Aeropostale Inc (ARO)

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Aeropostale, Inc. (ARO)

F3Q08 Earnings Call

November 3, 2008 3:15 pm ET

Executives

Kenneth Ohashi – Vice President, Investor & Media Relations

Julian Geiger – Chairman and Chief Executive Officer

Mindy Meads – President and Chief Merchandising Officer

Michael Cunningham – Executive Vice President and Chief Financial Officer

Tom Johnson – Executive Vice President and Chief Operating Officer

Analysts

Betty Chen - Wedbush Morgan Securities Inc.

Christine Chen - Needham & Company, LLC

Laura Champine - Cowen and Company

Brian Tunick - J.P. Morgan

Adrienne Tennant - Friedman, Billings, Ramsey & Co.

Jeffrey Klinefelter - Piper Jaffray

Roxanne Meyer - Oppenheimer & Co.

Michelle Clark - Morgan Stanley

Kimberly Greenberger - Citigroup

Marnie Shapiro - The Retail Tracker

Janet Kloppenburg - JJK Research

Dana Telsey - Telsey Advisory Group

Linda Tsai - MKM Partners

Howard Tubin - RBC Capital Markets

Presentation

Operator

Thank you for joining us for the Aeropostale conference call to review third quarter fiscal 2008 financial results. (Operator Instructions)

I would now like to introduce Ken Ohashi, the company's Vice President of Investor and Media Relations.

Kenneth Ohashi

Thank you all for joining us this afternoon. With me here today are Julian Geiger, our Chairman and Chief Executive Officer, Mindy Meads, our President and Chief Merchandising Officer, Tom Johnson, our Chief Operating Officer, and Michael Cunningham, our Chief Financial Officer.

We issued a press release earlier this afternoon announcing our third quarter financial results. A copy of the release can be found on our corporate website.

Before we begin, I'd 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 financial 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 Julian, I would like to ask everyone to limit themselves to one question during our Q&A session.

I would now like to turn the call over to Julian.

Julian Geiger

Thanks, Ken. Good afternoon, everyone, and thank you for joining us today.

As I'm sure you have already heard, earlier today we announced that Aeropostale achieved record-breaking sales and profits for the third quarter. This performance is impressive in and of itself, but when put into perspective against the uniquely challenging economic panorama with which we are faced, it is extraordinary.

Throughout this entire year we have experienced unparalleled success. I must openly how the determination and talent of our entire organization, the clarity of our strategies, the precision of our execution, and the nimbleness of our operating model have enabled us to elevate respect for the Aeropostale brand to an all-time high.

I would like to highlight some of the statistical accomplishments of the quarter for you. Net sales for the period increased 17% to $482 million and same-store sales increased 7%. Gross profit grew by 110 basis points while operating margins improved by 60 basis points. Net earnings per share grew 31% to $0.63 per share this year from $0.48 per share last year. In addition, we continue to maintain a strong balance sheet with absolutely no debt.

As we have previously discussed, we have implemented a number of strategic initiatives and have made some systemic changes to our business over the past few years that have enabled us to navigate through this currently challenging environment and generate consistently strong results.

Specifically, we have placed greater emphasis on giving the customer a more balanced merchandise assortment that is both fresh and focused; offering new and changing promotions to create excitement in our stores and to spur demand for our product; managing inventory carefully and maximizing efficiencies in product flow by making investments in people, process and systems, and creating a fun and exciting shopping environment through our new store design and innovative marketing programs. In aggregate, these initiatives have enabled us to achieve impressive brand momentum and capture significant market share.

As we look at our accomplishments in the first nine months, we are even more gratified given the unprecedented challenges everyone has encountered in the retail sector. By design, we have a nimble and responsive business model that enables us to adapt quickly to change. We have also been and will continue to be pragmatic in running our business. We will leverage our speed and agility and stay ahead of a rapidly changing environment.

Moving into our third decade, the Aeropostale brand has become an important shopping destination for its customer. As we emerge from these challenging times, we believe that Aeropostale will be even stronger and better positioned than it is even today.

Now I'd like to turn the call over to Mindy, who will take you through some of the merchandising highlights from the third quarter and discuss our performance during the start of the holiday season.

Mindy Meads

Thank you, Julian. I, too, would like to reiterate how pleased I am with our record results for both the third quarter and year-to-date. The entire product development team has done an excellent job, not just knowing our customer but also executing our merchandising strategies.

We continue to offer the customer the best combination of fashion and value in a highly promotional environment. For the quarter we experienced strength in both genders. The women's comp was up mid single digits and men's were up in the low double digits. We're very pleased with the trend in both our merchandise margins and average unit retail. These increases were driven by an overall improvement in merchandise offerings to the integration of fashion, more fashion, the emphasis in trending key classification, and the reduction in SKU counts by 30%.

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