This is a summary of the third quarter fiscal 2008 earnings call conducted by Aeropostale, Inc. (ARO) on December 3, 2008.
Management:
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Chairman and CEO: Julian Geiger
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President and Chief Merchandising Officer: Mindy Meads
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Executive VP and CFO: Michael Cunningham
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Executive VP and COO: Tom Johnson
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Vice President, Investor & Media Relations: Kenneth Ohashi
Key Investor Issues:
- Net sales for the period rose 17% to $482 million and same-store sales increased 7%.
- Gross profit grew by 110 basis points.
- Operating margins improved by 60 basis points.
- Net earnings grew 31% to $0.63 per share this year from $0.48 per share last year.
- The company continues to maintain a strong balance sheet with absolutely no debt.
Third Quarter Highlights:
Aeropostale has implemented a number of strategic initiatives and has made some systemic changes to the business over the past few years that have enabled the company to navigate through the currently challenging environment.
For the quarter Aeropostale experienced strength in both genders.
The women''s comp was up mid single digits and men''s were up in the low double digits. The company is pleased with the trend in both the merchandise margins and average unit retail. These increases were driven by an overall improvement in merchandise offerings to the integration of fashion, more fashion, the emphasis in trending key classification, and the reduction in SKU counts by 30%.
Moving into holiday, which is more top driven than back-to-school, graphics, fleece and thermals will remain the key drivers.
The design and merchant teams have integrated the most current treatments and textures into the tops while improving the quality of the garment. Aeropostale also continues to experience significant strength in its logo business, further underscoring the vitality of the Aeropostale brand.
The comps for Black Friday increased in the low single digits on top of the high single digits last year.
Trends since then have been inconsistent. The company believes that this holiday season will be highly promotional and Aeropostale will be offering compelling promotions each week that convey value to the customer. The company will be aligning these promotions with its ecommerce business. The company has specifically targeted the cross-channel shopper, making the Aeropostale brand easily accessible.
Gift cards are also an important part of the gift-giving season.
This year the company has increased the number of locations where it sells its cards through the third-party channel.
The inventories at the end of the quarter remain lean and current.
The company closed the third quarter with inventories on a per square foot basis down 3%. Going into next year, Aeropostale will continue to maximize the flexibility with its vendors by building even stronger contingency strategies, which will allow the company to react to the business faster and smarter next year.
Total net sales for the quarter are up 17% versus last year, driven by an 11% increase in average square footage coupled with the 7% comp.
- Aeropostale opened 26 stores during the quarter, ending with a total of 863 Aero stores in the U.S. and Puerto Rico, 28 Aero stores in Canada, and 14 Jimmy''Z stores.
- Gross margins for the quarter were 36% versus 34.9% last year. The 110 basis point increase was driven by higher merchandise margins.
SG&A for the quarter was 21.4% of sales versus 20.9% last year.
This 50 basis point increase was driven by higher incentive comp expense of 60 basis points, higher share-based comp expense of 30 basis points, and increased ecom fees of 20 basis points reflecting sales growth in that business. These increases were partially offset by the 60 basis points of leverage of store line and other corporate expenses.
Tax rate for the quarter was 39.6%, which resulted in net income of $42.6 million or $0.63 per share.
Cash and cash equivalents, together with short-term investments at the close of the quarter, were $107.2 million versus $122.6 million last year. The $15 million reduction over last year is primarily due to the $125 million in share repurchase activity during the fourth quarter of 2007. As a reminder, Aeropostale has auction rate securities in its portfolio and remain very liquid, with short-term U.S. Treasury investments.
During the quarter Aeropostale repurchased 115,000 shares of the stock for approximately $3.8 million.
