UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
DC 20549





Form
10-Q





(Mark
      One)R
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the quarterly period ended October 31, 2009OR£
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





Commission
file number: 001-31314





Aéropostale,
Inc.


(Exact
name of registrant as specified in its charter)





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)





(646)
485-5410


(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 R    No
£





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).  Yes  ̈ No  ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





Large
      accelerated filer þ
            
            Accelerated
      filer o
            
            Non-accelerated
      filer o
            
            Smaller
      reporting(Do
      not check if a smaller reporting company)
            
            company o





Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).  YesoNoþ





The
Registrant had 66,064,732 shares of common stock issued and outstanding as of
November 27, 2009.





AÉROPOSTALE, INC.





TABLE
OF CONTENTS


PagePART
      I
            FINANCIAL
      INFORMATIONItem 1
            Financial Statements (unaudited)
            3Condensed Consolidated Balance Sheets
            3Condensed Consolidated Statements of Income
            4Condensed Consolidated Statements of Cash
    Flows
            5Notes to Unaudited Condensed Consolidated Financial
      Statements
            6Item 2
            Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
            13Item 3
            Quantitative and Qualitative Disclosures About Market
      Risk
            19Item 4
            Controls and Procedures
            19PART
      II
            OTHER
      INFORMATIONItem 1
            Legal Proceedings
            20Item 1A
            Risk Factors
            20Item 2
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            25Item 3
            Defaults Upon Senior Securities
            25Item 4
            Submission of Matters to a Vote of Security
      Holders
            25Item 5
            Other Information
            25Item 6
            Exhibits
            25SIGNATURES
            26






2
 Table of Contents


PART I — FINANCIAL INFORMATION





Item
1.  Financial
Statements (unaudited)





AÉROPOSTALE,
INC.





CONDENSED
CONSOLIDATED BALANCE SHEETS


(In
thousands)


(Unaudited)





October 31, 2009
            
            
            January 31, 2009
            
            
            November 1, 2008ASSETSCurrent
      Assets:Cash
      and cash equivalents
            
            $
            285,627
            
            
            $
            228,530
            
            
            $
            107,198Merchandise
      inventory
            
            
            221,516
            
            
            
            126,360
            
            
            
            206,857Deferred
      income taxes
            
            
            10,928
            
            
            
            10,745
            
            
            
            12,961Prepaid
      expenses and other current assets
            
            
            32,308
            
            
            
            28,246
            
            
            
            32,863Total
      current assets
            
            
            550,379
            
            
            
            393,881
            
            
            
            359,879Fixtures,
      equipment and improvements, net
            
            
            262,331
            
            
            
            248,999
            
            
            
            258,353Deferred
      income taxes
            
            
            14,050
            
            
            
            12,509
            
            
            
            17,696Other
      assets
            
            
            2,078
            
            
            
            2,530
            
            
            
            2,540TOTAL
      ASSETS
            
            $
            828,838
            
            
            $
            657,919
            
            
            $
            638,468LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      Liabilities:Accounts
      payable
            
            $
            144,564
            
            
            $
            77,247
            
            
            $
            136,738Accrued
      compensation and retirement benefit plan liabilities
            
            
            48,203
            
            
            
            30,043
            
            
            
            27,635Accrued
      gift cards
            
            
            12,285
            
            
            
            19,349
            
            
            
            10,250Accrued
      expenses and other current liabilities
            
            
            61,564
            
            
            
            48,798
            
            
            
            49,810Total
      current liabilities
            
            
            266,616
            
            
            
            175,437
            
            
            
            224,433Deferred
      rent, tenant allowances and other
            
            
            101,196
            
            
            
            102,393
            
            
            
            104,291Retirement
      benefit plan liabilities
            
            
            9,629
            
            
            
            22,470
            
            
            
            22,089Uncertain
      tax contingency liabilities
            
            
            2,948
            
            
            
            2,559
            
            
            
            2,523Commitments
      and contingent liabilities (See notes 8 and 12)Stockholders’
      Equity:Preferred
      stock, $0.01 par value; 5,000 shares authorized, no shares issued or
      outstanding
            
            
            —
            
            
            
            —
            
            
            
            —Common
      stock, $0.01 par value; 200,000 shares authorized; 91,230; 90,472 and
      90,281 shares issued and outstanding, respectively
            
            
            912
            
            
            
            905
            
            
            
            903Additional
      paid-in capital
            
            
            169,468
            
            
            
            145,951
            
            
            
            142,627Accumulated
      other comprehensive loss
            
            
            (7,030
            )
            
            
            (8,998
            )
            
            
            (9,016
            )Retained
      earnings
            
            
            826,226
            
            
            
            693,333
            
            
            
            625,107Treasury
      stock, 25,165; 23,542 and 23,464 shares, respectively at
    cost
            
            
            (541,127
            )
            
            
            (476,131
            )
            
            
            (474,489
            )Total
      stockholders’ equity
            
            
            448,449
            
            
            
            355,060
            
            
            
            285,132TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
            
            $
            828,838
            
            
            $
            657,919
            
            
            $
            638,468








See Notes
to Unaudited Condensed Consolidated Financial Statements





3
 Table of Contents


AÉROPOSTALE, INC.





CONDENSED
CONSOLIDATED STATEMENTS OF INCOME


(In
thousands, except per share data)


(Unaudited)








13 weeks ended
            
            
            39 weeks endedOctober 31, 2009
            
            
            November 1, 2008
            
            
            October 31, 2009
            
            
            November 1, 2008(Unaudited)Net
      sales
            
            $
            567,838
            
            
            $
            482,037
            
            
            $
            1,428,882
            
            
            $
            1,195,514Cost
      of sales (includes certain buying, occupancy and warehousing
      expenses)
            
            
            344,921
            
            
            
            308,586
            
            
            
            892,383
            
            
            
            784,849Gross
      profit
            
            
            222,917
            
            
            
            173,451
            
            
            
            536,499
            
            
            
            410,665Selling,
      general and administrative expenses
            
            
            117,236
            
            
            
            103,084
            
            
            
            312,964
            
            
            
            275,828Income
      from operations
            
            
            105,681
            
            
            
            70,367
            
            
            
            223,535
            
            
            
            134,837Interest
      income
            
            
            27
            
            
            
            210
            
            
            
            153
            
            
            
            530Income
      before income taxes
            
            
            105,708
            
            
            
            70,577
            
            
            
            223,688
            
            
            
            135,367Income
      taxes
            
            
            43,079
            
            
            
            27,931
            
            
            
            90,795
            
            
            
            54,170Net
      income
            
            $
            62,629
            
            
            $
            42,646
            
            
            $
            132,893
            
            
            $
            81,197Basic
      earnings per share
            
            $
            0.94
            
            
            $
            0.64
            
            
            $
            1.98
            
            
            $
            1.21Diluted
      earnings per share
            
            $
            0.92
            
            
            $
            0.63
            
            
            $
            1.95
            
            
            $
            1.20Weighted
      average basic shares
            
            
            66,881
            
            
            
            66,851
            
            
            
            67,122
            
            
            
            66,835Weighted
      average diluted shares
            
            
            67,991
            
            
            
            67,646
            
            
            
            68,026
            
            
            
            67,556







See Notes
to Unaudited Condensed Consolidated Financial Statements








4
 Table of Contents








AÉROPOSTALE, INC.





CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(In
thousands)


(Unaudited)





39 weeks endedOctober 31, 2009
            
            
            November 1, 2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
            
            $
            132,893
            
            
            $
            81,197Adjustments
      to reconcile net income to net cash used in operating
      activities:Depreciation
      and amortization
            
            
            37,411
            
            
            
            30,576Stock-based
      compensation
            
            
            10,785
            
            
            
            12,521Excess
      tax benefits from stock-based compensation
            
            
            (2,436
            )
            
            
            (2,300
            )Other
            
            
            (6,037
            )
            
            
            (4,893
            )Changes
      in operating assets and liabilities:Merchandise
      inventory
            
            
            (94,325
            )
            
            
            (71,358
            )Accounts
      payable
            
            
            66,999
            
            
            
            37,735Other
      assets and liabilities
            
            
            3,993
            
            
            
            (14,104
            )Net
      cash provided by operating activities
            
            
            149,283
            
            
            
            69,374CASH
      FLOWS FROM INVESTING ACTIVITIES:Capital
      expenditures
            
            
            (42,306
            )
            
            
            (72,457
            )Net
      cash used in investing activities
            
            
            (42,306
            )
            
            
            (72,457
            )CASH
      FLOWS FROM FINANCING ACTIVITIES:Purchase
      of treasury stock
            
            
            (63,041
            )
            
            
            (6,680
            )Proceeds
      from exercise of stock options
            
            
            10,304
            
            
            
            3,757Excess
      tax benefits from stock-based compensation
            
            
            2,436
            
            
            
            2,300Net
      cash used in financing activities
            
            
            (50,301
            )
            
            
            (623
            )Effect
      of exchange rate changes
            
            
            421
            
            
            
            (1,023
            )Net
      increase (decrease) in cash and cash equivalents
            
            
            57,097
            
            
            
            (4,729
            )Cash
      and cash equivalents, beginning of year
            
            
            228,530
            
            
            
            111,927Cash
      and cash equivalents, end of period
            
            $
            285,627
            
            
            $
            107,198Supplemental
      Disclosure of Cash Flow Information:Accruals
      related to purchases of property and equipment
            
            $
            6,405
            
            
            $
            5,260








See Notes
to Unaudited Condensed Consolidated Financial Statements





5
 Table of Contents


AÉROPOSTALE, INC.





NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





1.  Basis of
Presentation





References
to the “Company,” “we,” “us,” or “our” means Aéropostale, Inc. and its
subsidiaries, except as expressly indicated to the contrary or unless the
context otherwise requires. We are a mall-based, specialty retailer of casual
apparel and accessories for young women and men. We design, market and sell our
own brand of merchandise principally targeting 14 to 17 year-old young women and
men.  As of October 31, 2009, we operated 934 Aéropostale stores,
consisting of 894 stores in 49 states and Puerto Rico and 40 stores in Canada,
in addition to our Aéropostale e-commerce website, www.aeropostale.com
(this and any other references in this Quarterly Report on Form 10-Q to
aeropostale.com is solely a reference to a uniform resource locator, or URL, and
is an inactive textual reference only, not intended to incorporate the website
into this Quarterly Report on Form 10-Q).  In addition, our new
concept, P.S. from Aéropostale, offers casual clothing and accessories focusing
on elementary school children between the ages of 7 and 12.  As of
October 31, 2009, we operated 11 P.S. from Aéropostale stores.  In
addition, pursuant to a Licensing Agreement, our international licensee operated
four Aéropostale stores in the United Arab Emirates as of October 31,
2009.





The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with Rule 10-01 of Regulation S-X and do not include all
of the information and footnotes required by accounting principles generally
accepted in the United States. However, in the opinion of our management, all
known adjustments necessary for a fair presentation of the results of the
interim periods have been made. These adjustments consist primarily of normal
recurring accruals and estimates that impact the carrying value of assets and
liabilities. Actual results may materially differ from these
estimates.





Our
business is highly seasonal, and historically we have realized a significant
portion of our sales, net income, and cash flow in the second half of the year,
driven by the impact of the back-to-school selling season in the third quarter
and the holiday selling season in the fourth quarter. Therefore, our interim
period consolidated financial statements may 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, 2009.





References
to “2009” or “fiscal 2009” mean the 52-week period ending January 30, 2010, and
references to “2008” or “fiscal 2008” mean the 52-week period ended January 31,
2009. References to “the third quarter of 2009” mean the thirteen-week period
ended October 31, 2009, and references to “the third quarter of 2008” mean the
thirteen-week period ended November 1, 2008.





2.  Executive
Transition





On
September 24, 2009, we announced that Julian R. Geiger, our Chairman and Chief
Executive Officer, advised us that, in accordance with the terms of his
employment agreement, he expects to exercise the right of election granted to
him, thereby ending his service as Chief Executive Officer at approximately the
end of the Company’s current fiscal year (the “Election Date”).  Mr.
Geiger has served as our Chairman and CEO since 1996.  Mr. Geiger will
continue to serve as Chairman of our Board of Directors and as a part-time
advisor to the Company after he exercises his right of election.  In
connection with his advisory role, Mr. Geiger will receive an annual advisory
fee of $250,000 and an annual grant of not less than 20,000 shares, or more than
40,000 shares of restricted stock, depending upon company performance during
that fiscal year.





As a
result of the anticipated election by Mr. Geiger, we expect to make a payment to
Mr. Geiger, six months after his election date, of approximately $16.5 million
from our supplemental executive retirement plan
(“SERP”).  Accordingly, the SERP liability related to Mr. Geiger has
been classified as a current liability in our consolidated balance sheet as of
October 31, 2009.    At the date of payment to Mr. Geiger,
we will record a charge of approximately $5.7 million in selling, general and
administrative expenses, while also relieving other comprehensive loss included
in our stockholder’s equity.  This accounting treatment is in
accordance with settlement accounting procedures under the provisions of
Accounting Standards Codification (“ASC”) 715-30-35-79.  The actual
payment and charge amounts may vary depending upon Mr. Geiger’s actual election
date.  Additionally upon the Election Date, we expect to record a
charge of $0.5 million in selling, general and administrative expenses for the
accelerated amortization of stock compensation expense in connection with the
accelerated vesting of Mr. Geiger’s remaining stock awards.






6
 Table of Contents








As a
result of Mr. Geiger’s announcement, our Board of Directors has designated Mindy
C. Meads and Thomas P. Johnson as our Co-Chief Executive Officers commencing on
the effective date of Mr. Geiger’s election.  The Board also
designated effective on the same date, Michael J. Cunningham as President and
Chief Financial Officer.  On Mr. Geiger’s Election Date, Ms. Meads and
Mr. Johnson will each receive a grant of shares of restricted stock equating to,
on the grant date, $1.0 million, 50% of which will vest one year from the grant
date, and 50% two years from the grant date.   Additionally, Mr.
Cunningham received a grant of 12,735 shares of restricted stock in September
2009, 50% of which will vest in September 2010 and 50% in September
2011.





3.  Jimmy’Z Stores
Closing





During
the second quarter of 2009, we closed all 11 remaining Jimmy’Z stores.During the
first twenty-six weeks of 2009, we recorded inventory related charges of $1.3
million, severance charges of $1.1 million, and net lease termination charges of
$0.7 million.  Of these costs, $2.8 million was recorded in cost of
sales and $0.3 million was recorded in selling, general and administrative
expenses.  All of the above costs were paid as of October 31, 2009 and
there are no remaining costs to be incurred in connection with the
closings.





4.  Revenue
Recognition





Sales revenue is recognized at the
“point of sale” in our stores and at the time our e-commerce customers take
possession of merchandise. Allowances for sales returns are recorded as a
reduction of net sales in the periods in which the related sales are
recognized.  Also included in sales revenue is shipping revenue from
our e-commerce customers.Revenue is not recorded on the purchase
of gift cards or store credits.A current liability is recorded upon
purchase, and revenue is recognized when the gift card or store credits are
redeemed for merchandise.We also recognize breakage
income for the portion estimated to be unredeemed.We have no legal obligation to escheat
the value of unredeemed gift cards to the relevant jurisdiction. We therefore
have determined that the likelihood of certain gift cards being redeemed by the
customer is remote, based upon historical redemption patterns of gift cards. For
those gift cards that we determined redemption is remote, we reversed the
liability, and recorded gift card breakage income in net sales.  In
the third quarter of 2009, we recorded $0.4 million in net sales related to gift
card breakage income compared to $0.3 million in the third quarter of
2008.  In the first thirty-nine weeks of 2009, we recorded $1.5
million in net sales related to gift card breakage income compared to $1.1
million in the first thirty-nine weeks of 2008.





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





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





Selling,
general and administrative expenses, or “SG&A”, include costs related to
selling expenses, store management and corporate expenses such as payroll and
employee benefits, marketing expenses, employment taxes, maintenance costs,
insurance and legal expenses, store pre-opening costs and other corporate level
expenses. Store pre-opening costs include store level payroll, grand opening
event marketing, travel, supplies and other store pre-opening
expenses.





6.  Comprehensive Income
(Loss)





The
following table sets forth the components of total comprehensive
income:





13 weeks ended
            
            
            39 weeks endedOctober 31, 2009
            
            
            November 1, 2008
            
            
            October 31, 2009
            
            
            November 1, 2008(In
      thousands)Net
      income
            
            $
            62,629
            
            
            $
            42,646
            
            
            $
            132,893
            
            
            $
            81,197Other
      comprehensive income:Changes
      in pension liability, net of tax
            
            
            (89
            )
            
            
            (205
            )
            
            
            (266
            )
            
            
            (615
            )Changes
      in foreign currency translation adjustment 1
            
            
            (15
            )
            
            
            (3,184
            )
            
            
            2,234
            
            
            
            (3,751
            )Total
      comprehensive income
            
            $
            62,525
            
            
            $
            39,257
            
            
            $
            134,861
            
            
            $
            76,831







7
 Table of Contents







The
following table sets forth the components of accumulated other comprehensive
loss:





October 31, 2009
            
            
            January 31,
              2009
            
            
            November 1, 2008(In
      thousands)Pension
      liability, net of tax
            
            $
            (6,596
            )
            
            $
            (6,330
            )
            
            $
            (6,472
            )Cumulative
      foreign currency translation adjustment 1
            
            
            (434
            )
            
            
            (2,668
            )
            
            
            (2,544
            )Total
      accumulated other comprehensive loss
            
            $
            (7,030
            )
            
            $
            (8,998
            )
            
            $
            (9,016
            )





1
Foreign currency translation adjustments are not adjusted for income taxes as
they relate to a permanent investment in our subsidiary in Canada.





7.  Earnings Per
Share





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





13 weeks ended
            
            
            39 weeks endedOctober 31, 2009
            
            
            November 1, 2008
            
            
            October 31, 2009
            
            
            November 1, 2008(In
      thousands, except per share data)Net
      income
            
            $
            62,629
            
            
            $
            42,646
            
            
            $
            132,893
            
            
            $
            81,197Weighted
      average basic shares
            
            
            66,881
            
            
            
            66,851
            
            
            
            67,122
            
            
            
            66,835Impact
      of dilutive securities
            
            
            1,110
            
            
            
            795
            
            
            
            904
            
            
            
            721Weighted
      average diluted shares
            
            
            67,991
            
            
            
            67,646
            
            
            
            68,026
            
            
            
            67,556Earnings
      per basic share
            
            $
            0.94
            
            
            $
            0.64
            
            
            $
            1.98
            
            
            $
            1.21Earnings
      per diluted share
            
            $
            0.92
            
            
            $
            0.63
            
            
            $
            1.95
            
            
            $
            1.20





All
options to purchase shares during the third quarter of 2009 were included in the
computation of diluted earnings per share.  Options to purchase 4,000
shares during the third quarter of 2008 were not included in the computation of
diluted earnings per share because the exercise price of the options was greater
than the average market price of the common shares.  Options to
purchase 181,435 shares during the first thirty-nine weeks of 2009 and 22,000
shares during the first thirty-nine weeks of 2008 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.





8.  Revolving Credit
Facility





We have
an amended and restated revolving credit facility with Bank of America, N.A., as
Lender which provides availability of $150.0 million (the “Credit
Facility”).  The Credit Facility is available for working capital and
general corporate purposes.  The Credit Facility is scheduled to
expire on November 13, 2012.





Loans
under the Credit Facility are secured by all our assets and are guaranteed by
our subsidiaries. Upon the occurrence of a Cash Dominion Event (as defined in
the Credit Facility) among other limitations, our ability to borrow funds, make
investments, pay dividends and repurchase shares of our common stock would be
limited. Direct borrowings under the Credit Facility bear interest at a
margin over either LIBOR or a Base Rate (as each such term is defined in the
Credit Facility).  As of October 31, 2009, we had no outstanding
balances or stand-by or commercial letters of credit issued under the Credit
Facility.




The
Credit Facility also contains covenants that, subject to specified exceptions,
restrict our ability to, among other things, incur additional debt or encumber
assets of the Company; merge with or acquire other companies, liquidate or
dissolve; sell, transfer, lease or dispose of assets; or make loans or
guarantees.  As of October 31, 2009, we are not aware of any instances
of noncompliance with any covenants or any other event of default under the
Credit Facility.






8
 Table of Contents





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,
institution of legal process or proceedings under federal, state or civil
statutes, legal challenges to loan documents, and a change in control. If an
event of default occurs, the Lender 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.  Upon the occurrence of an event of
default under the Credit Facility, the lenders may cease making loans, terminate
the Credit Facility, and declare all amounts outstanding to be immediately due
and payable.





9.  Retirement Benefit
Plans





401(k)
Plan





We
maintain a qualified, defined contribution retirement plan with a 401(k) salary
deferral feature that covers substantially all of our employees who meet certain
requirements. Under the terms of the plan, employees may contribute up to 14% of
their gross earnings and we will provide a matching contribution of 50% of the
first 5% of gross earnings contributed by the participants. We also have the
option to make additional contributions. Matching contributions vest over a
five-year service period with 20% vesting after two years and 50% vesting after
year three. Vesting increases thereafter at a rate of 25% per year so that
participants will be fully vested after year five.





Supplemental
Executive Retirement Plan





We
maintain a supplemental executive retirement plan, or SERP, which is a
non-qualified defined benefit plan for certain executives. The plan is
non-contributory and not funded and provides benefits based on years of service
and compensation during employment. Participants are vested upon entrance in the
plan. Pension expense is determined using various actuarial cost methods to
estimate the total benefits ultimately payable to officers and this cost is
allocated to service periods. The actuarial assumptions used to calculate
pension costs are reviewed annually.





The
components of net periodic pension benefit cost are as follows:





13 weeks ended
            
            
            39 weeks endedOctober 31, 2009
            
            
            November 1, 2008
            
            
            October 31, 2009
            
            
            November 1, 2008(In
      thousands)Service
      cost
            
            $
            172
            
            
            $
            164
            
            
            $
            515
            
            
            $
            492Interest
      cost
            
            
            379
            
            
            
            287
            
            
            
            1,136
            
            
            
            860Amortization
      of prior experience cost
            
            
            19
            
            
            
            19
            
            
            
            56
            
            
            
            56Amortization
      of net loss
            
            
            157
            
            
            
            149
            
            
            
            471
            
            
            
            446Net
      periodic pension benefit cost
            
            $
            727
            
            
            $
            619
            
            
            $
            2,178
            
            
            $
            1,854





We had
non-current liabilities of $7.9 million as of October 31, 2009, $21.2 million as
of January 31, 2009 and $20.8 million as of November 1, 2008, in connection with
this plan.  Additionally, the SERP liability of $15.8 million related
to Mr. Geiger has been classified as a current liability included in our
consolidated balance sheet as of October 31, 2009 (see note 2 for a further
discussion).





Long-term
Incentive Plan





We
maintain a long-term incentive deferred compensation plan for the purpose of
providing long-term incentive to a designated 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 the Company as Vice President, or other
higher-ranking positions, who are not participants in the SERP. Annual monetary
credits are recorded to each participant’s account based on compensation levels
and years as a participant in the plan. Annual interest credits are 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
participants’ accounts will be fully vested upon retirement after completing
five years of service and attaining age 55.  We had liabilities of
$0.9 million as of October 31, 2009, $0.6 million as of January 31, 2009 and
$0.6 million as of November 1, 2008, in connection with this plan.






9
 Table of Contents





Post
Retirement Benefit Plan





We
maintain a postretirement benefit plan for certain officers. We had liabilities
of $0.8 million as of October 31, 2009, $0.7 million as of January 31, 2009 and
$0.7 million as of November 1, 2008, in connection with this plan.





10.  Stock Repurchase
Program





We
repurchase our common stock from time to time under a stock repurchase
program.  The repurchase program may be modified or terminated by the
Board of Directors at any time, and there is no expiration date for the program.
The extent and timing of repurchases will depend upon general business and
market conditions, stock prices, opening and closing of the stock trading
window, and liquidity and capital resource requirements going
forward.  During the third quarter of 2009, the Company repurchased
1,174,500 shares of our common stock for $49.5 million, as compared to
repurchases of 115,000 shares for $3.8 million during the third quarter of
2008.  During the first thirty-nine weeks of 2009, the Company
repurchased 1,555,700 shares for $63.0 million, as compared to repurchases of
208,000 shares for $6.7 million during the first thirty-nine weeks of
2008.





As of
October 31, 2009, we had approximately $64.0 million of repurchase
authorization remaining under our $600.0 million share repurchase
program.




11.  Stock-Based
Compensation





We follow
the provisions from the ASC Topic 718, “Compensation –Stock
Compensation”.  Under such guidance, all forms of share-based payment
to employees and directors, including stock options, must be treated as
compensation and recognized in the income statement.





The fair
value of options was estimated on the date of grant using the Black-Scholes
option-pricing model. The Black-Scholes model requires certain assumptions,
including estimating the length of time employees will retain their vested stock
options before exercising them (“expected term”), the estimated volatility of
our common stock price over the expected term and the number of options that
will ultimately not complete their vesting requirements (“forfeitures”). Changes
in the subjective assumptions can materially affect the estimate of fair value
of stock-based compensation and consequently, the related amount recognized in
the consolidated statements of income.





Stock
Options





We did
not issue any stock options during 2009.  During the third quarter of
2008, we issued 4,000 stock options at a weighted-average grant date fair value
of $13.24.  During the first thirty-nine weeks of 2008, we issued
108,600 stock options at a weighted-average grant date fair value of $12.10. For
the first thirty-nine weeks of 2008, our expected volatility was 43%, expected
term was 5.25 years, risk-free interest rate was 2.68% and expected forfeiture
rate was 25%.





We have
elected to adopt the simplified method to establish the beginning balance of the
additional paid-in capital pool (“APIC Pool”) related to the tax effects of
employee share-based compensation, and to determine the subsequent impact on the
APIC Pool and condensed consolidated statements of cash flows of the tax effects
of employee and director share-based awards that were outstanding.





The
effects of applying the provisions from ASC Topic 718, “Compensation –Stock
Compensation” and the results obtained through the use of the Black-Scholes
option-pricing model are not necessarily indicative of future
values.





A summary
of stock option activity during the first thirty-nine weeks of 2009 is as
follows:





Number
      ofShares
            
            
            Weighted
      Average Exercise
Price
            
            
            Weighted-Average
      Remaining Contractual
      Term
            
            
            Aggregate
      IntrinsicValue(In
      thousands)
            
            
            
            
            
            (In
      years)
            
            
            (In
      millions)Outstanding
      as of January 31, 2009
            
            
            1,450
            
            
            $
            20.87Granted
            
            
            —
            
            
            
            —Exercised
            
            
            (556
            )
            
            $
            18.55Cancelled
            
            
            (1
            )
            
            $
            23.34Outstanding
      as of October 31, 2009
            
            
            893
            
            
            $
            22.31
            
            
            
            4.56
            
            
            $
            13.6Exercisable
      as of October 31, 2009
            
            
            472
            
            
            $
            19.60
            
            
            
            3.80
            
            
            $
            8.5






10
 Table of Contents





We
recognized $0.7 million in compensation expense related to stock options
during the third quarter of 2009 and $0.9 million during the third quarter of
2008.  We recognized $1.9 million in compensation expense related
to stock options in the first thirty-nine weeks of 2009 and $2.8 million in the
first thirty-nine weeks of 2008.




For the
first thirty-nine weeks of 2009, the intrinsic value of options exercised was
$10.5 million as compared to $2.4 million for the first thirty-nine weeks
of 2008.





As of
October 31, 2009, there was $3.2 million of total unrecognized
compensation cost related to non-vested options that we expect will be
recognized over the remaining weighted-average vesting period of
2.3 years.





Non-Vested
Stock





During
the third quarter of 2009, we granted 70,866 shares of non-vested stock at a
weighted-average grant date fair value of $43.19 compared to grants of 3,000
shares of non-vested stock at a weighted-average grant date fair value of $32.99
during the third quarter of 2008.  During the first thirty-nine weeks
of 2009, we granted 299,888 shares of non-vested stock at a weighted-average
grant date fair value of $29.28 compared to grants of 164,775 shares of
non-vested stock at a weighted-average grant date fair value of $28.65 during
the first thirty-nine weeks of 2008.





A summary
of non-vested stock activity during the first thirty-nine weeks of 2009 is as
follows:





Number
      of Shares(In
      thousands)Non-vested
      stock as of January 31, 2009
            
            
            728Granted
            
            
            299Vested
            
            
            (202
            )Cancelled
            
            
            —Non-vested
      stock as of October 31, 2009
            
            
            825





Total
compensation expense is being amortized over the vesting period. Compensation
expense related to non-vested stock activity was $2.3 million for the third
quarter of 2009 compared to $2.9 million for the third quarter of
2008.  Compensation expense related to non-vested stock activity was
$6.0 million for the first thirty-nine weeks of 2009 compared to $8.6
million for the first thirty-nine weeks of 2008.





As of
October 31, 2009, there was $9.4 million of unrecognized compensation cost
related to non-vested stock awards that is expected to be recognized over the
weighted average period of 1.2 years.





Performance
Shares





A summary
of performance shares activity during the first thirty-nine weeks of 2009 is as
follows:





Number
      of Shares(In
      thousands)Performance
      shares as of January 31, 2009
            
            
            159Granted
            
            
            304Vested
            
            
            —Cancelled
            
            
            —Performance
      shares as of October 31, 2009
            
            
            463





Compensation
expense related to performance shares was $1.3 million for the third
quarter of 2009 compared to $0.4 million for the third quarter of
2008.  Compensation expense related to performance shares was
$2.8 million for the first thirty-nine weeks of 2009 compared to $1.1
million for the first thirty-nine weeks of 2008.




As of
October 31, 2009, there was $6.4 million of unrecognized compensation cost
related to performance shares that is expected to be recognized over the
weighted average period of 1.7 years.






11
 Table of Contents





12.  Commitments and
Contingent Liabilities





We are
party to various litigation matters and proceedings in the ordinary course of
business. In the opinion of our management, dispositions of these matters are
not expected to have a material adverse affect on our financial position,
results from operations or cash flows.  As of October 31, 2009, we had
not issued any third party guarantees.




13.
Income Taxes





We review
the annual effective tax rate on a quarterly basis and make necessary changes if
information or events merit. The annual effective tax rate is forecasted
quarterly using actual historical information and forward-looking estimates. The
estimated annual effective tax rate may fluctuate due to changes in forecasted
annual operating income; changes to the valuation allowance for deferred tax
assets (such changes would be recorded discretely in the quarter in which they
occur); changes to actual or forecasted permanent book to tax differences
(non-deductible expenses); impacts from future tax settlements with state,
federal or foreign tax authorities (such changes would be recorded discretely in
the quarter in which they occur); or impacts from tax law changes.  To
the extent such changes impact our deferred tax assets/liabilities, these
changes would generally be recorded discretely in the quarter in which they
occur.





We follow
the provisions of ASC Topic 740, “Income Taxes”, which includes the accounting
and disclosure for uncertainty in income taxes. We recognize interest and
penalties related to unrecognized tax benefits as a component of income tax
expense.





We had
$2.9 million of unrecognized tax benefit related to uncertain tax contingency
liabilities remaining as of October 31, 2009, including accrued penalties and
interest of $0.9 million.  Uncertain tax positions of $2.1 million as
of October 31, 2009, which is inclusive of interest and penalties, would
favorably impact our effective tax rate if these net liabilities were
reversed.





We file
income tax returns in the U.S. and in various states, Canada and Puerto
Rico.  Our U.S. federal filings for the years 2002 through 2005 were
examined and we reached a settlement with the IRS in the fourth quarter of
fiscal 2007.  The examination liability related to the timing of
taxable revenue from non-redeemed gift cards.  The IRS has begun an
examination of our 2006 and 2007 tax returns during the third quarter of
2009.  For state tax purposes, our 2004 through 2007 tax years remain
open for examination by the tax authorities under a four-year statute of
limitations. However, certain states may keep their statute open for six to ten
years.





14.
Recent Accounting Developments





In June
2009, the Financial Accounting Standards Board (“FASB”) issued authoritative
guidance which established the FASB Accounting Standards Codification
(“Codification” or “ASC”).  The Codification became the source of
authoritative generally accepted accounting principles in the United States of
America.  It changed the referencing of financial standards but was
not intended to change or alter existing U.S. GAAP.  The
Codification was effective for interim or annual financial periods ending after
September 15, 2009 and was effective for us in the third quarter of
2009.  This new guidance applies only to financial statement
disclosures and therefore we have updated our references for the accounting
guidance.





In May
2009, the FASB issued authoritative guidance now codified as ASC Topic 855,
“Subsequent Events”.  The objective of this guidance is to establish
general standards of accounting for and disclosure of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued.  In particular, this guidance sets forth: a)
the period after the balance sheet date during which management of a reporting
entity should evaluate events or transactions that may occur for potential
recognition or disclosure in the financial statements; b) the circumstances
under which an entity should recognize events or transactions occurring after
the balance sheet date in its financial statements; and c) the disclosures that
an entity should make about events or transactions that occurred after the
balance sheet date.  In accordance with this guidance, an entity should
apply the requirements to interim or annual financial periods ending after June
15, 2009.  We adopted the new guidance in the second quarter of 2009 and
have evaluated events or transactions that occurred after October 31, 2009
through December 4, 2009, the date we issued these financial
statements.  The adoption did not have an impact on our consolidated
financial statements.





In
December 2008, the FASB issued authoritative guidance now codified as ASC Topic
715, “Compensation – Retirement Benefits”.  The guidance requires more
detailed disclosures about employers’ plan assets, including employers’
investment strategies, major categories of plan assets, concentrations of risk
within plan assets, and valuation techniques used to measure the fair value of
plan assets.  The new guidance will be effective for fiscal years
ending after December 15, 2009 and we expect that its adoption will not have a
material impact on our consolidated financial statements.






12
 Table of Contents








In
September 2006, the FASB issued authoritative guidance now codified as ASC Topic
820, “Fair Value Measurements and Disclosures”.  The guidance defines
fair value, establishes a framework for measuring fair value in generally
accepted accounting principles, and expands disclosures about fair value
measurements. This guidance applies under other accounting pronouncements that
require or permit fair value measurements, the FASB having concluded in those
other accounting pronouncements that fair value is the relevant measurement
attribute. It is effective in financial statements issued for fiscal years
beginning after November 15, 2007.  However, in February 2008, the
FASB issued additional ASC Topic 820 guidance which delayed application of
certain guidance related to nonrecurring fair value measurements of
non-financial assets and non-financial liabilities until fiscal years beginning
after November 15, 2008.  We adopted the provisions of ASC Topic 820
as it related to nonrecurring fair value measurements of non-financial assets
and liabilities at the beginning of fiscal 2009.  The adoption has not
had a material impact on our consolidated financial statements.





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





Cautionary
Note Regarding Forward-Looking Statements





This
Quarterly Report on Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Such forward-looking statements involve certain
risks and uncertainties, including statements regarding our strategic direction,
prospects and future results. Certain factors, including factors outside of our
control, may cause actual results to differ materially from those contained in
the forward-looking statements. The risk factors included in Part II, Item 1A
should be read in connection with evaluating our business and future prospects.
All forward looking statements included in this report are based on information
available to us as of the date hereof, and we assume no obligation to update or
revise such forward-looking statements to reflect events or circumstances that
occur after such statements are made.





Introduction





References
to the “Company,” “we,” “us,” or “our” mean Aéropostale, Inc. and its
subsidiaries, except as expressly indicated to the contrary or unless the
context otherwise requires. We are a mall-based, specialty retailer of casual
apparel and accessories for young women and men. We design, market and sell our
own brand of merchandise principally targeting 14 to 17 year-old young women and
men.  As of October 31, 2009, we operated 934 Aéropostale stores,
consisting of 894 stores in 49 states and Puerto Rico and 40 stores in Canada,
in addition to our Aéropostale e-commerce website, www.aeropostale.com
(this and any other references in this Quarterly Report on Form 10-Q to
aeropostale.com is solely a reference to a uniform resource locator, or URL, and
is an inactive textual reference only, not intended to incorporate the website
into this Quarterly Report on Form 10-Q).  In addition, our new
concept, P.S. from Aéropostale, offers casual clothing and accessories focusing
on elementary school children between the ages of 7 and 12.  As of
October 31, 2009, we operated 11 P.S. from Aéropostale stores.  In
addition, pursuant to a Licensing Agreement, our international licensee operated
four Aéropostale stores in the United Arab Emirates as of October 31,
2009.





On
September 24, 2009, we announced that Julian R. Geiger, our Chairman and Chief
Executive Officer, advised us that, in accordance with the terms of his
employment agreement, he expects to exercise the right of election granted to
him, thereby ending his service as Chief Executive Officer at approximately the
end of the Company’s current fiscal year (the “Election Date”).  Mr.
Geiger will continue to serve as Chairman of our Board of Directors and as a
part-time advisor to the Company after he exercises his right of
election.  As a result of Mr. Geiger’s announcement, our Board of
Directors has designated Mindy C. Meads and Thomas P. Johnson as our Co-Chief
Executive Officers commencing on the effective date of Mr. Geiger’s
election.  The Board also designated effective on the same date,
Michael J. Cunningham as President and Chief Financial Officer (see Note 2 to
the Notes to Unaudited Condensed Consolidated Financial
Statements).




Management’s
Discussion and Analysis of Financial Condition and Results of Operations, or
“MD&A,” is intended to provide information to help you better understand our
financial condition and results of operations. Our business is highly seasonal,
and historically we realize a significant portion of our sales, net income, and
cash flow in the second half of the year, driven by the impact of the
back-to-school selling season in our third quarter and the holiday selling
season in our fourth quarter. Therefore, our interim period consolidated
financial statements may 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, 2009.





The
discussion in the following section is on a consolidated basis, unless indicated
otherwise.





13
 Table of Contents





Results
of Operations





Overview





We
achieved net sales of $567.8 million for the third quarter of 2009, or an 18%
increase when compared to the third quarter of 2008.  The increase in
net sales for the third quarter of 2009 was driven by an increase in comparable
store sales of 10% and average retail square footage growth of 5%, primarily
from new stores.  Gross profit, as a percentage of net sales,
increased by 3.3 percentage points for the third quarter of 2009 due primarily
to increased merchandise margin.  SG&A, as a percentage of net
sales, decreased by 0.8 percentage points for the third quarter of
2009.  The effective income tax rate was 40.8% for the third quarter
of 2009 and 39.6% for the third quarter of 2008.  Net income for the
third quarter of 2009 was $62.6 million, or $0.92 per diluted share, compared to
net income of $42.6 million, or $0.63 per diluted share, for the third quarter
of 2008.





As of
October 31, 2009, we had working capital of $283.8 million, cash and cash
equivalents of $285.6 million and no debt.  Consolidated merchandise
inventories increased by 7% and remained essentially flat on a per retail square
foot basis, at October 31, 2009 compared to November 1, 2008.





We
operated 945 stores at October 31, 2009, an increase of 4% from the same period
last year, which was due to additional new stores in the U.S. including our new
P.S. from Aéropostale stores and our expansion into Canada and Puerto
Rico.





The
following table sets forth our results of operations as a percentage of net
sales. We also use this information to evaluate the performance of our
business:





13 weeks ended
            
            
            39 weeks endedOctober 31, 2009
            
            
            November 1, 2008
            
            
            October 31, 2009
            
            
            November 1, 2008Net
      sales
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %Gross
      profit
            
            
            39.3
            %
            
            
            36.0
            %
            
            
            37.5
            %
            
            
            34.4
            %Selling,
      general and administrative expenses
            
            
            20.6
            %
            
            
            21.4
            %
            
            
            21.9
            %
            
            
            23.1
            %Income
      from operations
            
            
            18.7
            %
            
            
            14.6
            %
            
            
            15.6
            %
            
            
            11.3
            %Income
      before income taxes
            
            
            18.7
            %
            
            
            14.6
            %
            
            
            15.6
            %
            
            
            11.3
            %Income
      taxes
            
            
            7.6
            %
            
            
            5.8
            %
            
            
            6.4
            %
            
            
            4.5
            %Net
      income
            
            
            11.1
            %
            
            
            8.8
            %
            
            
            9.2
            %
            
            
            6.8
            %





Key
Performance Indicators





We use a
number of key indicators of financial condition and operating performance to
evaluate the performance of our business, some of which are set forth in the
following table:





13 weeks ended
            
            
            39 weeks endedOctober 31, 2009
            
            
            November 1, 2008
            
            
            October 31, 2009
            
            
            November 1, 2008Net
      sales (in millions)
            
            $
            567.8
            
            
            $
            482.0
            
            
            $
            1,428.9
            
            
            $
            1,195.5Total
      store count at end of period
            
            
            945
            
            
            
            905
            
            
            
            945
            
            
            
            905Comparable
      store count at end of period
            
            
            850
            
            
            
            782
            
            
            
            850
            
            
            
            782Net
      sales growth
            
            
            18
            %
            
            
            17
            %
            
            
            20
            %
            
            
            20
            %Comparable
      store sales change
            
            
            10
            %
            
            
            7
            %
            
            
            11
            %
            
            
            9
            %Comparable
      average unit retail change
            
            
            3
            %
            
            
            8
            %
            
            
            4
            %
            
            
            3
            %Comparable
      units per sales transaction change
            
            
            2
            %
            
            
            1
            %
            
            
            4
            %
            
            
            2
            %Comparable
      sales per transaction change
            
            
            5
            %
            
            
            (1
            )%
            
            
            3
            %
            
            
            4
            %Net
      sales per average retail square foot
            
            $
            158
            
            
            $
            144
            
            
            $
            408
            
            
            $
            373Gross
      profit (in millions)
            
            $
            222.9
            
            
            $
            173.5
            
            
            $
            536.5
            
            
            $
            410.7Income
      from operations (in millions)
            
            $
            105.7
            
            
            $
            70.4
            
            
            $
            223.5
            
            
            $
            134.8Diluted
      earnings per share
            
            $
            0.92
            
            
            $
            0.63
            
            
            $
            1.95
            
            
            $
            1.20Average
      retail square footage growth over comparable period
            
            
            5
            %
            
            
            11
            %
            
            
            8
            %
            
            
            11
            %Change
      in total inventory over comparable period
            
            
            7
            %
            
            
            8
            %
            
            
            7
            %
            
            
            8
            %Change
      in inventory per retail square foot over comparable period
            
            
            0
            %
            
            
            (8
            )%
            
            
            0
            %
            
            
            (8
            )%Percentages
      of net sales by category:Young
      Women’s
            
            
            70
            %
            
            
            71
            %
            
            
            70
            %
            
            
            71
            %Young
      Men’s
            
            
            30
            %
            
            
            29
            %
            
            
            30
            %
            
            
            29
            %








14
 Table of Contents





Comparison
of the 13 weeks ended October 31, 2009 to the 13 weeks ended November 1,
2008





Net
Sales





Net sales
for the third quarter of 2009 increased by $85.8 million, or by 18% compared to
the same period last year.  The increase in net sales was driven by an
increase in comparable store sales of 10% or $44.9 million and average retail
square footage growth of 5%, primarily from new stores.  Comparable
store sales increased in both our young women’s and young men’s
categories.  The overall comparable store sales increase reflected
increases of 5% in the number of sales transactions, 3% in average unit retail
and 2% in units per sales transaction.  Non-comparable store sales
increased by $40.9 million due primarily to 40 more stores open at the end of
the third quarter of 2009 compared to the end of the third quarter of
2008.  Total non-comparable sales includes net sales from our
e-commerce business which increased by 52% or $11.2 million during the third
quarter of 2009 when compared to the same period last year.





Gross
Profit





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





Gross
profit, as a percentage of net sales, increased by 3.3 percentage points for the
third quarter of 2009 compared to the same period last year. The increase was
due primarily to an increase in merchandise margin of 2.5 percentage points, the
leveraging impact of occupancy costs of 0.7 percentage points and lower
distribution and transportation costs of 0.2 percentage points.





SG&A





SG&A
includes costs related to selling expenses, store management and corporate
expenses such as payroll and employee benefits, marketing expenses, employment
taxes, maintenance costs and expenses, insurance and legal expenses, store
pre-opening costs and other corporate level expenses. Store pre-opening costs
include store level payroll, grand opening event marketing, travel, supplies and
other store pre-opening expenses.





SG&A
increased by $14.2 million for the third quarter of 2009 compared to the third
quarter of 2008. The increase in SG&A was largely due to increases of $5.9
million in store-line expenses, $5.9 million in corporate expenses, which
included higher incentive compensation, benefits and other corporate expenses
and $2.3 million of e-commerce transaction costs, reflecting the 52% increase in
sales in this business.





SG&A
decreased by 0.8 percentage points, as a percentage of net sales, for the third
quarter of 2009 compared to the third quarter of 2008.  The decrease
was driven primarily by the leveraging impact of store-line expenses, which
resulted in a 0.7 percentage point decrease in addition to lower marketing
expenses of 0.3 percentage points.  These decreases were offset
partially by 0.2 percentage points of higher e-commerce expenses, reflecting the
52% increase in sales in this business.





Income
taxes





The
effective income tax rate was 40.8% for the third quarter of 2009 and 39.6% for
the third quarter of 2008.  The increase in the effective tax rate was
due to higher state taxes and higher nondeductible officer’s
compensation.


Net
income





Net income was $62.6 million, or $0.92
per diluted share, for the third quarter of 2009, compared to net income of
$42.6 million, or $0.63 per diluted share, for the third quarter of
2008.  Earnings per share increased by 46% for the third quarter of
2009, due primarily to the increase in net income.








15
 Table of Contents







Comparison
of the 39 weeks ended October 31, 2009 to the 39 weeks ended November 1,
2008





Net
Sales





Net sales
for the first thirty-nine weeks of 2009 increased by $233.4 million, or by 20%
compared to the same period last year.  The increase in net sales was
driven by an increase in comparable store sales of 11% or $118.5 million and
average retail square footage growth of 8%, primarily from new
stores.  Comparable store sales increased in both our young women’s
and young men’s categories.  The overall comparable store sales
increase reflected increases of 4% in units per sales transaction, 4% in average
unit retail and 3% in the number of sales
transactions.  Non-comparable store sales increased by $114.9 million
due primarily to 40 more stores open at the end of the first thirty-nine weeks
of 2009 compared to the end of the first thirty-nine weeks of
2008.  Total non-comparable sales includes net sales from our
e-commerce business which increased by 55% or $23.1 million during the first
thirty-nine weeks of 2009 when compared to the same period last
year.





Gross
Profit





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





Gross
profit, as a percentage of net sales, increased by 3.1 percentage points for the
first thirty-nine weeks of 2009 compared to the same period last year. The
increase was due primarily to an increase in merchandise margin of 2.3
percentage points, the leveraging impact of occupancy costs of 0.7 percentage
points and lower distribution and transportation costs of 0.3 percentage
points.





SG&A





SG&A
includes costs related to selling expenses, store management and corporate
expenses such as payroll and employee benefits, marketing expenses, employment
taxes, maintenance costs and expenses, insurance and legal expenses, store
pre-opening costs and other corporate level expenses. Store pre-opening costs
include store level payroll, grand opening event marketing, travel, supplies and
other store pre-opening expenses.





SG&A
increased by $37.1 million for the first thirty-nine weeks of 2009 compared to
the first thirty-nine weeks of 2008. The increase in SG&A was largely due to
increases of $15.2 million in corporate expenses, which included higher
incentive compensation, benefits and other corporate expenses, $14.8 million in
store-line expenses and  $7.9 million in store and e-commerce
transaction costs, resulting primarily from new store growth and increased
sales.  These increases were offset partially by lower marketing costs
of $0.8 million.





SG&A
decreased by 1.2 percentage points, as a percentage of net sales, for the first
thirty-nine weeks of 2009 compared to the first thirty-nine weeks of
2008.  The decrease was driven primarily by the leveraging impact of
store-line and other corporate expenses on increased sales, which resulted in a
1.1 percentage point decrease.  In addition, a reduction in our
collegiate marketing program resulted in a 0.3 percentage point
decrease.  These decreases were offset partially by 0.2 percentage
points of higher e-commerce expenses, reflecting the 55% increase in sales in
this business.





Income
taxes





The
effective income tax rate was 40.6% for the first thirty-nine weeks of 2009 and
40.0% for the first thirty-nine weeks of 2008.  The increase in the
effective tax rate was due to higher state taxes and higher nondeductible
officer’s compensation.





Net
income





Net income was $132.9 million, or $1.95
per diluted share, for the first thirty-nine weeks of 2009, compared to net
income of $81.2 million, or $1.20 per diluted share, for the first thirty-nine
weeks of 2008.  Earnings per share increased by 63% for the first
thirty-nine weeks of 2009 due primarily to the increase in net
income.








16
 Table of Contents








Liquidity
and Capital Resources





Our cash
requirements are primarily for working capital, construction of new stores,
remodeling of existing stores, and the improvement or enhancement of our
information technology systems. Due to the seasonality of our business, we have
historically realized a significant portion of our cash flows from operations
during the second half of the year. Most recently, our cash requirements have
been met primarily through cash and cash equivalents on hand during the first
half of the year, and through cash flows from operations during the second half
of the year. We expect to continue to meet our cash requirements for the next
twelve months primarily through cash flows from operations and existing cash and
cash equivalents.  In addition, while we do not currently anticipate
borrowing any funds, we also have available a $150.0 million credit
facility.  At October 31, 2009, we had working capital of $283.8
million, cash and cash equivalents of $285.6 million and no debt
outstanding.





The
following table sets forth our cash flows for the period indicated:





39 weeks endedOctober 31, 2009
            
            
            November 1, 2008(In
      thousands)Net
      provided by operating activities
            
            $
            149,283
            
            
            $
            69,374Net
      cash used in investing activities
            
            
            (42,306
            )
            
            
            (72,457
            )Net
      cash used in financing activities
            
            
            (50,301
            )
            
            
            (623
            )Effect
      of exchange rate changes
            
            
            421
            
            
            
            (1,023
            )Net
      increase (decrease) in cash and cash equivalents
            
            $
            57,097
            
            
            $
            (4,729
            )





Operating
activities— Net cash provided by
operating activities increased by $79.9 million for the first thirty-nine weeks
of 2009 compared to the same period in 2008.  This increase was
attributable primarily to the increase in cash generated through net income and
the timing of payment of liabilities.  Consolidated merchandise
inventories increased by 7%, and remained essentially flat on a per retail
square foot basis, as of October 31, 2009 as compared to November 1,
2008.





Due to
the seasonality of our business, we have historically generated a significant
portion of our cash flows from operating activities in the second half of the
year, and we expect this trend to continue through the balance of this
year.





Capital
requirements— Investments in
capital expenditures are principally for the construction of new stores,
remodeling of existing stores, and investments in information technology. Our
future capital requirements will depend primarily on the number of new stores we
open, the number of existing stores we remodel and the timing of these
expenditures.  We opened 33 Aéropostale stores during the first
thirty-nine weeks of 2009, which included 11 stores in Canada.  We
also opened 11 P.S. from Aéropostale stores.  In addition, during the
first thirty-nine weeks of 2009, we remodeled and renovated 11 existing
Aéropostale stores.  Capital expenditures for the full year of 2009
are expected to approximate $50.0 million for new and remodeled stores as well
as for other initiatives.  These plans include approximately 53 new
Aéropostale stores, including approximately 15 in Canada, approximately 14 P.S.
from Aéropostale stores in the United States and 15 remodeled Aéropostale
stores.





We had no
short-term investments at October 31, 2009, January 31, 2009 or November 1,
2008.





Financing
activities and capital resources— We repurchase our
common stock from time to time under a stock repurchase program. The repurchase
program may be modified or terminated by the Board of Directors at any time, and
there is no expiration date for the program. The extent and timing of
repurchases will depend upon general business and market conditions, stock
prices, opening and closing of the stock trading window, and liquidity and
capital resource requirements going forward.





During
the first thirty-nine weeks of 2009, the Company repurchased 1,555,700 shares of
our common stock for $63.0 million, as compared to repurchases of 208,000 shares
for $6.7 million during the first thirty-nine weeks of 2008.





We have
an amended and restated revolving credit facility with Bank of America, N.A., as
Lender which provides availability of $150.0 million of revolving credit
(the “Credit Facility”).  The Credit Facility is available for working
capital and general corporate purposes.  The Credit Facility is
scheduled to mature on November 13, 2012, and no amounts were outstanding
as of October 31, 2009.






17
 Table of Contents








Contractual
Obligations





The
following table summarizes our contractual obligations as of October 31,
2009:





Payments DueBalance
      of
            
            
            In
      2010
            
            
            In
      2012
            
            
            AfterTotal
            
            
            2009
            
            
            and 2011
            
            
            and 2013
            
            
            2013(In
      thousands)Contractual
      ObligationsReal
      estate operating leases
            
            $
            766,494
            
            
            $
            100,509
            
            
            $
            203,684
            
            
            $
            180,946
            
            
            $
            281,355Equipment
      operating leases
            
            
            7,267
            
            
            
            936
            
            
            
            4,834
            
            
            
            1,497
            
            
            
            —Employment
      agreements
            
            
            16,474
            
            
            
            2,940
            
            
            
            13,534
            
            
            
            —
            
            
            
            —Total
      contractual obligations
            
            $
            790,235
            
            
            $
            104,385
            
            
            $
            222,052
            
            
            $
            182,443
            
            
            $
            281,355








The real
estate operating leases included in the above table do not include contingent
rent based upon sales volume, which amounted to approximately 20% of minimum
lease obligations in fiscal 2008.  In addition, the above table does
not include variable costs paid to landlords such as maintenance, insurance and
real estate taxes, which represented approximately 60% of minimum lease
obligations in fiscal 2008.





Our open
purchase orders are cancelable at any time prior to our receipt of the
applicable goods without penalty to us, and were therefore not included in the
above table.





On
September 24, 2009, we announced that Julian R. Geiger, our Chairman and Chief
Executive Officer, advised us that, in accordance with the terms of his
employment agreement, he expects to exercise the right of election granted to
him, thereby ending his service as Chief Executive Officer at approximately the
end of the Company’s current fiscal year.  In addition to the amounts
in the table, as a result of the anticipated election by Mr. Geiger, we expect
to make a payment to Mr. Geiger, six months after his election date, of
approximately $16.5 million from our supplemental executive retirement plan (see
Note 2 to the Notes to Unaudited Condensed Consolidated Financial
Statements).





There
were no financial guarantees outstanding as of October 31, 2009. We had no
commercial commitments outstanding as of October 31, 2009.





Our total
liabilities for unrecognized tax benefits were $2.9 million at October 31, 2009.
We cannot make a reasonable estimate of the amount and period of related future
payments for these liabilities. Therefore these liabilities were not included in
the above table.





Off-Balance
Sheet Arrangements





We have
not created, and are not party to, any special-purpose or off-balance sheet
entities for the purpose of raising capital, incurring debt or operating our
business. We do not have any arrangements or relationships with entities that
are not consolidated into the financial statements that are reasonably likely to
materially affect our liquidity or the availability of capital resources. 
As of October
31, 2009, we have not issued any letters of credit.





Critical
Accounting Policies and Estimates





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements. These estimates and assumptions also affect the reported
amounts of revenues and expenses. Estimates by their nature are based on
judgments and available information. Therefore, actual results could materially
differ from those estimates under different assumptions and
conditions.






18
 Table of Contents





Critical
accounting policies are those that are most important to the portrayal of our
financial condition and the results of operations and require management's most
difficult, subjective and complex judgments as a result of the need to make
estimates about the effect of matters that are inherently uncertain. Our most
critical accounting policies have been discussed in our Annual Report on Form
10-K for the fiscal year ended January 31, 2009.  In applying such
policies, management must use significant estimates that are based on its
informed judgment. Because of the uncertainty inherent in these estimates,
actual results could differ from estimates used in applying the critical
accounting policies. Changes in such estimates, based on more accurate future
information, may affect amounts reported in future periods.





As of
October 31, 2009, there have been no material changes to any of the critical
accounting policies as disclosed in our Annual Report on Form 10-K for the
fiscal year ended January 31, 2009.





Item 3.Quantitative and
Qualitative Disclosures About Market Risk





As of
October 31, 2009, we had no outstanding borrowings under our Credit
Facility.  In addition, we had no stand-by or commercial letters of
credit issued under the Credit Facility. To the extent that we may borrow
pursuant to the Credit Facility in the future, we may be exposed to market risk
related to interest rate fluctuations.





Unrealized
foreign currency gains and losses, resulting from the translation of our
Canadian subsidiary financial statements into our reporting currency in U.S.
dollars are reflected in the equity section of our consolidated balance sheet in
accumulated other comprehensive loss.  The balance of the unrealized
loss included in accumulated other comprehensive loss was $0.4 million as of
October 31, 2009.  A 10% movement in quoted foreign currency exchange
rates could result in a fair value translation fluctuation of approximately $2.8
million, which would be recorded in other comprehensive loss as an unrealized
gain or loss.





We also
face transactional currency exposures relating to merchandise that our Canadian
subsidiary purchases using U.S. dollars.  These foreign currency
transaction gains and losses are charged or credited to earnings as
incurred.  We do not hedge our exposure to this currency exchange
fluctuation, and transaction gains and losses to date have not been
significant.





Item 4.Controls and
Procedures





(a) Evaluation of Disclosure Controls
and Procedures:Pursuant to Exchange Act Rule 13a-15(b) under
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our
management carried out an evaluation, under the supervision and with the
participation of our Chairman and Chief Executive Officer along with our Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange
Act). Based upon that evaluation, our Chairman and Chief Executive Officer along
with our Chief Financial Officer concluded that as of the end of our third
quarter ended October 31, 2009, our disclosure controls and procedures are
effective.





(b) Changes in internal
controls:During our third fiscal quarter, there have been no
changes in our internal controls over our financial reporting that have
materially affected, or are reasonably likely to materially affect, our internal
controls over our financial reporting.






19
 Table of Contents





PART
II — OTHER INFORMATION





Item 1.Legal
Proceedings





On
January 15, 2008, we learned that the Securities and Exchange Commission
(the “SEC”) had issued a formal order of investigation with respect to matters
arising from those events disclosed in our Form 8-K, dated November 8,
2006, which resulted from the activities of Christopher L. Finazzo, our former
Executive Vice President and Chief Merchandising Officer.  We continue
to cooperate fully with this investigation in all respects.





We are
party to various litigation matters and proceedings in the ordinary course of
business. In the opinion of our management, dispositions of these matters are
not expected to have a material adverse affect on our financial position,
results of operations or cash flows.





Item 1A.Risk
Factors





Cautionary
Note Regarding Forward-Looking Statements





This
Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Such forward-looking
statements involve certain risks and uncertainties, including statements
regarding our strategic direction, prospects and future results. Certain
factors, including factors outside of our control, may cause actual results to
differ materially from those contained in the forward-looking statements. The
following risk factors should be read in connection with evaluating our business
and future prospects. All forward looking statements included in this report are
based on information available to us as of the date hereof, and we assume no
obligation to update or revise such forward-looking statements to reflect events
or circumstances that occur after such statements are made. Such uncertainties
include, among others, the following factors:





Our
sales and operations may be adversely affected by unfavorable local, regional or
national economic conditions.





Our
business is sensitive to consumer spending patterns and preferences. Various
economic conditions affect the level of disposable income consumers have
available to spend on the merchandise we offer including employment, interest
rates, taxation, energy costs, the availability of consumer credit, consumer
confidence in future economic conditions and general business conditions.
Accordingly, consumer purchases of discretionary items and retail products,
including our products, may decline during recessionary periods and also may
decline at other times when disposable income is lower. Therefore, our growth,
sales and profitability may be adversely affected by unfavorable economic
conditions on a local, regional and/or national level. In addition, any
significant decreases in shopping mall traffic could also have a material
adverse effect on our results of operations.





If we were unable
to identify and respond to consumers’ fashion preferences, domestically and/or
internationally, in a timely manner,
our profitability would decline.





We may
not be able to keep pace with the rapidly changing fashion trends, both
domestically and/or internationally, and consumer tastes inherent in the teen
apparel industry. We produce casual, comfortable apparel, a majority of which
displays the “Aéropostale”, “Aéro” or “P.S. from Aéropostale” logo. There can be
no assurance that fashion trends will not move away from casual clothing or that
we will not have to alter our design strategy to reflect changes in consumer
preferences. Failure to anticipate, identify or react appropriately to changes
in styles, trends, desired images or brand preferences could have a material
adverse effect on our sales, financial condition and results of
operations.





Our ability to
attract customers to our stores depends heavily on the success of the
shopping
malls in which we are located.





In order
to generate customer traffic, we must locate our stores in prominent locations
within successful shopping malls. We cannot control the development of new
shopping malls, the availability or cost of appropriate locations within
existing or new shopping malls, or the success of individual shopping malls. A
significant decrease in shopping mall traffic could have a material adverse
effect on our results of operations.  Additionally, the loss of an
anchor or other significant tenant in a shopping mall in which we have a store,
or the closure of a significant number of shopping malls in which we have
stores, either by a single landlord with a large portfolio of malls, or by a
number of smaller individual landlords, may have a material adverse effect on
our results of operations.






20
 Table of Contents






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





Our
comparable store sales and quarterly results of operations have fluctuated in
the past and are likely to continue to fluctuate in the future. In addition,
there can be no assurance that we will be able to maintain our historic levels
of comparable store sales. Our comparable store sales and quarterly results of
operations are affected by a variety of factors, including:





•
            actions
      of competitors or mall anchor
tenants;





•
            changes
      in general economic conditions and consumer spending
    patterns;





•
            fashion
      trends;





•
            changes
      in our merchandise mix;





•
            the
      effectiveness of our inventory
management;





•
            calendar
      shifts of holiday or seasonal
periods;





•
            the
      timing of promotional
events; and





•
            weather
      conditions.





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





Our continued
expansion plan is dependent on a number of factors which, if not implemented,
could delay or prevent the successful opening of new stores and penetration into
new markets.





Unless we
continue to do the following, we may be unable to open new stores successfully
and, in turn, our continued growth would be impaired:





•
            identify
      suitable markets and sites for new store
  locations;





•
            negotiate
      acceptable lease terms;





•
            hire,
      train and retain competent store
personnel;





•
            foster
      current relationships and develop new relationships with vendors that are
      capable of supplying a greater volume of
  merchandise;





•
            manage
      inventory and distribution 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.





There are
a finite number of suitable locations and malls within the United States and
Canada in which to locate our Aéropostale stores.  Our inability to
open new stores successfully and/or penetrate new markets would have a material
adverse effect on our revenue and earnings growth.  Additionally, as
we reach that maximum number of Aéropostale locations in North America, there
can be no assurance we will continue to locate additional suitable locations for
our Aéropostale stores, and as such, the future store growth of Aéropostale in
the United States and Canada will be adversely affected.






21
 Table of Contents






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





Trade
restrictions such as increased tariffs or quotas, or both, could affect the
importation of apparel in general and increase the cost and reduce the supply of
merchandise available to us. Much of our merchandise is sourced directly from
foreign vendors in Asia, the Far East and Central America. In addition, many of
our domestic vendors maintain production facilities overseas. Global
inflationary economic conditions would likely increase the costs of
manufacturing the goods we sell in our stores.   Any reduction in
merchandise available to us or any increase in its cost due to inflationary
economic conditions or tariffs, quotas or local political issues could have a
material adverse effect on our results of operations. If manufacturing costs
were to rise significantly, our business may be adversely affected.





We rely on a
small number of vendors to supply a significant amount of our merchandise.





During
fiscal 2008, we sourced approximately 76% of our merchandise from our top five
merchandise vendors.  During fiscal 2007, we sourced approximately 69%
of our merchandise from our top five merchandise vendors. Our relationships with
our suppliers generally are not on a long-term contractual basis and do not
provide assurances on a long-term basis as to adequate supply, quality or
acceptable pricing. Most of our suppliers could discontinue selling to us at any
time. If one or more of our significant suppliers were to sever their
relationship with us, we may not be able to obtain replacement products in a
timely manner, which would have a material adverse effect on our sales,
financial condition and results of operations.





Our growth
strategy relies on the continued addition of a significant number of new
stores each
year, which could strain our resources and cause the performance of our
existing
stores to suffer.





Our
growth will largely depend on our ability to open and operate new stores
successfully.  In fiscal 2008, we opened 72 Aéropostale stores in the
U.S. including Puerto Rico and 17 Aéropostale stores in Canada.  In
fiscal 2007, we opened 76 Aéropostale stores in the U.S. and 12 Aéropostale
stores in Canada.  We expect to continue to open new stores in the
future. We also anticipate remodeling a portion of our existing Aéropostale
store base at the appropriate times. To the extent that our new store openings
are in existing markets, we may experience reduced net sales volumes in
previously existing stores in those same markets.  There are however a
finite number of suitable locations and malls within the United States and
Canada in which to locate our Aéropostale stores.  As we reach that
maximum number of locations, there can be no assurance we will continue to find
additional locations which are suitable for our Aéropostale stores, and as such,
the future store growth of Aéropostale in the United States and Canada will be
adversely affected.





Failure of new
business concepts would have a negative effect on our results of operations.





We expect
that the introduction of new brand concepts, such as the launch in fiscal 2009
of our new store brand concept P.S. from Aéropostale, as well as other new
business opportunities, such as international expansion,  will play an
important role in our overall growth strategy.  Our ability to succeed
in a new brand concept requires significant expenditures and management
attention. Additionally, any new brand is subject to certain risks including
customer acceptance, competition, product differentiation, the ability to
attract and retain qualified personnel, including management and designers,
diversion of management’s attention from our core Aéropostale business and the
ability to obtain suitable sites for new stores. Our experience with our Jimmy’Z
brand, which we have now closed, demonstrates that there can be no assurance
that new brands will grow or become profitable.





Our business
could suffer as a result of a manufacturer’s inability to produce merchandise on
time and to our specifications.





We do not
own or operate any manufacturing facilities and therefore we depend upon
independent third parties to manufacture all of our merchandise. We utilize both
domestic and international manufacturers to produce our merchandise. The
inability of a manufacturer to ship orders in a timely manner or meet our
quality standards could cause delivery date requirements to be missed, which
could result in lost sales.  In addition, if manufacturing costs were
to rise significantly, our business may be adversely affected.







22
 Table of Contents





Our
business could suffer if a manufacturer fails to use acceptable labor
practices.





Our
sourcing agents and independent manufacturers are required to operate in
compliance with all applicable foreign and domestic laws and regulations. While
our vendor operating guidelines promote ethical business practices for our
vendors and suppliers, we do not control these manufacturers or their labor
practices. The violation of labor or other laws by an independent manufacturer,
or by one of the sourcing agents, or the divergence of an independent
manufacturer’s or sourcing agent’s labor practices from those generally accepted
as ethical in the United States, could interrupt, or otherwise disrupt the
shipment of finished products or damage our reputation. Any of these, in turn,
could have a material adverse effect on our financial condition and results of
operations. To help mitigate this risk, we engage a third party independent
contractor to visit the production facilities from which we receive our
products. This independent contractor assesses the compliance of the facility
with, among other things, local and United States labor laws and regulations as
well as foreign and domestic fair trade and business practices.





Our
foreign sources of production may not always be reliable, which may result in a
disruption in the flow of new merchandise to our stores.





The large majority of
the merchandise we purchase is manufactured overseas. We do not have any
long-term merchandise supply contracts with our vendors and the imports of our
merchandise by our vendors are subject to existing or potential duties, tariffs
and quotas. We also face a variety of other risks generally associated with
doing business in foreign markets and importing merchandise from abroad, such
as: (i) political instability; (ii) enhanced security measures at
United States ports, which could delay delivery of goods; (iii) imposition
of new legislation relating to import quotas that may limit the quantity of
goods which may be imported into the United States from countries in a region
within which we do business; (iv) imposition of additional or greater
duties, taxes, and other charges on imports; (v) delayed receipt or
non-delivery of goods due to the failure of our vendors to comply with
applicable import regulations; and (vi) delayed receipt or non-delivery of
goods due to unexpected or significant port congestion at United States ports.
Any inability on our part to rely on our vendors and our foreign sources of
production due to any of the factors listed above could have a material adverse
effect on our business, financial condition and results of
operations.





The unexpected
loss of the services of key personnel could have a material adverse effect on
our business.





Our key
executive officers have substantial experience and expertise in the retail
industry and have made significant contributions to the growth and success of
our brands. The unexpected loss of the services of one or more of these
individuals could adversely affect us. Specifically, if we were to unexpectedly
lose the services of Mindy C. Meads, our President and Chief Merchandising
Officer; Thomas P. Johnson, our Executive Vice President and Chief Operating
Officer, or Michael J. Cunningham, our Executive Vice President and Chief
Financial Officer, our business could be adversely affected.  In addition,
departures of any other senior executives or key performers in the Company could
also adversely affect our operations.





A substantial
interruption in our information systems could have a material adverse
effect on
our business.





We depend
on the security and integrity of electronic data and our management information
systems for many aspects of our business. We may be materially adversely
affected if our management information systems are disrupted or compromised or
we are unable to improve, upgrade, maintain, and expand our management
information systems.





A
significant decrease in sales during peak shopping seasons could have an adverse
effect on our financial condition and results of operations.





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.  Additionally, our business is
also subject, at certain times, to calendar shifts which may occur during key
selling times such as school holidays, Easter and regional fluctuations in the
calendar during the back-to-school selling season.







23
 Table of Contents





We
rely on third parties to manage our distribution centers and transport our
merchandise to our stores; a disruption of our distribution activities could
have a material adverse effect on our business.





The
efficient operation of our stores is dependent on our ability to distribute, in
a timely manner, our merchandise to our store locations throughout the United
States and Canada.  We currently lease and maintain two, third party,
independently operated distribution facilities, one in South River, New Jersey,
and the other in Ontario, California.  These distribution centers
manage, collectively, the receipt, storage, sortation, packaging and
distribution of virtually all of our merchandise.  In addition, we
also utilize  a third distribution center, located in Canada, which is
independently owned and operated.





These
third parties employ personnel represented by labor unions. Although there have
been no work stoppages or disruptions since the inception of our relationships
with these third party providers, there can be no assurance that work stoppages
or disruptions will not occur in the future. We also use separate third party
transportation companies to deliver our merchandise from our distribution
centers to our stores. Any failure by any of these third parties to respond
adequately to our warehousing, distribution and transportation needs would have
a material adverse effect on our business, financial condition and results of
operations.





We rely on a
third party to manage the warehousing and order fulfillment for our E-Commerce
business; any disruption of these activities could have a material adverse
effect on our business.





We rely
on one third party, GSI Commerce, to host our e-commerce website, warehouse all
of the inventory sold through our e-commerce website, and fulfill all of our
e-commerce sales to our customers. Any significant interruption in the
operations of GSI Commerce, over which we have no control, could have a material
adverse effect on our e-commerce business.





Failure to
protect our trademarks adequately could negatively impact our brand image
and limit
our ability to penetrate new markets.





We
believe that our key trademarks AÉROPOSTALE®,
AERO® and
87®and
our new store concept brand, P.S. FROM AÉROPOSTALETM  and variations
thereof, are integral to our logo-driven design strategy. We have obtained
federal registrations of or have pending applications for these trademarks in
the United States and have applied for or obtained registrations in most foreign
countries in which our vendors are located, as well as elsewhere. We use these
trademarks in many constantly changing designs and logos even though we have not
applied to register every variation or combination thereof for adult clothing
and related accessories. There can be no assurance that the registrations we own
and have obtained will prevent the imitation of our products or infringement of
our intellectual property rights by others. If any third party imitates our
products in a manner that projects lesser quality or carries a negative
connotation, our brand image could be materially adversely
affected.





There can
be no assurance that others will not try to block the manufacture, export or
sale of our products as a violation of their trademarks or other proprietary
rights. Other entities may have rights to trademarks that contain portions of
our marks or may have registered similar or competing marks for apparel and
accessories in foreign countries in which our vendors are located. There may
also be other prior registrations in other foreign countries of which we are not
aware. Accordingly, it may not be possible, in those few foreign countries where
we were not able to register our marks, to enjoin the manufacture, sale or
exportation of AÉROPOSTALE or P.S. FROM AÉROPOSTALE branded goods to the United
States. If we were unable to reach a licensing arrangement with these parties,
our vendors may be unable to manufacture our products in those countries. Our
inability to register our trademarks or purchase or license the right to use our
trademarks or logos in these jurisdictions could limit our ability to obtain
supplies from or manufacture in less costly markets or penetrate new markets
should our business plan change to include selling our merchandise in those
jurisdictions outside the United States.





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





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








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Item 2.Unregistered
Sales of Equity Securities and Use of Proceeds





We
repurchase our common stock from time to time under a $600.0 million stock
repurchase program.  The repurchase program may be modified or
terminated by the Board of Directors at any time, and there is no expiration
date for the program. The extent and timing of repurchases will depend upon
general business and market conditions, stock prices, opening and closing of our
stock trading window, and liquidity and capital resource requirements going
forward. Our purchases of treasury stock for the third quarter of fiscal 2009
and remaining availability pursuant to our share repurchase program were as
follows:








Period
            
            Total
      Number
              of
      Shares
              (or
      Units)
              Purchased
            
            
            Average
              Price
      Paid
              per Share
            
            
            Total
      Number of
              Shares
      Purchased
              as
      Part of Publicly
              Announced
      Plans
              or Programs
            
            
            Approximate
      Dollar
              Value
      of Shares
              that
      may yet be
              Purchased
      Under the
              Plans
      or Programs
              (a)(In
      thousands)August
      2 to August 29, 2009
            
            
            —
            
            
            $
            —
            
            
            
            —
            
            
            $
            113,606August
      30 to October 3, 2009
            
            
            613,800
            
            
            
            42.49
            
            
            
            613,800
            
            
            $
            87,507October
      4 to October 31, 2009
            
            
            560,700
            
            
            
            41.82
            
            
            
            560,700
            
            
            $
            64,039Total
            
            
            1,174,500
            
            
            $
            42.17
            
            
            
            1,174,500


__________





(a)
            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.








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





Exhibit
              No.
            Description31.1
            Certification
      by Julian R. Geiger, Chairman and Chief Executive Officer, pursuant to
      Section 302 of the Sarbanes-Oxley Act of 2002.*31.2
            Certification
      by Michael J. Cunningham, Executive Vice President and Chief Financial
      Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.*32.1
            Certification
      by Julian R. Geiger pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.**32.2
            Certification
      by Michael J. Cunningham pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.**


____________





*
            Filed
      herewith.**
            Furnished
      herewith.








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 Table of Contents







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.





Aéropostale,
      Inc./s/
      JULIANR.
      GEIGERJulian
      R. GeigerChairman
      of the Board and Chief Executive Officer(Principal
      Executive Officer)/s/
      MICHAELJ.
      CUNNINGHAMMichael
      J. CunninghamExecutive
      Vice President — Chief Financial Officer(Principal
      Financial Officer)











Dated:
December 4, 2009





26