##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, DC 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended July 31,
2004

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) 485-5398

(Registrants Telephone Number, Including
Area Code)


Indicate by check mark whether the Registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days.     Yes þ          No o

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

As of August 20, 2004, the registrant had
56,137,471 shares of common stock outstanding.



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AÉROPOSTALE, INC.

TABLE OF CONTENTS

|                                  |         |                                                              |                                                                                           |  |   |    | 
|--------------------------------- | ------- | ------------------------------------------------------------ | ----------------------------------------------------------------------------------------- |  | - | -- | 
|PART I. FINANCIAL
    INFORMATION |         |                                                              | 2                                                                                         | 
|                                  | Item 1. |                                                              | Financial Statements
    (unaudited)                                                      |  |   | 2  | 
|                                  |         | Condensed Consolidated
    Balance Sheets                    |                                                                                           |  | 2 |   
|                                  |         | Condensed Consolidated
    Statements of Income              |                                                                                           |  | 3 |   
|                                  |         | Condensed Consolidated
    Statements of Cash Flows          |                                                                                           |  | 4 |   
|                                  |         | Notes to the Condensed
    Consolidated Financial Statements |                                                                                           |  | 5 |   
|                                  | Item 2. |                                                              | Managements Discussion
    and Analysis of Financial Condition and Results of Operations |  |   | 10 | 
|                                  | Item 3. |                                                              | Quantitative and Qualitative
    Disclosures About Market Risk                            |  |   | 14 | 
|                                  | Item 4. |                                                              | Controls and Procedures                                                                   |  |   | 14 | 
|PART II. OTHER
    INFORMATION    |         |                                                              | 15                                                                                        | 
|                                  | Item 1. |                                                              | Legal Proceedings                                                                         |  |   | 15 | 
|                                  | Item 2. |                                                              | Changes in Securities and
    Use of Proceeds                                             |  |   | 15 | 
|                                  | Item 3. |                                                              | Defaults Upon Senior
    Securities                                                       |  |   | 15 | 
|                                  | Item 4. |                                                              | Submission of Matters to a
    Vote of Security Holders                                   |  |   | 15 | 
|                                  | Item 5. |                                                              | Other Information                                                                         |  |   | 16 | 
|                                  | Item 6. |                                                              | Exhibits and Reports on
    Form 8-K                                                      |  |   | 16 | 
|SIGNATURES                        |         |                                                              | 18                                                                                        | 
|EX-31.1: CERTIFICATION           
|EX-32.1: CERTIFICATION           
|EX-32.1: CERTIFICATION           
|EX-32.2: CERTIFICATION           



1



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##### Table of Contents






PART I

FINANCIAL INFORMATION




Item 1.Financial
Statements

AÉROPOSTALE, INC.




CONDENSED CONSOLIDATED BALANCE
SHEETS

(Unaudited)


|                                          |                                                                                                               |                            |                                            |             |         |         |        |         |         |         | 
|----------------------------------------- | ------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | ----------- | ------- | ------- | ------ | ------- | ------- | ------- | 
|                                          |                                                                                                               | July 31,                   |                                            | January 31,
|                                          |                                                                                                               | 2004                       |                                            | 2004       
|                                          |                                                                                                               |                            |                                            |            
|                                          |                                                                                                               |                           
|                                          |                                                                                                               | (In Thousands)            
|ASSETS                                    |                                                                                                               |                            |                                            |             |         |         |        |        
|CURRENT ASSETS:                           |                                                                                                               |                            |                                            |             |         |         |        |        
|                                          | Cash and cash equivalents                                                                                     |                            | $                                          | 97,302      |         |         | $      | 138,356 |        
|                                          | Merchandise inventory                                                                                         |                            |                                            | 99,215      |         |         |        | 61,807  |        
|                                          | Other current assets                                                                                          |                            |                                            | 36,904      |         |         |        | 12,284  |        
|                                          |                                                                                                               |                            |                                            |             |         |         |        |        
|                                          |                                                                                                               | Total current assets       |                                            |             | 233,421 |         |        |         | 212,447 |        
|FIXTURES, EQUIPMENT AND IMPROVEMENTS, Net |                                                                                                               |                            | 111,482                                    |             |         |         | 92,578 |        
|OTHER ASSETS                              |                                                                                                               |                            | 3,440                                      |             |         |         | 2,023  |        
|                                          |                                                                                                               |                            |                                            |             |         |         |        |        
|                                          |                                                                                                               |                            | TOTAL ASSETS                               |             | $       | 348,343 |        |         | $       | 307,048 | 
|                                          |                                                                                                               |                            |                                            |             |         |         |        |        
|                                         
|LIABILITIES AND STOCKHOLDERS
    EQUITY  |                                                                                                               |                            |                                            |             |         |         |        |        
|CURRENT LIABILITIES:                      |                                                                                                               |                            |                                            |             |         |         |        |        
|                                          | Accounts payable                                                                                              |                            | $                                          | 59,350      |         |         | $      | 30,477  |        
|                                          | Accrued expenses                                                                                              |                            |                                            | 35,875      |         |         |        | 41,091  |        
|                                          |                                                                                                               |                            |                                            |             |         |         |        |        
|                                          |                                                                                                               | Total current liabilities  |                                            |             | 95,225  |         |        |         | 71,568  |        
|DEFERRED RENT AND TENANT ALLOWANCES       |                                                                                                               |                            | 54,046                                     |             |         |         | 44,997 |        
|OTHER NON-CURRENT LIABILITIES             |                                                                                                               |                            | 6,894                                      |             |         |         | 4,790  |        
|STOCKHOLDERS EQUITY:                     |                                                                                                               |                            |                                            |             |         |         |        |        
|                                          | Common stock  par value,
    $0.01 per share; 300,000 shares authorized, 58,086 and
    56,795 shares issued |                            |                                            | 581         |         |         |        | 569     |        
|                                          | Treasury stock at cost (1,948 and 945 shares)                                                                 |                            |                                            | (41,059     | )       |         |        | (17,695 | )      
|                                          | Additional paid-in capital                                                                                    |                            |                                            | 77,609      |         |         |        | 63,288  |        
|                                          | Other comprehensive loss                                                                                      |                            |                                            | (672        | )       |         |        | (672    | )      
|                                          | Deferred compensation                                                                                         |                            |                                            | (1,642      | )       |         |        |        |        
|                                          | Retained earnings                                                                                             |                            |                                            | 157,361     |         |         |        | 140,203 |        
|                                          |                                                                                                               |                            |                                            |             |         |         |        |        
|                                          |                                                                                                               | Total stockholders equity |                                            |             | 192,178 |         |        |         | 185,693 |        
|                                          |                                                                                                               |                            |                                            |             |         |         |        |        
|                                          |                                                                                                               |                            | TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |             | $       | 348,343 |        |         | $       | 307,048 | 
|                                          |                                                                                                               |                            |                                            |             |         |         |        |        

See notes to unaudited condensed consolidated
financial statements.

2



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AÉROPOSTALE, INC.




CONDENSED CONSOLIDATED STATEMENTS OF
INCOME

(Unaudited)


|                                                                                |              |                                       |         |                |  |          |         |           |  |   |         |         |  |   |         |        | 
|------------------------------------------------------------------------------- | ------------ | ------------------------------------- | ------- | -------------- |  | -------- | ------- | --------- |  | - | ------- | ------- |  | - | ------- | ------ | 
|                                                                                |              |                                       |         |               
|                                                                                |              | 13 weeks ended                        |         | 26 weeks ended
|                                                                                |              |                                       |         |               
|                                                                                |              | July 31,                              |         | August 2,      |  | July 31, |         | August 2,
|                                                                                |              | 2004                                  |         | 2003           |  | 2004     |         | 2003     
|                                                                                |              |                                       |         |                |  |          |         |          
|                                                                                |              |                                      
|                                                                                |              | (In Thousands, Except Per Share Data)
|NET SALES                                                                       |              | $                                     | 194,852 |                |  | $        | 129,944 |           |  | $ | 362,506 |         |  | $ | 242,155 |       
|COST OF SALES (includes certain buying, occupancy
    and warehousing expenses) |              |                                       | 135,366 |                |  |          | 94,362  |           |  |   | 253,913 |         |  |   | 176,323 |       
|                                                                                |              |                                       |         |                |  |          |         |           |  |   |         |         |  |   |         |       
|                                                                                | Gross profit |                                       |         | 59,486         |  |          |         | 35,582    |  |   |         | 108,593 |  |   |         | 65,832 | 
|SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                                    |              |                                       | 41,925  |                |  |          | 31,342  |           |  |   | 81,030  |         |  |   | 58,309  |       
|                                                                                |              |                                       |         |                |  |          |         |           |  |   |         |         |  |   |         |       
|INCOME FROM OPERATIONS                                                          |              |                                       | 17,561  |                |  |          | 4,240   |           |  |   | 27,563  |         |  |   | 7,523   |       
|INTEREST INCOME, Net                                                            |              |                                       | 201     |                |  |          | 253     |           |  |   | 460     |         |  |   | 434     |       
|                                                                                |              |                                       |         |                |  |          |         |           |  |   |         |         |  |   |         |       
|INCOME BEFORE INCOME TAXES                                                      |              |                                       | 17,762  |                |  |          | 4,493   |           |  |   | 28,023  |         |  |   | 7,957   |       
|INCOME TAXES                                                                    |              |                                       | 6,865   |                |  |          | 1,751   |           |  |   | 10,865  |         |  |   | 3,103   |       
|                                                                                |              |                                       |         |                |  |          |         |           |  |   |         |         |  |   |         |       
|NET INCOME AND COMPREHENSIVE INCOME                                             |              | $                                     | 10,897  |                |  | $        | 2,742   |           |  | $ | 17,158  |         |  | $ | 4,854   |       
|                                                                                |              |                                       |         |                |  |          |         |           |  |   |         |         |  |   |         |       
|BASIC NET INCOME PER SHARE                                                      |              | $                                     | 0.20    |                |  | $        | 0.05    |           |  | $ | 0.31    |         |  | $ | 0.09    |       
|                                                                                |              |                                       |         |                |  |          |         |           |  |   |         |         |  |   |         |       
|DILUTED NET INCOME PER SHARE                                                    |              | $                                     | 0.19    |                |  | $        | 0.05    |           |  | $ | 0.30    |         |  | $ | 0.08    |       
|                                                                                |              |                                       |         |                |  |          |         |           |  |   |         |         |  |   |         |       
|Basic weighted average shares outstanding                                       |              |                                       | 55,663  |                |  |          | 54,041  |           |  |   | 55,742  |         |  |   | 53,586  |       
|                                                                                |              |                                       |         |                |  |          |         |           |  |   |         |         |  |   |         |       
|Diluted weighted average shares outstanding                                     |              |                                       | 57,287  |                |  |          | 58,145  |           |  |   | 57,494  |         |  |   | 57,926  |       
|                                                                                |              |                                       |         |                |  |          |         |           |  |   |         |         |  |   |         |       

See notes to unaudited condensed consolidated
financial statements.

3



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AÉROPOSTALE, INC.




CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS

(Unaudited)


|                                             |                                                                                |                                              |                       |                                    |         |         |         |         |         |         |        | 
|-------------------------------------------- | ------------------------------------------------------------------------------ | -------------------------------------------- | --------------------- | ---------------------------------- | ------- | ------- | ------- | ------- | ------- | ------- | ------ | 
|                                             |                                                                                |                                             
|                                             |                                                                                | 26 weeks ended                              
|                                             |                                                                                |                                             
|                                             |                                                                                | July 31,                                     |                       | August 2,                         
|                                             |                                                                                | 2004                                         |                       | 2003                              
|                                             |                                                                                |                                              |                       |                                   
|                                             |                                                                                |                                             
|                                             |                                                                                | (In Thousands)                              
|CASH FLOWS FROM OPERATING ACTIVITIES:        |                                                                                |                                              |                       |                                    |         |         |         |        
|                                             | Net income                                                                     |                                              | $                     | 17,158                             |         |         | $       | 4,854   |        
|                                             | Adjustments to reconcile net income to net cash
    from operating activities: |                                              |                       |                                    |         |         |         |         |        
|                                             |                                                                                | Depreciation and amortization                |                       |                                    | 7,267   |         |         |         | 5,453   |        
|                                             |                                                                                | Tax effect of non-qualified stock options    |                       |                                    | 11,684  |         |         |         | 13,452  |        
|                                             |                                                                                | Other                                        |                       |                                    | 987     |         |         |         | (967    | )      
|                                             |                                                                                | Changes in operating assets and liabilities: |                       |                                    |         |         |         |         |         |        
|                                             |                                                                                |                                              | Merchandise inventory |                                    |         | (37,408 | )       |         |         | (45,115 | )     
|                                             |                                                                                |                                              | Other assets          |                                    |         | (24,652 | )       |         |         | (13,164 | )     
|                                             |                                                                                |                                              | Accounts payable      |                                    |         | 28,873  |         |         |         | 41,204  |       
|                                             |                                                                                |                                              | Other liabilities     |                                    |         | 5,214   |         |         |         | 2,079   |       
|                                             |                                                                                |                                              |                       |                                    |         |         |         |        
|                                             |                                                                                |                                              |                       | Net cash from operating activities |         |         | 9,123   |         |         |         | 10,375 | 
|                                             |                                                                                |                                              |                       |                                    |         |         |         |        
|CASH FLOWS FROM INVESTING ACTIVITIES:        |                                                                                |                                              |                       |                                    |         |         |         |        
|                                             | Purchases of fixtures, equipment and improvements                              |                                              |                       | (26,155                            | )       |         |         | (21,959 | )      
|                                             | Purchase of intangible assets                                                  |                                              |                       | (1,400                             | )       |         |         |        |        
|                                             |                                                                                |                                              |                       |                                    |         |         |         |        
|                                             |                                                                                | Net cash from investing activities           |                       |                                    | (27,555 | )       |         |         | (21,959 | )      
|                                             |                                                                                |                                              |                       |                                    |         |         |         |        
|CASH FLOWS FROM FINANCING ACTIVITIES:        |                                                                                |                                              |                       |                                    |         |         |         |        
|                                             | Purchase of treasury stock                                                     |                                              |                       | (23,364                            | )       |         |         |        |        
|                                             | Proceeds from exercise of stock options                                        |                                              |                       | 742                                |         |         |         | 331     |        
|                                             |                                                                                |                                              |                       |                                    |         |         |         |        
|                                             |                                                                                | Net cash from financing activities           |                       |                                    | (22,622 | )       |         |         | 331     |        
|                                             |                                                                                |                                              |                       |                                    |         |         |         |        
|NET DECREASE IN CASH AND CASH EQUIVALENTS    |                                                                                |                                              | (41,054               | )                                  |         |         | (11,253 | )      
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |                                                                                |                                              | 138,356               |                                    |         |         | 87,475  |        
|                                             |                                                                                |                                              |                       |                                    |         |         |         |        
|CASH AND CASH EQUIVALENTS, END OF PERIOD     |                                                                                | $                                            | 97,302                |                                    |         | $       | 76,222  |        
|                                             |                                                                                |                                              |                       |                                    |         |         |         |        

See notes to unaudited condensed consolidated
financial statements.

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AÉROPOSTALE, INC.




NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS



|   |                      
|-- | ---------------------
|1. | Basis of Presentation

References to the Company,
we, us, or our means
Aéropostale, Inc., together with its wholly-owned
subsidiary, Aéropostale West, Inc., except as expressly
indicated or unless the context otherwise requires. We are a
mall-based specialty retailer of casual apparel and accessories
for young women and young men in the United States. As of
July 31, 2004, we operated 521 stores in
42 states.

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

Our business is highly seasonal, and historically
we have realized a significant portion of our sales, net income,
and cash flow in the second half of the fiscal year, driven by
the impact of back-to-school selling season in the third quarter
and holiday selling season in the fourth quarter. Therefore, our
interim period consolidated financial statements will not be
indicative of our full-year results of operations, financial
condition or cash flows. These financial statements should be
read in conjunction with our Annual Report on Form 10-K for
the year ended January 31, 2004.

References to fiscal 2003 mean the
52-week period ended January 31, 2004, references to
fiscal 2004 mean the 52-week period ending
January 29, 2005, and references to fiscal 2005
mean the 52-week period ending January 28, 2006. Certain
reclassifications have been made to prior year balances to
conform to the current year presentation.



|   |                   
|-- | ------------------
|2. | Common Stock Split

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



|   |                         
|-- | ------------------------
|3. | Stock Based Compensation

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

5



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##### Table of Contents



AÉROPOSTALE, INC.


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

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

|                              |                                                                                                         |                                       |   |                |   |          |   |           |   |  |   |        |   |  |   |       |  
|----------------------------- | ------------------------------------------------------------------------------------------------------- | ------------------------------------- | - | -------------- | - | -------- | - | --------- | - |  | - | ------ | - |  | - | ----- | -
|                              |                                                                                                         |                                       |   |               
|                              |                                                                                                         | 13 weeks ended                        |   | 26 weeks ended
|                              |                                                                                                         |                                       |   |               
|                              |                                                                                                         | July 31,                              |   | August 2,      |   | July 31, |   | August 2,
|                              |                                                                                                         | 2004                                  |   | 2003           |   | 2004     |   | 2003     
|                              |                                                                                                         |                                       |   |                |   |          |   |          
|                              |                                                                                                         |                                      
|                              |                                                                                                         | (In Thousands, Except Per Share Data)
|Net income:                   |                                                                                                         |                                       |   |                |   |          |   |           |   |  |   |        |   |  |   |      
|                              | As reported                                                                                             |                                       | $ | 10,897         |   |          | $ | 2,742     |   |  | $ | 17,158 |   |  | $ | 4,854 |  
|                              | Add: Restricted stock amortization net of taxes
    recorded within net income                          |                                       |   | 107            |   |          |   |          |   |  |   | 160    |   |  |   |      |  
|                              | Deduct: Total stock based compensation expense
    determined under the fair value method, net of taxes |                                       |   | (379           | ) |          |   | (102      | ) |  |   | (644   | ) |  |   | (170  | )
|                              |                                                                                                         |                                       |   |                |   |          |   |           |   |  |   |        |   |  |   |      
|                              | Pro-forma                                                                                               |                                       | $ | 10,625         |   |          | $ | 2,640     |   |  | $ | 16,674 |   |  | $ | 4,684 |  
|                              |                                                                                                         |                                       |   |                |   |          |   |           |   |  |   |        |   |  |   |      
|Basic net income per share:   |                                                                                                         |                                       |   |                |   |          |   |           |   |  |   |        |   |  |   |      
|                              | As reported                                                                                             |                                       | $ | 0.20           |   |          | $ | 0.05      |   |  | $ | 0.31   |   |  | $ | 0.09  |  
|                              | Pro-forma                                                                                               |                                       | $ | 0.19           |   |          | $ | 0.05      |   |  | $ | 0.30   |   |  | $ | 0.09  |  
|                              |                                                                                                         |                                       |   |                |   |          |   |           |   |  |   |        |   |  |   |      
|Diluted net income per share: |                                                                                                         |                                       |   |                |   |          |   |           |   |  |   |        |   |  |   |      
|                              | As reported                                                                                             |                                       | $ | 0.19           |   |          | $ | 0.05      |   |  | $ | 0.30   |   |  | $ | 0.08  |  
|                              | Pro-forma                                                                                               |                                       | $ | 0.19           |   |          | $ | 0.05      |   |  | $ | 0.29   |   |  | $ | 0.08  |  
|                              |                                                                                                         |                                       |   |                |   |          |   |           |   |  |   |        |   |  |   |      

The weighted average fair value of the
Companys stock options was calculated using the
Black-Scholes Option Pricing Model with the following weighted
average assumptions used for grants in their respective periods.
For periods ended in 2004: no dividend yield; expected
volatility of 70%; risk free interest rate of 2.76%; and
expected life of 5 years. For periods ended in 2003: no
dividend yield; expected volatility of 70%; risk free interest
rate of 2.81%; and expected life of 4.72 years. There were
502 thousand options granted during the twenty-six weeks ended
July 31, 2004 with a weighted average fair value of
$7.0 million. There were 744 thousand options granted
during the twenty-six weeks ended August 2, 2003, with a
weighted average fair value of $3.9 million.



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

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

Selling, general and administrative expenses
(SG&A) include costs related to: selling
expenses, store management and corporate expenses such as
payroll and employee benefits, marketing expenses, employment
taxes, information technology maintenance costs and expenses,
insurance and legal expenses, and store pre-opening and other
corporate level expenses. Store pre-opening expenses include
store level payroll, grand opening event marketing, travel,
supplies and other store pre-opening expenses.



|   |                               
|-- | ------------------------------
|5. | Recent Accounting Developments

In June 2004, the Financial Accounting Standards
Board (FASB) issued an interpretation of FASB
No. 143, Accounting for Asset Retirement
Obligations. This interpretation clarifies the scope and
timing of

6



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##### Table of Contents



AÉROPOSTALE, INC.


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

liability recognition for conditional asset
retirement obligations under FASB No. 143, and is effective
no later than the end of our 2005 fiscal year. We have
determined that this interpretation, and the adoption of FASB
No. 143, will not have a material impact on our
consolidated financial statements or cash flows.

In March 2004, the FASB published an Exposure
Draft, Shares-Based Payment, an amendment of FASB
Statements No. 123 and No. 95. Under this FASB
proposal, all forms of share-based payment to employees,
including employee stock options, would be treated as
compensation and recognized in the income statement. This
proposed statement would be effective for the beginning of our
2005 fiscal year. The Company currently accounts for stock
options under APB No. 25. The pro-forma impact of expensing
options is disclosed in Note 3.



|   |                   
|-- | ------------------
|6. | Earnings Per Share

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

|                                |  |                                       |        |                |  |          |        |           |  |   |        |  |  |   |        | 
|------------------------------- |  | ------------------------------------- | ------ | -------------- |  | -------- | ------ | --------- |  | - | ------ |  |  | - | ------ | 
|                                |  |                                       |        |               
|                                |  | 13 weeks ended                        |        | 26 weeks ended
|                                |  |                                       |        |               
|                                |  | July 31,                              |        | August 2,      |  | July 31, |        | August 2,
|                                |  | 2004                                  |        | 2003           |  | 2004     |        | 2003     
|                                |  |                                       |        |                |  |          |        |          
|                                |  |                                      
|                                |  | (In Thousands, Except Per Share Data)
|Net income                      |  | $                                     | 10,897 |                |  | $        | 2,742  |           |  | $ | 17,158 |  |  | $ | 4,854  | 
|                                |  |                                       |        |                |  |          |        |           |  |   |        |  |  |   |        | 
|Weighted average basic shares   |  |                                       | 55,663 |                |  |          | 54,041 |           |  |   | 55,742 |  |  |   | 53,586 | 
|Impact of dilutive securities   |  |                                       | 1,624  |                |  |          | 4,104  |           |  |   | 1,752  |  |  |   | 4,340  | 
|                                |  |                                       |        |                |  |          |        |           |  |   |        |  |  |   |        | 
|Weighted average diluted shares |  |                                       | 57,287 |                |  |          | 58,145 |           |  |   | 57,494 |  |  |   | 57,926 | 
|                                |  |                                       |        |                |  |          |        |           |  |   |        |  |  |   |        | 
|Net income per basic share      |  | $                                     | 0.20   |                |  | $        | 0.05   |           |  | $ | 0.31   |  |  | $ | 0.09   | 
|                                |  |                                       |        |                |  |          |        |           |  |   |        |  |  |   |        | 
|Net income per diluted share    |  | $                                     | 0.19   |                |  | $        | 0.05   |           |  | $ | 0.30   |  |  | $ | 0.08   | 
|                                |  |                                       |        |                |  |          |        |           |  |   |        |  |  |   |        | 

Options to purchase 2 thousand shares during
the thirteen weeks ended July 31, 2004, and 135 thousand
shares during the twenty-six weeks ended July 31, 2004,
were not included in the computation of diluted earnings per
share because the exercise price of the options was greater than
the average market price of the common shares.



|   |                          
|-- | -------------------------
|7. | Revolving Credit Facility

We have available a revolving credit facility
(the credit facility) with Bank of America Retail
Finance (formerly, Fleet Retail Finance) which allows us to
borrow or obtain letters of credit up to an aggregate of
$25 million, with letters of credit having a sub-limit of
$15 million. The credit facility matures on
September 30, 2005, and our assets collateralize
indebtedness under the credit facility. Borrowings under the
credit facility bear interest at our option, either at
(a) the lenders prime rate or (b) the Euro
Dollar Rate plus 1.25% to 1.75%, dependant upon our financial
performance. Additionally, we must pay commitment fees on any
unused portion of the credit facility at an annualized rate of
0.375% on the difference between the loan aggregate of
$25 million and the borrowings (including outstanding
letters of credit) at the preceding month-end. There are no
covenants in the credit facility requiring us to achieve certain
earnings levels and there are no capital spending limitations.
There are certain negative covenants under the credit facility,
including but not limited to, limitations on our ability to
incur other indebtedness, encumber our assets, or undergo a
change of control. Additionally, we are required to maintain a
ratio of 2:1 for the value of our inventory to the amount of the
loans under the credit facility. As of July 31, 2004, we
were in compliance with all covenants under the credit facility.
We had no amount outstanding under the credit facility, and no
stand-by or commercial letters of credit issued under

7



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##### Table of Contents



AÉROPOSTALE, INC.


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

the credit facility at either July 31, 2004
or January 31, 2004 and we have not had outstanding
borrowings under the credit facility since November 2002.



|   |                         
|-- | ------------------------
|8. | Retirement Benefit Plans

We have a qualified, defined contribution
retirement plan with a 401(k) salary deferral feature that
covers substantially all of our employees who meet certain
requirements. Under the terms of the plan, employees may
contribute up to 14% of gross earnings and we will provide a
matching contribution of 50% of the first 5% of gross earnings
contributed by the participants. We also have the option to make
additional contributions. The terms of the plan provide for
vesting in our matching contributions to the plan over a
five-year service period with 50% vesting after year three, an
additional 25% vesting after year four, and participants will be
fully vested after year five. Contribution expense was
$0.3 million for the twenty-six weeks ended July 31,
2004 and $0.2 million for the twenty-six weeks ended
August 2, 2003.

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

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

|                                   |  |                |       |           |  |   |     | 
|---------------------------------- |  | -------------- | ----- | --------- |  | - | --- | 
|                                   |  |               
|                                   |  | 26 weeks ended
|                                   |  |               
|                                   |  | July 31,       |       | August 2,
|                                   |  | 2004           |       | 2003     
|                                   |  |                |       |          
|                                   |  |               
|                                   |  | (In Thousands)
|Service cost                       |  | $              | 139   |           |  | $ | 92  | 
|Interest cost                      |  |                | 346   |           |  |   | 158 | 
|Amortization of prior service cost |  |                | 37    |           |  |   | 15  | 
|Amortization of net loss           |  |                | 188   |           |  |   | 55  | 
|Loss recognized due to settlement  |  |                | 1,396 |           |  |   |    | 
|                                   |  |                |       |           |  |   |     | 
|Net periodic pension benefit cost  |  | $              | 2,106 |           |  | $ | 320 | 
|                                   |  |                |       |           |  |   |     | 

No contributions have been made during either the
twenty-six weeks ended July 31, 2004 or August 2,
2003. The loss recognized due to settlement in 2004 resulted
from the early retirement of John S. Mills, our former
President and Chief Operating Officer.

During the first quarter of 2004, we adopted a
long-term incentive deferred compensation plan established for
the purpose of providing long-term incentive to a select group
of management. The plan is a non-qualified, defined contribution
plan and is not funded. Participants in this plan include all
employees designated by us as Vice President, or other
higher-ranking position that are not participants in the SERP.
We will record annual monetary credits to each
participants account based on compensation levels and
years as a participant in the plan. Annual interest credits will
be applied to the balance of each participants account
based upon established benchmarks. Each annual credit is subject
to a three-year cliff-vesting schedule, and participants
accounts will be fully-vested upon retirement after completing
five years of service and attaining age 55. Plan expenses
were $0.1 million for the twenty-six weeks ended
July 31, 2004.

8



---



##### Table of Contents



AÉROPOSTALE, INC.


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



|   |                         
|-- | ------------------------
|9. | Stock Repurchase Program

In the fourth quarter of 2003, our Board of
Directors approved a stock repurchase program to acquire up to
$35.0 million of our outstanding common stock. In the first
quarter of 2004, our Board of Directors approved an additional
$35.0 million of repurchase availability, thereby
increasing the amount available for stock repurchase under this
program to $70.0 million. The repurchase program may be
modified or terminated by the Board of Directors at any time,
and there is no expiration date for the program. The extent and
timing of repurchases will depend upon general business and
market conditions, stock prices, and requirements going forward.
We repurchased 1.0 million shares for $23.4 million
during the twenty-six weeks ended July 31, 2004, and we
have repurchased a total of 1.9 million shares for
$41.1 million, since the inception of the repurchase
program. Therefore, we have $28.9 million of repurchase
availability remaining at July 31, 2004.



|    |                        
|--- | -----------------------
|10. | Restricted Stock Awards

In 2004, certain of our executives and directors
were awarded a total of 82 thousand shares of restricted
stock, pursuant to restricted stock agreements. The restricted
stock awarded to employees vest at the end of three years of
continuous service with us. The restricted stock awarded to
directors vest pro-rata over a three-year period, based upon
continuous service. Total compensation expense of
$1.9 million is being amortized over the vesting period,
and amortization expense for the twenty-six weeks ended
July 31, 2004 was $0.3 million.

9



---



##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

Introduction

Aeropostale, Inc. is a mall-based specialty
retailer of casual apparel and accessories in the United States.
Our target customers are both young women and men from
age 11 to age 20, and we provide these customers with
a selection of high-quality, active-oriented, fashion basic
merchandise at compelling values in a high-energy store
environment. We maintain complete control over our proprietary
brand by designing and sourcing all of our own merchandise. Our
products can be purchased only in our stores, which sell
Aeropostale merchandise exclusively, or at organized sales
events at college campuses. We operated 521 stores in 42
states as of July 31, 2004.

Managements Discussion and Analysis of
Financial Condition and Results of Operations is intended to
provide information to help you better understand our financial
condition and results of operations. Our business is highly
seasonal, and historically we realize a significant portion of
our sales, net income, and cash flow in the second half of the
fiscal year, driven by the impact of back-to-school selling
season in the third quarter and holiday selling season in the
fourth quarter. Therefore, our interim period consolidated
financial statements will not be indicative of our full-year
results of operations, financial condition or cash flows. We
recommend that you read this section along with our condensed
consolidated financial statements included in this report and
along with our Annual Report on Form 10-K for the year
ended January 31, 2004.

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

Overview

We achieved net sales of $194.9 million for
the second quarter of fiscal 2004 and net sales of
$362.5 million for the first twenty-six weeks of fiscal
2004, both of which represented approximate 50% increases from
the comparable periods in fiscal 2003. Both new stores and
increases in comparable store sales drove the increases in net
sales. Our gross profit, as a percentage of net sales, increased
by 3.1 percentage points for the second quarter and by
2.8 percentage points for the year-to-date period. The
leveraging of occupancy costs against the increased net sales,
as well as an increase in merchandise margin in the second
quarter, primarily drove the increases in gross profit, as a
percentage of net sales. SG&A, as a percentage of sales,
declined by 2.6 percentage points for the second quarter
and declined by 1.7 percentage points for the year-to-date
period. The leveraging of store payroll and other operating
costs against the increased net sales, as well as non-recurring
secondary offering costs in 2003 primarily drove the decreases.
As a result, our net income for the second quarter of 2004 grew
to $10.9 million, or $0.19 per diluted share, from
$2.7 million, or $0.05 per diluted share, for the second
quarter of last year. On a year-to-date basis, net income grew
to $17.2 million, or 0.30 per diluted share, from
$4.9 million, or $0.08 per diluted share last year. At
July 31, 2004, we had working capital of
$138.2 million, cash and cash equivalents of
$97.3 million, and no third party debt outstanding. During
the first half of fiscal 2004, we funded our operations, new
store growth and other capital requirements with cash and cash
equivalents on hand and cash flows from operations.

10



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##### Table of Contents



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

|                                              |             |                |         |                |   |          |         |           |   |   |         |      |   |   |         |      |  
|--------------------------------------------- | ----------- | -------------- | ------- | -------------- | - | -------- | ------- | --------- | - | - | ------- | ---- | - | - | ------- | ---- | -
|                                              |             |                |         |               
|                                              |             | 13 weeks ended |         | 26 weeks ended
|                                              |             |                |         |               
|                                              |             | July 31,       |         | August 2,      |   | July 31, |         | August 2,
|                                              |             | 2004           |         | 2003           |   | 2004     |         | 2003     
|                                              |             |                |         |                |   |          |         |          
|Net sales (in thousands)                      |             | $              | 194,852 |                |   | $        | 129,944 |           |   | $ | 362,506 |      |   | $ | 242,155 |     
|Total store count at end of period            |             |                | 521     |                |   |          | 427     |           |   |   | 521     |      |   |   | 427     |     
|Comparable store sales count at end of period |             |                | 376     |                |   |          | 288     |           |   |   | 376     |      |   |   | 288     |     
|Net sales growth                              |             |                | 50.0    | %              |   |          | 44.2    | %         |   |   | 49.7    | %    |   |   | 38.2    | %   
|Comparable store sales growth                 |             |                | 20.0    | %              |   |          | 9.2     | %         |   |   | 19.5    | %    |   |   | 5.5     | %   
|Net sales per average square foot             |             | $              | 109     |                |   | $        | 89      |           |   | $ | 210     |      |   | $ | 174     |     
|Diluted earnings per share                    |             | $              | 0.1     | 9              |   | $        | 0.0     | 5         |   | $ | 0.3     | 0    |   | $ | 0.0     | 8   
|Square footage growth                         |             |                | 22.2    | %              |   |          | 28.6    | %         |   |   | 22.2    | %    |   |   | 28.6    | %   
|Merchandise mix as a % of net sales           |             |                |         |                |   |          |         |           |   |   |         |      |   |   |         |     
|                                              | Womens     |                |         | 60.3           | % |          |         | 61.5      | % |   |         | 59.1 | % |   |         | 59.2 | %
|                                              | Mens       |                |         | 25.4           | % |          |         | 25.8      | % |   |         | 26.0 | % |   |         | 27.3 | %
|                                              | Accessories |                |         | 14.3           | % |          |         | 12.7      | % |   |         | 14.9 | % |   |         | 13.5 | %

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

|                                             |  |                |       |                |  |          |       |           |  |  |       |   |  |  |       |  
|-------------------------------------------- |  | -------------- | ----- | -------------- |  | -------- | ----- | --------- |  |  | ----- | - |  |  | ----- | -
|                                             |  |                |       |               
|                                             |  | 13 weeks ended |       | 26 weeks ended
|                                             |  |                |       |               
|                                             |  | July 31,       |       | August 2,      |  | July 31, |       | August 2,
|                                             |  | 2004           |       | 2004           |  | 2004     |       | 2003     
|                                             |  |                |       |                |  |          |       |          
|Net sales                                    |  |                | 100.0 | %              |  |          | 100.0 | %         |  |  | 100.0 | % |  |  | 100.0 | %
|Gross profit                                 |  |                | 30.5  |                |  |          | 27.4  |           |  |  | 30.0  |   |  |  | 27.2  |  
|Selling, general and administrative expenses |  |                | 21.5  |                |  |          | 24.1  |           |  |  | 22.4  |   |  |  | 24.1  |  
|Income from operations                       |  |                | 9.0   |                |  |          | 3.3   |           |  |  | 7.6   |   |  |  | 3.1   |  
|Interest income, net                         |  |                | 0.1   |                |  |          | 0.2   |           |  |  | 0.1   |   |  |  | 0.2   |  
|Income before income taxes                   |  |                | 9.1   |                |  |          | 3.5   |           |  |  | 7.7   |   |  |  | 3.3   |  
|Income taxes                                 |  |                | 3.5   |                |  |          | 1.4   |           |  |  | 3.0   |   |  |  | 1.3   |  
|Net income                                   |  |                | 5.6   |                |  |          | 2.1   |           |  |  | 4.7   |   |  |  | 2.0   |  

Results of Operations

Sales.Net sales
increased by $64.9 million for the second quarter of fiscal
2004 and increased by $120.4 million for the first
twenty-six weeks of fiscal 2004, both of which represented
approximate 50% increases over the same periods in fiscal 2003.
Increased comparable store sales and new store sales drove the
net sales increases. Comparable store sales increased by
$22.6 million, or 20%, for the second quarter and increased
by $42.6 million, or 19.5%, for the year-to-date period.
Comparable store sales increased in all three of our
categories  young womens, young mens and
accessories, and were driven by increased units per transaction
of 3.1% for the second quarter and 4.7% for the year-to-date
period, and increases of approximately 15% in the number of
sales transactions for both the second quarter and the
year-to-date period. Non-comparable store sales increased by
$42.3 million for the second quarter and by
$77.8 million for the year-to-date period, both of which
increased by 30% from the same periods last year. The increases
in non-comparable store sales were primarily due to 94 more
stores opened at the end of the second quarter of fiscal 2004
compared to the end of the second quarter of fiscal 2003.

Gross profit.Gross
profit increased by $23.9 million for second quarter of
fiscal 2004 and increased by $42.8 million for the first
twenty-six weeks of fiscal 2004, as compared with the same
periods in fiscal

11



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##### Table of Contents



2003. Gross profit, as a percentage of net sales,
increased by 3.1 percentage points for the second quarter
and increased by 2.8 percentage points for the year-to-date
period. The leveraging of occupancy costs against the increased
net sales, which approximated 2.3 percentage points,
primarily drove the increases in gross profit, as a percentage
of net sales for both the second quarter and the year-to-date
period. Merchandise margin, as a percentage of sales, increased
0.6 percentage points for the second quarter and was flat
on a year-to-date basis.


SG&A.SG&A
increased by $10.6 million for the second quarter of fiscal
2004 and increased by $22.7 million for the first
twenty-six weeks of 2004, as compared with the same periods in
fiscal 2003. Increased store payroll and related costs of
$7.3 million for the quarter, driven by new store growth,
was the primary driver of the increases in SG&A in both
periods. SG&A, as a percentage of net sales, decreased by
2.6 percentage points for the second quarter and decreased
by 1.7 percentage points for the year-to-date period. The
leveraging of store operating costs against the increased net
sales, as well as non-recurring secondary offering costs in 2003
primarily drove the decreases in SG&A, as a percentage of
net sales.

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

Net income.Net
income increased by $8.2 million, or $0.14 per diluted
share, for second quarter of fiscal 2004 and increased by
$12.3 million, or $0.22 per diluted share, for the first
twenty-six weeks of fiscal 2004, as compared with the same
periods in fiscal 2003.

Liquidity and Capital Resources

Our cash requirements are primarily for working
capital, the construction of new stores, the remodeling of
existing stores, and to improve and enhance our information
technology systems. Due to the seasonality of our business, we
have historically realized a significant portion of our cash
flows from operations during the second half of the fiscal year.
Most recently, our cash requirements have been met primarily
through cash and cash equivalents on hand during the first half
of the fiscal year, and through cash flows from operations
during the second half of the year. We expect to continue to
meet our cash requirements for the balance of the year primarily
through cash flows from operations. In addition, we have
available a $25 million revolving credit facility (the
credit facility) with Bank of America Retail Finance
(formerly, Fleet Retail Finance) (see below for a further
description), and we have not had outstanding borrowings under
the credit facility since November 2002. At July 31, 2004,
we had working capital of $138.2 million, cash and cash
equivalents of $97.3 million, and no third party debt
outstanding.

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

|                                          |  |                |         |           |  |   |         |  
|----------------------------------------- |  | -------------- | ------- | --------- |  | - | ------- | -
|                                          |  |               
|                                          |  | 26 weeks ended
|                                          |  |               
|                                          |  | July 31,       |         | August 2,
|                                          |  | 2004           |         | 2003     
|                                          |  |                |         |          
|                                          |  |               
|                                          |  | (In Thousands)
|Net cash from operating activities        |  | $              | 9,123   |           |  | $ | 10,375  |  
|Net cash from investing activities        |  |                | (27,555 | )         |  |   | (21,959 | )
|Net cash from financing activities        |  |                | (22,622 | )         |  |   | 331     |  
|                                          |  |                |         |           |  |   |         |  
|Net decrease in cash and cash equivalents |  | $              | (41,054 | )         |  | $ | (11,253 | )
|                                          |  |                |         |           |  |   |         |  

Operating activities.Cash flows from operating activities,
our principle form of liquidity on a full-year basis, decreased
by $1.3 million for the first twenty-six weeks of 2004, as
compared to the same period in 2003. The timing of certain tax
payments offset the period-over-period net income increase of
$12.3 million. Due to the seasonality of our business, we have
historically generated a significant portion of our cash flows
from operations in the second half of the fiscal year, and we
expect this trend to continue for the balance of this fiscal
year.

12



---



##### Table of Contents



Capital requirements.Net cash expended for investing
activities was primarily for capital expenditures for the
construction of new stores, remodeling of existing stores and
investments in information technology. Our future capital
requirements will depend primarily on the number of new stores
we open, the number of existing stores we remodel and the timing
of these expenditures. We opened 32 new stores during the
second quarter of fiscal 2004 and opened 62 new stores to-date
through July 31, 2004. The new store growth resulted in a
total square footage increase of 22.2% at the end of the second
quarter of 2004, as compared to the same period in 2003. We
expect to open between 33 to 38 additional new stores in the
second half of this fiscal year. Capital expenditures for the
full fiscal year of 2004 are expected to approximate
$46 million to fund new store openings, to remodel existing
stores, and to improve and enhance our information technology
systems.

Financing activities and capital resources.In the fourth quarter of 2003, our
Board of Directors approved a stock repurchase program to
acquire up to $35.0 million of our outstanding common
stock. In the first quarter of 2004, our Board of Directors
approved an additional $35.0 million of repurchase
availability, thereby increasing the amount available for stock
repurchase under this program to $70.0 million. The
repurchase program may be modified or terminated by the Board of
Directors at any time, and there is no expiration date for the
program. The extent and timing of repurchases will depend upon
general business and market conditions, stock prices, and
requirements going forward. We repurchased 1.0 million
shares for $23.4 million during the twenty-six weeks ended
July 31, 2004, and we have repurchased a total of
1.9 million shares for $41.1 million, since the
inception of the repurchase program. Therefore, we have
$28.9 million of repurchase availability remaining at
July 31, 2004.

Our credit facility provides us with up to
$25 million of available borrowings. Borrowings under the
credit facility bear interest at our option, either at
(a) the lenders prime rate or (b) the Euro
Dollar Rate plus 1.25% to 1.75%, dependant upon our financial
performance. As of July 31, 2004, there were no amounts
outstanding under the credit facility and we have not had
outstanding borrowings under the credit facility since November
2002. The credit facility contains certain negative covenants,
including but not limited to, limitations on our ability to
incur other indebtedness, encumber our assets or undergo a
change of control. Additionally, we are required to keep a ratio
of 2:1 of the value of our inventory to the amounts outstanding
at any time under the credit facility. The credit facility has a
termination date of September 30, 2005. There are fees for
early termination. Events of default under the credit facility
include, subject to grace periods and notice provisions in
certain circumstances, failure to pay principal amounts when
due, breaches of covenants, misrepresentation, default of leases
or other indebtedness, excess uninsured casualty loss, excess
uninsured judgment or restraint of business, business failure or
application for bankruptcy, indictment of or institution of any
legal process or proceeding under federal, state, municipal or
civil statutes, legal challenges to loan documents, and a change
in control. If an event of default occurs, the lenders under the
credit facility will be entitled to take various actions,
including the acceleration of amounts due thereunder and
requiring that all such amounts be immediately paid in full as
well as possession and sale of all assets that have been used as
collateral.



| |                                                       
| | ------------------------------------------------------
| | Contractual Obligations and Commercial
    Commitments

The following tables summarize our contractual
obligations and commercial commitments as of July 31, 2004:

|                        |                               |                |   |              |  |               |   |               |  |              |   |        |  |  |   |        |  |  |   |         | 
|----------------------- | ----------------------------- | -------------- | - | ------------ |  | ------------- | - | ------------- |  | ------------ | - | ------ |  |  | - | ------ |  |  | - | ------- | 
|                        |                               |                |   |             
|                        |                               |                |   | Payments Due
|                        |                               |                |   |             
|                        |                               |                |   | Within       |  |              
|                        |                               |                |   | 6 Months     |  |              
|                        |                               |                |   | Ended Fiscal |  | In Fiscal     |   | In Fiscal     |  | After Fiscal
|                        |                               | Total          |   | 2004         |  | 2005 and 2006 |   | 2007 and 2008 |  | 2009        
|                        |                               |                |   |              |  |               |   |               |  |             
|                        |                               |               
|                        |                               | (In Thousands)
|Contractual Obligations |                               |                |   |              |  |               |   |               |  |              |   |        |  |  |   |        |  |  |   |        
|                        | Employment contracts          |                | $ | 5,375        |  |               | $ | 1,075         |  |              | $ | 4,300  |  |  | $ |       |  |  | $ |        | 
|                        | Operating leases              |                |   | 342,688      |  |               |   | 24,544        |  |              |   | 88,553 |  |  |   | 84,546 |  |  |   | 145,045 | 
|                        |                               |                |   |              |  |               |   |               |  |              |   |        |  |  |   |        |  |  |   |        
|                        | Total contractual obligations |                | $ | 348,063      |  |               | $ | 25,619        |  |              | $ | 92,853 |  |  | $ | 84,546 |  |  | $ | 145,045 | 
|                        |                               |                |   |              |  |               |   |               |  |              |   |        |  |  |   |        |  |  |   |        

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We made a retirement plan contribution of
$2.4 million in August 2004 in connection with the early
retirement of John S. Mills, our former President and Chief
operating Officer. There were no commercial commitments
outstanding as of July 31, 2004, nor have we provided any
financial guarantees at that date.



| |                               
| | ------------------------------
| | 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 July 31, 2004, we
have not issued any letters of credit for the purchase of
merchandise inventory or any capital expenditures.

Critical Accounting Policies

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States requires the appropriate application of certain
accounting policies, many of which require us to make estimates
and assumptions about future events and their impact on amounts
reported in our financial statements and related notes. We
believe application of accounting policies, and the estimates
inherently required therein, are reasonable. These accounting
policies and estimates are constantly reevaluated, and
adjustments are made when facts and circumstances dictate a
change. However, since future events and their impact cannot be
determined with certainty, actual results may differ from our
estimates, and such differences could be material to the
consolidated financial statements. Historically, we have found
our application of accounting policies to be appropriate, and
actual results have not differed materially from those
determined using necessary estimates. A summary of our
significant accounting policies and a description of accounting
policies that we believe are most critical may be found in the
MD&A included in our Annual Report on Form 10-K for the
year ended January 31, 2004.

Cautionary Note Regarding Forward-Looking
Statements and Risk Factors

This report on Form 10-Q contains
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Such
forward-looking statements involve certain risks and
uncertainties, including statements regarding the companys
strategic direction, prospects and future results. Certain
factors, including factors outside of our control, may cause
actual results to differ materially from those contained in the
forward-looking statements. All forward looking statements
included in this report are based on information available to us
as of the date hereof, and we assume no obligation to update or
revise such forward-looking statements to reflect events or
circumstances that occur after such statements are made. Such
uncertainties and other risks are discussed in our
Form 10-K for the year ended January 31, 2004.






|        |                                                               
|------- | --------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures
    About Market Risk

The Company, in the normal course of doing
business, is theoretically exposed to interest rate change
market risk. As borrowing patterns are seasonal, the Company is
not dependent on borrowing for the entire year. Therefore, a
sudden increase in interest rates (which under the Loan
Agreement is dependent on the prime rate) may, during peak
borrowing, have a negative impact on short-term results.
However, the Company has not had any borrowings outstanding
since November 2002.






|        |                        
|------- | -----------------------
|Item 4. | Controls and Procedures

(a) Explanation of disclosure controls
and procedures:The Company, including its Chief Executive
Officer and Chief Financial Officer, carried out an evaluation,
of the effectiveness of the design and operation of the
Companys disclosure controls and procedures pursuant to
Exchange Act Rule 13a-14(c) and 15d-14(c) of the Securities
Exchange Act of 1934, as amended (the Exchange Act).
Based upon that evaluation, the Companys Chief Executive
Officer along with the Companys Chief Financial Officer
concluded that as of the end of the period covered by this
report, the Companys disclosure controls and

14



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##### Table of Contents



procedures were effective to ensure that
information it is required to disclose in its filings with the
SEC under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the
SECs rules and forms. These disclosure controls were also
concluded to be effective to ensure that information that it is
required to disclose in the reports that it files under the
Exchange Act is accumulated and communicated to its management,
including its principal executive officer and principal
financial officer, as appropriate to allow timely decisions
regarding disclosure. It should be noted, however, that the
design of any system of controls is limited in its ability to
detect errors and there can, therefore, be no assurance that any
design will succeed in achieving its stated goals under all
potential future conditions, regardless of how remote.


(b) Changes in internal controls:During the period covered by this quarterly report, there
have been no changes to the Companys internal control over
financial reporting that have materially affected, or are
reasonably likely to materially affect the Companys
internal control over financial reporting.




PART II

OTHER INFORMATION






|        |                  
|------- | -----------------
|Item 1. | Legal Proceedings

From time to time, in the ordinary course of
business, the Company is involved in various legal proceedings.
The Company believes that the ultimate outcome of current
litigation will not have a material adverse impact on its
results of operations, financial condition or cash flows.






|        |                                              
|------- | ---------------------------------------------
|Item 2. | Changes in Securities and Use of
    Proceeds

In the fourth quarter of 2003, the Companys
Board of Directors authorized a share repurchase program of its
outstanding common stock in the amount of $35.0 million. In
the first quarter of 2004, the Company announced that its Board
of Directors had approved an increase in its share repurchase
program to acquire an additional $35.0 million of its
common stock. The additional authorization increased the total
share repurchase program to $70.0 million. The
Companys purchases of treasury stock for the thirteen
weeks ended July 31, 2004 pursuant to the share repurchase
program are as follows:

|          |  |            |         |            |  |                  |       |                    |  |  |         |  |  |   |        | 
|--------- |  | ---------- | ------- | ---------- |  | ---------------- | ----- | ------------------ |  |  | ------- |  |  | - | ------ | 
|          |  |            |         |            |  | Total Number of  |       | Approximate Dollar
|          |  | Total      |         |            |  | Shares Purchased |       | Value of Shares   
|          |  | Number of  |         |            |  | as Part of       |       | that May Yet Be   
|          |  | Shares (or |         | Average    |  | Publicly         |       | Purchased Under   
|          |  | Units)     |         | Price Paid |  | Announced Plans  |       | the Plans or      
|Period    |  | Purchased  |         | per Share  |  | or Programs      |       | Programs          
|          |  |            |         |            |  |                  |       |                   
|          |  |            |         |            |  |                  |       | (In Thousands)    
|May 2004. |  |            | 10,000  |            |  | $                | 25.65 |                    |  |  | 10,000  |  |  | $ | 33,408 | 
|June 2004 |  |            | 155,000 |            |  | $                | 27.08 |                    |  |  | 155,000 |  |  | $ | 29,211 | 
|July 2004 |  |            | 10,000  |            |  | $                | 27.00 |                    |  |  | 10,000  |  |  | $ | 28,941 | 
|Total     |  |            | 175,000 |            |  | $                | 26.99 |                    |  |  | 175,000 |  |  | $ | 28,941 | 






|        |                                    
|------- | -----------------------------------
|Item 3. | Defaults Upon Senior
    Securities

Not applicable.






|        |                                                        
|------- | -------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders

(a) In accordance with the Companys
notice and proxy statement dated May 25, 2004, the Company held
its Annual Meeting of Stockholders on June 16, 2004.
Holders of 49,041,897 shares of the Companys common stock
were present in person or by proxy representing approximately
88% of the Companys 55,426,851 shares outstanding on the
record date. The matters set forth in the paragraphs below were
submitted to a vote of the Companys stockholders.

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(b) The proposal to approve an amendment to
the Companys Certificate of Incorporation to provide for
the classification of the Companys Board of Directors into
three classes of directors with staggered terms of office, which
was approved and recommended by the Companys Board of
Directors, was rejected by a majority of the shares voted as
follows:

|          |            |               |  |             |            |  |  |  |        | 
|--------- | ---------- | ------------- |  | ----------- | ---------- |  |  |  | ------ | 
|Votes For |            | Votes Against |  | Abstentions
|          |            |               |  |            
|          | 12,941,507 |               |  |             | 35,607,678 |  |  |  | 35,388 | 

(b) The following persons were elected as
members of the Board of Directors to serve a term of one year
and until their successors shall have been duly elected and
qualified:

|                      |  |           |            |                |  |  |           | 
|--------------------- |  | --------- | ---------- | -------------- |  |  | --------- | 
|Name of Nominee       |  | Votes For |            | Votes Withheld
|                      |  |           |            |               
|Julian R. Geiger      |  |           | 47,568,658 |                |  |  | 1,473,239 | 
|John S. Mills         |  |           | 48,081,005 |                |  |  | 960,892   | 
|Bodil Arlander        |  |           | 48,160,118 |                |  |  | 881,779   | 
|Ronald R. Beegle      |  |           | 47,581,139 |                |  |  | 1,460,758 | 
|Mary Elizabeth Burton |  |           | 46,658,229 |                |  |  | 2,359,668 | 
|Robert B. Chavez      |  |           | 48,160,118 |                |  |  | 881,779   | 
|David Edwab           |  |           | 47,113,079 |                |  |  | 1,928,818 | 
|John D. Howard        |  |           | 48,160,118 |                |  |  | 881,779   | 
|David B. Vermylen     |  |           | 47,167,135 |                |  |  | 1,874,762 | 

(c) The proposal to approve an Executive
Incentive Bonus Plan, which was approved and recommended by the
Companys Board of Directors, was approved by a majority of
the shares voted as follows:

|          |            |               |  |             |           |  |  |  |        | 
|--------- | ---------- | ------------- |  | ----------- | --------- |  |  |  | ------ | 
|Votes For |            | Votes Against |  | Abstentions
|          |            |               |  |            
|          | 44,942,281 |               |  |             | 3,592,833 |  |  |  | 49,459 | 






|        |                  
|------- | -----------------
|Item 5. | Other Information

Not applicable.






|        |                                     
|------- | ------------------------------------
|Item 6. | Exhibits and Reports on
    Form 8-K

(a) Exhibits:



| |      |                                                                                                                                                                
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 31.1 | Certification by Julian R. Geiger, Chairman and
    Chief Executive Officer, pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.                    
|
| | 31.2 | Certification by Michael J. Cunningham, Executive
    Vice President and Chief Financial Officer, pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002
|
| | 32.1 | Certification by Julian R. Geiger pursuant to 18
    U.S.C. Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.            
|
| | 32.2 | Certification by Michael J. Cunningham pursuant
    to 18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.       

Reports on Form 8-K:



| |    |                                                                                                                                                        
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | The Registrants Current Report on Form 8-K,
    dated May 6, 2004, related to monthly historical net sales.                                            
|
| | 2. | The Registrants Current Report on Form 8-K,
    dated May 6, 2004, related to the addition of Robert E.
    Chavez to the Companys Board of Directors.

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| |    |                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------
| | 3. | The Registrants Current Report on Form 8-K,
    dated May 20, 2004, related to first quarter earnings
    results.
|
| | 4. | The Registrants Current Report on Form 8-K,
    dated June 2, 2004, related to monthly historical net sales.      
|
| | 5. | The Registrants Current Report on Form 8-K,
    dated July 7, 2004, related to monthly historical net sales.      

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SIGNATURES

Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly
authorized.



| |                                                      
| | -----------------------------------------------------
| | AEROPOSTALE, INC.                                    
|
| | /s/ JULIAN R. GEIGER                                 
| |                                                      
| | Julian R. Geiger                                     
| | Chairman of the Board and Chief Executive
    Officer
| | (Principal Executive Officer)                        
|
| | /s/ MICHAEL J. CUNNINGHAM                            
| |                                                      
| | Michael J. Cunningham                                
| | Executive Vice President-Chief Financial
    Officer 
| | (Principal Financial Officer)                        

Dated: September 8, 2004

18