Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements involve certain risks and uncertainties, including statements regarding our strategic direction, prospects and future results. Certain factors, including factors outside of our control, may cause actual results to differ materially from those contained in the forward-looking statements. The risk factors included in Part II, Item 1A should be read in connection with evaluating our business and future prospects. All forward looking statements included in this report are based on information available to us as of the date hereof, and we assume no obligation to update or revise such forward-looking statements to reflect events or circumstances that occur after such statements are made.

Introduction

Management's Discussion and Analysis of Financial Condition and Results of Operations, or "MD&A," is intended to provide information to help you better understand our financial condition and results of operations. Our business is highly seasonal, and historically we realize a significant portion of our sales, net income, and cash flow in the second half of the year, driven by the impact of the back-to-school selling season in our third quarter and the holiday selling season in our fourth quarter. Therefore, our interim period consolidated financial statements may not be indicative of our full-year results of operations, financial condition or cash flows. We recommend that you read this section along with the unaudited condensed consolidated financial statements and notes included in this report and along with our Annual Report on Form 10-K for the year ended January 28, 2012.

The discussion in the following section is on a consolidated basis, unless indicated otherwise.

Results of Operations

Overview

We continue to focus on improving our financial performance by executing certain key initiatives. We continue to refine our merchandise assortments and broaden our offering, in addition to increasing the projection of our fashion and lifestyle proposition. We continue to invest in our infrastructure, increasing efficiencies and supporting our long-term growth. In addition, we continue to develop our long-term growth drivers: P.S. from Aéropostale, e-commerce and international. The macroeconomic and competitive challenges we faced in 2011 have continued through 2012. However, product costs have declined during the remainder of fiscal 2012 as compared to the same periods of fiscal 2011.

On November 13, 2012, we entered into an agreement to acquire substantially all of the assets of online women's fashion footwear and apparel retailer GoJane.com, Inc. ("GoJane"). Based in Ontario, California, GoJane focuses primarily on fashion footwear, with a select offering of contemporary apparel and other accessories. We believe this strategic acquisition of GoJane allows us to expand into new fashion categories online and will also leverage our existing e-commerce platform. We also believe that we will be able to utilize and leverage our existing infrastructure to develop and grow the GoJane business (See Note 13 to the Notes to Unaudited Condensed Consolidated Financial Statements for a further discussion.)

For the third quarter of 2012, we achieved net sales of $605.9 million, or a 2% increase when compared to the third quarter of 2011. Gross profit, as a percentage of net sales, increased by 0.8 percentage points. SG&A, as a percentage of net sales increased by 0.5 percentage points for the third quarter of 2012. Net income for the third quarter of 2012 was $24.9 million, or $0.31 per diluted share, compared to net income of $24.1 million, or $0.30 per diluted share, for the third quarter of 2011.

As of October 27, 2012, we had working capital of $240.6 million, cash and cash equivalents of $184.5 million, no short-term investments and no debt outstanding. Average square footage growth was 4% for the third quarter of 2012 over the comparable prior year period. Consolidated merchandise inventories increased by 5% and by 1% on a per retail square foot basis at October 27, 2012 compared to October 29, 2011.

In the third quarter of 2012, we opened five Aéropostale stores and closed two stores, as well as opened five P.S. from Aéropostale stores and closed two stores. We operated 1,091 stores at October 27, 2012, a net increase of 36 stores from the same period last year, attributable to new P.S. from Aéropostale stores in the U.S. and new Aéropostale stores in both the U.S. and Canada.

The following table sets forth our results of operations as a percentage of net sales. We also use this information to evaluate the performance of our business:

                                                   13 weeks ended                39 weeks ended
                                             October 27,    October 29,    October 27,    October 29,
                                                 2012           2011           2012           2011
Net sales                                         100.0 %        100.0 %        100.0 %        100.0 %
Gross profit                                       27.9 %         27.1 %         27.1 %         26.9 %
Selling, general and administrative expenses       20.9 %         20.4 %         23.4 %         22.1 %
Income from operations                              7.0 %          6.7 %          3.7 %          4.7 %
Interest expense                                      - %            - %            - %            - %
Income before income taxes                          7.0 %          6.7 %          3.7 %          4.7 %
Income taxes                                        2.9 %          2.7 %          1.5 %          1.9 %
Net income                                          4.1 %          4.0 %          2.2 %          2.8 %

Key Performance Indicators

We use a number of key indicators of financial condition and operating
performance to evaluate the performance of our business, some of which are set
forth in the following table. In the first quarter of 2012, we began presenting
certain key performance indicators such as comparable store sales change, on
both the basis of excluding the e-commerce channel and including the e-commerce
channel as further detailed below:

                                                 13 weeks ended                  39 weeks ended
                                           October 27,     October 29,     October 27,     October 29,
                                              2012            2011            2012            2011
Net sales (in millions)                   $    605.9      $    596.5      $  1,588.5      $  1,533.9
Total store count at end of period             1,091           1,055           1,091           1,055
Comparable store count at end of period        1,018             935           1,018             935
Net sales change                                   2  %           (1 )%            4  %           (2 )%
Comparable sales change (including the
e-commerce channel)                               (1 )%           (7 )%            1  %           (8 )%
Comparable store sales change (excluding
the e-commerce channel)                           (2 )%           (9 )%           (1 )%          (10 )%
Comparable average unit retail change
(including the e-commerce channel)                (5 )%           (7 )%           (2 )%          (11 )%
Comparable units per sales transaction
change (including the e-commerce channel)          3  %            7  %            3  %            8  %
Comparable sales transaction change
(including the e-commerce channel)                 2  %           (7 )%           (1 )%           (5 )%
Net sales per average square foot         $      137      $      142      $      367      $      375
Gross profit (in millions)                $    169.0      $    161.5      $    430.8      $    412.2
Income from operations (in millions)      $     42.5      $     39.7      $     59.8      $     72.7
Diluted earnings per share                $     0.31      $     0.30      $     0.44      $     0.53
Average square footage growth over
comparable period                                  4  %            7  %            5  %            8  %
Change in total inventory over comparable
period                                             5  %           11  %            5  %           11  %
Change in inventory per retail square
foot over comparable period                        1  %            -  %            1  %            -  %
Percentages of net sales by category:
Young Women's                                     64  %           66  %           64  %           66  %
Young Men's                                       36  %           34  %           36  %           34  %

Comparison of the 13 weeks ended October 27, 2012 to the 13 weeks ended October 29, 2011

Net Sales

Net sales for the third quarter of 2012 increased by $9.4 million, or by 2%, compared to the same period last year. The increase in net sales was driven by average store square footage growth of 4% primarily from new stores. The net sales increase reflects:

• an increase of $12.4 million in non-comparable store sales due primarily to 36 more stores open at the end of the third quarter of 2012 compared to the end of the third quarter of 2011.

• an increase of $5.4 million in net sales from our e-commerce business which increased by 12% to $51.1 million during the third quarter of 2012 when compared to the same period last year.

• a decrease of $8.4 million, or by 2%, in comparable store sales (excluding the e-commerce channel)

Comparable sales, including the e-commerce channel, decreased by 1% when compared to the same period last year. Comparable sales, including the e-commerce channel, increased by 3% in our young men's category and decreased in our young women's category by 3%. The overall comparable sales, including the e-commerce channel, reflected increases of 3% in units per sales transaction and 2% in the number of sales transactions offset by a decrease of 5% in average unit retail.

Cost of Goods Sold and Gross Profit

Cost of sales includes costs related to merchandise sold, including inventory valuation adjustments, distribution and warehousing, freight from the distribution center to the stores, shipping and handling costs, payroll for our design, buying and merchandising departments and occupancy costs. Occupancy costs include rent, contingent rents, common area maintenance, real estate taxes, utilities, repairs and maintenance, depreciation and amortization and impairment charges.

Gross profit, as a percentage of net sales, increased by 0.8 percentage points for the third quarter of 2012 compared to the same period last year. The increase was due to higher merchandise margin of 1.6 percentage points due to lower product costs and leverage in depreciation costs of 0.3 percentage points. These were partially offset by the deleverage impact of occupancy costs of 0.6 percentage points and distribution and transportation costs of 0.5 percentage points.

SG&A

SG&A includes costs related to selling expenses, store management and corporate expenses such as payroll and employee benefits, marketing expenses, employment taxes, information technology maintenance costs and expenses, insurance and legal expenses, e-commerce transaction expenses, store pre-opening costs and other corporate level expenses. Store pre-opening costs include store level payroll, grand opening event marketing, travel, supplies and other store pre-opening expenses.

SG&A, as a percentage of net sales, was 20.9% for the third quarter of 2012 compared to 20.4% for the same period last year. The increase was primarily due to higher marketing expenses of 0.5 percentage points, higher store-line expenses of 0.4 percentage points and higher e-commerce transaction costs of 0.2 percentage points. These increases were partially offset by a decrease in corporate expenses of 0.6 percentage points and store transaction related expenses of 0.1 percentage points.

SG&A increased by $4.7 million for the third quarter of 2012 compared to the third quarter of 2011. For the third quarter of 2012, the increase was due to increases in store-line expenses of $3.4 million, marketing expenses of $3.3 million and e-commerce transaction expenses of $1.3 million. These were partially offset by decreases in corporate expenses of $3.1 million, which consisted of incentive compensation of $2.4 million and stock compensation $0.7 million, and store transaction related expenses of $0.2 million.

Income taxes

The effective income tax rate was 41.2% for the third quarter of 2012 and 39.0% for the third quarter of 2011. The increase was due to the change in the mix of income and losses between domestic and foreign jurisdictions as well as certain valuation allowances recorded on net operating losses in the third quarter of 2012.

Net income

Net income was $24.9 million, or $0.31 per diluted share, for the third quarter of 2012, compared to net income of $24.1 million, or $0.30 per diluted share, for the third quarter of 2011.

Comparison of the 39 weeks ended October 27, 2012 to the 39 weeks ended October 29, 2011

Net Sales

Net sales for the first thirty-nine weeks of 2012 increased by $54.6 million, or by 4%, compared to the same period last year. The increase in net sales was driven by average store square footage growth of 5% primarily from new stores. The net sales increase reflects:

• an increase of $45.5 million in non-comparable store sales due primarily to 36 more stores open at the end of the first thirty-nine weeks of 2012 compared to the end of the first thirty-nine weeks of 2011.

• an increase of $21.2 million in net sales from our e-commerce business which increased by 21% to $120.2 million during the first thirty-nine weeks of 2012 when compared to the same period last year.

• a decrease of $12.1 million, or by 1%, in comparable store sales
(excluding the e-commerce channel)

Comparable sales, including the e-commerce channel, increased 1% when compared to the same period last year. Comparable sales, including the e-commerce channel, increased in our young men's category by 2% and decreased in our young women's category by 1%. The overall comparable sales, including the e-commerce channel, reflected increases of 3% in units per sales transaction, offset by decreases of 2% in average unit retail and 1% in the number of sales transactions.

Cost of Goods Sold and Gross Profit

Gross profit, as a percentage of net sales, increased by 0.2 percentage points for the first thirty-nine weeks of 2012 compared to the same period last year. Fiscal 2011 included a pre-tax benefit of $8.7 million, or 0.6 percentage points, from the resolution of a dispute with one of our sourcing agents. Excluding this benefit, gross profit as a percentage of net sales, increased by 0.8 percentage points. The increase in gross profit was due primarily to 0.9 percentage points of higher merchandise margin and 0.3 percentage points of depreciation expense leverage. These were offset by the deleverage in occupancy costs of 0.3 percentage points and distribution and transportation cost of 0.1 percentage points.

SG&A

SG&A, as a percentage of net sales, was 23.4% for the first thirty-nine weeks of 2012 compared to 22.1% for the same period last year. The increase was primarily due to higher corporate expenses of 0.5 percentage points, of which 0.3 percentage points was related to incentive compensation, higher e-commerce transaction costs of 0.3 percentage points, higher store-line expenses of 0.3 percentage points and higher marketing costs of 0.3 percentage points. These increases were partially offset by a decrease in store transaction related expenses of 0.1 percentage points.

SG&A increased by $31.5 million for the first thirty-nine weeks of 2012 compared to the first thirty-nine weeks of 2011. For the first thirty-nine weeks of 2012, store-line expenses increased by $11.7 million and corporate expenses increased by $10.4 million, which consisted of incentive compensation of $4.4 million, benefits of $2.5 million and other expenses of $3.5 million. Additionally, marketing expenses increased by $6.0 million and e-commerce transaction expenses increased by $4.8 million. These increases were partially offset by a decrease in store transaction related expenses of $1.4 million.

Income taxes

The effective income tax rate was 40.1% for the first thirty-nine weeks of 2012 and 40.0% for the first thirty-nine weeks of 2011.

Net income

Net income was $35.6 million or $0.44 per diluted share, for the first thirty-nine weeks of 2012, compared to net income of $43.4 million, or $0.53 per diluted share, for the first thirty-nine weeks of 2011. The above mentioned benefit from the resolution of a dispute with one of our sourcing agents increased net income by $4.7 million, or by $0.06 per diluted share, during the first thirty-nine weeks of 2011.

Liquidity and Capital Resources

Our cash requirements are primarily for working capital, construction of new stores, remodeling of existing stores, and the improvement or enhancement of our information technology systems. Due to the seasonality of our business, we have historically realized a significant portion of our cash flows from operations during the second half of the year. Generally, our cash requirements have been met primarily through cash and cash equivalents on hand during the first half of the year, and through cash flows from operations during the second half of the year. We expect to continue to meet our cash requirements for the next twelve months primarily through cash flows from operations, existing cash and cash equivalents and if necessary, our credit facility. At October 27, 2012, we had working capital of $240.6 million, cash and cash equivalents of $184.5 million and no debt outstanding under our $175.0 million credit facility. Additionally, we repurchase our common stock from time to time under a stock repurchase program (see Note 4 to the Notes to Unaudited Condensed Consolidated Financial Statements.) On November 13, 2012, we used $25.2 million of cash on hand as partial consideration to acquire the assets of GoJane.com, Inc. Please see Note 13 to the Unaudited Condensed Consolidated Financial Statements for further discussion regarding this acquisition. We may also utilize cash to make other strategic acquisitions.

The following table sets forth our cash flows for the period indicated:

                                                  39 weeks ended
                                           October 27,      October 29,
                                               2012            2011
                                                  (In thousands)
Net cash provided by operating activities $     55,374     $     6,206
Net cash used in investing activities          (54,946 )       (64,165 )
Net cash used in financing activities          (39,699 )       (98,513 )
Effect of exchange rate changes                     15             298
Net decrease in cash and cash equivalents $    (39,256 )   $  (156,174 )

Operating activities - Net cash provided by operating activities increased by $49.2 million for the first thirty-nine weeks of 2012 compared to the same period in 2011. The improvement in net cash used in operating activities was primarily due to decreases in cash used for income taxes of $31.0 million, accrued compensation of $16.0 million and the timing of cash flows from other assets and liabilities.

Consolidated merchandise inventories increased by 5% in total, as compared to October 29, 2011, or by 1% on a per retail square foot basis.

Investing activities - Net cash used in investing activities related to capital expenditures was $54.9 million for the first thirty-nine weeks of 2012 compared to $64.2 million for the first thirty-nine weeks of 2011.

Investments in capital expenditures are principally for the construction of new stores, remodeling of existing stores and investments in information technology. Our future capital requirements will depend primarily on the number of new stores we open, the number of existing stores we remodel and the timing of these expenditures. During fiscal 2012, we plan to invest a total of approximately $66.0 million in capital expenditures. During the first thirty-nine weeks of 2012, we invested $59.6 million, which includes $4.7 million of accruals related to purchases of property and equipment. During the first thirty-nine weeks of 2012, we opened 15 Aéropostale stores, 30 P.S. from Aéropostale stores and remodeled five Aéropostale stores. During the remainder of the fiscal year, we plan to open three Aéropostale stores and one P.S. from Aéropostale store. We have deferred a number of remodels until the roll-out of our new Aéropostale store format.

During fiscal 2011, we invested $73.3 million in capital expenditures, primarily to construct 24 new Aéropostale stores, 25 P.S. from Aéropostale stores, to remodel 50 existing stores and for a number of information technology investments.

Financing activities - We have the ability to repurchase our common stock under a stock repurchase program. The repurchase program may be modified or terminated by the Board of Directors at any time, and there is no expiration date for the program. The extent and timing of repurchases will depend upon general business and market conditions, stock prices, opening and closing of the stock trading windows, and liquidity and capital resource requirements going forward.

During the third quarter of 2012 and the first thirty-nine weeks of 2012, we repurchased 3.0 million shares of our common stock for $40.8 million. During the first thirty-nine weeks of 2011, we repurchased 4.2 million shares for $100.0 million, all during the first quarter. Under the program to date, we have repurchased 60.1 million shares of our common stock for $1.0 billion. As of October 27, 2012, we have approximately $104.4 million of repurchase authorization remaining under our $1.15 billion share repurchase program.

Revolving Credit Facility

In September 2011, we entered into an amended and restated revolving credit facility with Bank of America, N.A. (the "Credit Facility"). The Credit Facility provides for a revolving credit line up to $175.0 million. The Credit Facility is available for working capital and general corporate purposes. The Credit Facility is scheduled to expire on September 22, 2016, and is guaranteed by all of our domestic subsidiaries (the "Guarantors"). No amounts were outstanding during the third quarter of 2012 or as of October 27, 2012 under the Credit Facility. Management has no reason at this time to believe that the participating institutions will be unable to fulfill their obligations to provide financing in accordance with the terms of the Credit Agreement in the event of our election to draw funds in the foreseeable future.

Loans under the Credit Facility are secured by all our assets and are guaranteed by the Guarantors. Upon the occurrence of a Cash Dominion Event (as defined in the Credit Facility and includes either any event of default or failure to maintain availability in an amount greater than 12.5% of the lesser of the borrowing base and facility commitment), our ability to borrow funds, make investments, pay dividends and repurchase shares of our common stock would be limited, among other limitations. Direct borrowings under the Credit Facility bear interest at a margin over either LIBOR or at the Prime Rate (as each such term is defined in the Credit Facility).

The Credit Facility also contains covenants that, subject to specified exceptions, restrict our ability to, among other things:

• incur additional debt or encumber assets of the Company;

• merge with or acquire other companies, liquidate or dissolve;

• sell, transfer, lease or dispose of assets; and

• make loans or guarantees.

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, breaches of covenants, misrepresentation, default on leases or other indebtedness, excess uninsured casualty loss, excess uninsured judgment or restraint of business, business failure or application for bankruptcy, institution of legal process or proceedings under federal, state or civil statutes, legal challenges to loan documents and a change in control. If an event of default occurs, the lender will be entitled to take various actions, including the acceleration of amounts due thereunder and requiring that all such amounts be immediately paid in full as well as possession and sale of all assets that have been used as collateral. Upon the occurrence of an event of default under the Credit Facility, the lender may cease making loans, terminate the Credit Facility and declare all amounts outstanding to be immediately due and payable.

Upon the occurrence of our loan availability under the Credit Facility decreasing below 10% of the lesser of the borrowing base and the dollar amount of commitments under the Credit Facility, we would be required to meet a financial covenant for a Minimum Consolidated Fixed Charge Coverage Ratio of not less than 1.0 to 1.0.

During the third quarter of 2012 and as of October 27, 2012, we had no outstanding balances under the Credit Facility. In June 2012, Bank of America, N.A. issued a stand-by letter of credit. As of October 27, 2012, the outstanding letter of credit was $0.2 million and expires on June 30, 2013. We have not issued any other stand-by or commercial letters of credit as of October 27, 2012 under the Credit Facility.

In conjunction with our acquisition of GoJane.com, Inc., we obtained a Waiver and Consent from Bank of America, N.A. on November 8, 2012 for the Permitted Acquisition clause in the Credit Facility (see Note 13 to the Notes to Unaudited Condensed Consolidated Financial Statements for a further discussion regarding this acquisition.)

As of October 27, 2012, we are not aware of any instances of noncompliance with any covenants or any other event of default under the Credit Facility.

Contractual Obligations

The following table summarizes our contractual obligations as of October 27,
2012:

                                                               Payments Due
                                            Balance of      In 2013      In 2015       After
                                Total          2012         and 2014     and 2016       2017
                                                       (In thousands)
Contractual Obligations
Real estate operating leases  $ 952,429    $     36,265    $ 271,435    $ 219,494    $ 425,235
Equipment operating leases        7,523           1,064        6,008          451            -
. . .