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Aeropostale, Inc. (ARO)

Q3 2012 Earnings Call

November 28, 2012 4:15 p.m. ET


Kenneth Ohashi - Vice President of Investor and Media Relations

Thomas Johnson - Chief Executive Officer

Marc Miller - Executive Vice President and Chief Financial Officer

Michael Cunningham - President

Emilia Fabricant - Executive Vice President, Aéropostale brand


Edward Yruma - KeyBanc Capital Markets

Anna Andreeva - FBR Capital Markets

Janet Kloppenburg - JJK Research

Lorraine Hutchinson - Bank of America Merrill Lynch

Adrienne Tennant - Janney Montgomery Scott

Betty Chen - Wedbush Morgan Securities

John Morris - BMO Capital Markets

Lee Giordano - Imperial Capital

Jennifer Davis - Lazard Capital Markets

Marni Shapiro - The Retail Tracker

Kimberly Greenberger - Morgan Stanley

Roxanne Meyer - UBS

Linda Tsai - ITG

Dana Telsey - Telsey Advisory Group



Thank you for joining us for the Aéropostale Conference Call to review Third Quarter 2012 Financial Results. (Operator Instructions) I would like to remind everyone that this conference call is being recorded. I would now like to introduce, Ken Ohashi, the company's Vice President of Investor and Media Relations. Thank you. You may begin.

Kenneth Ohashi

Thank you all for joining us this afternoon. With me here today are Tom Johnson, our Chief Executive Officer; Michael Cunningham, our President; and Marc Miller, our Chief Financial Officer. I am also pleased to welcome our new EVP of Aéropostale brand, Emilia Fabricant. We issued a press release earlier this afternoon announcing our third quarter 2012 financial results. A copy of the release can be found on our corporate website.

Before we begin I would like to remind you that during this earnings conference call certain statements and responses to questions may contain forward-looking information such as forecasts of future performance. Forward-looking information and statements involve known and unknown risks and uncertainties which may cause our actual results in future periods to differ materially from our forecasted results. Those risks are described in our annual report on Form 10-K and our quarterly reports on Form 10-Q, all of which have been filed with the SEC and are available on our website.

We undertake no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances. Listeners of this call are referred to those filings. Before I turn the call over to Tom, I would like to ask everyone to limit themselves to one question during our Q&A session to allow everyone a chance to speak. Once we have gone through a round of questions we will go back and you may queue up again at that time. I would now like to turn the call over to Tom.

Thomas Johnson

Thank you, Ken. Good afternoon everyone and thank you for joining us today. I'd like to take you through some of the highlights from the third quarter and the progress that we are making on our strategic initiatives. I'll then turn the call over to Marc who will take us through the financials.

The third quarter came in as we anticipated. Our teams navigated through an intensely promotional and competitive retail environment and were able to achieve net earnings slightly ahead of our previously issued guidance. From a merchandise perspective, we experienced similar trends to the first half. Our girl customer continued to respond positively to our fashion offering, including fashion tops and wovens, and colored and printed denim. However, our girls core basic business, particularly graphics and fleece, experienced pricing pressure and their performance fell below our expectations. Our men's and accessories businesses had solid quarter with increases in both comps and merchandise margins.

During the quarter, we also launched our fall marketing campaign with Chloe Grace Moretz. We believe that Chloe is a perfect brand ambassador to showcase our fashion and we were pleased with the positive reaction from fashion editors, customers and our store associates in response to this campaign. Additionally, last month we opened our new innovative concept store in Roosevelt Field Mall on Long Island. We believe this new store design is both warm and inviting and highlights the brand in a whole new way. We're very pleased with early feedback and the results from the store and we look forward to updating you on its progress over the next few quarters.

While there were encouraging bright spots during the quarter, we are clearly not satisfied with the overall trend in our business. Our entire organization is working diligently on our strategic initiatives to move the business forward. These strategic initiatives include, developing and refining our fashion offering and brand projection, enhancing processes and technology and investing in future growth drivers. The reinvigoration of our merchandise assortment is undoubtedly our most important strategic initiative. Our product teams are reading and reacting to emerging trends faster than ever. They are developing our fashion within the parameters of the Aeropostale brand to create a consistent and cohesive message to the consumer.

Additionally, as all of you know, Emilia Fabricant joined as EVP of the Aeropostale brand back in August. Emilia is an extremely talented leader with a proven track record of success and we are thrilled that she is now part of the Aeropostale family. We look forward to her many contributions as we propel the Aeropostale brand into the future.

Second, we will continue to invest in and enhance our processes that will enable us to chase fashion and increase our overall speed to market. We will leave more open to buy and leveraging our core vendor base to use greater fabric contingencies and improve lead times. We also have greater opportunity to localize our assortment by mall type and store profile based on the appetite for fashion in each of these locations. We have already started to [distort] our assortment through smaller pre-packs and will further improve the localization process through the implementation of our assortment planning and allocation tools.

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