AEROPOSTALE INC - 10-Q Quarterly Report

Back to GetFilings.com

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

------------------------

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED NOVEMBER 2, 2002

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO .

COMMISSION FILE NUMBER: 001-31314

AEROPOSTALE, INC.
(Exact name of registrant as specified in its charter)

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

1372 BROADWAY, 8TH FLOOR, NEW YORK, NY 10018
(Address of Principal Executive Offices) (Zip Code)

(646) 485-5398
(Registrant's 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 [ ] No [X]

As of December 6, 2002, the registrant had 35,159,767 of shares of common
stock outstanding.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION......................................... 2
Item
1. Condensed Consolidated Financial Statements................. 2
Condensed Consolidated Balance Sheets as of November 2, 2002
(unaudited) and February 2, 2002............................ 2
Condensed Consolidated Statements of Operations for the
thirteen and thirty nine weeks ended November 2, 2002
(unaudited) and November 3, 2001 (unaudited)................ 3
Condensed Consolidated Statement of Stockholders' Equity for
the thirty nine weeks ended November 2, 2002 (unaudited).... 4
Condensed Consolidated Statements of Cash Flows for the
thirty nine weeks ended November 2, 2002 (unaudited) and
November 3, 2001 (unaudited)................................ 5
Item
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 11
Item
3. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 16
Item
4. Controls and Procedures..................................... 16

PART II. OTHER INFORMATION............................................ 17
Item
1. Legal Proceedings........................................... 17
Item
2. Changes in Securities and Use of Proceeds................... 17
Item
3. Defaults Upon Senior Securities............................. 17
Item
4. Submission of Matters to a Vote of Security Holders......... 17
Item
5. Other Information........................................... 17
Item
6. Exhibits and Reports on Form 8-K............................ 17
SIGNATURES............................................................ 18

1

PART I.

FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AEROPOSTALE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

- ---------------
Note (1) Balance sheet derived from audited financial statements

See notes to condensed consolidated financial statements.
2

AEROPOSTALE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

See notes to condensed consolidated financial statements.
3

AEROPOSTALE, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

See notes to condensed consolidated financial statements.
4

AEROPOSTALE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

See notes to condensed consolidated financial statements.
5

AEROPOSTALE, INC.

>NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE, PER SHARE AND STORE DATA)

1. BASIS OF PRESENTATION

Aeropostale, Inc. (together with its wholly-owned subsidiary, Aeropostale
West, Inc., the "Company") is a mall-based specialty retailer of casual apparel
and accessories for young women and young men with a total of 365 stores as of
November 2, 2002 located in 35 states. On February 3, 2002, Aeropostale, Inc.
contributed all of the assets relating to 10 stores that are located in Arizona
and California to its wholly-owned subsidiary, Aeropostale West, Inc. as part of
a tax-free reorganization.

The condensed consolidated financial statements, except for the February 2,
2002 balance sheet, are unaudited. These condensed consolidated financial
statements of the Company have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements.

In the opinion of management, the accompanying condensed consolidated
financial statements contain all adjustments considered necessary to present
fairly the financial position of the Company as of November 2, 2002 and the
results of operations for the thirteen and thirty nine weeks ended November 2,
2002 and November 3, 2001 and cash flows for the thirty nine weeks ended
November 2, 2002 and November 3, 2001, but are not necessarily indicative of the
results of operations for a full fiscal year. These condensed consolidated
financial statements and related notes should be read in conjunction with the
Company's audited financial statements for the year ended February 2, 2002,
which were included as part of the Company's registration statement on Form S-1
(Registration No. 333-84056), as declared effective by the Securities and
Exchange Commission on May 15, 2002.

2. PUBLIC OFFERING OF COMMON STOCK

On May 21, 2002, the Company completed an initial public offering of
14,375,000 shares of common stock of which 1,875,000 and 12,500,000 shares were
offered by the Company and certain selling stockholders, respectively, at a
price to the public of $18.00 per share. Upon completing the offering, net
proceeds of $31.4 million and $209.3 million were distributed to the Company and
selling stockholders, respectively. The Company is authorized to issue
200,000,000 shares of common stock $0.01 par value, and 5,000,000 shares of
undesignated preferred stock, $0.01 par value. In connection with the Company's
offering, all of the Company's outstanding shares of non-voting common stock as
of February 2, 2002 were converted into 1,118,447 shares of common stock.
Approximately $10.0 million of the approximately $31.4 million of the net
proceeds to the Company were used to redeem all of the outstanding shares of
12 1/2% Series B redeemable preferred stock and pay all accrued and unpaid
dividends thereon. The remainder of the proceeds were used for working capital,
general corporate purposes and new store openings.

On February 27, 2002, the Company adopted the Aeropostale 2002 Long-Term
Incentive Plan that became effective upon the consummation of the initial public
offering. A total of 1,735,556 shares of the Company's common stock became
available for issuance under the plan. All references to share information
reflects a 376.328 for 1 stock split of the Company's common stock and nonvoting
common stock which was approved by the Company's Board of Directors and became
effective on May 10, 2002. The respective share and per share amounts and
conversion ratios included in the condensed consolidated financial statements
reflect the stock split for all periods presented.

On December 21, 2001, the Company granted 565,997 options with an exercise
price of $0.85 per share which was at a price less than the fair market value of
$15.77 per share. The Company incurred approximately $8,445 equity based
compensation charge as a result of the grant of these options of which

6

AEROPOSTALE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$3,972 and $620 was recorded in the year ended February 2, 2002 and thirteen
weeks ended May 4, 2002, respectively. Upon the initial public offering, the
Company recorded acceleration of the unamortized balance of $3,853 in the
thirteen weeks ended August 3, 2002.

The Company also incurred a $142 compensation charge for a bonus for
certain management stockholders in connection with the completion of the initial
public offering in the thirteen weeks ended August 3, 2002.

3. RECENT ACCOUNTING STANDARDS

In October 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This Statement supersedes SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of, but retains the fundamental provisions of SFAS No. 121
for recognition and measurement of the impairment of long-lived assets to be
held and used and measurement of long-lived assets to be disposed of by sale.
However, SFAS No. 144 applies the fair value method for testing of impairment,
which differs from SFAS No. 121. SFAS No. 144 also supersedes the accounting and
reporting provisions of APB Opinion No. 30 as it pertains to disposal of a
business segment but retains the requirement of that opinion to report
discontinued operations separately from continuing operations and extends that
reporting to a component of an entity that either has been disposed of or is
classified as held for sale. SFAS No. 144 is effective for fiscal years
beginning after December 15, 2001, thereby applying to the Company upon the
commencement of its fiscal 2002 fiscal year. The adoption of SFAS No. 144 did
not have a material impact on the consolidated financial statements.

In April 2002, the FASB issued SFAS 145, Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
This Statement rescinds FASB Statement No. 4, Reporting Gains and Losses from
Extinguishment of Debt, and an amendment of that Statement, FASB Statement No.
64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This
Statement also rescinds FASB Statement No. 44, Accounting for Intangible Assets
of Motor Carriers. This Statement amends FASB Statement No. 13, Accounting for
Leases, to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. This Statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. Rescissions of SFAS No. 4
and SFAS No. 64 are effective for fiscal years beginning after May 15, 2002.
Rescissions for SFAS No. 13 are effective for transactions entered into after
May 15, 2002. All other provisions are effective for financial statements issued
after May 15, 2002. The Company has determined that the adoption of this
Statement will not have an impact on the consolidated financial statements.

In July 2002, the FASB issued SFAS 146, Accounting for Costs Associated
with Exit or Disposal Activities. The Statement requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. Examples of costs
covered by the standard include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operations, plant closing, or other exit or disposal activity. SFAS 146 is to be
applied prospectively to exit or disposal activities initiated after December
31, 2002. The Company has determined that the adoption of this Statement will
not have a material impact on the consolidated financial statements.

4. EARNINGS PER SHARE

The following table sets forth the computations of basic and diluted
earnings per share. Basic earnings per share have been computed based upon the
weighted average of common shares and nonvoting common
7

AEROPOSTALE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

shares outstanding, after deducting preferred dividend requirements. Diluted
earnings per share gives effect to outstanding stock options.

8

AEROPOSTALE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. GOODWILL AND OTHER INTANGIBLE ASSETS

In connection with the purchase by Bear Stearns Merchant Banking and our
management team of all the shares of the Company from Federated Specialty
Stores, Inc. (a wholly-owned subsidiary of Federated Department Stores, Inc.) on
August 3, 1998, the Company recorded gross negative goodwill in the amount of
$12.8 million that was being amortized over an estimated life of ten years.

In connection with the decision to discontinue the operations of the
Chelsea Cambell business in February 2000, an allocation of the negative
goodwill was made between the Aeropostale and the Chelsea Cambell businesses
based upon their relative fair values at the Acquisition date. As a result of
such allocation, approximately $8.8 million of unamortized negative goodwill was
written off as part of the gain on disposal of the Chelsea Cambell business. The
remaining negative goodwill was allocated to Aeropostale and was amortized over
its estimated life of ten years. Amortization of negative goodwill was
approximately $0 and $117 for the thirty nine weeks ended November 2, 2002 and
November 3, 2001, respectively.

The Company adopted SFAS 142, Goodwill and Intangibles, which changed the
accounting for goodwill from an amortization method to an impairment approach on
August 5, 2001. With the adoption of SFAS 142, the remaining negative goodwill
was recorded as income from a cumulative effect of accounting change.

Net income and income from continuing operations for the thirty nine weeks
ended November 3, 2001 has been adjusted to reflect net income and income from
continuing operations as though no negative goodwill amortization was recorded.

6. REVOLVING CREDIT FACILITY

The Company has a revolving credit agreement, as amended, with a bank under
which the Company may borrow or obtain letters of credit up to an aggregate of
$55 million (the "Credit Facility"), with letters of credit having a sub-limit
of $15 million. The facility matures by its terms on July 31, 2004. Indebtedness
under the Credit Facility is collateralized by the assets of the Company.
Borrowings under the Credit Facility bear interest, at the Company's option,
either at (a) the lender's prime rate or (b) the Euro Dollar Rate plus 1.50% to
2.00%, depending on excess availability. Additionally, the Company must pay
commitment fees on any unused portion of the Credit Facility at an annualized
rate of 0.375 percent of the difference between the unused portion and
borrowings (including outstanding letters of credit) at the preceding month-end.
In connection with the Credit Facility, the Company incurred a one-time
financing fee of $220, which is being amortized over the term of the Credit
Facility, such amount is recorded as additional interest expense. At February 2,
2002 and November 2, 2002, the Company had $0

9

AEROPOSTALE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and $1,857 in borrowings outstanding and had not issued any stand-by or
commercial letters of credit. At November 2, 2002, the Company was in compliance
with the financial covenants of the credit facility, which require the Company
to achieve certain earnings before interest, income taxes, depreciation and
amortization ("EBITDA" as defined in the Agreement) amounts and capital spending
limitations.

10

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

Net sales. Net sales consist of sales from comparable stores and
non-comparable stores. A store is not included in comparable store sales until
the first day of the fiscal month following the fourteenth full fiscal month of
sales. Non-comparable store sales include sales in the current fiscal year from
our stores opened during the previous fiscal year before they are considered
comparable stores and new stores opened during the current fiscal year. In
addition, all sales generated from stores that we have closed and through our
arrangements with colleges and universities for organized sales events are
included in non-comparable store sales.

Cost of sales. Cost of sales includes the cost of merchandise,
distribution and warehousing, freight from the distribution center and warehouse
to the stores, payroll for our design, buying and merchandising personnel and
store occupancy costs. Store occupancy costs include rent, contingent rents,
common area maintenance, real estate taxes, utilities, repairs, maintenance and
depreciation. Included in cost of sales is a charge related to equity based
compensation of approximately $952,000 for the thirty nine weeks ended November
2, 2002.

Selling, general and administrative expenses. Selling, general and
administrative expenses include selling, store management and corporate
expenses, including payroll and employee benefits, other than for our design,
buying and merchandising personnel, employment taxes, management information
systems, marketing, insurance, legal, 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 opening expenses.
Corporate level expenses are primarily attributable to our corporate offices in
New York, New York, and Wayne, New Jersey. Included in selling, general and
administrative expenses is a charge related to equity based compensation of
approximately $3,521,000 for the thirty nine weeks ended November 2, 2002.

Interest expense, net. Interest expense, net of interest income, includes
interest relating to our revolving credit facility and amortization of deferred
financing costs.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles 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 condensed
consolidated financial statements and related notes. Since future events and
their impact cannot be determined with certainty, the actual results will
inevitably differ from our estimates. Such differences could be material to the
condensed consolidated financial statements.

We believe application of 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. 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.

Merchandise inventory. Our merchandise inventory is carried at the lower
of cost or market on a first-in, first-out basis. We make certain assumptions to
adjust inventory based on historical experience and current information in order
to assess that inventory is recorded properly at the lower of cost or market.
These assumptions can have a significant impact on current and future operating
results and financial position.

Long-lived assets. In evaluating the fair value and future benefits of
long-lived assets, we perform an analysis of the anticipated undiscounted future
net cash flows of the related long-lived assets and reduce their carrying value
by the excess, if any, of the result of such calculation. We believe at this
time that the long-lived assets' carrying values and useful lives continues to
be appropriate. Further adverse changes in

11

market conditions or poor operating results of underlying investments could
result in an inability to recover the carrying value of the investments that may
not be reflected in an investment's current carrying value, thereby possibly
requiring an impairment charge in the future.

RESULTS OF OPERATIONS

The following table sets forth our results of operations expressed as a
percentage of total net sales for the period indicated:

Thirteen weeks ended November 2, 2002 (unaudited) compared to thirteen weeks
ended November 3, 2001 (unaudited).

Net sales. Our net sales for the thirteen weeks ended November 2, 2002
increased to approximately $169.2 million from approximately $126.0 million for
the thirteen weeks ended November 3, 2001, an increase of approximately $43.2
million. Of this increase, comparable store sales contributed approximately $5.5
million and non-comparable store sales contributed approximately $37.7 million.
Comparable store sales increased by 5.0% for the thirteen weeks ended November
2, 2002, compared to an increase of 22.8% in comparable store sales in the
thirteen weeks ended November 3, 2001. This increase was due to higher
comparable sales in the young women's and accessories categories. The increase
in non-comparable store sales was primarily due to 88 net new stores open at the
end of the thirteen weeks ended November 2, 2002 as compared to the prior
period.

Gross profit. Our gross profit dollars increased approximately $2.0
million in the thirteen weeks ended November 2, 2002 to approximately $50.9
million from approximately $48.9 million for the thirteen weeks ended November
3, 2001. As a percentage of net sales, gross profit decreased to 30.1% from
38.8% during these periods. This decrease is primarily attributable to a
decrease in our merchandise margins primarily in the young women's and young
men's category of approximately 8.0% due to an increase in promotional
markdowns. The remaining decrease in gross profit was attributable an increase
in distribution and warehousing costs.

Selling, general and administrative expenses. Our selling, general and
administrative expenses increased approximately $2.1 million for the thirteen
weeks ended November 2, 2002 to approximately $25.8 million from approximately
$23.7 million for the thirteen weeks ended November 3, 2001. As a percent of net
sales, selling, general and administrative expenses decreased to 15.2% from
18.8%. On an absolute dollar basis, this increase was primarily due to an
increase in marketing and new store operating expenses partially offset by a
reduction in incentive bonus programs.

Interest expense, net. Our net interest expense for the thirteen weeks
ended November 2, 2002 was approximately $126,000 compared to net interest
expense of approximately $282,000 for the thirteen weeks
12

ended November 3, 2001. The Company had average borrowings of approximately $4.4
million on its credit facility in the thirteen weeks ended November 2, 2002 as
compared to average borrowings of $16.8 million for the thirteen weeks ended
November 3, 2001.

Income taxes. Our effective tax rate of 40.0% for the thirteen weeks ended
November 2, 2002 compares to an effective tax rate of 41.0% for the thirteen
weeks ended November 3, 2001. This decrease was due to a reduction in our
effective state rate.

Income from continuing operations. Our income from continuing operations
was approximately $15.0 million for the thirteen weeks ended November 2, 2002
compared to income from continuing operations of approximately $14.7 million for
the thirteen weeks ended November 3, 2001.

Net income. Our net income was approximately $15.0 million for the
thirteen weeks November 2, 2002 compared to net income of approximately $16.4
million in the thirteen weeks ended November 3, 2001. On August 5, 2001, we
adopted Statement of Financial Accounting Standard No. 142, Goodwill and Other
Intangibles, which require companies to no longer amortize negative goodwill.
The cumulative effect of this change resulted in a gain of $1.6 million in the
thirteen weeks ended November 3, 2001.

Thirty nine weeks ended November 2, 2002 (unaudited) compared to thirty nine
weeks ended November 3, 2001 (unaudited).

Net sales. Our net sales for the thirty nine weeks ended November 2, 2002,
increased to approximately $344.5 million from approximately $246.4 million for
the thirty nine weeks ended November 3, 2001, an increase of approximately $98.1
million. Of this increase, comparable store sales contributed approximately
$24.3 million and non-comparable store sales contributed approximately $73.8
million. Comparable store sales increased by 10.8% for the thirty nine weeks
ended November 2, 2002, compared to an increase of 11.0% in comparable store
sales in the thirty nine weeks ended November 3, 2001. This increase was due to
higher comparable sales in the young women's and accessories categories. The
increase in non-comparable store sales was primarily due to 88 net new stores
open at the end of the thirty nine weeks ended November 2, 2002 as compared to
the prior period.

Gross profit. Our gross profit dollars increased approximately $23.8
million in the thirty nine weeks ended November 2, 2002 to approximately $99.1
million from approximately $75.3 million for the thirty nine weeks ended
November 3, 2001. As a percentage of net sales, gross profit decreased to 28.8%
from 30.6% during these periods. This decrease is primarily attributable to a
decrease in our merchandise margins primarily in the young women's and men's
category of approximately 2.5% primarily due to an increase in promotional
markdowns. This decrease was partially offset by a 1.0% increase attributable to
lower occupancy costs. In addition, the Company incurred equity based
compensation charge of approximately $952,000, which is included in cost of
sales for the thirty nine weeks ended November 2, 2002.

Selling, general and administrative expenses. Our selling, general and
administrative expenses increased approximately $21.3 million for the thirty
nine weeks ended November 2, 2002 to approximately $76.4 million from
approximately $55.1 million for the thirty nine weeks ended November 3, 2001. As
a percent of net sales, selling, general and administrative expenses decreased
to 22.2% from 22.4%. On an absolute dollar basis, this increase was due to an
approximate $14.9 million increase in payroll and operating expenses that
resulted from new store growth in addition to marketing expense increases of
approximately $2.9 million. We also incurred a charge of approximately $3.5
million for equity-based compensation during the thirty nine weeks ended
November 2, 2002.

Interest expense, net. Our net interest expense for the thirty nine weeks
ended November 2, 2002 was approximately $57,000 compared to net interest
expense of approximately $871,000 for the thirty nine weeks ended November 3,
2001. The Company had average borrowings of approximately $2.0 million on its
credit facility in the thirty nine weeks ended November 2, 2002 as compared to
average borrowings of $15.9 million for the thirty nine weeks ended November 3,
2001.

13

Income taxes. Our effective tax rate of 40.0% for the thirty nine weeks
ended November 2, 2002 compares to an effective tax rate of 41.2% for the thirty
nine weeks ended November 3, 2001. This decrease was due to a reduction in our
effective state rate.

Income from continuing operations. Our income from continuing operations
was approximately $13.6 million for the thirty nine weeks ended November 2, 2002
compared to income from continuing operations of $10.9 million for the thirty
nine weeks November 3, 2001.

Gain on discontinued operations. All Chelsea Cambell stores were closed by
the end of December 2000; therefore, no activity occurred during the thirty nine
weeks November 2, 2002. For the thirty nine weeks ended November 3, 2001, our
Chelsea Cambell stores had net income of $17,000.

Net income. Our net income was approximately $13.6 million in the thirty
nine weeks November 2, 2002 compared to net income of approximately $12.6
million in the thirty nine weeks ended November 3, 2001. On August 5, 2001, we
adopted Statement of Financial Accounting Standard No. 142, Goodwill and Other
Intangibles, which require companies to no longer amortize negative goodwill.
The cumulative effect of this change resulted in a gain of $1.6 million in the
thirty nine weeks ended November 3, 2001.

Liquidity and Capital Resources

Our cash requirements are primarily for working capital, the construction
of new stores, the remodeling of existing stores and the investment in our
information systems. Historically, these cash requirements have been met through
cash flow from operations and borrowings under our credit facility with Fleet
Retail Finance, Inc. At November 2, 2002, we had working capital of
approximately $68.6 million.

On May 21, 2002, the Company received net proceeds of approximately $31.4
million through its sale of 1,875,000 shares of common stock as part of the
initial public offering of a total of 14,375,000 shares of common stock. The
Company used approximately $10.0 million of the proceeds to redeem all of the
Company's preferred stock and preferred stock dividends. The Company also used
approximately $2.0 million for offering costs in connection with the initial
public offering. The balance of approximately $19.4 million is being used for
general corporate purposes.

During the thirty nine weeks ended November 2, 2002, our net cash used by
operations was approximately $27.6 million. Our cash used by operations were for
the seasonal purchase of inventory and the purchase of additional inventory for
the increased store base. This was partly offset by net income of approximately
$13.6 million and the increase of accounts payable, accrued expenses and other
liabilities of approximately $19.4 million.

Our cash used in investing activities for the thirty nine weeks ended
November 2, 2002 and November 3, 2001 was entirely used for capital
expenditures. These expenditures, consisting primarily of the construction of
new stores, remodeling of existing stores and investments in technology, were
approximately $27.5 million for the thirty nine weeks ended November 2, 2002 and
approximately $20.8 million for the thirty nine weeks ended November 3, 2001.
Our future capital requirements will depend primarily on the number of new
stores we open and the number of existing stores we remodel and the timing of
these expenditures. We opened 89 new stores during the thirty nine weeks ended
November 2, 2002 and 61 new stores during the thirty nine weeks ended November
3, 2001, and we expect to open approximately 93 stores in fiscal 2002. Projected
capital expenditures for fiscal 2002 are approximately $29.5 million, to be used
primarily to fund new store openings, store remodelings and technology
investments. Historically, we have financed such capital expenditures with cash
from operations and borrowings under our credit facility. We believe that we
will continue to finance capital expenditures in this manner during fiscal 2002.

In the thirty nine weeks ended November 2, 2002, we had a net decrease in
cash and cash equivalents of approximately $33.6 million and we had net
borrowings under our credit facility of approximately $1.9 million compared to
net borrowing of approximately $14.1 million for the thirty nine weeks ended
November 3, 2001. Our secured revolving credit facility with Fleet, as agent,
provides us with
14

up to $55.0 million based upon our inventory balances, seasonal advance rates
and third party credit card balances. Borrowings bear interest at our option at
either the rate per annum at which deposits on U.S. dollars are offered to Fleet
in the Eurodollar market, referred to as the eurodollar rate, plus 1.50% to
2.00% or the base rate announced from time to time by Fleet, dependent upon
excess availability. As of November 2, 2002, the balance under the revolving
credit facility was approximately $1.9 million; as of November 3, 2001 the
balance was approximately $15.8 million. The revolving credit facility contains
financial performance and capital expense covenants, and has a termination date
of July 2004. There are fees for early termination. The revolving credit
facility contains a minimum EBITDA covenant, tested monthly. The facility also
contains a maximum capital expenditures covenant, tested quarterly.

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, failure to perform covenant or liability requirements,
misrepresentation, default of leases, 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, other than an initial public offering. 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 and requiring
that all such amounts be immediately paid in full as well as possession and sale
of all assets that have been used for collateral.

We have not issued any letters of credit for the purchase of merchandise
inventory or any capital expenditure.

As of November 2, 2002 we had approximately $11.4 million in cash and cash
equivalents. In addition, we had approximately $53.1 million available for
borrowings under our credit facility as of November 2, 2002, which availability
is limited by the credit facility's borrowing base collateral requirements. In
general, the borrowing base equals a seasonally adjusted percentage of the
retail value of our inventory and 80% of our third party credit card balances.
We believe that cash flows from operations, our current cash balance, funds
available under our revolving credit facility will be sufficient to meet our
working capital needs and planned capital expenditures for fiscal 2002.

Contractual Obligations and Commercial Commitments

The following tables summarize our contractual obligations and commercial
commitments as of November 2, 2002:

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company, in the normal course of doing business, is theoretically
exposed to interest rate change market risk. As borrowing patterns are cyclical,
the Company is not dependent on borrowing throughout the year. Therefore, a
sudden increase in interest rates (which under the Loan Agreement is dependent
on the prime rate) may, during peak borrowing, have a negative impact on
short-term results.

ITEM 4. CONTROLS AND PROCEDURES

(a) Explanation of disclosure controls and procedures: The Company carried
out an evaluation, under the supervision and with the participation of the
Company's management, including the Company's Chairman and Chief Executive
Officer along with the Company's Chief Financial Officer, of the effectiveness
of the design and operation of the Company's disclosure controls and procedures
pursuant to Exchange Act Rule 13a-14 under 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 December 10, 2002 the Company's disclosure controls and procedures
(1) are effective in timely alerting them to material information relating to
the Company (including its consolidated subsidiaries) required to be included in
the Company's periodic SEC filings and (2) are adequate to ensure that
information required to be disclosed by the Company in the reports filed or
submitted by the Company under the Exchange Act is recorded, processed and
summarized and reported within the time periods specified in the SEC's rules and
forms.

(b) Changes in internal controls: There have been no significant changes in
the Company's internal controls or in other factors which could significantly
affect internal controls subsequent to the date the Company carried out its
evaluation.

16

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Not applicable.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

99.1 Certification by Julian R. Geiger and Michael J. Cunningham
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K:

None

17

SIGNATURES

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 and Chief Executive Officer,
Director (Principal Executive Officer)

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

Dated: December 12, 2002

18

CERTIFICATIONS

I, Julian R. Geiger, Chairman and Chief Executive Officer of Aeropostale,
Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Aeropostale, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:

(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;

(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and

(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent function):

(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weakness in
internal controls; and

(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were any significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.

/s/ JULIAN R. GEIGER
--------------------------------------
Julian R. Geiger
Chairman and Chief Executive Officer,
Director
(Principal Executive Officer)

Date: December 12, 2002

19

CERTIFICATIONS

I, Michael J. Cunningham, Senior Vice President -- Chief Financial Officer
of Aeropostale, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Aeropostale, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:

(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;

(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and

(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent function):

(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weakness in
internal controls; and

(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were any significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.

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

Date: December 12, 2002

20