e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Fiscal Year Ended
January 28, 2006
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission File Number:
001-31314
AÉROPOSTALE,
INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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No. 31-1443880
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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112 West 34th Street,
22nd floor
New York, NY
(Address of principal
executive offices)
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10120
(Zip
Code)
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Registrants telephone number, including area code:
(646) 485-5398
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which
Registered
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Common Stock, $0.01 par value
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act: None
Indicate by check mark whether the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months, and (2) has been subject to the filing
requirements for at least the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer (as defined in
Rule 12b-2
of the Act).
Large accelerated
filer þ Accelerated
filer o Non-accelerated
filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of voting stock held by
non-affiliates of the registrant as of July 30, 2005 was
$1,654,423,952.
54,413,785 shares of Common Stock were outstanding at
March 15, 2006.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrants definitive Proxy Statement, to
be filed with the Securities and Exchange Commission within
120 days after the end of the registrants fiscal year
covered by this Annual Report on
Form 10-K,
with respect to the Annual Meeting of Stockholders to be held on
June 14, 2006, are incorporated by reference into
Part III of this Annual Report on
Form 10-K.
This report consists of 49 sequentially numbered pages. The
Exhibit Index is located at sequentially numbered
page 46.
AÉROPOSTALE,
INC.
TABLE OF
CONTENTS
1
As used in this Annual Report on
Form 10-K,
unless the context otherwise requires, all references to
we, us, our,
Aéropostale or the Company refer to
Aéropostale, Inc., and its subsidiaries. The term
common stock means our common stock, $.01 par
value. Our website is located at www.aeropostale.com (this and
any other references in this Annual Report on
Form 10-K
to Aéropostale.com is solely a reference to a uniform
resource locator, or URL, and is an inactive textual reference
only, not intended to incorporate the website into this Annual
Report on
Form 10-K).
On our website, we make available, as soon as reasonably
practicable after electronic filing with the Securities and
Exchange Commission, our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
annual Proxy filings and current reports on
Form 8-K,
and any amendments to those reports. All of these reports are
provided to the public free of charge.
PART I
Overview
Aéropostale, Inc., a Delaware corporation, is a mall-based
specialty retailer of casual apparel and accessories. We design,
market and sell our own brand of merchandise principally
targeting 11 to 18 year-old young women and young men.
JimmyZ Surf Co., Inc., a wholly owned subsidiary of
Aéropostale, Inc., is a California lifestyle-oriented brand
targeting trend-aware young women and men aged 18-25. We opened
our first 14 JimmyZ stores during 2005. In May 2005, we
launched our Aéropostale
e-commerce
website, www.aeropostale.com. As of January 28,
2006, we operated 671 stores, consisting of 657 Aéropostale
stores in 47 states and 14 JimmyZ stores in
11 states.
Aéropostale provides the customer with a focused selection
of high-quality, active-oriented, fashion and fashion basic
merchandise at compelling values. JimmyZ provides the
customer with a broad selection of California lifestyle-oriented
merchandise, targeting trend-aware young men and women. We
maintain control over our proprietary brands by designing and
sourcing all of our merchandise. Our products are sold only at
our stores, online through our
e-commerce
website or at organized sales events at college campuses. We
strive to create a fun high energy shopping experience through
the use of creative visual merchandising, colorful in-store
signage, popular music and an enthusiastic well-trained sales
force. Our average Aéropostale store size of approximately
3,500 square feet is generally smaller than that of our
mall-based competitors and we believe that this enables us to
achieve higher sales productivity and project a sense of greater
action and excitement in the store.
The Aéropostale brand was established by R.H.
Macy & Co., Inc., as a department store private label
initiative, in the early 1980s targeting men in their
twenties. Macys subsequently opened the first mall-based
Aéropostale specialty store in 1987. Over the next decade,
Macys, and then Federated Department Stores, Inc.,
expanded Aéropostale to over 100 stores. In August 1998,
Federated sold its specialty store division to our management
team and Bear Stearns Merchant Banking. In May of 2002,
Aéropostale management took the company public through an
initial public offering and listed its common stock on the New
York Stock Exchange. In July of 2003, the Company effectuated a
secondary offering of its common stock. On April 26, 2004,
we completed a
three-for-two
stock split on all shares of our common stock that was affected
in the form of a stock dividend. All prior period share and per
share amounts presented in this report have been restated to
give retroactive recognition to the common stock split.
Our fiscal year ends on the Saturday nearest to January 31.
Fiscal 2005 was the
52-week
period ended January 28, 2006, fiscal 2004 was the
52-week
period ended January 29, 2005, and fiscal 2003 was the
52-week
period ended January 31, 2004. Fiscal 2006 will be the
53-week
period ending February 3, 2007.
Growth
Strategy
Continue to open new Aéropostale
stores. We consider our merchandise and our
stores as having broad national appeal that continues to provide
substantial new store expansion opportunities. Over the last
three fiscal years we opened, on average, 100 new
Aéropostale stores per year. We plan to open approximately
70 to 75 new
2
Aéropostale stores in fiscal 2006. We plan to open stores
both in markets where we currently operate stores, and in new
markets (see the section
Stores Store design and
environment below).
Enhance and expand our brand. We seek to
capitalize on the success of our core Aéropostale brand,
while continuing to enhance our brand recognition through
external as well as in-store marketing initiatives. We expect
that as our brand continues to gain increased awareness and
greater overall recognition, our stores will continue to be
preferred shopping destinations.
Continue high levels of store productivity. We
seek to produce comparable store sales growth and increased
average sales per square foot. We expect to continue employing
our promotional pricing strategies in order to maintain high
levels of customer traffic. We will also continue testing our
products with our core demographics, so that we can identify and
capitalize upon developing trends and continue to evolve with
the changing tastes of our customers.
New
Business Opportunities
JimmyZ. In June 2004, we acquired the
rights to and existing registrations for the
JIMMYZ®
and Woody Car Design brand and trademarks in the United States
and Canada for clothing and related goods and services. In 2005,
we opened our first 14 JimmyZ stores. These stores average
approximately 3,800 square feet. JimmyZ is positioned
as a California lifestyle-oriented brand, targeting trend-aware
young men and women aged 18-25. Merchandise sold at JimmyZ
stores is at initial price points higher than merchandise sold
at our Aéropostale stores. We anticipate opening up to 5
additional JimmyZ stores in various geographic regions
during fiscal 2006.
E-Commerce. We
launched our Aéropostale
e-commerce
business in May 2005. The Aéropostale web store is
accessible at our website, www.aeropostale.com. A third
party provides fulfillment services for our
e-commerce
business including, warehousing our inventory and fulfilling our
customers sales orders. We purchase, manage and own the
inventory sold through our website and we recognize revenue from
the sale of these products when the customer receives the
merchandise.
Stores
Existing stores. As of January 28, 2006,
we operated 671 stores in the following 47 states. We
strive to locate our stores in regional shopping malls located
in geographic areas with high concentrations of our target
customers:
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Number of
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Number
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Total
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Aéropostale
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of JimmyZ
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Number of
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State
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Stores
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Stores
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Stores
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Alabama
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14
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14
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Arkansas
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3
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3
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Arizona
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11
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11
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California
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38
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1
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39
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Colorado
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9
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9
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Connecticut
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10
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10
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Delaware
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4
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4
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Florida
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32
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1
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33
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Georgia
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17
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17
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Idaho
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1
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1
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Illinois
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25
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1
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26
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Indiana
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20
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20
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Iowa
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12
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12
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Kansas
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6
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6
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Kentucky
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9
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9
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Louisiana
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11
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11
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Massachusetts
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22
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22
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Maryland
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16
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16
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Maine
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3
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3
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Michigan
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27
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27
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Minnesota
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14
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1
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15
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Mississippi
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5
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5
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Missouri
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15
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1
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16
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Montana
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1
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1
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North Carolina
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21
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1
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22
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North Dakota
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4
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4
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Nebraska
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4
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4
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New Hampshire
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6
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6
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New Jersey
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24
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24
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New Mexico
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1
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1
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Nevada
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2
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2
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New York
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45
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1
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46
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3
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Number of
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Number
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Total
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Aéropostale
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of JimmyZ
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Number of
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State
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Stores
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Stores
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Stores
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Ohio
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33
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33
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Oklahoma
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6
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6
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Oregon
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4
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4
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Pennsylvania
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45
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3
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48
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Rhode Island
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1
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1
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South Carolina
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11
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11
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South Dakota
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2
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2
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Tennessee
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19
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1
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20
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Texas
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40
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2
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42
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Utah
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7
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7
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Virginia
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23
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23
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Vermont
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2
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2
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Washington
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11
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11
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Wisconsin
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15
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1
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16
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West Virginia
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6
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6
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Total
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657
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14
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671
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The following table highlights the number of stores opened and
closed since the beginning of fiscal 2003:
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Total
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Aéropostale
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JimmyZ
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Total
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Aéropostale
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Number of
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Stores
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Stores
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Stores
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Stores
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Stores at End
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Opened
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Opened
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Opened
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Closed
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of Period
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Fiscal 2003
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95
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95
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3
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459
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Fiscal 2004
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103
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103
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1
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561
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Fiscal 2005
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105
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14
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119
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9
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671
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Store design and environment. We design our
stores in an effort to create an energetic shopping environment,
featuring powerful in-store promotional signage, creative
visuals and popular music. The enthusiasm of our associates is
integral to our store environment. Our stores feature display
windows that provide high visibility for mall traffic. The front
of our stores generally feature the newest, and what we
anticipate will be the most desirable of our merchandise
offerings at that time, in an effort to draw shoppers into the
store. Our strategy is to create fresh and exciting merchandise
assortments by updating our floor sets numerous times throughout
the year. Visual merchandising directives are initiated at the
corporate level, seeking to maintain consistency throughout all
of our stores. We generally locate our stores in central mall
locations near popular teen gathering spots, including food
courts, music stores and other teen-oriented retailers.
New Store design. We are in the process of
redesigning our store model and anticipate launching a prototype
store design during fiscal 2006.
Our Aéropostale stores average approximately
3,500 square feet. We believe that by keeping our store
size generally smaller than that of many of our competitors, we
are able to achieve a higher level of productivity and help
reinforce the sense of activity and energy that we want our
stores to project. In addition, we generally implement
renovations at the time of renewal of that stores lease.
Store management. Our stores are organized
into two zones and within each zone by region and further into
districts. Each of the zones is managed by a Zone Vice President
and encompasses 3 to 4 regions. A regional manager manages each
of our 7 regions and each region encompasses approximately 8 to
10 districts. Each district is managed by a district manager and
encompasses approximately 7 to 10 individual stores. We
typically staff each store with one store manager, two assistant
managers and 10 to 15 part-time sales associates, the
number of which generally increases during our peak selling
seasons. Store managers are responsible for the operations of
the store including executing guidelines for merchandise
presentation and maintenance, scheduling, hiring and training of
sales associates. Store managers also provide the leadership and
direction of the selling effort. Our corporate headquarters
directs the merchandise assortments, store layout, inventory
management and in-store visuals for our stores.
Expansion opportunities and site
selection. Over the past four years, we have
focused on opening new stores in an effort to penetrate existing
markets as well as enter new markets. We plan to continue to
increase our store base during fiscal 2006 by opening
approximately 70 to 75 new Aéropostale stores and up to 5
new JimmyZ stores (see the section Growth
Strategy above).
4
In selecting a specific site, we generally target high traffic
locations in malls with suitable demographics and favorable
lease economics. As a result, we tend to locate our stores in
malls in which comparable teen-oriented retailers have performed
well. A primary site evaluation criterion includes average sales
per square foot, co-tenancies, traffic patterns and occupancy
costs.
We have implemented our store format across a wide variety of
mall classifications and geographic locations. For new stores
opened in fiscal 2004 and fiscal 2003, our average net
investment has been approximately $242,000 per store
location, which includes capital expenditures adjusted for
landlord contributions and initial inventory at cost net of
payables. Those of our stores which were opened in fiscal 2004
and fiscal 2003 achieved, during their first twelve months of
operations, average net sales of approximately $1.7 million
and sales per square selling foot of $494. These amounts exclude
certain outlet locations that are not considered profit centers
and are utilized primarily to sell end of season merchandise.
Pricing
We believe that a key component of our success is our ability to
understand what our customers want and what they can afford. Our
merchandise, which we believe is of comparable quality to that
of our primary competitors, is generally priced lower than our
competitors merchandise. We conduct promotions in our
Aéropostale stores throughout the year. Each promotion
typically lasts approximately two to four weeks.
Design
and Merchandising
Both our Aéropostale and JimmyZ design and
merchandising teams focus on designing merchandise that meets
the demands of their core customers lifestyles. We
maintain separate, dedicated, design and merchandising groups
for each of our brands and within those brands, for each of the
young womens, young mens and accessories product
lines.
Design. We offer a focused collection of
fashion basic apparel, including graphic t-shirts, tops,
bottoms, sweaters, jeans, outerwear and accessories. Our
design-driven, merchant-modified philosophy, in
which our designers visions are refined by our
merchants understanding of the current market for our
products, helps to ensure that our merchandise styles reflect
the latest trends while not becoming too fashion-forward for our
customers tastes. Much of our merchandise features our
brands logos. We believe that both our Aéropostale
and JimmyZ logo apparel appeals to our young customers and
reinforces our brand image.
Merchandising. Our merchandise planning
organization determines the quantities of units needed for each
product category. By monitoring sales of each style and color
and employing our flexible sourcing capabilities, we are able to
adjust our merchandise assortments to capitalize upon emerging
trends.
The following chart provides a historical breakdown of our
percentages of sales by category:
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Fiscal
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2005
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2004
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2003
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Young Womens
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61%
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60%
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60%
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Young Mens
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25%
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26%
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27%
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Accessories
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14%
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14%
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13%
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Sourcing
We seek to employ a sourcing strategy that expedites our speed
to market and allows us to respond quickly to our
customers preferences. We believe that we have developed
strong relationships with our vendors, some of who rely upon us
for a significant portion of their overall business. The
majority of our vendors can respond to orders quickly. We
monitor the quality of our vendors products by inspecting
pre-production samples, arranging for periodic site visits to
vendors foreign production factories and by selectively
inspecting inbound product shipments at our distribution center.
During fiscal 2005, we sourced approximately 33% of our
merchandise from our top three suppliers, and approximately 67%
from our top ten suppliers. In addition, one company acted as
our agent in sourcing
5
approximately 21% of our total merchandise. Most of our vendors
maintain sourcing offices in the United States, with the
majority of their production factories located in Europe, Asia
and Central America. In an effort to minimize currency risk, all
payments to our vendors and sourcing agents are made in
U.S. dollars. We engage a third party independent
contractor to visit the production facilities we receive our
products from. This independent contractor assesses the
compliance of the facility with, among other things, local and
United States labor laws and regulations as well as fair trade
and business practices.
Marketing
and Advertising
We utilize numerous initiatives aimed at maximizing the impact
of our marketing and advertising programs. We believe that the
enthusiasm and commitment of our store-level employees is a key
element in enhancing the integrity of our brand with our target
customers. We also view the use of our logo on our merchandise
as a means for expanding our brand awareness and visibility.
We are in the process of expanding our marketing initiatives
through focus group testing, customer surveys, expanded print
advertisements and other marketing initiatives. In addition, in
May 2005 we launched our
e-commerce
website, which we view as another marketing tool for the
Company. The Aéropostale web store is accessible at our
website, www.aeropostale.com (see the section New
Business Opportunities above).
We have also developed a targeted marketing program that allows
us to gain additional exposure for our brand on college
campuses. We believe that our target customers value and aspire
to an active, collegiate lifestyle. Accordingly, we sponsor a
number of major collegiate athletic conference tournaments,
including the Big East Mens Basketball Tournament, by
acting as presenting sponsor for the tournament, providing
co-branded apparel and donating various collegiate scholarships,
among other things. In addition, we have entered into agreements
with numerous colleges and universities enabling us to sell and
market our products on campuses through organized periodic sales
events.
Distribution
We lease a 315,000 square foot distribution facility in
South River, New Jersey, to process merchandise and to warehouse
inventory needed to replenish our stores. The timely and
efficient replenishment of our merchandise is key to our overall
business strategy. We continue to invest in systems and
automation to improve processing efficiencies, automate
functions which were previously performed manually and to
support our store growth. Our distribution center uses automated
sortation materials handling equipment to receive, process and
ship to our stores. Our distribution center services all of our
Aéropostale and JimmyZ stores. This facility also
serves our other warehousing needs, such as storage of new store
merchandise, floor set merchandise and packaging supplies. The
distribution center is currently equipped to process merchandise
for over 800 stores.
The staffing and management of the distribution facility is
outsourced to a third party provider that operates the
distribution facility and processes our merchandise. This third
party provider employs personnel represented by a labor union.
There have been no work stoppages or disruptions since the
inception of our relationship with this third party provider in
1991, and we believe that the third party provider has a good
relationship with its employees. In addition, we outsource the
shipment of our merchandise through another third party
provider. This third party ships our merchandise from our
distribution facility to our stores.
We are currently considering opening a second distribution
center and warehouse facility on the west coast of the United
States. We believe that this will allow us to more effectively
flow goods which enter the United States through various ports
on either coast, more quickly and efficiently to our stores.
Information
Systems
Our management information systems provide a full range of
retail, financial and merchandising applications. We utilize
industry specific software systems to provide various functions
related to:
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point-of-sale;
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inventory management;
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6
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supply chain;
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planning and replenishment; and
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financial reporting.
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We continue to invest in technology to align our technology and
systems with our business requirements and to support our
continuing growth. In the past year we focused on key aspects of
critical infrastructure requirements, and we plan to continue
this focus in the future. We are also undertaking initiatives to
upgrade our
point-of-sale
systems for our stores.
Trademarks
We have registered the
AÉROPOSTALE®
trademark and stylized design with the U.S. Patent and
Trademark Office as a trademark for clothing and for a variety
of accessories, including sunglasses, belts, socks and hats, and
as a service mark for retail clothing stores. We have also
registered the
AÉROtm
stylized design mark with the U.S. Patent and Trademark
Office as a trademark for clothing and a further filing for
AÉRO
HOUSEsm
for online services is pending. Additionally, we have applied
for or have obtained a registration for the AÉROPOSTALE
mark in over 26 foreign countries where we obtain supplies,
manufacture goods or have the potential of doing so in the
future.
In June 2004, we acquired the rights to and existing
registrations for the
JIMMYZ®
and Woody Car Design brand and marks in the United States and
Canada for clothing and related goods and services. We have also
made further filings for the JIMMYZ and Woody Car Design
marks which are pending.
Competition
The teen apparel market is highly competitive. We compete with a
wide variety of retailers including other specialty stores,
department stores, mail order retailers and mass merchandisers.
Specifically, we compete with other teen apparel retailers
including, but not limited to, American Eagle
Outfitters®,
Hollister®,
Hot
Topic®,
Old
Navy®,
Pacific
Sunwear®,
and
Too®.
Stores in our sector compete primarily on the basis of design,
price, quality, service and selection. We believe that our
competitive advantage lies with our differentiated brand and our
unique combination of quality, comfort and value. Moreover, we
believe that we target a younger, value-oriented customer, while
many of our competitors cater to a customer who is either older
or seeking cutting-edge fashion.
Many of our competitors are considerably larger and have
substantially greater financing, marketing, and other resources.
We cannot assure you that we will be able to compete
successfully in the future, particularly in geographic locations
that represent new markets for us.
Employees
As of January 28, 2006, we employed 2,600 full-time
and 7,021 part-time employees. We employed 296 of our
employees at our corporate offices, and 9,325 at our store
locations. The number of part-time employees fluctuates
depending on our seasonal needs. None of our employees are
represented by a labor union and we consider our relationship
with our employees to be good.
Seasonality
Our business is highly seasonal, and historically we have
realized a significant portion of our sales, net income and cash
flows in the second half of the 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.
Available
Information
We maintain an internet website, www.aeropostale.com,
through which access is available to our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q
and current reports on
Form 8-K,
and all amendments of
7
these reports filed, or furnished pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, after they are
filed with or furnished to the Securities and Exchange
Commission.
Our Corporate Governance Guidelines and the charters for our
Audit Committee, Corporate Governance and Nominating Committee
and Compensation Committee may also be found on our internet
website at www.aeropostale.com. In addition, our website
contains the Charter for our Lead Independent Director and Code
of Business Conduct and Ethics, which is our code of ethics and
conduct for our directors, officers and employees. Any waivers
to our Code of Business Conduct and Ethics will be promptly
disclosed on our website.
Cautionary
Note Regarding Forward-Looking Statements
This Annual Report on
Form 10-K
contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Such
forward-looking statements involve certain risks and
uncertainties, including statements regarding the companys
strategic direction, prospects and future results. Certain
factors, including factors outside of our control, may cause
actual results to differ materially from those contained in the
forward-looking statements. The following risk factors should be
read in connection with evaluating the Companys business
and future prospects. All forward looking statements included in
this report are based on information available to us as of the
date hereof, and we assume no obligation to update or revise
such forward-looking statements to reflect events or
circumstances that occur after such statements are made. Such
uncertainties include, among others, the following factors:
Fluctuations
in Comparable Store Sales and Quarterly Results of Operations
May Cause the Price of our Common Stock to Decline
Substantially.
Our comparable store sales and quarterly results of operations
have fluctuated in the past and are likely to continue to
fluctuate in the future. In addition, there can be no assurance
that we will be able to maintain our recent levels of comparable
store sales as our business continues to expand. Our comparable
store sales and quarterly results of operations are affected by
a variety of factors, including:
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fashion trends;
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changes in our merchandise mix;
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the effectiveness of our inventory management;
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actions of competitors or mall anchor tenants;
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calendar shifts of holiday or seasonal periods;
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changes in general economic conditions and consumer spending
patterns;
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the timing of promotional events; and
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weather conditions.
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If our future comparable store sales fail to meet the
expectations of investors, then the market price of our common
stock could decline substantially. You should refer to the
section entitled Managements Discussion and Analysis
of Financial Condition and Results of Operations for more
information.
If We
Are Unable to Identify and Respond to Consumers Fashion
Preferences in a Timely Manner, our Profitability Would
Decline.
We may not be able to keep pace with the rapidly changing
fashion trends and consumer tastes inherent in the apparel
industry. Accordingly, we produce casual, comfortable apparel, a
majority of which displays either the
Aéropostale or Aéro logo.
There can be no assurance that fashion trends will not move away
from casual clothing or that we will not have to alter our
design strategy to reflect a consumer change. Failing to
anticipate, identify or react appropriately to changes in
styles, trends, desired images or brand preferences, could have
a material adverse effect on the Companys sales, financial
condition and results of operations.
8
Our
Business Could Suffer As a Result of a Manufacturers
Inability to Produce Merchandise on Time and to
Specifications.
We do not own or operate any manufacturing facilities and
therefore we depend upon independent third parties to
manufacture all of our merchandise. We utilize both domestic and
international manufacturers to produce our merchandise. The
inability of a manufacturer to ship orders in a timely manner or
meet our quality standards could cause delivery date
requirements to be missed, which could result in lost sales.
Our
Business Could Suffer if a Manufacturer Fails to Use Acceptable
Labor Practices.
Our sourcing agents and independent manufacturers are required
to operate in compliance with all applicable foreign and
domestic laws and regulations. While our vendor operating
guidelines promote ethical business practices for our vendors
and suppliers, we do not control these manufacturers or their
labor practices. The violation of labor or other laws by an
independent manufacturer, or by one of the sourcing agents, or
the divergence of an independent manufacturers or sourcing
agents labor practices from those generally accepted as
ethical in the United States, could interrupt, or otherwise
disrupt the shipment of finished products or damage the
Companys reputation. Any of these, in turn, could have a
material adverse effect on the Companys financial
condition and results of operations. To help mitigate this risk,
we engage a third party independent contractor to visit the
production facilities we receive our products from. This
independent contractor assesses the compliance of the facility
with, among other things, local and United States labor laws and
regulations as well as foreign and domestic fair trade and
business practices.
We
Rely on a Small Number of Vendors to Supply a Significant Amount
of our Merchandise.
In fiscal 2005, we sourced approximately 33% of our merchandise
from our top three suppliers; one company supplied approximately
15% of our merchandise, and two others each supplied
approximately 9% of our merchandise. In addition, approximately
67% of our merchandise was directly sourced from our top ten
suppliers, and one company acted as our agent with respect to
the sourcing of approximately 21% of our merchandise. Our
relationships with our suppliers generally are not on a
long-term contractual basis and do not provide assurances on a
long-term basis as to adequate supply, quality or acceptable
pricing. Most of our suppliers could discontinue selling to us
at any time. If one or more of our significant suppliers were to
sever their relationship with us, we could be unable to obtain
replacement products in a timely manner, which could cause our
sales to decrease.
Foreign
Suppliers Manufacture Most of Our Merchandise and the
Availability and Costs of These Products May Be Negatively
Affected by Risks Associated with International
Trade.
Trade restrictions such as increased tariffs or quotas, or both,
could affect the importation of apparel generally and increase
the cost and reduce the supply of merchandise available to us.
Much of our merchandise is sourced directly from foreign vendors
in Europe, Asia and Central America. In addition, many of our
domestic vendors maintain production facilities overseas. Some
of these facilities are also located in regions that may be
affected by political instability that could cause a disruption
in trade. Any reduction in merchandise available to us or any
increase in its cost due to tariffs, quotas or local political
issues could have a material adverse effect on our results of
operations.
Our
Growth Strategy Relies on the Continued Addition of a
Significant Number of New Stores Each Year, Which Could Strain
Our Resources and Cause the Performance of Our Existing Stores
to Suffer.
Our growth will largely depend on our ability to open and
operate new stores successfully. We opened 105 Aéropostale
and 14 JimmyZ stores in fiscal 2005, 103 Aéropostale
stores in fiscal 2004, and 95 Aéropostale stores in fiscal
2003. Additionally, we plan to open approximately 70 to 75
Aéropostale and up to 5 new JimmyZ stores in fiscal
2006. We expect to continue to open a significant number of new
stores in future years while also remodeling a portion of our
existing store base. Our planned expansion will place increased
demands on our operational, managerial and administrative
resources. These increased demands could cause us to operate our
business less effectively, which in turn could cause
deterioration in the financial performance of our individual
stores. In addition,
9
to the extent that our new store openings are in existing
markets, we may experience reduced net sales volumes in
previously existing stores in those same markets.
Our
Continued Expansion Plan is Dependent on a Number of Factors
Which, if Not Implemented, Could Delay or Prevent the Successful
Opening of New Stores and Penetration into New
Markets.
Unless we continue to do the following, we may be unable to open
new stores successfully and, if so, our continued growth would
be impaired:
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identify suitable markets and sites for new store locations;
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negotiate acceptable lease terms;
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hire, train and retain competent store personnel;
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foster current relationships and develop new relationships with
vendors that are capable of supplying a greater volume of
merchandise;
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manage inventory effectively to meet the needs of new and
existing stores on a timely basis;
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expand our infrastructure to accommodate growth; and
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generate sufficient operating cash flows or secure adequate
capital on commercially reasonable terms to fund our expansion
plans.
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In addition, we will open new stores in markets in which we
currently have few or no stores. Our experience in these markets
is limited and there can be no assurance that we will be able to
develop our brand in these markets or adapt to competitive,
merchandising and distribution challenges that may be different
from those in our existing markets. Our inability to open new
stores successfully
and/or
penetrate new markets would have a material adverse effect on
our revenue and earnings growth.
The
Loss of the Services of Key Personnel Could Have a Material
Adverse Effect on Our Business.
The Companys key executive officers have substantial
experience and expertise in the retail business and have made
significant contributions to the growth and success of the
Companys brands. The unexpected loss of the services of
one or more of these individuals could adversely affect the
Company. Specifically, if we were to lose the services of Julian
R. Geiger, our Chairman and Chief Executive Officer,
and/or
Christopher L. Finazzo, our Executive Vice President-Chief
Merchandising Officer, our business could be adversely affected.
In addition, Mr. Geiger and Mr. Finazzo maintain many
of our vendor relationships, and the loss of either of them
could negatively impact present vendor relationships.
Failure
of New Business Concepts Would Have an Effect on Our Results of
Operations.
We expect that the introduction of new brand concepts and other
business opportunities will play an important role in our
overall growth strategy. In particular, we have and will
continue to open our JimmyZ brand stores. The operation of
the JimmyZ store is subject to numerous risks, including
unanticipated operating problems; lack of prior experience; lack
of customer acceptance; new vendor relationships; competition
from existing and new retailers; and could be a diversion of
managements attention from the Companys core
Aéropostale business. The JimmyZ concept involves,
among other things, implementation of a retail apparel concept
which is subject to many of the same risks as Aéropostale,
as well as additional risks inherent with a more fashion driven
concept, including risks of difficulty in merchandising,
uncertainty of customer acceptance, fluctuations in fashion
trends and customer tastes, as well as the attendant mark-down
risks. Risks inherent in any new concept are particularly acute
with respect to JimmyZ because this is the first
significant new venture by us, and the nature of the
JimmyZ business differs in certain respects from that of
our core Aéropostale business. There can be no assurance
that the JimmyZ stores will achieve sales and
profitability levels justifying our investments in this
business. If those sales levels are not achieved we may be
forced to impair the carrying value of our investments, which
impairment would have an impact on our results of operations.
10
Our
Net Sales and Inventory Levels Fluctuate on a Seasonal
Basis.
Our net sales and net income are disproportionately higher from
August through January each year due to increased sales from
back-to-school
and holiday shopping. Sales during this period cannot be used as
an accurate indicator for our annual results. Our net sales and
net income from February through July are typically lower due
to, in part, the traditional retail slowdown immediately
following the winter holiday season. Any significant decrease in
sales during the
back-to-school
and winter holiday seasons would have a material adverse effect
on our financial condition and results of operations. In
addition, in order to prepare for the
back-to-school
and holiday shopping seasons, we must order and keep in stock
significantly more merchandise than we would carry during other
parts of the year. Any unanticipated decrease in demand for our
products during these peak shopping seasons could require us to
sell excess inventory at a substantial markdown, which could
reduce our net sales and gross margins and negatively impact our
profitability.
A
Downturn in the United States Economy May Affect Consumer
Spending Habits.
Consumer purchases of discretionary items and retail products,
including the Companys products, may decline during
recessionary periods and also may decline at other times when
disposable income is lower. A downturn in the economy may
adversely affect our sales.
Our
Ability to Attract Customers to Our Stores Depends Heavily on
the Success of the Shopping Malls in Which We are
Located.
In order to generate customer traffic, we must locate our stores
in prominent locations within successful shopping malls. We
cannot control the development of new shopping malls, the
availability or cost of appropriate locations within existing or
new shopping malls, or the success of individual shopping malls.
A significant decrease in shopping mall traffic would have a
material adverse effect on our results of operations.
We
Rely on a Single Distribution Center.
We maintain one distribution center to receive, store and
distribute merchandise to all of our stores. Any significant
interruption in the operation of the distribution center due to
natural disasters, accidents, system failures or other
unforeseen causes could have a material adverse effect on the
Companys financial condition and results.
We
Rely on a Third Party to Manage Our Distribution
Center.
The efficient operation of our stores is dependent on our
ability to distribute, in a timely manner, merchandise to our
store locations throughout the United States. An independent
third party operates our distribution and warehouse facility. We
depend on this third party to receive, sort, pack and distribute
substantially all of our merchandise. This third party employs
personnel represented by a labor union. Although there have been
no work stoppages or disruptions since the inception of our
relationship with this third party provider beginning in 1991,
there can be no assurance that work stoppages or disruptions
will not occur in the future. We also use a separate third party
transportation company to deliver our merchandise from our
warehouse to our stores. Any failure by either of these third
parties to respond adequately to our warehousing and
distribution needs would disrupt our operations and negatively
impact our profitability.
Failure
to Protect Our Trademarks Adequately Could Negatively Impact Our
Brand Image and Limit Our Ability to Penetrate New
Markets.
We believe that our key trademarks
AÉROPOSTALE®
and, to a lesser extent,
AERO®
are integral to our logo-driven design strategy. We have
obtained a federal registration of the
AÉROPOSTALE®
trademark in the United States and have applied for or obtained
registrations in most foreign countries in which our vendors are
located. We use the AERO mark in many constantly changing
designs and logos even though we have not applied to register
every variation or combination thereof for adult clothing. We
also believe that the newly obtained JIMMYZ and Woody Car
Design marks are an important part of our growth strategy and
expansion of our business. We have acquired federal
registrations in the United States and in Canada and have
expanded the scope of our filings in the United States Patent
and Trademark Office for a greater number of apparel and
accessory categories. There can be
11
no assurance that the registrations we own and have obtained
will prevent the imitation of our products or infringement of
our intellectual property rights by others. If any third party
imitates our products in a manner that projects lesser quality
or carries a negative connotation, our brand image could be
materially adversely affected. Because we have not registered
the AERO mark in all forms and categories and have not
registered the AÉROPOSTALE,
JIMMYZ and Woody Car Design marks in all
categories or in all foreign countries in which we now or may in
the future source or offer our merchandise, international
expansion and our merchandising of non-apparel products using
these marks could be limited.
In addition, there can be no assurance that others will not try
to block the manufacture, export or sale of our products as
violation of their trademarks or other proprietary rights. Other
entities may have rights to trademarks that contain the word
AERO or may have registered similar or competing
marks for apparel and accessories in foreign countries in which
our vendors are located. Our applications for international
registration of the
AÉROPOSTALE®
mark have been rejected in several countries in which our
products are manufactured because third parties have already
registered the mark for clothing in those countries. There may
also be other prior registrations in other foreign countries of
which we are not aware. In addition, we do not own the
JimmyZ brand outside of the United States and Canada.
Accordingly, it may be possible, in those few foreign countries
where we were not been able to register the
AÉROPOSTALE®
mark, or in the countries where the JimmyZ brand is owned
by a third party, for a third party owner of the national
trademark registration for AÉROPOSTALE,
JIMMYZ or the Woody Car Design to enjoin the
manufacture, sale or exportation of Aéropostale or
JimmyZ branded goods to the United States. If we were
unable to reach a licensing arrangement with these parties, our
vendors may be unable to manufacture our products in those
countries. Our inability to register our trademarks or purchase
or license the right to use our trademarks or logos in these
jurisdictions could limit our ability to obtain supplies from or
manufacture in less costly markets or penetrate new markets
should our business plan change to include selling our
merchandise in those jurisdictions outside the United States.
The
Effects of War or Acts of Terrorism Could Have a Material
Adverse Effect on Our Operating Results and Financial
Condition.
The continued threat of terrorism, heightened security measures
and military action in response to an act of terrorism has
disrupted commerce and has intensified the uncertainty of the
U.S. economy. Any further acts of terrorism or a future war
may disrupt commerce and undermine consumer confidence, which
could negatively impact our sales revenue by causing consumer
spending
and/or mall
traffic to decline. Furthermore, an act of terrorism or war, or
the threat thereof, could negatively impact our business by
interfering with our ability to obtain merchandise from foreign
vendors. Inability to obtain merchandise from our foreign
vendors or substitute other vendors, at similar costs and in a
timely manner, could adversely affect our operating results and
financial condition.
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Item 1B.
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Unresolved
Staff Comments
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None
We lease all of our store locations in shopping malls throughout
the U.S. Most of our store leases have an initial term of ten
years, and require us to pay additional rent based on specified
percentages of sales, after we achieve specified annual sales
thresholds. Generally, our store leases do not contain extension
options. Our store leases typically include a pre-opening period
of approximately 60 days that allows us to take possession
of the property to construct the store. Typically rent payment
commences when the stores open. We recognize rent expense in our
consolidated financial statements on a straight-line basis over
the non-cancelable term of each individual underlying lease,
commencing when we take possession of the property. Generally,
our leases allow for termination by us after a certain period of
time if sales at that site do not exceed specified levels.
We lease 59,121 square feet of office space at
112 West 34th Street in New York, New York. The
facility is used as our corporate headquarters and for our
design, sourcing and production teams. These leases expire in
November 2015 and November 2016.
12
We also lease 20,000 square feet of office space at 201
Willowbrook Boulevard in Wayne, New Jersey. This facility is
used as administrative offices for finance, operations and
information systems personnel. This lease expires in May 2009.
We are currently considering expanding our office space in
Wayne, New Jersey in order to support our continued expansion.
In addition, we lease a 315,000 square foot distribution
and warehouse facility in South River, New Jersey. This facility
is used to warehouse inventory needed to replenish and
back-stock all of our stores, as well as to serve our general
warehousing needs. This lease expires in May 2016. We are
currently considering opening a second distribution center and
warehouse facility, intended to be located on the west coast of
the United States. We believe that this will allow us to more
effectively flow goods which enter the United States through
various ports on either coast, more quickly and efficiently to
our stores.
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Item 3.
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Legal
Proceedings
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We are party to various litigation matters and proceedings in
the ordinary course of business. In the opinion of our
management, dispositions of these matters are not expected to
have a material adverse affect on our financial position,
results from operations or cash flows.
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Item 4.
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Submission
of Matters to a Vote of Security Holders
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No matters were submitted to a vote of the Companys
shareholders during the fourth quarter of the fiscal year
covered by this report.
PART II
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Item 5.
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Market
for the Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
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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 1,
2004, as adjusted for the
three-for-two
stock split on all shares of our common stock that was affected
on April 26, 2004.
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Market Price
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High
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Low
|
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Fiscal 2005
|
|
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4th quarter
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$
|
31.00
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$
|
18.85
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3rd quarter
|
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29.81
|
|
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18.05
|
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2nd quarter
|
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35.46
|
|
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|
25.31
|
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1st quarter
|
|
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35.10
|
|
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26.75
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Fiscal 2004
|
|
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4th quarter
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$
|
34.38
|
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$
|
25.65
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3rd quarter
|
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33.98
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25.87
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2nd quarter
|
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30.94
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|
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|
21.99
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1st quarter
|
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25.20
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19.86
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As of March 15, 2006, there were 51 stockholders of record.
However, when including others holding shares in broker accounts
under street name, we estimate the shareholder base at
approximately 16,000.
13
We repurchase our common stock from time to time under a stock
repurchase program that was initiated in 2003. In November 2005,
our Board of Directors approved an additional $50.0 million
repurchase availability, thereby increasing the total amount of
repurchase availability under this program to
$150.0 million. 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, and liquidity and capital resource
requirements going forward. Our purchases of treasury stock for
the fourth quarter ended January 28, 2006 and remaining
availability pursuant to our share repurchase program were the
following:
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Total Number of
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Approximate Dollar
|
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Total Number
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Shares Purchased
|
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Value of Shares
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of Shares
|
|
Average
|
|
as Part of Publicly
|
|
that may yet be
|
|
|
(or Units)
|
|
Price Paid
|
|
Announced Plans
|
|
Purchased Under the
|
Period
|
|
Purchased
|
|
per Share
|
|
or Programs
|
|
Plans or Programs
|
|
|
(In thousands)
|
|
|
|
(In thousands)
|
|
(In thousands)
|
|
November 2005
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
50,723
|
|
December 2005
|
|
|
265,700
|
|
|
$
|
24.69
|
|
|
|
265,700
|
|
|
$
|
44,163
|
|
January 2006
|
|
|
80,000
|
|
|
$
|
28.85
|
|
|
|
80,000
|
|
|
$
|
41,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
345,700
|
|
|
$
|
25.65
|
|
|
|
345,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 6.
|
Selected
Financial Data
|
The following selected financial data should be read in
conjunction with Managements Discussion and Analysis
of Financial Condition and Results of Operations, and with
our consolidated financial statements and other financial
information appearing elsewhere in this document. In January
2002, we changed our fiscal year end from the Saturday closest
to July 31st to the Saturday closest to
January 31st of each year. The fifty-two week period
14
ended February 2, 2002 and the six month period ended
February 3, 2001 are unaudited and are presented for
comparative purposes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Week
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
Fiscal Year Ended
|
|
|
Ended
|
|
|
Six Month Period Ended
|
|
|
Ended
|
|
|
|
January 28,
|
|
|
January 29,
|
|
|
January 31,
|
|
|
February 1,
|
|
|
February 2,
|
|
|
February 2,
|
|
|
February 3,
|
|
|
August 4,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2002
|
|
|
2001
|
|
|
2001
|
|
|
|
(In thousands, except per share
data)
|
|
|
Statement of Income
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,204,347
|
|
|
$
|
964,212
|
|
|
$
|
734,868
|
|
|
$
|
550,904
|
|
|
$
|
404,438
|
|
|
$
|
284,040
|
|
|
$
|
184,369
|
|
|
$
|
304,767
|
|
Gross profit, as a percent of sales
|
|
|
30.1
|
%
|
|
|
33.2
|
%
|
|
|
31.3
|
%
|
|
|
29.5
|
%
|
|
|
32.2
|
%
|
|
|
36.6
|
%
|
|
|
32.4
|
%
|
|
|
28.3
|
%
|
SG&A, as a percent of sales
|
|
|
18.9
|
%
|
|
|
19.1
|
%
|
|
|
19.3
|
%
|
|
|
20.1
|
%
|
|
|
21.4
|
%
|
|
|
19.4
|
%
|
|
|
18.7
|
%
|
|
|
21.6
|
%
|
Net income, as a percent of sales
|
|
|
7.0
|
%
|
|
|
8.7
|
%
|
|
|
7.4
|
%
|
|
|
5.7
|
%
|
|
|
6.6
|
%
|
|
|
10.7
|
%
|
|
|
8.2
|
%
|
|
|
3.7
|
%
|
Income from continuing operations
|
|
|
83,954
|
|
|
|
84,112
|
|
|
|
54,254
|
|
|
|
31,290
|
|
|
|
24,857
|
|
|
|
28,637
|
|
|
|
14,694
|
|
|
|
10,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
83,954
|
|
|
|
84,112
|
|
|
|
54,254
|
|
|
|
31,290
|
|
|
|
26,506
|
|
|
|
30,269
|
|
|
|
15,082
|
|
|
|
11,319
|
|
Preferred dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
362
|
|
|
|
1,113
|
|
|
|
574
|
|
|
|
508
|
|
|
|
1,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common
stockholders
|
|
$
|
83,954
|
|
|
$
|
84,112
|
|
|
$
|
54,254
|
|
|
$
|
30,928
|
|
|
$
|
25,393
|
|
|
$
|
29,695
|
|
|
$
|
14,574
|
|
|
$
|
10,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$
|
1.50
|
|
|
$
|
1.47
|
|
|
$
|
0.93
|
|
|
$
|
0.54
|
|
|
$
|
0.44
|
|
|
$
|
0.52
|
|
|
$
|
0.27
|
|
|
$
|
0.19
|
|
From discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From cumulative accounting change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.03
|
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
1.50
|
|
|
$
|
1.47
|
|
|
$
|
0.93
|
|
|
$
|
0.54
|
|
|
$
|
0.47
|
|
|
$
|
0.55
|
|
|
$
|
0.28
|
|
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Operating
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of stores open at end of
period
|
|
|
671
|
|
|
|
561
|
|
|
|
459
|
|
|
|
367
|
|
|
|
278
|
|
|
|
278
|
|
|
|
224
|
|
|
|
252
|
|
Comparable store sales increase
|
|
|
3.5
|
%
|
|
|
8.7
|
%
|
|
|
6.6
|
%
|
|
|
6.6
|
%
|
|
|
15.5
|
%
|
|
|
23.0
|
%
|
|
|
14.5
|
%
|
|
|
8.7
|
%
|
Average store sales (in thousands)
|
|
$
|
1,890
|
|
|
$
|
1,849
|
|
|
$
|
1,728
|
|
|
$
|
1,651
|
|
|
$
|
1,521
|
|
|
$
|
1,028
|
|
|
$
|
872
|
|
|
$
|
1,360
|
|
Average square footage per store
|
|
|
3,537
|
|
|
|
3,512
|
|
|
|
3,511
|
|
|
|
3,541
|
|
|
|
3,463
|
|
|
|
3,463
|
|
|
|
3,460
|
|
|
|
3,437
|
|
Sales per square foot
|
|
$
|
534
|
|
|
$
|
526
|
|
|
$
|
491
|
|
|
$
|
471
|
|
|
$
|
456
|
|
|
$
|
297
|
|
|
$
|
250
|
|
|
$
|
392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
January 28,
|
|
|
January 29,
|
|
|
January 31,
|
|
|
February 1,
|
|
|
February 2,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
(In thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
212,986
|
|
|
$
|
182,493
|
|
|
$
|
140,879
|
|
|
$
|
86,791
|
|
|
$
|
38,181
|
|
Total assets
|
|
|
503,951
|
|
|
|
405,819
|
|
|
|
307,048
|
|
|
|
223,032
|
|
|
|
146,927
|
|
121/2%
Series B redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,617
|
|
Total debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
284,790
|
|
|
|
238,251
|
|
|
|
185,693
|
|
|
|
127,959
|
|
|
|
60,190
|
|
Cash dividends declared per common
share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share amounts have been restated to reflect a
three-for-two
split of our common stock that was affected in April 2004.
15
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Introduction
Aéropostale, Inc. is a mall-based specialty retailer of
casual apparel and accessories in the United States. Our target
customers are both young women and young men from age 11
to 18, 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, on our
e-commerce
website, www.aeropostale.com, and at organized sales
events at college campuses. We opened our first 14 JimmyZ
stores in 2005. JimmyZ Surf Co., Inc., a wholly owned
subsidiary of Aéropostale, Inc., is a California
lifestyle-oriented brand targeting trend-aware young women and
men aged 18 to 25. We also launched our Aéropostale
e-commerce
business in May 2005. As of January 28, 2006, we operated
671 stores, consisting of 657 Aéropostale stores in
47 states and 14 JimmyZ stores in 11 states, in
addition to www.aeropostale.com (see the section Growth
Strategy in Part I of this report for a further
discussion).
The discussion in the following section is on a consolidated
basis, unless indicated otherwise.
Overview
We achieved net sales of $1,204.3 million in fiscal 2005,
an increase of $240.1 million or 24.9% from fiscal 2004.
This increase was attributable to total store square footage
growth of 20.0%, coupled with a 3.5% comparable store sales
increase. Gross profit, as a percentage of net sales, decreased
by 3.1 percentage points for fiscal 2005. The decline in
gross profit, as a percentage of net sales, was primarily due to
decreased merchandise margins from significantly higher
promotional activity, which was intended to stimulate demand for
our merchandise offerings. Gross profit for fiscal 2004 was
unfavorably impacted by a $4.7 million cumulative rent
charge related to the correction to our lease accounting
policies that was recorded in the fourth quarter of fiscal 2004
(see note 1 to the Notes to Consolidated Financial
Statements for a further discussion). Selling, general and
administrative expense, or SG&A, as a percentage of net
sales, declined by 0.2 percentage points in fiscal 2005.
These reductions were attributable to a decrease in incentive
compensation and a retirement plan charge recorded in 2004. Net
income for fiscal 2005 was $84.0 million, or $1.50 per
diluted share, compared with net income of $84.1 million,
or $1.47 per diluted share, for fiscal 2004. Net income for
fiscal 2005 included a net loss of $4.7 million, or $0.08
loss per diluted share, from our JimmyZ subsidiary. The
above mentioned cumulative rent charge unfavorably impacted our
net income for fiscal 2004 by $2.8 million, or by
$0.05 per diluted share.
As of January 28, 2006, we had working capital of
$213.0 million, cash and cash equivalents of
$205.2 million, short-term investments of
$20.0 million, and no third party debt outstanding.
Merchandise inventories increased by 13% as of January 28,
2006, compared to last year, and decreased by 6% on a square
foot basis. Cash flows from operating activities were
$144.4 million for fiscal 2005. We operated 671 total
stores as of January 28, 2006, an increase of 20% from the
same period last year.
16
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 28,
|
|
|
January 29,
|
|
|
January 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Net sales (in millions)
|
|
$
|
1,204.3
|
|
|
$
|
964.2
|
|
|
$
|
734.9
|
|
Total store count at end of period
|
|
|
671
|
|
|
|
561
|
|
|
|
459
|
|
Comparable store count at end of
period
|
|
|
550
|
|
|
|
448
|
|
|
|
359
|
|
Net sales growth
|
|
|
24.9
|
%
|
|
|
31.2
|
%
|
|
|
33.4
|
%
|
Comparable store sales growth
|
|
|
3.5
|
%
|
|
|
8.7
|
%
|
|
|
6.6
|
%
|
Net sales per average square foot
|
|
$
|
534
|
|
|
$
|
526
|
|
|
$
|
491
|
|
Gross profit (in millions)
|
|
$
|
362.5
|
|
|
$
|
319.9
|
|
|
$
|
229.7
|
|
Income from operations (in
millions)
|
|
$
|
135.4
|
|
|
$
|
135.9
|
|
|
$
|
88.2
|
|
Diluted earnings per share
|
|
$
|
1.50
|
|
|
$
|
1.47
|
|
|
$
|
0.93
|
|
Square footage growth
|
|
|
20.0
|
%
|
|
|
23.0
|
%
|
|
|
24.0
|
%
|
Increase in total inventory at end
of period
|
|
|
13
|
%
|
|
|
31
|
%
|
|
|
33
|
%
|
(Decrease) increase in inventory
per square foot at end of period
|
|
|
(6
|
)%
|
|
|
7
|
%
|
|
|
7
|
%
|
Percentages of net sales by
category
|
|
|
|
|
|
|
|
|
|
|
|
|
Womens
|
|
|
61
|
%
|
|
|
60
|
%
|
|
|
60
|
%
|
Mens
|
|
|
25
|
%
|
|
|
26
|
%
|
|
|
27
|
%
|
Accessories
|
|
|
14
|
%
|
|
|
14
|
%
|
|
|
13
|
%
|
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 28,
|
|
January 29,
|
|
January 31,
|
|
|
2006
|
|
2005
|
|
2004
|
|
Net sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Gross profit
|
|
|
30.1
|
|
|
|
33.2
|
|
|
|
31.3
|
|
SG&A
|
|
|
18.9
|
|
|
|
19.1
|
|
|
|
19.3
|
|
Income from operations
|
|
|
11.2
|
|
|
|
14.1
|
|
|
|
12.0
|
|
Interest income, net
|
|
|
0.3
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
11.5
|
|
|
|
14.2
|
|
|
|
12.1
|
|
Income taxes
|
|
|
4.5
|
|
|
|
5.5
|
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
7.0
|
%
|
|
|
8.7
|
%
|
|
|
7.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
Net sales consist of sales from comparable stores and
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
periodic arrangements with colleges and universities.
Net sales increased by $240.1 million, or by 24.9% in
fiscal 2005. The net sales increase was attributable to both
increased comparable store sales and new store sales. Comparable
store sales increased by $31.2 million, or by 3.5%,
reflecting comparable store sales increases in all of our
categories: young womens, young mens, and
17
accessories. The comparable stores sales increase reflected a
1.8% increase in units per transaction, a 10.4% increase in the
number of sales transactions, and an 8.0% decrease in average
dollar per unit. Due to lower than expected sales performance
during the third quarter of 2005, we increased our promotional
activity throughout the balance of fiscal 2005 in an effort to
stimulate customer demand for our merchandise offerings.
Non-comparable store sales increased by $208.9 million, or
by 21.4%, primarily due to 110 more stores open at the end of
fiscal 2005 versus fiscal 2004.
Net sales increased by $229.3 million, or by 31.2% in
fiscal 2004. The net sales increase was attributable to both
increased comparable store sales and new store sales. Comparable
store sales increased by $58.0 million, or by 8.7%,
reflecting comparable store sales increases in all of our
categories: young womens, young mens, and
accessories. The comparable stores sales increase reflected a
5.5% increase in units per transaction, a 5.4% increase in the
number of sales transactions, and a 2.2% decrease in average
dollar per unit. Non-comparable store sales increased by
$171.3 million, or by 22.5%, primarily due to 102 more
stores open at the end of fiscal 2004 versus fiscal 2003.
Cost
of Sales and Gross Profit
Cost of sales includes costs related to: merchandise sold,
distribution and warehousing, freight from the distribution
center and warehouse to the stores, payroll for our design,
buying 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
3.1 percentage points in fiscal 2005. Gross profit for
fiscal 2004 was unfavorably impacted by a one-time, non-cash
pre-tax rent charge of $4.7 million, or 0.5 percentage
points, related to a correction to our lease accounting policies
associated with the timing of rent expense (see note 1 to
the Notes to Consolidated Financial Statements for a further
discussion). The decrease in gross profit was attributable to a
3.0 percentage point decline in merchandise margin, and a
0.3 percentage point increase in occupancy costs and
depreciation. The decline in merchandise margin was primarily
attributable to significantly higher promotional activity.
Gross profit, as a percentage of net sales, increased by
1.9 percentage points in fiscal 2004. The above mentioned
cumulative rent charge unfavorably impacted gross profit by
0.5 percentage points in fiscal 2004. Merchandise margins
increased by 1.4 percentage points, reflecting increases in
all our categories. The improvement in merchandise margins was
primarily due to lower promotional markdowns, as well as lower
initial cost. The leveraging of rent and distribution costs
against the increased net sales contributed to
0.5 percentage points of the gross profit increase, as a
percentage of sales.
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, and 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 $43.1 million in fiscal 2005, due
largely to a $29.6 million increase in payroll and
benefits, consisting primarily of store payroll, from new store
growth. The remainder of the increase was predominantly due to
increased store transaction costs of $8.6 million,
resulting from both sales growth and new store growth, and a
$3.0 million increase in marketing costs. SG&A, as a
percentage of net sales, decreased by 0.2 percentage
points, primarily due to a 0.6 percentage point reduction
in incentive compensation and a 0.3 percentage point
decrease in benefit costs. These savings were partially offset
by a 0.3 percentage point increase in store transaction
expenses and a 0.2 percentage point increase in store
payroll.
SG&A increased by $42.5 million in fiscal 2004. This
increase was due largely to a $32.2 million increase in
payroll and benefits, consisting primarily of store payroll, as
a result of new store growth. The remainder of the increase was
predominantly due to increased store transaction and operating
costs, resulting from both sales growth
18
and new store growth. SG&A, as a percentage of net sales,
decreased by 0.2 percentage points, and was primarily due
to the leveraging of SG&A expenses against the increased net
sales.
Interest
Income
Interest income, net of interest expense, increased by
$2.2 million in fiscal 2005 and by $0.7 million in
fiscal 2004. Increases in interest rates during fiscal 2005, and
increases in cash and cash equivalents, together with short-term
investments, were the primary drivers of the increase in net
interest income. Cash and cash equivalents, together with
short-term investments, increased by $42.9 million at the
end of fiscal 2005. Cash and cash equivalents, together with
short-term investments, increased by $44.0 million at the
end of fiscal 2004.
Income
Taxes
Our effective income tax rate was 39.6% for fiscal 2005,
compared to 38.8% for fiscal 2004, and 39.0% for fiscal 2003.
The increase in the effective income tax rate during fiscal 2005
was primarily due to an increase in the effective state income
tax rate.
Net
Income and Earnings Per Share
Net income was $84.0 million, or $1.50 per diluted
share, for fiscal 2005, compared with net income of
$84.1 million, or $1.47 per diluted share, for fiscal
2004. The above mentioned cumulative rent charge unfavorably
impacted our net income for fiscal 2004 by $2.8 million, or
by $0.05 per diluted share. Net income for fiscal 2005
included a net loss of $4.7 million, or $0.08 loss per
diluted share, from our investment in JimmyZ .
Net income increased by $29.9 million, or 55.0%, for fiscal
2004. Diluted earnings per share increased 58.1% to
$1.47 per diluted share for fiscal 2004 from $0.93 for
fiscal 2003. The above mentioned cumulative rent charge
unfavorably impacted our net income for fiscal 2004 by
$2.8 million, or by $0.05 per diluted share.
Liquidity
and Capital Resources
Our cash requirements are primarily for working capital, the
construction of new stores, the remodeling of existing stores,
and to improve and enhance our information technology systems.
Due to the seasonality of our business, we have historically
realized a significant portion of our cash flows from operating
activities during the second half of the fiscal 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 operating activities during
the second half of the year. We expect to continue to meet our
cash requirements primarily through cash flows from operating
activities, existing cash and cash equivalents, and short-term
investments. In addition, we have a revolving credit facility
(the credit facility) with Bank of America Retail
Finance (formerly Fleet Retail Finance) that provides for a
$50.0 million base borrowing availability, and can be
increased to an aggregate of $75.0 million if we so request
(see below for a further description). We have not had
outstanding borrowings under the credit facility since November
2002. As of January 28, 2006, we had working capital of
$213.0 million, cash and cash equivalents of
$205.2 million, short-term investments of
$20.0 million, and no third party debt outstanding.
The following table sets forth our cash flows for the period
indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
January 28,
|
|
|
January 29,
|
|
|
January 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Net cash from operating activities
|
|
$
|
144,384
|
|
|
$
|
136,975
|
|
|
$
|
103,500
|
|
Net cash from investing activities
|
|
|
(2,102
|
)
|
|
|
(124,301
|
)
|
|
|
(35,926
|
)
|
Net cash from financing activities
|
|
|
(43,175
|
)
|
|
|
(44,902
|
)
|
|
|
(16,693
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
and cash equivalents
|
|
$
|
99,107
|
|
|
$
|
(32,228
|
)
|
|
$
|
50,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
Operating
Activities
Cash flows from operating activities, our principal form of
liquidity on a full-year basis, increased by $7.4 million
in fiscal 2005 and increased by $33.5 million in fiscal
2004, as compared to the prior fiscal year. The primary
components of cash flows from operations for fiscal 2005 were
net income, as adjusted for non-cash items, of
$111.8 million, tenant allowances received from landlords
of $21.1 million, and tax benefits from stock options
exercised of $4.8 million. Cash used for merchandise
inventories decreased to $10.7 million in fiscal 2005 from
$19.4 million in fiscal 2004 and $15.2 million in
fiscal 2003. Total inventories increased by 13% as of
January 28, 2006 versus January 29, 2005, and
decreased by 6% on a per square foot basis for the same periods.
The primary components of cash flows from operations for fiscal
2004 were net income, as adjusted for non-cash items, of
$106.3 million, tenant allowances received from landlords
of $16.7 million, and tax benefits from stock options
exercised of $12.9 million.
Investing
Activities
We invested $58.3 million in capital expenditures in fiscal
2005, primarily for the construction of 105 new Aéropostale
stores and 14 new JimmyZ stores, to remodel 14 existing
stores, and for investments in information technology and for
our distribution center. Our future capital requirements will
depend primarily on the number of new stores we open, the number
of existing stores we remodel and the timing of these
expenditures. We are planning to invest approximately
$54.0 million in capital expenditures in fiscal 2006 to
open approximately 70 to 75 new Aéropostale stores and up
to 5 new JimmyZ stores, to remodel approximately 25
existing stores, to update our existing point of sale systems,
and for certain other information technology investments.
We had $20.0 million in short-term investments as of
January 28, 2006, consisting of auction rate debt and
preferred stock securities. Auction rate securities are term
securities that earn income at a rate that is periodically
reset, typically within 35 days, to reflect current market
conditions through an auction process. As of January 28,
2006, these securities had contractual maturities ranging from
2022 through 2040. These securities are classified as
available-for-sale
securities under the provisions of Statement of Financial
Accounting Standards, or SFAS No. 115, Accounting
for Certain Investments in Debt and Equity Securities.
Auction rate securities, which were previously recorded in cash
and cash equivalents in our interim fiscal 2004 consolidated
financial statements, have been included in short-term
investments in the accompanying consolidated financial
statements.
Financing
Activities
We repurchase our common stock from time to time under a stock
repurchase program that was initiated in 2003. In November 2005,
our Board of Directors approved an additional $50.0 million
repurchase availability, thereby increasing the total amount of
repurchase availability under this program to
$150.0 million. 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, and liquidity and capital resource
requirements going forward. We repurchased 1.8 million
shares of our common stock for $44.5 million during fiscal
2005, and we repurchased 1.8 million shares of our common
stock for $45.9 million during fiscal 2004. As of
January 28, 2006, we had repurchased a total of
4.5 million shares for $108.1 million since the
inception of the repurchase program and had $41.9 million
of repurchase availability remaining under this
$150.0 million stock buy back program.
In April 2005, we amended our revolving credit facility to allow
us to borrow or obtain letters of credit up to at least an
aggregate of $50.0 million (see note 7 to the Notes to
Consolidated Financial Statements for a further discussion). The
amount of available credit can be increased to an aggregate of
$75.0 million if we so request. We had no amounts
outstanding under the credit facility at either January 28,
2006, or January 29, 2005, and no stand-by or commercial
letters of credit issued under the credit facility. As of
January 28, 2006, we were in compliance with all covenants
under the credit facility. In addition, we have not had
outstanding borrowings under the credit facility since November
2002.
20
We have not issued any letters of credit for the purchase of
merchandise inventory or any capital expenditures.
Inflation
We do not believe that our sales revenue or operating results
have been materially impacted by inflation during the past three
fiscal years. There can be no assurance, however, that our sales
revenue or operating results will not be impacted by inflation
in the future.
Contractual
Obligations
The following table summarizes our contractual obligations as of
January 28, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less Than
|
|
|
1-3
|
|
|
3-5
|
|
|
More than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
|
(In thousands)
|
|
|
Contractual Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employment agreements
|
|
$
|
3,204
|
|
|
$
|
2,277
|
|
|
$
|
927
|
|
|
$
|
|
|
|
$
|
|
|
Event sponsorship agreement
|
|
|
1,810
|
|
|
|
900
|
|
|
|
910
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
506,631
|
|
|
|
65,759
|
|
|
|
132,468
|
|
|
|
123,193
|
|
|
|
185,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
511,645
|
|
|
$
|
68,936
|
|
|
$
|
134,305
|
|
|
$
|
123,193
|
|
|
$
|
185,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The operating leases included in the above table do not include
contingent rent based upon sales volume, which represented
approximately 17% of minimum lease obligations in fiscal 2005,
or variable costs such as maintenance, insurance and taxes,
which represented approximately 56% of minimum lease obligations
in fiscal 2005.
Our open purchase orders are cancelable without penalty and are
therefore not included in the above table. There were no
commercial commitments outstanding as of January 28, 2006,
nor have we provided any financial guarantees as of that date.
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.
Critical
Accounting Estimates
Our consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements
requires us to make certain estimates and assumptions about
future events that impact amounts reported in our consolidated
financial statements and related notes. We base these estimates
on historical experience and on other factors that we believe to
be reasonable under the circumstances. Since future events and
their impact cannot be determined with certainty, actual results
could differ materially from those estimated and could have a
material impact on our consolidated financial statements.
Our accounting policies are described in note 1 of the
Notes to Consolidated Financial Statements. We believe that the
following are our most critical accounting estimates that
include significant judgments and estimates used in the
preparation of our consolidated financial statements. These
accounting policies and estimates are constantly reevaluated,
and adjustments would be made when facts and circumstances
require. Historically, we have found our application of
accounting estimates to be appropriate, and actual results have
not differed materially from those estimated.
21
Merchandise
Inventory
Merchandise inventory consists of finished goods and is valued
utilizing the cost method at lower of cost or market on a
first-in,
first-out basis. We use estimates during interim periods to
record a provision for inventory shortage. We also 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 current information. We believe
that the carrying value of merchandise inventory is appropriate
as of January 28, 2006. However, actual results may differ
materially from those estimated and could have a material impact
on our consolidated financial statements. A 10% difference in
our estimate to value inventory at lower of cost or market as of
January 28, 2006 would have impacted net income by
$0.5 million for the fiscal year ended January 28,
2006.
Defined
Benefit Pension Plan
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 assumptions 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 $8.4 million is appropriately stated as
of January 28, 2006. However, actual results may differ
materially from those estimated and could have a material impact
on our consolidated financial statements.
Finite
Lived Assets
We periodically evaluate the need to recognize 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. 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
impairment charge, accordingly. We recorded an asset impairment
charge of $0.4 million during fiscal 2005. We believe that
the carrying values of finite-lived assets, and their useful
lives, are appropriate as of January 28, 2006. However,
actual results may differ materially from those estimated and
could have a material impact on our consolidated financial
statements.
Income
Taxes
Income taxes are accounted for in accordance with
SFAS No. 109, Accounting for Income Taxes.
Under SFAS No. 109, income taxes are recognized for
the amount of taxes payable for the current year and deferred
tax assets and liabilities 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 operations because management is required
to make significant subjective judgments in developing our
provision for income taxes,
22
including the determination of deferred tax assets and
liabilities, and any valuation allowances that may be required
against deferred tax assets.
We record liabilities for tax contingencies when it is probable
that a liability to a taxing authority has been incurred and the
amount of the contingency can be reasonably estimated. Tax
contingency liabilities are adjusted for changes in
circumstances and additional uncertainties, such as significant
amendments to existing tax law. Liabilities for tax
contingencies were estimated at $1.7 million as of
January 28, 2006. However, actual results may differ
materially from those estimated and could have a material impact
on our consolidated financial statements.
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.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
As of January 28, 2006, we had no borrowings outstanding
under our credit facility and we have not had any borrowings
outstanding under our credit facility since November 2002. To
the extent that we may borrow pursuant to our credit facility in
the future, we may be exposed to market risk related to interest
rate fluctuations. Additionally, we have not entered into
financial instruments for hedging purposes.
23
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
|
|
|
|
|
|
|
Page
|
|
|
|
|
25 and 26
|
|
|
|
|
27
|
|
|
|
|
28
|
|
|
|
|
29
|
|
|
|
|
30
|
|
|
|
|
31
|
|
24
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Aéropostale,
Inc.:
We have audited the accompanying consolidated balance sheets of
Aéropostale, Inc. and subsidiaries (the
Company) as of January 28, 2006 and
January 29, 2005, and the related consolidated statements
of income and comprehensive income, stockholders equity,
and cash flows for each of the three years in the period ended
January 28, 2006. Our audits also included the financial
statement schedule listed in the Index at Item 15. These
financial statements and financial statement schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and the financial statement schedule 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 statements 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 estimates 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 as of January 28, 2006 and January 29, 2005,
and the results of its operations and its cash flows for each of
the three years in the period ended January 28, 2006, in
conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such
consolidated financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the
information set forth therein.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of the Companys internal control over
financial reporting as of January 28, 2006, 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 April 5, 2006 expressed an unqualified
opinion on managements assessment of the effectiveness of
the Companys internal control over financial reporting and
an unqualified opinion on the effectiveness of the
Companys internal control over financial reporting.
Deloitte &
Touche LLP
New York, New York
April 5, 2006
25
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Aéropostale,
Inc.:
We have audited managements assessment, included in the
accompanying Managements Report on Internal Control
over Financial Reporting, that Aéropostale and
subsidiaries (the Company) maintained effective
internal control over financial reporting as of January 28,
2006, based on criteria established in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. The Companys management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting. Our responsibility is to express an
opinion on managements assessment and an opinion on the
effectiveness of the Companys 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, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinions.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
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 transactions 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
companys 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 compliance with the policies or procedures may
deteriorate.
In our opinion, managements assessment that the Company
maintained effective internal control over financial reporting
as of January 28, 2006, is fairly stated, in all material
respects, based on the criteria established in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial
reporting as of January 28, 2006, 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 and financial statement
schedule as of and for the year ended January 28, 2006, of
the Company and our report dated April 5, 2006, expressed
an unqualified opinion on those financial statements and the
financial statement schedule.
Deloitte &
Touche LLP
New York, New York
April 5, 2006
26
AÉROPOSTALE,
INC.
|
|
|
|
|
|
|
|
|
|
|
January 28,
|
|
|
January 29,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
205,235
|
|
|
$
|
106,128
|
|
Short-term investments
|
|
|
20,037
|
|
|
|
76,224
|
|
Merchandise inventory
|
|
|
91,908
|
|
|
|
81,238
|
|
Prepaid expenses
|
|
|
12,314
|
|
|
|
10,138
|
|
Other current assets
|
|
|
9,845
|
|
|
|
5,759
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
339,339
|
|
|
|
279,487
|
|
Fixtures, equipment and
improvements net
|
|
|
160,229
|
|
|
|
122,651
|
|
Intangible assets
|
|
|
2,455
|
|
|
|
2,529
|
|
Other assets
|
|
|
1,928
|
|
|
|
1,152
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
503,951
|
|
|
$
|
405,819
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
57,165
|
|
|
$
|
44,858
|
|
Deferred income taxes
|
|
|
5,195
|
|
|
|
893
|
|
Accrued expenses
|
|
|
63,993
|
|
|
|
51,243
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
126,353
|
|
|
|
96,994
|
|
Deferred rent and tenant allowances
|
|
|
81,499
|
|
|
|
63,065
|
|
Retirement benefit plan liabilities
|
|
|
8,654
|
|
|
|
6,158
|
|
Deferred income taxes
|
|
|
2,655
|
|
|
|
1,351
|
|
Commitments and contingent
liabilities
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
Common stock par
value, $0.01 per share; 200,000 shares authorized,
58,598 and 58,115 shares issued
|
|
|
586
|
|
|
|
581
|
|
Preferred
stock par value, $0.01 per share;
5,000 shares authorized, no shares issued or outstanding
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
88,213
|
|
|
|
79,069
|
|
Other comprehensive loss
|
|
|
(1,557
|
)
|
|
|
(1,271
|
)
|
Deferred compensation
|
|
|
(2,577
|
)
|
|
|
(817
|
)
|
Retained earnings
|
|
|
308,269
|
|
|
|
224,315
|
|
Treasury stock at cost (4,548 and
2,749 shares)
|
|
|
(108,144
|
)
|
|
|
(63,626
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
284,790
|
|
|
|
238,251
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
503,951
|
|
|
$
|
405,819
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
27
AÉROPOSTALE,
INC.
CONSOLIDATED
STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
January 28,
|
|
|
January 29,
|
|
|
January 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands, except per share
data)
|
|
|
Net sales
|
|
$
|
1,204,347
|
|
|
$
|
964,212
|
|
|
$
|
734,868
|
|
Cost of sales (includes certain
buying, occupancy and warehousing expenses)
|
|
|
841,872
|
|
|
|
644,305
|
|
|
|
505,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
362,475
|
|
|
|
319,907
|
|
|
|
229,716
|
|
Selling, general and
administrative expenses
|
|
|
227,044
|
|
|
|
183,977
|
|
|
|
141,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
135,431
|
|
|
|
135,930
|
|
|
|
88,196
|
|
Interest income, net of interest
expense of $42, $125, and $286
|
|
|
3,670
|
|
|
|
1,438
|
|
|
|
760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
139,101
|
|
|
|
137,368
|
|
|
|
88,956
|
|
Income taxes
|
|
|
55,147
|
|
|
|
53,256
|
|
|
|
34,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
83,954
|
|
|
$
|
84,112
|
|
|
$
|
54,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
1.53
|
|
|
$
|
1.51
|
|
|
$
|
0.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
1.50
|
|
|
$
|
1.47
|
|
|
$
|
0.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic shares
|
|
|
54,994
|
|
|
|
55,735
|
|
|
|
54,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares
|
|
|
55,937
|
|
|
|
57,255
|
|
|
|
58,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
January 28,
|
|
|
January 29,
|
|
|
January 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Net income
|
|
$
|
83,954
|
|
|
$
|
84,112
|
|
|
$
|
54,254
|
|
Minimum pension liability
adjustment, net of tax
|
|
|
(740
|
)
|
|
|
(145
|
)
|
|
|
(672
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
83,214
|
|
|
$
|
83,967
|
|
|
$
|
53,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
28
AÉROPOSTALE,
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Treasury Stock,
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Deferred
|
|
|
at Cost
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Shares
|
|
|
Amount
|
|
|
Loss
|
|
|
Earnings
|
|
|
Total
|
|
|
BALANCE, FEBRUARY 1, 2003
|
|
|
52,959
|
|
|
$
|
530
|
|
|
$
|
41,480
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
85,949
|
|
|
$
|
127,959
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,254
|
|
|
|
54,254
|
|
Stock options exercised
|
|
|
3,836
|
|
|
|
38
|
|
|
|
1,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,065
|
|
Tax benefit related to exercise of
stock options
|
|
|
|
|
|
|
|
|
|
|
20,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,782
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(945
|
)
|
|
|
(17,695
|
)
|
|
|
|
|
|
|
|
|
|
|
(17,695
|
)
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(672
|
)
|
|
|
|
|
|
|
(672
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, JANUARY 31, 2004
|
|
|
56,795
|
|
|
|
568
|
|
|
|
63,289
|
|
|
|
|
|
|
|
(945
|
)
|
|
|
(17,695
|
)
|
|
|
(672
|
)
|
|
|
140,203
|
|
|
|
185,693
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84,112
|
|
|
|
84,112
|
|
Stock options exercised
|
|
|
1,320
|
|
|
|
13
|
|
|
|
1,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,029
|
|
Tax benefit related to exercise of
stock options
|
|
|
|
|
|
|
|
|
|
|
12,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,893
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,804
|
)
|
|
|
(45,931
|
)
|
|
|
|
|
|
|
|
|
|
|
(45,931
|
)
|
Issuance of restricted stock
|
|
|
|
|
|
|
|
|
|
|
1,871
|
|
|
|
(1,871
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
600
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(145
|
)
|
|
|
|
|
|
|
(145
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, JANUARY 29, 2005
|
|
|
58,115
|
|
|
|
581
|
|
|
|
79,069
|
|
|
|
(1,271
|
)
|
|
|
(2,749
|
)
|
|
|
(63,626
|
)
|
|
|
(817
|
)
|
|
|
224,315
|
|
|
|
238,251
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,954
|
|
|
|
83,954
|
|
Stock options exercised
|
|
|
477
|
|
|
|
5
|
|
|
|
1,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,343
|
|
Tax benefit related to exercise of
stock options
|
|
|
|
|
|
|
|
|
|
|
4,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,759
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,799
|
)
|
|
|
(44,518
|
)
|
|
|
|
|
|
|
|
|
|
|
(44,518
|
)
|
Net issuance of restricted stock
|
|
|
|
|
|
|
|
|
|
|
3,047
|
|
|
|
(3,047
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,741
|
|
Vesting of restricted stock
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(740
|
)
|
|
|
|
|
|
|
(740
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, JANUARY 28, 2006
|
|
|
58,598
|
|
|
$
|
586
|
|
|
$
|
88,213
|
|
|
$
|
(2,577
|
)
|
|
|
(4,548
|
)
|
|
$
|
(108,144
|
)
|
|
$
|
(1,557
|
)
|
|
$
|
308,269
|
|
|
$
|
284,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
29
AÉROPOSTALE,
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
January 28,
|
|
|
January 29,
|
|
|
January 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Cash Flows From Operating
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
83,954
|
|
|
$
|
84,112
|
|
|
$
|
54,254
|
|
Adjustments to reconcile net
income to net cash from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
22,347
|
|
|
|
16,635
|
|
|
|
12,518
|
|
Amortization of tenant allowances
and above market leases
|
|
|
(7,756
|
)
|
|
|
(6,717
|
)
|
|
|
(4,624
|
)
|
Amortization of deferred rent
expense
|
|
|
3,716
|
|
|
|
7,474
|
|
|
|
1,927
|
|
Pension expense
|
|
|
1,672
|
|
|
|
3,008
|
|
|
|
558
|
|
Deferred income tax expense
|
|
|
6,100
|
|
|
|
2,409
|
|
|
|
6,404
|
|
Other
|
|
|
1,741
|
|
|
|
(597
|
)
|
|
|
400
|
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandise inventory
|
|
|
(10,670
|
)
|
|
|
(19,431
|
)
|
|
|
(15,162
|
)
|
Prepaid expenses and other assets
|
|
|
(7,059
|
)
|
|
|
(3,741
|
)
|
|
|
(3,084
|
)
|
Accounts payable
|
|
|
12,307
|
|
|
|
14,381
|
|
|
|
12,523
|
|
Accrued expenses and other
liabilities
|
|
|
38,032
|
|
|
|
39,442
|
|
|
|
37,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from operating
activities
|
|
|
144,384
|
|
|
|
136,975
|
|
|
|
103,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of fixtures, equipment
and improvements
|
|
|
(58,289
|
)
|
|
|
(46,677
|
)
|
|
|
(35,926
|
)
|
Purchase of short-term investments
|
|
|
(310,901
|
)
|
|
|
(441,386
|
)
|
|
|
(145,945
|
)
|
Sale of short-term investments
|
|
|
367,088
|
|
|
|
365,162
|
|
|
|
145,945
|
|
Purchase of intangible assets
|
|
|
|
|
|
|
(1,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from investing
activities
|
|
|
(2,102
|
)
|
|
|
(124,301
|
)
|
|
|
(35,926
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
(44,518
|
)
|
|
|
(45,931
|
)
|
|
|
(17,695
|
)
|
Proceeds from stock options
exercised
|
|
|
1,343
|
|
|
|
1,029
|
|
|
|
1,065
|
|
Payment of deferred finance costs
|
|
|
|
|
|
|
|
|
|
|
(63
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from financing
activities
|
|
|
(43,175
|
)
|
|
|
(44,902
|
)
|
|
|
(16,693
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) In Cash
And Cash Equivalents
|
|
|
99,107
|
|
|
|
(32,228
|
)
|
|
|
50,881
|
|
Cash And Cash Equivalents,
Beginning Of Year
|
|
|
106,128
|
|
|
|
138,356
|
|
|
|
87,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash And Cash Equivalents, End
Of Year
|
|
$
|
205,235
|
|
|
$
|
106,128
|
|
|
$
|
138,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures Of
Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
21
|
|
|
$
|
94
|
|
|
$
|
234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
37,274
|
|
|
$
|
36,456
|
|
|
$
|
13,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit related to exercise of
stock options included in change in accrued expenses and other
liabilities
|
|
$
|
4,759
|
|
|
$
|
12,893
|
|
|
$
|
20,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash operating and investing
activities
|
|
$
|
1,541
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
30
AÉROPOSTALE,
INC.
|
|
1.
|
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 28, 2006, we operated 671 stores,
consisting of 657 Aéropostale stores in 47 states
and 14 JimmyZ stores in 11 states.
Fiscal
Year
Our fiscal year ends on the Saturday nearest to January 31.
Fiscal 2005 was the
52-week
period ended January 28, 2006, fiscal 2004 was the
52-week
period ended January 29, 2005, and fiscal 2003 was the
52-week
period ended January 31, 2004.
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
from those estimated.
The most significant estimates made by management include those
made in the areas of inventory; income taxes; medical
self-insurance reserves; and sales returns and allowances.
Management periodically evaluates estimates used in the
preparation of the consolidated financial statements for
continued 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.
Cash
Equivalents
We consider credit card receivables and all short-term
investments with an original maturity of three months or less to
be cash equivalents.
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
first-in,
first-out 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
current information. We recorded an adjustment to inventory and
cost of sales for lower of cost or market of $7.4 million
as of January 28, 2006 and $4.9 million as of
January 29, 2005.
31
AÉROPOSTALE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Fixtures,
Equipment and Improvements
Fixtures, equipment 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 life of the asset or
lease term
|
Computer equipment and software
|
|
5 years
|
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, or SFAS No. 144,
Accounting for the Impairment or Disposal of Long-lived
Assets. 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 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 would write the asset down to
fair value and we would record an impairment charge,
accordingly. We recorded impairment charges of $0.4 million
in fiscal 2005, none in fiscal 2004, and $0.4 million in
fiscal 2003.
Pre-Opening
Expenses
New store pre-opening costs are expensed as they are incurred.
Leases
Rent expense under our operating leases typically provide for
fixed non-contingent rent escalations. Rent payments under our
store leases typically commence when the store opens, and 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 possession of the property (see below).
In addition, most of 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.
In the fourth quarter of fiscal 2004, we corrected an error and
recorded a one-time, non-cash rent charge of $4.7 million
($2.8 million, after tax) related to the timing of rent
expense for store leases during the pre-opening period.
Previously, we had followed a prevailing retail industry
practice in which we began recording rent expense at the earlier
of the time a store opened or when rent payments commenced. The
charge was cumulative, and $0.5 million after tax was
related to fiscal 2004, and $2.3 million after tax was
related to prior periods. Our financial statements for prior
periods were not restated due to the immateriality of this issue
to our results of operations, statements of financial position,
and cash flows for the current year or any individual prior
year. This correction did not impact cash flows or timing of
payments under related leases and will not have a material
impact on our net income.
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. Sales revenue related
to gift cards and the issuance of store credits are recognized
when
32
AÉROPOSTALE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
they are redeemed. Allowances for sales returns are recorded as
a reduction of net sales in the periods in which the related
sales are recognized.
Cost
of Sales
Cost of sales includes costs related to: merchandise sold,
distribution and warehousing, freight from the distribution
center and warehouse to the stores, payroll for our design,
buying and merchandising departments, and occupancy costs.
Occupancy costs include: rent, contingent rents, 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, employment taxes, information technology
maintenance costs and expenses, insurance and legal expenses,
and 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.
Medical
Self-Insurance
The company self-insures a portion of employee medical benefits.
The recorded liabilities for self-insured risks are primarily
calculated using historical experience and current information.
The liabilities include amounts for actual claims and claims
incurred but not yet reported.
Marketing
Costs
Marketing costs, which includes internet, television, print,
radio and other media advertising and collegiate athlete
conference sponsorships, are expensed as incurred and were
$6.8 million in fiscal 2005, $5.3 million in fiscal
2004, and $4.1 million in fiscal 2003.
33
AÉROPOSTALE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock-Based
Compensation
We periodically grant stock-based compensation to our employees,
and we account for these stock options in accordance with the
provisions of SFAS No. 25, Accounting for Stock
Issued to Employees, or APB No. 25. We have
also adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 148, Accounting for
Stock-Based Compensation Transition and
Disclosure, or SFAS No. 148. In
accordance with the provisions of SFAS No. 148 and APB
No. 25, we have not recognized compensation expense related
to stock options since all stock options were issued at market
value. If we would have elected to recognize compensation
expense based on the fair value of options at grant date, as
prescribed by SFAS No. 148, our net income and income
per share would have been reduced to the pro-forma amounts
indicated in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In thousands, except per share
data)
|
|
|
Net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
83,954
|
|
|
$
|
84,112
|
|
|
$
|
54,254
|
|
Add: restricted stock
amortization, net of taxes
|
|
|
1,050
|
|
|
|
366
|
|
|
|
|
|
Less: total stock-based
compensation expense determined under fair value method, net of
taxes
|
|
|
(2,756
|
)
|
|
|
(1,525
|
)
|
|
|
(375
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro-forma
|
|
$
|
82,248
|
|
|
$
|
82,953
|
|
|
$
|
53,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
1.53
|
|
|
$
|
1.51
|
|
|
$
|
0.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro-forma
|
|
$
|
1.50
|
|
|
$
|
1.49
|
|
|
$
|
0.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
1.50
|
|
|
$
|
1.47
|
|
|
$
|
0.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro-forma
|
|
$
|
1.47
|
|
|
$
|
1.45
|
|
|
$
|
0.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with SFAS No. 148, 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
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Expected volatility
|
|
|
40
|
%
|
|
|
69
|
%
|
|
|
70
|
%
|
Expected life
|
|
|
5 years
|
|
|
|
5 years
|
|
|
|
4.7 years
|
|
Risk-free interest rate
|
|
|
4.11
|
%
|
|
|
2.80
|
%
|
|
|
2.81
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
The effects of applying SFAS No. 148 and the results
obtained through the use of the Black-Scholes option-pricing
model are not necessarily indicative of future values.
Segment
Reporting
SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, establishes standards
for reporting information about a companys operating
segments. It also establishes standards for related disclosures
about products and services, geographic areas and major
customers. We operate in a single aggregated operating segment,
which includes the operation of our Aéropostale and
JimmyZ specialty retail stores and our Aéropostale
34
AÉROPOSTALE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
e-commerce
site. Revenues from external customers are derived from
merchandise sales and we do not rely on any major customers as a
source of revenue. Our consolidated net sales mix by merchandise
category was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
Merchandise Categories
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Young Womens
|
|
|
61
|
%
|
|
|
60
|
%
|
|
|
60
|
%
|
Young Mens
|
|
|
25
|
|
|
|
26
|
|
|
|
27
|
|
Accessories
|
|
|
14
|
|
|
|
14
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Merchandise Sales
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recent
Accounting Developments
In May 2005, the Financial Accounting Standards Board, or
FASB, issued SFAS No. 154, Accounting
Changes and Error Corrections. This statement replaces APB
No. 20 and SFAS No. 3, and changes the
requirements for the accounting for and reporting of a change in
accounting principle. SFAS No. 154 requires
retrospective application to prior periods financial
statements of changes in accounting principle. The statement
defines retrospective application as the application of a
different accounting principle to prior accounting periods as if
that principle had always been used or as the adjustment of
previously issued financial statements to reflect a change in
the reporting entity. This statement shall be effective for
accounting changes and correction of errors made in years
beginning after December 15, 2005. Accordingly, we will
adopt the provisions of SFAS No. 154 at the beginning
of our 2006 fiscal year.
In April 2005, the Securities and Exchange Commission delayed
the date of compliance with SFAS No. 123(R),
Share-Based Payment, a revision of SFAS No. 123,
Accounting for Stock-Based Compensation, for publicly held
companies until the companys first fiscal year beginning
on or after June 15, 2005. Accordingly, we will adopt the
provisions of SFAS No. 123(R) at the beginning of our
2006 fiscal year. SFAS No. 123(R) was issued in
December 2004, and supersedes APB No. 25, and its related
implementation guidance. 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. As discussed previously in
note 1, we currently account for stock options under APB
No. 25 and, accordingly, do not recognize compensation
expense in our consolidated financial statements. Also, as
prescribed by SFAS No. 148, we have disclosed the
pro-forma impact of expensing options previously in note 1.
We estimate that the adoption of SFAS No. 123(R) will
decrease diluted earnings per share in fiscal 2006 by
approximately $0.04 per diluted share. We expect that the
adoption of SFAS No. 123(R) will not have a material
impact on our consolidated balance sheets or consolidated
statement of cash flows.
In March 2005, the FASB issued Interpretation No. 47,
Accounting for Conditional Asset Retirement
Obligations, or FIN 47, which
clarifies that the term conditional asset retirement
obligation as used in FASB statement No. 143,
Accounting for Asset Retirement Obligations.
Conditional asset retirement obligation refers to a legal
obligation to perform an asset retirement activity in which the
timing
and/or
method of settlement are conditional on a future event that may
or may not be within the control of the entity. An entity is
required to recognize a liability for the fair value of a
conditional asset retirement obligation if the fair value of the
liability can be reasonably estimated. FIN 47 is effective
for fiscal years ending after December 15, 2005. The
adoption of FIN 47 unfavorably impacted net earnings by
$0.2 million for the year ended January 28, 2006. The
adoption of FIN 47 did not have a material impact on our
consolidated balance sheet or consolidated statement of cash
flows. We were uncertain of the timing of payment for the asset
retirement obligations, therefore a liability was not previously
recognized in the consolidated financial statements.
In April 2004, we completed a
three-for-two
stock split on all shares of our common stock that was affected
in the form of a stock dividend. All prior period share and per
share amounts presented in this report have been restated to
give retroactive recognition to the common stock split.
35
AÉROPOSTALE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
3.
Short-Term Investments
Short-term investments consist of auction rate debt and
preferred stock securities. 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 are
classified as
available-for-sale
securities under the provisions of SFAS No. 115,
Accounting for Certain Investments in Debt and Equity
Securities. Accordingly, these short-term investments are
recorded at fair-value, with any related unrealized gains and
losses included as a separate component of stockholders
equity, net of tax. Realized gains and losses and investment
income are included in earnings. As of January 28, 2006,
the auction rate debt securities had contractual ultimate
maturities ranging from 2022 through 2040.
|
|
4.
|
Supplier
Risk Concentration
|
Three suppliers in the aggregate constituted approximately 33%
of our purchases in fiscal 2005, and approximately 35% in both
fiscal 2004 and fiscal 2003. In addition, in fiscal 2005,
approximately 67% of our merchandise was directly sourced from
our top 10 suppliers, and one agent sourced approximately 21% of
our merchandise. The loss of any of these sources could
adversely impact our ability to operate our business.
|
|
5.
|
Fixtures,
Equipment and Improvements Net
|
Fixtures, equipment and improvements net,
consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
January 28, 2006
|
|
|
January 29, 2005
|
|
|
Leasehold improvements
|
|
$
|
135,619
|
|
|
$
|
99,292
|
|
Store fixtures and equipment
|
|
|
68,073
|
|
|
|
50,003
|
|
Computer equipment and software
|
|
|
18,178
|
|
|
|
12,917
|
|
Construction in progress
|
|
|
1,687
|
|
|
|
2,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
223,557
|
|
|
|
164,951
|
|
Less accumulated depreciation and
amortization
|
|
|
63,328
|
|
|
|
42,300
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
160,229
|
|
|
$
|
122,651
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense was $22.3 million in
fiscal 2005, $16.6 million in fiscal 2004, and
$12.8 million in fiscal 2003.
Accrued expenses consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
January 28, 2006
|
|
|
January 29, 2005
|
|
|
Accrued compensation
|
|
$
|
10,714
|
|
|
$
|
14,580
|
|
Sales and use tax
|
|
|
2,868
|
|
|
|
2,284
|
|
Accrued rent
|
|
|
9,933
|
|
|
|
8,401
|
|
Accrued gift certificates and
credits
|
|
|
16,327
|
|
|
|
12,294
|
|
Income tax payable
|
|
|
14,159
|
|
|
|
6,322
|
|
Sales return liability
|
|
|
654
|
|
|
|
525
|
|
Payroll tax liabilities
|
|
|
1,033
|
|
|
|
1,385
|
|
Other
|
|
|
8,305
|
|
|
|
5,452
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
63,993
|
|
|
$
|
51,243
|
|
|
|
|
|
|
|
|
|
|
36
AÉROPOSTALE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
7.
|
Revolving
Credit Facility
|
In April 2005, we amended our revolving credit facility (the
credit facility) with Bank of America, N.A.,
formerly Fleet Retail Finance, Inc. As amended, the credit
facility allows us to borrow or obtain letters of credit up to
an aggregate of $50.0 million, with letters of credit
having a sub-limit of $15.0 million. The amount of
available credit can be increased to an aggregate of
$75.0 million if we so request. The credit facility matures
in April 2010, and our assets collateralize indebtedness under
the credit facility. Borrowings under the credit facility bear
interest at our option, either at (a) the lenders
prime rate or (b) the Euro Dollar Rate plus 0.75% to 1.25%,
dependent upon our financial performance. There are no covenants
in the credit facility requiring us to achieve certain earnings
levels and there are no capital spending limitations. There are
certain negative covenants under the credit facility, including,
but not limited to, limitations on our ability to incur other
indebtedness, encumber our assets, or undergo a change of
control. Additionally, we are required to maintain a ratio of
2:1 for the value of our inventory to the amount of the loans
under the credit facility. As of January 28, 2006, we were
in compliance with all covenants under the credit facility.
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, misrepresentation, default of leases or other
indebtedness, excess uninsured casualty loss, excess uninsured
judgment or restraint of business, business failure or
application for bankruptcy, indictment of or institution of any
legal process or proceeding under federal, state, municipal or
civil statutes, legal challenges to loan documents, and a change
in control. If an event of default occurs, the lenders under the
credit facility will be entitled to take various actions,
including the acceleration of amounts due there under 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. We had no amount outstanding under the credit
facility at either January 28, 2006 or January 29,
2005, and no stand-by or commercial letters of credit issued
under the credit facility. In addition, we have not had
outstanding borrowings under the credit facility since November
2002.
In accordance with SFAS No. 128, Earnings Per
Share, basic earnings per share has been computed based upon
the weighted average of common shares, after deducting preferred
dividend requirements. Diluted earnings per share gives effect
to outstanding stock options.
Earnings per common share has been computed as follows (in
thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Net income
|
|
$
|
83,954
|
|
|
$
|
84,112
|
|
|
$
|
54,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic shares
|
|
|
54,994
|
|
|
|
55,735
|
|
|
|
54,758
|
|
Impact of dilutive securities
|
|
|
943
|
|
|
|
1,520
|
|
|
|
3,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares
|
|
|
55,937
|
|
|
|
57,255
|
|
|
|
58,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
1.53
|
|
|
$
|
1.51
|
|
|
$
|
0.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
1.50
|
|
|
$
|
1.47
|
|
|
$
|
0.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase 387,000 shares in fiscal 2005,
74,000 shares in fiscal 2004, and none in fiscal 2003 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.
37
AÉROPOSTALE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In July 2003, certain of our stockholders completed a secondary
offering of 12,333,750 shares of common stock at a price to
the public of $16.67. We did not receive any proceeds from the
sale of shares of the common stock sold by the selling
stockholders and we incurred $0.6 million in offering
expenses related to the secondary offering.
|
|
10.
|
Stock-Based
Compensation
|
We have stock option plans under which we may grant qualified
and non-qualified stock options to purchase shares of our common
stock to executives, consultants, directors, or other key
employees. As of January 28, 2006, 1,058,817 shares
were available for future grant under our plans. Qualified 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. All outstanding stock options immediately
vest upon change in control.
The following table summarizes stock option transactions for
common stock (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2005
|
|
|
Fiscal 2004
|
|
|
Fiscal 2003
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Outstanding, beginning of period
|
|
|
2,258
|
|
|
$
|
7.93
|
|
|
|
3,092
|
|
|
$
|
2.23
|
|
|
|
6,234
|
|
|
$
|
0.24
|
|
Granted
|
|
|
321
|
|
|
|
32.33
|
|
|
|
528
|
|
|
|
23.79
|
|
|
|
744
|
|
|
|
9.05
|
|
Exercised
|
|
|
(477
|
)
|
|
|
2.82
|
|
|
|
(1,320
|
)
|
|
|
0.78
|
|
|
|
(3,836
|
)
|
|
|
0.28
|
|
Forfeited
|
|
|
(61
|
)
|
|
|
18.81
|
|
|
|
(42
|
)
|
|
|
12.88
|
|
|
|
(50
|
)
|
|
|
5.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of period
|
|
|
2,041
|
|
|
$
|
12.63
|
|
|
|
2,258
|
|
|
$
|
7.93
|
|
|
|
3,092
|
|
|
$
|
2.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of
period
|
|
|
1,106
|
|
|
$
|
4.27
|
|
|
|
1,314
|
|
|
$
|
1.36
|
|
|
|
2,454
|
|
|
$
|
0.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of
options granted during the year
|
|
|
|
|
|
$
|
13.34
|
|
|
|
|
|
|
$
|
13.99
|
|
|
|
|
|
|
$
|
5.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information regarding currently
outstanding options as of January 28, 2006 (shares in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
Number
|
|
|
Weighted-Average
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
Outstanding
|
|
|
Remaining
|
|
|
|
|
|
Exercisable
|
|
|
|
|
|
|
at
|
|
|
Contractual
|
|
|
|
|
|
at
|
|
|
|
|
|
|
January 28,
|
|
|
Life
|
|
|
Weighted-Average
|
|
|
January 28,
|
|
|
Weighted-Average
|
|
Range of Exercise
Prices
|
|
2006
|
|
|
(Years)
|
|
|
Exercise Price
|
|
|
2006
|
|
|
Exercise Price
|
|
|
$0.02
|
|
|
321
|
|
|
|
0.5
|
|
|
$
|
0.02
|
|
|
|
321
|
|
|
$
|
0.02
|
|
0.26 to 0.57
|
|
|
473
|
|
|
|
2.7
|
|
|
$
|
0.41
|
|
|
|
473
|
|
|
$
|
0.41
|
|
7.63 to 11.80
|
|
|
447
|
|
|
|
5.2
|
|
|
$
|
8.90
|
|
|
|
188
|
|
|
$
|
8.86
|
|
18.57 to 23.32
|
|
|
461
|
|
|
|
6.2
|
|
|
$
|
23.13
|
|
|
|
117
|
|
|
$
|
22.70
|
|
23.91 to 33.65
|
|
|
339
|
|
|
|
7.1
|
|
|
$
|
32.32
|
|
|
|
7
|
|
|
$
|
31.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,041
|
|
|
|
|
|
|
|
|
|
|
|
1,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning in fiscal 2004, certain of our employees and all of
our directors have been awarded restricted stock, pursuant to
restricted stock agreements. There were 167,650 outstanding
shares of restricted stock as of January 28, 2006. The
restricted stock awarded to employees vests at the end of three
years of continuous service with us. Initial grants of
restricted stock awarded to directors vest, pro-rata, over a
three-year period, based upon continuous service. Subsequent
grants of restricted stock awarded to directors vest in full one
year after the grant date. Total compensation expense is being
amortized over the vesting period. Amortization expense was
$1.7 million for fiscal 2005 and $0.6 million for
fiscal 2004.
38
AÉROPOSTALE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
11.
|
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
contributions 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 $0.5 million in both fiscal 2005
and fiscal 2004, and $0.4 million in fiscal 2003.
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 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 28,
|
|
|
January 29,
|
|
|
|
2006
|
|
|
2005
|
|
|
CHANGE IN BENEFIT OBLIGATION:
|
|
|
|
|
|
|
|
|
Net benefit obligation at
beginning of period
|
|
$
|
10,884
|
|
|
$
|
5,753
|
|
Service cost
|
|
|
421
|
|
|
|
278
|
|
Interest cost
|
|
|
732
|
|
|
|
626
|
|
Plan amendments
|
|
|
|
|
|
|
1,203
|
|
Actuarial loss
|
|
|
3,303
|
|
|
|
5,712
|
|
Settlements
|
|
|
|
|
|
|
(270
|
)
|
Gross benefits paid
|
|
|
(336
|
)
|
|
|
(2,418
|
)
|
|
|
|
|
|
|
|
|
|
Net benefit obligation at end of
period
|
|
$
|
15,004
|
|
|
$
|
10,884
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
8,446
|
|
|
$
|
5,845
|
|
|
|
|
|
|
|
|
|
|
CHANGE IN PLAN ASSETS:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at
beginning of period
|
|
$
|
|
|
|
$
|
|
|
Employer contributions
|
|
|
336
|
|
|
|
2,418
|
|
Gross benefits paid
|
|
|
(336
|
)
|
|
|
(2,418
|
)
|
Actual return on plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end
of period
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of period
|
|
$
|
(15,004
|
)
|
|
$
|
(10,884
|
)
|
Unrecognized net actuarial gain
|
|
|
9,130
|
|
|
|
6,377
|
|
Prior service and cost
|
|
|
1,055
|
|
|
|
1,129
|
|
Unrecognized transition amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(4,819
|
)
|
|
$
|
(3,378
|
)
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
$
|
1,055
|
|
|
$
|
1,129
|
|
Accrued benefit cost
|
|
|
(8,446
|
)
|
|
|
(5,845
|
)
|
Accumulated other comprehensive
income
|
|
|
2,572
|
|
|
|
1,338
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(4,819
|
)
|
|
$
|
(3,378
|
)
|
|
|
|
|
|
|
|
|
|
39
AÉROPOSTALE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Pension expense includes the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
COMPONENTS OF NET PERIODIC BENEFIT
COST:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
421
|
|
|
$
|
278
|
|
|
$
|
184
|
|
Interest cost
|
|
|
732
|
|
|
|
626
|
|
|
|
315
|
|
Prior service cost
|
|
|
74
|
|
|
|
74
|
|
|
|
30
|
|
Amortization of prior experience
loss
|
|
|
550
|
|
|
|
321
|
|
|
|
110
|
|
Loss recognized due to settlement
|
|
|
|
|
|
|
1,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
1,777
|
|
|
$
|
2,695
|
|
|
$
|
639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED-AVERAGE ASSUMPTIONS USED:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate to determine benefit
obligations
|
|
|
5.50
|
%
|
|
|
5.25
|
%
|
|
|
6.00
|
%
|
Discount rate to determine net
periodic pension cost
|
|
|
5.25
|
%
|
|
|
6.00
|
%
|
|
|
6.75
|
%
|
Rate of compensation increase
|
|
|
4.50
|
%
|
|
|
4.50
|
%
|
|
|
4.50
|
%
|
The discount rate was determined by matching published zero
coupon yield, and associated durations, to expected plan benefit
payment streams to obtain an implicit internal rate of return.
The loss recognized due to settlement in fiscal 2004 resulted
from the early retirement of our former President and Chief
Operating Officer. We made a contribution of $2.4 million
in fiscal 2004 in connection with this early retirement.
During fiscal 2004, we adopted a long-term incentive deferred
compensation plan established for the purpose of providing
long-term incentive to a select group of management. The plan is
a non-qualified, defined contribution plan and is not funded.
Participants in this plan include all employees designated by us
as Vice President, or other higher-ranking positions that are
not participants in the SERP. We will record annual monetary
credits to each participants account based on compensation
levels and years as a participant in the plan. Annual interest
credits will be applied to the balance of each
participants 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.
In fiscal 2004, we adopted a postretirement benefit plan for
certain officers, and we had recorded a liability of $78,000 as
of January 28, 2006 and $22,000 at January 29, 2005
for this plan.
|
|
12.
|
Stock
Repurchase Program
|
We repurchase our common stock from time to time under a stock
repurchase program that was initiated in 2003. In November 2005,
our Board of Directors approved an additional $50.0 million
repurchase availability, thereby increasing the total amount of
repurchase availability under this program to
$150.0 million. 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, and liquidity and capital resource
requirements going forward. We repurchased 1.8 million
shares of our common stock for $44.5 million during fiscal
2005, and we repurchased 1.8 million shares of our common
stock for $45.9 million during fiscal 2004. As of
January 28, 2006, we had repurchased a total of
4.5 million shares for $108.1 million since the
inception of the repurchase program and had $41.9 million
of repurchase availability remaining under this
$150.0 million stock buy back program.
40
AÉROPOSTALE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The provision for income taxes consists of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
39,360
|
|
|
$
|
42,728
|
|
|
$
|
23,966
|
|
|
|
|
|
State and local
|
|
|
9,687
|
|
|
|
8,119
|
|
|
|
4,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,047
|
|
|
|
50,847
|
|
|
|
28,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
5,026
|
|
|
|
2,035
|
|
|
|
5,178
|
|
|
|
|
|
State and local
|
|
|
1,074
|
|
|
|
374
|
|
|
|
1,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,100
|
|
|
|
2,409
|
|
|
|
6,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
55,147
|
|
|
$
|
53,256
|
|
|
$
|
34,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of the U.S. statutory tax rate with our
effective tax rate is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Federal statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Increase (decrease) in tax
resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal
tax benefits
|
|
|
4.9
|
|
|
|
4.0
|
|
|
|
4.1
|
|
Other
|
|
|
(0.3
|
)
|
|
|
(0.2
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective rate
|
|
|
39.6
|
%
|
|
|
38.8
|
%
|
|
|
39.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of the net deferred income tax liabilities are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
January 28,
|
|
|
January 29,
|
|
|
|
2006
|
|
|
2005
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Inventory
|
|
|
(5,417
|
)
|
|
|
(1,784
|
)
|
Other
|
|
|
222
|
|
|
|
891
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
$
|
(5,195
|
)
|
|
$
|
(893
|
)
|
|
|
|
|
|
|
|
|
|
Non-current:
|
|
|
|
|
|
|
|
|
Furniture, equipment and
improvements
|
|
|
(13,886
|
)
|
|
|
(11,358
|
)
|
Deferred rent and tenant allowances
|
|
|
7,636
|
|
|
|
8,177
|
|
SERP
|
|
|
2,847
|
|
|
|
1,840
|
|
Other
|
|
|
1,174
|
|
|
|
(10
|
)
|
Valuation allowances
|
|
|
(426
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
(2,655
|
)
|
|
|
(1,351
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax liabilities
|
|
$
|
(7,850
|
)
|
|
$
|
(2,244
|
)
|
|
|
|
|
|
|
|
|
|
We have recorded a valuation allowance against certain deferred
tax assets as of January 28, 2006. Subsequent recognition
of these deferred tax assets would result in an income tax
benefit in the year of such recognition. We record liabilities
for tax contingencies when it is probable that a liability to a
taxing authority has been incurred and the amount of the
contingency can be reasonably estimated. Tax contingency
liabilities are adjusted for changes in
41
AÉROPOSTALE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
circumstances and additional uncertainties, such as significant
amendments to existing tax law. We had tax contingency
liabilities of $1.7 million as of January 28, 2006 and
$1.8 million as of January 29, 2005.
|
|
14.
|
Commitments
and Contingencies
|
We are committed under non-cancelable leases for our entire
store 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 rent commitments as of
January 28, 2006 are as follows (in thousands):
|
|
|
|
|
Due in Fiscal Year
|
|
Total
|
|
|
2006
|
|
$
|
65,759
|
|
2007
|
|
|
66,145
|
|
2008
|
|
|
66,323
|
|
2009
|
|
|
64,225
|
|
2010
|
|
|
58,968
|
|
Thereafter
|
|
|
185,211
|
|
|
|
|
|
|
Total
|
|
$
|
506,631
|
|
|
|
|
|
|
Rental expense consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Minimum rentals
|
|
$
|
61,681
|
|
|
$
|
49,481
|
|
|
$
|
40,086
|
|
Contingent rentals
|
|
|
10,376
|
|
|
|
8,704
|
|
|
|
5,683
|
|
Office space rentals
|
|
|
1,207
|
|
|
|
1,159
|
|
|
|
1,068
|
|
Employment Agreements As of
January 28, 2006, we had outstanding employment agreements
with certain members of our senior management totaling
$3.2 million. These employment agreements expire at the end
of fiscal 2006, except for the employment agreement with our
Chief Executive Officer, which expires at the end of fiscal
2007. We plan to negotiate new employment contracts with certain
members of our senior management during 2006.
Legal Proceedings We are party to
various litigation matters and proceedings in the ordinary
course of business. In the opinion of our management,
dispositions of these matters are not expected to have a
material adverse effect on our financial position, results from
operations or cash flows.
Event Sponsorship Agreement We are a
party to an event sponsorship agreement with the Big East
Mens Basketball Tournament, with remaining payment
obligations of $0.9 million in both 2006 and 2007.
Guarantees We had not provided any
financial guarantees as of January 28, 2006.
42
AÉROPOSTALE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
15.
|
Selected
Quarterly Financial Data (Unaudited)
|
The following table sets forth certain unaudited quarterly
financial information (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
|
April 30,
|
|
|
July 30,
|
|
|
October 29,
|
|
|
January 28,
|
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
2006
|
|
|
Fiscal 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
211,674
|
|
|
$
|
232,770
|
|
|
$
|
324,657
|
|
|
$
|
435,246
|
|
Gross profit
|
|
|
59,771
|
|
|
|
62,027
|
|
|
|
94,719
|
|
|
|
145,958
|
|
Net income
|
|
|
8,614
|
|
|
|
7,449
|
|
|
|
26,085
|
|
|
|
41,806
|
|
Basic earnings per share
|
|
|
0.16
|
|
|
|
0.13
|
|
|
|
0.48
|
|
|
|
0.77
|
|
Diluted earnings per share
|
|
|
0.15
|
|
|
|
0.13
|
|
|
|
0.47
|
|
|
|
0.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
|
May 1,
|
|
|
July 31,
|
|
|
October 30,
|
|
|
January 29,
|
|
|
|
2004
|
|
|
2004
|
|
|
2004
|
|
|
2005
|
|
|
Fiscal 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
167,654
|
|
|
$
|
194,852
|
|
|
$
|
274,616
|
|
|
$
|
327,090
|
|
Gross profit
|
|
|
49,107
|
|
|
|
59,486
|
|
|
|
98,201
|
|
|
|
113,113
|
|
Net income
|
|
|
6,261
|
|
|
|
10,897
|
|
|
|
31,686
|
|
|
|
35,268
|
|
Basic earnings per share
|
|
|
0.11
|
|
|
|
0.20
|
|
|
|
0.57
|
|
|
|
0.63
|
|
Diluted earnings per share
|
|
|
0.11
|
|
|
|
0.19
|
|
|
|
0.55
|
|
|
|
0.62
|
|
Gross profit for the fourth quarter of fiscal 2004 was
unfavorably impacted by a one-time, non-cash pre-tax rent charge
of $4.7 million related to a correction in our lease
accounting policies associated with the timing of rent expense
for our store leases (see note 1 for a further discussion).
43
|
|
Item 9.
|
Changes
in and Disagreements with Accountant on Accounting and Financial
Disclosure
|
None
|
|
Item 9A.
|
Controls
and Procedures
|
Managements
Report On Internal Control Over Financial
Reporting
The management of Aéropostale is responsible for
establishing and maintaining effective 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.
Aéropostales internal control over financial
reporting is a process designed to provide reasonable assurance
to the Companys 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.
The management of Aéropostale assessed the effectiveness of
the Companys internal control over financial reporting as
of January 28, 2006. 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 Framework. Based on that
assessment, management believes that, as of January 28,
2006, the companys internal control over financial
reporting is effective based on those criteria.
Aéropostales independent registered public accounting
firm, Deloitte & Touche LLP, has issued an audit report
on managements assessment of the Companys internal
control over financial reporting. This report appears on
page 26 of this annual report on
Form 10-K.
Evaluation
of Disclosure Controls and Procedures
Pursuant to Exchange Act
Rule 13a-15(b)
under the Securities Exchange Act of 1934, as amended (the
Exchange Act), our management carried out an
evaluation, under the supervision and with the participation of
our Chairman and Chief Executive Officer along with our Chief
Financial Officer, of the effectiveness of the design and
operation of our disclosure controls (as defined in
Rule 13a-15(e)
of the Exchange Act) and procedures. Based upon that evaluation,
our Chief Executive Officer along with our Chief Financial
Officer concluded that as of the end of our fiscal year ended
January 28, 2006, our disclosure controls and procedures
(1) are effective in timely alerting them to material
information relating to our Company (including its consolidated
subsidiaries) required to be included in our periodic SEC
filings and (2) are adequate to ensure that information
required to be disclosed by us in the reports filed or submitted
by us under the Exchange Act is recorded, processed and
summarized and reported within the time periods specified in the
SECs rules and forms.
Changes
in Internal Controls over Financial Reporting
There have been no significant changes in our internal controls
or in other factors during the Companys fourth fiscal
quarter that has materially affected, or is reasonably likely to
materially affect the Companys internal controls over
financial reporting.
|
|
Item 9B.
|
Other
Information
|
None
44
PART III
|
|
Item 10.
|
Directors
and Executive Officers of the Registrant
|
Information with respect to this item is incorporated by
reference from our definitive Proxy Statement to be filed with
the SEC not later than 120 days after the end of our fiscal
year.
|
|
Item 11.
|
Executive
Compensation
|
Information with respect to this item is incorporated by
reference from our definitive Proxy Statement to be filed with
the SEC not later than 120 days after the end of our fiscal
year.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and
Management
|
Information with respect to this item is incorporated by
reference from our definitive Proxy Statement to be filed with
the SEC not later than 120 days after the end of our fiscal
year.
|
|
Item 13.
|
Certain
Relationships and Related Transactions
|
Information with respect to this item is incorporated by
reference from our definitive Proxy Statement to be filed with
the SEC not later than 120 days after the end of our fiscal
year.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
Information with respect to this item is incorporated by
reference from our definitive Proxy Statement to be filed with
the SEC not later than 120 days after the end of our fiscal
year.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
|
|
|
|
(a) 1.
|
The financial statements listed in the Index to
Consolidated Financial Statements at page 24 are
filed as a part of this Annual Report on
Form 10-K.
|
|
|
|
|
2.
|
Financial statement schedules are omitted because they are not
applicable or the required information is shown in the financial
statements or notes thereto.
|
|
|
3.
|
Exhibits included or incorporated herein:
|
See Exhibit Index.
45
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
3
|
.1
|
|
Form of Amended and Restated
Certificate of Incorporation.
|
|
3
|
.2
|
|
Form of Amended and Restated
By-Laws.
|
|
4
|
.1
|
|
Specimen Common Stock
Certificate.
|
|
4
|
.2
|
|
Stockholders Agreement,
dated as of August 3, 1998, by and among MSS-Delaware,
Inc., MSS Acquisition Corp. II, Federated Specialty Stores,
Inc., Julian R. Geiger, David R. Geltzer and John S. Mills.
|
|
10
|
.1
|
|
Aéropostale, Inc. 1998 Stock
Option Plan.
|
|
10
|
.2
|
|
Aéropostale, Inc. 2002
Long-Term Incentive Plan.
|
|
10
|
.3
|
|
Management Services Agreement,
dated as of July 31, 1998, between MSS-Delaware, Inc. and
MSS Acquisition Corp. II.
|
|
10
|
.4
|
|
Loan and Security Agreement, dated
July 31, 1998 between Bank Boston Retail Finance Inc., as
agent for the lenders party thereto (the Lenders),
the Lenders and MSS-Delaware, Inc.
|
|
10
|
.5
|
|
First Amendment to Loan and
Security Agreement, dated November 8, 1999, by and between
Bank Boston Retail Finance Inc., as agent for the Lenders, the
Lenders and MSS-Delaware, Inc.
|
|
10
|
.6
|
|
Second Amendment to Loan and
Security Agreement, dated May 2, 2002, by and between Fleet
Retail Finance Inc. (f/k/a Bank Boston Retail Finance), as agent
for the Lenders, the Lenders and Aéropostale, Inc. (f/k/a
MSS-Delaware, Inc.).
|
|
10
|
.7
|
|
Third Amendment to Loan and
Security Agreement, dated June 13, 2001, by and between
Fleet Retail Finance Inc. (f/k/a Bank Boston Retail Finance), as
agent for the Lenders, the Lenders and Aéropostale, Inc.
(f/k/a MSS-Delaware, Inc.).
|
|
10
|
.8
|
|
Fourth Amendment to Loan and
Security Agreement, dated February 2, 2002, by and between
Fleet Retail Finance Inc. (f/k/a Bank Boston Retail Finance), as
agent for the Lenders, the Lenders and Aéropostale, Inc.
(f/k/a MSS-Delaware, Inc.).
|
|
10
|
.9
|
|
Sublease Agreement, dated
February 5, 2002, between the United States Postal Services
and Aéropostale, Inc.
|
|
10
|
.10
|
|
Merchandise Servicing Agreement,
dated April 1, 2002, between American Distribution, Inc.
and Aeropostale, Inc.*
|
|
10
|
.11
|
|
Interim Merchandise Servicing
Agreement, dated as of February 11, 2002, by and between
American Consolidation Inc. and Aéropostale, Inc.
|
|
10
|
.12
|
|
Sourcing Agreement, dated
July 22, 2002, by and among Federated Department Stores,
Inc., Specialty Acquisition Corporation and Aéropostale,
Inc.
|
|
10
|
.13
|
|
Fifth Amendment to Loan and
Security Agreement, dated April 15, 2002, by and between
Fleet Retail Finance Inc. (f/k/a Bank Boston Retail Finance), as
agent for the Lenders, the Lenders and Aéropostale, Inc.
(f/k/a MSS-Delaware, Inc.).
|
|
10
|
.14
|
|
Amendment No. 1 to
Stockholders Agreement, dated April 23, 2002, by and
among Aéropostale, Inc., Bear Stearns MB
1998-1999
Pre-Fund, LLC and Julian R. Geiger.
|
|
10
|
.15
|
|
Employment Agreement, dated as of
February 1, 2002, between Aéropostale, Inc. and Julian
R. Geiger.
|
|
10
|
.16
|
|
Employment Agreement, dated
February 1, 2002, between Aéropostale, Inc. and
Christopher L. Finazzo.
|
|
10
|
.17
|
|
Employment Agreement, dated
February 1, 2002, between Aéropostale, Inc. and John
S. Mills.
|
|
10
|
.18
|
|
Fifth Amendment to Loan and
Security Agreement, dated October 7, 2003, by and between
Fleet Retail Finance Inc. (f/k/a Bank Boston Retail Finance), as
agent for the Lenders, the Lenders and Aéropostale, Inc.
(f/k/a MSS-Delaware, Inc).
|
|
10
|
.19
|
|
Employment Agreement, dated as of
February 1, 2004, between Aéropostale, Inc. and Julian
R. Geiger.
|
|
10
|
.20
|
|
Employment Agreement, dated as of
February 1, 2004, between Aéropostale, Inc. and
Christopher L. Finazzo.
|
|
10
|
.21
|
|
Employment Agreement, dated as of
February 1, 2004, between Aéropostale, Inc. and John
S. Mills.
|
46
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
10
|
.22
|
|
Employment Agreement, dated as of
February 1, 2004, between Aéropostale, Inc. and
Michael J. Cunningham.
|
|
10
|
.23
|
|
Employment Agreement, dated as of
February 1, 2004, between Aéropostale, Inc. and Thomas
P. Johnson.
|
|
10
|
.24
|
|
Employment Agreement, dated as of
February 1, 2004, between Aéropostale, Inc. and
Olivera
Lazic-Zangas.
|
|
10
|
.25
|
|
Amendment No. 1, dated as of
April 11, 2005, to Employment Agreement, dated as of
February 1, 2004, between Aéropostale, Inc. and Julian
R. Geiger.
|
|
21
|
|
|
Subsidiaries of the Company.*
|
|
23
|
.1
|
|
Consent of Deloitte &
Touche LLP.*
|
|
31
|
.1
|
|
Certification by Julian R. Geiger,
Chairman and Chief Executive Officer, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.*
|
|
31
|
.2
|
|
Certification by Michael J.
Cunningham, Executive Vice President and Chief Financial
Officer, pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.*
|
|
32
|
.1
|
|
Certification by Julian R. Geiger
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
|
|
32
|
.2
|
|
Certification by Michael J.
Cunningham pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.*
|
|
|
|
* |
|
Filed herewith. |
|
|
|
Incorporated by reference to the Registration Statement on
Form S-1,
originally filed by Aéropostale, Inc. on March 8, 2002
(Registration
No. 333-84056). |
|
|
|
Incorporated by reference to the Registrants Annual Report
on 10-K, for
the fiscal year ended February 1, 2003 (File
No. 001-31314). |
|
|
|
Incorporated by reference to the Registrants Quarterly
Report on
Form 10-Q,
for the quarterly period ended November 1, 2003 (File
No. 001-31314). |
|
|
|
Incorporated by reference to the Registrants Annual Report
on Form
10-K, for
the fiscal year ended January 31, 2004 (File
No. 001-31314). |
47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
AÉROPOSTALE, INC.
Julian R. Geiger
Chairman, Chief Executive Officer, and Director
Date: April 5, 2006
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following
persons, on behalf of the Registrant, and in the capacities and
on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
/s/ Julian
R. Geiger
Julian
R. Geiger
|
|
Chairman, Chief Executive
Officer, and Director
(Principal Executive Officer)
|
|
April 5, 2006
|
|
|
|
|
|
/s/ Michael
J. Cunningham
Michael
J. Cunningham
|
|
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
|
|
April 5, 2006
|
|
|
|
|
|
/s/ Alan
C. Siebels
Alan
C. Siebels
|
|
Vice
President Controller
(Principal Accounting Officer)
|
|
April 5, 2006
|
|
|
|
|
|
/s/ Bodil
Arlander
Bodil
Arlander
|
|
Director
|
|
April 5, 2006
|
|
|
|
|
|
/s/ Ronald
Beegle
Ronald
Beegle
|
|
Director
|
|
April 5, 2006
|
|
|
|
|
|
/s/ Mary
Elizabeth Burton
Mary
Elizabeth Burton
|
|
Director
|
|
April 5, 2006
|
|
|
|
|
|
/s/ Robert
B. Chavez
Robert
B. Chavez
|
|
Director
|
|
April 5, 2006
|
|
|
|
|
|
/s/ David
Edwab
David
Edwab
|
|
Director
|
|
April 5, 2006
|
|
|
|
|
|
/s/ John
D. Howard
John
D. Howard
|
|
Director
|
|
April 5, 2006
|
|
|
|
|
|
/s/ Karin
Hirtler Garvey
Karin
Hirtler Garvey
|
|
Director
|
|
April 5, 2006
|
|
|
|
|
|
/s/ David
B. Vermylen
David
B. Vermylen
|
|
Director
|
|
April 5, 2006
|
48
AÉROPOSTALE,
INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Beginning
|
|
|
Amounts Charged
|
|
|
Write-offs Against
|
|
|
Balance End
|
|
Reserve for Returns:
|
|
of Period
|
|
|
to Net Income
|
|
|
Reserve
|
|
|
of Period
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Year Ended January 28, 2006
|
|
$
|
525
|
|
|
$
|
620
|
|
|
$
|
491
|
|
|
$
|
654
|
|
Year Ended January 29, 2005
|
|
|
672
|
|
|
|
233
|
|
|
|
380
|
|
|
|
525
|
|
Year Ended January 31, 2004
|
|
|
418
|
|
|
|
526
|
|
|
|
272
|
|
|
|
672
|
|
49