FORM 10-Q

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 an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes þ No o

As of November 21, 2004, the registrant had 55,669,342 shares of common stock outstanding.

References to the “Company,” “we,” “us,” or “our” means Aéropostale, Inc., together with its wholly-owned subsidiary, Aéropostale West, Inc., except as expressly indicated or unless the context otherwise requires. We are a mall-based specialty retailer of casual apparel and accessories for young women and young men in the United States. As of October 30, 2004, we operated 560 stores in 43 states.

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 fiscal 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 January 31, 2004.

References to “fiscal 2003” mean the 52-week period ended January 31, 2004 and references to “fiscal 2004” mean the 52-week period ending January 29, 2005. Certain reclassifications have been made to prior year balances to conform to the current year presentation.

On April 26, 2004, we completed a three-for-two stock split on all shares of our common stock that was effected in the form of a stock dividend. All prior period share and per share amounts presented in this report have been restated to give retroactive recognition to the common stock split.

We periodically grant stock options to our employees, and we account for these stock options in accordance with the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”). We have also adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure” (“SFAS No. 148”). In accordance with the provisions of SFAS No. 148 and APB No. 25, we have not recognized compensation expense related to stock options. If we would have elected to recognize compensation expense based on the fair value of options at grant date, as prescribed by SFAS No. 148,

our net income and income per share would have been reduced to the pro forma amounts indicated in the following table:

The weighted average fair value of the Company’s stock options was calculated using the Black-Scholes Option Pricing Model with the following weighted average assumptions used for grants in their respective periods. For periods ended in fiscal 2004: no dividend yield; expected volatility of 69%; risk free interest rate of 2.79%; and expected life of 5 years. For periods ended in fiscal 2003: no dividend yield; expected volatility of 70%; risk free interest rate of 2.81%; and expected life of 4.7 years. There were 521 thousand options granted during the thirty-nine weeks ended October 30, 2004 with a weighted average fair value of $7.4 million. There were 744 thousand options granted during the thirty-nine weeks ended November 1, 2003, with a weighted average fair value of $3.9 million.

In fiscal 2004, certain of our executives and directors were awarded restricted stock, pursuant to restricted stock agreements. There were 80 thousand outstanding shares of restricted stock as of October 30, 2004. The restricted stock awarded to employees vest at the end of three years of continuous service with us. The restricted stock awarded to directors vest pro-rata over a three-year period, based upon continuous service. Total compensation expense of $1.9 million is being amortized over the vesting period, and amortization expense for the thirty-nine weeks ended October 30, 2004 was $0.4 million.

Cost of sales includes costs related to: merchandise sold, distribution and warehousing, freight from the distribution center and warehouse to the stores, payroll for our design, buying and merchandising departments, and occupancy costs. Occupancy costs include: rent, contingent rents, common area maintenance, real estate taxes, utilities, repairs, maintenance and all depreciation.

Selling, general and administrative expenses (“SG&A”) include costs related to: selling expenses, store management and corporate expenses such as payroll and employee benefits, marketing expenses,

employment taxes, information technology maintenance costs and expenses, insurance and legal expenses, and store pre-opening and other corporate level expenses. Store pre-opening expenses include store level payroll, grand opening event marketing, travel, supplies and other store pre-opening expenses.

In June 2004, the Financial Accounting Standards Board (“FASB”) issued an interpretation of FASB No. 143, Accounting for Asset Retirement Obligations. This interpretation clarifies the scope and timing of liability recognition for conditional asset retirement obligations under FASB No. 143, and is effective no later than the end of our 2005 fiscal year. We have determined that this interpretation, and the adoption of FASB No. 143, will not have a material impact on our consolidated financial statements or cash flows.

In March 2004, the FASB published an Exposure Draft, Shares-Based Payment, an amendment of FASB Statements No. 123 and No. 95. Under this FASB proposal, all forms of share-based payment to employees, including employee stock options, would be treated as compensation and recognized in the income statement and would become effective at the beginning of our 2005 fiscal year.

The Company currently accounts for stock options under APB No. 25. The pro-forma impact of expensing options is disclosed in Note 3.

The following table sets forth the computations of basic and diluted earnings per share:

Options to purchase 9 thousand shares during the thirteen weeks ended October 30, 2004, and 93 thousand shares during the thirty-nine weeks ended October 30, 2004, 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.

We have available a revolving credit facility (the “credit facility”) with Bank of America Retail Finance (formerly, Fleet Retail Finance) which allows us to borrow or obtain letters of credit up to an aggregate of $25 million, with letters of credit having a sub-limit of $15 million. The credit facility matures on September 30, 2005, and our assets collateralize indebtedness under the credit facility. Borrowings under the credit facility bear interest at our option, either at (a) the lender’s prime rate or (b) the Euro Dollar Rate plus 1.25% to 1.75%, dependent upon our financial performance. Additionally,

we must pay commitment fees on any unused portion of the credit facility at an annualized rate of 0.375% on the difference between the loan aggregate of $25 million and the borrowings (including outstanding letters of credit) at the preceding month-end. 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 October 30, 2004, we were in compliance with all covenants under the credit facility. We had no amount outstanding under the credit facility, and no stand-by or commercial letters of credit issued under the credit facility at either October 30, 2004 or January 31, 2004 and we have not had outstanding borrowings under the credit facility since November 2002.

We have a qualified, defined contribution retirement plan with a 401(k) salary deferral feature that covers substantially all of our employees who meet certain requirements. Under the terms of the plan, employees may contribute up to 14% of gross earnings and we will provide a matching contribution of 50% of the first 5% of gross earnings contributed by the participants. We also have the option to make additional contributions. The terms of the plan provide for vesting in our matching contributions to the plan over a five-year service period with 20% vesting after two years and 50% vesting after year three. Vesting increases thereafter at a rate of 25% per year so that participants will be fully vested after year five. Contribution expense was $0.5 million for the thirty-nine weeks ended October 30, 2004 and $0.4 million for the thirty-nine weeks ended November 1, 2003.

We maintain a supplemental executive retirement plan (“SERP”), which is a nonqualified defined benefit plan for certain officers. The plan is noncontributory and provides benefits based on years of service and compensation during employment. Pension expense is determined using various actuarial cost methods to estimate the total benefits ultimately payable to officers and this cost is allocated to service periods. The pension plan is not funded, and the actuarial assumptions used to calculate pension costs are reviewed annually.

The loss recognized due to settlement in 2004 resulted from the early retirement of our former President and Chief Operating Officer, and we made a contribution of $2.4 million in August 2004 in connection with this early retirement. No other contributions were made during either the thirty-nine weeks ended October 30, 2004 or November 1, 2003.

During the first quarter of fiscal 2004, we adopted a long-term incentive deferred compensation plan established for the purpose of providing long-term incentive to a select group of management. The plan is a non-qualified, defined contribution plan and is not funded. Participants in this plan include all employees designated by us as Vice President, or other higher-ranking position that are not participants in the SERP. We will record annual monetary credits to each participant’s account based on compensation levels and years as a participant in the plan. Annual interest credits will be applied to the balance of each participant’s account based upon established benchmarks. Each annual credit is subject to a three-year cliff-vesting schedule, and participant’s accounts will be fully vested upon retirement after completing five years of service and attaining age 55. Plan expenses were $0.2 million for the thirty-nine weeks ended October 30, 2004.

In the fourth quarter of fiscal 2003, our Board of Directors approved a stock repurchase program to acquire up to $35.0 million of our outstanding common stock. In the first quarter of fiscal 2004, our Board of Directors approved an additional $35.0 million of repurchase availability, thereby increasing the amount available for stock repurchase under this program to $70.0 million. On November 16, 2004, our Board of Directors approved an additional $30.0 million of repurchase availability, thereby increasing the amount available for stock repurchase under this program to $100.0 million. The repurchase program may be modified or terminated by the Board of Directors at any time, and there is no expiration date for the program. The extent and timing of repurchases will depend upon general business and market conditions, stock prices, and requirements going forward. We repurchased 0.6 million shares for $15.7 million during the thirteen weeks ended October 30, 2004, and we repurchased 1.6 million shares for $39.1 million this year to-date. We have repurchased a total of 2.5 million shares for $56.8 million, since the inception of the repurchase program. At October 30, 2004 we had $13.2 million of repurchase availability remaining. After giving effect to the most recent increase to the stock repurchase plan, we have $43.2 million of repurchase availability remaining.

Aeropostale, Inc. is a mall-based specialty retailer of casual apparel and accessories in the United States. Our target customers are both young women and men from age 11 to age 20, and we provide these customers with a selection of high-quality, active-oriented, fashion basic merchandise at compelling values in a high-energy store environment. We maintain complete control over our proprietary brand by designing and sourcing all of our own merchandise. Our products can be purchased only in our stores, which sell Aeropostale merchandise exclusively, or at organized sales events at college campuses. We operated 560 stores in 43 states as of October 30, 2004.

Management’s Discussion and Analysis of Financial Condition and Results of Operations 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 fiscal 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 January 31, 2004.

We achieved net sales of $274.6 million for the third quarter of fiscal 2004, or a 24.8% increase over the third quarter of fiscal 2003. We also achieved net sales of $637.1 million for the first thirty-nine weeks of fiscal 2004, or a 37.8% increase from the first thirty-nine weeks of fiscal 2003. Increased comparable store sales and new store sales drove the net sales increases. Comparable store sales grew by 5.4% for the third quarter of fiscal 2004 and by 12.8% for the year-to-date period. Our gross profit, as a percentage of net sales, increased by 2.2 percentage points for the third quarter of fiscal 2004 and 2.3 percentage points for the year-to-date period, and were primarily driven by increased merchandise margins and leveraging of occupancy costs against the increased net sales. SG&A, as a percentage of net sales, declined by 0.3 percentage points for the third quarter of fiscal 2004 and by 0.8 percentage points for the year-to-date period. The leveraging of store payroll and other operating costs against the increased net sales drove the year-to-date period decrease. As a result, our net income for the third quarter of 2004 grew to $31.7 million, or $0.55 per diluted share, from $21.9 million, or $0.37 per diluted share, for the third quarter of last year. On a year-to-date basis, net income grew to $48.8 million, or $0.85 per diluted share, from $26.7 million, or $0.46 per diluted share last year. At October 30, 2004, we had working capital of $148.1 million, cash and cash equivalents of $120.7 million, and no third party debt outstanding. During the first thirty-nine weeks of fiscal 2004, our cash flows from operating activities were $62.5 million. We operated 560 stores at October 30, 2004, an increase of 22% 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:

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:

Sales. Net sales for the third quarter of fiscal 2004 increased by $54.5 million, or by 24.8%, from the third quarter of fiscal 2003. Increased comparable store sales and new store sales drove the net sales increase. Comparable store sales increased by $10.7 million, or by 5.4%, for the third quarter. Comparable store sales increased in our young women’s and accessories categories and declined slightly in our young men’s category. The comparable store sales increase for the third quarter reflected a 3.1% increase in the number of units per transaction, a 2.7% increase in the number of sales transactions, and flat average dollar per units sold. Non-comparable store sales for the third quarter increased by $43.8 million, or by 19.4%, from last year, primarily due to 100 more stores opened at the end of the third quarter of fiscal 2004 compared to the end of the third quarter of fiscal 2003.

Net sales for the first thirty-nine weeks of fiscal 2004 increased by $174.9 million, or by 37.8%, from the first thirty-nine weeks of fiscal 2003. Increased comparable store sales and new store sales drove the

Gross profit. Gross profit increased by $24.3 million for the third quarter of fiscal 2004, as compared with the third quarter of fiscal 2003, and increased by 2.2 percentage points, as a percentage of net sales. An increase of 1.8 percentage points in merchandise margin, as a percentage of net sales, was the primary driver of the gross profit increase for the quarter and was primarily due to lower promotional markdowns, as well as lower initial cost.

Gross profit increased by $67.0 million for the first thirty-nine weeks of fiscal 2004, as compared with the same periods in fiscal 2003, and increased by 2.3 percentage points, as a percentage of net sales. The leveraging of occupancy costs against the increased net sales drove 1.1 percentage points of the gross profit increase for the year-to-date period. In addition increased merchandise margin, as a percentage of sales, drove 0.8 percentage points of the gross profit increase for the year-to-date period and was primarily due to lower promotional markdowns, as well as lower initial cost.

SG&A. As a percentage of net sales, SG&A decreased by 0.3 percentage points for the third quarter due primarily to the leveraging of store operating costs against the increased net sales. In absolute dollars, SG&A increased by $8.7 million for the third quarter of fiscal 2004, as compared with the third quarter of fiscal 2003. Increased payroll of $6.7 million for the quarter, driven by new store growth, was the primary reason for the increase in SG&A.

As a percentage of net sales, SG&A decreased by 0.8 percentage points for the year-to-date period, primarily due to the leveraging of store operating costs against the increased net sales. In absolute dollars, SG&A increased by $31.4 million for the first thirty-nine weeks of fiscal 2004, as compared with the same periods in fiscal 2003. Increased payroll of $19.8 million, as well as increases in other operational items resulting from new store growth were the primary drivers of the year-to-date period increase in SG&A.

Interest income, net and income taxes. Interest income, net was comparable for all periods presented and our effective tax rate was 39.0% for all periods presented.

Net income. Net income increased by $9.8 million, or $0.18 per diluted share, for the third quarter of fiscal 2004 and increased by $22.1 million, or $0.39 per diluted share, for the first thirty-nine weeks of fiscal 2004, as compared with the same periods in fiscal 2003.

Our cash requirements are primarily for working capital, the construction of new stores, the remodeling of existing stores, and to improve and enhance our information technology systems. Due to the seasonality of our business, we have historically realized a significant portion of our cash flows from operations during the second half of the fiscal year. Most recently, our cash requirements have been met primarily through cash and cash equivalents on hand during the first thirty-nine weeks of the fiscal 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 available a $25 million revolving credit facility (the “credit facility”) with Bank of America Retail Finance (formerly, Fleet Retail Finance) (see below for a further description), and we have not had outstanding borrowings under the credit facility since November 2002. At October 30, 2004, we had working capital of $148.1 million, cash and cash equivalents of $120.7 million, and no third party debt outstanding.

Operating activities. Cash flows from operating activities, our principle form of liquidity on a full-year basis, increased by $40.5 million for the first thirty-nine weeks of fiscal 2004, as compared to the same period in fiscal 2003. Increased net income of $22.1 million and a reduction in period-over-period cash used for merchandise inventory of $14.1 million were the primary drivers of the increase in cash flows from operating activities, and was partially offset by a $5.1 million period-over-period decrease in cash provided by tenant allowances receivable. The reduction in cash used for merchandise inventories was a result of our continued focus on inventory management, as well as the timing of receipts. The reduction in cash provided by tenant allowances receivable was due to the timing of new store openings and landlord payments. 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 fiscal year, and we expect this trend to continue for the balance of this fiscal year.

Capital requirements. Net cash expended for investing activities was primarily for capital expenditures 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 opened 38 new stores during the third quarter of fiscal 2004. Through the first three quarters of fiscal 2004 we opened 100 new stores. The new store growth resulted in a total square footage increase of 22% at the end of the third quarter of 2004, as compared to the same period in 2003. Capital expenditures for the full fiscal year of 2004 are expected to be approximately $46 million, which includes the funding of new store openings, the remodeling of existing stores, and the improvement and enhancement of our information technology systems. Capital expenditures for the 2005 fiscal year are expected to be approximately $50 million, which includes the funding of approximately 100 new store openings, the remodeling of existing stores, and the improvement and enhancement of our information technology systems.

Financing activities and capital resources. In the fourth quarter of fiscal 2003, our Board of Directors approved a stock repurchase program to acquire up to $35.0 million of our outstanding common stock. In the first quarter of fiscal 2004, our Board of Directors approved an additional $35.0 million of repurchase availability, thereby increasing the amount available for stock repurchase under this program to $70.0 million. On November 16, 2004, our Board of Directors approved an additional $30.0 million of repurchase availability, thereby increasing the amount available for stock repurchase under this program to $100.0 million. The repurchase program may be modified or terminated by the Board of Directors at any time, and there is no expiration date for the program. The extent and timing of repurchases will depend upon general business and market conditions, stock prices, and requirements going forward. We repurchased 0.6 million shares for $15.7 million during the thirteen weeks ended October 30, 2004, and we repurchased 1.6 million shares for $39.1 million this year to-date. We have repurchased a total of 2.5 million shares for $56.8 million, since the inception of the repurchase program. At October 30, 2004 we had $13.2 million of repurchase availability remaining. After giving effect to the most recent increase to the stock repurchase plan, we have $43.2 million of repurchase availability remaining.

Our credit facility provides us with up to $25 million of available borrowings. Borrowings under the credit facility bear interest at our option, either at (a) the lender’s prime rate or (b) the Euro Dollar Rate plus 1.25% to 1.75%, dependent upon our financial performance. As of October 30, 2004, there were no amounts outstanding under the credit facility and we have not had outstanding borrowings under the credit

facility since November 2002. The credit facility contains certain negative covenants, 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 keep a ratio of 2:1 of the value of our inventory to the amounts outstanding at any time under the credit facility. The credit facility has a termination date of September 30, 2005. There are fees for early termination. Events of default under the credit facility include, subject to grace periods and notice provisions in certain circumstances, failure to pay principal amounts when due, breaches of covenants, misrepresentation, default of leases or other indebtedness, excess uninsured casualty loss, excess uninsured judgment or restraint of business, business failure or application for bankruptcy, indictment of or institution of any legal process or proceeding under federal, state, municipal or civil statutes, legal challenges to loan documents, and a change in control. If an event of default occurs, the lenders under the credit facility will be entitled to take various actions, including the acceleration of amounts due 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.

The following tables summarize our contractual obligations and commercial commitments as of October 30, 2004:

The operating leases included in the above table do not include contingent rent based upon sales volume, which represented approximately 14% of minimum lease obligations in fiscal 2003, or variable costs such as maintenance, insurance and taxes, which represented approximately 57% of minimum lease obligations in fiscal 2003. Our open purchase orders are cancelable without penalty and are therefore not included in the above table. There were no commercial commitments outstanding as of October 30, 2004, nor have we provided any financial guarantees at that date.

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 October 30, 2004, we have not issued any letters of credit for the purchase of merchandise inventory or any capital expenditures.

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 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

Cautionary Note Regarding Forward-Looking Statements and Factors Affecting Future Performance

This 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 the company’s 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. All forward looking statements included in this report are based on information available to us as of the date hereof, and we assume no obligation to update or revise such forward-looking statements to reflect events or circumstances that occur after such statements are made. Such uncertainties include, among others, the following factors:


	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 95 stores in fiscal 2003, 93 in fiscal 2002, and 74 stores in fiscal 2001. Additionally, through the first three quarters of fiscal 2004, we opened 100 new stores, an increase of 22% over our store base at the end of fiscal 2003. We intend to continue to open a significant number of new stores in future years while remodeling a portion of our existing store base annually. Our proposed expansion will place increased demands on our operational, managerial and administrative resources. These increased demands could cause us to operate our business less effectively, which in turn could cause deterioration in the financial performance of our individual stores. In addition, to the extent that our new store openings are in existing markets, we may experience reduced net sales volumes in existing stores in those markets.


	Our expansion plan is dependent on a number of factors, which could delay or prevent the successful opening of new stores and subsequent penetration into new markets.

We will be unable to open and operate new stores successfully and our growth will be limited unless we can:


	•	identify suitable markets and sites for store locations;

	•	negotiate acceptable lease terms;

	•	hire, train and retain competent store personnel;

	•	maintain a proportion of new stores to mature stores that does not harm existing sales;

	•	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 regions of the United States 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.


	Our net sales and inventory levels fluctuate on a seasonal basis, leaving our operating results particularly susceptible to changes in back-to-school and holiday shopping patterns.

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.


	Fluctuations in comparable store sales and quarterly results of operations could cause the price of our common stock to decline substantially.

Our comparable store sales and quarterly results have fluctuated in the past and are expected to continue to fluctuate in the future. In addition, we cannot assure you that we will be able to maintain the recent levels of comparable store sales as we expand our business. Our comparable store sales and quarterly results of operations are affected by a variety of factors, including:


	•	fashion trends;

	•	calendar shifts of holiday or seasonal periods;

	•	the effectiveness of our inventory management;

	•	changes in our merchandise mix;

	•	the timing of promotional events;

	•	weather conditions;

	•	changes in general economic conditions and consumer spending patterns; and

	•	actions of competitors or mall anchor tenants.

If our future comparable store sales fail to meet the expectations of research analysts, then the market price of our common stock could decline substantially. You should refer to the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information.


	If we are unable to identify and respond to consumers’ fashion preferences in a timely manner, our profitability would decline.

We may be unable to keep pace with the rapidly changing fashion trends and consumer tastes inherent in the apparel industry. Our current design philosophy is based on the belief that our target customers prefer clothing that suits the demands of their active lifestyles and that they like to identify with a logo. Accordingly, we produce casual, comfortable apparel, a majority of which displays either the “Aeropostale” or “Aero” logo. There can be no assurance that fashion trends will not move away from casual clothing or that we will not have to alter our design strategy to reflect a consumer change in logo preference. If we fail to anticipate, identify or react appropriately to changes in styles, trends, desired images or brand preferences, we may need to incur higher markdowns to reduce excess inventory. Utilizing such markdowns would negatively impact our profitability.


	Our concentration of stores in the eastern United States makes us susceptible to adverse conditions in this region.

The majority of our stores are located in the eastern half of the United States. As a result, our operations are more susceptible to regional factors than the operations of our more geographically diversified competitors. These regional factors include, among others, economic and weather conditions, as well as demographic and population changes.


	We rely on third parties to manage the warehousing and distribution aspects of our business. If these third parties do not adequately perform these functions, our business would be disrupted.

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 in South River, New Jersey. 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 in 1991, there can be no assurance that work stoppages or disruptions will not occur in the future. We also use a separate third party transportation company to deliver our merchandise from our warehouse to our stores. Any failure by either of these third parties to respond adequately to our warehousing and distribution needs would disrupt our operations and negatively impact our profitability.


	We rely on a small number of vendors to supply a significant amount of our merchandise, and our failure to maintain good relationships with one or more of them could harm our ability to source our products.

In fiscal 2003, we sourced 34% of our merchandise from our top three vendors; Mias Fashion Mfg. Co, Inc., or MFM, supplied 12%, and Niteks USA, Inc. and South Bay Apparel, Inc. each supplied 11% of our products, respectively. In addition, Federated Merchandising Group, or FMG, a wholly owned subsidiary of Federated Department Stores, Inc., acted as our agent with respect to the sourcing of 21% of our merchandise. Our relationships with our vendors generally are not on a contractual basis and do not provide assurances on a long-term basis as to adequate supply, quality or acceptable pricing. Most of our vendors could discontinue selling to us at any time. If one or more of our significant vendors were to sever their relationship with us, we could be unable to obtain replacement products in a timely manner, which could cause our sales to decrease.


	Foreign suppliers manufacture most of our merchandise; therefore the availability and costs of these products may be negatively affected by risks associated with international trade.

Trade restrictions such as increased tariffs or quotas, or both, could affect the importation of apparel generally and increase the cost and reduce the supply of merchandise available to us. Much of our merchandise is sourced directly from foreign vendors in Europe, Asia and Central America. In addition, many of our domestic vendors maintain production facilities overseas. Some of these facilities are also located in regions that may be affected by political instability that could cause a disruption in trade. Any reduction in merchandise available to us or any increase in its cost due to tariffs, quotas or local political issues could have a material adverse effect on our results of operations.


	The departure of certain members of our senior management team could adversely affect our business.

The success of our business is dependent upon our senior management closely supervising all aspects of our business, in particular the operation of our stores and the designing of our merchandise. If we were to lose the benefit of this involvement, and in particular if we were to lose the services of Julian R. Geiger, our Chairman and Chief Executive Officer, and Christopher L. Finazzo, our Executive Vice President-Chief Merchandising Officer, our business could be adversely affected. In addition, Mr. Geiger and Mr. Finazzo maintain many of our vendor relationships, and the loss of either of them could negatively impact present vendor relationships.


	Our failure to protect our trademarks AEROPOSTALE® and, to a lesser extent, AERO^TM adequately could have a negative impact on our brand image and limit our ability to penetrate new markets.

We believe that our trademarks AEROPOSTALE® and, to a lesser extent, AERO^TM are integral to our logo-driven design strategy. We have obtained a federal registration of the AEROPOSTALE® 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 term “AERO” in many constantly changing designs and logos even though we have not applied to register every variation or combination thereof for adult clothing. There can be no assurance that the registrations we 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 yet obtained federal registration for the AERO^TM mark and have not registered the “AEROPOSTALE” mark 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, we cannot assure you that others will not try to block the manufacture, export or sale of our products as violative 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 AEROPOSTALE® 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. Accordingly, it may be possible, in those few foreign countries where we were not been able to register the AEROPOSTALE® mark, for a third party owner of the national trademark registration for “AEROPOSTALE” to enjoin the manufacture, sale or exportation of Aeropostale 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.


	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. Furthermore, factors beyond our control impact mall traffic, such as general economic conditions and consumer spending levels. A continued slowdown in the United States economy could negatively affect consumer spending and reduce mall traffic. A significant decrease in shopping mall traffic would have a material adverse effect on our results of operations.


	The effects of war or acts of terrorism could have a material adverse effect on our operating results and financial condition.

The continued threat of terrorism, heightened security measures and military action in response to an act of terrorism has disrupted commerce and has intensified the uncertainty of the U.S. economy. Any further acts of terrorism or a future war may disrupt commerce and undermine consumer confidence, which could negatively impact our sales revenue by causing consumer spending and/or mall traffic to decline. Furthermore, an act of terrorism or war, or the threat thereof, could negatively impact our business by interfering with our ability to obtain merchandise from foreign vendors. Inability to obtain merchandise from our foreign vendors or substitute other vendors, at similar costs and in a timely manner, could adversely affect our operating results and financial condition.


	Our market share may be adversely impacted at any time by a significant number of competitors.

The teen apparel market is highly competitive and is characterized by low barriers to entry. We compete against a diverse group of retailers, including national and local specialty retail stores, mass merchandisers, regional retail chains, traditional department stores and mail-order retailers. Many of our competitors are already established in markets that we have not penetrated. In addition, many of our competitors have many more stores in operation than us, and therefore greater national recognition than we do. This significant number of competitors may adversely impact our market share and results of operations.

At October 30, 2004, 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.

(a) Explanation of disclosure controls and procedures: The Company, including its Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer concluded that as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective to ensure that information we are required to disclose in our filings with the SEC under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. These disclosure controls were also concluded to be effective to ensure that information that we are required to disclose in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding disclosure. It should be noted, however, that the design of any system of controls is limited in its ability to detect errors and therefore there can be no assurance that any design of system controls will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

(b) Changes in internal controls: During the period covered by this quarterly report, there have been no changes to 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.

From time to time, in the ordinary course of business, we are involved in various legal proceedings. We believe that the ultimate outcome of current litigation will not have a material adverse impact on our results of operations, financial condition or cash flows.

In the fourth quarter of 2003, our Board of Directors authorized a share repurchase program of our outstanding common stock in the amount of $35.0 million. In the first quarter of 2004, we announced that our Board of Directors had approved an increase in our share repurchase program to acquire an additional $35.0 million of our common stock. The additional authorization increased the total share repurchase

On November 16, 2004, our Board of Directors approved an additional $30.0 million of repurchase availability.


	1.	The Registrants Current Report on Form 8-K, dated August 4, 2004, related to fiscal July sales results sales.

	2.	The Registrants Current Report on Form 8-K, dated August 19, 2004, related to second quarter earnings results.

	3.	The Registrants Current Report on Form 8-K, dated September 1, 2004, related to fiscal August sales results.

	4.	The Registrants Current Report on Form 8-K, dated October 6, 2004, related to fiscal September sales results.

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.

	/s/ JULIAN R. GEIGER

	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)

21 EX-10.25 2 y69307exv10w25.htm EX-10.25: LONG TERM INCENTIVE DEFERRED COMPENSATION PLAN EX-10.25

AÉROPOSTALE, INC. LONG-TERM INCENTIVE
DEFERRED COMPENSATION PLAN

This Aéropostale, Inc. Long-Term Incentive Deferred Compensation Plan shall constitute an unfunded, nonqualified deferred compensation plan established for the purpose of providing deferred compensation to a select group of management or highly compensated employees of the Company. The Plan is intended to be a “top-hat” plan as described in Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA.

Definitions

As used in the Plan, the following terms shall have the meanings indicated below unless it is clear from the context that another meaning is intended:

Section 1.01. “Account” means the bookkeeping entry established by the Committee on behalf of a Participant as described in Section 4.01.

Section 1.02. “Beneficiary” means the person designated by a Participant in accordance with Section 4.04 to receive payment of his Account in the event of the Participant’s death.

Section 1.03. “Board” means the board of directors of Aéropostale, Inc.

Section 1.04. “Cause” means any one or more than one of the following: (a) gross negligence or willful misconduct of a Participant in the performance of his duties for the Company; (b) the Participant’s conviction of a fraud, felony or crime of moral turpitude; (c) the Participant’s willful failure to follow instructions of the Board or the senior executive to whom the Participant reports, which instructions are material, legal and not inconsistent with the duties assigned to the Participant and which failure is not cured within 5 business days after written notice of such is delivered to the Participant by the Board with respect to failures that are curable; or (d) any breach of any of the material terms of the Participant’s employment agreement (if any) that is not cured within 5 business days after written notice of the breach is delivered to the Participant by the Board with respect to breaches that are curable.

Section 1.05. “Change in Control” means: (a) the acquisition by any person or entity of, directly or indirectly, “beneficial ownership” (as defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of securities of the Company representing 33-1/3% (or more) of the total voting power of all of the Company’s then outstanding voting securities; (b) a merger or consolidation of the Company in which the Company’s voting securities immediately prior to the merger or consolidation do not represent, or are not converted into securities (owned by stockholders in substantially the same proportions as their ownership immediately prior to such merger or consolidation) that represent, a majority of the voting power of all of the voting securities of the surviving entity immediately after the merger or consolidation; (c) a sale of substantially all of the assets of the Company or a liquidation or dissolution of the Company; or (d) individuals, who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of such Board, provided that any individual who becomes a director of the Company subsequent to the Effective Date whose election or nomination for election by the Company’s stockholders was approved by the vote of at least a majority of the directors then in office shall be deemed a member of the Incumbent Board.

Section 1.06. “Code” means the Internal Revenue Code of 1986, as amended, and any rulings or regulations issued thereunder.

Section 1.07. “Committee” means the person or Committee designated by the Board to administer the Plan as described in Article VIII.

Section 1.08. “Company” refers to Aéropostale, Inc., a Delaware corporation, and any subsidiary or affiliate thereof designated by the Board as a participating employer in the Plan.

Section 1.09. “Compensation” means the total current cash remuneration paid to a Participant as regular or base salary on account of such Participant’s service for the Company during that portion of the Plan Year in which such person is a Participant, including any compensation deferrals made under this Plan, any Code Section 401(k) plan or any Code Section 125 “cafeteria” plan maintained by the Company. Notwithstanding the foregoing, “Compensation” shall not include any bonus payments or bonus awards, car allowances or stock option compensation paid or payable to or on behalf of a Participant.

Section 1.10. “Disability” means that the Participant suffers from a physical or mental condition that renders the Participant eligible for and in actual receipt of a disability benefit under either the Company’s long-term disability plan or the federal Social Security Act.

Section 1.11. “Early Retirement” means retirement from the Company after attaining age 55 and completing 5 Years of Service with the Company.

Section 1.12. “Effective Date” means the date on which this Plan first became effective, which is January 1, 2004.

Section 1.13. “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and any rulings or regulations issued thereunder.

Section 1.14. “Incentive Credit” means the credit to a Participant’s Account described in Section 3.01.

Section 1.15. “Participant” means an employee of the Company who participates in the Plan as described in Article II.

Section 1.16. “Plan” means this Aéropostale, Inc. Long-Term Incentive Deferred Compensation Plan as it may be amended from time to time.

Section 1.17. “Plan Year” means each calendar year commencing on and after January 1, 2004.

Section 1.18. “Retirement” means retirement from the Company at or after attaining age 65.

Section 1.19. “Year of Service” shall mean the 12-consecutive-month period commencing on the later of:

(a) the date on which an employee’s designation as a Vice President (or other higher-ranking employee) is effective; or

(b) the Effective Date if an employee was designated as a Vice President (or other higher-ranking employee) on or prior to the Effective Date,

and the 12-consecutive-month period commencing on each anniversary thereof, in each case throughout which the employee is a full-time Vice President (or higher-ranking employee) of the Company.

ARTICLE II

Eligibility and Participation

Section 2.01. Eligible Employees. Each management or highly compensated employee designated by the Company as a Vice President or other higher ranking position in the Company shall be eligible to participate in the Plan, provided that such employee does not also participate in the Supplementary Executive Retirement Plan of Aéropostale, Inc. (formerly known as the Supplementary Executive Retirement Plan of MSS-Delaware, Inc.).

Section 2.02. Participation. Each employee who meets the eligibility requirements described in Section 2.01 shall become a Participant on the later of the date on which he first meets such eligibility requirements or the Effective Date.

Section 2.03. Duration of Participation. Each Participant in the Plan shall continue to be a Participant until the entire amount of his benefit, if any, under the Plan has been paid by the Company. Notwithstanding the foregoing, a Participant is no longer eligible to be an active Participant under the Plan as of (a) the first day of the Plan Year that coincides with or next follows the date on which the Participant no longer meets the eligibility requirements of Section 2.01, or (b) the first day of the Plan Year that coincides with or next follows the date on which the Committee determines that a Participant is no longer eligible to be an active Participant under the Plan.

ARTICLE III

Incentive Credits

Section 3.01. Amount of Credit. A Participant shall receive an annual incentive credit to his Account in an amount equal to the following:

(a) 5% of such Participant’s Compensation if the Participant has less than 6 Years of Service; or

(b) 10% of such Participant’s Compensation if the Participant has 6 or more Years of Service.

Section 3.02. Time of Credit. Amounts credited to a Participant’s Account for any Plan Year pursuant to this Article III shall be credited as of the first day of the next following Plan Year, provided however that the Participant has satisfactory performance (as determined in the Committee’s sole discretion) at the time the credit is made. The Participant must be an active employee of the Company on the last day of a Plan Year in order to receive a credit under this Article III for that Plan Year.

Section 3.03. Special 2003 Compensation Credit. The Committee shall make a special one-time credit to each Participant’s Account if such Participant is a Participant in the Plan during the 2004 Plan Year. The amount of such credit for each Participant shall be determined in accordance with Section 3.01(a) on account of the Participant’s 2003 Compensation and shall be credited to the Participant’s Account during the 2004 Plan Year at such time as is determined by the Committee in its sole discretion.

ARTICLE IV

Establishment and Maintenance of Accounts

Section 4.01. Establishment of Accounts. The Committee shall cause a bookkeeping entry, or Account, to be kept in the name of each Participant, which Account shall reflect the value of the credits made by the Committee pursuant to Article III on behalf of such Participant, as well as interest credits made pursuant to Section 4.03.

Section 4.02. No Right to Account. The interest of each Participant or Beneficiary in his Account is contingent only and is subject to forfeiture as provided in Article V. No Participant or Beneficiary shall have a right to receive amounts credited to his Account prior to the time set forth in Section 6.02.

Section 4.03. Interest Credits. In addition to the amounts described in Article III, the Committee shall credit to each Account, as of the last day of each Plan Year, an amount of deemed interest on the balance of the Account. The interest rate used to determine the amount of such deemed interest shall be the annual rate on 10-year Treasury Constant Maturities determined as of the November 30th preceding the last day of the Plan Year for which the interest credit is payable.

Section 4.04. Designation of Beneficiaries. Each Participant shall have the right to designate, in the form and in a manner specified by the Committee, a Beneficiary who is to succeed to the Participant’s contingent right to receive future payments hereunder in the event of the Participant’s death. No designation of a Beneficiary shall be valid unless it is in writing and signed by the Participant, dated and filed with the Committee. A Beneficiary may be changed by the Participant without the consent of any prior Beneficiary. Each designation of a Beneficiary by a Participant will revoke all prior designations by the same Participant. In determining the existence or identity of a Beneficiary, the Committee may rely conclusively upon information supplied by the Participant, his personal representative, executor or administrator. If a question arises as to the existence or identity of a Beneficiary, or if a dispute arises with respect to a benefit payable under the Plan to a Beneficiary, then, notwithstanding the foregoing, the Company, in its sole discretion, may make payment of the benefit to the Participant’s estate

without liability for any tax or other consequences which might flow therefrom, or may take such other actions as the Committee deems appropriate. In case of a failure of designation or the death of a Beneficiary without a designated successor, distribution shall be made to the Participant’s estate.

Section 4.05. Benefits Not Assignable. To the extent permitted by law, the right of any Participant or any Beneficiary in any benefit or to any payment under the Plan shall not be subject in any manner to attachment or other legal process for the debts of such Participant or Beneficiary. Any benefit or payment under the Plan shall not be subject to anticipation, alienation, sale, transfer, assignment, pledge or encumbrance. The withholding of taxes from Plan benefit payments, the recovery by the Plan or the Company of overpayments of benefits made to a Participant or Beneficiary, the transfer of benefit rights from the Plan to another plan, or the direct deposit of benefit payments to an account at a banking institution on behalf of a Participant or Beneficiary shall not be construed as an assignment or alienation.

ARTICLE V

Vesting

Section 5.01. Retirement. A Participant shall be 100% vested in his Account at his Retirement or Early Retirement.

Section 5.02. Death, Disability, Involuntary Termination, Change in Control. In the event of a Participant’s death, Disability, involuntary termination of employment other than for Cause, or upon a Change in Control, a Participant shall be 100% vested in his Account.

Section 5.03. Termination of Employment. In the event of any other voluntary termination of employment, the vested percentage of each Participant’s Account shall be determined based upon his Years of Service as described below and shall be payable in accordance with Article VI.

Each Participant’s Account shall reflect the amount of each Incentive Credit made to such Account under Article III (and any interest credited thereon pursuant to Section 4.03), and a Participant shall become 100% vested in each such Incentive Credit (and any interest credited thereon pursuant to Section 4.03) separately on the January 1st following the Participant’s completion of 3 Years of Service during the time period commencing on the date such Incentive Credit is made. A Participant shall not be vested in any portion of such Incentive Credit prior to completing the 3 Years of Service described in this Section 5.03.

Section 5.04. Other Forfeitures. Notwithstanding any other provision of the Plan, the contingent right of a Participant to receive credits to his Account or future payments of any portion of his Account balance hereunder shall be completely forfeited upon the occurrence of any one or more of the following events:

(a) the Participant’s employment is terminated by the Company for Cause; or

(b) the Participant violates any confidentiality, non-competition or non-solicitation provision of his employment agreement or otherwise enters into a business or

employment that the Committee or the Board determines to be (i) detrimentally competitive to the business of the Company, and (ii) substantially injurious to the Company’s financial interests.

Section 5.05. No Reallocation. Any amount forfeited under Section 5.03 or Section 5.04 shall remain the property of the Company. There will be no reallocation to other Participants.

Section 5.06. Discretion to Vest. The Committee or the Board may in its sole discretion at any time and from time to time order all or any part of a Participant’s Account to be vested and no longer subject to forfeiture, and may order payment of the amounts so vested on dates specified in such orders.

ARTICLE VI

Payment of Benefits

Section 6.01. Amount and Form of Payment. In the event of the Participant’s Retirement, Early Retirement, death, Disability or termination of employment (other than for Cause), an amount equal to the value of his vested Account determined as of the date of such event shall be determined. The Committee shall pay such amount to the Participant or, in the event of the Participant’s death, to his Beneficiary, in one lump sum. Notwithstanding the foregoing, if a Participant (a) is terminated in connection with a Change in Control and receives an offer of comparable employment from a purchaser or (b) will continue his employment with the Company after a Change in Control, then no amount shall be payable under the Plan until the Participant’s termination of employment from such purchaser or from the Company following the Change in Control.

Section 6.02. Time of Payment. Benefits under the Plan shall be paid no later than the date that is 60 days after the date of the Participant’s Retirement, Early Retirement, death, Disability or termination of employment, as applicable.

Section 6.03. Hardship Distributions. In the event of financial hardship of the Participant, as hereinafter defined, the Participant may apply to the Committee for the distribution of all or any part of his vested Account. The Committee shall consider the circumstances of each such case and the best interests of the Participant and his family and shall have the right, in its sole discretion, to allow such distribution or, if applicable, to direct a distribution of part of the amount requested or to refuse to allow any distribution. Upon a finding of financial hardship, the Committee shall make the appropriate distribution to the Participant from his vested Account. In no event shall the aggregate amount of such distribution exceed either the full value of the Participant’s vested Account or the amount determined by the Committee to be necessary to alleviate the Participant’s financial hardship (which financial hardship may be considered to include any taxes due because of the distribution occurring on account of hardship), and which is not reasonably available from other resources of the Participant. For purposes of this Section 6.03, the value of the Participant’s vested Account shall be determined as of the date of the distribution. “Financial hardship” means (a) a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident

of the Participant or of a dependent (as defined in Section 152(a) of the Code), (b) loss of the Participant’s property due to casualty, or (c) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, each as determined to exist by the Committee. A distribution may be made under this Section 6.03 only with the consent of the Committee.

Section 6.04. Information to be Furnished by Participants and Beneficiaries; Inability to Locate Participants or Beneficiaries. Any communication, statement or notice addressed to a Participant or to a Beneficiary at his last post office address as shown on the Company’s records shall be binding on the Participant or Beneficiary for all purposes of the Plan. The Company shall not be obliged to search for any Participant or Beneficiary beyond the sending of a registered letter to such last known address. If the Company notifies any Participant or Beneficiary that he is entitled to an amount under the Plan and the Participant or Beneficiary fails to claim such amount or make his location known to the Company within 3 years thereafter, then, except as otherwise required by law, if the location of one or more of the next of kin of the Participant is known to the Company, the Company may direct distribution of such amount to any one or more or all of such next of kin, and in such proportions as the Company determines. If the location of none of the foregoing persons can be determined, the Company shall have the right to direct that the amount payable shall be deemed to be a forfeiture, except that the dollar amount of the forfeiture, unadjusted for Interest Credits in the interim, shall be paid by the Company if a claim for the benefit subsequently is made by the Participant or the Beneficiary to whom it was payable. If a benefit payable to a Participant or Beneficiary who has not been located is subject to escheat pursuant to applicable state law, the Company shall not be liable to any person for any payment made in accordance with such law.

ARTICLE VII

Source of Benefits

All benefits payable under this Plan shall be paid exclusively from the Company’s general assets. To the extent that any person acquires a right to receive payments from the Company under the Plan, such right shall be no greater than the right of any unsecured general creditor of the Company. Nothing contained herein shall be deemed to create a trust of any kind or create any fiduciary relationship.

ARTICLE VIII

Administration

Section 8.01. Committee. The Plan shall be administered by a person or committee designated from time to time by the Board for this purpose. The members of the Committee shall serve without compensation for services as such.

Section 8.02. Powers of Committee. The Committee is authorized to make such rules and regulations as it may deem necessary to carry out the provisions of the Plan and, subject to the scope of its powers as assigned by the Board, is given sole and complete discretionary authority to determine any person’s eligibility for and amount of benefits under the Plan, to construe the terms of the Plan, and to decide any other matters pertaining to the Plan’s

administration. The Committee shall, subject to the scope of its powers assigned by the Board, determine any question arising in the administration, interpretation and application of the Plan, which determination shall be binding and conclusive on all persons. In administering the Plan, the Committee may employ or permit any agents to carry out any of its responsibilities hereunder.

Section 8.03. Actions of the Committee. For purposes of this Article VIII, the Committee shall act by majority vote of its members, and any such actions may be taken by a vote at a meeting or in writing without a meeting. The Committee may by such majority action appoint subcommittees and may authorize any one or more of its members or any agent of it to execute any document or documents or to take any other action, including the exercise of discretion, on behalf of such Committee. The Committee may provide for the allocation of responsibilities for the operation and administration of the Plan.

Section 8.04. Plan Records. The books and records to be maintained for the purpose of the Plan shall be maintained by the officers and employees of the Company at its expense and subject to the supervision and control of the Committee. All expenses of administering the Plan shall be paid by the Company.

Section 8.05. Limits on Liability. No member of the Board or of the Committee and no officer or employee of the Company shall be liable to any person for any action taken or omitted in connection with the administration of this Plan unless attributable to his own fraud or willful misconduct. The Company shall not be liable to any person for any such action unless attributable to fraud or willful misconduct on the part of a director, officer or employee of the Company.

Section 8.06. Claims Procedure. If a Participant, a Beneficiary or any other person claiming through a Participant has a dispute as to the failure of the Plan to pay or provide a benefit, as to the amount of any benefit paid, or as to any other matter involving the Plan, the person may file a claim for the benefit or relief believed by the person to be due. Such claim must be provided by written notice to the Committee (or its agent designated by it for this purpose). The Committee (or its agent) will decide any claims made pursuant to this Section 8.06.

If a claim made pursuant to this Section 8.06 above is denied, in whole or in part, notice of the denial in writing will be furnished by the Committee (or its agent designated by it for this purpose) to the claimant within 90 days after receipt of the claim by the Committee (or such agent); except that if special circumstances require an extension of time for processing the claim, the period in which the Committee (or such agent) is to furnish the claimant written notice of the denial will be extended for up to an additional 90 days (and the Committee or its agent will provide the claimant within the initial 90-day period a written notice indicating the reasons for the extension and the date by which the Committee or its agent expects to render the final decision). The final notice of denial will be written in a manner designed to be understood by the claimant and set forth (1) the specific reasons for the denial, (2) specific reference to pertinent Plan provisions on which the denial is based, (3) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary, and (4) an explanation of the claims review appeal

procedures including the name and address of the person or committee to whom any appeal should be directed, the time limits applicable to such procedures, and a statement that the claimant has a right to bring a civil action pursuant to Section 502(a) of ERISA following an adverse determination on review.

Any claimant who has a claim denied as described above may appeal the denied claim to the Committee (or its agent designated by it for this purpose). Such an appeal must, in order to be considered, be filed by written notice to the Committee (or such agent) within 60 days of the receipt by the claimant of a written notice of the denial of his initial claim (unless it was not reasonably possible for the claimant to make such appeal within such 60-day period, in which case the claimant must file his appeal within 60 days after the time it becomes reasonable for him so to file an appeal). Such request shall include any and all documents, materials or other evidence which the claimant believes supports his claim for benefits. If any appeal is filed in accordance with such rules, the claimant and any duly authorized representative of the claimant will be given the opportunity to review pertinent documents and submit issues and comments in writing. A formal hearing may be allowed in its discretion by the Committee (or its agent designated by it for this purpose) but is not required. The Committee (or its agent designated by it for this purpose) will consider all documents, materials or other evidence submitted by the claimant, regardless of whether such evidence was considered during the claimant’s initial benefits determination. The claimant may request, free of charge, copies of all documents, records and other information relevant to his claim for benefits.

Upon any appeal of a denied claim, the Committee (or its agent designated by it for this purpose) will provide a full and fair review of the subject claim and decide the appeal within 60 days after the filing of the appeal; except that if special circumstances require an extension of time for processing the appeal, the period in which the appeal is to be decided will be extended for up to an additional 60 days, and the party deciding the appeal will provide the claimant written notice of the extension prior to the end of the initial 60-day period. Such notice shall include an explanation of the special circumstances requiring the extension and the date by which the Committee (or its agent designated by it for this purpose) expects to render the benefits determination. The decision on appeal will be set forth in a writing designed to be understood by the claimant, specify the reasons for the decision and references to pertinent Plan provisions on which the decision is based, and be furnished to the claimant by the Committee (or its agent) within the 60-day period or 120-day period, as is applicable, described above.

The Committee may prescribe additional rules that are consistent with the other provisions of this Section 8.06, and the scope of the duties assigned to it by the Board, in order to carry out the Plan’s claims procedures.

ARTICLE IX

Amendment or Termination

Section 9.01. Amendment or Termination. The Plan may be amended in whole or in part at any time and in any respect by the Board. The Board may also terminate the Plan at any time. No amendment shall decrease the benefits credited to the Account of a Participant as of the later of the effective date of such amendment or the date the amendment is adopted. The Plan

may also be amended by the Board at any time (and retroactively if required) if found necessary, in the opinion of the Committee or the Board, to ensure that the Plan is characterized as “top-hat” plan of deferred compensation maintained for a select group of management or highly, compensated employees as described under Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA, and to conform the Plan to the provisions and requirements of any applicable law. No such amendment shall be considered prejudicial to any interest of a Participant or a Beneficiary hereunder.

ARTICLE X

Miscellaneous

Section 10.01. Plan Not a Contract of Employment. The Plan is not a contract of employment, and the terms of employment of any Participant shall not be affected in any way by the Plan except as specifically provided in the Plan. The establishment of the Plan shall not be construed as conferring any legal rights upon any Participant for a continuation of employment, nor shall it interfere with the right of the Company to discharge any employee and to treat him without regard to the effect that such treatment might have upon him as a Participant in this Plan. Each Participant (and any Beneficiary of or other person claiming through the Participant) who may have a claim or right under the Plan shall be bound by the terms of the Plan.

Section 10.02. Construction. The Plan is intended to be a plan that is unfunded and maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees and its terms shall be interpreted accordingly. Further, the provisions of the Plan shall be administered and enforced according to applicable federal law and, only to the extent not preempted by ERISA, the laws of the State of New York. If any provision of the Plan, or the application of any such provision to any person or circumstances, shall be invalid under any applicable law, neither the application of such provision to persons or circumstances other than those as to which such provision is invalid nor any other provisions of the Plan shall be affected thereby. The headings and subheadings in the Plan have been inserted for convenience of reference only and are to be ignored in any construction of the provisions hereof. In the construction of the Plan, the singular shall include the plural, and the plural shall include the singular, in all cases where such meanings would be appropriate. Pronouns of a masculine gender shall include the feminine.


Delaware		31-1443880
(State of incorporation)		(I.R.S. Employer Identification No.)

112 W. 34th Street, New York, NY		10120
(Address of Principal Executive Offices)		(Zip Code)


PART I. FINANCIAL INFORMATION			2
	Item 1.	Financial Statements (unaudited)	2
		Condensed Consolidated Balance Sheets	2
		Condensed Consolidated Statements of Income and Comprehensive Income	3
		Condensed Consolidated Statements of Cash Flows	4
		Notes to the Condensed Consolidated Financial Statements	5
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
	Item 4.	Controls and Procedures	19
		Factors Affecting Future Performance
PART II. OTHER INFORMATION
	Item 1.	Legal Proceedings	19
	Item 2.	Changes in Securities and Use of Proceeds	19
	Item 3.	Defaults Upon Senior Securities	20
	Item 4.	Submission of Matters to a Vote of Security Holders	20
	Item 5.	Other Information	20
	Item 6.	Exhibits and Reports on Form 8-K	20
SIGNATURES			21
EX-10.25: LONG TERM INCENTIVE DEFERRED COMPENSATION PLAN
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION
EX-32.2: CERTIFICATION


				October 30,			January 31,			November 1,
				2004			2004			2003


				(In Thousands)
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents			$	120,660		$	138,356		$	78,529
	Merchandise inventory				114,515			61,807			113,447
	Tenant allowances receivable				11,411			2,044			5,492
	Prepaid expenses				9,449			8,734			9,551
	Other current assets				948			1,506			2,587

		Total current assets			256,983			212,447			209,606
FIXTURES, EQUIPMENT AND IMPROVEMENTS, NET					121,845			92,578			92,326
OTHER ASSETS					3,527			2,023			9,528

			TOTAL ASSETS	$	382,355		$	307,048		$	311,460


LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
	Accounts payable			$	69,075		$	30,477		$	54,350
	Accrued expenses				39,837			41,091			35,816

		Total current liabilities			108,912			71,568			90,166
DEFERRED RENT AND TENANT ALLOWANCES					59,579			45,585			46,078
PENSION PLAN LIABILITY					4,425			4,202			3,031
STOCKHOLDERS’ EQUITY:
	Common stock — par value, $0.01 per share; 300,000 shares authorized, 58,168, 56,795 and 56,061 shares issued				582			568			561
	Additional paid-in capital				78,709			63,289			58,943
	Other comprehensive loss				(672	)		(672	)		—
	Deferred compensation				(1,441	)		—			—
	Retained earnings				189,047			140,203			112,681
	Treasury stock at cost (2,499 and 945 shares)				(56,786	)		(17,695	)		—

		Total stockholders’ equity			209,439			185,693			172,185

			TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	382,355		$	307,048		$	311,460



		13 weeks ended				39 weeks ended

		October 30,		November 1,		October 30,		November 1,
		2004		2003		2004		2003


		(In Thousands, Except Per Share Data)
NET SALES		$	274,616	$	220,071	$	637,122	$	462,226
COST OF SALES (includes certain buying, occupancy and warehousing expenses)			176,415		146,149		430,328		322,472

	Gross profit		98,201		73,922		206,794		139,754
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES			46,775		38,123		127,805		96,432

INCOME FROM OPERATIONS			51,426		35,799		78,989		43,322
INTEREST INCOME, Net			336		65		796		499

INCOME BEFORE INCOME TAXES			51,762		35,864		79,785		43,821
INCOME TAXES			20,076		13,986		30,941		17,089

NET INCOME AND COMPREHENSIVE INCOME		$	31,686	$	21,878	$	48,844	$	26,732

BASIC NET INCOME PER SHARE		$	0.57	$	0.39	$	0.88	$	0.49

DILUTED NET INCOME PER SHARE		$	0.55	$	0.37	$	0.85	$	0.46

Basic weighted average shares outstanding			55,894		55,761		55,792		54,312

Diluted weighted average shares outstanding			57,210		58,754		57,399		58,202



					39 weeks ended

					October 30,			November 1,
					2004			2003


					(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income				$	48,844		$	26,732
	Adjustments to reconcile net income to net cash from operating activities:
		Depreciation and amortization				11,407			8,622
		Tax effect of non-qualified stock options				12,597			17,022
		Other				(2,049	)		(1,702	)
		Changes in operating assets and liabilities:
			Merchandise inventory			(52,708	)		(66,802	)
			Accounts payable			38,598			36,396
			Other assets and liabilities			5,815			1,764

				Net cash from operating activities		62,504			22,032

CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchases of fixtures, equipment and improvements					(40,674	)		(31,387	)
	Purchase of intangible assets					(1,400	)		—

		Net cash from investing activities				(42,074	)		(31,387	)

CASH FLOWS FROM FINANCING ACTIVITIES:
	Purchase of treasury stock					(39,091	)		—
	Stock options exercised and other					965			409

		Net cash from financing activities				(38,126	)		409

NET DECREASE IN CASH AND CASH EQUIVALENTS						(17,696	)		(8,946	)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR						138,356			87,475

CASH AND CASH EQUIVALENTS, END OF PERIOD					$	120,660		$	78,529

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4.	Cost of Sales and Selling, General and Administrative Expenses


Item 2.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*



				Payments Due

				Balance of
				Fiscal		In Fiscal		In Fiscal		After Fiscal
		Total		2004		2005 and 2006		2007 and 2008		2008


		(In Thousands)
Contractual Obligations
	Employment contracts	$	4,838	$	538	$	4,300	$	—	$	—
	Operating leases		381,120		13,205		98,476		94,889		174,550

	Total contractual obligations	$	385,958	$	13,743	$	102,776	$	94,889	$	174,550


Item 3.	*Quantitative and Qualitative Disclosures About Market Risk*


					Total Number of		Approximate Dollar
	Total				Shares Purchased		Value of Shares
	Number of				as Part of		that May Yet Be
	Shares (or		Average		Publicly		Purchased Under
	Units)		Price Paid		Announced Plans		the Plans or
Period	Purchased		per Share		or Programs		Programs

							(In Thousands)
August 2004		—	$	—		—	$	28,941
September 2004		370,300	$	28.32		370,300	$	18,454
October 2004		180,000	$	29.11		180,000	$	13,214
Total		550,300	$	28.58		550,300	$	13,214


Item 4.	*Submission of Matters to a Vote of Security Holders*


10	.25	Aeropostale, Inc. Long-Term Incentive Deferred Compensation Plan, effective January 1, 2004.
31	.1	Certification by Julian R. Geiger, Chairman and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31	.2	Certification by Michael J. Cunningham, Executive Vice President and Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	.1	Certification by Julian R. Geiger pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32	.2	Certification by Michael J. Cunningham pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



	/s/ MICHAEL J. CUNNINGHAM
	Michael J. Cunningham
	Executive Vice President - Chief Financial Officer (Principal Financial Officer)


1.	Basis of Presentation


2.	Common Stock Split


3.	Stock Based Compensation


5.	Recent Accounting Developments