S-1/A 1 y57903a2s-1a.txt AMENDMENT NO. 2 TO FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 13, 2002 REGISTRATION NO. 333-84056 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- AMENDMENT NO. 2 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- AEROPOSTALE, INC. (Exact Name of Registrant as Specified in its Charter) --------------------- DELAWARE 5600 31-1443880 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number) 1372 BROADWAY, 8TH FLOOR NEW YORK, NEW YORK 10018 (646) 485-5398 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) JULIAN R. GEIGER CHAIRMAN AND CHIEF EXECUTIVE OFFICER AEROPOSTALE, INC. 1372 BROADWAY, 8TH FLOOR NEW YORK, NEW YORK 10018 (646) 485-5398 (Name, address, including zip code, and telephone number, including area code, of agent for service) --------------------- COPIES TO: JOSHUA N. KORFF, ESQ. WILLIAM F. SCHWITTER, ESQ. KIRKLAND & ELLIS PAUL, HASTINGS, JANOFSKY & WALKER LLP CITIGROUP CENTER 75 EAST 55TH STREET 153 EAST 53RD STREET NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10022 (212) 318-6000 (212) 446-4800 --------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. --------------------- If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] --------------------- CALCULATION OF REGISTRATION FEE

--------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE REGISTRATION FEE(1)(2) --------------------------------------------------------------------------------------------------------------- Common stock, $0.01 par value............................... $244,375,000 $22,483 --------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------

(1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) promulgated under the Securities Act of 1933, as amended. (2) $21,160 previously paid. --------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED WITHOUT NOTICE. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED MAY 13, 2002 PROSPECTUS 12,500,000 SHARES [AEROPOSTALE LOGO] COMMON STOCK ------------------------ This is an initial public offering of 12,500,000 shares of common stock of Aeropostale, Inc. We are selling 1,875,000 of the shares of common stock offered under this prospectus, and certain of our stockholders, referred to in this prospectus as the selling stockholders, are selling the remaining shares. There is currently no public market for our shares. We currently estimate that the initial public offering price of the shares will be between $15.00 and $17.00 per share. Our common stock has been approved for listing on the New York Stock Exchange under the symbol "ARO." SEE "RISK FACTORS" BEGINNING ON PAGE 6 TO READ ABOUT RISKS THAT YOU SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------

PER SHARE TOTAL --------- ----- Public offering price....................................... $ $ Underwriting discounts and commissions...................... $ $ Proceeds, before expenses, to us............................ $ $ Proceeds, before expenses, to the selling stockholders...... $ $

------------------------ The underwriters may purchase up to an additional 1,875,000 shares of our common stock from the selling stockholders at the initial public offering price less the underwriting discount to cover over-allotments. The underwriters expect to deliver the shares on , 2002. Joint Book-Running Managers BEAR, STEARNS & CO. INC. MERRILL LYNCH & CO. ------------------------ BANC OF AMERICA SECURITIES LLC U.S. BANCORP PIPER JAFFRAY WACHOVIA SECURITIES ------------------------ The date of this Prospectus is , 2002 [PICTURE OF STOREFRONT] [MODELS WEARING AEROPOSTALE CLOTHING] YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK. UNTIL , 2002, ALL DEALERS EFFECTING TRANSACTIONS OF THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. ------------------------ TABLE OF CONTENTS ------------------------

PAGE ---- Prospectus Summary.......................................... 1 Risk Factors................................................ 6 Forward-Looking Statements.................................. 11 Use of Proceeds............................................. 11 Dividend Policy............................................. 11 Capitalization.............................................. 12 Dilution.................................................... 13 Selected Financial and Operating Data....................... 14 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 16 Business.................................................... 26 Management.................................................. 36 Certain Transactions........................................ 46 Principal and Selling Stockholders.......................... 48 Description of Capital Stock................................ 50 Shares Eligible for Future Sale............................. 52 Underwriting................................................ 54 Legal Matters............................................... 58 Experts..................................................... 58 Where You Can Find Additional Information................... 58 Index to Financial Statements............................... F-1

(i) PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary does not contain all the information that you should consider before investing in our common stock. You should read the entire prospectus carefully, especially "Risk Factors" and our consolidated financial statements and related notes. All share numbers in this prospectus reflect a 376.328-for-1 split of our common stock and non-voting common stock which we effected on May 10, 2002. In making comparisons to our predecessor company, including all financial information from fiscal 1997 and fiscal 1998, you should note that such information is derived from the accounting records of our predecessor company and is not comparable to our financial statements due to, among other things, different accounting policies. In January 2002, we changed our fiscal year end from the Saturday closest to July 31 to the Saturday closest to January 31 of each year, and therefore references in this prospectus to fiscal 2002 refer to the fifty-two week period ending on February 2, 2003. Any specific reference to a fiscal year end prior to 2002, "fiscal 1999" for example, refers to the fifty-two or fifty-three week period ended on the Saturday closest to July 31 of such year. AEROPOSTALE Our company is a fast-growing, mall-based specialty retailer of casual apparel and accessories that targets both young women and young men aged 11 to 20. We provide our customers with a focused selection of high-quality, active-oriented, fashion basic merchandise at compelling values. We maintain complete control over our proprietary brand by designing and sourcing all of our merchandise. Our products can be purchased only in our stores, which sell Aeropostale merchandise exclusively. As of February 2, 2002, we operated 278 stores in 33 states and the District of Columbia. Our merchandise, which includes graphic t-shirts, tops, bottoms, sweaters, jeans, outerwear and accessories, emphasizes comfort and style in response to the demands of our customers' active lifestyles. We believe that a key component of our success is our ability to understand what our customers want and can afford. We employ a "design-driven, merchant-modified" philosophy, in which our designers' vision is refined by our merchants' understanding of the current market for our products. We believe that this approach ensures that our merchandise styles both reflect the latest trends and are not too fashion forward for our customers. Today, a significant portion of our merchandise features either the "Aeropostale" or "Aero" logo, which we feel enhances both our brand recognition and appeal among our target customers. We employ a sourcing strategy that maximizes our speed to market and enables us to respond quickly to our customers' preferences. We believe that by offering desirable styles, comfort and consistent value, our brand will continue to enjoy widespread appeal and our stores will continue to be preferred shopping destinations. Our stores are designed to create a high energy, fun shopping environment through the use of powerful in-store promotional signage, creative visuals, bright lighting and popular music. Our average store size of approximately 3,500 square feet is generally smaller than that of our mall-based competitors and we believe that this enables us to achieve higher sales productivity and project a sense of activity and excitement. To increase customer traffic, we generally locate our stores in busy, central mall locations near popular teen gathering spots, such as food courts, music stores and other teen-oriented retailers. We have successfully and consistently implemented our store model across a wide range of mall classifications and geographic locations. We believe that our store model will allow us to continue significant and profitable store growth in both new and existing markets. The Aeropostale brand was created as a department store private label initiative in the early 1980s by our former parent, R.H. Macy & Co., Inc. Macy's opened the first mall-based Aeropostale store in 1987. Over the next decade, Macy's, together with its current parent company, Federated Department Stores, Inc., opened over 100 Aeropostale stores. The present core concept of the Aeropostale brand, however, did not begin to materialize until 1996, when our management team positioned Aeropostale for accelerated growth by expanding the brand from primarily a young men's brand to a brand that offers casual apparel and accessories for both young women and young men. In 1998, Federated sold its specialty store division, 1 which included our company, to our management team and Bear Stearns Merchant Banking, a division of Bear, Stearns & Co. Inc. Since we became an independent company in 1998, our management team has developed Aeropostale into a differentiated and recognized brand. During this period, we have: - Increased net sales from approximately $141.4 million in fiscal 1998 to approximately $304.8 million in fiscal 2001, representing a compound annual growth rate of approximately 29.2%; - Increased net sales by 54% from approximately $184.4 million in the six months ended February 3, 2001 to approximately $284.0 million in the six months ended February 2, 2002; - Achieved annual comparable store sales growth of 5.5% in fiscal 1999, 14.5% in fiscal 2000, 8.7% in fiscal 2001 and 23.0% in the six months ended February 2, 2002; - Increased our store count by 159 stores from 119 as of August 3, 1998 to 278 as of February 2, 2002; and - Improved sales per square foot from $317 in fiscal 1998 to $392 in fiscal 2001. BUSINESS STRENGTHS We believe that our business strengths will enable us to continue to expand our store base and grow profitably. Our principal business strengths include: - Differentiated and recognizable brand that offers comfortable, high-quality, active-oriented merchandise and reflects mainstream fashions at compelling values; - Disciplined operating and financial practices through which we maintain complete control over all aspects of our business; - Flexible operating structure that enables us to react quickly to changes in customer preferences; - New store economics that provide an attractive return on investment across a wide variety of mall classifications and geographic locations; and - Experienced management team with a demonstrated ability to grow the business profitably. GROWTH STRATEGY We intend to capitalize on the strength of our brand and pursue profitable growth by: - Opening approximately 80 new stores in fiscal 2002 in both existing and new markets, and continuing to open a significant number of new stores in future years; - Enhancing and expanding our brand awareness and recognition through an innovative marketing campaign; - Continuing our high levels of store productivity through profitable pricing strategies and consistent store level execution; and - Maximizing our economies of scale and increasing our operating efficiency. 2 THE TEEN MARKET We generally target our merchandise to the teenage segment of the population. According to the U.S. Census Bureau, the teenage population in the United States, which is defined as persons 12 to 19 years old, will grow approximately 37% faster than the overall population, from approximately 32 million in 2000 to approximately 34 million in 2005. The Census Bureau predicts that the teenage population will continue to grow through 2008. According to Teenage Research Unlimited, an independent research firm, spending among teenagers has grown to $172 billion in 2001 from $141 billion in 1998, reflecting a compound annual growth rate of approximately 6.8%, or more than double the rate of inflation during this period. We believe that teenage apparel spending is less susceptible to general economic downturns than adult apparel spending. In addition, we believe that these demographic and spending trends offer us strong growth opportunities. At the same time, however, the teen apparel market is highly competitive and many of our competitors are already established in markets that we have not penetrated. Many of these competitors are significantly larger than we are and have greater national recognition than we do. We cannot assure you that we will be able to compete successfully with them, particularly in markets in which we do not currently operate. When we became an independent company, we incorporated in Delaware on August 3, 1998. Our principal executive offices are located at 1372 Broadway, 8th Floor, New York, New York 10018, and our telephone number is (646) 485-5398. Our website address is www.aeropostale.com. Information included or referred to on our website is not a part of this prospectus. 3 THE OFFERING Common stock offered By our company.................... 1,875,000 shares By the selling stockholders....... 10,625,000 shares Common stock to be outstanding after this offering....................... 34,040,507 shares Use of proceeds..................... Approximately $9,617,000 will be used to redeem all of our outstanding shares of 12 1/2% Series B redeemable preferred stock and pay all accrued and unpaid dividends thereon, 85.7% of which is currently owned by an affiliate of Bear, Stearns & Co. Inc. that is selling shares of common stock in this offering. The remainder of the net proceeds received by us in this offering will be used for general corporate purposes, including new store openings and working capital. New York Stock Exchange symbol...... ARO Unless otherwise indicated, all information in this prospectus assumes that the underwriters will not exercise their over-allotment option to purchase shares of our common stock from the selling stockholders at the price set forth on the cover page of this prospectus. In addition, unless otherwise indicated, all information in this prospectus, including the outstanding share information above, is based upon the number of shares outstanding as of February 2, 2002 and reflects a 376.328-for-1 stock split of our common stock and non-voting common stock which we effected on May 10, 2002 and the following transactions, which will be effected simultaneously with the consummation of this offering: - the conversion of all of our outstanding shares of non-voting common stock into a total of 1,118,447 shares of common stock; and - the redemption of all of our outstanding shares of 12 1/2% Series B redeemable preferred stock and payment of all accrued and unpaid dividends thereon for a total of $9,617,000. The common stock to be outstanding after this offering excludes 5,420,252 shares of common stock issuable upon the exercise of stock options outstanding as of February 2, 2002 under our 1998 Stock Option Plan at a weighted average exercise price of $0.27 per share and 1,782,597 additional shares of common stock reserved for issuance under our 1998 Stock Option Plan and our 2002 Long-Term Incentive Plan. Aeropostale(R) and Aero(TM) are trademarks of Aeropostale, and we have registered the trademark Aeropostale(R) with the U.S. Patent and Trademark Office. All other trademarks, service marks and trade names referred to in this prospectus are the property of their respective owners. 4 SUMMARY FINANCIAL AND OPERATING DATA

FISCAL YEAR ENDED(1) SIX MONTHS ENDED(2) ------------------------------------ --------------------------- JULY 31, JULY 29, AUGUST 4, FEBRUARY 3, FEBRUARY 2, 1999 2000 2001 2001 2002 --------- --------- ---------- ------------ ------------ (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA AND SELECTED OPERATING DATA) STATEMENT OF INCOME DATA: Net sales............................................ $152,506 $213,445 $304,767 $184,369 $284,040 Gross profit......................................... 42,017 61,472 86,149 59,758 103,986(3) Selling, general and administrative expenses......... 32,406 45,680 65,918 34,469 55,169(3) Income from operations............................... 9,845 16,026 19,650(4) 25,405 48,817 Income before income taxes........................... 9,759 15,115 17,979 24,323 48,525 Income from continuing operations.................... 6,230 9,366 10,914 14,694 28,637 Gain (loss) on discontinued operations(5)............ (268) 2,002 405 388 -- Cumulative effect of accounting change(6)............ -- -- -- -- 1,632 Net income........................................... 5,962 11,368 11,319 15,082 30,269 Diluted net income (loss) per common share:(7) From continuing operations(8)...................... 0.15 0.24 0.28 0.40 0.78 From discontinued operations....................... (0.01) 0.06 0.01 0.01 -- From cumulative accounting change.................. -- -- -- -- 0.05 Net income per share............................... 0.14 0.30 0.29 0.41 0.83 SELECTED OPERATING DATA: Number of stores open at end of period............... 129 178 252 224 278 Comparable store sales increase(9)................... 5.5% 14.5% 8.7% 14.5% 23.0% Average store sales (in thousands)(10)............... $ 1,258 $ 1,372 $ 1,360 $ 872 $ 1,028 Average square footage per store(11)................. 3,687 3,548 3,437 3,460 3,463 Sales per square foot(12)............................ $ 339 $ 380 $ 392 $ 250 $ 297

AS OF FEBRUARY 2, 2002 --------------------------- ACTUAL AS ADJUSTED(13) -------- --------------- (IN THOUSANDS) BALANCE SHEET DATA: Working capital............................................. $ 38,181 $ 53,764 Total assets................................................ 146,927 162,510 12 1/2% Series B redeemable preferred stock................. 9,617 -- Total debt.................................................. -- -- Total stockholders' equity.................................. 60,190 85,390

--------------- (1) Our results of operations for fiscal 2001 included 53 weeks compared to 52 weeks for all other fiscal years presented in this prospectus. In January 2002, we changed our fiscal year end from the Saturday closest to July 31 to the Saturday closest to January 31 of each year. (2) Our results of operations for our fiscal six months ended February 3, 2001 included 27 weeks compared to 26 weeks for our fiscal six months ended February 2, 2002. (3) On December 21, 2001, we granted options to purchase 565,997 shares of our common stock with an exercise price which was less than the fair market value of our common stock at the time of such grant. The equity based compensation expense will total approximately $8,445,000, of which $845,000 and $3,127,000 were recorded in cost of sales and selling, general and administrative expenses, respectively, in the six months ended February 2, 2002. In addition, we will record amortization for equity based compensation of $620,000 in the thirteen weeks ended May 4, 2002 and acceleration of the unamortized balance of $3,853,000 associated with the immediate vesting of options upon the consummation of this offering. (4) Includes the effect of an $815,000 charge incurred in connection with the closing of seven aero kids concept stores. (5) On February 25, 2000, we decided to discontinue our Chelsea Cambell specialty store business and we closed all Chelsea Cambell stores by the end of December 2000. The operating results of this segment for all years have been reclassified as discontinued operations. (6) On August 5, 2001, we adopted Statement of Accounting Standards No. 142, Goodwill and Other Intangibles. With the adoption, the remaining balance of negative goodwill was recorded as a cumulative effect of such accounting change. (7) All per share information reflects a 376.328-for-1 split of all of our common stock which we effected on May 10, 2002. (8) Income from continuing operations per share has been computed after deducting preferred dividends. (9) Our comparable store sales percentages are based on net sales and stores are considered comparable beginning on the first day of the fiscal month following the fourteenth full fiscal month of sales. (10) Our average store sales are based on total net sales divided by the weighted average of all stores open for the entire period. (11) Our average square footage per store is based on all open stores at the end of the period. (12) Our sales per square foot consists of total net sales divided by the weighted average of gross square footage of all stores open for the entire period. (13) As adjusted information gives effect to the application of the net proceeds from the sale of the 1,875,000 shares of common stock offered by our company at an assumed initial public offering price of $16.00 per share and after deducting estimated offering expenses and underwriting discounts and commissions. The application of our net proceeds will include the redemption of all of our outstanding shares of 12 1/2% Series B redeemable preferred stock for $6,250,000 and payment of approximately $3,367,000 of accrued and unpaid dividends thereon, which will occur simultaneously with the consummation of the offering. 5 RISK FACTORS Before you invest in our common stock, you should carefully consider all of the material risks of our business, which are described below, together with all of the other information included in this prospectus. If any of these risks actually occurs, our business, financial condition or operating results could be adversely affected. In that case, the trading price of our common stock could decline and you could lose all or part of your investment. RISKS RELATED TO OUR BUSINESS 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. We opened 74 new stores in fiscal 2001 and 57 stores in fiscal 2000. We plan to open approximately 80 new stores in fiscal 2002, an increase of approximately 30% over our current store base. We intend to continue to open a significant number of new stores in future years while remodeling a portion of our existing store base annually. Our proposed expansion will place increased demands on our operational, managerial and administrative resources. These increased demands could cause us to operate our business less effectively, which in turn could cause deterioration in the financial performance of our individual stores. In addition, to the extent that our new store openings are in existing markets, we may experience reduced net sales volumes in existing stores in those markets. OUR EXPANSION PLAN IS DEPENDENT ON A NUMBER OF FACTORS, WHICH COULD DELAY OR PREVENT THE SUCCESSFUL OPENING OF NEW STORES AND SUBSEQUENT PENETRATION INTO NEW MARKETS. We will be unable to open and operate new stores successfully and our growth will be limited unless we can: - identify suitable markets and sites for store locations; - negotiate acceptable lease terms; - hire, train and retain competent store personnel; - maintain a proportion of new stores to mature stores that does not harm existing sales; - foster current relationships and develop new relationships with vendors that are capable of supplying a greater volume of merchandise; - manage inventory effectively to meet the needs of new and existing stores on a timely basis; and - expand our infrastructure to accommodate growth. In addition, we will open new stores in regions of the United States in which we currently have few or no stores. Our experience in these markets is limited and we cannot assure you that we will be able to develop our brand in these markets or adapt to competitive, merchandising and distribution challenges that may be different from those in our existing markets. Our inability to open new stores successfully and/or penetrate new markets would have a material adverse effect on our revenue and earnings growth. OUR NET SALES AND INVENTORY LEVELS FLUCTUATE ON A SEASONAL BASIS, LEAVING OUR ANNUAL OPERATING RESULTS PARTICULARLY SUSCEPTIBLE TO CHANGES IN BACK-TO-SCHOOL AND HOLIDAY SHOPPING PATTERNS. 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 of annual results. Our net sales and net income from February through July are typically lower due, in part, to the traditional retail slowdown immediately following the winter holiday 6 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. FLUCTUATIONS IN COMPARABLE STORE SALES AND QUARTERLY RESULTS OF OPERATIONS COULD CAUSE THE PRICE OF OUR COMMON STOCK TO DECLINE SUBSTANTIALLY. Our quarterly results of operations for our individual stores have fluctuated in the past and can be expected to continue to fluctuate in the future. Since the beginning of fiscal 2000, our quarterly comparable store sales have ranged from an increase of 23.1% to a decrease of 0.4%. In addition, our recent comparable store sales have been higher than our historical average and we cannot assure you that we will be able to maintain these levels of comparable store sales as we expand our business. Our comparable store sales and quarterly results of operations are affected by a variety of factors, including: - fashion trends; - calendar shifts of holiday or seasonal periods; - the effectiveness of our inventory management; - changes in our merchandise mix; - the timing of promotional events; - weather conditions; - changes in general economic conditions and consumer spending patterns; and - actions of competitors or mall anchor tenants. If our future comparable store sales fail to meet the expectations of research analysts, 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. IF WE ARE UNABLE TO IDENTIFY AND RESPOND TO CONSUMERS' FASHION PREFERENCES IN A TIMELY MANNER, OUR PROFITABILITY WOULD DECLINE. We may be unable to keep pace with the rapidly changing fashion trends and consumer tastes inherent in the apparel industry. Our current design philosophy is based on the belief that our target customers prefer clothing that suits the demands of their active lifestyles and that they like to identify with a logo. Accordingly, we produce casual, comfortable apparel, a majority of which displays either the "Aeropostale" or "Aero" logo. We cannot assure you that fashion trends will not move away from casual clothing or that we will not have to alter our design strategy to reflect a consumer change in logo preference. If we fail to anticipate, identify or react appropriately to changes in styles, trends, desired images or brand preferences, we may need to incur higher markdowns to reduce excess inventory. Utilizing such markdowns would negatively impact our profitability. WE RELY ON THIRD PARTIES TO MANAGE THE WAREHOUSING AND DISTRIBUTION ASPECTS OF OUR BUSINESS. IF THESE THIRD PARTIES DO NOT ADEQUATELY PERFORM THESE FUNCTIONS, OUR BUSINESS WOULD BE DISRUPTED. The efficient operation of our stores is dependent on our ability to distribute merchandise to locations throughout the United States in a timely manner. Our distribution facility in Carlstadt, New Jersey is 7 leased and operated by an independent third party. We depend on this third party to receive, sort, pack and distribute substantially all of our merchandise. In addition, we rely on this third party to manage a separate warehouse facility for us that we lease in South River, New Jersey. 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 in 1991, we cannot assure you that there will be no disruptions in the future. We also use a separate third party transportation company to deliver our merchandise from our warehouses to our stores. Any failure by either 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 SMALL NUMBER OF VENDORS TO SUPPLY A SIGNIFICANT AMOUNT OF OUR MERCHANDISE, AND OUR FAILURE TO MAINTAIN GOOD RELATIONSHIPS WITH ONE OR MORE OF THEM COULD HARM OUR ABILITY TO SOURCE OUR PRODUCTS. For the fifty-two weeks ended February 2, 2002, we sourced approximately 41% of our merchandise from our top three vendors, one of which supplied approximately 16% of our products. In addition, Federated Merchandising Group, or FMG, a wholly owned subsidiary of Federated Department Stores, Inc., acted as our agent with respect to the sourcing of approximately 27% of our merchandise. Our relationships with our vendors generally are not on a contractual basis and do not assure adequate supply, quality or acceptable pricing on a long-term basis. Most of our vendors could discontinue selling to us at any time. If one or more of our significant vendors were to sever their relationship with us, we could be unable to obtain replacement products in a timely manner, which could cause our sales to decrease. MOST OF OUR MERCHANDISE IS MANUFACTURED BY FOREIGN SUPPLIERS, THEREFORE THE AVAILABILITY AND COSTS OF THESE PRODUCTS MAY BE NEGATIVELY AFFECTED BY RISKS ASSOCIATED WITH INTERNATIONAL TRADE. Trade restrictions such as increased tariffs or quotas, or both, could affect the importation of apparel generally and increase the cost and reduce the supply of merchandise available to us. Much of our merchandise is sourced directly from foreign vendors in Europe, Asia and Central America. In addition, many of our domestic vendors maintain production facilities overseas. Some of these facilities are located in regions where political instability could cause a disruption in trade. Any reduction in merchandise available to us or any increase in its cost due to tariffs, quotas or local political issues could have a material adverse effect on our results of operations. THE DEPARTURE OF CERTAIN MEMBERS OF OUR SENIOR MANAGEMENT TEAM COULD ADVERSELY AFFECT OUR BUSINESS. The success of our business is dependent upon our senior management closely supervising all aspects of our business, in particular the operation of our stores and the designing of our merchandise. If we were to lose the benefit of this involvement, and in particular if we were to lose the services of Julian R. Geiger, our Chairman and Chief Executive Officer, John S. Mills, our President and Chief Operating Officer or Christopher L. Finazzo, our Executive Vice President-Chief Merchandising Officer, our business could be adversely affected. In addition, Mr. Geiger and Mr. Finazzo maintain many of our vendor relationships, and the loss of either of them could negatively impact present vendor relationships. We do not have employment agreements with any member of our senior management team other than Mr. Geiger and Mr. Mills. You should refer to the section entitled "Management" for more information. OUR FAILURE TO PROTECT OUR TRADEMARKS AEROPOSTALE(R) AND, TO A LESSER EXTENT, AERO(TM) ADEQUATELY COULD HAVE A NEGATIVE IMPACT ON OUR BRAND IMAGE AND LIMIT OUR ABILITY TO PENETRATE NEW MARKETS. We believe that our trademarks Aeropostale(R) and, to a lesser extent, Aero(TM) are integral to our logo-driven design strategy. We have obtained a federal registration of the Aeropostale(R) trademark in the United States and have applied for or obtained registrations in most foreign countries in which our vendors are located. We use the term "Aero" in many constantly changing designs and logos even though we have not registered the mark or variation or combinations thereof for adult clothing. We cannot assure you that the registrations we 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 8 or carries a negative connotation, our brand image could be materially adversely affected. Because we have not obtained federal registration for the Aero(TM) mark and have not registered the "Aeropostale" mark in all categories or 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. In addition, we cannot assure you that others will not try to block the manufacture, export or sale of our products as violative of their trademarks or other proprietary rights. Other entities may have rights to trademarks that contain the word "Aero" or may have registered similar or competing marks for apparel and accessories in foreign countries in which our vendors are located. Our applications for international registration of the Aeropostale(R) mark have been rejected in a few countries in which our products are manufactured because third parties have already registered the mark for clothing in those countries. There may be other prior registrations in other foreign countries of which we are not aware. In all such countries it may be possible for any third party owner of the national trademark registration for "Aeropostale" to enjoin the manufacture, sale or exportation of Aeropostale 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. 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 would have a material adverse effect on our results of operations. OUR MARKET SHARE MAY BE ADVERSELY IMPACTED AT ANY TIME BY A SIGNIFICANT NUMBER OF COMPETITORS. The teen apparel market is highly competitive and is characterized by low barriers to entry. We compete against a diverse group of retailers, including national and local specialty retail stores, mass merchandisers, regional retail chains, traditional department stores and mail-order retailers. Many of our competitors are already established in markets that we have not penetrated. In addition, many of our competitors have many more stores in operation than us, and therefore greater national recognition than we do. Our market share and results of operations may be adversely impacted by this significant number of competitors. OUR CONCENTRATION OF STORES IN THE EASTERN UNITED STATES MAKES US SUSCEPTIBLE TO ADVERSE CONDITIONS IN THIS REGION. The majority of our stores are located in the eastern half of the United States. As a result, our operations are more susceptible to regional factors than the operations of more geographically diversified competitors. These factors include, among others, economic and weather conditions, as well as demographic and population changes. RISKS RELATED TO THIS OFFERING SHARES ELIGIBLE FOR SALE IN THE NEAR FUTURE MAY CAUSE THE MARKET PRICE FOR OUR COMMON STOCK TO DECLINE. Sales of a substantial number of shares of our common stock in the public market following this offering, or the perception that these sales could occur, may depress the market price for our common 9 stock. These sales could also impair our ability to raise additional capital through the sale of our equity securities in the future. The number of shares of common stock available for sale in the public market is limited by restrictions under federal securities law and under agreements that our executive officers, directors, principal stockholders and certain other officers have entered into with the underwriters of this offering. Those agreements restrict these persons from selling, pledging or otherwise disposing of their shares for a period of 180 days after the date of this prospectus without the prior written consent of both Bear, Stearns & Co. Inc. and Merrill Lynch. However, Bear, Stearns & Co. Inc. and Merrill Lynch may, together in their sole discretion, release all or any portion of the common stock from the restrictions of the lockup agreements. Upon completion of this offering we will have outstanding 34,040,507 shares of common stock. Of these shares, 12,662,950 shares, including the 12,500,000 shares sold in this offering, are freely tradeable. The remaining 21,377,557 shares will be eligible for sale in the public market as follows:

NUMBER OF SHARES DATE OF AVAILABILITY FOR SALE ---------------- ------------------------------------- 20,784,463 180 days from the date of this prospectus 593,094 At various times after 180 days from the date of this prospectus, subject to applicable law

BEAR STEARNS MERCHANT BANKING HAS THE RIGHT TO DESIGNATE A MAJORITY OF THE MEMBERS OF OUR BOARD OF DIRECTORS, AND THEREFORE, NO CORPORATE ACTIONS REQUIRING BOARD APPROVAL CAN BE CONSUMMATED WITHOUT THE APPROVAL OF ITS DESIGNEES. Our stockholders' agreement provides that for so long as Bear Stearns Merchant Banking owns 9,408,200 shares of our voting common stock, it is entitled to designate a majority of the members of our board of directors. In general, the designees of Bear Stearns Merchant Banking will be able to control most matters requiring board approval. These matters would include the approval of significant corporate transactions, including potential mergers, consolidations or sales of all or substantially all of our assets. This concentration of board representation may have the effect of impeding a merger, consolidation, takeover or other business combination involving us or discouraging a potential acquiror from making a tender offer for our shares. THE SHARES YOU PURCHASE IN THIS OFFERING WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION. The initial public offering price of our common stock will be substantially higher than the pro forma tangible book value per share of our outstanding common stock. At an assumed initial public offering price of $16.00 per share, purchasers of our common stock will incur dilution of $13.49 per share in the pro forma net tangible book value of their purchased shares. The shares of our common stock owned by existing stockholders will receive a material increase in the pro forma net tangible book value per share. You may experience additional dilution if we issue common stock in the future. As a result of this dilution, you may receive significantly less than the full purchase price you paid for the shares in the event of a liquidation. SINCE OUR COMMON STOCK HAS NEVER BEEN PUBLICLY TRADED, WE CANNOT PREDICT THE EXTENT TO WHICH A TRADING MARKET WILL DEVELOP FOR OUR COMMON STOCK, OR WHETHER YOU WILL BE ABLE TO SELL YOUR STOCK. There has not been a public market for our common stock. We cannot predict the extent to which a trading market will develop or how liquid that market might become. The initial public offering price will be determined by negotiations between representatives of the underwriters, the selling stockholders and us and may not be indicative of prices that will prevail in the trading market. 10 FORWARD-LOOKING STATEMENTS Some of the matters discussed under the captions "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and elsewhere in this prospectus include forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events, including, among other things: - implementation of our growth strategy; - our ability to anticipate and respond to fashion trends; - competition in our market; - consumer spending patterns; and - economic conditions in general. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "could," "would," "predicts," "potential," "continue," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar expressions. These statements are based on our current beliefs, expectations and assumptions and are subject to a number of risks and uncertainties. Actual results, levels of activity, performance, achievements and events may vary significantly from those implied by the forward-looking statements. A description of risks that could cause our results to vary appears under the caption "Risk Factors" and elsewhere in this prospectus. USE OF PROCEEDS We will receive net proceeds of approximately $25.2 million from the sale of 1,875,000 shares of common stock assuming a public offering price of $16.00 after deducting estimated offering expenses and underwriting discounts and commissions. We will not receive any proceeds from shares of common stock sold by the selling stockholders, nor can we participate in the sale of additional shares relating to the underwriters' over-allotment option, if exercised. The principal purposes of this offering are to obtain additional capital, create a public market for our common stock and facilitate our future access to public securities markets. Approximately $9,617,000 of the net proceeds received by us from this offering will be used to redeem all of our outstanding shares of 12 1/2% Series B redeemable preferred stock and pay all accrued and unpaid dividends thereon. We expect to use our remaining net proceeds for working capital and for general corporate purposes, which will include approximately $15.0 million for new store openings. Pending use of the remaining net proceeds of this offering, we intend to invest the net proceeds in short-term, interest-bearing securities. DIVIDEND POLICY We have not declared or paid any dividends on our common stock since our inception. We currently expect to retain future earnings, if any, for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. 11 CAPITALIZATION The following table sets forth our cash and capitalization as of February 2, 2002 (i) on an actual basis and (ii) on an adjusted basis to reflect (a) the conversion of all of our outstanding shares of non-voting common stock into a total of 1,118,447 shares of common stock and the redemption of all of our outstanding shares of 12 1/2% Series B redeemable preferred stock and payment of all accrued and unpaid dividends thereon for a total of $9,617,000, each of which will occur simultaneously with the closing of this offering, (b) the receipt by us of the estimated net proceeds from the sale of 1,875,000 shares of common stock in this offering at an assumed initial public offering price of $16.00 per share and (c) additional amortization for equity based compensation of $620,000 that will be recorded in the thirteen weeks ended May 4, 2002 and acceleration of the unamortized balance of $3,853,000 associated with the immediate vesting of options upon the consummation of this offering. The outstanding share information in the table excludes, as of February 2, 2002, 5,420,252 shares of common stock issuable upon the exercise of outstanding stock options under our 1998 Stock Option Plan.

AS OF FEBRUARY 2, 2002 ----------------------- ACTUAL AS ADJUSTED -------- ------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) Cash........................................................ $44,958 $60,541 ======= ======= Revolving credit facility(1)................................ -- -- 12 1/2% Series B redeemable preferred stock: par value $0.01 per share, 6,250 shares authorized, issued and outstanding, actual; no shares authorized, issued or outstanding, as adjusted.................................. 9,617 -- ------- ------- Stockholders' equity:(2) Preferred stock: par value $0.01 per share, no shares authorized, issued and outstanding, actual; 5,000,000 shares authorized, and no shares issued and outstanding, as adjusted............................... -- -- Common stock: par value $0.01 per share, 75,265,600 shares authorized, 31,047,060 shares issued and outstanding, actual; 200,000,000 shares authorized, 34,040,507 shares issued and outstanding, as adjusted............. 310 340 Non-voting common stock: par value $0.01 per share, 75,265,600 shares authorized, 1,118,447 shares issued and outstanding, actual; no shares authorized, issued or outstanding, as adjusted............................ 11 -- Additional paid-in capital.................................. 9,321 34,502 Deferred compensation....................................... (4,473) -- Retained earnings........................................... 55,021 50,548 ------- ------- Total stockholders' equity.................................. 60,190 85,390 ------- ------- Total capitalization........................................ $69,807 $85,390 ======= =======

--------------- (1) As of April 29, 2002, there were no amounts outstanding under our revolving credit facility. (2) Reflects anticipated changes to our certificate of incorporation, creating 200,000,000 shares of common stock and 5,000,000 shares of undesignated preferred stock and cancelling all other classes of preferred stock. 12 DILUTION Our pro forma net tangible book value as of February 2, 2002 was approximately $69,807,000 or $2.17 per share of common stock. Pro forma net tangible book value per share represents total tangible assets less total liabilities, divided by the number of outstanding shares of common stock after giving effect to the conversion of all of our outstanding shares of non-voting common stock into a total of 1,118,447 shares of common stock and the redemption of all of our outstanding shares of 12 1/2% Series B redeemable preferred stock, which will occur simultaneously with the consummation of this offering. After giving effect to the sale of the 1,875,000 shares of common stock offered by us at an assumed initial public offering price of $16.00 per share and after deducting underwriting discounts and estimated offering expenses, the pro forma as adjusted net tangible book value at February 2, 2002 would have been $85,390,000 or approximately $2.51 per share of common stock. This represents an immediate increase in net tangible book value of $0.34 per share to existing stockholders and an immediate dilution in net tangible book value of $13.49 per share to new investors in this offering. The following table illustrates this dilution on a per share basis: Assumed initial public offering price per share.................... $16.00 Pro forma net tangible book value per share at February 2, 2002................................................... $2.17 Increase per share attributable to this offering.......... .34 ----- Pro forma as adjusted net tangible book value per share after this offering......................................................... 2.51 ------ Dilution per share to new investors................................ $13.49 ====== The table above excludes, as of February 2, 2002, 5,420,252 shares of common stock issuable upon exercise of outstanding stock options under our 1998 Stock Option Plan. To the extent options are exercised, there will be further dilution to new investors. The following table sets forth on a pro forma as adjusted basis as of February 2, 2002, the differences between the number of shares of common stock purchased from us, the total consideration paid and the average price per share paid by existing stockholders and by new investors, before deducting underwriting discounts and commissions and estimated offering expenses, at an assumed initial public offering price of $16.00 per share.

SHARES PURCHASED TOTAL CONSIDERATION AVERAGE --------------------- ---------------------- PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ---------- ------- ----------- ------- --------- Existing stockholders(1)..... 32,165,507 94.5% $ 1,196,398 3.8% $ 0.04 New investors................ 1,875,000 5.5 30,000,000 96.2 16.00 ---------- ----- ----------- ----- Total...................... 34,040,507 100.0% $31,196,398 100.0% ========== ===== =========== =====

(1) Sales by the selling stockholders in this offering will cause the number of shares of common stock held by existing stockholders to be reduced to 21,540,507, or 63.3% of the total number of our shares of common stock outstanding after this offering, and will increase the number of shares of common stock held by new investors to 12,500,000, or 36.7% of the total number of our shares of common stock outstanding after this offering. If the underwriters' over-allotment option is exercised in full, the percentage of shares of common stock held by existing stockholders after this offering would be reduced to 19,665,507, or 57.8% and the number of shares of common stock held by new investors would increase to 14,375,000 or 42.2% of the total number of shares of common stock outstanding after this offering. 13 SELECTED FINANCIAL AND OPERATING DATA The following selected financial and operating data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," our financial statements and related notes and other financial information appearing elsewhere in this prospectus. The statement of income data for the fiscal years ended July 31, 1999, July 29, 2000 and August 4, 2001, and for the six months ended February 2, 2002 and the balance sheet data as of July 29, 2000, August 4, 2001 and February 2, 2002 are derived from audited financial statements included elsewhere in this prospectus. The statement of income data for the fiscal years ended August 2, 1997 and August 1, 1998, and the balance sheet data as of August 2, 1997 and August 1, 1998 are derived from the accounting records of our predecessor company and are not comparable to our statements in all respects due to, among other things, the omission of corporate overhead expense and provision for taxes, different accounting policies and the effect of purchase accounting. The statement of income data for the six months ended February 3, 2001 has been derived from unaudited financial statements included elsewhere in this prospectus. The unaudited financial statements include all normal recurring adjustments, which in the opinion of our management are necessary for this period. Our results of operations for the six months ended February 2, 2002 are not necessarily indicative of the results that may be expected for the entire year or for any future period.

PREDECESSOR COMPANY(1) ----------------------- FISCAL YEAR ENDED FISCAL YEAR ENDED(2) SIX MONTHS ENDED(3) ----------------------- ------------------------------- ------------------------- AUGUST 2, AUGUST 1, JULY 31, JULY 29, AUGUST 4, FEBRUARY 3, FEBRUARY 2, 1997 1998 1999 2000 2001 2001 2002 --------- --------- -------- -------- --------- ----------- ----------- (UNAUDITED) (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF INCOME DATA: Net sales.............................. $123,821 $141,419 $152,506 $213,445 $304,767 $184,369 $284,040 Cost of sales, including certain buying, occupancy and warehousing expenses............................. 106,789 111,735 110,489 151,973 218,618 124,611 180,054(4) -------- -------- -------- -------- -------- -------- -------- Gross profit........................... 17,032 29,684 42,017 61,472 86,149 59,758 103,986 Selling, general and administrative expenses............................. 26,156 28,157 32,406 45,680 65,918 34,469 55,169(4) Store closing expenses(5).............. -- -- -- -- 815 -- -- Amortization of negative goodwill...... -- -- (234) (234) (234) (116) -- -------- -------- -------- -------- -------- -------- -------- Income (loss) from operations.......... (9,124) 1,527 9,845 16,026 19,650 25,405 48,817 Interest expense, net.................. -- -- 86 911 1,671 1,082 292 -------- -------- -------- -------- -------- -------- -------- Income (loss) before income taxes...... (9,124) 1,527 9,759 15,115 17,979 24,323 48,525 Provision for income taxes............. -- -- 3,529 5,749 7,065 9,629 19,888 -------- -------- -------- -------- -------- -------- -------- Income (loss) from continuing operations........................... (9,124) 1,527 6,230 9,366 10,914 14,694 28,637 Gain (loss) on discontinued operations(6)........................ (288) (978) (268) 2,002 405 388 -- -------- -------- -------- -------- -------- -------- -------- Cumulative effect of accounting change(7)............................ -- -- -- -- -- -- 1,632 Net income (loss)...................... (9,412) 549 5,962 11,368 11,319 15,082 30,269 Preferred dividends.................... -- -- 1,235 1,040 1,048 508 574 -------- -------- -------- -------- -------- -------- -------- Net income (loss) available to common stockholders......................... $ (9,412) $ 549 $ 4,727 $ 10,328 $ 10,271 $ 14,574 $ 29,695 ======== ======== ======== ======== ======== ======== ======== Basic net income (loss) per common share:(8) From continuing operations(9)........ $ (0.29) $ 0.05 $ 0.16 $ 0.27 $ 0.32 $ 0.46 $ 0.89 From discontinued operations......... (0.01) (0.03) (0.01) 0.06 0.01 0.01 -- From cumulative accounting change.... -- -- -- -- -- -- 0.05 -------- -------- -------- -------- -------- -------- -------- Net income per share................. $ (0.30) $ 0.02 $ 0.15 $ 0.33 $ 0.33 $ 0.47 $ 0.94 ======== ======== ======== ======== ======== ======== ======== Diluted net income (loss) per common share:(8) From continuing operations(9)........ $ (0.29) $ 0.05 $ 0.15 $ 0.24 $ 0.28 $ 0.40 $ 0.78 From discontinued operations......... (0.01) (0.03) (0.01) 0.06 0.01 0.01 -- From cumulative accounting change.... -- -- -- -- -- -- 0.05 -------- -------- -------- -------- -------- -------- -------- Net income per share................. $ (0.30) $ 0.02 $ 0.14 $ 0.30 $ 0.29 $ 0.41 $ 0.83 ======== ======== ======== ======== ======== ======== ======== Basic weighted average number of shares outstanding.......................... 31,047 31,047 31,048 31,069 31,339 31,183 31,633 Diluted weighted average number of shares outstanding.......................... 31,047 31,047 34,496 34,691 35,460 35,173 35,992

14

PREDECESSOR COMPANY(1) ----------------------- FISCAL YEAR ENDED FISCAL YEAR ENDED(2) SIX MONTHS ENDED(3) ----------------------- ------------------------------- ------------------------- AUGUST 2, AUGUST 1, JULY 31, JULY 29, AUGUST 4, FEBRUARY 3, FEBRUARY 2, 1997 1998 1999 2000 2001 2001 2002 --------- --------- -------- -------- --------- ----------- ----------- (UNAUDITED) (UNAUDITED) SELECTED OPERATING DATA: Number of stores open at end of period............................... 113 119 129 178 252 224 278 Comparable store sales increase (decrease)(10)....................... (7.2)%(11) 10.7% 5.5% 14.5% 8.7% 14.5% 23.0% Average store sales (in thousands)(12)....................... $ 1,088 $ 1,194 $ 1,258 $ 1,372 $ 1,360 $ 872 $ 1,028 Average square footage per store(13)... 3,727 3,719 3,687 3,548 3,437 3,460 3,463 Sales per square foot(14).............. $ 293 $ 317 $ 339 $ 380 $ 392 $ 250 $ 297

PREDECESSOR COMPANY ----------------------- AS OF AS OF AS OF ----------------------- ------------------------------- ----------- AUGUST 2, AUGUST 1, JULY 31, JULY 29, AUGUST 4, FEBRUARY 2, 1997 1998 1999 2000 2001 2002 --------- --------- -------- -------- --------- ----------- (UNAUDITED) (IN THOUSANDS) BALANCE SHEET DATA: Working capital........................ $ 25,519 $ 19,833 $ 22,028 $ 8,186 $ 10,810 $ 38,181 Total assets........................... 78,800 56,234 58,899 93,539 121,128 146,927 6% Series A exchangeable redeemable preferred stock...................... -- -- 4,885 -- -- -- 12 1/2% Series B redeemable preferred stock................................ -- -- 7,070 7,995 9,043 9,617 Total debt............................. 64,538(15) 57,396(15) 565 26,987 35,267 -- Total stockholders' equity (deficit)... (14,339) (13,790) 5,676 16,006 26,290 60,190

--------------- (1) The predecessor company's results of operations were derived from the accounting records of Federated Department Stores, Inc. Prior to August 3, 1998, when we were sold by Federated, we were included in its consolidated financial statements and no corporate expenses or taxes were allocated to our financial statements. In addition, our predecessor company's financial statements were prepared based on different accounting policies, and do not reflect the effect of purchase accounting. Therefore, our results of operations could have been materially different if we were reported as a standalone company at that time. Net income (loss) per common share was calculated using the number of outstanding shares at August 3, 1998. (2) Our results of operations for fiscal 2001 included 53 weeks compared to 52 weeks for all other fiscal years presented in this prospectus. In January 2002, we changed our fiscal year end from the Saturday closest to July 31 to the Saturday closest to January 31 of each year. (3) Our results of operations for our fiscal six months ended February 3, 2001 included 27 weeks compared to 26 weeks for our fiscal six months ended February 2, 2002. (4) On December 21, 2001, we granted options to purchase 565,997 shares of our common stock with an exercise price which was less than the fair market value of our common stock at the time of such grant. The equity based compensation expense will total approximately $8,445,000, of which $845,000 and $3,127,000 were recorded in cost of sales and selling, general and administrative expenses, respectively, in the six months ended February 2, 2002. In addition, we will record amortization for equity based compensation of $620,000 in the thirteen weeks ended May 4, 2002 and acceleration of the unamortized balance of $3,853,000 associated with the immediate vesting of options upon the consummation of this offering. (5) Reflects charge incurred in connection with the closing of seven aero kids concept stores. (6) On February 25, 2000, we decided to discontinue our Chelsea Cambell specialty store business and we closed all Chelsea Cambell stores by the end of December 2000. The operating results of this segment for all years have been reclassified as discontinued operations. (7) On August 5, 2001, we adopted Statement of Accounting Standards No. 142, Goodwill and Other Intangibles. With the adoption, the remaining balance of negative goodwill was recorded as cumulative effect of accounting change. (8) All per share information reflects a 376.328-for-1 split of all of our common stock which we effected on May 10, 2002. (9) Income from continuing operations per share has been computed after deducting preferred dividends. (10) Our comparable store sales percentages are based on net sales and stores are considered comparable beginning on the first day of the fiscal month following the fourteenth full fiscal month of sales. (11) Represents a period in which our current management did not influence the assortment of merchandise in our stores. (12) Our average store sales are based on total net sales divided by the weighted average of all stores open for the entire period. (13) Our average square footage per store is based on all open stores at the end of the period. (14) Our sales per square foot consists of total net sales, divided by the weighted average of gross square footage of all stores open for the entire period. (15) Represents intercompany debt to our former parent company. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion in conjunction with our consolidated financial statements and related notes that appear elsewhere in this prospectus. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs, and which involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed in the forward-looking statements. Factors that might cause future results to differ materially from those discussed in the forward-looking statements include, but are not limited to, those discussed in "Risk Factors." OVERVIEW The Aeropostale brand was established by R.H. Macy & Co., Inc. as a department store private label initiative in the early 1980s targeting men in their twenties. As a result of the label's initial success, Macy's opened the first mall-based Aeropostale specialty store in 1987. Over the next decade, Macy's and then its current parent company, Federated Department Stores, Inc., continued new store expansion and opened over 100 stores. In 1996, Federated hired Julian Geiger as Chief Executive Officer of its specialty store division which included Aeropostale and a specialty store concept that targeted career women, which was renamed Chelsea Cambell after we became an independent company. Julian Geiger and management subsequently determined that there was significant opportunity for Aeropostale to increase its merchandise offering for young women, whom we recognized as the fastest-growing target demographic. Additionally, we decided to position our merchandise assortment as more mainstream, active-oriented casual wear to attract a broader customer base. In August 1998, Federated sold its specialty store division to our management team and Bear Stearns Merchant Banking. Bear Stearns Merchant Banking and our management team led by Julian Geiger believed that an opportunity existed to grow our concept nationally by leveraging our profitable new store model and merchandising strategy. We undertook a number of initiatives to establish the independence of our business, including hiring additional senior management, investing in infrastructure and strengthening vendor relationships. Subsequently, we discontinued the operations of Chelsea Cambell to focus solely on our brand. Our strong operating results reflect the initiatives taken by our management team, as well as the increasing acceptance of our brand and merchandise. Since August 3, 1998, we have increased our store count by 159 to 278 stores in 33 states and the District of Columbia, as of February 2, 2002. From the end of fiscal 1998 through fiscal 2001, we have increased net sales from $141.4 million to $304.8 million and our sales for the six months ended February 2, 2002 increased to approximately $284.0 million from approximately $184.4 million for the six months ended February 3, 2001. Our sales per square foot also grew from $317 to $392 from the end of fiscal 1998 through fiscal 2001 and from $250 in the six months ended February 3, 2001 to $297 in the six months ended February 2, 2002. Furthermore, we achieved comparable store sales growth of 5.5% for fiscal 1999, 14.5% for fiscal 2000, 8.7% for fiscal 2001 and 23.0% for the six months ended February 2, 2002. GENERAL Net sales. Net sales consist of sales from comparable stores and non-comparable stores. A store is not included in comparable store sales until the first day of the fiscal month following the fourteenth full fiscal month of sales. Non-comparable store sales include sales in the current fiscal year from our stores opened during the previous fiscal year before they are considered comparable stores and new stores opened during the current fiscal year. In addition, all sales generated from stores that we have closed and through our arrangements with colleges and universities for organized sales events are included in non-comparable store sales. Cost of sales. Cost of sales includes the cost of merchandise, distribution and warehousing, freight from the distribution center and warehouse to the stores, payroll for our design, buying and merchandising personnel and store occupancy costs. Store occupancy costs include rent, contingent rents, common area maintenance, real estate taxes, utilities, repairs, maintenance and depreciation. On December 21, 2002, we 16 granted options to purchase 565,997 shares of our common stock with an exercise price which was less than the fair market value of our common stock at the time of such grant. The equity based compensation expense will total approximately $8,445,000, of which $1,797,000 will be recorded in cost of sales. We recorded equity based compensation expense of $845,000 in cost of sales for the six months ended February 2, 2002. We will incur additional amortization for equity based compensation of $132,000 in the thirteen weeks ended May 4, 2002 and acceleration of the unamortized balance of $820,000 associated with the immediate vesting of options upon the consummation of this offering. Selling, general and administrative expenses. Selling, general and administrative expenses include selling, store management and corporate expenses, including payroll and employee benefits, other than for our design, buying and merchandising personnel, employment taxes, management information systems, marketing, insurance, legal, 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 opening expenses. Corporate level expenses are primarily attributable to our corporate offices in New York, New York, and Wayne, New Jersey. On December 21, 2001, we granted options to purchase 565,997 shares of our common stock with an exercise price which was less than the fair market value of our common stock at the time of such grant. The equity based compensation expense will total approximately $8,445,000, of which $6,648,000 will be recorded in selling, general and administrative expenses. We recorded equity based compensation expense of $3,127,000 in selling, general and administrative expenses for the six months ended February 2, 2002. We will incur additional amortization for equity based compensation of $488,000 in the thirteen weeks ended May 4, 2002 and acceleration of the unamortized balance of $3,033,000 associated with the immediate vesting of options upon the consummation of this offering. Store closing expenses. In fiscal 2000, we tested a new store concept by opening seven aero kids stores which targeted children 6 to 12 years old. Although the concept showed growth potential, we decided that there was significant expansion opportunity for our core Aeropostale store format, and we determined to focus our resources solely on this concept. We recorded a noncash charge of $815,000 in fiscal 2001 to reflect the write-down of leasehold improvements and store fixtures and equipment to the net realizable value and subsequently closed the seven aero kids' stores by October 2001. Interest expense, net. Interest expense, net of interest income, includes interest relating to our revolving credit facility and amortization of financing intangibles. Discontinued operations. On February 25, 2000, we decided to discontinue our Chelsea Cambell specialty store business and we closed all Chelsea Cambell stores by the end of December 2000. The operating results of this segment for all years have been reclassified as discontinued operations. Cumulative effect of accounting change. On August 5, 2001, we adopted Statement of Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets, which requires companies to no longer amortize negative goodwill. The cumulative effect of this change resulted in a gain of $1.6 million in the six months ended February 2, 2002. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires the appropriate application of certain accounting policies, many of which require us to make estimates and assumptions about future events and their impact on amounts reported in our financial statements and related notes. Since future events and their impact cannot be determined with certainty, the actual results will inevitably differ from our estimates. Such differences could be material to the financial statements. We believe application of accounting policies, and the estimates inherently required therein, are reasonable. These accounting policies and estimates are constantly reevaluated, and adjustments are made when facts and circumstances dictate a change. Historically, we have found our application of accounting policies to be appropriate, and actual results have not differed materially from those determined using 17 necessary estimates except for the change in estimated useful lives described in Note 2 to the financial statements. Our accounting policies are more fully described in Note 2 to the financial statements, located elsewhere in this prospectus. We have identified certain critical accounting policies which are described below. Merchandise inventory. Our merchandise inventory is carried at the lower of cost or market on a first-in, first-out basis. We make certain assumptions to adjust inventory based on historical experience and current information in order to assess that inventory is recorded properly at the lower of cost or market. These assumptions can have a significant impact on current and future operating results and financial position. Long-lived assets. In evaluating the fair value and future benefits of long-lived assets, we perform an analysis of the anticipated undiscounted future net cash flows of the related long-lived assets and reduce their carrying value by the excess, if any, of the result of such calculation. We believe at this time that the long-lived assets' carrying values and useful lives continues to be appropriate. FISCAL YEAR In January 2002, our board of directors resolved to change our fiscal year end from the Saturday closest to July 31 to the Saturday closest to January 31 of each year. We changed our fiscal year end to conform with the practice generally followed in our industry. RESULTS OF OPERATIONS The following table sets forth our results of operations expressed as a percentage of total net sales for the period indicated:

FISCAL YEAR ENDED SIX MONTHS ENDED(1) --------------------------------- -------------------------- JULY 31, JULY 29, AUGUST 4, FEBRUARY 3, FEBRUARY 2, 1999 2000 2001 2001 2002 -------- -------- --------- ----------- ----------- (UNAUDITED) Net sales....................... 100.0% 100.0% 100.0% 100.0% 100.0% Gross profit.................... 27.6 28.8 28.3 32.4 36.6 Selling, general and administrative expenses....... 21.2 21.4 21.6 18.7 19.4 Store closing expenses.......... -- -- 0.3 -- -- Amortization of negative goodwill...................... (0.2) (0.1) (0.1) (0.1) -- Income from operations.......... 6.5 7.5 6.4 13.8 17.2 Interest expense, net........... 0.1 0.4 0.5 0.6 0.1 Income before income taxes...... 6.4 7.1 5.9 13.2 17.1 Provision for income taxes...... 2.3 2.7 2.3 5.2 7.0 Income from continuing operations.................... 4.1 4.4 3.6 8.0 10.1 Gain (loss) on discontinued operations.................... (0.2) 0.9 0.1 0.2 -- Cumulative effect of accounting change........................ -- -- -- -- 0.6 Net income...................... 3.9 5.3 3.7 8.2 10.7

--------------- (1)Our results of operations for our fiscal six months ended February 3, 2001 included 27 weeks compared to 26 weeks for our fiscal six months ended February 2, 2002. Six months ended February 2, 2002 compared to six months ended February 3, 2001 (unaudited). Net sales. Our net sales for the six months ended February 2, 2002, increased to approximately $284.0 million from approximately $184.4 million for the six months ended February 3, 2001, an increase 18 of approximately $99.6 million. Of this increase, comparable store sales contributed approximately $37.4 million and non-comparable store sales contributed approximately $62.2 million. Of the net sales for the six months ended February 3, 2001, $2.7 million were generated during the extra week included in that period. Comparable store sales increased by 23.0% for the six months ended February 2, 2002, compared to an increase of 14.5% in comparable store sales in the six months ended February 3, 2001. This increase was due to higher comparable sales of young women's merchandise and accessories, with young men's comparable sales essentially unchanged. The increase in non-comparable store sales was primarily due to 54 more stores open at the end of the six months ended February 2, 2002 as compared to the prior period. Gross profit. Our gross profit, which represents net sales less cost of sales, increased approximately $44.2 million in the six months ended February 2, 2002 to approximately $104.0 million from approximately $59.8 million for the six months ended February 3, 2001. As a percentage of net sales, gross profit increased to 36.6% from 32.4% during these periods. This increase is primarily attributable to an approximate 2.8% increase in merchandise margins due to a shift in our merchandise mix as we sold a greater percentage of young women's apparel, which has higher margins than young men's merchandise. Furthermore, occupancy and payroll costs, which are relatively fixed, were lower as a percentage of net sales than in the prior period which caused margins to increase. Included in cost of sales during the six months ended February 2, 2002 is a $845,000 charge for equity based compensation. Selling, general and administrative expenses. Our selling, general and administrative expenses increased approximately $20.7 million for the six months ended February 2, 2002 to approximately $55.2 million from approximately $34.5 million for the six months ended February 3, 2001. This increase was partially due to an approximate $11.7 million increase in payroll expenses that resulted from new store growth in addition to compensation costs incurred in connection with incentive bonus programs. Furthermore, we incurred a $3.1 million charge for equity based compensation during the six months ended February 2, 2002. As a percent of net sales, selling, general and administrative expenses increased to 19.4% from 18.7%. This increase as a percentage of sales volume was due to the charge for equity based compensation, offset by an increased leverage of store payroll. Interest expense. Our interest expense decreased approximately $0.8 million, from $1.1 million for the six months ended February 3, 2001 to approximately $0.3 million for the six months ended February 2, 2002, primarily due to lower average borrowings. Income taxes. Our effective tax rate of 41.0% for the six months ended February 2, 2002 compares to an effective tax rate of 39.6% for the six months ended February 3, 2001. Our effective tax rate increased as a result of the increase in our federal tax rate, partially offset by the elimination of the negative goodwill amortization. Gain from continuing operations. Our income from continuing operations increased approximately $13.9 million for the six months ended February 2, 2002 to approximately $28.6 million from approximately $14.7 million for the six months ended February 3, 2001. This increase was primarily due to increased sales and gross profit, partially offset by an equity based compensation expense incurred in this period. Income from discontinued operations. All Chelsea Cambell stores were closed by the end of December 2000; therefore, no activity occurred during the six months ended February 2, 2002. For the six months ended February 3, 2001, our Chelsea Cambell stores had net sales of $2.9 million and expenses of $2.5 million. Net income. Our net income increased by approximately $15.2 million, to approximately $30.3 million in the six months ended February 2, 2002 from approximately $15.1 million in the six months ended February 3, 2001. As a percentage of net sales, net income increased to 10.7% from 8.2% during these periods. 19 Fiscal year 2001 compared to fiscal year 2000. Net sales. Our net sales for fiscal 2001 increased to approximately $304.8 million from approximately $213.4 million in fiscal 2000, an increase of approximately $91.4 million. Of this increase, comparable store sales contributed approximately $17.1 million and non-comparable store sales contributed approximately $74.3 million. Comparable store sales increased by 8.7% in fiscal 2001, compared to an increase of 14.5% in comparable store sales in fiscal 2000. This increase was due to higher comparable sales of young women's merchandise and accessories, partially offset by a decrease in young men's comparable sales. The increase in non-comparable store sales was primarily due to an increase in our store count by 74 stores in fiscal 2001. Gross profit. Our gross profit increased approximately $24.6 million in fiscal 2001 to approximately $86.1 million from approximately $61.5 million for fiscal 2000. As a percentage of net sales, gross profit decreased to 28.3% from 28.8% during these periods. This decrease was primarily attributable to lower merchandise margins of approximately 0.5% due to higher markdowns across all merchandise categories. Selling, general and administrative expenses. Our selling, general and administrative expenses increased approximately $20.2 million in fiscal 2001 to approximately $65.9 million from approximately $45.7 million in fiscal 2000. Our payroll expenses increased by approximately $14.7 million in fiscal 2001 over the prior fiscal year principally as a result of new store growth, in addition to compensation costs incurred in connection with incentive bonus programs. The remaining increase was due to variable sales expenses. In addition, part of this increase was attributable to increased marketing initiatives for which we spent approximately $2.2 million in fiscal 2001 as compared to approximately $1.1 million in fiscal 2000. As a percentage of net sales, selling, general and administrative expenses increased to 21.6% in fiscal 2001 from 21.4% in fiscal 2000. Interest expense. Our interest expense increased by approximately $0.8 million from $0.9 million in fiscal 2000 to approximately $1.7 million in fiscal 2001 primarily due to higher seasonal borrowings necessitated by our higher store count. Income taxes. Our effective tax rate of 39.3% in fiscal 2001 compares to an effective tax rate of 38.0% in fiscal 2000. This increase was the result of an increase in income in states with higher tax rates. Income from continuing operations. Our income from continuing operations increased approximately $1.5 million in fiscal 2001 to approximately $10.9 million from approximately $9.4 million in fiscal 2000. This increase was primarily due to increased sales and gross profit. Gain (loss) from discontinued operations. In fiscal 2001, we recognized a gain of approximately $0.4 million from the discontinuation of our Chelsea Cambell business after having recognized a gain of approximately $2.0 million in fiscal 2000. The amount recognized in fiscal 2001 represents actual amounts compared to estimated loss on disposal for fiscal 2000. Net income. Our net income in fiscal 2001 decreased to approximately $11.3 from approximately $11.4 million in fiscal 2000, a decrease of $0.1 million. As a percentage of net sales, net income decreased to 3.7% from 5.3% during these periods. Fiscal year 2000 compared to fiscal year 1999 Net sales. Our net sales for fiscal 2000 increased to approximately $213.4 million from approximately $152.5 million in fiscal 1999, an increase of approximately $60.9 million. Of this increase, comparable store sales contributed approximately $21.4 million and non-comparable store sales contributed approximately $39.5 million. Comparable store sales increased by 14.5% in fiscal 2000, compared to an increase of 5.5% in comparable store sales in fiscal 1999. This increase was due to higher comparable sales in all merchandise categories. The increase in non-comparable store sales was primarily due to an increase in our store count by 49 stores in fiscal 2000. Gross profit. Our gross profit increased approximately $19.5 million in fiscal 2000 to approximately $61.5 million from approximately $42.0 million in fiscal 1999. As a percentage of net sales, gross profit 20 increased to 28.8% from 27.6% during these periods. Included in this increase was a 1.6% decrease in occupancy costs as a percentage of sales in fiscal 2000 as compared to fiscal 1999. Selling, general and administrative expenses. Our selling, general and administrative expenses increased approximately $13.3 million in fiscal 2000 to approximately $45.7 million from approximately $32.4 million in fiscal 1999. This increase was mainly due to an increase of approximately $7.5 million in payroll expenses attributable to new store growth and an increase of approximately $1.1 million in marketing expenditures. The remaining increase was due to variable sales expenses. As a percentage of net sales, selling, general and administrative expenses increased to 21.4% in fiscal 2000 from 21.2% in fiscal 1999. Interest expense. Our interest expense increased by approximately $0.8 million from $0.1 million in fiscal 1999 to approximately $0.9 million in fiscal 2000, primarily due to higher seasonal borrowing. Income taxes. Our effective tax rate of 38.0% for fiscal 2000 compares to an effective tax rate of 36.2% for fiscal 1999. This increase was the result of an increase in income in states with higher tax rates. Income from continuing operations. Our income from continuing operations increased approximately $3.2 million in fiscal 2000, to approximately $9.4 million from approximately $6.2 million in fiscal 1999. This increase was primarily due to increased sales and gross profit partially offset by increased income taxes. Gain (loss) from discontinued operations. We recorded a $2.0 million gain in fiscal 2000 attributable to the discontinuation of our Chelsea Cambell business after having recognized a loss of approximately $0.3 million in fiscal 1999. The gain recognized in fiscal 2000 includes a loss from Chelsea Cambell operations and an estimated loss on disposal, offset by the associated tax benefit and a negative goodwill write off. Net income. Our net income in fiscal 2000 increased to approximately $11.4 million from approximately $6.0 million in fiscal 1999, an increase of approximately $5.4 million. As a percentage of net sales, net income increased to 5.3% from 3.9% during these periods. This increase was primarily due to increases in sales and gross profit and a gain on discontinued business operations. QUARTERLY RESULTS AND SEASONALITY The following table sets forth our historical unaudited quarterly consolidated statements of operations data for each of the eight fiscal quarters ended August 4, 2001, and for the thirteen weeks ended November 3, 2001 and February 2, 2002 and such information expressed as a percentage of our revenue. This unaudited quarterly information has been prepared on the same basis as the annual audited financial statements appearing elsewhere in this prospectus, and includes all necessary adjustments, consisting only of normal recurring adjustments, that we consider necessary to present fairly the financial information for the quarters presented. The quarterly data should be read in conjunction with the audited consolidated financial statements and the related notes appearing elsewhere in this prospectus.

FISCAL 2000 FISCAL 2001 ------------------------------------------ --------------------------------------- THIRTEEN WEEKS ENDED THIRTEEN WEEKS ENDED ------------------------------------------ --------------------------------------- OCT. 30, JAN. 29, APRIL 29, JULY 29, OCT. 28, FEB. 3, MAY 5, AUG. 4, 1999 2000 2000 2000 2000 2001(1) 2001 2001 -------- -------- --------- -------- -------- -------- ------- ------- STATEMENT OF INCOME DATA: Net sales.......... $53,331 $72,164 $40,552 $47,398 $76,831 $107,538 $56,629 $63,769 Gross profit....... 18,593 24,669 8,487 9,723 25,750 34,008 12,458 13,933 Income (loss) from continuing operations....... 4,413 7,667 (1,428) (1,286) 6,007 8,687 (2,049) (1,731) Gain (loss) from discontinued operations....... (611) (1,596) (1,621) 5,830 -- 388 2 15 Net income (loss)........... 3,802 6,071 (3,049) 4,544 6,007 9,075 (2,047) (1,716)

THIRTEEN WEEKS ENDED --------------------- NOV. 3, FEB. 2, 2001 2002 --------- --------- STATEMENT OF INCOME DATA: Net sales.......... $126,019 $158,021 Gross profit....... 48,934 55,052(3) Income (loss) from continuing operations....... 14,727 13,910(3) Gain (loss) from discontinued operations....... -- -- Net income (loss)........... 16,359(2) 13,910

21

FISCAL 2000 FISCAL 2001 ------------------------------------------ --------------------------------------- THIRTEEN WEEKS ENDED THIRTEEN WEEKS ENDED THIRTEEN WEEKS ENDED ------------------------------------------ --------------------------------------- --------------------- OCT. 30, JAN. 29, APRIL 29, JULY 29, OCT. 28, FEB. 3, MAY 5, AUG. 4, NOV. 3, FEB. 2, 1999 2000 2000 2000 2000 2001(1) 2001 2001 2001 2002 -------- -------- --------- -------- -------- -------- ------- ------- --------- --------- AS A PERCENTAGE OF NET SALES: Net sales.......... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Gross profit....... 34.9 34.2 20.9 20.5 33.5 31.6 22.0 21.8 38.8 34.8 Income (loss) from continuing operations....... 8.3 10.6 (3.5) (2.7) 7.8 8.1 (3.6) (2.7) 11.7 8.8 Net income (loss)........... 7.1 8.4 (7.5) 9.6 7.8 8.4 (3.6) (2.7) 13.0 8.8 DILUTED INCOME (LOSS) PER SHARE: From continuing operations....... $ 0.12 $ 0.22 $ (0.06) $ (0.05) $ 0.17 $ 0.24 $ (0.07) $ (0.06) $ 0.40 $ 0.38 From discontinued operations....... (0.02) (0.05) (0.05) 0.17 -- 0.01 -- -- -- -- From cumulative accounting change........... -- -- -- -- -- -- -- -- 0.05 -- ------- ------- ------- ------- ------- -------- ------- ------- -------- -------- Net income......... $ 0.10 $ 0.17 $ (0.11) $ 0.12 $ 0.17 $ 0.25 $ (0.07) $ (0.06) $ 0.45 $ 0.38 ======= ======= ======= ======= ======= ======== ======= ======= ======== ======== SELECTED OPERATING DATA: Comparable store sales increase (decrease)....... 18.6% 19.0% 10.1% 6.8% 12.7% 15.9% 3.4% (0.4)% 22.8% 23.1%

The per share amounts are calculated independently for each thirteen-week period presented. The sum of the thirteen weeks may not equal the full year per share amounts. --------------- (1)The fiscal quarter ended February 3, 2001 included 14 calendar weeks. (2) On August 5, 2001, we adopted Statement of Accounting Standards No. 142 "Goodwill and Other Intangibles." With the adoption, we recorded income from cumulative effect of such accounting change of $1.6 million. (3)On December 21, 2001, we granted options to purchase 565,997 shares of our common stock with an exercise price which was less than the fair market value of our common stock at the time of such grant. The equity based compensation expense will total approximately $8,445,000, of which $845,000 and $3,127,000 were recorded in cost of sales and selling, general and administrative expenses, respectively, in the six months ended February 2, 2002. In addition, we will record amortization for equity based compensation of $620,000 in the thirteen weeks ended May 4, 2002 and acceleration of the unamortized balance of $3,853,000 associated with the immediate vesting of options upon the consummation of this offering. LIQUIDITY AND CAPITAL RESOURCES Our cash requirements are primarily for working capital, the construction of new stores, the remodeling of existing stores and the improvement to our information systems. Historically, these cash requirements have been met through cash flow from operations and borrowings under our credit facility with Fleet Retail Finance, Inc. At February 2, 2002, we had working capital of approximately $38.2 million. During fiscal 2001 our net cash provided by operations was approximately $19.6 million, generated by our operating earnings and increased current liabilities and offset by purchases of merchandise inventory and other assets. For the six months ended February 2, 2002, our net cash provided by operations was approximately $82.9 million. Our net cash provided by operations resulted from net income and a decrease in working capital. Our cash used in investing activities for fiscal 2001 and for the six months ended February 2, 2002, was entirely used for capital expenditures. These expenditures, consisting primarily of the construction of new stores, remodeling of existing stores and investments in technology, were approximately $9.4 million for the six months ended February 2, 2002 and approximately $23.9 million for fiscal 2001. Our future 22 capital requirements will depend primarily on the number of new stores we open and the number of existing stores we remodel and the timing of these expenditures. We opened 74 new stores in fiscal 2001, 34 stores in the six-month period ended February 2, 2002 and expect to open approximately 80 stores in fiscal 2002. Projected capital expenditures for fiscal 2002 are approximately $27.5 million, to be used primarily to fund new store openings and technology investments. Historically, we have financed such capital expenditures with cash from operations and borrowings under our credit facility. We believe that we will continue to finance capital expenditures in this manner during fiscal 2002. In fiscal 2001 we had net borrowings of approximately $8.3 million. For the six months ended February 2, 2002, we had a net repayment under our credit facility of approximately $35.3 million. Our secured revolving credit facility with Fleet, as agent, provides us with up to $55.0 million based upon our inventory balances, seasonal advance rates and third party credit card balances. Borrowings bear interest at our option at either the rate per annum at which deposits on U.S. dollars are offered to Fleet in the Eurodollar market, referred to as the eurodollar rate, plus 1.50% to 2.00% or the base rate announced from time to time by Fleet, dependent upon excess availability. As of April 29, 2002, there was no balance under the revolving credit facility. The revolving credit facility contains financial performance and capital expense covenants, and has a termination date of July, 2004. There are fees for early termination. The revolving credit facility contains a minimum EBITDA covenant, tested monthly. The facility also contains a maximum capital expenditures covenant, tested quarterly. 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, failure to perform covenant or liability requirements, misrepresentation, default of leases, excess uninsured casualty loss, excess uninsured judgment or restraint of business, business failure or application for bankruptcy, indictment of or institution of any legal process or proceeding under federal, state, municipal or civil statutes, legal challenges to loan documents, and a change in control, other than an initial public offering. If an event of default occurs, the lenders under the credit facility will be entitled to take various actions, including the acceleration of amounts due and requiring that all such amounts be immediately paid in full as well as possession and sale of all assets that have been used for collateral. We have not issued any letters of credit for the purchase of merchandise inventory or any capital expenditure. As of February 2, 2002 we had approximately $45.0 million in cash available to fund operations and future store growth. In addition, we had approximately $27.3 million available for borrowings under our credit facility as of February 2, 2002, which availability is limited by the credit facility's borrowing base collateral requirements. In general, the borrowing base equals a seasonally adjusted percentage of the retail value of our inventory and 80% of our third party credit card balances. We believe that cash flows from operations, our current cash balance, funds available under our revolving credit facility and cash proceeds from this offering will be sufficient to meet our working capital needs and planned capital expenditures for fiscal 2002. 23 CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS The following tables summarize our contractual obligations and commercial commitments as of February 2, 2002:

PAYMENTS DUE IN PERIOD ----------------------------------------- WITHIN AFTER 5 TOTAL 1 YEAR 2-3 YEARS 4-5 YEARS YEARS -------- ------- --------- --------- ------- (IN THOUSANDS OF DOLLARS) Contractual Obligations Employment contracts........................ $ 2,100 $ 900 $ 1,200 $ -- $ -- Sponsor fee................................. 200 200 -- -- -- Merchandise agreement....................... 4,455 990 1,980 1,485 -- Operating leases............................ 177,202 27,188 49,806 37,073 63,135 -------- ------- ------- ------- ------- Total contractual obligations............... $183,957 $29,278 $52,986 $38,558 $63,135 ======== ======= ======= ======= =======

AMOUNT OF COMMITMENT PER PERIOD ---------------------------------------------------- TOTAL AMOUNTS WITHIN AFTER 5 COMMITTED 1 YEAR 2-3 YEARS 4-5 YEARS YEARS --------- ------ --------- --------- ------- (IN THOUSANDS OF DOLLARS) Commercial Commitments Lines of credit, nothing outstanding.......... $ -- $ -- $ -- $ -- $ -- Standby letters of credit, nothing outstanding................................ -- -- -- -- -- Bear Stearns Merchant Banking offering fee.... 300 300 -- -- -- Offering bonus................................ 200 200 -- -- -- ------ ------ ------ ------ ------ Total commercial commitments.................. $ 500 $ 500 $ -- $ -- $ -- ====== ====== ====== ====== ======

RECENT ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board issued two new pronouncements: SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 addresses financial accounting and reporting for business combinations and supersedes APB No. 16, Business Combinations, and FASB Statement No. 38, Accounting for Preacquisition Contingencies of Purchased Enterprises. Under SFAS No. 141, all business combinations are to be accounted for using one method, the purchase method. SFAS 141 prohibits the use of the pooling-of-interest method for business combinations initiated after June 30, 2001 and applies to all business combinations accounted for by the purchase method that are completed after June 30, 2001. We have determined that the adoption of this statement will not have an impact on our financial statements. SFAS No. 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes ABP No. 17, Intangible Assets. This pronouncement changes the accounting for goodwill from an amortization method to an impairment only approach. SFAS 142 is effective for fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized in an entity's statement of financial position at that date, regardless of when those assets were initially recognized. The adoption of this statement had an approximately $1.6 million impact on our financial statements for the write-off of the net negative goodwill as of August 5, 2001. In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This statement supersedes SFAS No. 121 but retains the fundamental provisions of SFAS No. 121 for recognition and measurement of the impairment of long-lived assets to be held and used and measurement of long-lived assets to be disposed of by sale. However, SFAS No. 144 applies the fair value method for testing of impairment, which differs from SFAS No. 121. SFAS No. 144 also supersedes the accounting and reporting provisions of APB Opinion No. 30 as it pertains to disposal of a 24 business segment but retains the requirement of that opinion to report discontinued operations separately from continuing operations and extends that reporting to a component of an entity that either has been disposed of or is classified as held for sale. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. We are evaluating the impact of the adoption of this standard and have not yet determined the effect of its adoption on our financial position and results of operations. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest rates. Our market risks relate primarily to changes in interest rates. We bear this risk in two specific ways. First, our revolving credit facility carries a variable interest rate that is tied to market indices and, therefore, our statement of income and our cash flows will be exposed to changes in interest rates. As of February 2, 2002, we had no principal outstanding. Outstanding balances under our credit facility bear interest at our option at either the eurodollar rate plus 1.50% to 2.00% or the base rate announced from time to time by Fleet. Based on the weighted average borrowings outstanding during 2001, a 100 basis point change in interest rates would result in an approximate $188,000 change to our annual interest expense. The second component of interest rate risk involves the short term investment of excess cash in short term, investment grade interest bearing securities. These investments are considered to be cash equivalents and are shown that way on our balance sheet. If there are changes in interest rates, those changes would affect the investment income we earn on these investments and, therefore, impact our cash flows and results of operations. INFLATION We do not believe that inflation has had a material adverse impact on our business or operating results during the periods presented. We cannot assure you, however, that our business will not be affected by inflation in the future. 25 BUSINESS OVERVIEW Our company is a fast-growing, mall-based specialty retailer of casual apparel and accessories that targets both young women and young men aged 11 to 20. We provide our customers with a focused selection of high-quality, active-oriented, fashion basic merchandise at compelling values. We maintain complete control over our proprietary brand by designing and sourcing all of our merchandise. Our products can be purchased only in our stores, which sell Aeropostale merchandise exclusively. We create a fun and high energy shopping experience through the use of creative visual merchandising, colorful in-store signage, bright lighting, popular music and an enthusiastic, well-trained sales force. Our average store size of approximately 3,500 square feet is generally smaller than that of our mall-based competitors and we believe that this enables us to achieve higher sales productivity and project a sense of activity and excitement. As of February 2, 2002, we operated 278 stores in 33 states and the District of Columbia. A key differentiating aspect of our design and merchandising strategy is to keep our styles and product offerings geared towards the demands of our target customers' active lifestyles. We believe in maintaining a brand that minimizes fashion risk by reflecting mainstream fashion rather than cutting-edge trends. Our merchandise consists primarily of fashion basic apparel that projects a casual and comfortable image. We provide a focused assortment of high-quality merchandise, including graphic t-shirts, tops, bottoms, sweaters, jeans, outerwear and accessories. Today, much of our merchandise features our "Aeropostale" or "Aero" logo with which many of our customers have come to identify. Through our integrated in-house design and merchandising teams and quick-turn sourcing relationships, we are able to interpret and react quickly to mainstream fashion trends and replenish fast-selling inventory rapidly. BUSINESS STRENGTHS We believe that our key business strengths will enable us to continue to expand our store base and grow profitably. Differentiated and recognizable brand. We have created an active lifestyle brand image for both young women and young men aged 11 to 20. In an effort to differentiate the Aeropostale brand from that of our competitors, our design and merchandising teams focus on what our customers want and can afford. As a result, our merchandise is comprised of high-quality, comfortable, active-oriented apparel and accessories that reflect widely accepted fashion trends. Our "Aeropostale" and "Aero" logos further strengthen our brand recognition and create an association with which many of our customers have come to identify. We believe that in the markets we serve, our brand is recognized by our target customers and our stores are viewed as preferred shopping destinations. Disciplined operating and financial practices. - Operating discipline. Our operating discipline extends throughout all aspects of our company. Our design and merchandising teams work closely together to identify and capitalize on proven fashion trends that have broad appeal among our target customer base. Our designers and merchandisers are able to control the quality, consistency and timing of our merchandise because we sell only our proprietary products. We test our products on an ongoing basis to ensure that our products are well received by our customers. We source all of our products so we can offer them at attractive prices. Finally, we make site selections based upon rigorous due diligence, including extensive market research, site visits and assessments of mall dynamics. - Financial discipline. We have successfully executed a store growth strategy that emphasizes profitability. Since we became an independent company, over 90% of our stores in operation have produced positive store-level operating cash flows annually. Our gross profit margins grew from 32.4% for the six months ended February 3, 2001 to 36.6% for the six months ended February 2, 2002. In addition, our operating income margins grew from 13.8% for the six months ended February 3, 2001 to 17.2% for the six months ended February 2, 2002. Our store growth and other 26 capital expenditures have been funded with cash from operations. Consistent with our financial discipline, we employ incentive compensation programs based upon key financial performance indicators for all levels of management. Operating flexibility. We maintain significant flexibility in the operation of our business so that we can react quickly to changes in customer preferences. We conduct daily reviews of the sales performance of our merchandise to identify and respond to changing trends and consumer preferences. We pursue a sourcing strategy that maximizes our speed to market. We have established strong and loyal relationships with our vendors which allow us to source and replenish our merchandise quickly. Currently, we are able to replenish a majority of our merchandise within 45 to 90 days. We believe that our warehouse and distribution facilities can adequately support our merchandise replenishment needs and are sufficient to accommodate our planned new store growth. Our store layout allows for a constant renewal of merchandise. We frequently update our presentation tables, in-store promotions, signage and window displays to create excitement in our stores. Attractive new store economics. Since we became an independent company, we have successfully and consistently implemented our store format across a wide variety of mall classifications and geographic locations. Our average net investment to open a new store has been approximately $285,000, which includes capital expenditures adjusted for landlord contributions and initial inventory at cost net of payables. Our stores have achieved average net sales of approximately $1.2 million during their first twelve months of operations, sales per squar