This summary is based on the first quarter fiscal 2008 earnings call conducted by Aeropostale, Inc. (ARO) on May 22, 2008.
Management:
Vice President of Investor and Media Relations: Ken Ohashi
Chairman and Chief Executive Officer: Julian R. Geiger
President and Chief Merchandising Officer: Mindy C. Meads
Chief Operating Officer: Thomas P. Johnson
Chief Financial Officer: Michael J. Cunningham
Key Investors Issues
- EPS were 26 cents a share compared to 18 cents a share last year.
- Profit rose to $17.5 million from $13.6 million in the year-ago period.
- Revenue rose to $336.3 million from $275.8 million last year.
First Quarter Highlights
Total net sales were up 26% versus last year driven by average square footage growth of about 1% and a 10% comparable store sales.
- Comparable store sales transactions were up 7%, units per transactions were up 3% and average unit retail was essentially flat.
- The company opened 21 stores and closed one, ending the quarter with a total of 819 Aero stores in US, 15 stores in Canada and 14 Jimmy’Z stores.
Gross profit increased 25% while gross margins were at 33.1% versus 32.2% last year.
- The 90 basis point increase was driven by higher merchandise margin and the leveraging of occupancy cost partially offset by higher distribution and transportation costs.
- SG&A increased 20%, over 24.4% sales versus 24.7% last year. The 30 basis point improvement was primarily due to leveraging of store line operational expenses partially offset by stock-based compensation, higher incentive comparison reflecting bulk plan performance this quarter and RAE comparison related fees due to the doubling of sales in that business.
- As a result operating income was up 42% and operating margin reached 8.7%.
- Tax rate was 40.5%, which resulted in net income of $17.5 million or 26 cents per share.
- Cash and equivalents at the close of the quarter was $64.5 million versus $210.7 million together of cash and cash equivalents, together with short-term securities last year. The $146.2 million decrease of last year reflects to increased stock repurchase activity during the second half of 2007.
- As of May 3, 2008 the company had approximately $134 million of remaining buyback availability under the current $600 million share repurchase program. Inventory at the close of the quarter was $135 million, now the company is up 25% in total. On a per square foot basis inventories were up 13%. The company strategically shifted spring and summer floor-set calendar to maximize the spring selling season. These proved to be the right strategy as demonstrated by results.
- Inventory per square foot was up 4% to last year.
- Capital expenditures were $20 million and depreciation and amortizations were $9.9 million.
- Merchandise margins improved by 110 basis points and net earnings grew 44% to 26 cents per share from 18 cents per share last year.
- Women’s comparable store sales were up 7% and men’s comparable store sales were up 20%. The company experienced strength in men’s and women’s graphics and denim and women’s short and bare knit top.
Second Quarter 2008 Outlook
The company expects earnings to be in a range of 22 cents to 24 cents per share compared to 19 cents per share last year.
Key questions from the first quarter earnings call conducted by Aeropostale, Inc. on May 22, 2008.
Jeffrey Klinefelter (Piper Jaffray):
You provided initial outlook for the full-year of about 18% earnings guidance or EPS guidance. Do you have any updates on the full-year outlook?
Michael Cunningham: At this point in time we have not got the full-year outlook. The majority of the earnings come in the back half of the year, so we feel it would be prudent to wait to see how the macro environment shapes out before we update the full-year.
Jeffrey Klinefelter (Piper Jaffray):
What the guidance is based on in terms of trends, gross margin versus SG&A?
Michael Cunningham: For next quarter basically our assumptions is a light improvement in gross margin. We are going to see an increase in the SG&A rate as; we are ramping up and heading the team for a younger concept and that will start to come on stream in the second quarter, so our guidance reflects that. Our momentum has been great in the first quarter. As we are looking at the second quarter the substantial majority of our earnings come in July and that is the beginning for us; mid July is the beginning of the back-to-school selling season, where both the volume and the floor set store goes back-to-school, regions start to set, so that is the majority of profits coming from July. At this point in time given our guidance we feel it would be prudent to give the numbers we have out there and as we get into July we will be in a position to update you further.
