UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
DC 20549





Form
10-Q





(Mark
      One)R
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the quarterly period ended May 2, 2009OR£
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





Commission
file number: 001-31314





Aéropostale,
Inc.


(Exact
name of registrant as specified in its charter)





Delaware
            31-1443880(State
      of incorporation)
            (I.R.S.
      Employer Identification No.)112
      W. 34th Street, New York, NY
            10120(Address
      of Principal Executive Offices)
            (Zip
      Code)





(646)
485-5410


(Registrant’s
Telephone Number, Including Area Code)





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





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





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





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





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





The
Registrant had 67,468,404 shares of common stock issued and outstanding as of
May 29, 2009.








AÉROPOSTALE, INC.





TABLE
OF CONTENTS


PagePART
      I
            FINANCIAL
      INFORMATIONItem 1
            Financial Statements (unaudited)
            3Condensed Consolidated Balance Sheets
            3Condensed Consolidated Statements of Income
            4Condensed Consolidated Statements of Cash
    Flows
            5Notes to Unaudited Condensed Consolidated Financial
      Statements
            6Item 2
            Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
            13Item 3
            Quantitative and Qualitative Disclosures About Market
      Risk
            17Item 4
            Controls and Procedures
            18PART
      II
            OTHER
      INFORMATIONItem 1
            Legal Proceedings
            19Item 1A
            Risk Factors
            19Item 2
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            24Item 3
            Defaults Upon Senior Securities
            24Item 4
            Submission of Matters to a Vote of Security
      Holders
            24Item 5
            Other Information
            24Item 6
            Exhibits
            25SIGNATURES
            26


2
 table of contents


PART I — FINANCIAL INFORMATION





Item
1.  Financial
Statements (unaudited)





AÉROPOSTALE,
INC.





CONDENSED
CONSOLIDATED BALANCE SHEETS


(In
thousands)


(Unaudited)





May2,
      2009
                
                
                January31,
                  2009
                
                
                May3,
      2008ASSETSCurrent
      Assets:Cash
      and cash equivalents
                
                $
                247,747
                
                
                $
                228,530
                
                
                $
                64,469Merchandise
      inventory
                
                
                128,929
                
                
                
                126,360
                
                
                
                134,976Deferred
      income taxes
                
                
                10,919
                
                
                
                10,745
                
                
                
                12,961Prepaid
      expenses and other current assets
                
                
                26,114
                
                
                
                28,246
                
                
                
                21,913Total
      current assets
                
                
                413,709
                
                
                
                393,881
                
                
                
                234,319Fixtures,
      equipment and improvements, net
                
                
                249,676
                
                
                
                248,999
                
                
                
                230,996Deferred
      income taxes
                
                
                10,773
                
                
                
                12,509
                
                
                
                13,818Other
      assets
                
                
                2,525
                
                
                
                2,530
                
                
                
                2,567TOTAL
      ASSETS
                
                $
                676,683
                
                
                $
                657,919
                
                
                $
                481,700LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      Liabilities:Accounts
      payable
                
                $
                70,308
                
                
                $
                77,247
                
                
                $
                67,817Accrued
      compensation
                
                
                19,603
                
                
                
                30,043
                
                
                
                14,349Accrued
      gift cards
                
                
                14,199
                
                
                
                19,349
                
                
                
                12,043Accrued
      expenses and other current liabilities
                
                
                49,337
                
                
                
                48,798
                
                
                
                44,999Total
      current liabilities
                
                
                153,447
                
                
                
                175,437
                
                
                
                139,208Deferred
      rent and tenant allowances
                
                
                99,898
                
                
                
                102,393
                
                
                
                98,544Retirement
      benefit plan liabilities
                
                
                23,469
                
                
                
                22,470
                
                
                
                19,975Uncertain
      tax contingency liabilities
                
                
                2,720
                
                
                
                2,559
                
                
                
                3,799Commitments
      and contingent liabilities (See note 11)Stockholders’
      Equity:Preferred
      stock, $0.01 par value; 5,000 shares authorized, no shares issued or
      outstanding
                
                
                —
                
                
                
                —
                
                
                
                —Common
      stock, $0.01 par value; 200,000 shares authorized; 91,076; 90,472 and
      90,137 shares issued and outstanding, respectively
                
                
                911
                
                
                
                905
                
                
                
                901Additional
      paid-in capital
                
                
                157,687
                
                
                
                145,951
                
                
                
                130,880Accumulated
      other comprehensive loss
                
                
                (8,518
                )
                
                
                (8,998
                )
                
                
                (5,277
                )Retained
      earnings
                
                
                725,008
                
                
                
                693,333
                
                
                
                561,409Treasury
      stock, 23,606; 23,542 and 23,254 shares, respectively at
    cost
                
                
                (477,939
                )
                
                
                (476,131
                )
                
                
                (467,739
                )Total
      stockholders’ equity
                
                
                397,149
                
                
                
                355,060
                
                
                
                220,174TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                
                $
                676,683
                
                
                $
                657,919
                
                
                $
                481,700






See Notes
to Unaudited Condensed Consolidated Financial Statements





3
 table of contents






AÉROPOSTALE, INC.





CONDENSED
CONSOLIDATED STATEMENTS OF INCOME


(In
thousands, except per share data)


(Unaudited)





13 weeks endedMay2,
      2009
                
                
                May3,
      2008Net
      sales
                
                $
                408,024
                
                
                $
                336,332Cost
      of sales (includes certain buying, occupancy and warehousing
      expenses)
                
                
                260,134
                
                
                
                225,054Gross
      profit
                
                
                147,890
                
                
                
                111,278Selling,
      general and administrative expenses
                
                
                94,446
                
                
                
                82,090Income
      from operations
                
                
                53,444
                
                
                
                29,188Interest
      (expense) income
                
                
                (45
                )
                
                
                240Income
      before income taxes
                
                
                53,339
                
                
                
                29,428Income
      taxes
                
                
                21,724
                
                
                
                11,930Net
      income
                
                $
                31,675
                
                
                $
                17,498Basic
      earnings per share
                
                $
                0.47
                
                
                $
                0.26Diluted
      earnings per share
                
                $
                0.47
                
                
                $
                0.26Weighted
      average basic shares
                
                
                67,099
                
                
                
                66,749Weighted
      average diluted shares
                
                
                67,790
                
                
                
                67,305








See Notes
to Unaudited Condensed Consolidated Financial Statements







4
 table of contents







AÉROPOSTALE, INC.





CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(In
thousands)


(Unaudited)





13 weeks endedMay2,
      2009
                
                
                May3,
      2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                
                $
                31,675
                
                
                $
                17,498Adjustments
      to reconcile net income to net cash used in operating
      activities:Depreciation
      and amortization
                
                
                11,752
                
                
                
                9,873Stock-based
      compensation
                
                
                3,162
                
                
                
                3,981Excess
      tax benefits from stock-based compensation
                
                
                (1,123
                )
                
                
                (863
                )Other
                
                
                (1,937
                )
                
                
                (1,175
                )Changes
      in operating assets and liabilities:Merchandise
      inventory
                
                
                (2,360
                )
                
                
                1,433Accounts
      payable
                
                
                (7,018
                )
                
                
                (31,529
                )Other
      assets and liabilities
                
                
                (14,501
                )
                
                
                (29,294
                )Net
      cash provided by (used in) operating activities
                
                
                19,650
                
                
                
                (30,076
                )CASH
      FLOWS FROM INVESTING ACTIVITIES:Capital
      expenditures
                
                
                (9,120
                )
                
                
                (20,045
                )Net
      cash used in investing activities
                
                
                (9,120
                )
                
                
                (20,045
                )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from exercise of stock options
                
                
                7,457
                
                
                
                1,986Excess
      tax benefits from stock-based compensation
                
                
                1,123
                
                
                
                863Net
      cash provided by financing activities
                
                
                8,580
                
                
                
                2,849Effect
      of exchange rate changes
                
                
                107
                
                
                
                (186
                )Net
      increase (decrease) in cash and cash equivalents
                
                
                19,217
                
                
                
                (47,458
                )Cash
      and cash equivalents, beginning of year
                
                
                228,530
                
                
                
                111,927Cash
      and cash equivalents, end of period
                
                $
                247,747
                
                
                $
                64,469Supplemental
      Disclosure of Cash Flow Information:Accruals
      related to purchases of property and equipment
                
                $
                2,904
                
                
                $
                7,218








See Notes
to Unaudited Condensed Consolidated Financial Statements





5
 table of contents






AÉROPOSTALE, INC.





NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





1.  Basis of
Presentation





References
to the “Company,” “we,” “us,” or “our” means Aéropostale, Inc. and its
subsidiaries, except as expressly indicated to the contrary or unless the
context otherwise requires. We are a mall-based, specialty retailer of casual
apparel and accessories for young women and men. We design, market and sell our
own brand of merchandise principally targeting 14 to 17 year-old young women and
men. Jimmy’Z Surf Co., Inc. is a wholly owned subsidiary of Aéropostale,
Inc.  As of May 2, 2009, we operated 909 Aéropostale stores,
consisting of 877 stores in 48 states and Puerto Rico, 32 stores in Canada, in
addition to our Aéropostale e-commerce website, www.aeropostale.com
(this and any other references in this Quarterly Report on Form 10-Q to
aeropostale.com is solely a reference to a uniform resource locator, or URL, and
is an inactive textual reference only, not intended to incorporate the website
into this Quarterly Report on Form 10-Q).  As of May 2, 2009, we
operated 11 Jimmy’Z stores that we plan to close by the end of the second
quarter of fiscal 2009.  In addition, our new concept, P.S. from
Aéropostale, will offer casual clothing and accessories focusing on elementary
school children between the ages of 7 and 12.  We plan to open
approximately 10 new P.S. from Aéropostale stores in the United States during
fiscal 2009.





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





Our
business is highly seasonal, and historically we have realized a significant
portion of our sales, net income, and cash flow in the second half of the year,
driven by the impact of the back-to-school selling season in the third quarter
and the holiday selling season in the fourth quarter. Therefore, our interim
period consolidated financial statements may not be indicative of our full-year
results of operations, financial condition or cash flows. These financial
statements should be read in conjunction with our Annual Report on Form 10-K for
our fiscal year ended January 31, 2009.





References
to “2009” or “fiscal 2009” mean the 52-week period ending January 30, 2010, and
references to “2008” or “fiscal 2008” mean the 52-week period ended January 31,
2009. References to “the first quarter of 2009” mean the thirteen-week period
ended May 2, 2009, and references to “the first quarter of 2008” mean the
thirteen-week period ended May 3, 2008.





2.  Jimmy’Z Store Concept Closing





In
February 2009, we announced our plans to close all of our 11 Jimmy’Z stores by
the end of the second quarter of fiscal 2009. Three additional Jimmy’Z stores
had closed during fiscal 2008.  During the first quarter of 2009, we
recorded inventory related charges of $1.3 million, severance charges of $1.1
million, and a lease termination charge of $0.2 million, resulting from the
stores that we plan to close during the second quarter of fiscal 2009. Of
these amounts, $2.3 million is recorded in cost of sales and $0.3 million is
recorded in selling, general and administrative expenses.  The
liability related to these charges at the end of the quarter of was $0.7
million.  We expect to record the remaining closing costs related to
these stores during the second quarter of 2009 when the stores
close.





3.  Revenue
Recognition





Sales revenue is recognized at the
“point of sale” in our stores and at the time our e-commerce customers take
possession of merchandise. Allowances for sales returns are recorded as a
reduction of net sales in the periods in which the related sales are
recognized.  Also included in sales revenue is shipping revenue from
our e-commerce customers.  Sales revenue related to gift cards and the
issuance of store credits are recognized when they are redeemed.  We
also recognize breakage income for the portion estimated to be
unredeemed.We
have nolegal obligation
to escheat the value of unredeemed gift cards to the relevant jurisdiction. We
thereforehavedetermined that the
likelihood of certain gift cards being redeemed by the customerto beremote, based upon historical
redemption patterns of gift cards. For those gift cards that we determine
redemption to be remote, we reversedthe liability, and recordedgift card breakage income in net
sales.  In the first quarter of fiscal 2009, we recorded $0.7 million
in net sales related to gift card breakage income compared to $0.5million in thefirstquarter of fiscal 2008.






6
 table of contents






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





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





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





5.  Other Comprehensive
Income





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





13 weeks endedMay 2, 2009
                
                
                May 3, 2008(In
      Thousands)Net
      income
                
                $
                31,675
                
                
                $
                17,498Pension
      liability, net of tax of $59 and $137, respectively
                
                
                (89
                )
                
                
                (205
                )Foreign
      currency translation adjustment 1
                
                
                569
                
                
                
                (422
                )Other
      comprehensive income
                
                $
                32,155
                
                
                $
                16,871





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





6.  Earnings Per
Share





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





13 weeks endedMay 2, 2009
                
                
                May 3, 2008(In
      Thousands, ExceptPer
      Share Data)Net
      income
                
                $
                31,675
                
                
                $
                17,498Weighted
      average basic shares
                
                
                67,099
                
                
                
                66,749Impact
      of dilutive securities
                
                
                691
                
                
                
                556Weighted
      average diluted shares
                
                
                67,790
                
                
                
                67,305Earnings
      per basic share
                
                $
                0.47
                
                
                $
                0.26Earnings
      per diluted share
                
                $
                0.47
                
                
                $
                0.26





Options
to purchase 544,306 shares during the first quarter of 2009 and 59,220 shares
during the first quarter of 2008 were not included in the computation of diluted
earnings per share because the exercise price of the options was greater than
the average market price of the common shares.





7.  Revolving Credit
Facility





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








7
 table of contents






Loans
under the Credit Facility are secured by all our assets and are guaranteed by
our subsidiaries. Upon the occurrence of a Cash Dominion Event (as defined in
the Credit Facility) among other limitations, our ability to borrow funds, make
investments, pay dividends and repurchase shares of our common stock would be
limited. Direct borrowings under the Credit Facility bear interest at a
margin over either LIBOR or a Base Rate (as each such term is defined in the
Credit Facility).




The
Credit Facility also contains covenants that, subject to specified exceptions,
restrict our ability to, among other things, incur additional debt or encumber
assets of the Company; merge with or acquire other companies, liquidate or
dissolve; sell, transfer, lease or dispose of assets; or make loans or
guarantees.




Events of
default under the Credit Facility include, subject to grace periods and notice
provisions in certain circumstances, failure to pay principal amounts when due,
breaches of covenants, misrepresentation, default of leases or other
indebtedness, excess uninsured casualty loss, excess uninsured judgment or
restraint of business, business failure or application for bankruptcy,
institution of legal process or proceedings under federal, state or civil
statutes, legal challenges to loan documents, and a change in control. If an
event of default occurs, the Lender will be entitled to take various actions,
including the acceleration of amounts due thereunder and requiring that all such
amounts be immediately paid in full as well as possession and sale of all assets
that have been used as collateral.  Upon the occurrence of an event of
default under the Credit Facility, the lenders may cease making loans, terminate
the Credit Facility, and declare all amounts outstanding to be immediately due
and payable.  As of May 2, 2009, we are not aware of any
instances of noncompliance with any covenants or any other event of default
under the Credit Facility.  As of May 2, 2009, we had no outstanding
balances or stand-by or commercial letters of credit issued under the Credit
Facility.





8.  Retirement Benefit
Plans





401(k)
Plan





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





Supplemental
Executive Retirement Plan





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





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





13 weeks endedMay 2, 2009
                
                
                May 3, 2008(In
      Thousands)Service
      cost
                
                $
                172
                
                
                $
                164Interest
      cost
                
                
                379
                
                
                
                287Amortization
      of prior experience cost
                
                
                19
                
                
                
                19Amortization
      of net loss
                
                
                157
                
                
                
                149Net
      periodic pension benefit cost
                
                $
                727
                
                
                $
                619





We had
liabilities of $22.1 million as of May 2, 2009, $21.2 million as of January 31,
2009 and $18.8 million as of May 3, 2008, in connection with this
plan.







8
 table of contents






Long-term
Incentive Plan





We
maintain a long-term incentive deferred compensation plan for the purpose of
providing long-term incentive to a designated group of management. The plan is a
non-qualified, defined contribution plan and is not funded. Participants in this
plan include all employees designated by the Company as Vice President, or other
higher-ranking positions, who are not participants in the SERP. Annual monetary
credits are recorded to each participant’s account based on compensation levels
and years as a participant in the plan. Annual interest credits are applied to
the balance of each participant’s account based upon established benchmarks.
Each annual credit is subject to a three-year cliff-vesting schedule, and
participants’ accounts will be fully vested upon retirement after completing
five years of service and attaining age 55.  We had liabilities of
$0.7 million as of May 2, 2009, $0.6 million as of January 31, 2009 and $0.5
million as of May 3, 2008, in connection with this plan.





Post
Retirement Benefit Plan





We
maintain a postretirement benefit plan for certain officers. We had liabilities
of $0.7 million as of May 2, 2009, January 31, 2009 and May 3, 2008, in
connection with this plan.





9.  Stock Repurchase
Program





We
repurchase our common stock from time to time under a stock repurchase
program.  The repurchase program may be modified or terminated by the
Board of Directors at any time, and there is no expiration date for the program.
The extent and timing of repurchases will depend upon general business and
market conditions, stock prices, opening and closing of the stock trading
window, and liquidity and capital resource requirements going
forward.  We did not repurchase any shares of common stock during the
first quarter of 2009 or the first quarter of 2008.





As of May
2, 2009, we had approximately $127.1 million of repurchase authorization
remaining under our $600.0 million share repurchase program.





10.  Stock-Based
Compensation





We follow
the provisions of Statement of Financial Accounting Standards No. 123(R),
Share-Based Payment, a revision of
SFAS No. 123, Accounting for Stock-Based Compensation, or
SFAS No. 123(R), as interpreted by SEC Staff Accounting
Bulletin No. 107, or SAB 107.  Under
SFAS No. 123(R), all forms of share-based payment to employees and
directors, including stock options, must be treated as compensation and
recognized in the income statement.





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





We
determined expected volatilities based on the Company’s past four years of
historical volatilities.  We had elected to use the simplified method
for estimating our expected term as allowed by SAB 107, and extended by SAB 110,
to determine expected life.  We had concluded that we cannot yet rely
on our historical exercise data to estimate the future exercise behavior of our
employees.  Therefore, in accordance with SAB 110, we had continued to
utilize the simplified method to estimate the expected term for our stock
options granted and will continue to evaluate the appropriateness of utilizing
such method.   The risk-free interest rate is indexed to the
five-year Treasury note interest at the date of grant and the expected
forfeiture rate is based on the Company’s historical forfeiture
information.





We did
not issue any stock options during the first quarter of 2009. During the first
quarter of 2008, we issued 100,600 stock options at a weighted-average grant
date fair value of $12.80. For the first quarter of 2008, our expected
volatility was 43%, expected term was 5.25 years, risk-free interest rate was
2.61% and expected forfeiture rate was 25%.





We have
elected to adopt the simplified method to establish the beginning balance of the
additional paid-in capital pool (“APIC Pool”) related to the tax effects of
employee share-based compensation, and to determine the subsequent impact on the
APIC Pool and condensed consolidated statements of cash flows of the tax effects
of employee and director share-based awards that were outstanding upon adoption
of SFAS No. 123(R).






9
 table of contents





The
effects of applying SFAS No. 123(R) and the results obtained through
the use of the Black-Scholes option-pricing model are not necessarily indicative
of future values.





A summary
of stock option activity during the first quarter of 2009 is as
follows:





Number
      ofShares
                
                
                Weighted
      Average Exercise
Price
                
                
                Weighted-Average
      Remaining Contractual
      Term
                
                
                Aggregate
      IntrinsicValue(In
      thousands)
                
                
                
                
                
                (In
      years)
                
                
                (In
      millions)Outstanding
      as of January 31, 2009
                
                
                1,450
                
                
                $
                20.87Granted
                
                
                —
                
                
                
                —Exercised
                
                
                (413
                )
                
                $
                17.88Cancelled
                
                
                (2
                )
                
                $
                23.34Outstanding
      as of May 2, 2009
                
                
                1,035
                
                
                $
                22.06
                
                
                
                4.99
                
                
                $
                11.4Exercisable
      as of May 2, 2009
                
                
                587
                
                
                $
                19.78
                
                
                
                4.30
                
                
                $
                7.8





We
recognized $0.6 million in compensation expense related to stock options in
the first quarter of 2009 and $1.0 million in the first quarter of
2008.





For the
first quarter of 2009, the intrinsic value of options exercised was
$6.3 million as compared to $2.0 million for the first quarter of
2008.





As of
May 2, 2009, there was $4.5 million of total unrecognized compensation
cost related to non-vested options that we expect will be recognized over the
remaining weighted-average vesting period of 2.2 years.





During
the first quarter of 2009, we granted 229,022 shares of non-vested stock at a
weighted-average grant date fair value of $24.98 compared to 155,275 shares of
non-vested stock at a weighted-average grant date fair value of $28.43 during
the first quarter of 2008.





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





Number
      of Shares(In
      thousands)Non-vested
      stock as of January 31, 2009
                
                
                728Granted
                
                
                229Vested
                
                
                (191
                )Cancelled
                
                
                —Non-vested
      stock as of May 2, 2009
                
                
                766





Total
compensation expense is being amortized over the vesting period. Compensation
expense related to non-vested stock activity was $2.0 million for the first
quarter of 2009 compared to $2.6 million for the first quarter of
2008.





As of May
2, 2009, there was $10.4 million of unrecognized compensation cost related
to non-vested stock awards that is expected to be recognized over the weighted
average period of 1.3 years.





Compensation
expense related to performance shares was $0.6 million for the first
quarter of 2009 compared to $0.3 million for the first quarter of
2008.





As of May
2, 2009, there was $5.0 million of unrecognized compensation cost related
to performance shares that is expected to be recognized over the weighted
average period of 2.0 years.





11.  Commitments and
Contingent Liabilities





We are
party to various litigation matters and proceedings in the ordinary course of
business. In the opinion of our management, dispositions of these matters are
not expected to have a material adverse affect on our financial position,
results from operations or cash flows.  As of May 2, 2009, we had not
issued any third party guarantees.






10
 table of contents






12.  Income
Taxes





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





We follow
the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (“FIN 48”), which clarifies the accounting and disclosure for
uncertainty in income taxes. We recognize interest and penalties related to
unrecognized tax benefits as a component of income tax expense.





We had
$2.7 million of unrecognized tax benefit related to uncertain tax contingency
liabilities remaining as of May 2, 2009, including accrued penalties and
interest of $0.7 million.  Net uncertain tax positions of $1.9 million
as of May 2, 2009, which is inclusive of interest and penalties, would favorably
impact our effective tax rate if these net liabilities were
reversed.





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





13. 
Recent Accounting Developments





In May
2009, the Financial Accounting Standards Board ("FASB") issued SFAS No. 165,
Subsequent Events(“SFAS No. 165”).  The objective of this statement is to establish
general standards of accounting for and disclosure of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued. In particular, this statement sets forth: a) the period
after the balance sheet date during which management of a reporting entity
should evaluate events or transactions that may occur for potential recognition
or disclosure in the financial statements; b) the circumstances under which an
entity should recognize events or transactions occurring after the balance sheet
date in its financial statements; and c) the disclosures that an entity should
make about events or transactions that occurred after the balance sheet
date.  In accordance with this statement, an entity should apply the
requirements to interim or annual financial periods ending after June 15,
2009.  We will adopt SFAS No. 165 in the second quarter of fiscal 2009 and
we expect that its adoption will not have a material impact on our consolidated
financial statements.





In
December 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 132(R)-1,
“Employers’ Disclosures About Pensions and Other Postretirement Benefit Plan
Assets”.  This FSP amends Statement 132(R) to require more detailed
disclosures about employers’ plan assets, including employers’ investment
strategies, major categories of plan assets, concentrations of risk within plan
assets, and valuation techniques used to measure the fair value of plan
assets.  FSP No. FAS 132(R)-1 will be effective for fiscal years
ending after December 15, 2009 and we expect that its adoption will not have a
material impact on our consolidated financial statements.





In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interest in
Consolidated Financial Statements(“SFAS No.
160”).  SFAS No. 160's objective is to improve the relevance,
comparability, and transparency of the financial information that a reporting
entity provides in its consolidated financial statements by establishing
accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 is
effective for fiscal years and interim periods within those fiscal years,
beginning on or after December 15, 2008.The adoption
of SFAS No. 160 did not have a material impact on our consolidated financial
statements.








11
 table of contents







In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements(“SFAS No. 157”). This statement defines fair
value, establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements.
This statement applies under other accounting pronouncements that require or
permit fair value measurements, the FASB having concluded in those other
accounting pronouncements that fair value is the relevant measurement attribute.
This statement is effective in financial statements issued for fiscal years
beginning after November 15, 2007.  However, in February 2008, the
FASB issued FSP SFAS 157-2, “Effective Date for FASB Statement No. 157” which
delayed application of SFAS 157 for all nonrecurring fair value measurements of
non-financial assets and non-financial liabilities until fiscal years beginning
after November 15, 2008.  We adopted FSP SFAS 157-2 at the beginning
of fiscal 2009.  The adoption of SFAS No. 157 as it related to
nonrecurring fair value measurements of non-financial assets and liabilities has
not had a material impact on our consolidated financial statements.







12
 table of contents








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





Cautionary
Note Regarding Forward-Looking Statements





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





Introduction





References
to the “Company,” “we,” “us,” or “our” mean Aéropostale, Inc. and its
subsidiaries, except as expressly indicated to the contrary or unless the
context otherwise requires. We are a mall-based, specialty retailer of casual
apparel and accessories for young women and men. We design, market and sell our
own brand of merchandise principally targeting 14 to 17 year-old young women and
men.  Jimmy’Z Surf Co., Inc. is a wholly owned subsidiary of
Aéropostale, Inc.  As of May 2, 2009, we operated 909 Aéropostale stores,
consisting of 877 stores in 48 states and Puerto Rico, 32 stores in Canada, in
addition to our Aéropostale e-commerce website, www.aeropostale.com
(this and any other references in this Quarterly Report on Form 10-Q to
aeropostale.com is solely a reference to a uniform resource locator, or URL, and
is an inactive textual reference only, not intended to incorporate the website
into this Quarterly Report on Form 10-Q).  As of May 2, 2009 we
operated 11 Jimmy’Z stores that we plan to close by the end of the second
quarter of fiscal 2009.  In addition, our new concept, P.S. from
Aéropostale, will offer casual clothing and accessories focusing on elementary
school children between the ages of 7 and 12.  We plan to open
approximately 10 new P.S. from Aéropostale stores in the United States during
fiscal 2009.





Management’s
Discussion and Analysis of Financial Condition and Results of Operations, or
“MD&A,” is intended to provide information to help you better understand our
financial condition and results of operations. Our business is highly seasonal,
and historically we realize a significant portion of our sales, net income, and
cash flow in the second half of the year, driven by the impact of the
back-to-school selling season in our third quarter and the holiday selling
season in our fourth quarter. Therefore, our interim period consolidated
financial statements may not be indicative of our full-year results of
operations, financial condition or cash flows. We recommend that you read this
section along with our condensed consolidated financial statements included in
this report and along with our Annual Report on Form 10-K for the year ended
January 31, 2009.





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





Results
of Operations





Overview





We
achieved net sales of $408.0 million for the first quarter of 2009, or a 21%
increase when compared to the first quarter of 2008.  The increase in
net sales for the first quarter of 2009 was driven primarily by average square
footage growth of 11% and an increase in comparable store sales of
11%.  Gross profit, as a percentage of net sales, increased by 3.1
percentage points for the first quarter of 2009 due primarily to increased
merchandise margin.  SG&A, as a percentage of net sales, decreased
by 1.3 percentage points for the first quarter of 2009.  Interest
income decreased by $0.3 million for the first quarter of 2009 compared to the
same period in 2008.  The effective income tax rate was 40.7% for the
first quarter of 2009 and 40.5% for the first quarter of
2008.  Net income for the first quarter of 2009 was $31.7 million, or
$0.47 per diluted share, compared to net income of $17.5 million, or $0.26 per
diluted share, for the first quarter of 2008.





As of May
2, 2009, we had working capital of $260.3 million, cash and cash equivalents of
$247.7 million and no short-term investments.  Consolidated
merchandise inventories decreased by 4% and by 13% on a per square foot basis,
at May 2, 2009 compared to May 3, 2008.





We
operated 920 stores at May 2, 2009, an increase of 8% from the same period last
year, which was due to additional new stores in the U.S. and our expansion into
Canada and Puerto Rico.






13
 table of contents





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 endedMay 2, 2009
                
                
                May 3, 2008Net
      sales
                
                
                100.0
                %
                
                
                100.0
                %Gross
      profit
                
                
                36.2
                %
                
                
                33.1
                %Selling,
      general and administrative expenses
                
                
                23.1
                %
                
                
                24.4
                %Income
      from operations
                
                
                13.1
                %
                
                
                8.7
                %Interest
      income
                
                
                0.0
                %
                
                
                0.1
                %Income
      before income taxes
                
                
                13.1
                %
                
                
                8.8
                %Income
      taxes
                
                
                5.3
                %
                
                
                3.5
                %Net
      income
                
                
                7.8
                %
                
                
                5.3
                %





Key
Performance Indicators





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





13 weeks endedMay 2, 2009
                
                
                May 3, 2008Net
      sales (in millions)
                
                $
                408.0
                
                
                $
                336.3Total
      store count at end of period
                
                
                920
                
                
                
                848Comparable
      store count at end of period
                
                
                812
                
                
                
                735Net
      sales growth
                
                
                21
                %
                
                
                22
                %Comparable
      store sales change
                
                
                11
                %
                
                
                10
                %Comparable
      average unit retail change
                
                
                6
                %
                
                
                0
                %Comparable
      units per sales transaction change
                
                
                3
                %
                
                
                3
                %Comparable
      sales transaction change
                
                
                1
                %
                
                
                7
                %Net
      sales per average square foot
                
                $
                118
                
                
                $
                110Gross
      profit (in millions)
                
                $
                147.9
                
                
                $
                111.3Income
      from operations (in millions)
                
                $
                53.4
                
                
                $
                29.2Diluted
      earnings per share
                
                $
                0.47
                
                
                $
                0.26Average
      square footage growth over comparable period
                
                
                11
                %
                
                
                11
                %Change
      in total inventory over comparable period
                
                
                (4
                )%
                
                
                25
                %Change
      in inventory per square foot over comparable period
                
                
                (13
                )%
                
                
                13
                %Percentages
      of net sales by category:Young
      Women’s
                
                
                72
                %
                
                
                73
                %Young
      Men’s
                
                
                28
                %
                
                
                27
                %





Comparison
of the 13 weeks ended May 2, 2009 to the 13 weeks ended May 3,
2008





Net
Sales





Net sales
for the first quarter of 2009 increased by $71.7 million, or by 21% compared to
the same period last year.  The increase in net sales was driven
primarily by average square footage growth of 11% and an increase in comparable
store sales of 11% or $33.8 million.  Comparable store sales increased
in both our young women’s and young men’s categories.  The overall
comparable store sales increase reflected increases of 3% in units per sales
transaction, 6% in average unit retail and 1% in the number of sales
transactions.  Non-comparable store sales increased by $37.9 million
due primarily to 72 more stores open at the end of the first quarter of 2009
compared to the end of the first quarter of 2008.  Total
non-comparable sales includes net sales from our e-commerce business which
increased by 74% to $16.7 million during the first quarter of fiscal 2009 when
compared to the same period last year.








14
 table of contents







Gross
Profit





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





Gross
profit, as a percentage of net sales, increased by 3.1 percentage points for the
first quarter of 2009 compared to the same period last year. The increase was
primarily due to an increase in merchandise margin of 2.2 percentage points, the
leveraging impact of occupancy, depreciation and buying costs of 0.8 percentage
points and lower distribution and transportation costs of 0.2 percentage
points.





SG&A





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





SG&A
increased by $12.4 million for the first quarter of 2009 compared to the first
quarter of 2008. The increase in SG&A was largely due to a $6.5 million
increase in corporate expenses, which included higher incentive compensation,
benefits and other corporate expenses along with an increase of $4.4 million in
store-line expenses.  Additionally, the increase was due to higher
store and e-commerce transaction costs of $2.8 million resulting primarily from
new store growth and increased sales.  These increases were offset
partially by lower marketing costs of $1.3 million due to a reduction in our
collegiate marketing program.





SG&A
decreased by 1.3 percentage points, as a percentage of net sales, for the first
quarter of 2009 compared to the first quarter of 2008.  The decrease
was driven primarily by expense management and the leveraging impact of
store-line and other corporate expenses, which resulted in a 1.5 percentage
point decrease.  In addition, a reduction in our collegiate marketing
program resulted in a 0.4 percentage point decrease.  These decreases
were offset partially by 0.3 percentage points of higher e-commerce expenses,
reflecting the 74% increase in sales in this business, and 0.3 percentage
points of higher incentive compensation based upon the better than planned
operating results.





Income
taxes





The
effective income tax rate was 40.7% for the first quarter of 2009 and 40.5%
for the first quarter of 2008.





Net
income





Net income was $31.7 million, or $0.47
per diluted share, for the first quarter of 2009, compared to net income of
$17.5 million, or $0.26 per diluted share, for the first quarter of
2008.  Earnings per share increased by 81% for the first quarter of
2009 due primarily to the increase in net income.





Liquidity
and Capital Resources





Our cash
requirements are primarily for working capital, construction of new stores,
remodeling of existing stores, and the improvement or enhancement of our
information technology systems. Due to the seasonality of our business, we have
historically realized a significant portion of our cash flows from operations
during the second half of the year. Most recently, our cash requirements have
been met primarily through cash and cash equivalents on hand during the first
half of the year, and through cash flows from operations during the second half
of the year. We expect to continue to meet our cash requirements for the next
twelve months primarily through cash flows from operations and existing cash and
cash equivalents.  In addition, while we do not currently anticipate
borrowing any funds, we also have available a $150.0 million credit
facility.  At May 2, 2009, we had working capital of $260.3 million,
cash and cash equivalents of $247.7 million and no debt
outstanding.





15
 table of contents






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





13 weeks endedMay 2,
      2009
                
                
                May 3, 2008(In
      thousands)Net
      provided by (used in) in operating activities
                
                $
                19,650
                
                
                $
                (30,076
                )Net
      cash used in investing activities
                
                
                (9,120
                )
                
                
                (20,045
                )Net
      cash provided by financing activities
                
                
                8,580
                
                
                
                2,849Effect
      of exchange rate changes
                
                
                107
                
                
                
                (186
                )Net
      increase (decrease) in cash and cash equivalents
                
                $
                19,217
                
                
                $
                (47,458
                )





Operating
activities— Net cash provided by
operating activities increased by $49.7 million for the first quarter of 2009
compared to the same period in 2008.  This increase was attributable
primarily to the increase in cash generated through net income, which was offset
partially by the timing of payment of liabilities.  Consolidated
merchandise inventories decreased by 4%, and by 13% on a per square foot basis,
as of May 2, 2009 as compared to May 3, 2008.  Our inventories were
down 13% per square foot at the end of the first quarter due to stronger than
expected sales as well as the timing of receipt of merchandise
inventories.





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





Capital
requirements— Investments in
capital expenditures are principally for the construction of new stores,
remodeling of existing stores, and investments in information technology. Our
future capital requirements will depend primarily on the number of new stores we
open, the number of existing stores we remodel and the timing of these
expenditures.  We opened seven Aéropostale stores in our new store
format during the first quarter of 2009, which included three stores in
Canada.  In addition, during the first quarter of 2009, we remodeled
and renovated one existing Aéropostale store.  Capital expenditures
for the full year of 2009 are expected to approximate $55.0 million for new and
remodeled stores as well as for other initiatives.  These plans
include approximately 50 new Aéropostale stores, including approximately 15 in
Canada, approximately 10 P.S. from Aéropostale stores in the United States and
23 remodeled Aéropostale stores.





We had no
short-term investments at May 2, 2009, January 31, 2009 or May 3,
2008.





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





We did
not repurchase any shares of common stock during the first quarter of 2009 or
2008.  We have approximately $127.1 million of repurchase
authorization remaining as of May 2, 2009 under our $600.0 million share
repurchase program.





We have
an amended and restated revolving credit facility with Bank of America, N.A., as
Lender which provides availability of $150.0 million of revolving credit
(the “Credit Facility”).  The Credit Facility is available for working
capital and general corporate purposes.  The Credit Facility is
scheduled to mature on November 13, 2012, and no amounts were outstanding
as of May 2, 2009.





Contractual
Obligations





The
following table summarizes our contractual obligations as of May 2,
2009:




Payments DueBalance
      of
                
                
                In
      2010
                
                
                In
      2012
                
                
                AfterTotal
                
                
                2009
                
                
                and 2011
                
                
                and 2013
                
                
                2013(In
      thousands)Contractual
      ObligationsReal
      estate operating leases
                
                $
                687,113
                
                
                $
                100,991
                
                
                $
                194,136
                
                
                $
                170,203
                
                
                $
                221,783Equipment
      operating leases
                
                
                5,997
                
                
                
                2,155
                
                
                
                3,092
                
                
                
                750
                
                
                
                —Employment
      agreements
                
                
                16,588
                
                
                
                8,651
                
                
                
                7,937
                
                
                
                —
                
                
                
                —Total
      contractual obligations
                
                $
                709,698
                
                
                $
                111,797
                
                
                $
                205,165
                
                
                $
                170,953
                
                
                $
                221,783








16
 table of contents






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





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





In
addition to the above table, we project making a benefit payment of
approximately $17.0 million from our supplementary executive retirement
plan in 2010, which assumes expected future service until retirement at
age 65.





There
were no financial guarantees outstanding as of May 2, 2009. We had no commercial
commitments outstanding as of May 2, 2009.





Our total
liabilities for unrecognized tax benefits were $2.7 million at May 2, 2009.
We cannot make a reasonable estimate of the amount and period of related future
payments for these liabilities. Therefore these liabilities were not included in
the above table.





Off-Balance
Sheet Arrangements





We have
not created, and are not party to, any special-purpose or off-balance sheet
entities for the purpose of raising capital, incurring debt or operating our
business. We do not have any arrangements or relationships with entities that
are not consolidated into the financial statements that are reasonably likely to
materially affect our liquidity or the availability of capital resources. As of
May 2, 2009, we have not issued any letters of credit.





Critical
Accounting Policies and Estimates





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





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





As of May
2, 2009, there have been no material changes to any of the critical accounting
policies as disclosed in our Annual Report on Form 10-K for the fiscal year
ended January 31, 2009.





Item
3.                    Quantitative and
Qualitative Disclosures About Market Risk





As of
May 2, 2009, we had no outstanding borrowings under our Credit
Facility.  In addition, we had no stand-by or commercial letters of
credit issued under the Credit Facility. To the extent that we may borrow
pursuant to the Credit Facility in the future, we may be exposed to market risk
related to interest rate fluctuations.





Unrealized
foreign currency gains and losses, resulting from the translation of our
Canadian subsidiary financial statements into our reporting currency in U.S.
dollars are reflected in the equity section of our consolidated balance sheet in
accumulated other comprehensive loss.  The balance of the unrealized
loss included in accumulated other comprehensive loss was $2.1 million as of May
2, 2009.  A 10% movement in quoted foreign currency exchange rates
could result in a fair value translation fluctuation of approximately $1.4
million, which would be recorded in other comprehensive loss as an unrealized
gain or loss.






17
 table of contents






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





Item
4.                   Controls and
Procedures





(a) Evaluation of Disclosure Controls
and Procedures:Pursuant to Exchange Act Rule 13a-15(b) under
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our
management carried out an evaluation, under the supervision and with the
participation of our Chairman and Chief Executive Officer along with our Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls (as defined in Rule 13a-15(e) of the Exchange Act) and
procedures. Based upon that evaluation, our Chief Executive Officer along with
our Chief Financial Officer concluded that as of the end of our first quarter
ended May 2, 2009, our disclosure controls and procedures are
effective.





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






18
 table of contents





PART
II — OTHER INFORMATION





Item
1.                   Legal
Proceedings





On
January 15, 2008, we learned that the Securities and Exchange Commission
(the “SEC”) had issued a formal order of investigation with respect to matters
arising from those events disclosed in our Form 8-K, dated November 8,
2006, which resulted from the activities of Christopher L. Finazzo, our former
Executive Vice President and Chief Merchandising Officer. The SEC’s
investigation is an on-going non-public, fact-finding inquiry to determine
whether any violations of law have occurred. We continue to cooperate fully with
the SEC in its investigation.





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





Item
1A.                   Risk
Factors





Cautionary
Note Regarding Forward-Looking Statements





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





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





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





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





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




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





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






19
 table of contents






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





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





•
            fashion
      trends;





•
            changes
      in our merchandise mix;





•
            the
      effectiveness of our inventory
management;





•
            actions
      of competitors or mall anchor
tenants;





•
            calendar
      shifts of holiday or seasonal
periods;





•
            changes
      in general economic conditions and consumer spending
    patterns;





•
            the
      timing of promotional
events; and





•
            weather
      conditions.





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




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





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





•
            identify
      suitable markets and sites for new store
  locations;





•
            negotiate
      acceptable lease terms;





•
            hire,
      train and retain competent store
personnel;





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





•
            manage
      inventory and distribution effectively to meet the needs of new and
      existing stores on a timely basis;





•
            expand
      our infrastructure to accommodate
  growth; and





•
            generate
      sufficient operating cash flows or secure adequate capital on commercially
      reasonable terms to fund our expansion
plans.





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








20
 table of contents






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





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





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





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





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





Our
growth will largely depend on our ability to open and operate new stores
successfully.  In fiscal 2008, we opened 72 Aéropostale stores in the
U.S. including Puerto Rico and 17 Aéropostale stores in Canada.  In
fiscal 2007, we opened 76 Aéropostale stores in the U.S. and 12 Aéropostale
stores in Canada, and in fiscal 2006 we opened 74 Aéropostale stores in the
U.S.  We expect to continue to open new stores in the future. We also
anticipate remodeling a portion of our existing Aéropostale store base at the
appropriate times. To the extent that our new store openings are in existing
markets, we may experience reduced net sales volumes in previously existing
stores in those same markets.  There are however a finite number of
suitable locations and malls within the United States and Canada in which to
locate our Aéropostale stores.  As we reach that maximum number of
locations, there can be no assurance we will continue to find additional
locations which are suitable for our Aéropostale stores, and as such, the future
store growth of Aéropostale in the United States and Canada will be adversely
affected.




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





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





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





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





21
 table of contents








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





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





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




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





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





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




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





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




Our
net sales and inventory levels fluctuate on a seasonal basis.





Our net
sales and net income are disproportionately higher from August through January
each year due to increased sales from back-to-school and holiday shopping. Sales
during this period cannot be used as an accurate indicator for our annual
results. Our net sales and net income from February through July are typically
lower due to, in part, the traditional retail slowdown immediately following the
winter holiday season. Any significant decrease in sales during the
back-to-school and winter holiday seasons would have a material adverse effect
on our financial condition and results of operations. In addition, in order to
prepare for the back-to-school and holiday shopping seasons, we must order and
keep in stock significantly more merchandise than we would carry during other
parts of the year. Any unanticipated decrease in demand for our products during
these peak shopping seasons could require us to sell excess inventory at a
substantial markdown, which could reduce our net sales and gross margins and
negatively impact our profitability.  Additionally, our business is
also subject, at certain times, to calendar shifts which may occur during key
selling times such as school holidays, Easter and regional fluctuations in the
calendar during the back-to-school selling season.






22
 table of contents






We
rely on a third party to manage our distribution centers.





The
efficient operation of our stores is dependent on our ability to distribute, in
a timely manner, merchandise to our store locations throughout the United
States. An independent third party operates our two distribution and warehouse
facilities. We depend on this third party to receive, sort, pack and distribute
substantially all of our merchandise. This third party employs personnel
represented by a labor union. Although there have been no work stoppages or
disruptions since the inception of our relationship with this third party
provider beginning in 1991, there can be no assurance that work stoppages or
disruptions will not occur in the future. We also use separate third party
transportation companies to deliver our merchandise from our warehouse to our
stores. Any failure by any of these third parties to respond adequately to our
warehousing and distribution needs would disrupt our operations and negatively
impact our profitability.





We rely on a
third party to manage the warehousing and order fulfillment for our E-Commerce
business.





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





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





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





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





Any disruption of
our distribution activities could have a material adverse impact on our
business.





We
currently operate two distribution facilities, one in South River, New Jersey,
and the other in Ontario, California.  These distribution centers
manage collectively the receipt, storage, sortation, packaging and distribution
of our merchandise to all of our stores. Any significant interruption in the
operation of either of our distribution centers due to natural disasters,
accidents, system failures, economic and weather conditions, demographic and
population changes or other unforeseen events and circumstances could have a
material adverse effect on our business, financial condition and results of
operations.







23
 table of contents








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





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





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





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





Period
              
              Total
      Number
                of Shares
                (or Units)
                Purchased
              
              
              Average
                Price
      Paid
                per Share
              
              
              Total
      Number of
                Shares
      Purchased
                as
      Part of Publicly
                Announced
      Plans
                or
      Programs
              
              
              Approximate
      Dollar
                Value
      of Shares
                that may yet be
                Purchased
      Under the
                Plans
      or Programs
                (a)(In
      thousands)February
      1 to February 28, 2009
              
              
              —
              
              
              $
              —
              
              
              
              —
              
              
              $
              127,079March
      1 to April 4, 2009
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              $
              127,079April
      5 to May 2, 2009
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              $
              127,079Total
              
              
              —
              
              
              $
              —
              
              
              
              —


__________





(a)
            The
      repurchase program may be modified or terminated by the Board of Directors
      at any time, and there is no expiration date for the
    program.








Item
3.                     Defaults Upon
Senior Securities





Not
applicable.








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





Not
applicable.








Item
5.                    Other
Information





Not
applicable.





24
 table of contents







Item
6.                     Exhibits





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


____________





*
            Filed
      herewith.**
            Furnished
      herewith.







25


SIGNATURES





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





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











Dated:
June 5, 2009




26
 table of
contents