##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, DC 20549


Form 10-Q


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934 
|           |  | For the quarterly period ended July 30, 2005                                                
|OR        
|          
|o          |  | 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) 485-5398


(Registrants Telephone Number, Including Area Code)


þ o


þ o


o þ












---










AÉROPOSTALE, INC.


TABLE OF CONTENTS


|                                   |         |  |                                                                                            |  |  |    | 
|---------------------------------- | ------- |  | ------------------------------------------------------------------------------------------ |  |  | -- | 
|PART I  FINANCIAL
    INFORMATION |         |  | 2                                                                                          | 
|                                   | Item 1. |  | Financial Statements (unaudited)                                                           |  |  | 2  | 
|                                   |         |  | Condensed Consolidated Balance Sheets                                                      |  |  | 2  | 
|                                   |         |  | Condensed Consolidated Statements of Income and Comprehensive
    Income                   |  |  | 3  | 
|                                   |         |  | Condensed Consolidated Statements of Cash Flows                                            |  |  | 4  | 
|                                   |         |  | Notes to Condensed Consolidated Financial Statements                                       |  |  | 5  | 
|                                   | Item 2. |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations. |  |  | 11 | 
|                                   | Item 3. |  | Quantitative and Qualitative Disclosures
    About Market Risk                             |  |  | 16 | 
|                                   | Item 4. |  | Controls and Procedures                                                                    |  |  | 16 | 
|                                   |         |  | Cautionary Note Regarding Forward-Looking Statements and Risk
    Factors                  |  |  | 16 | 
|PART II  OTHER
    INFORMATION    |         |  | 21                                                                                         | 
|                                   | Item 1. |  | Legal Proceedings                                                                          |  |  | 21 | 
|                                   | Item 2. |  | Unregistered Sales of Equity Securities and
    Use of Proceeds                            |  |  | 22 | 
|                                   | Item 3. |  | Defaults Upon Senior Securities                                                            |  |  | 22 | 
|                                   | Item 4. |  | Submission of Matters to a Vote of Security
    Holders                                    |  |  | 22 | 
|                                   | Item 5. |  | Other Information                                                                          |  |  | 23 | 
|                                   | Item 6. |  | Exhibits                                                                                   |  |  | 23 | 
|SIGNATURES                         |         |  | 24                                                                                         | 
|EX-31.1: CERTIFICATION            
|EX-31.2: CERTIFICATION            
|EX-32.1: CERTIFICATION            
|EX-32.2: CERTIFICATION            



1



---



##### Table of Contents






PART I


FINANCIAL INFORMATION





Item 1.Financial
Statements


AÉROPOSTALE, INC.





CONDENSED CONSOLIDATED BALANCE SHEETS


(Unaudited)


|                                          |                                                                                                                       |                            |                                                |         |             |         |         |          |         |         |         |         |         |         | 
|----------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | -------------------------- | ---------------------------------------------- | ------- | ----------- | ------- | ------- | -------- | ------- | ------- | ------- | ------- | ------- | ------- | 
|                                          |                                                                                                                       | July 30,                   |                                                |         | January 29, |         |         | July 31, |        
|                                          |                                                                                                                       | 2005                       |                                                |         | 2005        |         |         | 2004     |        
|                                          |                                                                                                                       |                            |                                                |         |             |         |         |          |        
|                                          |                                                                                                                       | (In Thousands)             |                                               
|ASSETS                                    |                                                                                                                       |                            |                                                |         |             |         |         |          |         |         |         |        
|Current Assets:                           |                                                                                                                       |                            |                                                |         |             |         |         |          |         |         |         |        
|                                          | Cash and cash equivalents                                                                                             |                            | $                                              | 127,940 |             |         | $       | 106,128  |         |         | $       | 67,411  |        
|                                          | Short-term investments                                                                                                |                            |                                                | 14,031  |             |         |         | 76,224   |         |         |         | 29,891  |        
|                                          | Merchandise inventory                                                                                                 |                            |                                                | 162,726 |             |         |         | 81,238   |         |         |         | 99,215  |        
|                                          | Tenant allowances receivable                                                                                          |                            |                                                | 11,149  |             |         |         | 4,809    |         |         |         | 9,227   |        
|                                          | Prepaid taxes                                                                                                         |                            |                                                | 4,097   |             |         |         |         |         |         |         | 18,434  |        
|                                          | Prepaid expenses and other current assets                                                                             |                            |                                                | 12,082  |             |         |         | 11,088   |         |         |         | 9,243   |        
|                                          |                                                                                                                       |                            |                                                |         |             |         |         |          |        
|                                          |                                                                                                                       | Total current assets       |                                                |         | 332,025     |         |         |          | 279,487 |         |         |         | 233,421 |        
|Fixtures, equipment and improvements, net |                                                                                                                       |                            | 144,509                                        |         |             |         | 122,651 |          |         |         | 111,482 |        
|Intangible assets                         |                                                                                                                       |                            | 2,529                                          |         |             |         | 2,529   |          |         |         | 1,400   |        
|Other assets                              |                                                                                                                       |                            | 1,930                                          |         |             |         | 1,152   |          |         |         | 2,040   |        
|                                          |                                                                                                                       |                            |                                                |         |             |         |         |          |        
|                                          |                                                                                                                       |                            | TOTAL ASSETS                                   |         | $           | 480,993 |         |          | $       | 405,819 |         |         | $       | 348,343 | 
|                                          |                                                                                                                       |                            |                                                |         |             |         |         |          |        
|                                         
|LIABILITIES AND STOCKHOLDERS EQUITY      |                                                                                                                       |                            |                                                |         |             |         |         |          |         |         |         |        
|Current Liabilities:                      |                                                                                                                       |                            |                                                |         |             |         |         |          |         |         |         |        
|                                          | Accounts payable                                                                                                      |                            | $                                              | 108,178 |             |         | $       | 44,858   |         |         | $       | 59,350  |        
|                                          | Accrued compensation                                                                                                  |                            |                                                | 11,693  |             |         |         | 14,580   |         |         |         | 10,944  |        
|                                          | Income taxes payable                                                                                                  |                            |                                                |        |             |         |         | 6,322    |         |         |         |        |        
|                                          | Accrued expenses                                                                                                      |                            |                                                | 27,956  |             |         |         | 31,234   |         |         |         | 24,931  |        
|                                          |                                                                                                                       |                            |                                                |         |             |         |         |          |        
|                                          |                                                                                                                       | Total current liabilities  |                                                |         | 147,827     |         |         |          | 96,994  |         |         |         | 95,225  |        
|Deferred rent and tenant allowances       |                                                                                                                       |                            | 75,554                                         |         |             |         | 63,065  |          |         |         | 54,422  |        
|Retirement benefit plan liability         |                                                                                                                       |                            | 6,840                                          |         |             |         | 6,158   |          |         |         | 6,518   |        
|Deferred income taxes                     |                                                                                                                       |                            | 1,351                                          |         |             |         | 1,351   |          |         |         |        |        
|Commitments and contingent liabilities    |                                                                                                                       |                            |                                                |         |             |         |         |          |         |         |         |        
|Stockholders Equity:                     |                                                                                                                       |                            |                                                |         |             |         |         |          |         |         |         |        
|                                          | Preferred stock  par value, $0.01 per share;
    5,000 shares authorized, no shares issued or outstanding            |                            |                                                |        |             |         |         |         |         |         |         |        |        
|                                          | Common stock  par value, $0.01 per share;
    200,000 shares authorized, 58,558, 58,115 and
    58,086 shares issued |                            |                                                | 586     |             |         |         | 581      |         |         |         | 581     |        
|                                          | Additional paid-in capital                                                                                            |                            |                                                | 87,455  |             |         |         | 79,069   |         |         |         | 77,609  |        
|                                          | Accumulated other comprehensive loss                                                                                  |                            |                                                | (817    | )           |         |         | (817     | )       |         |         | (672    | )      
|                                          | Deferred compensation                                                                                                 |                            |                                                | (3,364  | )           |         |         | (1,271   | )       |         |         | (1,642  | )      
|                                          | Retained earnings                                                                                                     |                            |                                                | 240,378 |             |         |         | 224,315  |         |         |         | 157,361 |        
|                                          | Treasury stock at cost (3,134, 2,749 and 1,948 shares)                                                                |                            |                                                | (74,817 | )           |         |         | (63,626  | )       |         |         | (41,059 | )      
|                                          |                                                                                                                       |                            |                                                |         |             |         |         |          |        
|                                          |                                                                                                                       | Total stockholders equity |                                                |         | 249,421     |         |         |          | 238,251 |         |         |         | 192,178 |        
|                                          |                                                                                                                       |                            |                                                |         |             |         |         |          |        
|                                          |                                                                                                                       |                            | TOTAL LIABILITIES AND STOCKHOLDERS
    EQUITY |         | $           | 480,993 |         |          | $       | 405,819 |         |         | $       | 348,343 | 
|                                          |                                                                                                                       |                            |                                                |         |             |         |         |          |        



2



---



##### Table of Contents



AÉROPOSTALE, INC.





CONDENSED CONSOLIDATED STATEMENTS OF INCOME


AND COMPREHENSIVE INCOME


(Unaudited)


|                                                                                |              |                                       |         |        |                |   |         |          |  |   |          |         |  |   |         |         | 
|------------------------------------------------------------------------------- | ------------ | ------------------------------------- | ------- | ------ | -------------- | - | ------- | -------- |  | - | -------- | ------- |  | - | ------- | ------- | 
|                                                                                |              | 13 weeks ended                        |         |        | 26 weeks ended |  
|                                                                                |              |                                       |         |        |                |  
|                                                                                |              | July 30,                              |         |        | July 31,       |   |         | July 30, |  |   | July 31, |        
|                                                                                |              | 2005                                  |         |        | 2004           |   |         | 2005     |  |   | 2004     |        
|                                                                                |              |                                       |         |        |                |   |         |          |  |   |          |        
|                                                                                |              | (In Thousands, Except Per Share Data) |        
|Net sales                                                                       |              | $                                     | 232,770 |        |                | $ | 194,852 |          |  | $ | 444,444  |         |  | $ | 362,506 |        
|Cost of sales (includes certain buying, occupancy and
    warehousing expenses) |              |                                       | 170,743 |        |                |   | 135,366 |          |  |   | 322,646  |         |  |   | 253,913 |        
|                                                                                |              |                                       |         |        |                |   |         |          |  |   |          |        
|                                                                                | Gross profit |                                       |         | 62,027 |                |   |         | 59,486   |  |   |          | 121,798 |  |   |         | 108,593 | 
|Selling, general and administrative expenses                                    |              |                                       | 50,607  |        |                |   | 41,925  |          |  |   | 97,044   |         |  |   | 81,030  |        
|                                                                                |              |                                       |         |        |                |   |         |          |  |   |          |        
|Income from operations                                                          |              |                                       | 11,420  |        |                |   | 17,561  |          |  |   | 24,754   |         |  |   | 27,563  |        
|Interest income, net                                                            |              |                                       | 796     |        |                |   | 201     |          |  |   | 1,581    |         |  |   | 460     |        
|                                                                                |              |                                       |         |        |                |   |         |          |  |   |          |        
|Income before income taxes                                                      |              |                                       | 12,216  |        |                |   | 17,762  |          |  |   | 26,335   |         |  |   | 28,023  |        
|Income taxes                                                                    |              |                                       | 4,767   |        |                |   | 6,865   |          |  |   | 10,272   |         |  |   | 10,865  |        
|                                                                                |              |                                       |         |        |                |   |         |          |  |   |          |        
|Net income and comprehensive income                                             |              | $                                     | 7,449   |        |                | $ | 10,897  |          |  | $ | 16,063   |         |  | $ | 17,158  |        
|                                                                                |              |                                       |         |        |                |   |         |          |  |   |          |        
|Basic earnings per share                                                        |              | $                                     | 0.13    |        |                | $ | 0.20    |          |  | $ | 0.29     |         |  | $ | 0.31    |        
|                                                                                |              |                                       |         |        |                |   |         |          |  |   |          |        
|Diluted earnings per share                                                      |              | $                                     | 0.13    |        |                | $ | 0.19    |          |  | $ | 0.28     |         |  | $ | 0.30    |        
|                                                                                |              |                                       |         |        |                |   |         |          |  |   |          |        
|Weighted average basic shares                                                   |              |                                       | 55,408  |        |                |   | 55,663  |          |  |   | 55,408   |         |  |   | 55,742  |        
|                                                                                |              |                                       |         |        |                |   |         |          |  |   |          |        
|Weighted average diluted shares                                                 |              |                                       | 56,367  |        |                |   | 57,287  |          |  |   | 56,470   |         |  |   | 57,494  |        
|                                                                                |              |                                       |         |        |                |   |         |          |  |   |          |        



3



---



##### Table of Contents



AÉROPOSTALE, INC.





CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)


|                                                     |                                                                                                         |                                              |                              |                                    |          |         |         |          |         |         |       | 
|---------------------------------------------------- | ------------------------------------------------------------------------------------------------------- | -------------------------------------------- | ---------------------------- | ---------------------------------- | -------- | ------- | ------- | -------- | ------- | ------- | ----- | 
|                                                     |                                                                                                         | 26 weeks ended                               |                             
|                                                     |                                                                                                         |                                              |                             
|                                                     |                                                                                                         | July 30,                                     |                              |                                    | July 31, |        
|                                                     |                                                                                                         | 2005                                         |                              |                                    | 2004     |        
|                                                     |                                                                                                         |                                              |                              |                                    |          |        
|                                                     |                                                                                                         | (In Thousands)                               |                             
|CASH FLOWS FROM OPERATING ACTIVITIES:                |                                                                                                         |                                              |                              |                                    |          |         |         |         
|                                                     | Net income                                                                                              |                                              | $                            | 16,063                             |          |         | $       | 17,158   |        
|                                                     | Adjustments to reconcile net income to net cash from operating
    activities:                          |                                              |                              |                                    |          |         |         |          |        
|                                                     |                                                                                                         | Depreciation and amortization                |                              |                                    | 9,490    |         |         |          | 7,267   |        
|                                                     |                                                                                                         | Other                                        |                              |                                    | (307     | )       |         |          | 987     |        
|                                                     |                                                                                                         | Changes in operating assets and liabilities: |                              |                                    |          |         |         |          |         |        
|                                                     |                                                                                                         |                                              | Merchandise inventory        |                                    |          | (81,488 | )       |          |         | (37,408 | )    
|                                                     |                                                                                                         |                                              | Accounts payable             |                                    |          | 63,320  |         |          |         | 28,873  |      
|                                                     |                                                                                                         |                                              | Other assets and liabilities |                                    |          | (6,113  | )       |          |         | (7,754  | )    
|                                                     |                                                                                                         |                                              |                              |                                    |          |        
|                                                     |                                                                                                         |                                              |                              | Net cash from operating activities |          |         | 965     |          |         |         | 9,123 | 
|                                                     |                                                                                                         |                                              |                              |                                    |          |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                |                                                                                                         |                                              |                              |                                    |          |         |         |         
|                                                     | Purchases of fixtures, equipment and improvements                                                       |                                              |                              | (31,327                            | )        |         |         | (26,155  | )      
|                                                     | Purchase of short-term investments                                                                      |                                              |                              | (101,351                           | )        |         |         | (247,365 | )      
|                                                     | Proceeds from sale of short-term investments                                                            |                                              |                              | 163,544                            |          |         |         | 217,474  |        
|                                                     | Purchase of intangible assets                                                                           |                                              |                              |                                   |          |         |         | (1,400   | )      
|                                                     |                                                                                                         |                                              |                              |                                    |          |        
|                                                     |                                                                                                         | Net cash from investing activities           |                              |                                    | 30,866   |         |         |          | (57,446 | )      
|                                                     |                                                                                                         |                                              |                              |                                    |          |        
|CASH FLOWS FROM FINANCING ACTIVITIES:                |                                                                                                         |                                              |                              |                                    |          |         |         |         
|                                                     | Purchase of treasury stock                                                                              |                                              |                              | (11,191                            | )        |         |         | (23,364  | )      
|                                                     | Proceed from exercise of stock options                                                                  |                                              |                              | 1,172                              |          |         |         | 742      |        
|                                                     |                                                                                                         |                                              |                              |                                    |          |        
|                                                     |                                                                                                         | Net cash from financing activities           |                              |                                    | (10,019  | )       |         |          | (22,622 | )      
|                                                     |                                                                                                         |                                              |                              |                                    |          |        
|Net increase (decrease) in cash and cash equivalents |                                                                                                         |                                              | 21,812                       |                                    |          |         | (70,945 | )       
|Cash and cash equivalents, beginning of year         |                                                                                                         |                                              | 106,128                      |                                    |          |         | 138,356 |         
|                                                     |                                                                                                         |                                              |                              |                                    |          |        
|Cash and cash equivalents, end of period             |                                                                                                         | $                                            | 127,940                      |                                    |          | $       | 67,411  |         
|                                                     |                                                                                                         |                                              |                              |                                    |          |        
|Supplemental Disclosure of Cash Flow Information:    |                                                                                                         |                                              |                              |                                    |          |         |         |         
|                                                     | Tax benefit related to exercise of stock options included in
    change in other assets and liabilities |                                              | $                            | 4,346                              |          |         | $       | 11,684   |        
|                                                     |                                                                                                         |                                              |                              |                                    |          |        



4



---



##### Table of Contents



AÉROPOSTALE, INC.





NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS




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

www.aeropostale.com










|   |                         
|-- | ------------------------
|2. | Stock Based Compensation

Accounting for Stock Issued to Employees Accounting for Stock-Based
Compensation  Transition and Disclosure, or


5



---



##### Table of Contents



AÉROPOSTALE, INC.


NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                            |                                                                                                         |                                       |   |       |                |  |   |          |   |  |          |        |   |  |   |        |  
|--------------------------- | ------------------------------------------------------------------------------------------------------- | ------------------------------------- | - | ----- | -------------- |  | - | -------- | - |  | -------- | ------ | - |  | - | ------ | -
|                            |                                                                                                         | 13 weeks ended                        |   |       | 26 weeks ended | 
|                            |                                                                                                         |                                       |   |       |                | 
|                            |                                                                                                         | July 30,                              |   |       | July 31,       |  |   | July 30, |   |  | July 31, |       
|                            |                                                                                                         | 2005                                  |   |       | 2004           |  |   | 2005     |   |  | 2004     |       
|                            |                                                                                                         |                                       |   |       |                |  |   |          |   |  |          |       
|                            |                                                                                                         | (In Thousands, Except Per Share Data) |  
|Net income:                 |                                                                                                         |                                       |   |       |                |  |   |          |   |  |          |        |   |  |   |       
|                            | As reported                                                                                             |                                       | $ | 7,449 |                |  | $ | 10,897   |   |  | $        | 16,063 |   |  | $ | 17,158 |  
|                            | Add: Restricted stock amortization net of taxes                                                         |                                       |   | 272   |                |  |   | 107      |   |  |          | 476    |   |  |   | 160    |  
|                            | Deduct: Total stock based compensation expense determined under
    the fair value method, net of taxes |                                       |   | (708  | )              |  |   | (379     | ) |  |          | (1,308 | ) |  |   | (644   | )
|                            |                                                                                                         |                                       |   |       |                |  |   |          |   |  |          |       
|                            | Pro-forma                                                                                               |                                       | $ | 7,013 |                |  | $ | 10,625   |   |  | $        | 15,231 |   |  | $ | 16,674 |  
|                            |                                                                                                         |                                       |   |       |                |  |   |          |   |  |          |       
|Basic earnings per share:   |                                                                                                         |                                       |   |       |                |  |   |          |   |  |          |        |   |  |   |       
|                            | As reported                                                                                             |                                       | $ | 0.13  |                |  | $ | 0.20     |   |  | $        | 0.29   |   |  | $ | 0.31   |  
|                            | Pro-forma                                                                                               |                                       | $ | 0.13  |                |  | $ | 0.19     |   |  | $        | 0.27   |   |  | $ | 0.30   |  
|                            |                                                                                                         |                                       |   |       |                |  |   |          |   |  |          |       
|Diluted earnings per share: |                                                                                                         |                                       |   |       |                |  |   |          |   |  |          |        |   |  |   |       
|                            | As reported                                                                                             |                                       | $ | 0.13  |                |  | $ | 0.19     |   |  | $        | 0.28   |   |  | $ | 0.30   |  
|                            | Pro-forma                                                                                               |                                       | $ | 0.12  |                |  | $ | 0.19     |   |  | $        | 0.27   |   |  | $ | 0.29   |  
|                            |                                                                                                         |                                       |   |       |                |  |   |          |   |  |          |       







|   |                                            
|-- | -------------------------------------------
|3. | Reclassification of Auction Rate Securities



6



---



##### Table of Contents



AÉROPOSTALE, INC.


NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                     |  |                |         |   |                 |   |         |  
|------------------------------------ |  | -------------- | ------- | - | --------------- | - | ------- | -
|                                     |  | As previously  |         |   |                
|                                     |  | reported       |         |   | As reclassified |  
|                                     |  |                |         |   |                 |  
|                                     |  | (In Thousands) |        
|Cash and cash equivalents            |  | $              | 97,302  |   |                 | $ | 67,411  |  
|                                     |  |                |         |   |                 |  
|Short-term investments               |  | $              |        |   |                 | $ | 29,891  |  
|                                     |  |                |         |   |                 |  
|Cash flows from investing activities |  | $              | (27,555 | ) |                 | $ | (57,446 | )
|                                     |  |                |         |   |                 |  



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







|   |                               
|-- | ------------------------------
|5. | Recent accounting developments

Accounting
Changes and Error Corrections.


Share-Based Payment, a revision of SFAS No. 123,
Accounting for Stock Based Compensation


7



---



##### Table of Contents



AÉROPOSTALE, INC.


NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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



|                                |  |                                       |        |  |                |   |        |          |  |   |          |  |  |   |        | 
|------------------------------- |  | ------------------------------------- | ------ |  | -------------- | - | ------ | -------- |  | - | -------- |  |  | - | ------ | 
|                                |  | 13 weeks ended                        |        |  | 26 weeks ended |  
|                                |  |                                       |        |  |                |  
|                                |  | July 30,                              |        |  | July 31,       |   |        | July 30, |  |   | July 31, | 
|                                |  | 2005                                  |        |  | 2004           |   |        | 2005     |  |   | 2004     | 
|                                |  |                                       |        |  |                |   |        |          |  |   |          | 
|                                |  | (In Thousands, Except Per Share Data) |       
|Net income                      |  | $                                     | 7,449  |  |                | $ | 10,897 |          |  | $ | 16,063   |  |  | $ | 17,158 | 
|                                |  |                                       |        |  |                |   |        |          |  |   |          | 
|Weighted average basic shares   |  |                                       | 55,408 |  |                |   | 55,663 |          |  |   | 55,408   |  |  |   | 55,742 | 
|Impact of dilutive securities   |  |                                       | 959    |  |                |   | 1,624  |          |  |   | 1,062    |  |  |   | 1,752  | 
|                                |  |                                       |        |  |                |   |        |          |  |   |          | 
|Weighted average diluted shares |  |                                       | 56,367 |  |                |   | 57,287 |          |  |   | 56,470   |  |  |   | 57,494 | 
|                                |  |                                       |        |  |                |   |        |          |  |   |          | 
|Earnings per basic share        |  | $                                     | 0.13   |  |                | $ | 0.20   |          |  | $ | 0.29     |  |  | $ | 0.31   | 
|                                |  |                                       |        |  |                |   |        |          |  |   |          | 
|Earnings per diluted share      |  | $                                     | 0.13   |  |                | $ | 0.19   |          |  | $ | 0.28     |  |  | $ | 0.30   | 
|                                |  |                                       |        |  |                |   |        |          |  |   |          | 





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



8



---



##### Table of Contents



AÉROPOSTALE, INC.


NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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







|                                   |  |                |     |  |          |   |       | 
|---------------------------------- |  | -------------- | --- |  | -------- | - | ----- | 
|                                   |  | 26 weeks ended |    
|                                   |  |                |    
|                                   |  | July 30,       |     |  | July 31, |  
|                                   |  | 2005           |     |  | 2004     |  
|                                   |  |                |     |  |          |  
|                                   |  | (In Thousands) |    
|Service cost                       |  | $              | 210 |  |          | $ | 139   | 
|Interest cost                      |  |                | 366 |  |          |   | 346   | 
|Amortization of prior service cost |  |                | 37  |  |          |   | 37    | 
|Amortization of net loss           |  |                | 275 |  |          |   | 188   | 
|Loss recognized due to settlement  |  |                |    |  |          |   | 1,396 | 
|                                   |  |                |     |  |          |  
|Net periodic pension benefit cost  |  | $              | 888 |  |          | $ | 2,106 | 
|                                   |  |                |     |  |          |  







9



---



##### Table of Contents



AÉROPOSTALE, INC.


NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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





|    |                                       
|--- | --------------------------------------
|10. | Commitments and Contingent Liabilities



10



---



##### Table of Contents








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

Introduction






Overview






11



---



##### Table of Contents





|                                                                            |             |                |       |          |                |   |          |      |   |          |       |    |   |   |       |    |  
|--------------------------------------------------------------------------- | ----------- | -------------- | ----- | -------- | -------------- | - | -------- | ---- | - | -------- | ----- | -- | - | - | ----- | -- | -
|                                                                            |             | 13 weeks ended |       |          | 26 weeks ended |  
|                                                                            |             |                |       |          |                |  
|                                                                            |             |                |       | July 31, |                |   | July 30, |      |   | July 31, |      
|                                                                            |             | July 30, 2005  |       |          | 2004           |   |          | 2005 |   |          | 2004  |   
|                                                                            |             |                |       |          |                |   |          |      |   |          |       |   
|Net sales (in millions)                                                     |             | $              | 232.8 |          |                | $ | 194.9    |      |   | $        | 444.4 |    |   | $ | 362.5 |   
|Total store count at end of period                                          |             |                | 634   |          |                |   | 521      |      |   |          | 634   |    |   |   | 521   |   
|Comparable store sales count at end of period                               |             |                | 477   |          |                |   | 376      |      |   |          | 477   |    |   |   | 376   |   
|Net sales growth                                                            |             |                | 19.5  | %        |                |   | 50.0     | %    |   |          | 22.6  | %  |   |   | 49.7  | % 
|Comparable store sales increase (decrease)                                  |             |                | (2.2) | %        |                |   | 20.0     | %    |   |          | 0.9   | %  |   |   | 19.5  | % 
|Net sales per average square foot                                           |             | $              | 105   |          |                | $ | 109      |      |   | $        | 210   |    |   | $ | 210   |   
|Gross profit (in millions)                                                  |             | $              | 62.0  |          |                | $ | 59.5     |      |   | $        | 121.8 |    |   | $ | 108.6 |   
|Income from operations (in millions)                                        |             | $              | 11.4  |          |                | $ | 17.6     |      |   | $        | 24.8  |    |   | $ | 27.6  |   
|Diluted earnings per share                                                  |             | $              | 0.1   | 3        |                | $ | 0.1      | 9    |   | $        | 0.2   | 8  |   | $ | 0.3   | 0 
|Square footage growth                                                       |             |                | 22    | %        |                |   | 22       | %    |   |          | 22    | %  |   |   | 22    | % 
|Increase in total inventory over comparable period                          |             |                | 64    | %        |                |   | 8        | %    |   |          | 64    | %  |   |   | 8     | % 
|Increase (decrease) in inventory per square foot over comparable
    period |             |                | 34    | %        |                |   | (12)     | %    |   |          | 34    | %  |   |   | (12)  | % 
|Percentages of net sales by category:                                       |             |                |       |          |                |   |          |      |   |          |       |    |   |   |       |   
|                                                                            | Womens     |                |       | 61       | %              |   |          | 60   | % |          |       | 59 | % |   |       | 59 | %
|                                                                            | Mens       |                |       | 26       | %              |   |          | 25   | % |          |       | 26 | % |   |       | 26 | %
|                                                                            | Accessories |                |       | 13       | %              |   |          | 15   | % |          |       | 15 | % |   |       | 15 | %



|                                             |  |                |       |   |                |  |       |          |  |  |          |   |  |  |       |  
|-------------------------------------------- |  | -------------- | ----- | - | -------------- |  | ----- | -------- |  |  | -------- | - |  |  | ----- | -
|                                             |  | 13 weeks ended |       |   | 26 weeks ended | 
|                                             |  |                |       |   |                | 
|                                             |  | July 30,       |       |   | July 31,       |  |       | July 30, |  |  | July 31, |  
|                                             |  | 2005           |       |   | 2004           |  |       | 2005     |  |  | 2004     |  
|                                             |  |                |       |   |                |  |       |          |  |  |          |  
|Net sales                                    |  |                | 100.0 | % |                |  | 100.0 | %        |  |  | 100.0    | % |  |  | 100.0 | %
|Gross profit                                 |  |                | 26.6  | % |                |  | 30.5  | %        |  |  | 27.4     | % |  |  | 30.0  | %
|Selling, general and administrative expenses |  |                | 21.7  | % |                |  | 21.5  | %        |  |  | 21.8     | % |  |  | 22.4  | %
|Income from operations                       |  |                | 4.9   | % |                |  | 9.0   | %        |  |  | 5.6      | % |  |  | 7.6   | %
|Interest income, net                         |  |                | 0.3   | % |                |  | 0.1   | %        |  |  | 0.4      | % |  |  | 0.1   | %
|Income before income taxes                   |  |                | 5.2   | % |                |  | 9.1   | %        |  |  | 5.9      | % |  |  | 7.7   | %
|Income taxes                                 |  |                | 2.0   | % |                |  | 3.5   | %        |  |  | 2.3      | % |  |  | 3.0   | %
|Net income                                   |  |                | 3.2   | % |                |  | 5.6   | %        |  |  | 3.6      | % |  |  | 4.7   | %

Results of Operations


Sales




12



---



##### Table of Contents







Gross profit




SG&A






Interest income and income taxes


Net income


Liquidity and Capital Resources




13



---



##### Table of Contents







|                                                     |  |                |         |   |          |   |         |  
|---------------------------------------------------- |  | -------------- | ------- | - | -------- | - | ------- | -
|                                                     |  | 26 weeks ended |        
|                                                     |  |                |        
|                                                     |  | July 30,       |         |   | July 31, |  
|                                                     |  | 2005           |         |   | 2004     |  
|                                                     |  |                |         |   |          |  
|                                                     |  | (In Thousands) |        
|Net cash from operating activities                   |  | $              | 965     |   |          | $ | 9,123   |  
|Net cash from investing activities                   |  |                | 30,866  |   |          |   | (57,446 | )
|Net cash from financing activities                   |  |                | (10,019 | ) |          |   | (22,622 | )
|                                                     |  |                |         |   |          |  
|Net increase (decrease) in cash and cash equivalents |  | $              | 21,812  |   |          | $ | (70,945 | )
|                                                     |  |                |         |   |          |  

Operating activities






Capital requirements




14



---



##### Table of Contents





Financing activities and capital
resources






| |                        
| | -----------------------
| | Contractual Obligations



|                        |                               |                |   |              |      |  |         |          |  |         |          |         |  |            |   |         |  |  |   |         | 
|----------------------- | ----------------------------- | -------------- | - | ------------ | ---- |  | ------- | -------- |  | ------- | -------- | ------- |  | ---------- | - | ------- |  |  | - | ------- | 
|                        |                               |                |   | Payments Due |     
|                        |                               |                |   |              |     
|                        |                               |                |   | Balance of   |      |  | In 2006 |          |  | In 2008 |          |         | 
|                        |                               | Total          |   |              | 2005 |  |         | and 2007 |  |         | and 2009 |         |  | After 2009 |  
|                        |                               |                |   |              |      |  |         |          |  |         |          |         |  |            |  
|                        |                               | (In thousands) |  
|Contractual Obligations |                               |                |   |              |      |  |         |          |  |         |          |         |  |            |   |         |  |  |   |        
|                        | Employment agreements         |                | $ | 4,409        |      |  | $       | 1,205    |  |         | $        | 3,204   |  |            | $ |        |  |  | $ |        | 
|                        | Event sponsorship agreement   |                |   | 1,810        |      |  |         |         |  |         |          | 1,810   |  |            |   |        |  |  |   |        | 
|                        | Operating leases              |                |   | 469,422      |      |  |         | 30,293   |  |         |          | 118,892 |  |            |   | 117,273 |  |  |   | 202,964 | 
|                        |                               |                |   |              |      |  |         |          |  |         |          |         |  |            |  
|                        | Total contractual obligations |                | $ | 475,641      |      |  | $       | 31,498   |  |         | $        | 123,906 |  |            | $ | 117,273 |  |  | $ | 202,964 | 
|                        |                               |                |   |              |      |  |         |          |  |         |          |         |  |            |  





| |                               
| | ------------------------------
| | Off-Balance Sheet Arrangements



Critical Accounting Estimates




15



---



##### Table of Contents










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








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

Evaluation of Disclosure Controls and
Procedures:


Changes in internal controls:





Cautionary Note Regarding Forward-Looking Statements and
Risk Factors




16



---



##### Table of Contents







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





| |   |                                                                           
| | - | --------------------------------------------------------------------------
| |  | 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;                           
|
| |  | the timing of promotional events;                                         
|
| |  | weather conditions; and                                                   
|
| |  | changes in general economic conditions and consumer spending
    patterns.





| |                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------
| | Our business could suffer as a result of a
    manufacturers inability to produce merchandise on time and
    to specifications.





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





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



17



---



##### Table of Contents







| |                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------
| | Failure of a new business concept could have a material
    adverse effect on our results of operations and our business





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





| |                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our storeline 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.



18



---



##### Table of Contents





| |                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





| |   |                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 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.     





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





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





| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to identify and respond to consumers
    fashion preferences in a timely manner, our profitability would
    decline.



19



---



##### Table of Contents







| |                                                                                 
| | --------------------------------------------------------------------------------
| | A downturn in the united states economy may affect consumer
    spending habits.





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





| |                                         
| | ----------------------------------------
| | We rely on a single distribution center.





| |                                                                
| | ---------------------------------------------------------------
| | We rely on a third party to manage our distribution
    center.





| |                                                                                         
| | ----------------------------------------------------------------------------------------
| | We rely on a third party to administer to certain aspects of
    our E-Commerce business





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



20



---



##### Table of Contents









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






PART II


OTHER INFORMATION







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



21



---



##### Table of Contents








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



|          |  |            |         |  |            |                 |                  |                 |                    |                 |                 |  |  |   |        | 
|--------- |  | ---------- | ------- |  | ---------- | --------------- | ---------------- | --------------- | ------------------ | --------------- | --------------- |  |  | - | ------ | 
|          |  |            |         |  |            | Total Number of |                  |                 | Approximate Dollar |                
|          |  | Total      |         |  |            |                 | Shares Purchased |                 |                    | Value of Shares |                
|          |  | Number of  |         |  |            |                 | as Part of       |                 |                    | that May Yet Be |                
|          |  | Shares (or |         |  | Average    |                 |                  | Publicly        |                    |                 | Purchased Under | 
|          |  | Units)     |         |  | Price Paid |                 |                  | Announced Plans |                    |                 | the Plans or    | 
|Period    |  | Purchased  |         |  | per Share  |                 |                  | or Programs     |                    |                 | Programs        | 
|          |  |            |         |  |            |                 |                  |                 |                    |                 |                 | 
|          |  |            |         |  |            |                 |                  | (In Thousands)  |                   
|May 2005  |  |            | 125,000 |  |            | $               | 26.96            |                 |                    |                 | 125,000         |  |  | $ | 26,198 | 
|June 2005 |  |            | 35,000  |  |            | $               | 28.89            |                 |                    |                 | 35,000          |  |  | $ | 25,187 | 
|July 2005 |  |            |        |  |            |                 |                 |                 |                    |                 |                |  |  |   |       | 
|          |  |            |         |  |            |                 |                  |                 |                    |                 |                 | 
|Total     |  |            | 160,000 |  |            | $               | 27.38            |                 |                    |                 | 160,000         |  |  | $ | 25,187 | 
|          |  |            |         |  |            |                 |                  |                 |                    |                 |                 | 






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








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





|                      |  |           |            |  |                |  |            | 
|--------------------- |  | --------- | ---------- |  | -------------- |  | ---------- | 
|Name of Nominee       |  | Votes For |            |  | Votes Withheld | 
|                      |  |           |            |  |                | 
|Julian R. Geiger      |  |           | 49,026,379 |  |                |  | 1,358,435  | 
|Bodil Arlander        |  |           | 50,219,816 |  |                |  | 164,998    | 
|Ronald R. Beegle      |  |           | 50,217,307 |  |                |  | 167,507    | 
|Mary Elizabeth Burton |  |           | 47,645,195 |  |                |  | 2,739,619  | 
|Robert B. Chavez      |  |           | 27,847,461 |  |                |  | 22,537,353 | 
|David H. Edwab        |  |           | 50,205,364 |  |                |  | 179,450    | 
|John D. Howard        |  |           | 50,220,114 |  |                |  | 164,700    | 
|David B. Vermylen     |  |           | 48,357,136 |  |                |  | 2,027,678  | 

22



---



##### Table of Contents





|           |  |               |         |  |             |  |        | 
|---------- |  | ------------- | ------- |  | ----------- |  | ------ | 
|Votes For  |  | Votes Against |         |  | Abstentions | 
|           |  |               |         |  |             | 
|49,531,220 |  |               | 785,661 |  |             |  | 67,933 | 






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








|        |         
|------- | --------
|Item 6. | Exhibits

| |    |    |  |                                                                                                                                                                 
| | -- | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 31 | .1 |  | Certification by Julian R. Geiger, Chairman and Chief Executive
    Officer, pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.                     
|
| | 31 | .2 |  | Certification by Michael J. Cunningham, Executive Vice President
    and Chief Financial Officer, pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.
|
| | 32 | .1 |  | Certification by Julian R. Geiger pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.             
|
| | 32 | .2 |  | Certification by Michael J. Cunningham pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.        

23



---



##### Table of Contents






SIGNATURES






| |                                                  
| | -------------------------------------------------
| | Aeropostale, Inc.                                
|
| | /s/ Julian R. Geiger                             
| |                                                  
| | Julian R. Geiger                                 
| | Chairman of the Board and Chief Executive Officer
| | (Principal Executive Officer)                    
|
| | /s/ Michael J. Cunningham                        
| |                                                  
| | Michael J. Cunningham                            
| | Executive Vice President-Chief Financial Officer 
| | (Principal Financial Officer)                    



24