Aeropostale Management Discusses Q2 2012 Results - Earnings Call Transcript

Aeropostale (ARO)

Q2 2012 Earnings Call

August 16, 2012 4:15 pm ET

Executives

Kenneth Ohashi - Vice President of Investor and Media Relations

Thomas P. Johnson - Chief Executive Officer and Director

Marc D. Miller - Chief Financial Officer and Executive Vice President

Michael J. Cunningham - President and Director

Analysts

Adrienne Tennant - Janney Montgomery Scott LLC, Research Division

Betty Y. Chen - Wedbush Securities Inc., Research Division

Janet Kloppenburg

Brian J. Tunick - JP Morgan Chase & Co, Research Division

Randal J. Konik - Jefferies & Company, Inc., Research Division

Kimberly C. Greenberger - Morgan Stanley, Research Division

Dana Lauren Telsey - Telsey Advisory Group LLC

Anna A. Andreeva - FBR Capital Markets & Co., Research Division

Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division

Dorothy S. Lakner - Caris & Company, Inc., Research Division

Roxanne Meyer - UBS Investment Bank, Research Division

Eric M. Beder - Brean Murray, Carret & Co., LLC, Research Division

Evren Dogan Kopelman - Wells Fargo Securities, LLC, Research Division

Marni Shapiro - The Retail Tracker

Jennifer M. Davis - Lazard Capital Markets LLC, Research Division

Richard Ellis Jaffe - Stifel, Nicolaus & Co., Inc., Research Division

John D. Kernan - Cowen and Company, LLC, Research Division

Howard Tubin - RBC Capital Markets, LLC, Research Division

Jaime M. Katz - Morningstar Inc., Research Division

Linda Yu Tsai - ITG Market Research

Pamela Nagler Quintiliano - Oppenheimer & Co. Inc., Research Division

Presentation

Operator

Thank you for joining us for the Aéropostale Conference Call to review second quarter 2012 financial results. [Operator Instructions] I would like to remind everyone that this conference call is being recorded. I would now like to introduce Ken Ohashi, the company's Vice President of Investor and Media Relations.

Kenneth Ohashi

Thank you all for joining us this afternoon. With me here today are Tom Johnson, our Chief Executive Officer; Michael Cunningham, our President; and Marc Miller, our Chief Financial Officer. We issued a press release earlier this afternoon announcing our second quarter fiscal 2012 results. A copy of the release and corresponding presentation can be found on our corporate website.

Before we begin, I would like to remind you that during this earnings conference call, certain statements or responses to any questions may contain forward-looking information, such as forecasts of future performance. Forward-looking information and statements involve known and unknown risks and uncertainties, which may cause our actual results to differ materially from our forecasted results. Those risks are described in our annual report on Form 10-K and our quarterly reports on Form 10-Q, all of which have been filed with the SEC and are available on our website.

We undertake no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances. Listeners to this call are referred to those filings. [Operator Instructions] I would now like to turn the call over to Tom.

Thomas P. Johnson

Thank you, Ken. Good afternoon, everyone, and thank you for joining us today. I'd like to take you through some of the highlights for our second quarter, and then I'll turn the call over to Marc, who will take us through the financials.

During the quarter, we focused on integrating fresh and relevant fashion into our assortment, in addition to launching new and exciting marketing campaigns, communicate a stronger lifestyle message to our consumer.

Similar to the trends we experienced in the spring season, our girl customer continued to respond positively to newness in silhouettes, fabrics and details. We experienced strong sell-throughs in key categories such as fashion tops, colored and printed denim, wovens and accessories.

In Men's, we continue to experience success with our broadened assortment, including short sleeve knits and wovens. Overall, our fashion categories experienced positive comps and an improvement in our average unit retail and gross margins versus last year.

While we are encouraged by the customer response to our fashion that was supported by our broader marketing initiatives, our core basics business, which includes graphics, polos and printed camis, was under significant pricing pressure. As result, we had to promote these businesses more aggressively than initially expected to end the quarter with inventories in line with our plan.

Unfortunately, these competitive pricing pressures on our core basic business has accelerated into the early back-to-school season. And we believe that both our top line and margins will be under pressure for the remainder of the third quarter. While our financial performance is clearly not up to our expectations, I believe we are focused on the right initiatives to improve our business. I'd like to review these initiatives with you in greater detail.

First, injecting more fashion into our assortment. A year ago, we had limited amount of fashion in our stores. Today, we're projecting fashion throughout our store and in our marketing, and it's resonating with our customer. To build on our progress, we continue to refine our offering while also developing and making larger investments in our fashion basics category, which fills a gap between our fashion and core basics. We believe our focus on introducing more fashion basics will allow us to strike the right balance of merchandise within our overall assortment to meet customer demand.

In our core basics category, we will continue to update our offering while leveraging our volume and buying efficiencies to remain competitive. Second, enhancing processes and technology. We're implementing new processes and investing in new technologies that will enable us to chase bestsellers and increase our speed to market. Additionally, we will further optimize the allocation of our assortment by mall type and store profile, based upon the appetite for fashion in each of our stores.

Third, the projection of our brand proposition. We are continuing to increase the projection of our fashion and lifestyle proposition to the consumer, balanced with our traditional hard-hitting promotions. As you may have seen for back-to-school, we launched an exciting new campaign featuring actress Chloe Grace Moretz. We believe that Chloe, who has quickly become a fashion icon for today's teen, is the perfect role model to showcase our new looks. Moving forward, we will continue to deliver similar fun and exciting marketing campaigns that both connect with our consumer on an emotional level and our call to action.

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