10-Q
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
August 4, 2007
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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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31-1443880
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(State of
incorporation)
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(I.R.S. Employer Identification
No.)
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112 W. 34th Street,
New York, NY
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10120
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(Address of Principal Executive
Offices)
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(Zip
Code)
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(646) 485-5410
(Registrants Telephone
Number, Including Area Code)
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 (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No 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 Exchange Act
Rule 12b-2). Yes o No þ
The Registrant had 77,083,664 shares of common stock issued
and outstanding as of August 31, 2007.
AÉROPOSTALE,
INC.
TABLE OF
CONTENTS
2
PART I
FINANCIAL INFORMATION
Item 1. Financial
Statements (unaudited)
CONDENSED
CONSOLIDATED BALANCE SHEETS
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August 4,
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February 3,
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July 29,
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2007
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2007
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2006
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(Unaudited)
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(In thousands)
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ASSETS
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Current Assets:
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Cash and cash equivalents
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$
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164,520
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$
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200,064
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$
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117,307
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Short-term investments
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39,476
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76,223
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34,117
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Merchandise inventory
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150,605
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101,476
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154,720
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Tenant allowances receivable
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8,040
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4,523
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11,099
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Prepaid expenses
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13,715
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12,175
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12,737
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Prepaid income taxes
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11,444
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3,091
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Deferred income taxes
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8,083
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1,185
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Other current assets
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3,567
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3,147
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3,088
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Total current assets
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399,450
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398,793
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336,159
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Fixtures, equipment and
improvements, net
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209,270
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175,591
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178,972
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Intangible assets
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1,400
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1,400
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2,455
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Deferred income taxes
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5,382
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3,784
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Other assets
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1,618
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1,596
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1,980
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TOTAL ASSETS
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$
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617,120
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$
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581,164
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$
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519,566
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LIABILITIES AND
STOCKHOLDERS EQUITY
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Current Liabilities:
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Accounts payable
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$
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99,219
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$
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63,918
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$
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99,391
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Accrued compensation
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11,468
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15,553
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11,573
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Deferred income taxes
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5,195
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Income taxes payable
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7,735
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37,802
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1,812
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Accrued expenses
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45,234
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47,525
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36,060
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Total current liabilities
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163,656
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164,798
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154,031
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Deferred rent and tenant allowances
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93,848
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88,344
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88,875
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Retirement benefit plan liabilities
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16,753
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15,906
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9,787
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Uncertain tax contingency
liabilities
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3,496
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Deferred income taxes
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1,977
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Commitments and contingent
liabilities
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Stockholders
Equity:
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Preferred stock par
value, $0.01 per share; 5,000 shares authorized, no shares
issued or outstanding
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Common stock par
value, $0.01 per share; 200,000 shares authorized, 89,729,
88,998 and 88,866 shares issued and outstanding
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897
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890
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887
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Additional paid-in capital
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117,027
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101,132
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96,346
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Accumulated other comprehensive
loss
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(5,077
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)
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(5,274
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)
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(1,557
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)
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Retained earnings
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443,167
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414,916
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325,055
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Treasury stock at cost (12,145,
11,531 and 9,569 shares)
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(216,647
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)
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(199,548
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)
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(155,835
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)
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Total stockholders equity
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339,367
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312,116
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264,896
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TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY
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$
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617,120
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$
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581,164
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$
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519,566
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See notes to unaudited condensed consolidated financial
statements.
3
AÉROPOSTALE,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
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13 Weeks Ended
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26 Weeks Ended
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August 4,
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July 29,
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August 4,
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July 29,
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2007
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2006
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2007
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2006
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(Unaudited)
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(In thousands, except per share data)
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Net sales
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$
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311,236
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$
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274,624
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$
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587,018
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$
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520,916
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Cost of sales (includes certain
buying, occupancy and warehousing expenses)
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214,358
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202,048
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401,437
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377,862
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Gross profit
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96,878
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72,576
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185,581
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143,054
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Selling, general and
administrative expenses
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74,533
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62,222
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142,752
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120,487
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Other income
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2,085
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2,085
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Income from operations
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22,345
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12,439
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42,829
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24,652
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Interest income
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1,839
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1,372
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3,974
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2,868
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Income before income taxes
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24,184
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13,811
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46,803
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27,520
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Income taxes
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9,482
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5,388
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18,349
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10,734
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Net income
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$
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14,702
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$
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8,423
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$
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28,454
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$
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16,786
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Basic earnings per share
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$
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0.19
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$
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0.10
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$
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0.37
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$
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0.21
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Diluted earnings per share
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$
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0.19
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$
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0.10
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$
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0.36
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$
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0.21
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Weighted average basic shares
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77,629
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80,441
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77,555
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81,026
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Weighted average diluted shares
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78,171
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81,108
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78,188
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81,789
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CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
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13 Weeks Ended
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26 Weeks Ended
|
|
|
|
August 4,
|
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July 29,
|
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August 4,
|
|
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July 29,
|
|
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|
2007
|
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|
2006
|
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|
2007
|
|
|
2006
|
|
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|
(Unaudited)
|
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(In thousands)
|
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|
Net income
|
|
$
|
14,702
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$
|
8,423
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$
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28,454
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$
|
16,786
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|
Minimum pension liability (net of
tax of $49 and $98)
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75
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150
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Foreign currency translation
adjustment (net of tax of $30)
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|
47
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47
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Comprehensive income
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$
|
14,824
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$
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8,423
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$
|
28,651
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$
|
16,786
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See notes to unaudited condensed consolidated financial
statements.
4
AÉROPOSTALE,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
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26 Weeks Ended
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|
|
August 4,
|
|
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July 29,
|
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|
|
2007
|
|
|
2006
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(Unaudited)
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|
(In thousands)
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CASH FLOWS FROM OPERATING
ACTIVITIES:
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Net income
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$
|
28,454
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|
$
|
16,786
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|
Adjustments to reconcile net
income to net cash used in operating activities:
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Depreciation and amortization
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|
16,255
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|
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|
13,646
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|
Stock-based compensation
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|
4,248
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|
|
|
2,874
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|
Excess tax benefits from
stock-based compensation
|
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|
(4,325
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)
|
|
|
(6,882
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)
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Other
|
|
|
(2,631
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)
|
|
|
(2,358
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)
|
Changes in operating assets and
liabilities:
|
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|
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Merchandise inventory
|
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|
(49,119
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)
|
|
|
(62,812
|
)
|
Accounts payable
|
|
|
35,301
|
|
|
|
42,226
|
|
Other assets and liabilities
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|
|
(49,922
|
)
|
|
|
(7,301
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)
|
|
|
|
|
|
|
|
|
|
Net cash used in operating
activities
|
|
|
(21,739
|
)
|
|
|
(3,821
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchases of fixtures, equipment
and improvements
|
|
|
(45,795
|
)
|
|
|
(30,475
|
)
|
Purchase of short-term investments
|
|
|
(313,572
|
)
|
|
|
(183,930
|
)
|
Proceeds from sale of short-term
investments
|
|
|
350,318
|
|
|
|
169,850
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(9,049
|
)
|
|
|
(44,555
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
(16,403
|
)
|
|
|
(47,691
|
)
|
Proceed from exercise of stock
options
|
|
|
7,326
|
|
|
|
1,257
|
|
Excess tax benefits from
stock-based compensation
|
|
|
4,325
|
|
|
|
6,882
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing
activities
|
|
|
(4,752
|
)
|
|
|
(39,552
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash
equivalents
|
|
|
(35,544
|
)
|
|
|
(87,928
|
)
|
Cash and cash equivalents,
beginning of year
|
|
|
200,064
|
|
|
|
205,235
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
period
|
|
$
|
164,520
|
|
|
$
|
117,307
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash
Flow Information:
|
|
|
|
|
|
|
|
|
Non-cash operating and investing
activities
|
|
$
|
4,138
|
|
|
$
|
3,456
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited condensed consolidated financial
statements.
5
AÉROPOSTALE,
INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
References to the Company, we,
us, or our means Aéropostale, Inc.
and its subsidiaries, except as expressly indicated to the
contrary or unless the context otherwise requires. We are a
mall-based, specialty retailer of casual apparel and accessories
for young women and men. We design, market and sell our own
brand of merchandise principally targeting 14 to
17 year-old young women and 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 to 25. As of August 4, 2007, we
operated 792 stores, consisting of 777 Aeropostale stores in
47 states, our first Aeropostale store in Canada which
opened on August 3, 2007, and 14 JimmyZ stores in
11 states, in addition to our Aeropostale
e-commerce
website, www.aeropostale.com (this and any other
references in this Quarterly Report on
Form 10-Q
to aeropostale.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 Quarterly Report
on
Form 10-Q).
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with
Rule 10-01
of
Regulation S-X
and do not include all of the information and footnotes required
by accounting principles generally accepted in the United
States. However, in the opinion of our management, all known
adjustments necessary for a fair presentation of the results of
the interim periods have been made. These adjustments consist
primarily of normal recurring accruals and estimates that impact
the carrying value of assets and liabilities. Actual results may
materially differ from these estimates.
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 year, driven by the impact
of the back-to-school selling season in the third quarter and
the holiday selling season in the fourth quarter. Therefore, our
interim period consolidated financial statements will not be
indicative of our full-year results of operations, financial
condition or cash flows. These financial statements should be
read in conjunction with our Annual Report on
Form 10-K
for our fiscal year ended February 3, 2007.
References to 2007 mean the 52-week period ending
February 2, 2008, and references to 2006 mean
the 53-week period ended February 3, 2007. References to
the second quarter of 2007 mean the thirteen-week
period ended August 4, 2007, and references to the
second quarter of 2006 mean the thirteen-week period ended
July 29, 2006. Accordingly, the fiscal 2006 calendar
contained a 53rd week and this additional week in the
fiscal calendar resulted in a one-week shift in the applicable
fiscal period end dates for fiscal 2007.
On July 11, 2007, we announced a three-for-two stock split
on all shares of our common stock that was distributed on
August 21, 2007 in the form of a stock dividend to all
shareholders of record on August 6, 2007. All share and per
share amounts presented in this report were retroactively
adjusted for the common stock split, and all previously reported
periods were restated for such.
Sales revenue is recognized at the point of sale in
our stores, and at the time our
e-commerce
customers take possession of merchandise. Allowances for sales
returns are recorded as a reduction of net sales in the periods
in which the related sales are recognized. Sales revenue related
to gift cards and the issuance of store credits are recognized
when they are redeemed. We recognize no revenue at the time gift
cards are sold. Rather, a liability is established for the
amount of the gift card. The liability is relieved, and revenue
is recognized, when gift cards are redeemed for merchandise. The
liability is also relieved when we escheat non-redeemed gift
cards under unclaimed property laws.
6
AÉROPOSTALE,
INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
4.
|
Cost of
Sales and Selling, General and Administrative Expenses
|
Cost of sales includes costs related to: merchandise sold,
including inventory valuation adjustments, 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, or
SG&A, include costs related to selling
expenses, store management and corporate expenses such as
payroll and employee benefits, marketing expenses, employment
taxes, 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.
The following table sets forth the computations of basic and
diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
|
26 Weeks Ended
|
|
|
|
August 4,
|
|
|
July 29,
|
|
|
August 4,
|
|
|
July 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share data)
|
|
|
Net income
|
|
$
|
14,702
|
|
|
$
|
8,423
|
|
|
$
|
28,454
|
|
|
$
|
16,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic shares
|
|
|
77,629
|
|
|
|
80,441
|
|
|
|
77,555
|
|
|
|
81,026
|
|
Impact of dilutive securities
|
|
|
542
|
|
|
|
667
|
|
|
|
633
|
|
|
|
763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares
|
|
|
78,171
|
|
|
|
81,108
|
|
|
|
78,188
|
|
|
|
81,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per basic share
|
|
$
|
0.19
|
|
|
$
|
0.10
|
|
|
$
|
0.37
|
|
|
$
|
0.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per diluted share
|
|
$
|
0.19
|
|
|
$
|
0.10
|
|
|
$
|
0.36
|
|
|
$
|
0.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All options to purchase shares during the second quarter of 2007
were included in the computation of diluted earnings per share.
Options to purchase 884,000 shares during the second
quarter of 2006 were not included in the computation of diluted
earnings per share because the exercise price of the options was
greater than the average market price of the common shares.
Options to purchase 230,000 shares during the first
twenty-six weeks of 2007 and 657,000 shares during the
first twenty-six weeks of 2006 were not included in the
computation of diluted earnings per share because the exercise
price of the options was greater than the average market price
of the common shares.
|
|
6.
|
Revolving
Credit Facility
|
We have a revolving credit facility (the credit
facility) with Bank of America, N.A., which 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. We are required to pay an annual
credit facility fee of $25 thousand. 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 August 4, 2007, 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
7
AÉROPOSTALE,
INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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, 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 thereunder and requiring that all
such amounts be immediately paid in full as well as possession
and sale of all assets that have been used as collateral. At
August 4, 2007, we had no amount outstanding under the
credit facility, 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.
|
|
7.
|
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.
Matching contributions vest 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.
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 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 components of net periodic pension benefit cost are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
|
26 Weeks Ended
|
|
|
|
August 4,
|
|
|
July 29,
|
|
|
August 4,
|
|
|
July 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Service cost
|
|
$
|
134
|
|
|
$
|
123
|
|
|
$
|
268
|
|
|
$
|
246
|
|
Interest cost
|
|
|
225
|
|
|
|
233
|
|
|
|
450
|
|
|
|
466
|
|
Amortization of prior experience
cost
|
|
|
19
|
|
|
|
19
|
|
|
|
38
|
|
|
|
38
|
|
Amortization of net loss
|
|
|
105
|
|
|
|
142
|
|
|
|
210
|
|
|
|
284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension benefit cost
|
|
$
|
483
|
|
|
$
|
517
|
|
|
$
|
966
|
|
|
$
|
1,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We maintain a long-term incentive deferred compensation plan 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, who are not participants in the SERP.
Annual monetary credits are recorded to each participants
account based on compensation levels and years as a participant
in the plan. Annual interest credits are 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.
We maintain a postretirement benefit plan for certain officers.
We had liabilities of $0.6 million as of August 4,
2007 and $0.1 million at July 29, 2006 in connection
with this plan.
8
AÉROPOSTALE,
INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
8.
|
Stock
Repurchase Program
|
We repurchase our common stock from time to time under a stock
repurchase program. On March 14, 2007, our Board of
Directors approved a $100.0 million increase in repurchase
availability under the program, bringing total repurchase
authorization, since inception of the program, to
$350.0 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, opening and closing of our stock
trading window, and liquidity and capital resource requirements
going forward. We repurchased 376,500 shares of our common
stock for $10.7 million during the second quarter of 2007
and 2,627,100 shares for $45.4 million during the
second quarter of 2006. We repurchased 586,500 shares of
our common stock for $16.4 million during the first
twenty-six weeks of 2007 and 2,747,100 shares for
$47.7 million during the first twenty-six weeks of 2006. We
repurchased 12,117,975 shares for $216.0 million since
the inception of the repurchase program through August 4,
2007, and had $134.0 million of repurchase availability
remaining under the program as of that date.
|
|
9.
|
Stock-Based
Compensation
|
At the beginning of fiscal 2006, we adopted the provisions of
Statement of Financial Accounting Standards No. 123(R),
Share-Based Payment, a revision of SFAS No. 123,
Accounting for Stock-Based Compensation, or
SFAS No. 123(R), as interpreted by SEC Staff
Accounting Bulletin No. 107. Under
SFAS No. 123(R), all forms of share-based payment to
employees and directors, including stock options, must be
treated as compensation and recognized in the income statement.
Previous to the adoption of SFAS No. 123(R), we
accounted for stock options under the provisions of Accounting
Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and, accordingly, did not recognize
compensation expense in our consolidated financial statements.
We adopted the modified prospective transition method provided
under SFAS No. 123(R), and consequently, had not
retroactively adjusted results from prior periods.
The fair value of options is estimated on the date of grant
using the Black-Scholes option-pricing model. The Black-Scholes
model, requires certain assumptions including estimating the
length of time employees will retain their vested stock options
before exercising them (expected term), the
estimated volatility of our common stock price over the expected
term and the number of options that will ultimately not complete
their vesting requirements (forfeitures). Changes in
the subjective assumptions can materially affect the estimate of
fair value of stock-based compensation and consequently, the
related amount recognized in the consolidated statements of
income.
We determined expected volatilities based on median results of a
peer group analysis that has similar size and financial leverage
as us. We have elected to use the simplified method for
estimating our expected term as allowed by SAB 107 to
determine expected life. The risk-free rate is indexed to the
five-year Treasury note interest at the date of grant and
expected forfeiture rate is based on our historical forfeiture
information.
In accordance with SFAS No. 123(R), the fair value of
each option grant is estimated on the date of grant based on the
following assumptions for grants in the respective periods:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Expected volatility
|
|
|
45
|
%
|
|
|
50
|
%
|
Expected life
|
|
|
5.25 years
|
|
|
|
5.25 years
|
|
Risk-free interest rate
|
|
|
4.51
|
%
|
|
|
4.86
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected forfeiture rate
|
|
|
20
|
%
|
|
|
20
|
%
|
We have elected to adopt the simplified method to establish the
beginning balance of the additional paid-in capital pool
(APIC Pool) related to the tax effects of employee
share-based compensation, and to determine the subsequent impact
on the APIC Pool and condensed consolidated statements of cash
flows of the tax effects of
9
AÉROPOSTALE,
INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
employee and director share-based awards that were outstanding
upon adoption of Financial Accounting Standards Board (FASB)
Statement No. 123(R).
The effects of applying SFAS No. 123(R) and the
results obtained through the use of the Black-Scholes
option-pricing model are not necessarily indicative of future
values.
During the second quarter of 2007, we granted 15,000 stock
options at a weighted-average grant-date fair value of $13.30.
In addition, we granted 3,671 shares of non-vested stock
during the second quarter of 2007 at a weighted-average
grant-date fair value of $28.07. During the first twenty-six
weeks of 2007, we granted 556,515 stock options at a
weighted-average grant-date fair value of $12.47. In addition,
we granted 303,303 shares of non-vested stock during the
first twenty-six weeks of 2007 at a weighted-average grant-date
fair value of $26.86.
|
|
10.
|
Commitments
and Contingent Liabilities
|
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. As of August 4,
2007, we have not issued any third party guarantees.
Effective at the beginning of the first quarter of 2007, we
adopted FASB Interpretation No. 48 (FIN No. 48),
Accounting for Uncertainty in Income Taxes, which
clarifies the accounting and disclosure for uncertainty in
income taxes. As a result of the adoption, we recorded a
decrease to beginning retained earnings of approximately
$0.2 million and increased our net liabilities for
uncertain tax positions and related interest and penalties by a
corresponding amount. As of the adoption date, we recorded
liabilities of $10.7 million for uncertain tax positions,
which includes interest and penalties. Also as of the adoption
date, we recorded deferred tax assets of $7.9 million for
federal and, if applicable, state benefits related to the
uncertain tax positions. Net uncertain tax positions of
$2.8 million as of the adoption date would favorably impact
our effective tax rate if these net liabilities were reversed.
We expect to pay approximately $7.7 million of the
uncertain tax position liabilities within the following twelve
months. This liability related to the timing of taxable revenue
from non-redeemed gift cards.
We file income tax returns in the U.S. federal jurisdiction
and in various states. Our U.S. federal filings for the
years 2002 through 2005 are under routine examination and we
expect that process will be completed before the end of 2007.
For state tax purposes, our 2002 through 2006 tax years remain
open for examination by the tax authorities under a four-year
statute of limitations. However, certain states may keep their
statute open for six to ten years.
We recognize interest and, if applicable, penalties, which could
be assessed, related to uncertain tax positions in income tax
expense. As of the adoption date, the total amount of accrued
interest and penalties was $1.7 million before federal and,
if applicable, state effect. We recorded approximately
$0.2 million in interest and penalties, before federal and,
if applicable, state effect for the second quarter of 2007 and
$0.4 million of the first twenty-six weeks of fiscal 2007.
10
AÉROPOSTALE,
INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
12.
|
Recent
Accounting Developments
|
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities Including an amendment of FASB Statement
No. 115. This statement permits entities to choose to
measure many financial instruments and certain other items at
fair value. SFAS No. 159 is effective at the beginning
of an entitys first fiscal year that begins after
November 15, 2007. We expect that the adoption of
SFAS No. 159 will not have a material impact on our
consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements. This statement defines fair
value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands
disclosures about fair value measurements. This statement
applies under other accounting pronouncements that require or
permit fair value measurements, the Board having concluded in
those other accounting pronouncements that fair value is the
relevant measurement attribute. This statement is effective for
financial statements issued for fiscal years beginning after
November 15, 2007. We expect that the adoption of
SFAS No. 157 will not have a material impact on our
consolidated financial statements.
11
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Cautionary
Note Regarding Forward-Looking Statements
This Quarterly Report on
Form 10-Q
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 our 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 risk factors included in
Part II, Item 1A should be read in connection with
evaluating our 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.
Introduction
References to the Company, we,
us, or our means Aéropostale, Inc.
and its subsidiaries, except as expressly indicated to the
contrary or unless the context otherwise requires. We are a
mall-based, specialty retailer of casual apparel and accessories
for young women and men. We design, market and sell our own
brand of merchandise principally targeting 14 to
17 year-old young women and 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 to 25. As of August 4, 2007, we
operated 792 stores, consisting of 777 Aeropostale stores in
47 states, our first Aeropostale store in Canada which
opened on August 3, 2007, and 14 JimmyZ stores in
11 states, in addition to our Aeropostale
e-commerce
website, www.aeropostale.com (this and any other
references in this Quarterly Report on
Form 10-Q
to aeropostale.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 Quarterly Report
on
Form 10-Q).
Managements Discussion and Analysis of Financial Condition
and Results of Operations, or MD&A, is intended
to provide information to help you better understand our
financial condition and results of operations. Our business is
highly seasonal, and historically we realize a significant
portion of our sales, net income, and cash flow in the second
half of the year, driven by the impact of the back-to-school
selling season in our third quarter and the holiday selling
season in our fourth quarter. Therefore, our interim period
consolidated financial statements will not be indicative of our
full-year results of operations, financial condition or cash
flows. We recommend that you read this section along with our
condensed consolidated financial statements included in this
report and along with our Annual Report on
Form 10-K
for the year ended February 3, 2007.
On July 11, 2007, we announced a three-for-two stock split
on all shares of our common stock that was completed on
August 21, 2007 in the form of a stock dividend to all
shareholders of record on August 6, 2007. All share and per
share amounts presented in this report were retroactively
adjusted for the common stock split, and all previously reported
periods were restated for such.
The discussion in the following section is on a consolidated
basis, unless indicated otherwise. In addition, comparable store
sales data included in this section are compared to the
corresponding period in the prior year, due to the
53rd week
in the fiscal 2006 calendar. We believe that the disclosure of
comparable store sales data on a pro-forma basis due to the
53rd week
in fiscal 2006, which is a non-GAAP financial measure, provides
investors useful information to help them better understand our
results.
Overview
We achieved net sales of $311.2 million for the second
quarter of 2007, or a 13.3% increase over the second quarter of
2006. We achieved net sales of $587.0 million for the first
twenty-six weeks of 2007, or a 12.7% increase over the same
period in 2006. Our fiscal 2006 calendar included an additional
53rd week that resulted in a fiscal calendar shift for
fiscal 2007. The impact of this fiscal calendar shift accounted
for $17.1 million of the total sales increase for the
second quarter of 2007 and $20.6 million for the first
twenty-six weeks of fiscal 2007. The remaining increase in net
sales was driven primarily by average square footage growth of
9%. Comparable store
12
sales decreased by 4.1% during the second quarter of 2007. Gross
profit, as a percentage of net sales, increased by
4.7 percentage points for the second quarter of 2007 and by
4.2 percentage points for the first twenty-six weeks of
2007 primarily due to increased merchandise margin. The increase
in merchandise margin reflects improved composition and levels
of our merchandise assortment and lower graphic tee shirt costs.
SG&A, as a percentage of net sales, increased by
1.2 percentage points for both the second quarter and first
twenty-six weeks of 2007, primarily attributable to higher
incentive compensation and higher transaction costs. Interest
income increased by $0.5 million for the second quarter of
2007 and by $1.1 million for the first twenty-six weeks of
2007 compared with 2006. Increases in interest rates and cash
and cash equivalents were the primary drivers of the increase in
net interest income. The effective income tax rate was 39.2% for
2007 compared to 39.0% for 2006. Net income for the second
quarter of 2007 was $14.7 million, or $0.19 per diluted
share, compared to net income of $8.4 million, or $0.10 per
diluted share, for the second quarter of 2006. Net income for
the first twenty-six weeks of 2007 was $28.5 million, or
$0.36 per diluted share, compared to net income of
$16.8 million, or $0.21 per diluted share for the first
twenty-six
weeks of 2006.
As of August 4, 2007, we had working capital of
$235.8 million, cash and cash equivalents of
$164.5 million, short-term investments of
$39.5 million, and no third party debt outstanding.
Merchandise inventories decreased by 3%, and by 11% on a square
foot basis, at August 4, 2007, compared to the second
quarter of 2006. The decrease in merchandise inventories was
primarily due to a shift in composition, our continued emphasis
on inventory management, and lower unit costs of graphic tee
shirts.
We operated 792 stores at August 4, 2007, an increase of 9%
from the same period last year.
We use a number of key indicators of financial condition and
operating performance to evaluate the performance of our
business, some of which are set forth in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
|
26 Weeks Ended
|
|
|
|
August 4,
|
|
|
July 29,
|
|
|
August 4,
|
|
|
July 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Net sales
|
|
$
|
311.2
|
|
|
$
|
274.6
|
|
|
$
|
587.0
|
|
|
$
|
520.9
|
|
Total store count at end of period
|
|
|
792
|
|
|
|
726
|
|
|
|
792
|
|
|
|
726
|
|
Comparable store count at end of
period
|
|
|
698
|
|
|
|
591
|
|
|
|
698
|
|
|
|
591
|
|
Net sales growth
|
|
|
13.3
|
%
|
|
|
18.0
|
%
|
|
|
12.7
|
%
|
|
|
17.2
|
%
|
Comparable store sales change
|
|
|
(4.1
|
)%
|
|
|
1.0
|
%
|
|
|
(1.1
|
)%
|
|
|
(0.9
|
)%
|
Comparable average unit retail
change
|
|
|
(4.5
|
)%
|
|
|
1.6
|
%
|
|
|
(3.3
|
)%
|
|
|
3.7
|
%
|
Comparable units per sales
transaction change
|
|
|
2.4
|
%
|
|
|
(2.2
|
)%
|
|
|
1.0
|
%
|
|
|
(3.3
|
)%
|
Comparable sales transaction change
|
|
|
(2.0
|
)%
|
|
|
1.7
|
%
|
|
|
1.3
|
%
|
|
|
(1.2
|
)%
|
Net sales per average square foot
|
|
$
|
110
|
|
|
$
|
106
|
|
|
$
|
212
|
|
|
$
|
205
|
|
Gross profit (in millions)
|
|
$
|
96.9
|
|
|
$
|
72.6
|
|
|
$
|
185.6
|
|
|
$
|
143.1
|
|
Income from operations (in
millions)
|
|
$
|
22.3
|
|
|
$
|
12.4
|
|
|
$
|
42.8
|
|
|
$
|
24.7
|
|
Diluted earnings per share
|
|
$
|
0.19
|
|
|
$
|
0.10
|
|
|
$
|
0.36
|
|
|
$
|
0.21
|
|
Average square footage growth over
comparable period
|
|
|
9
|
%
|
|
|
16
|
%
|
|
|
9
|
%
|
|
|
18
|
%
|
Change in total inventory over
comparable period
|
|
|
(3
|
)%
|
|
|
(5
|
)%
|
|
|
(3
|
)%
|
|
|
(5
|
)%
|
Change in inventory per square
foot over comparable period
|
|
|
(11
|
)%
|
|
|
(17
|
)%
|
|
|
(11
|
)%
|
|
|
(17
|
)%
|
Percentages of net sales by
category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Young Womens
|
|
|
59
|
%
|
|
|
57
|
%
|
|
|
60
|
%
|
|
|
57
|
%
|
Young Mens
|
|
|
26
|
%
|
|
|
27
|
%
|
|
|
25
|
%
|
|
|
26
|
%
|
Accessories
|
|
|
15
|
%
|
|
|
16
|
%
|
|
|
15
|
%
|
|
|
17
|
%
|
13
The following table sets forth our results of operations as a
percentage of net sales. We also use this information to
evaluate the performance of our business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
|
26 Weeks Ended
|
|
|
|
August 4,
|
|
|
July 29,
|
|
|
August 4,
|
|
|
July 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Net sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Gross profit
|
|
|
31.1
|
%
|
|
|
26.4
|
%
|
|
|
31.6
|
%
|
|
|
27.4
|
%
|
Selling, general and
administrative expenses
|
|
|
23.9
|
%
|
|
|
22.7
|
%
|
|
|
24.3
|
%
|
|
|
23.1
|
%
|
Other income
|
|
|
|
|
|
|
0.8
|
%
|
|
|
|
|
|
|
0.4
|
%
|
Income from operations
|
|
|
7.2
|
%
|
|
|
4.5
|
%
|
|
|
7.3
|
%
|
|
|
4.7
|
%
|
Interest income, net
|
|
|
0.6
|
%
|
|
|
0.5
|
%
|
|
|
0.7
|
%
|
|
|
0.6
|
%
|
Income before income taxes
|
|
|
7.8
|
%
|
|
|
5.0
|
%
|
|
|
8.0
|
%
|
|
|
5.3
|
%
|
Income taxes
|
|
|
3.1
|
%
|
|
|
1.9
|
%
|
|
|
3.2
|
%
|
|
|
2.1
|
%
|
Net income
|
|
|
4.7
|
%
|
|
|
3.1
|
%
|
|
|
4.8
|
%
|
|
|
3.2
|
%
|
Results
of Operations
Sales Net sales consist of sales from
comparable stores and non-comparable stores. A store is included
in comparable store sales after fourteen months of operation. We
consider a remodeled or relocated store with more than a 25%
change in square feet to be a new store. Prior period sales from
stores that have closed are not included in comparable store
sales, nor are sales from our
e-commerce
business.
Net sales for the second quarter of 2007 increased by
$36.6 million, or by 13.3% compared to the same period last
year. The impact of the above mentioned fiscal calendar shift
accounted for approximately $17.1 million, or 6.2%, of the
total sales increase. Average square footage growth of 9% drove
the remaining net sales increase for the quarter. Comparable
store sales decreased 4.1% for the second quarter of 2007.
Comparable store sales decreased in our young womens,
young mens and accessories categories. The overall
comparable store sales decrease reflected a 2.0% decrease in the
number of sales transactions, a 4.5% decrease in average unit
retail price due to mix shift, and a 2.4% increase in units per
sales transaction. Non-comparable store sales increased by
$48.2 million, or by 17.4%, primarily due to 66 more stores
open at the end of the second quarter of 2007 compared to the
end of the second quarter of 2006.
Net sales for the first twenty-six weeks of 2007 increased by
$66.1 million, or by 12.7% compared to the same period last
year. The impact of the fiscal calendar shift accounted for
approximately $20.6 million, or 4.0%, of the total sales
increase. Average square footage growth of 9% drove the
remaining net sales increase for the quarter. Comparable store
sales decreased 1.1% for the first twenty-six weeks of 2007.
Gross profit Cost of sales includes
costs related to merchandise sold, including inventory valuation
adjustments, 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 and merchandise margin, as a percentage of net
sales, increased by 4.7 percentage points for the second
quarter of 2007 compared to the same period last year. Gross
profit and merchandise margin, as a percentage of net sales,
increased by 4.2 percentage points for the first twenty-six
weeks of 2007 compared to the same period last year. Merchandise
margin increased primarily due to improved levels and
composition of our merchandise assortment, lower unit costs from
graphic tee shirts and a continued emphasis on our planning
process and inventory management.
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, 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.
14
SG&A increased by $12.3 million, or
1.2 percentage points, as a percentage of net sales, for
the second quarter of 2007 compared to the second quarter of
2006. The increase in SG&A was primarily attributable to a
$5.3 million increase in store payroll and benefits, a
$3.8 million increase in corporate expenses, consisting of
incentive, stock-based compensation and other corporate
expenses, and $2.6 million of higher store transaction
costs resulting primarily from new store growth and an increase
in
e-commerce
fees associated with an increase in sales volume. As a
percentage of net sales, the increase in corporate expenses
resulted in 0.8 percentage points of the increase in
SG&A, and transaction costs resulted in 0.5% of the
increase.
SG&A increased by $22.3 million, or by
1.2 percentage points, as a percentage of net sales, for
the first twenty -six weeks of 2007 compared to the same
period last year, primarily due to the increases in the
corporate expenses and transaction costs discussed above.
Interest income and income taxes
Interest income increased by $0.5 million for the second
quarter of 2007, and by $1.1 million for the first
twenty-six weeks of 2007, compared to the same periods in 2006.
Increases in interest rates and increases in cash and cash
equivalents were the primary drivers of the increase in net
interest income.
The effective income tax rate was 39.2% for 2007 and 39.0% for
2006.
Net income Net income was
$14.7 million, or $0.19 per diluted share, for the second
quarter of 2007, compared to net income of $8.4 million, or
$0.10 per diluted share, for the second quarter of 2006. Net
income was $28.5 million, or $0.36 per diluted share, for
the first twenty-six weeks of 2007, compared to net income of
$16.8 million, or $0.21 per diluted share, for the first
twenty-six weeks of 2006.
Consolidated net income included net losses from the
Companys JimmyZ subsidiary of $1.8 million, or
$0.02 per diluted share, for the second quarter of 2007 compared
to losses of $1.6 million, or $0.02 per diluted share for
the second quarter of 2006. Consolidated net income included net
losses from the Companys JimmyZ subsidiary of
$3.8 million, or $0.05 per diluted share, for the first
twenty-six weeks of 2007 compared to losses of
$3.1 million, or $0.04 per diluted share for the first
twenty-six weeks of 2006.
Liquidity
and Capital Resources
Our cash requirements are primarily for working capital,
construction of new stores, remodeling of existing stores, and
the improvement and enhancement of our information technology
systems. Due to the seasonality of our business, we have
historically realized a significant portion of our cash flows
from operations during the second half of the year. Most
recently, our cash requirements have been met primarily through
cash and cash equivalents on hand during the first half of the
year, and through cash flows from operations during the second
half of the year. We expect to continue to meet our cash
requirements for the next twelve months primarily through cash
flows from operations and existing cash and cash equivalents. In
addition, we have a revolving credit facility (the credit
facility) 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 Note 6 to the
Notes to Unaudited Condensed Consolidated Financial Statements
for a further description). We have not had outstanding
borrowings under the credit facility since November 2002. At
August 4, 2007, we had working capital of
$235.8 million, cash and cash equivalents of
$164.5 million, short-term investments of
$39.5 million, and no third party debt outstanding.
The following table sets forth our cash flows for the period
indicated:
|
|
|
|
|
|
|
|
|
|
|
26 Weeks Ended
|
|
|
|
August 4,
|
|
|
July 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Net cash used in operating
activities
|
|
$
|
(21,739
|
)
|
|
$
|
(3,821
|
)
|
Net cash used in investing
activities
|
|
|
(9,049
|
)
|
|
|
(44,555
|
)
|
Net cash used in financing
activities
|
|
|
(4,752
|
)
|
|
|
(39,552
|
)
|
Effect of exchange rate changes
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash
equivalents
|
|
$
|
(35,544
|
)
|
|
$
|
(87,928
|
)
|
|
|
|
|
|
|
|
|
|
15
Operating activities Cash flows used
in operating activities, our primary form of liquidity on a
full-year basis, decreased by $17.9 million for the second
quarter of 2007, compared to the second quarter of 2006. Cash
used for accrued expenses and other assets and liabilities
increased by $42.6 million due primarily to a shift in the
fiscal calendar. The increase reflects timing of rent, income
tax and other payments resulting from the fiscal calendar shift,
and was partially offset by increased net income of
$11.7 million. Merchandise inventories decreased by 3%, and
by 11% on a square foot basis, as of August 4, 2007, as
compared to July 29, 2006, primarily due to a shift in
composition, lower unit costs from graphic tee shirts and our
continued emphasis on inventory management.
Due to the seasonality of our business, we have historically
generated a significant portion of our cash flows from operating
activities in the second half of the year, and we expect this
trend to continue through the balance of this year.
Capital requirements Investments in
capital expenditures are principally for the construction of new
stores, remodeling of existing stores, and investments in
information technology. 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 plan to invest approximately $80.0 million
in capital expenditures in fiscal 2007. These plans include
investments of approximately $44.0 million to open
approximately 85 new Aéropostale stores in our new format,
including approximately 10 Aéropostale stores in Canada,
and approximately $7.0 million to remodel approximately 12
existing stores to our new store format. These plans also
include investments of approximately $11.0 million to open
a second distribution facility, approximately $6.0 million
for the now completed rollout of upgraded point of sale systems
to our store chain, and $6.0 million for supply chain
management investments.
We had $39.5 million in short-term investments at
August 4, 2007, 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. Although these securities
have long-term contractual maturities, they are classified as
available-for-sale securities and are included in
short-term investments in the current asset section of our
condensed consolidated balance sheets.
Financing activities and capital
resources We repurchase our common stock
from time to time under a stock repurchase program. On
March 14, 2007, our Board of Directors approved a
$100.0 million increase in repurchase availability under
the program, bringing total repurchase authorization, since
inception of the program, to $350.0 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, opening and
closing of our stock trading window, and liquidity and capital
resource requirements going forward. We repurchased
376,500 shares of our common stock for $10.7 million
during the second quarter of 2007 and 2,627,100 shares for
$45.4 million during the second quarter of 2006. We
repurchased 586,500 shares of our common stock for
$16.4 million during the first twenty-six weeks of 2007 and
2,747,100 shares for $47.7 million during the first
twenty-six weeks of 2006. We repurchased 12,117,975 shares
for $216.0 million since the inception of the repurchase
program through August 4, 2007, and had $134.0 million
of repurchase availability remaining under the program as of
that date.
We have a credit facility 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
Note 6 to the Notes to Unaudited Condensed Consolidated
Financial Statements for a further description). We are required
to pay an annual credit facility fee of $25 thousand. At
August 4, 2007, there were no amounts outstanding under the
credit facility, and no stand-by or commercial letters of credit
issued under the credit facility. As of August 4, 2007, we
were in compliance with all covenants under the credit facility.
We have not had outstanding borrowings under the credit facility
since November 2002.
16
Contractual
Obligations
The following table summarizes our contractual obligations as of
August 4, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due
|
|
|
|
|
|
|
Balance of
|
|
|
In 2008
|
|
|
In 2010
|
|
|
After
|
|
|
|
Total
|
|
|
2007
|
|
|
and 2009
|
|
|
and 2011
|
|
|
2011
|
|
|
|
(In thousands)
|
|
|
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employment agreements
|
|
$
|
6,277
|
|
|
$
|
1,454
|
|
|
$
|
4,735
|
|
|
$
|
88
|
|
|
$
|
|
|
Sponsorship and advertising
contracts
|
|
|
3,230
|
|
|
|
1,248
|
|
|
|
1,982
|
|
|
|
|
|
|
|
|
|
Liabilities for uncertain tax
positions
|
|
|
7,735
|
|
|
|
7,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
581,549
|
|
|
|
47,211
|
|
|
|
164,025
|
|
|
|
148,651
|
|
|
|
221,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
598,791
|
|
|
$
|
57,648
|
|
|
$
|
170,742
|
|
|
$
|
148,739
|
|
|
$
|
221,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 2006,
or variable costs such as maintenance, insurance and taxes,
which represented approximately 62% of minimum lease obligations
in fiscal 2006.
Our open purchase orders are cancelable at any time prior to our
receipt of the applicable goods without penalty to us, and were
therefore not included in the above table.
In December 2006, we entered into an agreement with South Bay
Apparel, Inc., who had been a vendor of ours since 1996. The
agreement resolved certain outstanding matters between us (See
our Annual Report on
Form 10-K
for the fiscal year ended February 3, 2007 for a further
discussion). In addition, we agreed to continue purchasing
certain merchandise from South Bay Apparel, Inc. through the
termination date of the agreement. As of August 4, 2007,
there was approximately $3.0 million in Aeropostale
inventory remaining at South Bay Apparel, Inc.
In addition to the above table, we project making a benefit
payment of approximately $13.3 million from our
supplementary executive retirement plan in 2010, which reflects
expected future service of our Chief Executive Officer through
an assumed retirement age of 65.
There were no financial guarantees outstanding as of
August 4, 2007. We had no commercial commitments
outstanding as of August 4, 2007.
Effective at the beginning of the first quarter of 2007, we
adopted FIN No. 48 as described in Note 11 to the
Notes to Unaudited Condensed Consolidated Financial Statements.
Our total liabilities for unrecognized tax benefits were
$11.2 million at August 4, 2007. We cannot make a
reasonable estimate of the amount and period of related future
payments for $3.5 million of these liabilities. Therefore
these liabilities were not included in the above table.
Off-Balance
Sheet Arrangements
We have not created, and are not party to, any special-purpose
or off-balance sheet entities for the purpose of raising
capital, incurring debt or operating our business. We do not
have any arrangements or relationships with entities that are
not consolidated into the financial statements that are
reasonably likely to materially affect our liquidity or the
availability of capital resources. As of August 4, 2007, we
have not issued any letters of credit for the purchase of
merchandise inventory or any capital expenditures.
Critical
Accounting Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires the appropriate application of certain accounting
policies, many of which require us to make estimates and
assumptions about future events and their impact on amounts
reported in our financial statements and related notes. We
believe the application of our accounting policies, and the
estimates inherently required therein, are reasonable. These
accounting policies and estimates are constantly reevaluated,
and adjustments are made when facts and circumstances dictate a
change. However, since future events and their impact cannot be
determined with
17
certainty, actual results may differ from our estimates, and
such differences could be material to the consolidated financial
statements. Historically, we have found our application of
accounting policies to be appropriate, and actual results have
not differed materially from those determined using necessary
estimates. A summary of our significant accounting policies and
a description of accounting policies that we believe are most
critical may be found in Managements Discussion and
Analysis of Financial Condition and Results of Operations
included in our Annual Report on
Form 10-K
for the year ended February 3, 2007.
We adopted FIN No. 48 as of the beginning of fiscal 2007.
See Note 11 to the Notes to Unaudited Condensed
Consolidated Financial Statements.
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
At August 4, 2007, 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.
|
|
Item 4.
|
Controls
and Procedures
|
(a) 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 second quarter ended
August 4, 2007, our disclosure controls and procedures are
effective.
(b) Changes in internal controls: During
the period covered by this quarterly report, there have been no
changes in our internal controls over our financial reporting
that have materially affected, or are reasonably likely to
materially affect, our internal controls over our financial
reporting.
PART II
OTHER INFORMATION
|
|
Item 1.
|
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 affect on our financial position,
results of operations or cash flows.
Cautionary
Note Regarding Forward-Looking Statements
This Quarterly Report on
Form 10-Q
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 our 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 our 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
18
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 historic levels of
comparable store sales. Our comparable store sales and quarterly
results of operations are affected by a variety of factors,
including:
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|
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|
|
fashion trends;
|
|
|
|
changes in our merchandise mix;
|
|
|
|
the effectiveness of our inventory management;
|
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|
|
actions of competitors or mall anchor tenants;
|
|
|
|
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.
|
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
were 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 teen 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 changes in consumer preferences.
Failure to anticipate, identify or react appropriately to
changes in styles, trends, desired images or brand preferences,
could have a material adverse effect on our sales, financial
condition and results of operations.
We
rely on a small number of vendors to supply a significant amount
of our merchandise.
During fiscal 2006, we sourced approximately 30% of our
merchandise from our top three suppliers; one company, South Bay
Apparel, Inc., supplied approximately 12% of our merchandise,
and two others each supplied approximately 9% of our
merchandise. We will cease doing business with South Bay Apparel
Inc. in 2007. We are in the process of replacing this business
with new vendors and with our existing vendor base. In addition,
approximately 64% 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 19% 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 have a
material adverse effect on our sales, financial condition and
results of operations.
19
Our
business could suffer as a result of a manufacturers
inability to produce merchandise on time and to our
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.
A
downturn in the United States economy may affect
consumer-spending habits.
Consumer purchases of discretionary items and retail products,
including our 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.
Failure
of new business concepts would have a negative 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. The operation of the JimmyZ
stores 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 also be a diversion of
managements attention from our 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 markdown 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 required to impair the carrying value of our
investments,
and/or may
decide to close stores, which would have a negative impact on
our results of operations. Consolidated net income included net
losses from our JimmyZ subsidiary of $1.8 million, or
$0.02 per diluted share, for the second quarter of 2007,
$6.7 million, or $0.12 per diluted share, for fiscal 2006,
$4.7 million, or $0.08 per diluted share for fiscal 2005,
and none in fiscal 2004.
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 our
reputation. Any of these, in turn, could have a material adverse
effect on our financial condition and results of operations. To
help mitigate this risk, we engage a third party independent
contractor to visit the production facilities from which we
receive our products. 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.
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
20
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 74 Aéropostale
stores in fiscal 2006, 105 Aéropostale and 14 JimmyZ
stores in fiscal 2005, and 103 Aéropostale stores in fiscal
2004. We plan to open approximately 85 new Aeropostale stores in
fiscal 2007, including approximately 10 stores in Canada. 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. 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, in turn, our continued growth would
be impaired:
|
|
|
|
|
identify suitable markets and sites for new store locations;
|
|
|
|
negotiate acceptable lease terms;
|
|
|
|
hire, train and retain competent store personnel;
|
|
|
|
foster current relationships and develop new relationships with
vendors that are capable of supplying a greater volume of
merchandise;
|
|
|
|
manage inventory effectively to meet the needs of new and
existing stores on a timely basis;
|
|
|
|
expand our infrastructure to accommodate growth; and
|
|
|
|
generate sufficient operating cash flows or secure adequate
capital on commercially reasonable terms to fund our expansion
plans.
|
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.
Our key executive officers have substantial experience and
expertise in the retail industry and have made significant
contributions to the growth and success of our brands. The
unexpected loss of the services of one or more of these
individuals could adversely affect us. Specifically, if we were
to lose the services of Julian R. Geiger, our Chairman and Chief
Executive Officer or Mindy Meads, our President and Chief
Merchandising Officer, our business could be adversely affected.
A
substantial interruption in our information systems could have a
material adverse effect on our business.
We depend on our management information systems for many aspects
of our business. We will be materially adversely affected if our
management information systems are disrupted or we are unable to
improve, upgrade, maintain, and expand our management
information systems.
21
There
is an increased risk in operating stores in foreign
countries.
During fiscal 2007, we will open approximately 10 Aeropostale
stores in Canada. There can be no assurance that we will be able
to address in a timely fashion the risks of operating stores in
foreign countries, such as governmental requirements over
merchandise importation, employment, taxation and multi-lingual
requirements. Additionally, when we enter Canada, we will have
to obtain suitable store locations, hire personnel, establish
distribution methods, and advertise our brand and its
distinguishing characteristics to consumers who may not be
familiar with them. There can be no assurance that we will be
able to open and operate new stores in Canada on a timely and
profitable basis. The costs associated with opening these new
stores in Canada may negatively affect our profitability.
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.
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
currently rely on a single distribution center.
We currently 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 our
financial condition and results of operations. In January 2007,
we entered into a lease agreement for a second
360,000 square foot distribution facility in Ontario,
California. We plan to begin operating this distribution
facility in the second half of 2007.
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,
and will also operate our second distribution and warehouse
facility once it is open. 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. This third party will also operate our second
distribution center in Ontario California. We also use separate
third party transportation companies to deliver our merchandise
from our warehouse to our stores. Any failure by any of these
third parties to respond adequately to our warehousing and
distribution needs would disrupt our operations and negatively
impact our profitability.
22
We
rely on a third party to manage the warehousing and order
fulfillment for our
E-Commerce
business.
We rely on one third party, GSI Commerce, pursuant to an
e-commerce
agreement, to host our
e-commerce
website, warehouse all of the inventory sold through our
e-commerce
website, and fulfill all of our
e-commerce
sales to our customers. Any significant interruption in the
operations of GSI Commerce, over which we have no control, would
have a material adverse effect on our
e-commerce
business.
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 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 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 a
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 and the associated heightened
security measures and military actions in response to acts of
terrorism has disrupted commerce and has intensified
uncertainties in 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, or any other unforeseen interruption of
commerce, 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.
23
|
|
Item 2
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
We repurchase our common stock from time to time under a stock
repurchase program. On March 14, 2007, our Board of
Directors approved a $100.0 million increase in repurchase
availability under the program, bringing total repurchase
authorization, since inception of the program, to
$350.0 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, opening and closing of our stock
trading window, and liquidity and capital resource requirements
going forward. Our purchases of treasury stock for the second
quarter of 2007 and remaining availability pursuant to our share
repurchase program were as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate Dollar
|
|
|
|
Total Number
|
|
|
|
|
|
Total Number of
|
|
|
Value of Shares
|
|
|
|
of Shares
|
|
|
|
|
|
Shares Purchased
|
|
|
That May Yet be
|
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|
(or Units)
|
|
|
Average
|
|
|
as Part of Publicly
|
|
|
Purchased Under the
|
|
|
|
Purchased
|
|
|
Price Paid
|
|
|
Announced Plans
|
|
|
Plans or Programs
|
|
Period
|
|
(a)
|
|
|
per Share
|
|
|
or Programs
|
|
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
May 6 to June 2, 2007
|
|
|
30,000
|
|
|
$
|
30.75
|
|
|
|
30,000
|
|
|
$
|
143,855(c
|
)
|
June 3 to July 7, 2007
|
|
|
241,500
|
|
|
$
|
28.55
|
|
|
|
241,500
|
|
|
$
|
136,961
|
|
July 8 to August 4, 2007
|
|
|
105,000
|
|
|
$
|
27.74
|
|
|
|
105,000
|
|
|
$
|
134,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
376,500
|
|
|
$
|
28.50
|
|
|
|
376,500
|
|
|
|
|
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|
|
|
|
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|
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|
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|
|
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|
(a) |
|
On March 14, 2007, our Board of Directors approved a
$100.0 million increase in repurchase availability under
the program, bringing total repurchase authorization, since
inception of the program, to $350.0 million. |
|
(b) |
|
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. |
|
(c) |
|
Includes additional $100.0 million of repurchase
availability that was approved on March 14, 2007. |
|
|
Item 3.
|
Defaults
Upon Senior Securities
|
Not applicable.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
(a) In accordance with the Companys Notice of Annual
Meeting and Proxy statement dated May 12, 2006, the Company
held its Annual Meeting of Stockholders on June 20, 2007.
Holders of 72,653,138 shares of the Companys common
stock were present in person or by proxy representing
approximately 94% of the Companys 77,522,697 shares
outstanding on the record date. The matters set forth in the
paragraphs below were submitted to a vote of the Companys
stockholders.
(b) The following persons were elected as members of the
Board of Directors to serve a term of one year and until their
successors shall have been duly elected and qualified:
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Name of Nominee
|
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Votes For
|
|
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Votes Withheld
|
|
|
Julian R. Geiger
|
|
|
71,282,388
|
|
|
|
1,370,750
|
|
Bodil Arlander
|
|
|
72,195,078
|
|
|
|
458,060
|
|
Ronald R. Beegle
|
|
|
72,194,231
|
|
|
|
458,907
|
|
John Haugh
|
|
|
72,193,290
|
|
|
|
459,848
|
|
Robert B. Chavez
|
|
|
72,197,163
|
|
|
|
455,975
|
|
Mindy C. Meads
|
|
|
72,193,122
|
|
|
|
460,016
|
|
Karin Hirtler-Garvey
|
|
|
72,195,344
|
|
|
|
457,794
|
|
John D. Howard
|
|
|
72,144,647
|
|
|
|
508,491
|
|
David B. Vermylen
|
|
|
68,960,678
|
|
|
|
3,692,460
|
|
24
(d) The proposal to approve the amended and restated 2002
long-term incentive plan, which was approved and recommended by
the Companys Audit Committee of the Board of Directors,
was approved by a majority of the shares voted as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Votes For
|
|
Votes Against
|
|
Abstentions
|
|
Broker Non-Votes
|
|
|
59,698,860
|
|
|
|
6,747,257
|
|
|
|
238,883
|
|
|
|
5,968,138
|
|
(e) The proposal to ratify Deloitte & Touche LLP
as the companys independent registered public accounting
firm for 2007, which was approved and recommended by the
Companys Audit Committee of the Board of Directors, was
approved by a majority of the shares voted as follows:
|
|
|
|
|
|
|
|
|
|
|
Votes For
|
|
Votes Against
|
|
Abstentions
|
|
|
71,639,223
|
|
|
|
987,101
|
|
|
|
26,814
|
|
|
|
Item 5.
|
Other
Information
|
Not applicable.
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
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.*
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32
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.1
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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.*
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32
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.2
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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.*
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25
Pursuant to the requirements 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.
Aeropostale,
Inc.
Julian R. Geiger
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)
/s/ MICHAEL
J. CUNNINGHAM
Michael J. Cunningham
Executive Vice President Chief Financial
Officer
(Principal Financial Officer)
Dated: September 12, 2007
26