008 2009
Aéropostale, Inc. $100 $140 $152 $181 $212
$159
S&P MidCap 400 $100 $111 $136 $147 $143
$ 90
S&P Apparel Retail $100 $121 $115 $132 $126
$ 64
Copyright © 2009, Standard & Poor’s, a division of The McGraw-Hill Companies,
Inc. All rights reserved. (www.researchdatagroup.com/S&P.htm)
We have not paid a dividend on our common stock during our
last three fiscal years, and we do not have any current intention
to pay a dividend on our common stock.
Stockholders
As of March 20, 2009, there were 57 stockholders of record.
However, when including others holding shares in broker
accounts under street name, we estimate the shareholder
base at approximately 32,683.
www.crittgraham.com
1/04 1/05 1/06 1/07 1/08 1/09
S&P MidCap 400Aéropostale, Inc. S&P Apparel Retail
$ 0
$ 50
$100
$150
$200
$250
Julian R. Geiger
Chairman and
Chief Executive Officer
Mindy C. Meads
President and Chief
Merchandising Officer
Thomas P. Johnson
Executive Vice President
Chief Operating Officer
Michael J. Cunningham
Executive Vice President
Chief Financial Officer
Marc A. Babins
Senior Vice President
Production
Lou Ann Bett
Senior Vice President
General Merchandise Manager
Scott K. Birnbaum
Senior Vice President
Marketing
Mark A. Dorwart
Senior Vice President
Construction and Logistics
Kathy E. Gentilozzi
Senior Vice President
Human Resources
Ann E. Joyce
Senior Vice President
Chief Information Officer
Olivera Lazic-Zangas
Senior Vice President
Director of Design
Susan A. Martin
Senior Vice President
Director of Design,
P.S. from Aéropostale
Catherine E. McNeal
Senior Vice President
General Merchandise Manager,
P.S. from Aéropostale
Marc D. Miller
Senior Vice President
New Business Development
Mary Jo Pile
Senior Vice President
Chief Stores Officer
Barbara A. Pindar
Senior Vice President
Planning and Allocation
Edward M. Slezak
Senior Vice President
General Counsel
Bodil Arlander
Director
Ronald R. Beegle
Director
Robert B. Chavez
Director
Evelyn Dilsaver
Director
John N. Haugh
Director
Karin Hirtler-Garvey
Director
John D. Howard
Director
David B. Vermylen
Director
CORPORATE OFFICERS AND DIRECTORS
Printed on FSC Certified, elemental
chlorine-free paper. The Cover and
Narrative paper stock contains 10%
post-consumer fiber.
Aéropostale, Inc.
112 West 34th Street, 22nd Floor
New York, NY 10120
646-485-5410
www.aeropostale.com
Aéropostale, Inc. is a mall-based, specialty retailer of casual apparel
and accessories, principally targeting 14- to 17-year-old young women
and men. The Company provides customers with a focused selection
of high-quality, active-oriented, fashion and fashion basic merchandise
at compelling values. Aéropostale maintains control over its proprietary
brands by designing, sourcing, marketing and selling all of its own
merchandise. Aéropostale products can only be purchased in its stores
or on-line through its e-commerce website, www.aeropostale.com.
In 2008, we experienced continued growth, opening 89 new stores.
By the end of the year, we had more than 900 stores in 48 states,
Puerto Rico and Canada.
