UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C.
20549




Form 10-K





(Mark
      One)R
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES
      EXCHANGE ACT OF 1934For
      the Fiscal Year Ended January 31, 2009or£
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934





Commission
File Number: 001-31314


_______________





AÉROPOSTALE,
INC.


(Exact
name of registrant as specified in its charter)





Delaware
            No.
      31-1443880(State
      or other jurisdiction of
            (I.R.S.
      Employerincorporation
      or organization)
            Identification
      No.)112 West
      34th Street, 22nd floorNew
      York, NY
            10120(Address
      of principal executive offices)
            (Zip
      Code)





Registrant’s
telephone number, including area code:


(646) 485-5410





Securities
registered pursuant to Section 12(b) of the Act:





Title of Each Class
            Name of Each Exchange on Which
      RegisteredCommon
      Stock, $0.01 par value
            New
      York Stock Exchange





Securities
registered pursuant to Section 12(g) of the Act: None





Indicate
by check mark whether the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act.  Yes R     No £





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act.  Yes £     No R





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, and (2) has been subject to the filing
requirements for at least the past 90 days.  Yes R     No
£





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  £





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





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





Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).  Yes £     No R





The
aggregate market value of voting stock held by non-affiliates of the registrant
as of August 2, 2008 was $2,126,536,259.





67,001,545 shares
of Common Stock were outstanding at March 20, 2009.





DOCUMENTS
INCORPORATED BY REFERENCE





Portions
of the registrant’s definitive Proxy Statement, to be filed with the Securities
and Exchange Commission within 120 days after the end of the registrant’s
fiscal year covered by this Annual Report on Form 10-K, with respect to the
Annual Meeting of Stockholders to be held on June 18, 2009, are
incorporated by reference into Part III of this Annual Report on
Form 10-K. This report consists of 53 sequentially numbered pages. The
Exhibit Index is located at sequentially numbered
page 51.

















AÉROPOSTALE,
INC.





TABLE OF CONTENTS





PART IItem 1.
                    Business
                    3Item 1A.
                    Risk Factors
                    9Item 1B.
                    Unresolved Staff Comments
                    14Item 2.
                    Properties
                    14Item 3.
                    Legal Proceedings
                    14Item 4.
                    Submission of Matters to a Vote of Security
      Holders
                    15PART IIItem 5.
                    Market for the Registrant’s Common Equity, Related
      Stockholder Matters and Issuer Purchases of Equity
      Securities
                    15Item 6.
                    Selected Financial Data
                    17Item 7.
                    Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
                    18Item 7A.
                    Quantitative and Qualitative Disclosures About Market
      Risk
                    25Item 8.
                    Financial Statements and Supplementary
    Data
                    26Item 9.
                    Changes in and Disagreements with Accountants on
      Accounting and Financial Disclosure
                    48Item 9A.
                    Controls and Procedures
                    48Item 9B.
                    Other Information
                    49PART IIIItem 10.
                    Directors, Executive Officers and Corporate
      Governance
                    49Item 11.
                    Executive  Compensation
                    49Item 12.
                    Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters
                    49Item 13.
                    Certain Relationships and Related Transactions and
      Director Independence
                    49Item 14.
                    Principal Accountant Fees and
    Services
                    50PART IVItem 15.
                    Exhibits and Financial Statement
    Schedule
                    50Exhibit Index
                    51Signatures
                    52


2
 Table of Contents


As used in this Annual Report on
Form 10-K, unless the context otherwise requires, all references to “we”,
“us”, “our”, “Aéropostale” or the “Company’ refer to Aéropostale, Inc., and its
subsidiaries.The term“common stock”means our common stock, $0.01 par value. Our website
is located at www.aeropostale.com (this and any other references in this Annual
Report on Form 10-K to Aéropostale.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 Annual Report on Form 10-K).
On our website, we make available, as soon as reasonably practicable after
electronic filing with the Securities and Exchange Commission, our annual
reports on Form 10-K, quarterly reports on Form 10-Q, annual Proxy
filings and current reports on Form 8-K, and any amendments to those
reports. All of these reports are provided to the public free of
charge.





Cautionary Note Regarding
Forward-Looking Statements





This
Annual Report on Form 10-K 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 I, 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.







PART I





Item 1.Business





Overview





Aéropostale,
Inc., a Delaware corporation, originally incorporated as MSS-Delaware, Inc. on
September 1, 1995 and later changed to Aéropostale, Inc. on February 1, 2000, is
a mall-based specialty retailer of casual apparel and accessories. We design,
market and sell our own brand of merchandise principally targeting 14 to
17 year-old young women and young men.  We also sell Aéropostale
merchandise through our e-commerce website, www.aeropostale.com. As of
January 31, 2009, we operated 914 stores, consisting of 874 Aéropostale
stores in 48 states and Puerto Rico, 29 Aéropostale stores in Canada, and 11
Jimmy’Z stores in 10 states.  We plan to close all of the Jimmy’Z
stores by the end of the second quarter of fiscal 2009  (see Note 3 to
the Notes to Consolidated Financial Statements for a further
discussion).





Our
Aéropostale concept provides the customer with a focused selection of
high-quality, active-oriented, fashion and fashion basic merchandise at
compelling values.  We maintain control of our proprietary brands by
designing and sourcing all of our merchandise. Our Aéropostale products are sold
only at our stores and online through our e-commerce website, www.aeropostale.com.
We strive to create a fun, high-energy shopping experience through the use of
creative visual merchandising, colorful in-store signage, popular music and an
enthusiastic well-trained sales force. Our average Aéropostale store is
generally smaller than that of our mall-based competitors.  We believe
this enables us to achieve higher sales productivity and project a sense of
greater action and excitement in the store.





The
Aéropostale brand was established by R.H. Macy & Co., Inc., as a
department store private label initiative, in the early 1980’s targeting men in
their twenties. Macy’s subsequently opened the first mall-based Aéropostale
specialty store in 1987. Over the next decade, Macy’s, and then Federated
Department Stores, Inc. (now Macy’s, Inc.), expanded Aéropostale to over 100
stores. In August 1998, Federated sold its specialty store division to our
management team and Bear Stearns Merchant Banking. In May of 2002, Aéropostale
management took us public through an initial public offering and listed our
common stock on the New York Stock Exchange.





Our
fiscal year ends on the Saturday nearest to January 31. Fiscal 2008 was the
52-week period ended January 31, 2009, fiscal 2007 was the 52-week period ended
February 2, 2008 and fiscal 2006 was the 53-week period ended
February 3, 2007.  Fiscal 2009 will be the 52-week period ending
January 30, 2010.






3
 Table of Contents





Growth
Strategy





Continue to open new Aéropostale
stores.  We consider our merchandise in our stores as having
broad appeal that continues to provide us with new store expansion
opportunities. Over the last three fiscal years we opened 251 new Aéropostale
stores. We plan to continue our growth by opening a total of approximately 40
new Aéropostale stores during fiscal 2009, which will include approximately 15
new Aéropostale stores in Canada.  We plan to open stores both in
markets where we currently operate stores, and in new markets. (see the section
“Stores — Store design and environment”below).





New Concept.  We
have developed a new retail store concept called “P.S. from
Aéropostale”.  Our new concept will offer casual clothing and
accessories focusing on elementary school children between the ages of 7 and
12.  Our new brand will draw from the core competencies of
Aéropostale, offering the customer trend-right merchandise at compelling
values.  The innovative store format will strive to be a fun, playful
and inviting shopping experience for both the parent and child.  The
first P.S. from Aéropostale store is planned to open during the second quarter
of fiscal 2009.  In addition, we will be launching an e-commerce
website at www.ps4u.com shortly
thereafter.  We plan to open approximately 10 P.S. from Aéropostale
stores during fiscal 2009.





Enhance our brand and increase our
store productivity.  We seek to capitalize on the success of
our core Aéropostale brand, while continuing to enhance our brand recognition
through in-store as well as external marketing initiatives.





We seek
to generate comparable store sales growth by increasing net sales per average
square foot, increasing average unit retail and increasing transactions. We
expect to continue employing our promotional pricing strategies, while also
identifying and capitalizing upon developing trends in the market.





E-Commerce.  We
launched our Aéropostale e-commerce business in May 2005. The Aéropostale web
store is accessible at our website, www.aeropostale.com. A third party provides
fulfillment services for our e-commerce business, including warehousing our
inventory and fulfilling our customers’ sales orders. We purchase, manage and
own the inventory sold through our website and we recognize revenue from the
sale of these products when the customer receives the merchandise.





International
Licensing.  During 2008, we signed our first international
licensing agreement. Under that agreement, as licensor we will receive
guaranteed minimum annual royalty payments from the licensee throughout the term
of the agreement, as well as certain support and administrative fees.  The
licensee expects to open a minimum of three Aéropostale retail stores in the
Dubai region during fiscal 2009, and additional stores during the term of the
license agreement.   We assume no inventory risk on the Aéropostale
merchandise sold in licensee’s stores and we do not own or lease the underlying
real estate where the stores operate.  In addition, our international
licensing agreement contains other customary terms and conditions governing our
business relationship with the licensee.  We will continue to evaluate
other international licensing opportunities on a periodic basis.





Stores





Existing
stores.  We locate our stores primarily in shopping malls,
outlet centers and, to a much lesser degree, lifestyle and off-mall shopping
centers, all located in geographic areas with the highest possible
concentrations of our target customers.  We generally locate our
stores in  mall locations near popular teen gathering spots, such as
food courts and other teen-oriented retailers.  As of January 31,
2009, we operated 903 stores in the following 48 U.S. states, Puerto Rico
and four Canadian provinces.  Additionally, as of January 31, 2009, we
operated 11 Jimmy’Z stores in 10 states.  We have subsequently decided
to close all of those Jimmy’Z stores and anticipate those closures to be
completed by the end of the second quarter of fiscal 2009 (see Note 3 to the
Notes to Consolidated Financial Statements for a further discussion).




United States
              Number
      of
                Aéropostale
                StoresAlabama
              16Arkansas
              8Arizona
              16California
              74Colorado
              14Connecticut
              10Delaware
              4Florida
              54Georgia
              26Idaho
              5Illinois
              32


4
 Table of Contents


Indiana
                    22Iowa
                    12Kansas
                    8Kentucky
                    10Louisiana
                    15Massachusetts
                    26Maryland
                    19Maine
                    3Michigan
                    30Minnesota
                    16Mississippi
                    8Missouri
                    17Montana
                    3North
      Carolina
                    25North
      Dakota
                    4Nebraska
                    5New
      Hampshire
                    7New
      Jersey
                    23New
      Mexico
                    3Nevada
                    7New
      York
                    47Ohio
                    37Oklahoma
                    7Oregon
                    7Pennsylvania
                    54Puerto
      Rico
                    3Rhode
      Island
                    2South
      Carolina
                    15South
      Dakota
                    2Tennessee
                    22Texas
                    71Utah
                    12Vermont
                    2Virginia
                    27Washington
                    20West
      Virginia
                    6Wisconsin
                    17Wyoming
                    1CanadaAlberta
                    1British
      Columbia
                    2New
      Brunswick
                    1Ontario
                    25Total
                    903






The
following table highlights the number of Aéropostale stores opened and closed
since the beginning of fiscal 2006:






Stores
                Opened
              Stores
                Closed
              Total
                Number of
                Stores at End
                of
      PeriodFiscal
      2006
              74
              3
              728Fiscal
      2007
              88
              2
              814Fiscal
      2008
              89
              —
              903






5
 Table of Contents






Store design and
environment.  We launched our new Aéropostale store design
during fiscal 2006, and we currently operate 204 stores in this format that
average approximately 3,600 square feet. We design and build all of our new
Aéropostale stores, as well as our existing store remodels, in this
format.  We design our stores in an effort to create an energetic
shopping environment, featuring powerful in-store promotional signage, creative
visuals and popular music. The enthusiasm of our well-trained associates is
integral to our store environment. Our stores feature display windows that
provide high visibility for mall traffic. Our strategy is to create fresh and
exciting merchandise presentations by updating our floor sets numerous times
throughout the year. Visual merchandising directives are initiated at the
corporate level, in order to maintain consistency throughout all of our
stores.




Store
management.  Our Aéropostale stores are organized by region and
further broken down into districts.  A regional manager manages each
of our 12 regions and each region encompasses approximately eight to 10
districts. Each district is managed by a district manager and encompasses
approximately seven to 10 individual stores. Our corporate headquarters directs
the merchandise assortments, merchandise pricing, store layout, inventory
management and in-store visuals for all of our stores.





Expansion opportunities and store
site selection.  We focus on opening new stores in an effort to
penetrate further the existing markets we are already in, as well as enter new
markets. We plan to continue increasing our store base during fiscal 2009 by
opening approximately 40 new Aéropostale stores, including approximately 15 new
stores in Canada and our first 10 P.S. from Aéropostale stores (see the section
“Growth Strategy” above).





In
selecting a specific store site, we generally target high traffic locations in
malls, outlet centers and, to a much lesser degree, lifestyle and off-mall
shopping centers, with suitable demographics and favorable lease economics. As a
result, we tend to locate our stores in malls in which comparable teen-oriented
retailers have performed well. A primary site evaluation criteria includes
average sales per square foot, co-tenancies, traffic patterns and occupancy
costs.





We have
implemented our store format across a wide variety of mall classifications and
geographic locations. For new Aéropostale stores opened in fiscal 2008 under our
new store design, our average net investment was approximately $505,000 per
store location, which included capital expenditures adjusted for landlord
contributions and initial inventory at cost, net of payables (see the
section “Store design and
environment”above for a further discussion).





Aéropostale
stores in the new format which opened in fiscal 2007 and fiscal 2006 achieved,
during their first twelve months of their operations, average net sales of
approximately $1.7 million and net sales of $456 per average square
foot.





Pricing





We
believe that a key component of our success is our ability to understand what
our customers want and what they can afford. Our merchandise, which we believe
is of comparable quality to that of our primary competitors, is generally priced
lower than our competitors’ merchandise. We conduct promotions in our stores
throughout the year generally lasting anywhere from two to four weeks in
length.





Design
and Merchandising





Our
Aéropostale design and merchandising teams focus on designing merchandise that
meets the demands of their core customers’ lifestyles. We maintain separate
design and merchandising groups for each of our brands and within those brands,
for each of the young women’s and young men’s product lines.





Design.  We offer a
focused collection of apparel, including graphic t-shirts, tops, bottoms,
sweaters, jeans, outerwear and accessories. Our “design-driven,
merchant-modified” philosophy, in which our designers’ visions are refined by
our merchants’ understanding of the current market for our products, helps to
ensure that our merchandise styles reflect the latest trends while not becoming
too fashion-forward for our customers’ tastes. Much of our merchandise features
our brands’ logos. We believe that our Aéropostale logo apparel appeals to our
young customers and reinforces our brand image.





Merchandising and
Planning.  Our merchandising organization, together with our
planning organization, determines the quantities of units needed for each
product category. By monitoring sales of each style and color and employing our
flexible sourcing capabilities, we are able to adjust our merchandise
assortments to capitalize upon emerging trends.





Sourcing





We seek
to employ a sourcing strategy that expedites our speed to market and allows us
to respond quickly to our customers’ preferences. We believe that we have
developed strong relationships with our vendors, some of who rely upon us for a
significant portion of their overall business.






6
 Table of Contents





During
fiscal 2008, we sourced approximately 76% of our merchandise from our top five
merchandise vendors.  Most of our vendors maintain sourcing offices in
the United States, with the majority of their production factories located in
Asia, Central America and the United States.  In an effort to minimize
currency risk, all payments to our vendors and sourcing agents are made in
U.S. dollars. We engage a third party independent contractor to visit the
production facilities that supply us with 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 fair trade and
business practices.





During
fiscal 2007, we ceased doing business with South Bay Apparel Inc., previously
one of our largest suppliers of graphic T-shirts and fleece.  We have
replaced this business both with new vendors and our existing vendor base (see
Note 4 to the Notes to Consolidated Financial Statements for a further
discussion).





Marketing
and Advertising





We
utilize numerous initiatives to increase our brand recognition and communicate
our merchandise assortment. We view our stores as the primary means to
communicate our message and provide our brand experience. Our marketing efforts
are focused on in-store communications, promotions and internal as well as
external advertising. We expand, test and modify our marketing efforts based on
focus groups, surveys and consumer feedback.





We
believe that the enthusiasm and commitment of our store-level employees are key
elements in enhancing our brand with our target customers. We also view the use
of our logo on our merchandise as a means for expanding our brand awareness and
visibility. We market in-store with large images in the store-front windows and
at the checkout area, information alongside product displays and other touch
points such as shopping bags. We also invest in select external advertising
during key selling periods. Our advertisements appear in publications and in
malls and on the radio on a regional basis.  Periodically, we also
partner with select third parties such as magazines, television shows and
musical bands, to create marketing programs which we believe will be appealing
to our customers.





Our
website, www.aeropostale.com supports all of our internet marketing and
promotional initiatives and also offers a large portion of our merchandise
assortment for purchase. We maintain a database of our customers and send emails
and distribute information on special offers and promotions on a frequent
basis.





Distribution





We
maintain two distribution centers to process merchandise and to warehouse
inventory needed to replenish our stores.  We lease a
315,000 square foot distribution center facility in South River, New
Jersey. We also lease a second distribution facility in Ontario, California with
360,000 square feet of space.





The
staffing and management of both distribution facilities are outsourced to a
third party provider that operates each distribution facility and processes our
merchandise. This third party provider employs personnel represented by a labor
union. There have been no work stoppages or disruptions since the inception of
our relationship with this third party provider in 1991, and we believe that the
third party provider has a good relationship with its employees. In addition, we
outsource the shipment of our merchandise through third party transportation
providers. These third parties ship our merchandise from our distribution
facilities to our stores.





We
continue to invest in systems and automation to improve processing efficiencies,
automate functions that were previously performed manually and to support our
store growth. Our distribution facilities utilize automated sortation materials
handling equipment to receive, process and ship goods to our stores. These
facilities also serve our other warehousing needs, such as storage of new store
merchandise, floor set merchandise and packaging supplies.





Currently,
all of our products destined for our stores in Canada are first shipped to the
United States and processed through our distribution centers.  We have
engaged a third party to assist us in recapturing certain U.S. duties and
tariffs which we paid on these goods.  During fiscal 2009, we
anticipate entering into an agreement with a third party distribution center in
Canada.  This third party distribution center will receive, process
and warehouse our Canadian merchandise.  Unlike in the United States
however, we will not be the only company with product in this
warehouse.  Once this Canadian distribution center is in place and
receiving our product directly from our vendors, there will be no need to
continue our contractual relationship with the third party which is attempting
to assist us in recapturing U.S. duty and tariffs.






7
 Table of Contents






Information
Systems





Our
management information systems provide a full range of retail, financial and
merchandising applications. We utilize industry specific software systems to
provide various functions related to point-of-sale, inventory management, supply
chain, planning and replenishment, and financial reporting.  We
continue to invest in technology to align our systems with our business
requirements and to support our continuing growth.  For example, we
are currently implementing a new allocation system and have completed the
implementation of a new financial accounting system.  We plan to
continue to invest strategically in our infrastructure in the
future.




Trademarks





We own,
through our wholly owned subsidiary, Aéropostale West, Inc., a Delaware
corporation, federal trademark registrations in the U.S. Patent and
Trademark Office for our principal marks AÉROPOSTALE®,
AÉRO®, 87® and
other related marks for clothing, a variety of accessories, including
sunglasses, belts, socks and hats, and as a service mark for retail clothing
stores, as well as state registrations for these marks. We also have certain
registrations pending for trademarks and service marks for clothing, retail
stores and online services. Additionally, we have applied for or have already
obtained a registration for the AÉROPOSTALE® and
related marks in over 60 foreign countries.  We plan to continue this
focus on expanding our international registrations of our marks in the
future.





During
the second quarter of fiscal 2009, we will launch our new store concept P.S.
FROM AÉROPOSTALETM and have applied for trademark registrations for P.S. FROM
AÉROPOSTALETM and variations thereof, for clothing, accessories, retail stores
and online services.





We
continue to maintain certain registrations of our JIMMY’Z® brand
and related marks in the United States for clothing and related goods and
services.





We regard
our trademarks and other proprietary intellectual property as valuable assets of
the Company that we continually maintain and protect.





Competition





The teen
apparel market is highly competitive. We compete with a wide variety of
retailers including other specialty stores, department stores, mail order
retailers and mass merchandisers. Specifically, we compete with other teen
apparel retailers including, but not limited to, American Eagle Outfitters®,
Hollister®,
Old Navy®, Pacific
Sunwear®, and
Tween Brands®.  Stores
in our sector compete primarily on the basis of design, price, quality, service
and selection.





Many of
our competitors are considerably larger and have substantially greater
financing, marketing, and other resources. We cannot assure you that we will be
able to compete successfully in the future, particularly in geographic locations
that represent new markets for us.





Employees





As of
January 31, 2009, we employed 3,639 full-time and
11,050 part-time employees. We employed 621 of our employees at our
corporate offices and in the field, and 14,068 at our store locations. The
number of part-time employees fluctuates depending on our seasonal needs. None
of our employees are represented by a labor union and we consider our
relationship with our employees to be good.





Seasonality





Our
business is highly seasonal, and historically we have realized a significant
portion of our sales, net income and cash flows in the second half of the year,
attributable to the impact of the back-to-school selling season in the third
quarter, and the holiday selling season in our fourth quarter. As a result, our
working capital requirements fluctuate during the year, increasing in mid-summer
in anticipation of the third and fourth quarters.  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.






8
 Table of Contents






Available
Information





We
maintain an internet website, www.aeropostale.com, through which access is
available free of charge to our annual reports on Form 10-K, quarterly
reports on Form 10-Q, Proxy Statements and current reports on
Form 8-K, and all amendments of these reports filed, or furnished pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, after
they are filed with the Securities and Exchange Commission.





Our
Corporate Governance Guidelines and the charters for our Audit Committee,
Nominating and Corporate Governance Committee and Compensation Committee may
also be found on our internet website at www.aeropostale.com. In addition, our
website contains the Charter for our Lead Independent Director and Code of
Business Conduct and Ethics, which is our code of ethics and conduct for our
directors, officers and employees. Any waivers to our Code of Business Conduct
and Ethics will be promptly disclosed on our website.





In fiscal
2008, our Chief Executive Officer certified, in accordance with
section 303.12(a) of the NYSE Listed Company Manual, that he was not aware
of any violation by us of the NYSE’s corporate governance listing standards as
of the date of such certification.





Item 1A.Risk
Factors





Cautionary
Note Regarding Forward-Looking Statements





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




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





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





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





We may
not be able to keep pace with the rapidly changing fashion trends, both
domestically and/or internationally, and consumer tastes inherent in the teen
apparel industry. We produce casual, comfortable apparel, a majority of which
displays 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.






9
 Table of Contents






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.





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.





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.






10
 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.





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.





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.


11
 Table of Contents






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.





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.






12
 Table of Contents
   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.





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.






13
 Table of Contents






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.





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 1B.  Unresolved Staff
Comments





None




Item 2.Properties





We lease
all of our store locations. Most of our stores are located in shopping malls
throughout the U.S. and Canada. Most of our store leases have a term of ten
years and require us to pay additional rent based on specified percentages of
sales after we achieve specified annual sales thresholds. Generally, our store
leases do not contain extension options. Our store leases typically include a
pre-opening period of approximately 60 days that allows us to take
possession of the property to construct the store. Typically rent payment
commences when the stores open. We recognize rent expense in our consolidated
financial statements on a straight-line basis over the non-cancelable term of
each individual underlying lease, commencing when we take possession of the
property. Generally, our leases allow for termination by us after a certain
period of time if sales at that site do not exceed specified
levels.





We lease
89,000 square feet of office space at 112 West 34th Street in New
York, New York. The facility is used as our corporate headquarters and for our
design, sourcing and production teams. This lease expires in 2016.





We also
lease 40,000 square feet of office space at 201 Willowbrook Boulevard in
Wayne, New Jersey. This facility is used as administrative offices for finance,
operations and information systems personnel. This lease expires in 2012, but
provides us with a 5 year option to extend at the end of the initial
term.





In
addition, we lease a 315,000 square foot distribution and warehouse
facility in South River, New Jersey. This lease expires in 2016. We also lease a
second 360,000 square foot distribution facility in Ontario, California.
This lease expires in 2015.  These facilities are used to warehouse
inventory needed to replenish and back-stock all of our stores, as well as to
serve our general warehousing needs.





Item 3.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 a non-public, fact-finding inquiry to determine whether any
violations of law have occurred. We are cooperating fully with the SEC in its
investigation.





We are
also 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.






14
 Table of Contents






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





No
matters were submitted to a vote of our shareholders during the fourth quarter
of the fiscal year covered by this report.








PART II







Item 5.Market
for the Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities





Our
common stock is traded on the New York Stock Exchange under the symbol “ARO”.
The following table sets forth the range of high and low sales prices of our
common stock as reported on the New York Stock Exchange since February 4,
2007.  The stock prices below have been revised to reflect a
three-for-two stock split effected in August 2007.








Market PriceHigh
                        
                        
                        LowFiscal
      20084th quarter
                        
                        $
                        24.18
                        
                        
                        $
                        12.753rd quarter
                        
                        
                        36.79
                        
                        
                        
                        20.762nd quarter
                        
                        
                        35.78
                        
                        
                        
                        30.251st quarter
                        
                        
                        33.07
                        
                        
                        
                        24.17Fiscal
      20074th quarter
                        
                        $
                        29.03
                        
                        
                        $
                        21.883rd quarter
                        
                        
                        24.35
                        
                        
                        
                        18.372nd quarter
                        
                        
                        31.65
                        
                        
                        
                        23.771st quarter
                        
                        
                        28.97
                        
                        
                        
                        23.34





As of
March 20, 2009, there were 57 stockholders of record. However, when
including others holding shares in broker accounts under street name, we
estimate the shareholder base at approximately 32,683.







15
 Table of Contents








PERFORMANCE
GRAPH





The
following graph shows the changes, for the period commencing January 31,
2004 and ended January 30, 2009 (the last trading day during fiscal 2008),
in the value of $100 invested in shares of our common stock, the
Standard & Poor’s MidCap 400 Composite Stock Price Index (the “S&P
MidCap 400 Index”) and the Standard & Poor’s Apparel Retail Composite
Index (the “S&P Apparel Retail Index”). The plotted points represent the
closing price on the last trading day of the fiscal year indicated.










Jan-04
                            Jan-05
                            Jan-06
                            Jan-07
                            Jan-08
                            Jan-09Aéropostale
      Inc.
                            $100
                            $140
                            $152
                            $181
                            $212
                            $159S&P
      Midcap 400
                            $100
                            $111
                            $136
                            $147
                            $143
                            $90S&P
      Apparel Retail
                            $100
                            $121
                            $115
                            $132
                            $126
                            $64Copyright
      © 2009, Standard & Poor's, a division of The McGraw-Hill Companies,
      Inc. All rights reserved.
      (www.researchdatagroup.com/S&P.htm)






16
 Table of Contents






We have
not paid a dividend on our common stock during our last three fiscal years, and
we do not have any current intention to pay a dividend on our common
stock.





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 fourth quarter of fiscal
2008.  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)November
      2 to November 29, 2008
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                $
                127,079November
      30 to January 3, 2009
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                $
                127,079January 4
      to January 31, 2009
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                $
                127,079Total
                
                
                —
                
                
                
                —
                
                
                
                —


Item 6.Selected Financial
Data





The
following selected financial data should be read in conjunction with
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” and with our consolidated financial statements and other financial
information appearing elsewhere in this document:





Fiscal Year EndedJanuary 31,
                          2009
                        
                        
                        February 2,
                          2008 (1)
                        
                        
                        February 3,
                          2007 (2) (3)
                        
                        
                        January 28,
                          2006
                        
                        
                        January 29,
                          2005(In
      thousands, except per share and store data)Statements
      of Income Data:Net
      sales
                        
                        $
                        1,885,531
                        
                        
                        $
                        1,590,883
                        
                        
                        $
                        1,413,208
                        
                        
                        $
                        1,204,347
                        
                        
                        $
                        964,212Gross
      profit, as a percent of sales
                        
                        
                        34.7
                        %
                        
                        
                        34.8
                        %
                        
                        
                        32.2
                        %
                        
                        
                        30.1
                        %
                        
                        
                        33.2
                        %SG&A,
      as a percent of sales
                        
                        
                        21.5
                        %
                        
                        
                        21.7
                        %
                        
                        
                        20.5
                        %
                        
                        
                        18.9
                        %
                        
                        
                        19.1
                        %Net
      income, as a percent of sales
                        
                        
                        7.9
                        %
                        
                        
                        8.2
                        %
                        
                        
                        7.5
                        %
                        
                        
                        7.0
                        %
                        
                        
                        8.7
                        %Net
      income
                        
                        $
                        149,422
                        
                        
                        $
                        129,197
                        
                        
                        $
                        106,647
                        
                        
                        $
                        83,954
                        
                        
                        $
                        84,112Diluted
      earnings per common share
                        
                        $
                        2.21
                        
                        
                        $
                        1.73
                        
                        
                        $
                        1.32
                        
                        
                        $
                        1.00
                        
                        
                        $
                        0.98Selected
      Operating Data:Number
      of stores open at end of period
                        
                        
                        914
                        
                        
                        
                        828
                        
                        
                        
                        742
                        
                        
                        
                        671
                        
                        
                        
                        561Comparable
      store sales increase
                        
                        
                        8
                        %
                        
                        
                        3
                        %
                        
                        
                        2
                        %
                        
                        
                        4
                        %
                        
                        
                        9
                        %Comparable
      average unit retail change
                        
                        
                        2
                        %
                        
                        
                        (3
                        )%
                        
                        
                        3
                        %
                        
                        
                        (8
                        )%
                        
                        
                        (2
                        )%Average
      net sales per store (in thousands)
                        
                        $
                        2,042
                        
                        
                        $
                        1,932
                        
                        
                        $
                        1,924
                        
                        
                        $
                        1,890
                        
                        
                        $
                        1,849Average
      square footage per store
                        
                        
                        3,594
                        
                        
                        
                        3,546
                        
                        
                        
                        3,540
                        
                        
                        
                        3,537
                        
                        
                        
                        3,512Net
      sales per average square foot
                        
                        $
                        572
                        
                        
                        $
                        545
                        
                        
                        $
                        543
                        
                        
                        $
                        534
                        
                        
                        $
                        526





As ofJanuary 31,
                          2009
                        
                        
                        February 2,
                          2008
                        
                        
                        February 3,
                          2007
                        
                        
                        January 28,
                          2006
                        
                        
                        January 29,
                          2005(In
      thousands)Balance
      Sheet Data:Working
      capital
                        
                        $
                        218,444
                        
                        
                        $
                        87,300
                        
                        
                        $
                        233,995
                        
                        
                        $
                        212,986
                        
                        
                        $
                        182,493Total
      assets
                        
                        
                        657,919
                        
                        
                        
                        514,169
                        
                        
                        
                        581,164
                        
                        
                        
                        503,951
                        
                        
                        
                        405,819Long-term
      liabilities
                        
                        
                        127,422
                        
                        
                        
                        119,506
                        
                        
                        
                        104,250
                        
                        
                        
                        92,808
                        
                        
                        
                        70,574Total
      debt
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —Retained
      earnings
                        
                        
                        693,333
                        
                        
                        
                        543,911
                        
                        
                        
                        414,916
                        
                        
                        
                        308,269
                        
                        
                        
                        224,315Total
      stockholder’s equity
                        
                        
                        355,060
                        
                        
                        
                        197,276
                        
                        
                        
                        312,116
                        
                        
                        
                        284,790
                        
                        
                        
                        238,251Cash
      dividends declared per common share
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —






17
 Table of Contents




__________




(1)
            Includes
      initial gift card breakage income of $7.7 million ($4.8 million, after
      tax, or $0.07 per diluted share), other operating income of
      $4.1 million ($2.6 million, after tax, or $0.04 per diluted
      share) as a result of an agreement with our former Executive Vice
      President and Chief Merchandising Officer, partially offset by an asset
      impairment charge of $9.0 million ($5.7 million, after tax, or $0.08 per
      diluted share).(2)
            Includes
      $7.4 million ($4.5 million, after tax, or $0.05 per diluted
      share), net of professional fees, representing concessions, primarily from
      South Bay Apparel Inc., to us for prior purchases of merchandise and other
      operating income of $2.1 million ($1.3 million, after tax, or
      $0.02 per diluted share) from the resolution of a dispute with a
      vendor regarding the enforcement of our intellectual property
      rights.(3)
            53 week
      fiscal year.





Item 7.Management’s
Discussion and Analysis of Financial Condition and Results of
Operations Introduction





Cautionary Note Regarding
Forward-Looking Statements





This
Annual Report on Form 10-K 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 I, 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.





Aéropostale,
Inc. is a mall-based specialty retailer of casual apparel and accessories. Our
target customers are both young women and young men from age 14 to 17,
and we provide our customers with a selection of high-quality, active-oriented,
fashion basic merchandise at compelling values in a high-energy store
environment. We maintain control over our proprietary brand by designing and
sourcing all of our own merchandise. Our products can be purchased in our
stores, which sell Aéropostale merchandise exclusively and on-line through our
e-commerce website, www.aeropostale.com.  As of January 31, 2009,
we operated 914 stores, consisting of 874 Aéropostale stores in 48 states and
Puerto Rico, 29 Aéropostale stores in Canada, and 11 Jimmy’Z stores in 10
states.  We plan to close all of the Jimmy’Z stores by the end of the
second quarter of fiscal 2009.





Our
fiscal year ends on the Saturday nearest to January 31. Fiscal 2008 was the
52-week period ended January 31, 2009, fiscal 2007 was the 52-week period ended
February 2, 2008 and fiscal 2006 was the 53-week period ended
February 3, 2007.  Fiscal 2009 will be the 52-week period ending
January 30, 2010.





The
discussion in the following section is on a consolidated basis, unless indicated
otherwise. In addition, comparable store sales data included in this section are
compared to the corresponding period in the prior year, due to the 53rd week in
the fiscal 2006 calendar. We believe that the disclosure of comparable store
sales data on a pro-forma basis due to the 53rd week in
fiscal 2006, which is a non-GAAP financial measure, provides investors useful
information to help them better understand our results.





Overview





We
achieved net sales of $1.886 billion during fiscal 2008, an increase of
$294.6 million or 19% from fiscal 2007.  Gross profit, as a
percentage of net sales, decreased by 0.1 percentage points for fiscal
2008.  Selling, general and administrative expense, or SG&A, as a
percentage of net sales, decreased by 0.2 percentage points in fiscal
2008.  Interest income decreased by $6.0 million in fiscal
2008.  The effective tax rate was 39.9% for fiscal 2008, compared with
38.2% for fiscal 2007. Net income for fiscal 2008 was $149.4 million, or
$2.21 per diluted share, compared with net income of $129.2 million,
or $1.73 per diluted share, for fiscal 2007.





As of
January 31, 2009, we had working capital of $218.4 million, cash and
cash equivalents of $228.5 million, no short-term investments and no third
party debt outstanding. We repurchased 0.2 million shares of common stock for
$6.7 million during fiscal 2008 compared to 11.7 million shares of common stock
for $266.7 million during fiscal 2007.  Merchandise inventories
decreased by 17% on a square foot basis as of January 31, 2009 compared to
last year, reflecting the impact of stronger sell-through of fall merchandise
and timing of floor-set receipts. Cash flows from operating activities were
$202.1 million for fiscal 2008. We operated 914 total stores as of
January 31, 2009, an increase of 10% from the same period last
year.






18
 Table of Contents






We use a
number of key indicators of financial condition and operating performance to
evaluate the performance of our business, including the following:








Fiscal Year EndedJanuary 31,
                          2009
                        
                        
                        February 2,
                          2008
                        
                        
                        February 3,
                          2007Net
      sales (in millions)
                        
                        $
                        1,885.5
                        
                        
                        $
                        1,590.9
                        
                        
                        $
                        1,413.2Total
      store count at end of period
                        
                        
                        914
                        
                        
                        
                        828
                        
                        
                        
                        742Comparable
      store count at end of period
                        
                        
                        811
                        
                        
                        
                        734
                        
                        
                        
                        664Net
      sales growth
                        
                        
                        19
                        %
                        
                        
                        13
                        %
                        
                        
                        17
                        %Comparable
      store sales growth
                        
                        
                        8
                        %
                        
                        
                        3
                        %
                        
                        
                        2
                        %Comparable
      average unit retail change
                        
                        
                        2
                        %
                        
                        
                        (3
                        )%
                        
                        
                        3
                        %Comparable
      units per sales transaction change
                        
                        
                        3
                        %
                        
                        
                        2
                        %
                        
                        
                        (2
                        )%Comparable
      sales transaction growth
                        
                        
                        4
                        %
                        
                        
                        3
                        %
                        
                        
                        1
                        %Net
      sales per average square foot
                        
                        $
                        572
                        
                        
                        $
                        545
                        
                        
                        $
                        543Average
      net sales per store (in thousands)
                        
                        $
                        2,042
                        
                        
                        $
                        1,932
                        
                        
                        $
                        1,924Gross
      profit (in millions)
                        
                        $
                        654.2
                        
                        
                        $
                        553.2
                        
                        
                        $
                        455.4Income
      from operations (in millions)
                        
                        $
                        248.3
                        
                        
                        $
                        202.5
                        
                        
                        $
                        167.8Diluted
      earnings per share
                        
                        $
                        2.21
                        
                        
                        $
                        1.73
                        
                        
                        $
                        1.32Total
      average square footage growth
                        
                        
                        12
                        %
                        
                        
                        10
                        %
                        
                        
                        14
                        %Change
      in total inventory at end of period
                        
                        
                        (7
                        )%
                        
                        
                        35
                        %
                        
                        
                        10
                        %Change
      in inventory per square foot at end of period
                        
                        
                        (17
                        )%
                        
                        
                        20
                        %
                        
                        
                        0
                        %Percentages
      of net sales by categoryWomen’s
                        
                        
                        71
                        %
                        
                        
                        72
                        %
                        
                        
                        73
                        %Men’s
                        
                        
                        29
                        %
                        
                        
                        28
                        %
                        
                        
                        27
                        %





Results
of Operations





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





Fiscal Year EndedJanuary 31,
                      2009
                    
                    
                    February 2,
                      2008
                    
                    
                    February 3,
                      2007Net
      sales
                    
                    
                    100.0
                    %
                    
                    
                    100.0
                    %
                    
                    
                    100.0
                    %Gross
      profit
                    
                    
                    34.7
                    
                    
                    
                    34.8
                    
                    
                    
                    32.2SG&A
                    
                    
                    21.5
                    
                    
                    
                    21.7
                    
                    
                    
                    20.5Jimmy’Z
      asset impairment charges
                    
                    
                    —
                    
                    
                    
                    0.6
                    
                    
                    
                    —Other
      operating income
                    
                    
                    —
                    
                    
                    
                    0.3
                    
                    
                    
                    0.2Income
      from operations
                    
                    
                    13.2
                    
                    
                    
                    12.8
                    
                    
                    
                    11.9Interest
      income, net
                    
                    
                    —
                    
                    
                    
                    0.4
                    
                    
                    
                    0.5Income
      before income taxes
                    
                    
                    13.2
                    
                    
                    
                    13.2
                    
                    
                    
                    12.4Income
      taxes
                    
                    
                    5.3
                    
                    
                    
                    5.0
                    
                    
                    
                    4.9Net
      income
                    
                    
                    7.9
                    %
                    
                    
                    8.2
                    %
                    
                    
                    7.5
                    %





Sales





Net sales
consist of sales from comparable stores, non-comparable stores, and from our
e-commerce business. A store is included in comparable store sales after
14 months of operation. We consider a remodeled or relocated store with
more than a 25% change in square feet to be a new store. Prior period sales from
stores that have closed are not included in comparable store sales, nor are
sales from our e-commerce business.






19
 Table of Contents






Net sales
increased by $294.6 million, or by 19% in fiscal 2008, as compared to
fiscal 2007.  This increase was due to total average square footage
growth of 12%, as well as an increase in comparable store
sales.  Comparable store sales increased by $117.0 million, or by
8%, reflecting comparable store sales increases in our young men’s and women’s
categories.  The comparable store sales increase reflected a 3%
increase in units per sales transaction and a 4% increase in the number of sales
transactions.  Non-comparable store sales increased by
$177.7 million, or by 11%, due primarily to 86 more stores open at the end
of fiscal 2008 versus fiscal 2007.  Total non-comparable sales
includes net sales from our e-commerce business which increased by 85% to $79.1
million in fiscal 2008.  Net sales for the fourth quarter of fiscal
2007 also included $7.7 million of sales related to our initial recognition of
gift card breakage, of which $5.9 million related to gift cards issued in
periods prior to fiscal 2007 (see Note 1 to the Notes to Consolidated Financial
Statements for a further discussion).





Net sales
increased by $177.7 million, or by 13% in fiscal 2007 (52 weeks), as
compared to fiscal 2006 (53 weeks).    This increase
was due to total average square footage growth of 10%, as well as an increase in
comparable store sales.  Comparable store sales increased by
$43.8 million, or by 3%, reflecting comparable store sales increases in our
young men’s and women’s categories.  The comparable store sales
increase reflected a 2% increase in units per sales transaction, a 3% increase
in the number of sales transactions, and a 3% decrease in average unit retail.
The decrease in the average unit retail reflected lower pricing in certain
categories, in addition to a shift in sales mix. Non-comparable store sales
increased by $126.1 million, or by 9%, due primarily to 86 more stores open
at the end of fiscal 2007 versus fiscal 2006.  Total non-comparable
sales includes net sales from our e-commerce business which increased by 100% to
$42.8 million in fiscal 2007.  Net sales for the fourth quarter of
fiscal 2007 also included $7.7 million of sales related to our initial
recognition of gift card breakage, of which $5.9 million related to gift cards
issued in periods prior to fiscal 2007 (see Note 1 to the Notes to Consolidated
Financial Statements for a further discussion).





Cost
of Sales and Gross Profit





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





Gross
profit, as a percentage of net sales, decreased by 0.1 percentage points in
fiscal 2008 compared to fiscal 2007.  The decrease was due to higher
transportation costs and depreciation, which offset higher merchandise margin of
0.5 percentage points.  Merchandise margin decreased during the fourth
quarter of fiscal 2008, primarily due to increased promotional activity. The
fourth quarter decrease partially offset a 1.9 percentage point increase in
merchandise margin through the first thirty-nine weeks of fiscal
2008.





Gross
profit, as a percentage of net sales, increased by 2.6 percentage points in
fiscal 2007.  This increase was due to a 2.8 percentage point
increase in merchandise margin, primarily from lower unit costs from graphic tee
shirts and improved levels and composition of our merchandise
assortment.  This increase was partially offset by a
0.2 percentage point increase in depreciation, primarily as a result of
store growth and strategic investments, and occupancy costs.





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, information technology maintenance costs and expenses, insurance and
legal expenses, store pre-opening and other corporate expenses. Store
pre-opening expenses include store payroll, grand opening event marketing,
travel, supplies and other store pre-opening expenses.





SG&A
increased by $60.1 million, and decreased by 0.2 percentage points, as
a percentage of net sales, during fiscal 2008. The increase in SG&A was
largely due to a $23.9 million increase in store-line expenses and a $22.0
million increase in corporate expenses, which included higher stock-based
compensation of $7.3 million, incentive compensation of $7.2 million and
benefits of $4.9 million.  Additionally, the increase was due to
higher store transaction costs of $9.7 million resulting primarily from new
store growth and increased sales and $4.5 million of higher marketing
costs.  The SG&A decrease during fiscal 2008, as a percentage of
net sales, was due primarily to a 0.6 percentage point decrease in
store-line expenses, resulting primarily from payroll; and was partially offset
by a 0.3 percentage point increase in corporate incentive and stock-based
compensation; and a 0.1 percentage point increase in e-commerce expenses,
resulting from sales growth.






20
 Table of Contents






SG&A
increased by $56.1 million, or by 1.2 percentage points, as a
percentage of net sales, during fiscal 2007.  The increase in SG&A
was largely due to a $26.7 million increase in store-line
expenses.  The remainder of the increase was due to higher store
transaction costs and store operations costs of $13.4 million resulting
primarily from new store growth and increased sales.  The balance of
the increase in SG&A was due primarily to a $13.8 million increase in
corporate expenses consisting of higher incentive compensation of $4.9 million,
stock-based compensation of $3.5 million, and other corporate expenses of $5.4
million.  The SG&A increase during fiscal 2007, as a percentage of
net sales, was due primarily to a 0.5 percentage point increase in
store-line expenses, resulting primarily from increased payroll due to minimum
wage increases and loss prevention initiatives, a 0.5 percentage point
increase in corporate incentive and stock-based compensation, and a
0.4 percentage point increase in e-commerce expenses, resulting from growth
in related sales.





Jimmy’Z
Asset Impairment Charges





During
the fourth quarter of fiscal 2007, we recorded asset impairment charges of $9.0
million (see Note 3 to the Notes to Consolidated Financial Statements for a
further discussion).





Other
Operating Income





We
recognized $4.1 million in net other operating income during the fourth
quarter of 2007 as a result of an agreement with our former Executive Vice
President and Chief Merchandising Officer (see Note 4 to the Notes to
Consolidated Financial Statements for a further discussion).





We
recognized $2.1 million in other operating income during the second quarter
of fiscal 2006 in connection with the resolution of a dispute with a vendor
regarding the enforcement of our intellectual property rights.





Interest
Income




Interest
income, net of interest expense, decreased by $6.0 million in fiscal
2008.  The decrease was due to the cumulative impact of cash used for
share repurchases in the fourth quarter of 2007 of $266.7 million and lower
interest rates.




Interest
income, net of interest expense, decreased by $0.5 million in fiscal
2007.  The decrease was due primarily to the cumulative impact of cash
used for share repurchases of $266.7 million during fiscal 2007.





Income
Taxes





Our
effective tax rate was 39.9% for fiscal 2008, compared to 38.2% for fiscal 2007,
and 39.0% for fiscal 2006.  The increase in the effective tax rate
during fiscal 2008 is due primarily to nondeductible officers’ compensation and
less tax exempt interest, as well as a lower rate in fiscal 2007, mainly due to
favorable tax provision adjustments.





Net
Income and Earnings Per Share





Net
income was $149.4 million, or $2.21 per diluted share, for fiscal
2008, compared with net income of $129.2 million, or $1.73 per diluted
share, for fiscal 2007 and net income of $106.6 million, or $1.32 per
diluted share, for fiscal 2006.





Net
income for fiscal 2007 was favorably impacted by $7.7 million ($4.8 million
after-tax, or $0.07 per diluted share), resulting from our initial
recognition of gift card breakage (see Note 1 to the Notes to Consolidated
Financial Statements for a further discussion). Net income for fiscal 2007 was
also favorably impacted by $4.1 million ($2.6 million after-tax, or $0.04
per diluted share), from the above mentioned other operating income. The asset
impairment charges unfavorably impacted net income for fiscal 2007 by $9.0
million ($5.7 million after-tax, or $0.08 per diluted share) (see Note
3 to the Notes to Consolidated Financial Statements for a further
discussion).






21
 Table of Contents






Liquidity
and Capital Resources





Our cash
requirements are primarily for working capital, construction of new stores,
remodeling of existing stores, and the improvement and 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, existing cash and
cash equivalents and our credit facility.  At January 31, 2009, we had
working capital of $218.4 million, cash and cash equivalents of $228.5 million
and no debt outstanding under our $150.0 million credit facility.








The
following table sets forth our cash flows for the period indicated (in
thousands):





Fiscal Year EndedJanuary 31,
                      2009
                    
                    
                    February 2,
                      2008
                    
                    
                    February 3,
                      2007Net
      cash provided by operating activities
                    
                    $
                    202,135
                    
                    
                    $
                    171,081
                    
                    
                    $
                    177,445Net
      cash used for investing activities
                    
                    
                    (83,035
                    )
                    
                    
                    (6,083
                    )
                    
                    
                    (101,135
                    )Net
      cash used for financing activities
                    
                    
                    (1,445
                    )
                    
                    
                    (253,153
                    )
                    
                    
                    (81,481
                    )Effect
      of exchange rate changes
                    
                    
                    (1,052
                    )
                    
                    
                    18
                    
                    
                    
                    —Net
      increase (decrease) in cash and cash equivalents
                    
                    $
                    116,603
                    
                    
                    $
                    (88,137
                    )
                    
                    $
                    (5,171
                    )





Operating
Activities





Cash
flows from operating activities, our principal form of liquidity on a full-year
basis, increased by $31.1 million in fiscal 2008 and decreased by
$6.4 million in fiscal 2007, as compared to the prior fiscal year. The
primary components of cash flows from operations for fiscal 2008 included an
increase in net income, as adjusted for depreciation and amortization and other
non-cash items, of $45.4 million and lower merchandise inventories which
were partially offset by the timing of the payment of liabilities.





Cash
flows from operating activities decreased by $6.4 million in fiscal 2007 as
compared to the prior fiscal year.  The primary components of cash
flows from operations for fiscal 2007 included an increase in net income, as
adjusted for non-cash items, of $41.5 million which was more than offset by
an increase in cash used for accounts payable and accrued expenses, which
resulted from the timing of income tax payments.





Working
capital increased to $218.4 million at January 31, 2009 from $87.3 million at
February 2, 2008 due primarily to the cumulative impact of cash used for share
repurchases of $266.7 million in fiscal 2007.  Consolidated
merchandise inventories decreased by 7%, and by 17% on a square foot basis, as
of January 31, 2009 compared to last year.  These decreases were
primarily due to stronger sell-through of merchandise and a shift in the timing
of floor-set receipts.





Investing
Activities





We
invested $83.0 million in capital expenditures in fiscal 2008, primarily
for the construction of 89 new Aéropostale stores, to remodel 18 existing stores
and for certain other information technology investments.  Our future
capital requirements will depend primarily on the number of new stores we open,
the number of existing stores we remodel and other strategic investments. We
plan to invest approximately $55.0 million in capital expenditures in
fiscal 2009. These plans include investments of approximately $25.0 million
to open approximately 40 new Aéropostale stores in our new store format
including approximately 15 in Canada and 10 new P.S. from Aéropostale stores.
Capital expenditure plans also include approximately $15.0 million to
remodel approximately 23 existing stores to our new store format and
approximately $15.0 million for other initiatives which includes $6.0 million
for our new allocation system.






22
 Table of Contents






Financing
Activities





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
repurchased 0.2 million shares for $6.7 million during fiscal 2008, as compared
to repurchases of 11.7 million shares for $266.7 million during fiscal 2007
and 4.7 million shares for $91.4 million during fiscal 2006.





We
have approximately $127.1 million of repurchase authorization remaining as of
January 31, 2009 under the $600.0 million share repurchase
program.




amended
and restated revolving credit facility with Bank of America, N.A., as Lender
which expanded our availability from a maximum of $75.0 million to
$150.0 million (the “Credit Facility”).  The Credit Facility
provides for a $150.0 million revolving credit line. 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 January 31, 2009.




Contractual
Obligations





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





Payments Due by PeriodTotal
                          
                          
                          Less
      Than
                            1 Year
                          
                          
                          1-3
                            Years
                          
                          
                          3-5
                            Years
                          
                          
                          More
      Than
                            5 Years(In
      thousands)Contractual
      Obligations:Real
      estate operating leases
                          
                          $
                          646,187
                          
                          
                          $
                          98,782
                          
                          
                          $
                          186,245
                          
                          
                          $
                          162,638
      69
                          
                          
                          $
                          198,522Equipment
      operating leases
                          
                          
                          4,165
                          
                          
                          
                          2,273
                          
                          
                          
                          1,892
                          
                          
                          
                          —
                          
                          
                          
                          —Employment
      agreements
                          
                          
                          20,818
                          
                          
                          
                          11,534
                          
                          
                          
                          9,284
                          
                          
                          
                          —
                          
                          
                          
                          —Total
      contractual obligations
                          
                          $
                          671,170
                          
                          
                          $
                          112,589
                          
                          
                          $
                          197,421
                          
                          
                          $
                          162,638
                          
                          
                          $
                          198,522





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 without penalty and are therefore not included in
the above table.





In
addition to the above table, we project making a benefit payment of
approximately $16.9 million from our supplementary executive retirement
plan in 2010, which assumes expected future service until retirement at
age 65 (see Note 10 to the Notes to Consolidated Financial Statements
for a further discussion).





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




Our total
liabilities for unrecognized tax benefits were $2.6 million at January 31, 2009.
We cannot make a reasonable estimate of the amount and period of related future
payments for these liabilities. Therefore these liabilities were not included in
the above table.





Off-Balance
Sheet Arrangements





Other
than operating lease commitments set forth in the table above, we are not a
party to any material off-balance sheet financing arrangements. We have not
created, and are not a 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
January 31, 2009, we have not issued any letters of credit for the purchase
of merchandise inventory or any capital expenditures.






23
 Table of Contents






Critical
Accounting 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 Note 1 of the Notes to
Consolidated Financial Statements.  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.




Merchandise
Inventory





Merchandise
inventory consists of finished goods and is valued utilizing the cost method at
lower of cost or market on a weighted-average basis. We use estimates during
interim periods to record a provision for inventory shortage. We also make
certain assumptions regarding future demand and net realizable selling price in
order to assess that our inventory is recorded properly at the lower of cost or
market. These assumptions are based on both historical experience and current
information. We believe that the carrying value of merchandise inventory is
appropriate as of January 31, 2009. However, actual results may differ
materially from those estimated and could have a material impact on our
consolidated financial statements. A 10% difference in our estimate of inventory
at the lower of cost or market as of January 31, 2009 would have impacted
net income by $1.0 million for the fiscal year ended January 31,
2009.





Income
Taxes





Income
taxes are accounted for in accordance with Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes (“SFAS No.
109”).Under
SFAS No. 109, income taxes are recognized for the amount of taxes
payable for the current year and deferred tax assets and liabilities for the
future tax consequence of events that have been recognized differently in the
financial statements than for tax purposes. Deferred tax assets and liabilities
are established using statutory tax rates and are adjusted for tax rate changes.
We consider accounting for income taxes critical to our operations because
management is required to make significant subjective judgments in developing
our provision for income taxes, including the determination of deferred tax
assets and liabilities, and any valuation allowances that may be required
against deferred tax assets.





Effective
at the beginning of the first quarter of fiscal 2007, we adopted FASB
Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (“FIN 48”). This interpretation clarifies the accounting for
uncertainty in income tax recognized in an entity’s financial statements in
accordance with SFAS No. 109.  FIN 48 requires companies to determine
whether it is “more likely than not” that a tax position will be sustained upon
examination by the appropriate taxing authorities before any part of the benefit
can be recorded in the financial statements.For those tax positions
where it is “not more likely than not” that a tax benefit will be sustained, no
tax benefit is recognized. Where applicable, associated interest and penalties
are also recorded. This interpretation also provides guidance on derecognition,
classification, accounting in interim periods, and expanded disclosure
requirements (see Note 12 to the Notes to Consolidated Financial
Statements).





Long-Lived
Assets





We
periodically evaluate the need to recognize impairment losses relating to
long-lived assets. Long-lived assets are evaluated for recoverability whenever
events or changes in circumstances indicate that an asset may have been
impaired. Factors we consider important that could trigger an impairment review
include the following:





•
            significant
      changes in the manner of our use of assets or the strategy for our overall
      business;





•
            significant
      negative industry or economic
trends;





•
            store
      closings; or







24
  Table of Contents


•
            under-performing
      business trends.





In
evaluating an asset for recoverability, we estimate the future cash flows
expected to result from the use of the asset and eventual
disposition.  Management makes assumptions and applies judgment to
estimate future cash flows.  These assumptions include factors such as
both historical and forecasted results and trends.If the sum of the expected
future cash flows is less than the carrying amount of the asset, we would write
the asset down to fair value and we would record an impairment
charge.  Accordingly, we recorded asset impairment charges of
$9.0 million related to our Jimmy’Z store concept during fiscal 2007 (see
Note 3 to the Notes to Consolidated Financial Statements for a further
discussion).  Additionally, we have recorded Aéropostale store
impairment charges of $3.7 million in fiscal 2008 compared to $1.7 million in
fiscal 2007 and $0.1 million in fiscal 2006, which were included in depreciation
and amortization expense, which is a component of cost of sales.  We
believe that the carrying values of finite-lived assets, and their useful lives,
are appropriate as of January 31, 2009. However, actual results may differ
materially from those estimated and could have a material impact on our
consolidated financial statements.





Defined
Benefit Pension Plans





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, is not funded and provides benefits based on years of service
and compensation during employment. Pension expense is determined using various
actuarial cost methods to estimate the total benefits ultimately payable to
officers, and this cost is allocated to service periods. The actuarial
assumptions used to calculate pension costs are reviewed annually. We believe
that these assumptions have been appropriate and that, based on these
assumptions, the SERP liability of $21.2 million is appropriately stated as
of January 31, 2009. However, actual results may differ materially from
those estimated and could have a material impact on our consolidated financial
statements. If we had changed the expected discount rate by 0.5% in fiscal 2008,
pension expense would have changed by less than $50,000. We adopted Statement of
Financial Accounting Standards No. 158, Employer’s Accounting for Defined
Benefit Pension and
Other Postretirement Plans — an amendment of FASB Statements No. 87,
88, 106, and
132(R) (“SFAS No. 158”) during fiscal 2006.





Recent
Accounting Developments





See the
section “Recent Accounting
Developments”included in Note 1 in the Notes to Consolidated
Financial Statements for a discussion of recent accounting developments and
their impact on our consolidated financial statements.





Item 7A.Quantitative and
Qualitative Disclosures about Market Risk





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





Unrealized
foreign currency gains and losses, resulting from the translation of our
Canadian subsidiary financial statements into our US dollar reporting currency
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 $2.7 million as of
January 31, 2009.  A 10% movement in quoted foreign currency exchange
rates could result in a fair value translation fluctuation of approximately $1.5
million, which would be recorded in other comprehensive loss as an unrealized
gain or loss.





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





25
 Table of Contents






Item 8.Financial Statements and
Supplementary Data





PageReports of Independent Registered Public Accounting
      Firm
            27Consolidated Balance Sheets
            29Consolidated Statements of Income and Comprehensive
      Income
            30Consolidated Statements of Stockholders’
      Equity
            31Consolidated Statements of Cash Flows
            32Notes to Consolidated Financial
    Statements
            33





26
 Table of Contents




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM






To the
Board of Directors and Stockholders of Aéropostale, Inc.


New York,
New York






We have
audited the accompanying consolidated balance sheets of Aéropostale, Inc. and
subsidiaries (the "Company") as of January 31, 2009 and February 2, 2008, and
the related consolidated statements of income, comprehensive income,
stockholders' equity, and cash flows for each of the three years in the period
ended January 31, 2009.  Our audits also included the financial statement
schedule listed in the Index at Item 15.  These financial statements and
financial statement schedule are the responsibility of the Company's
management.  Our responsibility is to express an opinion on the financial
statements and financial statement schedule based on our audits.






We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement.  An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe that
our audits provide a reasonable basis for our opinion.






In our
opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of the Company and subsidiaries as of January
31, 2009 and February 2, 2008, and the results of its operations and its cash
flows for each of the three years in the period ended January 31, 2009, in
conformity with accounting principles generally accepted in the United States of
America.  Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.






As
discussed in Note 1 to the Notes to Consolidated Financial Statements, the
Company adopted (1) Financial Accounting Standards Board Interpretation
No. 48, Accounting for Uncertainty in Income Taxes, effective
February 4, 2007 and (2) Statement of Financial Accounting Standards
No. 158, Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans, relating to the recognition and related disclosure
provisions, effective February 3, 2007.






We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company's internal control over financial
reporting as of January 31, 2009, based on the criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated March 30, 2009 expressed an unqualified
opinion on the Company's internal control over financial reporting.






/s/
Deloitte and Touche LLP






New York,
New York






March 30,
2009




27
 Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM





To the
Board of Directors and Stockholders of Aéropostale, Inc.


New York,
New York





We have
audited the internal control over financial reporting of Aéropostale, Inc. and
subsidiaries (the "Company") as of January 31, 2009, based oncriteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.  The Company's management is responsible for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the
accompanyingManagement’s Report on Internal Control over
Financial Reporting.  Our responsibility is to express an opinion on the
Company's internal control over financial reporting based on ouraudit.





We
conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States).  Those standards
require that we plan and perform theaudit to obtain
reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects.  Ouraudit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances.  We believe that ouraudit provides a reasonable basis for our
opinion.





A
company's internal control over financial reporting is a process designed by, or
under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles.  A company's internal control
over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.





Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis.  Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.





In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of January 31, 2009, based on the criteria
established in Internal Control — Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission.





We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements and
financial statement schedule as of and for the year ended January 31, 2009, of
the Company and our report dated March 30, 2009expressedan unqualified opinion on those financial statements and financial
statement schedule.






/s/
Deloitte and Touche LLP






New York,
New York






March 30,
2009




28
 Table of Contents






AÉROPOSTALE, INC.





CONSOLIDATED
BALANCE SHEETS





January 31,
                                                                    2009
                                                                  
                                                                  
                                                                  February 2,
                                                                    2008(In
      thousands)ASSETSCurrent
      assets:Cash
      and cash equivalents
                                                                  
                                                                  $
                                                                  228,530
                                                                  
                                                                  
                                                                  $
                                                                  111,927Merchandise
      inventory
                                                                  
                                                                  
                                                                  126,360
                                                                  
                                                                  
                                                                  
                                                                  136,488Prepaid
      expenses
                                                                  
                                                                  
                                                                  17,384
                                                                  
                                                                  
                                                                  
                                                                  13,604Deferred
      income taxes
                                                                  
                                                                  
                                                                  10,745
                                                                  
                                                                  
                                                                  
                                                                  12,961Other
      current assets
                                                                  
                                                                  
                                                                  10,862
                                                                  
                                                                  
                                                                  
                                                                  9,707Total
      current assets
                                                                  
                                                                  
                                                                  393,881
                                                                  
                                                                  
                                                                  
                                                                  284,687Fixtures,
      equipment and improvements — net
                                                                  
                                                                  
                                                                  248,999
                                                                  
                                                                  
                                                                  
                                                                  213,831Deferred
      income taxes
                                                                  
                                                                  
                                                                  12,509
                                                                  
                                                                  
                                                                  
                                                                  13,073Other
      assets
                                                                  
                                                                  
                                                                  2,530
                                                                  
                                                                  
                                                                  
                                                                  2,578Total
      assets
                                                                  
                                                                  $
                                                                  657,919
                                                                  
                                                                  
                                                                  $
                                                                  514,169LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable
                                                                  
                                                                  $
                                                                  77,247
                                                                  
                                                                  
                                                                  $
                                                                  99,369Accrued
      expenses
                                                                  
                                                                  
                                                                  98,190
                                                                  
                                                                  
                                                                  
                                                                  98,018Total
      current liabilities
                                                                  
                                                                  
                                                                  175,437
                                                                  
                                                                  
                                                                  
                                                                  197,387Deferred
      rent and tenant allowances
                                                                  
                                                                  
                                                                  102,393
                                                                  
                                                                  
                                                                  
                                                                  96,888Retirement
      benefit plan liabilities
                                                                  
                                                                  
                                                                  22,470
                                                                  
                                                                  
                                                                  
                                                                  18,919Uncertain
      tax contingency liabilities
                                                                  
                                                                  
                                                                  2,559
                                                                  
                                                                  
                                                                  
                                                                  3,699Commitments
      and contingent liabilities
                                                                    Stockholders’
      equity
                                                                    Common
      stock — par value, $0.01 per share; 200,000 shares
      authorized, 90,472 and 89,908 shares issued
                                                                  
                                                                  
                                                                  905
                                                                  
                                                                  
                                                                  
                                                                  899Preferred
      stock — par value, $0.01 per share; 5,000 shares
      authorized, no shares issued or outstanding
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  —Additional
      paid-in capital
                                                                  
                                                                  
                                                                  145,951
                                                                  
                                                                  
                                                                  
                                                                  124,052Accumulated
      other comprehensive loss
                                                                  
                                                                  
                                                                  (8,998
                                                                  )
                                                                  
                                                                  
                                                                  (4,650
                                                                  )Retained
      earnings
                                                                  
                                                                  
                                                                  693,333
                                                                  
                                                                  
                                                                  
                                                                  543,911Treasury
      stock at cost (23,542 and 23,224 shares)
                                                                  
                                                                  
                                                                  (476,131
                                                                  )
                                                                  
                                                                  
                                                                  (466,936
                                                                  )Total
      stockholders’ equity
                                                                  
                                                                  
                                                                  355,060
                                                                  
                                                                  
                                                                  
                                                                  197,276Total
      liabilities and stockholders’ equity
                                                                  
                                                                  $
                                                                  657,919
                                                                  
                                                                  
                                                                  $
                                                                  514,169





See Notes
to Consolidated Financial Statements.





29
 Table of Contents






AÉROPOSTALE, INC.





CONSOLIDATED
STATEMENTS OF INCOME





Fiscal Year EndedJanuary 31,
                                                    2009
                                                  
                                                  
                                                  February 2,
                                                    2008
                                                  
                                                  
                                                  February 3,
                                                    2007(In
      thousands, except per share data)Net
      sales
                                                  
                                                  $
                                                  1,885,531
                                                  
                                                  
                                                  $
                                                  1,590,883
                                                  
                                                  
                                                  $
                                                  1,413,208Cost
      of sales (includes certain buying, occupancy and warehousing
      expenses)
                                                  
                                                  
                                                  1,231,349
                                                  
                                                  
                                                  
                                                  1,037,680
                                                  
                                                  
                                                  
                                                  957,791Gross
      profit
                                                  
                                                  
                                                  654,182
                                                  
                                                  
                                                  
                                                  553,203
                                                  
                                                  
                                                  
                                                  455,417Selling,
      general and administrative expenses
                                                  
                                                  
                                                  405,883
                                                  
                                                  
                                                  
                                                  345,805
                                                  
                                                  
                                                  
                                                  289,736Jimmy’Z
      asset impairment charges
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  
                                                  9,023
                                                  
                                                  
                                                  
                                                  —Other
      operating income
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  
                                                  4,078
                                                  
                                                  
                                                  
                                                  2,085Income
      from operations
                                                  
                                                  
                                                  248,299
                                                  
                                                  
                                                  
                                                  202,453
                                                  
                                                  
                                                  
                                                  167,766Interest
      income
                                                  
                                                  
                                                  510
                                                  
                                                  
                                                  
                                                  6,550
                                                  
                                                  
                                                  
                                                  7,064Income
      before income taxes
                                                  
                                                  
                                                  248,809
                                                  
                                                  
                                                  
                                                  209,003
                                                  
                                                  
                                                  
                                                  174,830Income
      taxes
                                                  
                                                  
                                                  99,387
                                                  
                                                  
                                                  
                                                  79,806
                                                  
                                                  
                                                  
                                                  68,183Net
      income
                                                  
                                                  $
                                                  149,422
                                                  
                                                  
                                                  $
                                                  129,197
                                                  
                                                  
                                                  $
                                                  106,647Basic
      earnings per common share
                                                  
                                                  $
                                                  2.24
                                                  
                                                  
                                                  $
                                                  1.74
                                                  
                                                  
                                                  $
                                                  1.33Diluted
      earnings per common share
                                                  
                                                  $
                                                  2.21
                                                  
                                                  
                                                  $
                                                  1.73
                                                  
                                                  
                                                  $
                                                  1.32Weighted
      average basic shares
                                                  
                                                  
                                                  66,832
                                                  
                                                  
                                                  
                                                  74,315
                                                  
                                                  
                                                  
                                                  79,928Weighted
      average diluted shares
                                                  
                                                  
                                                  67,576
                                                  
                                                  
                                                  
                                                  74,846
                                                  
                                                  
                                                  
                                                  80,637











CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME





Fiscal Year EndedJanuary 31,
                        2009
                      
                      
                      February 2,
                        2008
                      
                      
                      February 3,
                        2007(In
      thousands)Net
      income
                      
                      $
                      149,422
                      
                      
                      $
                      129,197
                      
                      
                      $
                      106,647Pension
      liability (net of tax of $321, $229, and $69)
                      
                      
                      (474
                      )
                      
                      
                      (582
                      )
                      
                      
                      110Foreign
      currency translation adjustment
                      
                      
                      (3,874
                      )
                      
                      
                      1,206
                      
                      
                      
                      —Comprehensive
      income
                      
                      $
                      145,074
                      
                      
                      $
                      129,821
                      
                      
                      $
                      106,757










See Notes
to Consolidated Financial Statements.





30
 Table of Contents






AÉROPOSTALE, INC.





CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY




Treasury
                                                                                                    
                                                                                                    
                                                                                                    AccumulatedAdditional
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    Stock,
                                                                                                    
                                                                                                    
                                                                                                    OtherCommon Stock
                                                                                                    
                                                                                                    
                                                                                                    Paid-in
                                                                                                    
                                                                                                    
                                                                                                    Deferred
                                                                                                    
                                                                                                    
                                                                                                    at Cost
                                                                                                    
                                                                                                    
                                                                                                    Comprehensive
                                                                                                    
                                                                                                    
                                                                                                    RetainedShares
                                                                                                    
                                                                                                    
                                                                                                    Amount
                                                                                                    
                                                                                                    
                                                                                                    Capital
                                                                                                    
                                                                                                    
                                                                                                    Compensation
                                                                                                    
                                                                                                    
                                                                                                    Shares
                                                                                                    
                                                                                                    
                                                                                                    Amount
                                                                                                    
                                                                                                    
                                                                                                    Loss
                                                                                                    
                                                                                                    
                                                                                                    Earnings
                                                                                                    
                                                                                                    
                                                                                                    Total(In thousands)BALANCE,
      JANUARY 29, 2006
                                                                                                    
                                                                                                    
                                                                                                    87,897
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    879
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    87,920
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    (2,577
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (6,822
                                                                                                    )
                                                                                                    
                                                                                                    $
                                                                                                    (108,144
                                                                                                    )
                                                                                                    
                                                                                                    $
                                                                                                    (1,557
                                                                                                    )
                                                                                                    
                                                                                                    $
                                                                                                    308,269
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    284,790Net
      income
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    106,647
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    106,647Stock
      options exercised
                                                                                                    
                                                                                                    
                                                                                                    1,078
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    11
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    2,343
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    2,354Minimum
      pension liability (net of tax of $69)
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    110
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    110Adoption
      of SFAS No. 123(R)
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (2,577
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    2,577
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —Excess
      tax benefit from stock-based compensation
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    7,568
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    7,568Adoption
      of SFAS No. 158 (net of tax of $2,413)
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (3,827
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (3,827
                                                                                                    )Repurchase
      of common stock
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (4,709
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (91,404
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (91,404
                                                                                                    )Stock-based
      compensation
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    5,878
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    5,878Vesting
      of stock
                                                                                                    
                                                                                                    
                                                                                                    23
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —BALANCE,
      FEBRUARY 3, 2007
                                                                                                    
                                                                                                    
                                                                                                    88,998
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    890
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    101,132
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (11,531
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (199,548
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (5,274
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    414,916
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    312,116Net
      income
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    129,197
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    129,197Stock
      options exercised
                                                                                                    
                                                                                                    
                                                                                                    805
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    8
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    8,020
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    8,028Minimum
      pension liability (net of tax of $229)
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (582
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (582
                                                                                                    )Excess
      tax benefit from stock-based compensation
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    5,519
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    5,519Adoption
      of FIN 48
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (202
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (202
                                                                                                    )Repurchase
      of common stock
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (11,665
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (266,692
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (266,692
                                                                                                    )Stock-based
      compensation
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    9,381
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    9,381Foreign
      currency translation adjustment
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,206
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,206Vesting
      of stock
                                                                                                    
                                                                                                    
                                                                                                    105
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (28
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (696
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (695
                                                                                                    )BALANCE,
      FEBRUARY 2, 2008
                                                                                                    
                                                                                                    
                                                                                                    89,908
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    899
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    124,052
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (23,224
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (466,936
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (4,650
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    543,911
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    197,276Net
      income
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    149,422
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    149,422Stock
      options exercised
                                                                                                    
                                                                                                    
                                                                                                    252
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    3
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    3,751
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    3,754Minimum
      pension liability (net of tax of $321)
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (474
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (474
                                                                                                    )Excess
      tax benefit from stock-based compensation
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,482
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,482Repurchase
      of common stock
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (208
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (6,681
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (6,681
                                                                                                    )Stock-based
      compensation
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    16,666
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    16,666Foreign
      currency translation adjustment
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (3,874
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (3,874
                                                                                                    )Vesting
      of stock
                                                                                                    
                                                                                                    
                                                                                                    312
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    3
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (110
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (2,514
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (2,511
                                                                                                    )BALANCE,
      JANUARY 31, 2009
                                                                                                    
                                                                                                    
                                                                                                    90,472
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    905
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    145,951
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (23,542
                                                                                                    )
                                                                                                    
                                                                                                    $
                                                                                                    (476,131
                                                                                                    )
                                                                                                    
                                                                                                    $
                                                                                                    (8,998
                                                                                                    )
                                                                                                    
                                                                                                    $
                                                                                                    693,333
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    355,060





See Notes
to Consolidated Financial Statements.






31
 Table of Contents






AÉROPOSTALE, INC.





CONSOLIDATED
STATEMENTS OF CASH FLOWS





Fiscal Year EndedJanuary 31,
                                            2009
                                          
                                          
                                          February 2,
                                            2008
                                          
                                          
                                          February 3,
                                            2007(In
      thousands)Cash Flows Provided by
      Operating ActivitiesNet
      income
                                          
                                          $
                                          149,422
                                          
                                          
                                          $
                                          129,197
                                          
                                          
                                          $
                                          106,647Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and
      amortization
                                          
                                          
                                          45,773
                                          
                                          
                                          
                                          36,756
                                          
                                          
                                          
                                          30,029Stock-based
      compensation
                                          
                                          
                                          16,666
                                          
                                          
                                          
                                          9,381
                                          
                                          
                                          
                                          5,878Amortization
      of tenant allowances and above market leases
                                          
                                          
                                          (11,745
                                          )
                                          
                                          
                                          (10,315
                                          )
                                          
                                          
                                          (9,195
                                          )Amortization
      of deferred rent
      expense
                                          
                                          
                                          2,357
                                          
                                          
                                          
                                          2,427
                                          
                                          
                                          
                                          2,333Pension
      expense
                                          
                                          
                                          2,757
                                          
                                          
                                          
                                          2,202
                                          
                                          
                                          
                                          2,246Deferred
      income
      taxes
                                          
                                          
                                          3,022
                                          
                                          
                                          
                                          (12,990
                                          )
                                          
                                          
                                          (10,474
                                          )Jimmy’Z
      asset impairment
      charges
                                          
                                          
                                          —
                                          
                                          
                                          
                                          9,023
                                          
                                          
                                          
                                          —Excess
      tax benefits from stock-based
      compensation
                                          
                                          
                                          (1,482
                                          )
                                          
                                          
                                          (5,519
                                          )
                                          
                                          
                                          (7,568
                                          )Other
                                          
                                          
                                          —
                                          
                                          
                                          
                                          1,217
                                          
                                          
                                          
                                          —Changes
      in operating assets and liabilities:Merchandise
      inventory
                                          
                                          
                                          9,063
                                          
                                          
                                          
                                          (35,002
                                          )
                                          
                                          
                                          (9,568
                                          )Prepaid
      expenses and other
      assets
                                          
                                          
                                          (5,202
                                          )
                                          
                                          
                                          (4,447
                                          )
                                          
                                          
                                          2,646Accounts
      payable
                                          
                                          
                                          (21,717
                                          )
                                          
                                          
                                          35,451
                                          
                                          
                                          
                                          6,753Accrued
      expenses and other
      liabilities
                                          
                                          
                                          13,221
                                          
                                          
                                          
                                          13,700
                                          
                                          
                                          
                                          57,718Net cash provided by
      operating activities
                                          
                                          
                                          202,135
                                          
                                          
                                          
                                          171,081
                                          
                                          
                                          
                                          177,445Cash Flows Used for Investing
      ActivitiesCapital
      expenditures
                                          
                                          
                                          (83,035
                                          )
                                          
                                          
                                          (82,306
                                          )
                                          
                                          
                                          (44,949
                                          )Purchase
      of short-term investments
                                          
                                          
                                          —
                                          
                                          
                                          
                                          (313,572
                                          )
                                          
                                          
                                          (513,909
                                          )Proceeds
      from sale of short-term investments
                                          
                                          
                                          —
                                          
                                          
                                          
                                          389,795
                                          
                                          
                                          
                                          457,723Net cash used for
      investing activities
                                          
                                          
                                          (83,035
                                          )
                                          
                                          
                                          (6,083
                                          )
                                          
                                          
                                          (101,135
                                          )Cash Flows Used for Financing
      ActivitiesPurchase
      of treasury stock
                                          
                                          
                                          (6,681
                                          )
                                          
                                          
                                          (266,692
                                          )
                                          
                                          
                                          (91,403
                                          )Proceeds
      from stock options exercised
                                          
                                          
                                          3,754
                                          
                                          
                                          
                                          8,020
                                          
                                          
                                          
                                          2,354Excess
      tax benefits from stock-based compensation
                                          
                                          
                                          1,482
                                          
                                          
                                          
                                          5,519
                                          
                                          
                                          
                                          7,568Borrowings
      under revolving credit facility
                                          
                                          
                                          —
                                          
                                          
                                          
                                          31,300
                                          
                                          
                                          
                                          —Repayments
      under revolving credit facility
                                          
                                          
                                          —
                                          
                                          
                                          
                                          (31,300
                                          )
                                          
                                          
                                          —Net cash used for
      financing activities
                                          
                                          
                                          (1,445
                                          )
                                          
                                          
                                          (253,153
                                          )
                                          
                                          
                                          (81,481
                                          )Effect
      of exchange rate changes
                                          
                                          
                                          (1,052
                                          )
                                          
                                          
                                          18
                                          
                                          
                                          
                                          —Net Increase (Decrease) in Cash
      and Cash Equivalents
                                          
                                          
                                          116,603
                                          
                                          
                                          
                                          (88,137
                                          )
                                          
                                          
                                          (5,171
                                          )Cash and Cash Equivalents,
      Beginning of Year
                                          
                                          
                                          111,927
                                          
                                          
                                          
                                          200,064
                                          
                                          
                                          
                                          205,235Cash and Cash Equivalents, End
      of Year
                                          
                                          $
                                          228,530
                                          
                                          
                                          $
                                          111,927
                                          
                                          
                                          $
                                          200,064Supplemental Disclosures of
      Cash Flow Information:Interest
      paid
                                          
                                          $
                                          —
                                          
                                          
                                          $
                                          110
                                          
                                          
                                          $
                                          —Income
      taxes paid
                                          
                                          $
                                          112,469
                                          
                                          
                                          $
                                          102,051
                                          
                                          
                                          $
                                          48,352Non-cash
      operating and investing activities
                                          
                                          $
                                          785
                                          
                                          
                                          $
                                          313
                                          
                                          
                                          $
                                          1,984





See Notes
to Consolidated Financial Statements.





32
 Table of Contents






AÉROPOSTALE, INC.





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS





1.  Summary
of Significant Accounting Policies





Organization





References
to the “Company,” “we,” “us,” or “our” means Aéropostale, Inc. and its
subsidiaries, except as expressly indicated or unless the context otherwise
requires. We are a mall-based specialty retailer of casual apparel and
accessories for young women and men. As of January 31, 2009, we operated 914
stores, consisting of 874 Aéropostale stores in 48 states and Puerto Rico, 29
Aéropostale stores in Canada, and 11 Jimmy’Z stores in 10 states.  We
plan to close all of the Jimmy’Z stores by the end of the second quarter of
fiscal 2009.





Fiscal
Year





Our
fiscal year ends on the Saturday nearest to January 31.  Fiscal
2008 was the 52-week period ended January 31, 2009, fiscal 2007 was the 52-week
period ended February 2, 2008 and fiscal 2006 was the 53-week period ended
February 3, 2007.  Fiscal 2009 will be the 52-week period ending
January 30, 2010.





Use
of Estimates





The
preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires us to
make estimates and assumptions that affect the amounts reported in our
consolidated financial statements and accompanying notes. Actual results could
differ materially from those estimated.





The most
significant estimates made by management include those made in the areas of
merchandise inventory, defined benefit retirement plans, long-lived assets, and
income taxes. Management periodically evaluates estimates used in the
preparation of the consolidated financial statements for continued
reasonableness. Appropriate adjustments, if any, to the estimates used are made
prospectively based on such periodic evaluations.





Seasonality





Our
business is highly seasonal, and historically we have realized a significant
portion of our sales, net income, and cash flow in the second half of the fiscal
year, attributable to the impact of the back-to-school selling season in the
third quarter and the holiday selling season in the fourth quarter.
Additionally, working capital requirements fluctuate during the year, increasing
in mid-summer in anticipation of the third and fourth quarters.





Translation
of Foreign Currency Financial Statements and Foreign Currency
Transactions





The
financial statements of our Canadian subsidiary have been translated into United
States dollars by translating balance sheet accounts at the year-end exchange
rate and statement of income accounts at the average exchange rates for the
year. Foreign currency translation gains and losses are reflected in the equity
section of our consolidated balance sheet in accumulated other comprehensive
loss and are not adjusted for income taxes as they relate to a permanent
investment in our subsidiary in Canada.  The balance of the unrealized
foreign currency translation adjustment included in accumulated other
comprehensive loss was a loss of $2.7 million as of January 31, 2009 compared to
a gain of $1.2 million as of February 2, 2008.  Foreign currency
transaction gains and losses are charged or credited to earnings as
incurred.





Cash
Equivalents





We
include credit card receivables and all short-term investments with an original
maturity of three months or less in cash and cash equivalents.





Fair
Value of Financial Instruments





The fair
value of cash and cash equivalents, receivables, and accounts payable
approximates their carrying value due to their short-term
maturities.






33
 Table of Contents






Merchandise
Inventory





Merchandise
inventory consists of finished goods and is valued utilizing the cost method at
the lower of cost or market determined on a weighted-average basis. Merchandise
inventory includes warehousing, freight, merchandise and design costs as an
inventory product cost. We make certain assumptions regarding future demand and
net realizable selling price in order to assess that our inventory is recorded
properly at the lower of cost or market. These assumptions are based on both
historical experience and current information. We recorded adjustments to
inventory and cost of sales for lower of cost or market of $9.5 million as
of January 31, 2009 and $8.1 million as of February 2,
2008.





Vendor
Rebates





We
receive vendor rebates from certain merchandise suppliers. The vendor rebates
are earned as we receive merchandise from the suppliers and is computed at an
agreed upon percentage of the purchase amount. Vendor rebates are recorded as a
reduction of merchandise inventory, and are then recognized as a reduction of
cost of sales when the related inventory is sold. Vendor rebates recorded as a
reduction of merchandise inventory were $0.9 million as of January 31, 2009 and
$1.0 million as of February 2, 2008. Vendor rebates recorded as a reduction of
cost of sales were $8.3 million for fiscal 2008, $7.4 million for fiscal 2007,
and $6.4 million for fiscal 2006.





Fixtures,
Equipment and Improvements





Fixtures,
equipment and improvements are stated at cost. Depreciation and amortization are
provided for by the straight-line method over the following estimated useful
lives:





Fixtures
      and
      equipment
              10 yearsLeasehold
      improvements
              Lesser
      of 10 years or lease termComputer
      equipment
              5 yearsSoftware
              3 years





Evaluation
for Long-Lived Asset Impairment





We
periodically evaluate the need to recognize impairment losses relating to
long-lived assets in accordance with Statement of Financial Accounting Standards
No. 144, Accounting for the
Impairment or Disposal of Long-lived Assets(“SFAS No. 144”). Long-lived assets are
evaluated for recoverability whenever events or changes in circumstances
indicate that an asset may have been impaired. In evaluating an asset for
recoverability, we estimate the future undiscounted cash flows expected to
result from the use of the asset and eventual disposition. If the sum of the
expected future cash flows is less than the carrying amount of the asset, we
write the asset down to fair value and we record impairment charges,
accordingly. We recorded asset impairment charges of $9.0 million in fiscal 2007
related to our Jimmy’Z store concept (see note 3 for a further
discussion).  Additionally, we have recorded Aéropostale store
impairments of $3.7 million in fiscal 2008 for 11 stores, $1.7 million in fiscal
2007 for five stores and $0.1 million in fiscal 2006 for one store, which were
included in depreciation and amortization expense, which is included as a
component of cost of sales.





Pre-Opening
Expenses





New store
pre-opening costs are expensed as they are incurred.





Leases





Our store
operating leases typically provide for fixed non-contingent rent escalations.
Rent payments under our store leases typically commence when the store
opens.  These leases include a pre-opening period that allows us to
take possession of the property to construct the store. We recognize rent
expense on a straight-line basis over the non-cancelable term of each individual
underlying lease, commencing when we take possession of the property (see
note 13 for a further discussion).





In
addition, our store leases require us to pay additional rent based on specified
percentages of sales, after we achieve specified annual sales thresholds. We use
store sales trends to estimate and record liabilities for these additional rent
obligations during interim periods. Most of our store leases entitle us to
receive tenant allowances from our landlords. We record these tenant allowances
as a deferred rent liability, which we amortize as a reduction of rent expense
over the non-cancelable term of each underlying lease.






34
 Table of Contents






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.





Gift
Cards




We sell
gift cards to our customers in our retail stores, through our Web site, and
through select third parties. We do not charge administrative fees on unused
gift cards and our gift cards do not have an expiration date. We recognize
income from gift cards when the gift card is redeemed by the customer. In
addition, in the fourth quarter of fiscal 2007, we relieved our legal obligation
to escheat the value of unredeemed gift cards to the relevant
jurisdiction.  We therefore determined that the likelihood of certain
gift cards being redeemed by the customer was remote, based upon historical
redemption patterns of gift cards. For those gift cards that we determined
redemption to be remote, we reversed our liability, and recorded gift card
breakage income.  In fiscal 2008, we recorded $2.9 million in net
sales related to gift card breakage income compared to the initial recognition
of $7.7 million in the fourth quarter of fiscal 2007, of which, $5.9 million was
related to gift cards issued prior to fiscal 2007.





Cost
of Sales





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





Selling,
General and Administrative Expenses





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, information technology
maintenance costs and expenses, insurance and legal expenses, store pre-opening
and other corporate level expenses.  Store pre-opening expenses
include store level payroll, grand opening event marketing, travel, supplies and
other store pre-opening expenses.





Self-Insurance





We
self-insure our workers compensation claims and our employee medical benefits.
The recorded liabilities for these risks are calculated primarily using
historical experience and current information. The liabilities include amounts
for actual claims and estimated claims incurred but not yet
reported.





Retirement
Benefit Plans





Our
retirement benefit plan costs are accounted for using actuarial valuations
required by Statement of Financial Accounting Standards No. 87, Employers’ Accounting for Pensions(“SFAS No. 87”)and Statement of
Financial Accounting Standards No. 106, Employers’ Accounting for
Postretirement Benefits Other Than Pensions(“SFAS No.
106”).





We
adopted Statement of Financial Accounting Standards No. 158, Employer’s Accounting for Defined
Benefit Pension and
Other Postretirement Plans — an amendment of FASB Statements No. 87,
88, 106, and
132(R) (“SFAS No. 158”), during fiscal 2006. SFAS No. 158
requires an entity to recognize the funded status of its defined pension plans
on the balance sheet and to recognize changes in the funded status that arise
during the period but are not recognized as components of net periodic benefit
cost, within other comprehensive income, net of income taxes.





Marketing
Costs





Marketing
costs, which include e-commerce, print, radio and other media advertising and
collegiate athletic conference sponsorships, are expensed at the point of first
broadcast or distribution, and were $9.5 million in fiscal 2008,
$7.6 million in fiscal 2007, and $11.3 million in fiscal
2006.






35
 Table of Contents






Stock-Based
Compensation





On
January 29, 2006, the first day of our 2006 fiscal year, we adopted 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
(“SFAS No. 123(R)”), as interpreted by SEC Staff Accounting
Bulletin No. 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.





Segment
Reporting





Statement
of Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information(“SFAS No.
131”),establishes
standards for reporting information about a company’s operating segments. It
also establishes standards for related disclosures about products and services,
geographic areas and major customers. We operate in and report as a single
aggregated operating segment, which includes the operation of our Aéropostale
retail stores and our Aéropostale e-commerce site. Revenues from external
customers are derived from merchandise sales and we do not rely on any major
customers as a source of revenue.  Our consolidated net sales mix by
merchandise category was as follows:





FiscalMerchandise Categories
                    
                    2008
                    
                    
                    2007
                    
                    
                    2006Young
      Women’s
                    
                    
                    71
                    %
                    
                    
                    72
                    %
                    
                    
                    73
                    %Young
      Men’s
                    
                    
                    29
                    
                    
                    
                    28
                    
                    
                    
                    27Total
      Merchandise
      Sales
                    
                    
                    100
                    %
                    
                    
                    100
                    %
                    
                    
                    100
                    %





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.  The loss of
any of these sources could adversely impact our ability to operate our business.
We ceased doing business with South Bay Apparel Inc., one of our largest
suppliers of graphic T-shirts and fleece, in July 2007 (see note 4 for a
further discussion). We have replaced this business both with new vendors and
our existing vendor base.





Income
Taxes





Income
taxes are accounted for in accordance with Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes (“SFAS No.
109”).Under
SFAS No. 109, income taxes are recognized for the amount of taxes
payable for the current year and deferred tax assets and liabilities for the
future tax consequence of events that have been recognized differently in the
financial statements than for tax purposes. Deferred tax assets and liabilities
are established using statutory tax rates and are adjusted for tax rate changes.
Effective at the beginning of the first quarter of fiscal 2007, we adopted FASB
FIN 48. This interpretation clarifies the accounting for uncertainty in income
tax recognized in an entity’s financial statements in accordance with SFAS No.
109.  FIN 48 requires companies to determine whether it is “more
likely than not” that a tax position will be sustained upon examination by the
appropriate taxing authorities before any part of the benefit can be recorded in
the financial statements.For those tax positions
where it is not “more likely than not” that a tax benefit will be sustained, no
tax benefit is recognized. Where applicable, associated interest and penalties
are also recorded.





Recent
Accounting Developments





In
December 2008, the Financial Accounting Standards Board (“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.  We
expect that the adoption will not have a material impact on our consolidated
financial statements.





In
December 2007, the FASB issued the Statement of Financial Accounting Standards
No. 141(R), Business
Combinations (“SFAS No. 141(R)”). SFAS No. 141(R)'s objective is to
improve the relevance, representational faithfulness, and comparability of the
information that a reporting entity provides in its financial reports about a
business combination and its effects.  SFAS No. 141(R) applies
prospectively to business combinations for which the acquisition date is on or
after December 31, 2008.  We expect that the adoption of SFAS No.
141(R) will not have a material impact on our consolidated financial
statements.






36
 Table of Contents






In
December 2007, the FASB issued the Statement of Financial Accounting Standards
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.We expect
that the adoption of SFAS No. 160 will not have a material impact on our
consolidated financial statements.





In
December 2007, the Securities and Exchange Commission (“SEC”) issued Staff
Accounting Bulletin (“SAB”) No. 110 to extend the use of “simplified method” for
estimating the expected terms of “plain vanilla” employee stock options for the
awards valuation.  The method was initially allowed under SAB 107 in
contemplation of the adoption of SFAS 123(R) to expense the compensation cost
based on the grant date fair value of the award.  SAB 110 does not
provide an expiration date for the use of the method.  However, as more
external information about exercise behavior will be available over time, it is
expected that this method will not be used when more relevant guidance is
available (see note 9 for a further discussion).





In
February 2007, the FASB issued Statement of Financial Accounting
Standards No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities — Including an
amendment of FASB Statement No. 115(“SFAS No. 159”).This statement permits
entities to choose to measure many financial instruments and certain other items
at fair value. SFAS No. 159 is effective at the beginning of an
entity’s first fiscal year that begins after November 15, 2007. The
adoption of SFAS No. 159 has not had a material impact on our
consolidated financial statements.





In
September 2006, the FASB issued Statement of Financial Accounting
Standards 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 will adopt FSP SFAS 157-2 at the
beginning of fiscal 2009.  The adoption of SFAS No. 157 as
it relates to financial assets and liabilities has not had a material impact on
our consolidated financial statements.





2.  Short-Term
Investments





As of
January 31, 2009 and February 2, 2008, we did not have any short-term
investments. As of February 3, 2007, short-term investments consisted of auction
rate debt and preferred stock securities. We sold all of our short-term
investments in auction rate debt and preferred stock securities during fiscal
2007.  Auction rate securities are term securities earning income at a
rate that is periodically reset, typically within 35 days, to reflect
current market conditions through an auction process. These securities were
classified as “available-for-sale” securities under the provisions of Statement
of Financial Accounting Standards No. 115, Accounting for Certain Investments
in Debt and Equity Securities(“SFAS No.
115”).Accordingly,
these short-term investments were recorded at fair-value, with any related
unrealized gains and losses included as a separate component of stockholders’
equity, net of tax.  Investment income is included in interest income
and was $4.0 million in fiscal 2007 and $6.4 million in fiscal
2006.  There was no investment income in fiscal 2008.





3.  Jimmy’Z Store Concept
Closing and Asset Impairment





On
February 23, 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 previously closed during fiscal 2008.





During
the fourth quarter of fiscal 2007, we reduced the carrying value of the assets
related to our Jimmy’Z store concept to fair value, and recorded asset
impairment charges of $9.0 million ($5.7 million after-tax, or $0.08 per diluted
share). These impairment charges were as a result of a review of the operating
performance, and changes in the forecasts of future performance, of each of the
fourteen Jimmy’Z stores. As a result of that review, we determined that each of
the 14 Jimmy’Z stores would not be able to recover the carrying value of the
store property and equipment through expected undiscounted cash flows over the
remaining life of the related assets.






37
 Table of Contents






4.  Other
Matters





In
January 2008, we learned that the SEC had issued a formal order of
investigation with respect to matters arising from the activities of Christopher
L. Finazzo, our former Executive Vice President and Chief Merchandising Officer,
as discussed below. The SEC’s investigation is a non-public, fact-finding
inquiry to determine whether any violations of law have occurred. We are
cooperating fully with the SEC in its investigation.





On
November 30, 2007, we entered into an agreement (the "Agreement") with Mr.
Finazzo settling disputes between us. In the fourth quarter of fiscal 2007,
pursuant to the terms of the Agreement, Mr. Finazzo paid us $5.0 million and in
turn, we paid to Mr. Finazzo approximately $0.9 million, which represented the
value of Mr. Finazzo’s benefits under our Supplemental Executive Retirement
Plan.  We recorded net other operating income of approximately $4.1
million in the fourth quarter of fiscal 2007.





On
November 8, 2006, we announced that Mr. Finazzo had been terminated for
cause, based upon information uncovered by management and after an independent
investigation was conducted at the direction, and under the supervision, of a
special committee of our Board of Directors. The investigation revealed that
Mr. Finazzo:





•
            concealed
      from management and our Board of Directors, and failed to disclose in
      corporate disclosure documents, his personal ownership interests in, and
      officer positions of, certain corporate entities affiliated with one of
      our primary vendors at the time, South Bay Apparel,
  Inc.,





•
            without
      the knowledge or authorization of our management, executed a corporate
      Guaranty Agreement in March 1999, that, had it been enforceable, would
      have obligated us to guarantee any payments due from South Bay Apparel,
      Inc. to Tricot Richelieu, Inc., an apparel manufacturer and vendor to
      South Bay Apparel, Inc., and





•
            failed
      to disclose unauthorized business relationships and transactions between
      immediate and extended family members of Mr. Finazzo and certain
      other of our vendors.





On
December 5, 2006, we entered into an agreement with South Bay Apparel, Inc.
and Douglas Dey, South Bay Apparel, Inc.’s President, whereby the parties
resolved certain outstanding matters between them. As such, South Bay Apparel,
Inc. paid us $8.0 million, representing (i) a concession of
$7.1 million by South Bay Apparel, Inc. and Mr. Dey concerning prior
purchases of merchandise by us, which was reflected as a reduction in the cost
of merchandise in fiscal 2006, and (ii) reimbursement by South Bay Apparel,
Inc. of $0.9 million, which offset professional fees that we incurred
associated with the negotiation of the Agreement and the investigation of the
underlying facts. In addition, South Bay Apparel, Inc. and Mr. Dey reduced
the price of merchandise sold to us to a price that we believed represented fair
value, based on costs of comparable merchandise. We also agreed to purchase
excess merchandise held at the time by South Bay Apparel, Inc.  Once
the excess inventory was fully depleted during the third quarter of fiscal 2007,
we ceased doing business with South Bay Apparel Inc.





5.  Fixtures,
Equipment and Improvements





Fixtures,
equipment and improvements consist of the following (in thousands):





January 31,
                  2009
                
                
                February 2,
                  2008Leasehold
      improvements
                
                $
                248,724
                
                
                $
                206,693Fixtures
      and equipment
                
                
                109,158
                
                
                
                92,297Computer
      equipment and software
                
                
                55,503
                
                
                
                37,655Construction
      in progress
                
                
                1,339
                
                
                
                2,330414,724
                
                
                
                338,975Less
      accumulated depreciation and amortization
                
                
                165,725
                
                
                
                125,144$
                248,999
                
                
                $
                213,831





Depreciation
and amortization expense was $45.8 million in fiscal 2008,
$36.8 million in fiscal 2007, and $30.0 million in fiscal
2006.  Included in depreciation and amortization expense are
Aéropostale store impairment charges of $3.7 million in fiscal
2008,  $1.7 million in fiscal 2007 and $0.1 million in fiscal
2006.







38
 Table of Contents






6.  Accrued
Expenses





Accrued
expenses consist of the following (in thousands):





January 31,
                  2009
                
                
                February 2,
                  2008Accrued
      compensation
                
                $
                30,043
                
                
                $
                23,076Accrued
      gift
      cards
                
                
                19,349
                
                
                
                16,965Accrued
      rent
                
                
                13,748
                
                
                
                11,025Income
      taxes
      payable
                
                
                10,862
                
                
                
                27,401Other
                
                
                24,188
                
                
                
                19,551$
                98,190
                
                
                $
                98,018





7.  Revolving
Credit Facility





In
November 2007, we entered into an amended and restated revolving credit facility
with Bank of America, N.A., as Lender which expanded availability from a maximum
of $75.0 million to $150.0 million (the “Credit
Facility”).   The Credit Facility provides for a
$150.0 million revolving credit line.  The Credit Facility is
available for working capital and general corporate purposes, including the
repurchase of the Company’s capital stock and for its capital
expenditures.  The Credit Facility is scheduled to expire on
November 13, 2012 and is guaranteed by all of our domestic subsidiaries
(the “Guarantors”).





Loans
under the Credit Facility are secured by all our assets and are guaranteed by
the Guarantors. 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 its 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; and•
            
            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 January 31, 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 January 31, 2009, we had no
outstanding balances or stand-by or commercial letters of credit issued under
the Credit Facility.





8.  Earnings
Per Share





In
accordance with Statement of Financial Accounting Standards No. 128,
Earnings Per Share(“SFAS No. 128”), basic earnings per share has been computed based upon
the weighted average of common shares during the applicable fiscal
year.  Diluted net income per share includes the additional dilutive
effect of our potentially dilutive securities, which include certain stock
options, restricted stock units and performance shares.






39
 Table of Contents






Earnings
per common share has been computed as follows (in thousands, except per share
data):





Fiscal2008
                        
                        
                        2007
                        
                        
                        2006Net
      income
                        
                        $
                        149,422
                        
                        
                        $
                        129,197
                        
                        
                        $
                        106,647Weighted
      average basic shares
                        
                        
                        66,832
                        
                        
                        
                        74,315
                        
                        
                        
                        79,928Impact
      of dilutive securities
                        
                        
                        744
                        
                        
                        
                        531
                        
                        
                        
                        709Weighted
      average diluted shares
                        
                        
                        67,576
                        
                        
                        
                        74,846
                        
                        
                        
                        80,637Per
      common share:Basic
      earnings per share
                        
                        $
                        2.24
                        
                        
                        $
                        1.74
                        
                        
                        $
                        1.33Diluted
      earnings per share
                        
                        $
                        2.21
                        
                        
                        $
                        1.73
                        
                        
                        $
                        1.32





Options
to purchase 1,048,509 shares in fiscal 2008, 511,000 shares in fiscal
2007, and 629,000 in fiscal 2006 were excluded from the computation of diluted
earnings per share because the exercise prices of the options were greater than
the average market price of the common shares.





9.  Stock-Based
Compensation





We have
stock option plans under which we may grant qualified and non-qualified stock
options to purchase shares of our common stock to executives, consultants,
directors, or other key employees. As of January 31, 2009, a total of
3,433,412 shares were available for future grant under our plans compared to a
total of 3,692,666 shares as of February 2, 2008. Stock options may not be
granted at less than the fair market value at the date of grant. Stock options
generally vest over four years on a pro rata basis and expire after eight years.
All outstanding stock options immediately vest upon change in
control.





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 our past four years of historical
volatilities.  We have 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 have 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 have 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 our historical forfeiture information.





In
accordance with SFAS No. 123(R), the fair value of each option grant
is estimated on the date of grant using the Black-Scholes option-pricing model
based on the following assumptions for grants in the respective
periods:





Fiscal2008
                
                
                2007
                
                
                2006Expected
      volatility
                
                
                43
                %
                
                
                45
                %
                
                
                50
                %Expected
      term
                
                5.25 years
                
                
                5.25 years
                
                
                5.25 yearsRisk-free
      interest rate
                
                
                2.68
                %
                
                
                4.49
                %
                
                
                4.86
                %Expected
      dividend yield
                
                
                0
                %
                
                
                0
                %
                
                
                0
                %Expected
      forfeiture rate
                
                
                25
                %
                
                
                25
                %
                
                
                20
                %





The
effects of applying SFAS No. 123(R) and the use of the Black-Scholes
option-pricing model results in estimates that may not necessarily be indicative
of future values.





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).






40
 Table of Contents






Stock
Options





The
following tables summarize stock option transactions for common stock for fiscal
2008:





Shares
              
              
              Weighted
      Average
                Exercise Price
              
              
              Weighted-Average
                Remaining
                Contractual Term
              
              
              Aggregate
                Intrinsic
                Value(In
      thousands)
              
              
              
              
              
              (In years)
              
              
              (In
      millions)Outstanding
      as of February 2, 2008
              
              
              1,659
              
              
              $
              19.58Granted
              
              
              109
              
              
              $
              28.57Exercised
              
              
              (251
              )
              
              $
              14.94Cancelled
              
              
              (67
              )
              
              $
              23.71Outstanding
      as of January 31, 2009
              
              
              1,450
              
              
              $
              20.87
              
              
              
              4.91
              
              
              $
              3.9Exercisable
      as of January 31, 2009
              
              
              717
              
              
              $
              17.11
              
              
              
              3.90
              
              
              $
              3.6





We
recognized $3.7 million in compensation expense related to stock options in
fiscal 2008, $4.7 million in fiscal 2007 and $3.7 million in fiscal
2006.  The weighted-average grant-date fair value of options granted
was $12.10 during fiscal 2008, $12.35 during fiscal 2007, and $9.73 during
fiscal 2006. The intrinsic value of options exercised was $1.7 million in
fiscal 2008, $15.4 million in fiscal 2007, and $19.3 million in fiscal
2006.





The
following tables summarize information regarding non-vested outstanding stock
options as of January 31, 2009:





Shares
              
              
              Weighted
      Average
                Grant-Date
                Fair Value(In
      thousands)Non-vested
      as of February 2, 2008
              
              
              1,120
              
              
              $
              10.80Granted
              
              
              109
              
              
              $
              12.10Vested
              
              
              (437
              )
              
              $
              10.23Cancelled
              
              
              (59
              )
              
              $
              11.19Non-vested
      as of January 31, 2009
              
              
              733
              
              
              $
              11.31





As of
January 31, 2009, there was $5.2 million of total unrecognized
compensation cost related to non-vested options that we expect to be recognized
over the remaining weighted-average vesting period of
2.1 years.  We expect to recognize $2.7 million of this cost
in fiscal 2009, $1.9 million in fiscal 2010, $0.5 million in fiscal
2011, and $0.1 million in fiscal 2012. Based on our forfeiture experience,
we expect that approximately 587 of the above non-vested options will
vest.





Non-Vested
Stock





Certain
of our employees and all of our directors have been awarded non-vested stock,
pursuant to non-vested stock agreements. The non-vested stock awarded to
employees cliff vest after up to three years of continuous service with us.
Initial grants of non-vested stock awarded to directors vest, pro-rata, over a
three-year period, based upon continuous service. Subsequent grants of
non-vested stock awarded to directors vest in full one year after the
grant-date.





The
following table summarizes non-vested shares of stock outstanding at
January 31, 2009:





Shares
              
              
              Weighted-
                Average
                Grant-Date
                Fair Value(In
      thousands)Outstanding
      as of February 2, 2008
              
              
              907
              
              
              $
              24.31Granted
              
              
              164
              
              
              $
              28.65Vested
              
              
              (313
              )
              
              $
              24.76Cancelled
              
              
              (30
              )
              
              $
              23.69Outstanding
      as of January 31, 2009
              
              
              728
              
              
              $
              25.13





Total
compensation expense is being amortized over the vesting period. Compensation
expense was $11.4 million for fiscal 2008, $4.1 million for fiscal
2007 and $2.2 million for fiscal 2006. As of January 31, 2009, there
was $6.7 million of unrecognized compensation cost related to non-vested
stock awards that is expected to be recognized over the weighted average period
of 1.0 year.






41
 Table of Contents






Performance
Shares





Certain
of our executives have been awarded performance shares, pursuant to performance
shares agreements. The performance shares vest at the end of three years of
continuous service with us, and the number of shares ultimately awarded is
contingent upon meeting various cumulative consolidated earnings targets.
Compensation cost for the performance shares assumes that the performance goals
targets will be achieved. If the probability of achieving targets changes,
compensation cost will be adjusted in the period that the probability of
achievement changes.





The
following table summarizes performance shares of stock outstanding at
January 31, 2009:





Shares
              
              
              Weighted-
                Average
                Grant-Date
                Fair Value(In
      thousands)Outstanding
      as of February 2, 2008
              
              
              76
              
              
              $
              26.73Granted
              
              
              42
              
              
              $
              28.29Vested
              
              
              —
              
              
              
              —Cancelled
              
              
              —
              
              
              
              —Other
              
              
              41
              
              
              $
              27.33Outstanding
      as of January 31, 2009
              
              
              159
              
              
              $
              27.30





Total
compensation expense is being amortized over the vesting period. Compensation
expense was $1.5 million for fiscal 2008, $0.6 million for fiscal 2007 and
none in fiscal 2006. As of January 31, 2009, there was $2.1 million of
unrecognized compensation cost related to performance shares awards that is
expected to be recognized over the weighted average period of
1.5 years.





10.  Retirement
Benefit Plans





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
gross earnings and we will provide a matching contribution of 50% of the first
5% of gross earnings contributed by the participants. We also have the option to
make additional contributions. The terms of the plan provide for vesting in our
matching contributions to the plan over a five-year service period with 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. Contribution expense was $0.8 million in fiscal 2008,
$0.7 million in fiscal 2007 and $0.8 million in fiscal
2006.





We
adopted SFAS No. 158 in fiscal 2006, which impacted our Supplemental
Executive Retirement Plan (“SERP”), and our postretirement benefit plan. Since
the full recognition of the funded status of an entity’s defined benefit pension
plan is recorded on the balance sheet, an additional minimum liability (“AML”)
is no longer recorded under SFAS No. 158. However, because the
recognition provisions of SFAS No. 158 were adopted in fiscal 2006, we
first measured and recorded changes to our previously recognized AML through
other comprehensive income and then applied the recognition provisions of
SFAS No. 158 through accumulated other comprehensive income to fully
recognize the funded status of our defined benefit pension plans.





Our SERP
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 fully 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.








42
 Table of Contents







The
following information about the SERP is provided below (in
thousands):





January 31,
                      2009
                    
                    
                    February 2,
                      2008CHANGE
      IN BENEFIT OBLIGATION:Benefit
      obligation at beginning of period
                    
                    $
                    17,830
                    
                    
                    $
                    15,147Service
      cost
                    
                    
                    655
                    
                    
                    
                    534Interest
      cost
                    
                    
                    1,146
                    
                    
                    
                    901Plan
      amendments
                    
                    
                    —
                    
                    
                    
                    —Actuarial
      loss
                    
                    
                    1,593
                    
                    
                    
                    1,248Benefits
      paid
                    
                    
                    —
                    
                    
                    
                    —Settlements
                    
                    
                    —
                    
                    
                    
                    —Special
      termination benefits
                    
                    
                    —
                    
                    
                    
                    —Benefit
      obligation at end of period
                    
                    $
                    21,224
                    
                    
                    $
                    17,830CHANGE
      IN PLAN ASSETS:Fair
      value of plan assets at beginning of period
                    
                    $
                    —
                    
                    
                    $
                    —Actual
      return on plan assets
                    
                    
                    —
                    
                    
                    
                    —Employer
      contributions
                    
                    
                    —
                    
                    
                    
                    —Benefits
      paid
                    
                    
                    —
                    
                    
                    
                    —Settlements
                    
                    
                    —
                    
                    
                    
                    —Fair
      value of plan assets at end of period
                    
                    $
                    —
                    
                    
                    $
                    —Funded
      status at end of period
                    
                    $
                    (21,224
                    )
                    
                    $
                    (17,830
                    )AMOUNTS
      RECOGNIZED IN THE STATEMENT OF FINANCIAL POSITION:Noncurrent
      assets
                    
                    $
                    —
                    
                    
                    $
                    —Current
      liabilities
                    
                    
                    —
                    
                    
                    
                    —Noncurrent
      liabilities
                    
                    
                    (21,224
                    )
                    
                    
                    (17,830
                    )$
                    (21,224
                    )
                    
                    $
                    (17,830
                    )AMOUNTS
      RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE LOSS:Net
      loss
                    
                    $
                    9,107
                    
                    
                    $
                    8,108Prior
      service cost
                    
                    
                    833
                    
                    
                    
                    907Total
                    
                    $
                    9,940
                    
                    
                    $
                    9,015INFORMATION
      FOR PENSION PLANS WITH AN ACCUMULATED BENEFIT OBLIGATION IN EXCESS OF PLAN
      ASSETS:Projected
      benefit obligation
                    
                    $
                    21,224
                    
                    
                    $
                    17,830Accumulated
      benefit obligation
                    
                    
                    17,240
                    
                    
                    
                    13,294Fair
      value of plan assets
                    
                    
                    —
                    
                    
                    
                    —






43
 Table of Contents






Pension
expense includes the following components (in thousands):





Fiscal2008
                        
                        
                        2007
                        
                        
                        2006COMPONENTS
      OF NET PERIODIC BENEFIT COST:Service
      cost
                        
                        $
                        655
                        
                        
                        $
                        534
                        
                        
                        $
                        492Interest
      cost
                        
                        
                        1,146
                        
                        
                        
                        901
                        
                        
                        
                        932Expected
      return on plan assets
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —Amortization
      of prior service cost
                        
                        
                        74
                        
                        
                        
                        74
                        
                        
                        
                        74Amortization
      of net loss
                        
                        
                        594
                        
                        
                        
                        421
                        
                        
                        
                        568Net
      periodic benefit cost
                        
                        $
                        2,469
                        
                        
                        $
                        1,930
                        
                        
                        $
                        2,066OTHER
      CHANGES IN PLAN ASSETS AND BENEFIT OBLIGATIONS RECOGNIZED IN OTHER
      COMPREHENSIVE LOSS:Net
      loss
                        
                        $
                        1,593
                        
                        
                        $
                        1,248
                        
                        
                        
                        N/APrior
      service cost
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        N/AAmortization
      of loss
                        
                        
                        (594
                        )
                        
                        
                        (421
                        )
                        
                        
                        N/AAmortization
      of prior service cost
                        
                        
                        (74
                        )
                        
                        
                        (74
                        )
                        
                        
                        N/AChange
      in Additional Minimum Liability prior to application of SFAS No.
      158
                        
                        
                        N/A
                        
                        
                        
                        N/A
                        
                        
                        
                        (253
                        )Total
      recognized in other comprehensive loss
                        
                        $
                        925
                        
                        
                        $
                        753
                        
                        
                        $
                        (253
                        )Total
      recognized in net periodic benefit cost and other comprehensive
      loss
                        
                        $
                        3,394
                        
                        
                        $
                        2,683
                        
                        
                        $
                        1,813WEIGHTED-AVERAGE
      ASSUMPTIONS USED:Discount
      rate to determine benefit obligations
                        
                        
                        6.75
                        %
                        
                        
                        5.75
                        %
                        
                        
                        5.75
                        %Discount
      rate to determine net periodic pension cost
                        
                        
                        5.75
                        %
                        
                        
                        5.75
                        %
                        
                        
                        5.50
                        %Rate
      of compensation increase
                        
                        
                        4.50
                        %
                        
                        
                        4.50
                        %
                        
                        
                        4.50
                        %





The
estimated net loss and prior service cost for the defined benefit pension plan
that will be amortized from accumulated other comprehensive income into net
periodic benefit cost over the next fiscal year are $544,000 and $74,000,
respectively.  The estimated net loss and prior service cost for the
other postretirement plan that will be amortized from accumulated other
comprehensive income into net periodic benefit cost over the next fiscal year
are $5,000 and $17,000, respectively.





The
discount rate was determined by matching a published set of zero coupon yields
and associated durations to expected plan benefit payment streams to obtain an
implicit internal rate of return.





We
currently do not expect to make any contributions to the SERP in fiscal 2009. We
project making a benefit payment of approximately $16.9 million in 2010,
which assumes expected future service until retirement at
age 65.





We have a
long-term incentive deferred compensation plan established for the purpose of
providing long-term incentives to a select group of management, with liabilities
of $0.6 million as of January 31, 2009 and $0.4 million at
February 2, 2008. The plan is a non-qualified, defined contribution plan
and is not funded. Participants in this plan include all employees designated by
us as Vice President, or other higher-ranking positions that are not
participants in the SERP. We record annual monetary credits 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 have a
postretirement benefit plan for certain executives.  The projected
benefit obligation of $0.7 million is recorded as a liability as of
January 31, 2009 and February 2, 2008.





11.  Stock
Repurchase Program





We
repurchase our common stock from time to time under a stock repurchase
program.  The repurchase program may be modified or terminated by the
Board of Directors at any time, and there is no expiration date for the program.
The extent and timing of repurchases will depend upon general business and
market conditions, stock prices, opening and closing of the stock trading
window, and liquidity and capital resource requirements going
forward.  During fiscal 2008, we repurchased 0.2 million shares for
$6.7 million, as compared to repurchases of 11.7 million shares for
$266.7 million during fiscal 2007 and 4.7 million shares for $91.4 million
during fiscal 2006.






44
 Table of Contents






As of
January 31, 2009, we have approximately $127.1 million of repurchase
authorization remaining under our $600.0 million share repurchase
program.





12.  Income
Taxes





The
provision for income taxes consists of the following (in
thousands):





Fiscal2008
                        
                        
                        2007
                        
                        
                        2006Current:Federal
                        
                        $
                        78,823
                        
                        
                        $
                        77,489
                        
                        
                        $
                        63,561State
      and
      local
                        
                        
                        17,376
                        
                        
                        
                        15,227
                        
                        
                        
                        15,096Foreign
                        
                        
                        166
                        
                        
                        
                        80
                        
                        
                        
                        —96,365
                        
                        
                        
                        92,796
                        
                        
                        
                        78,657Deferred:Federal
                        
                        
                        4,012
                        
                        
                        
                        (8,831
                        )
                        
                        
                        (8,253
                        )State
      and
      local
                        
                        
                        (756
                        )
                        
                        
                        (3,775
                        )
                        
                        
                        (2,221
                        )Foreign
                        
                        
                        (234
                        )
                        
                        
                        (384
                        )
                        
                        
                        —3,022
                        
                        
                        
                        (12,990
                        )
                        
                        
                        (10,474
                        )$
                        99,387
                        
                        
                        $
                        79,806
                        
                        
                        $
                        68,183





Reconciliation
of the U.S. statutory tax rate with our effective tax rate is summarized as
follows:





Fiscal2008
                        
                        
                        2007
                        
                        
                        2006Federal
      statutory rate
                        
                        
                        35.0
                        %
                        
                        
                        35.0
                        %
                        
                        
                        35.0
                        %Increase
      (decrease) in tax resulting from:State
      income taxes, net of federal tax
      benefits
                        
                        
                        4.2
                        
                        
                        
                        3.6
                        
                        
                        
                        4.8Other
                        
                        
                        0.7
                        
                        
                        
                        (0.4
                        )
                        
                        
                        (0.8
                        )Effective
      rate
                        
                        
                        39.9
                        %
                        
                        
                        38.2
                        %
                        
                        
                        39.0
                        %





The
components of the net deferred income tax assets are as follows (in
thousands):





January 31,
                      2009
                    
                    
                    February 2,
                      2008Current:Inventory
                    
                    $
                    1,212
                    
                    
                    $
                    543Unredeemed
      gift cards
                    
                    
                    1,261
                    
                    
                    
                    7,485Accrued
      compensation
                    
                    
                    7,597
                    
                    
                    
                    4,393Other
                    
                    
                    675
                    
                    
                    
                    540$
                    10,745
                    
                    
                    $
                    12,961Non-current:Furniture,
      equipment and improvements
                    
                    $
                    (11,813
                    )
                    
                    $
                    (6,677
                    )Retirement
      benefit plan liabilities
                    
                    
                    8,901
                    
                    
                    
                    7,172Stock-based
      compensation
                    
                    
                    6,887
                    
                    
                    
                    4,687Deferred
      rent and tenant allowances
                    
                    
                    3,720
                    
                    
                    
                    4,507Net
      operating loss carry-forwards (“NOL’s”)
                    
                    
                    2,364
                    
                    
                    
                    2,138Valuation
      allowances for NOL’s
                    
                    
                    (551
                    )
                    
                    
                    (462
                    )Insurance
      reserves
                    
                    
                    1,694
                    
                    
                    
                    —Other
                    
                    
                    1,307
                    
                    
                    
                    1,70812,509
                    
                    
                    
                    13,073Net
      deferred income tax assets
                    
                    $
                    23,254
                    
                    
                    $
                    26,034





As of
January 31, 2009, we had approximately $37.1 million of NOL’s from certain
states that were generated principally by our Jimmy’Z subsidiary and
approximately $1.7 million of foreign NOL’s generated by our Canadian and Puerto
Rico subsidiaries.  The NOL’s will expire between 2011 and
2028.  We have recorded valuation allowances against certain of the
state NOL’s.  Subsequent recognition of these deferred tax assets that
were previously reduced by valuation allowances would result in an income tax
benefit in the period of such recognition.






45
 Table of Contents






We have
not recognized any United States (“U.S.”) tax expense on undistributed foreign
earnings as they are intended to be indefinitely reinvested outside of the
U.S.





On
February 4, 2007, the first day of our 2007 fiscal year, we adopted FIN No. 48,
which clarifies the accounting and disclosure for uncertainty in income taxes.
As a result of the adoption, we recorded a decrease to beginning retained
earnings of approximately $0.2 million and increased our net liabilities for
uncertain tax positions and related interest and penalties by a corresponding
amount.  As of the adoption date, we recorded liabilities of $10.7
million for uncertain tax positions, which includes interest and penalties. Also
as of the adoption date, we recorded deferred tax assets of $7.9 million for
federal and, if applicable, state benefits related to the uncertain tax
positions. Net uncertain tax positions of $2.8 million as of the adoption date,
$2.4 million as of February 2, 2008 and $2.6 million as of January 31, 2009,
which is inclusive of interest and penalties, would favorably impact our
effective tax rate if these net liabilities were reversed.





We
recognize interest and, if applicable, penalties, which could be assessed,
related to uncertain tax positions in income tax expense. As of the adoption
date, the total amount of accrued interest and penalties was $1.7 million before
federal and, if applicable, state effect. We recorded approximately $0.3 million
and $0.2 million in additional interest and penalties, before federal and,
if applicable, state tax effect in fiscal 2008 and 2007, respectively. We
had liabilities for accrued interest and penalties of $0.7 million as of January
31, 2009 and $2.0 million as of February 2, 2008.





In May
2007, the FASB issued FASB Staff Position No. FIN 48-1, “Definition of
Settlement in FASB Interpretation No. 48” (“FSP FIN 48-1”).  This FSP
amends FIN 48 to provide guidance on how an enterprise should determine whether
a tax position is effectively settled for the purpose of recognizing previously
unrecognized tax benefits.  There was no impact to our financial
statements in connection with the adoption of this guidance.





Below is
a reconciliation of the beginning and ending amount of the gross unrecognized
tax benefits relating to uncertain tax positions, which are recorded in our
Consolidated Balance Sheets.





Unrecognized Tax Benefits
                  (in thousands)Balance
      at February 3, 2007
                
                $
                8,956Increases
      due to tax positions related to prior
      years
                
                
                94Increases
      due to tax positions related to current
      year
                
                
                448Increases
      due to settlements with taxing
      authorities
                
                
                286Decreases
      due to tax positions related to prior
      years
                
                
                (78
                )Decreases
      due to expiration  of statute of
      limitations
                
                
                (112
                )Balance
      at February 2, 2008
                
                $
                9,594Increases
      due to tax positions related to prior
      years
                
                
                485Increases
      due to tax positions related to current
      year
                
                
                316Increases
      due to settlements with taxing
      authorities
                
                
                229Decreases
      due to settlements with taxing
      authorities
                
                
                (8,487
                )Decreases
      due to tax positions related to prior
      years
                
                
                (180
                )Decreases
      due to expiration  of statute of
      limitations
                
                
                (20
                )Balance
      at January 31, 2009
                
                $
                1,937





We file
U.S. and Canadian federal and various state and provincial income tax
returns.  Our U.S. federal filings for the years 2002 through 2005
were examined by the IRS and were  settled  in the fourth
quarter of fiscal 2007.  We paid approximately $7.7 million relating
to this settlement in the first quarter of fiscal 2008.  This
liability was included in the above balance of uncertain tax position
liabilities at February 2, 2008, which was included in accrued expenses on our
consolidated balance sheet as of that date.  The examination liability
related to the timing of taxable revenue from non-redeemed gift
cards.  Our tax returns remain open for examination generally for our
2005 through 2007 tax years by various taxing authorities.  However,
certain states may keep their statute open for six to ten years.





13.  Commitments
and Contingencies





We are
committed under non-cancelable leases for our entire store, distribution centers
and office space locations, which generally provide for minimum rent plus
additional increases in real estate taxes, certain operating expenses, etc.
Certain leases also require contingent rent based on sales.








46
 Table of Contents






The
aggregate minimum annual real estate rent commitments as of January 31,
2009 are as follows (in thousands):





Due in Fiscal Year
                    
                    Total2009
                    
                    $
                    98,7822010
                    
                    
                    95,3772011
                    
                    
                    90,8682012
                    
                    
                    84,8722013
                    
                    
                    77,766Thereafter
                    
                    
                    198,522Total
                    
                    $
                    646,187





Additionally,
as of January 31, 2009, we were committed to equipment leases in aggregate of
$4.2 million through fiscal 2012.




Rental
expense consists of the following (in thousands):





Fiscal2008
                        
                        
                        2007
                        
                        
                        2006Minimum
      rentals for
      stores
                        
                        $
                        88,031
                        
                        
                        $
                        77,640
                        
                        
                        $
                        69,733Contingent
      rentals
                        
                        
                        18,793
                        
                        
                        
                        13,384
                        
                        
                        
                        12,164Office
      space
      rentals
                        
                        
                        3,923
                        
                        
                        
                        2,819
                        
                        
                        
                        2,255Distribution
      centers
      rentals
                        
                        
                        3,181
                        
                        
                        
                        3,080
                        
                        
                        
                        1,539Equipment
      rentals
                        
                        
                        1,981
                        
                        
                        
                        1,234
                        
                        
                        
                        408





Employment Agreements —
As of January 31, 2009, we had outstanding employment agreements with
certain members of our senior management totaling $20.8 million. These
employment agreements expire at the end of fiscal 2009 through March 2010,
except for the employment agreement with our Chairman and Chief Executive
Officer, which expires at the end of fiscal 2010.





Legal Proceedings — In
January 2008, we learned that the SEC had issued a formal order of
investigation with respect to matters arising from the activities of Christopher
L. Finazzo, our former Executive Vice President and Chief Merchandising Officer.
The SEC’s investigation is a non-public, fact-finding inquiry to determine
whether any violations of law have occurred. We are cooperating fully with the
SEC in its investigation.





On
November 30, 2007, we entered into an agreement (the "Agreement") with Mr.
Finazzo settling disputes between us. Pursuant to the terms of the Agreement,
Mr. Finazzo has paid us $5.0 million, and in turn, we paid Mr. Finazzo,
simultaneously with his payment to us, approximately $0.9 million, which
represented the value of Mr. Finazzo’s benefits under the our Supplemental
Executive Retirement Plan.





On
December 5, 2006, we entered into an agreement with South Bay Apparel, Inc.
and Douglas Dey, South Bay Apparel, Inc.’s President, whereby the parties
resolved certain outstanding matters between them. As such, South Bay Apparel,
Inc. paid us $8.0 million, representing (i) a concession of
$7.1 million by South Bay Apparel, Inc. and Mr. Dey concerning prior
purchases of merchandise by us, which was reflected as a reduction in the cost
of merchandise in fiscal 2006, and (ii) reimbursement by South Bay Apparel,
Inc. of $0.9 million, which offset professional fees that we incurred
associated with the negotiation of the Agreement and the investigation of the
underlying facts associated with those outstanding matters.





We are
also 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.





Guarantees — We had no
financial guarantees outstanding at January 31, 2009.  We had no
commercial commitments outstanding as of January 31, 2009.






47
 Table of Contents






14.  Selected
Quarterly Financial Data (Unaudited)





The
following table sets forth certain unaudited quarterly financial information (in
thousands, except per share amounts):





13
      Weeks EndedMay 3,
                    2008
                  
                  
                  August 2,
                    2008
                  
                  
                  November 1,
                    2008
                  
                  
                  January 31,
                    2009Fiscal 2008Net
      sales
                  
                  $
                  336,332
                  
                  
                  $
                  377,145
                  
                  
                  $
                  482,037
                  
                  
                  $
                  690,017Gross
      profit
                  
                  
                  111,278
                  
                  
                  
                  125,936
                  
                  
                  
                  173,451
                  
                  
                  
                  243,517Net
      income
                  
                  
                  17,498
                  
                  
                  
                  21,053
                  
                  
                  
                  42,646
                  
                  
                  
                  68,225Basic
      earnings per share
                  
                  
                  0.26
                  
                  
                  
                  0.31
                  
                  
                  
                  0.64
                  
                  
                  
                  1.02Diluted
      earnings per share
                  
                  
                  0.26
                  
                  
                  
                  0.31
                  
                  
                  
                  0.63
                  
                  
                  
                  1.01





13
      Weeks EndedMay 5,
                    2007
                  
                  
                  August 4,
                    2007
                  
                  
                  November 3,
                    2007
                  
                  
                  February 2,
                    2008(1)Fiscal 2007Net
      sales
                  
                  $
                  275,782
                  
                  
                  $
                  311,236
                  
                  
                  $
                  412,576
                  
                  
                  $
                  591,289Gross
      profit
                  
                  
                  88,703
                  
                  
                  
                  96,878
                  
                  
                  
                  143,844
                  
                  
                  
                  223,778Net
      income
                  
                  
                  13,752
                  
                  
                  
                  14,702
                  
                  
                  
                  36,008
                  
                  
                  
                  64,735Basic
      earnings per share
                  
                  
                  0.18
                  
                  
                  
                  0.19
                  
                  
                  
                  0.48
                  
                  
                  
                  0.96Diluted
      earnings per share
                  
                  
                  0.18
                  
                  
                  
                  0.19
                  
                  
                  
                  0.48
                  
                  
                  
                  0.95


__________





(1)
            —
      Includes gift card breakage income of $7.7 million ($4.8 million, after
      tax, or $0.06 per diluted share), other operating income of
      $4.1 million ($2.6 million, after tax, or $0.04 per diluted
      share) as a result of an agreement with our former Executive Vice
      President and Chief Merchandising Officer, partially offset by Jimmy’Z
      asset impairment charge of $9.0 million ($5.7 million, after tax, or $0.08
      per diluted share).








Item 9.Changes in and Disagreements with Accountant on Accounting and Financial
Disclosure





None





Item 9A.Controls and
Procedures





Management’s
Report On Internal Control Over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as defined in Rules 13a-15(f) and
15d-15(f) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). Our internal control over financial reporting is a process designed to
provide reasonable assurance to our management and board of directors regarding
reliability of financial reporting and the preparation and fair presentation of
published financial statements in accordance with generally accepted accounting
principles.





All
internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation. Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. In
addition, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in
condition, or that the degree of compliance with policies or procedures may
deteriorate.





Our
management assessed the effectiveness of our internal control over financial
reporting as of January 31, 2009. In making this assessment, management
used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control — Integrated
Framework.Based on that assessment, our management believes that, as of
January 31, 2009, our internal control over financial reporting is
effective.








48
 Table of Contents






Evaluation
of Disclosure Controls and Procedures





Pursuant
to Rule 13a-15(b) under 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 fiscal year ended January 31, 2009, our
disclosure controls and procedures are effective.





Changes
in Internal Controls over Financial Reporting





There
have been no changes in our internal controls or in other factors during our
fourth fiscal quarter that materially affected, or are reasonably likely to
materially affect our internal controls over financial reporting.





Item 9B.Other
Information





None




PART III





Item 10.Directors,
Executive Officers and Corporate Governance of the Registrant





Information
with respect to this item is incorporated by reference from our definitive Proxy
Statement to be filed with the SEC not later than 120 days after the end of
our fiscal year.





Item 11.Executive
Compensation





Information
with respect to this item is incorporated by reference from our definitive Proxy
Statement to be filed with the SEC not later than 120 days after the end of
our fiscal year.





Item 12.Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters





Equity
Compensation Plan Information





The
following table provides certain information, as of January 31, 2009, about
our common stock that may be issued upon the exercise of options, warrants and
rights, as well as the issuance of restricted shares granted to employees,
consultants or members of our Board of Directors, under our two existing equity
compensation plans, the Aéropostale, Inc. 1998 Stock Option Plan and the
Aéropostale, Inc. 2002 Long-Term Incentive Plan.





Plan Category
                  
                  Number
      of Securities
                    to
      be Issued Upon Exercise of
                    Outstanding
      Options,
                    Warrants
      and Rights
                    (a)
                  
                  
                  Weighted-Average
                    Exercise
      Price of
                    Outstanding
                    Options,
      Warrants
                    and Rights
                    (b)
                  
                  
                  Number
      of Securities
                    Remaining
      Available
                    for
      Future Issuance
                    Under Equity
                    Compensation
      Plans
                    (Excluding
      Securities
                    Reflected
      in Column (a)(c)Equity
      compensation plans approved by security holders
                  
                  
                  2,336,575
                  
                  
                  $
                  22.63
                  
                  
                  
                  3,433,412Equity
      compensation plans not approved by security holders
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Total
                  
                  
                  2,336,575
                  
                  
                  $
                  22.63
                  
                  
                  
                  3,433,412





Item 13.Certain
Relationships and Related Transactions, and Director Independence





Information
with respect to this item is incorporated by reference from our definitive Proxy
Statement to be filed with the SEC not later than 120 days after the end of
our fiscal year.







49
 Table of Contents






Item 14.Principal Accountant
Fees and Services





Information
with respect to this item is incorporated by reference from our definitive Proxy
Statement to be filed with the SEC not later than 120 days after the end of
our fiscal year.





PART IV





Item 15.Exhibits and Financial
Statement Schedules





(a)
            1.
            The
      financial statements listed in the “Index to Consolidated Financial
      Statements” at page 27 are filed as a part of this Annual Report on
      Form 10-K2.
            Financial
      statement schedules are omitted because they are not applicable or the
      required information is shown in the financial statements or notes
      thereto3.
            Exhibits
      included or incorporated herein:
              See
      Exhibit Index





50
 Table of Contents


EXHIBIT INDEX


Exhibit
              No.
            Description3.1
            Form
      of Amended and Restated Certificate of
Incorporation.(1)3.2
            Form
      of Amended and Restated By-Laws. (1)4.1
            Specimen
      Common Stock Certificate. (1)10.1
            Aéropostale,
      Inc. Amended and Restated 1998 Stock Option Plan. (2)**10.2
            Aéropostale,
      Inc. Amended and Restated 2002 Long-Term Incentive Plan.
    (2)**10.3
            Employment
      Agreement, dated as of February 1, 2007, between Aéropostale, Inc.
      and Michael J. Cunningham.(3)**10.4
            Employment
      Agreement, dated as of February 1, 2007, between Aéropostale, Inc.
      and Thomas P. Johnson.(3)**10.5
            Employment
      Agreement, dated as of February 1, 2007, between Aéropostale, Inc.
      and Olivera Lazic-Zangas.(3)**10.6
            Employment
      Agreement, effective March 16, 2007, between Aéropostale, Inc. and
      Mindy Meads.(4)**10.7
            Second
      Amended and Restated Loan and Security Agreement, dated November 13, 2007,
      by and between Bank of America, N.A. and Aéropostale,
    Inc.(5)10.8
            Collared
      Forward Repurchase Agreement, dated November 12, 2007, by and between Bank
      of America, N.A. and Aéropostale, Inc.(5)10.9
            Employment
      Agreement, dated as of January 30, 2008, between Aéropostale, Inc. and
      Julian R. Geiger.(6)**21
            Subsidiaries
      of the Company.*23.1
            Consent
      of Deloitte & Touche LLP.*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.***


__________





*
            Filed
      herewith.**
            Management
      contract or compensatory plan.***
            Furnished,
      not filed.(1)
            Incorporated
      by reference to the Registration Statement on Form S-1, as amended,
      originally filed by Aéropostale, Inc. on March 8, 2002 (Registration
      No. 333-84056).(2)
            Incorporated
      by reference to the Registrant’s Proxy Statement, dated May 5, 2006 (File
      No. 001-31314).(3)
            Incorporated
      by reference to the Registrant’s Current Report on Form 8-K, dated
      February 6, 2007 (File No. 001-31314).(4)
            Incorporated
      by reference to the Registrant’s Current Report on Form 8-K, dated
      March 8, 2007 (File No. 001-31314).(5)
            Incorporated
      by reference to the Registrant’s Current Report on Form 8-K, dated
      November 15, 2007 (File No. 001-31314).(6)
            Incorporated
      by reference to the Registrant’s Current Report on Form 8-K, dated
      January 31, 2008 (File
No. 001-31314).








51
 Table of Contents








SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) 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.





By:        /s/JULIAN
R.
GEIGER


Julian R. Geiger


Chairman, Chief Executive Officer, and
Director





Date:
March 30, 2009





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons, on behalf of the Registrant, and in the
capacities and on the dates indicated.




Signature
                              Title
                              Date/s/  JULIAN
      R. GEIGER
                              Chairman,
      Chief Executive
                              March 30,
      2009Julian
      R. Geiger
                              Officer,
      and Director(Principal
      Executive Officer)/s/  MICHAEL
      J. CUNNINGHAM
                              Executive
      Vice President
                              March 30,
      2009Michael
      J. Cunningham
                              and
      Chief Financial Officer(Principal
      Financial Officer)/s/  ROSS
      A. CITTA
                              Group
      Vice President
                              March 30,
      2009Ross
      A. Citta
                              and
      Chief Accounting Officer(Principal
      Accounting Officer)/s/  BODIL
      ARLANDER
                              Director
                              March 30,
      2009Bodil
      Arlander/s/  RONALD
      R. BEEGLE
                              Director
                              March 30,
      2009Ronald
      R. Beegle/s/  ROBERT
      B. CHAVEZ
                              Director
                              March 30,
      2009Robert
      B. Chavez/s/  EVELYN
      DILSAVER
                              Director
                              March 30,
      2009Evelyn
      Dilsaver/s/  JOHN
      N. HAUGH
                              Director
                              March 30,
      2009John
      N. Haugh/s/  KARIN
      HIRTLER — GARVEY
                              Director
                              March 30,
      2009Karin
      Hirtler — Garvey/s/  JOHN
      D. HOWARD
                              Director
                              March 30,
      2009John
      D. Howard/s/  THOMAS
      P. JOHNSON
                              Executive
      Vice President, Chief
                              March 30,
      2009Thomas
      P. Johnson
                              Operating
      Office and Director/s/  MINDY
      C. MEADS
                              President,
      Chief Merchandising
                              March 30,
      2009Mindy
      C. Meads
                              Officer
      and Director/s/  DAVID
      B. VERMYLEN
                              Director
                              March 30,
      2009David
      B. Vermylen







52
 Table of Contents


AÉROPOSTALE,
INC.





SCHEDULE II


VALUATION
AND QUALIFYING ACCOUNTS





Reserve for Sales Returns:
              
              Balance
      Beginning
                of Period
              
              
              Amounts
      Charged
                to Net Income
              
              
              Write-offs
      Against
                Reserve
              
              
              Balance
      End
                of Period(In
      thousands)Year
      Ended January 31,
      2009
              
              $
              641
              
              
              $
              939
              
              
              $
              728
              
              
              $
              852Year
      Ended February 2,
      2008
              
              $
              630
              
              
              $
              569
              
              
              $
              558
              
              
              $
              641Year
      Ended February 3,
      2007
              
              $
              654
              
              
              $
              512
              
              
              $
              536
              
              
              $
              630








Valuation Allowance for State Deferred Tax
      Assets:
              
              Balance
      Beginning
                of Period
              
              
              Amounts
      Charged
                to Net Income
              
              
              Write-offs
      Against
                Reserve
              
              
              Balance
      End
                of Period(In
      thousands)Year
      Ended January 31,
      2009
              
              $
              462
              
              
              $
              89
              
              
              $
              —
              
              
              $
              551Year
      Ended February 2,
      2008
              
              $
              652
              
              
              $
              (190
              )
              
              $
              —
              
              
              $
              462Year
      Ended February 3,
      2007
              
              $
              229
              
              
              $
              423
              
              
              $
              —
              
              
              $
              652







53