This summary is based on the fourth quarter fiscal 2006 earnings call conducted by Aéropostale, Inc. (ARO: chart) on March 15, 2007.

Key Investors Issues

- Fourth-quarter profit rose 37% on vendor concessions and the opening of 4 new stores.
- Sales grew by 17.4%, with same store sales rising 2% from a year ago.
- Earnings for the first quarter of the coming year are expected to be in the range of 19 cents to 21 cents per diluted share.
- Earnings per share growth for the full year are approximated at 20%.

Fiscal Year 2006 Highlights

- Sales growth of 17.4% marked the company’s ninth consecutive year of positive comps, improving merchandise margins and average unit retails.
- Gross margin was 35.7% versus 33.5% last year, excluding the vendor concessions of $7.4 million. The increase was primarily the result of a 220 basis point improvement in merchandise margins reflecting lower promotional activity.
- This year’s growth in pro forma earnings per share exceeded the company’s initial goal of 20% EPS growth.

For the fiscal year the company opened 74 new stores and ended the year with 728 Aéropostale stores in 47 states and 14 Jimmy’Z stores in 11 states.

The company revitalized its merchandise assortment and achieved a better balance between basic and fashion merchandise. This renewed merchandising approach helped Aéropostale to drive the uptick in its most recent market share data.

During the year, the company focused on building its brand recognition image, both on an external and internal basis. It also made significant progress by improving its planning process. These measures ensured an improvement in its merchandise margins and a raise in its average unit retails for the year.

Fourth Quarter Highlights

- Comparable store sales increased 2.2% from a year ago.
- Full net sales increased by 16.5% versus last year, driven by average square footage growth of approximately 10%, the increase in comparable store sales, and the impact of the additional week, which accounted for 3.8% of the growth.
- Gross margin was 37.2%.
- Pro forma earnings per share grew over 30% to $1 per share.

During the quarter, the company opened four Aero stores.

- The average unit retail increased by 1% from a year ago;
- The units per transaction decreased by 1%:
- The comp transactions increased by 2%.

By category:
- The women’s comparable store sales were essentially flat from a year ago;
- The men’s comparable store sales increased 6%;
- The accessories comparable store sales increased 5%.

SG&A for the quarter was 19.2% of sales versus 17.8% last year.

The increase of 140 basis points was due to increase in incentive comparable store expense of 40 basis points, eCom related fees of 40 basis points, options expense of 20 basis points and an investment in store line expenses of 20 basis points. Tax rate for the quarter was 39%, resulting in net income of $57.3 million, or $1.08 per share.

- Excluding the vendor concessions, net earnings were $1 per share, compared to 76 cents last year, representing an increase of over 32%.
- The average end-of-quarter share count was recorded at 53,758,000.
- The diluted earnings per share also included a 4 cent per share loss related to Jimmy’Z and a 1 cent per share charge related to the expensing of stock options.

Cash and cash equivalents together with short-term securities at the close of the quarter were $276.3 million versus $225.3 million last year.

- During the quarter, the company repurchased one million shares of its stock for approximately $35.4 million.
- The Board authorized an additional $100 million under its share repurchase program, bringing the total program since inception to $350 million. Of this amount, approximately $150 million is remaining.

Inventory at the close of the quarter was $101.5 million, up 10% from last year. This meant that inventories were flat on a per square foot basis.

- Capital expenditures for the quarter were $5.5 million and depreciation and amortization was $8.8 million.
- Occupancy was up less than 10 basis points to sales, rendering it essentially flat.

Fiscal 2007 Outlook