AEROPOSTALE INC - 10-Q Quarterly Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED MAY 3, 2003

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]

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12-b-2). Yes [X] No [ ]

As of June 4, 2003, the registrant had 35,997,363 of shares of common stock
outstanding.

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TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION......................................... 2
Item
1. Condensed Consolidated Financial Statements................. 2
Condensed Consolidated Balance Sheets as of May 3, 2003
(unaudited) and February 1, 2003............................ 2
Condensed Consolidated Statements of Income for the thirteen
weeks ended May 3, 2003 (unaudited) and May 4, 2002
(unaudited)................................................. 3
Condensed Consolidated Statements of Cash Flows for the
thirteen weeks ended May 3, 2003 (unaudited) and May 4, 2002
(unaudited)................................................. 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........................................................ 14
Item
4. Controls and Procedures..................................... 14

PART II. OTHER INFORMATION............................................ 14
Item
1. Legal Proceedings........................................... 14
Item
2. Changes in Securities and Use of Proceeds................... 14
Item
3. Defaults Upon Senior Securities............................. 14
Item
4. Submission of Matters to a Vote of Security Holders......... 14
Item
5. Other Information........................................... 14
Item
6. Exhibits and Reports on Form 8-K............................ 14
SIGNATURES............................................................ 15
Certifications........................................................ 16

1

PART I.

FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AEROPOSTALE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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Note (1) Balance sheet derived from the audited consolidated financial
statements

See notes to condensed consolidated financial statements.
2

AEROPOSTALE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

See notes to condensed consolidated financial statements.
3

AEROPOSTALE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

See notes to condensed consolidated financial statements.
4

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" or "Aeropostale") is a mall-based specialty retailer
of casual apparel and accessories for young women and young men.

The Company provides customers with a focused selection of high-quality,
active-oriented, fashion basic merchandise at compelling values. Aeropostale
maintains complete control over its proprietary brand by designing and sourcing
all of its merchandise. The Company's products can be purchased only in its
stores, or organized sales events at college campuses. The Company's stores
creates a fun and high energy shopping experience through the use of creative
visual merchandising, colorful in-store signage, bright lighting, popular music
and an enthusiastic, well-trained sales force. The average store size of
approximately 3,500 square feet is generally smaller than that of its mall-based
competitors and the Company believes that this enables it to achieve higher
sales productivity and project a sense of activity and excitement. As of May 3,
2003, the Company operated 387 stores in 38 states.

The condensed consolidated financial statements 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 May 3, 2003 and the results
of operations and cash flows for the thirteen weeks ended May 3, 2003 and May 4,
2002, 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 consolidated financial
statements for the year ended February 1, 2003, which were included as part of
the Company's Annual Report on Form 10-K, filed with the Securities and Exchange
Commission.

2. STOCK OPTIONS

The Company applies Accounting Principles Board Opinion ("APB") No. 25,
Accounting For Stock Issued to Employees, and Related Interpretations in
Accounting For Stock Option Grants. Therefore, no compensation expense has been
recognized for employee stock options. Set forth below are the Company's net
income and net income per share presented "as reported" and pro forma as if
compensation cost had

5

AEROPOSTALE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

been recognized in accordance with the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123:

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 the respective periods: no
dividend yield; expected volatility of 70%; risk free interest rate of 2.81%;
and expected life of 4.72 years. There were 496,200 option grants during the
thirteen weeks ended May 3, 2003. The weighted average fair value of options
granted during the quarter ended May 3, 2003 was $3.9 million. There were no
options issued for the thirteen weeks ended May 4, 2002.

3. 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
were converted into approximately 1,851,000 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. The Company incurred a $0.1
million compensation charge in the second quarter of fiscal 2002 as a bonus for
certain management stockholders in connection with the completion of the initial
public offering.

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

6

AEROPOSTALE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 $8.4 million equity based
compensation charge as a result of the grant of these options of which $4.0
million and $0.6 million were 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 $3.9
million in the thirteen weeks ended August 3, 2002.

4. RECENT ACCOUNTING STANDARDS

In July 2002, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 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 No. 146 is to be applied prospectively to exit or
disposal activities initiated after December 31, 2002. The adoption of SFAS No.
146 has not had and is not expected to have a material impact on the Company's
condensed consolidated financial statements.

In November 2002, the FASB issued Financial Interpretation No. 45 ("FIN
45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires
certain guarantees to be recorded at fair value and requires a guarantor to make
significant new disclosures, even when the likelihood of making any payments
under the guarantee is remote. Generally, FIN 45 applies to certain types of
financial guarantees that contingently require the guarantor to make payments to
the guaranteed party based on changes in an underlying that is related to an
asset, liability, or an equity security of the guaranteed party; performance
guarantees involving contracts which require the guarantor to make payments to
the guaranteed party based on another entity's failure to perform under an
obligating agreement; indemnification agreements that contingently require the
guarantor to make payments to an indemnified party based on changes in an
underlying that is related to an asset, liability, or an equity security of the
indemnified party; or indirect guarantees of the indebtedness of others. The
initial recognition and initial measurement provisions of FIN 45 are applicable
on a prospective basis to guarantees issued or modified after December 31, 2002.
Disclosure requirements under FIN 45 are effective for financial statements
ending after December 15, 2002 and are applicable to all guarantees issued by
the guarantor subject to FIN 45's scope, including guarantees issued prior to
FIN 45. The Company has evaluated the accounting provisions of the
interpretations and there was no material impact on the financial condition,
results of operations or cash flows for the thirteen weeks ended May 3, 2003.
The Company has made the required disclosures in the condensed consolidated
financial statements (Note 7).

In November 2002, the Emerging Issues Task Force ("EITF") reached a
consensus on issues raised in EITF 02-16, "Accounting by a Reseller for Cash
Consideration Received from a Vendor" ("EITF 02-16"). This EITF issue addresses
the timing of recognition for rebates that are earned by resellers based on
specified levels of purchases or over specified periods. This guidance, related
to timing of recognition, is to be applied prospectively to new rebate
arrangements entered into in fiscal periods beginning after January 1, 2003.
This EITF issue also addresses the classification of cash consideration received
from vendors in a reseller's statement of operations. The guidance related to
income statement classification is to be applied in annual and interim financial
statements for periods beginning after

7

AEROPOSTALE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

January 1, 2003. The Company has adopted this application and it did not have a
material impact on the condensed consolidated financial statements.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-based
Compensation -- Transition and Disclosure. The standard provides alternative
methods of transition for a voluntary change to the fair value method of
accounting for stock-based employee compensation. In addition SFAS No. 148
amends the disclosure requirements for SFAS No. 123 to require more prominent
and more frequent disclosures in financial statements about the effects of stock
based compensation. SFAS No. 148 is effective for fiscal years ending after
December 31, 2002. The Company will continue to account for stock-based equity
compensation using the intrinsic value method of APB Opinion No. 25. The Company
is required to follow the prescribed disclosure format and have provided the
additional disclosures required by SFAS No. 148 for the thirteen weeks ended May
3, 2003.

In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities" with the objective of improving
financial reporting by companies involved with variable interest entities. A
variable interest entity is a corporation, partnership, trust, or any other
legal structure used for business purposes that either (a) does not have equity
investors with voting rights, or (b) has equity investors that do not provide
sufficient financial resources for the entity to support its activities.
Historically, entities generally were not consolidated unless the entity was
controlled through voting interests. FIN 46 changes that by requiring a variable
interest entity to be consolidated by a company if that company is subject to a
majority of the risk of loss from the variable interest entity's activities or
entitled to receive a majority of the entity's residual returns or both. A
company that consolidates a variable interest entity is called the "primary
beneficiary" of that entity. FIN 46 also requires disclosures about variable
interest entities that a company is not required to consolidate but in which it
has a significant variable interest. The consolidation requirements of FIN 46
apply immediately to variable interest entities created after January 31, 2003.
The consolidation requirements of FIN 46 apply to existing entities in the first
fiscal year or interim period after January 31, 2003, regardless of when the
variable interest entity was established. The Company has evaluated the
accounting provisions of the interpretations and there was no material impact on
the financial condition, results of operations or cash flows for the thirteen
weeks ended May 3, 2003, because the Company does not have any variable interest
entities.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This statement amends and
clarifies financial reporting for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
This statement is effective for contracts entered into or modified after June
30, 2003. The Company is currently evaluating the impact of adopting this
statement on its consolidated financial position and results of operations.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity. This statement
establishes standards for how a company classifies and measures certain
financial instruments with characteristics of both liabilities and equity. This
statement is effective for financial instruments entered into or modified after
May 31, 2003 and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. The statement will be implemented by
reporting the cumulative effect of a change in accounting principle for
financial instruments created before the issuance date of the statement and
still existing at the beginning of the period of adoption. Although we are still
in the process of reviewing the new statement, we believe this statement will
have no impact on our condensed consolidated financial statements.

5. 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 outstanding, after

8

AEROPOSTALE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

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(a) Options to purchase 445 shares were not included in the computation of
dilutive shares because of their anti-dilutive effect.

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 $0.2 million, which is being amortized over the term of the
Credit Facility, such amount is recorded as additional interest expense. At May
3, 2003 and February 1, 2003, the Company had zero in borrowings outstanding and
had not issued any stand-by or commercial letters of credit. At May 3, 2003, 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.

7. GUARANTEES

The Company has not provided any financial guarantees as of May 3, 2003.

9

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.

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.

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 Company's accounting policies are more fully described in Note 2 of the
Notes to Consolidated Financial Statements in the Company's Annual Report on
Form 10-K for the fiscal year ended February 1, 2003. As disclosed in Note 1 of
Notes to Consolidated Financial Statements, the preparation of financial
statements in conformity with accounting principles generally accepted in the
United States of America ("GAAP") requires management to make estimates and
assumptions about future events that affect the amounts reported in the
consolidated financial statements and accompanying notes. Since future events
and their effects cannot be determined with absolute certainty, actual results
will differ from those estimates. The Company evaluates its estimates and
judgments on an ongoing basis and predicates those estimates and judgments on
historical experience and on various other factors that are believed to be
reasonable under the circumstances. Actual results will differ from these under
different assumptions or conditions.

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.

Finite-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 market conditions or poor operating
results of underlying investments could result in an inability to recover

10

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 May 3, 2003 (unaudited) compared to thirteen weeks ended
May 4, 2002 (unaudited).

Net sales. Our net sales for the thirteen weeks ended May 3, 2003
increased to approximately $112.2 million from approximately $85.1 million for
the thirteen weeks ended May 4, 2002, an increase of approximately $27.1
million. Of this increase, comparable store sales contributed approximately $1.5
million and non-comparable store sales contributed approximately $25.6 million.
Comparable store sales increased by 1.8% for the thirteen weeks ended May 3,
2003, compared to an increase of 22.0% in comparable store sales in the thirteen
weeks ended May 4, 2002. This increase was primarily due to higher comparable
sales in the young women's and accessories categories. The increase in
non-comparable store sales was primarily due to 95 net new stores open at the
end of the thirteen weeks ended May 3, 2003 as compared to the prior period.

Gross profit. Our gross profit dollars increased approximately $6.1
million in the thirteen weeks ended May 3, 2003 to approximately $30.3 million
from approximately $24.1 million for the thirteen weeks ended May 4, 2002. As a
percentage of net sales, gross profit decreased to 27.0% from 28.4% 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 1.8% due to an increase in promotional markdowns as compared to
the prior period. This decrease in gross profit was partially offset by the
leveraging of occupancy costs. Included in cost of sales during the thirteen
weeks ended May 4, 2002 is a charge of approximately $0.1 million for equity
based compensation.

Selling, general and administrative expenses. Our selling, general and
administrative expenses increased approximately $3.8 million for the thirteen
weeks ended May 3, 2003 to approximately $27.0 million from approximately $23.2
million for the thirteen weeks ended May 4, 2002. On an absolute dollar basis,
this increase was due to an approximate $4.4 million dollar increase in payroll
related costs that resulted from new store growth. Additionally, we incurred an
approximate $1.1 million dollar increase in operational costs, primarily
attributable to the growth of the business. This increase was offset by an
approximate $1.2 million dollar decrease in incentive bonus programs and an
approximate $0.9 million decrease in marketing expenses. Included in selling,
general and administrative expenses for the thirteen weeks ended May 4, 2002 is
a charge of approximately $0.5 million for equity based compensation. As a
percent of net sales, selling, general and administrative expenses decreased to
24.0% from 27.3%. This decrease was attributable to a reduction in incentive
bonus programs and a decrease in marketing expenses.

Interest income, net. Our net interest income for the thirteen weeks ended
May 3, 2003 was approximately $0.2 million compared to net interest income of
approximately $0.1 million for the thirteen

11

weeks ended May 4, 2002. The increase is attributable to higher cash balances
for the thirteen weeks ended May 3, 2003 compared to the thirteen weeks ended
May 4, 2002.

Income taxes. Our effective tax rate of 39.0% for the thirteen weeks ended
May 3, 2003 compares to an effective tax rate of 40.0% for the thirteen weeks
ended May 4, 2002. This decrease was due to a reduction in our effective state
tax rate. The Company recorded an accrual in the thirteen weeks ended May 4,
2002 for additional tax exposures.

Net income. Our net income was approximately $2.1 million for the thirteen
weeks May 3, 2003 compared to net income of approximately $0.6 million in the
thirteen weeks ended May 4, 2002.

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 May 3, 2003, we had working capital of approximately
$87.7 million.

For the thirteen weeks ended May 3, 2003, our cash provided by operations
was approximately $2.1 million, generated by our operating earnings.

Our cash used in investing activities for the thirteen weeks ended May 3,
2003 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 $8.6 million for the thirteen
weeks ended May 3, 2003. 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 21 new stores in the thirteen
weeks ended May 3, 2003 and expect to open approximately 85 additional stores in
fiscal 2003. Projected capital expenditures are approximately $36.4 million, to
be used primarily to fund new store openings, the remodeling of existing stores
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 2003.

In the thirteen weeks ended May 3, 2003, we had a net decrease in cash and
cash equivalents of approximately $6.4 million. Our secured revolving credit
facility with Fleet, as agent, provides us with up to $55 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 May 23, 2003,
there was no balance under the revolving credit facility. 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.

12

Contractual Obligations and Commercial Commitments

The following tables summarize our contractual obligations and commercial
commitments as of May 3, 2003:

There were no commercial commitments outstanding as of May 3, 2003.

Off-balance Sheet Arrangements

The company has not created, and is not party to, any special-purpose or
off-balance sheet entities for the purpose of raising capital, incurring debt or
operating the company's business. The company does not have any arrangements or
relationships with entities that are not consolidated into the financial
statements that are reasonably likely to materially affect the company's
liquidity or the availability of capital resources.

Cautionary Note Regarding Forward-Looking Statements and Risk Factors

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 and other risks are discussed in the Company's Form
10-K for the year ended February 1, 2003 filed with the Securities and Exchange
Commission.

New Accounting Standards

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This statement amends and
clarifies financial reporting for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
This statement is effective for contracts entered into or modified after June
30, 2003. The Company is currently evaluating the impact of adopting this
statement on its consolidated financial position and results of operations.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity. This statement
establishes standards for how a company classifies and measures certain
financial instruments with characteristics of both liabilities and equity. This
statement is effective for financial instruments entered into or modified after
May 31, 2003 and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. The statement will be implemented by
reporting the cumulative effect of a change in accounting principle for
financial instruments created before the issuance date of the statement and
still existing at the beginning of the period of adoption. Although we are still
in the process of reviewing the new statement, we believe this statement will
have no impact on our condensed consolidated financial statements.

13

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 seasonal,
the Company is not dependent on borrowing for the entire 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.

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:

1. The Registrants Current Report on Form 8-K, dated April 10, 2003,
related to monthly historical net sales.

14

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: June 12, 2003

15

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: June 12, 2003

16

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: June 12, 2003

17