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Aeropostale, Inc. (NYSE:ARO)

Q4 2013 Earnings Conference Call

March 13, 2014 16:15 ET

Executives

Susan Lewis - Vice President of Investor & Media Relations

Tom Johnson - Chief Executive Officer

Emilia Fabricant - Executive Vice President

Marc Miller - Chief Financial Officer

Analysts

Carla White - Black & Associates

Betty Chen - Mizuho

Tom Filandro - Susquehanna

Susan Anderson - FBR Capital Markets

Janet Kloppenburg - JJK Research

Edward Yruma - KeyBanc

Adrienne Tennant - Janney Capital Markets

John Morris - BMO Capital Markets

Jennifer Davis - Buckingham Research Group

Kimberly Greenberger - Morgan Stanley

Marni Shapiro - The Retail Tracker

Kate Fitzsimons - JPMorgan

Richard Jaffe - Stifel

Lindsay Drucker Mann - Goldman Sachs

John Kernan - Cowen

Rick Snyder - Maxim Group

Paul Lejuez - Wells Fargo

Stephanie Wissink - Piper Jaffray

Howard Tubin - RBC Capital Markets

Greg Baglione - Barclays

Dana Telsey - Telsey Advisory Group

Operator

Thank you for joining us for the Aeropostale Conference Call. At this time, all parties are in a listen-only mode. Following the management presentation, we will conduct a question-and-answer session. (Operator Instructions) I would like to remind everyone that this conference call is being recorded.

I would now like to introduce Ms. Susan Lewis, Vice President of Investor & Media Relations. Thank you, Ms. Lewis. You may begin

Susan Lewis - Vice President of Investor & Media Relations

Thank you all for joining us this afternoon. With us today are Tom Johnson, our Chief Executive Officer; Emilia Fabricant, EVP of Aeropostale; and Marc Miller, our Chief Financial Officer.

We issued two press releases earlier this afternoon, one announcing fourth quarter fiscal 2013 financial results and a second announcing the strategic financing with Sycamore Partners. A copy of these releases can be found on our corporate website.

Before we begin, I would like to remind you that during this earnings conference call, certain statements and responses to questions may contain forward-looking information, such as forecasts of future financial performance. Forward-looking information and statements involve known and unknown risks and uncertainties, which may cause our actual results in future periods 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 of this call are referred to those filings.

Before I turn the call over to Tom, I would like to remind everyone that an Investor Presentation covering our fourth quarter results can be found on our corporate website. In addition, I would like to ask everyone to limit themselves to one question during our Q&A session to allow everyone a chance to speak. Once we have gone through around the questions, we will go back and you may queue up again at that time.

I would now like to turn the call over to Tom.

Tom Johnson - Chief Executive Officer

Thank you, Susan and thank you everyone for joining us today. We announced this afternoon that we have signed a commitment letter with Sycamore Partners and its affiliates for a strategic partnership and a $150 million capital infusion. I’d like to briefly review this new partnership and financing before Marc, Emilia and I discuss our performance and outlook for 2014.

The $150 million funding consists of a 5-year $100 million facility with the issuance of convertible preferred stock as well as a 10-year $50 million facility that includes a sourcing arrangement with MGF Sourcing. Combined with Sycamore’s existing ownership of our common stock, their ownership would increase to approximately 14% of the company’s outstanding common stock on a fully diluted basis once the comfortable preferred stock is issued. Sycamore will also have the right to appoint two members to our Board. We will appoint another independent board member that both the Sycamore and Aeropostale agree on increasing our board to 12.

We are very pleased with the expanded investment and new partnership with Sycamore Partners. Sycamore’s team has deep expertise in the retail industry, a strong understanding of our business, and many years of experience supporting companies in achieving their growth objectives. We believe Sycamore’s team will bring valuable perspective to the business and we look forward to working with them. The arrangement with MGF Sourcing significantly diversifies our sourcing, which we believe will create opportunities to optimize our overall supply chain. We will continue toward sourcing over our vendor portfolio through a competitive bidding process.

The terms of our commitment letter with Sycamore Partners are very attractive, provide us with significantly improved financial flexibility and more strongly positioned Aeropostale from an operational and financial perspective. With this capital, we will have additional runway to continue to implement our merchandising, marketing and operational strategies designed to reposition the Aeropostale brand. We strongly believe that our strategy is the right one to stabilize and turnaround our business and drive long-term value for shareholders. We are more committed than ever to executing our key strategic initiatives returning Aeropostale to higher productivity levels and changing the trajectory of our operating results.

Last year our primary focus was on addressing what we diagnosed as the new fashion paradigm in teen retail. We made significant changes to our design and merchandising teams as we assessed our organization’s needs with Emilia on board. Beginning in the back half of last year, we took a more aggressive stance on our assortment mix and further decreased our reliance on logo based product and made more dramatic changes to our overall brand projection than anytime in the Aeropostale’s history. The challenge of any teen retailers today is to adapt to the new generation of the teen consumer Gen Z was more connected curious and current than any prior teen generation.

As we discussed in our last earnings call today’s teen wants more choice. As you all know, we have been working intently to increase the fashion and the overall assortment. We have learned that combining the power of a highly desirable sub-brands and partnerships with our reach can lead to accelerated and substantiated impact. Our successful launch of Live Love Dream showed that we can capitalize on emerging trend and highlight the exclusivity of Aeropostale’s product.

Our affiliation with a hit TV show Pretty Little Liars also demonstrated our ability to make an emotional connection with our teen customer appealing to her specific interests. Through the Bethany Mota collection we harnessed the transformative power of social media and discovered a teen icon who personifies our customer relates to her needs embodies fashion and holds unprecedented influence. Later on the call Emilia will cover how we plan to invest more in this collection, craft even stronger fashion statements and present new categories to underscore newness and diversity in 2014.

As Bethany’s popularity proves today’s teen is motivated by a sense of discovery and she wants to interact with the brands on her terms. Last year we invested time, talent and resources into our marketing and social media programs to highlight how Aeropostale has changed its product offerings. By increasing our customer engagement through elevated content in-store and online we began to move brand opinion in a new direction. Recent social media or social listening results have shown us that the feeling around Aeropostale brand has shifted to over 75% positive from 60% negative reversing a three year trend. To build upon this momentum we will continue to engage customers with highly relevant and emotional content and double our investment in social media in 2014.

Based on our recently completed work with our external marketing firm to develop a new brand platform, we are currently working on a break through campaign for back to school 2014 that we believe will solidify Aeropostale’s position as a leading teen brand that makes a meaningful connection to our customer’s life. We have worked diligently to evolve our products and change our brand projection, but what we did not foresee is how drastically consumer behavior would change throughout last year. Today the consumer environment is changing on a rate that we have not seen in our 12 years as a public company and it has negatively affected on rate of customer adoption.

Many companies have already discussed weak mall traffic trends that have plagued retail. This has been particularly acute in the teen sector where shopping patterns have shifted even more fundamentally. Therefore adopting both operationally and financially to today’s environment is vital. Operationally, we are working with a prominent consulting firm to explore reduction in our overall SKU count and optimize our product flows. At the same time we see the potential for average unit cost reduction in select categories particularly in core classifications. We have already begun work on these endeavors. We will update you regarding these emerging initiatives on future calls.

Finally, we are acutely aware of our need to balance our financial positioning with our business performance. As Marc will discuss in more detail later liquidity, CapEx, real estate and SG&A remain top areas of focus for the entire organization at all times. In real estate we discussed our plans to close 175 stores over the next several years on our last call. We have recently engaged a real estate consulting firm to examine our real estate portfolio and based on primarily results, we believe that we can accelerate the store closure program as well as achieve rent concessions. We are responding aggressively to our current business status. And as I have discussed, we are taking swift, bold and aggressive action to improve our performance. Customers are beginning to notice the changes we have made to our brand and we firmly believe that we have laid the appropriate groundwork on which to build our future success.

I will now turn the call over to Emilia to elaborate on merchandising.

Emilia Fabricant - Executive Vice President

Thank you and good afternoon everyone. The fourth quarter was certainly challenging as retailers battled for market share in an intensely promotional environment. We faced fiercely competitive conditions with declining mall traffic trends and our financial results are not indicative of the strides our product development teams have made over the past year. When I joined Aeropostale, our organization was focused on understanding the new needs of today’s teen consumer and evolving from a logo-reliant teen retailer to a more fashion conscious lifestyle brand.

As Tom alluded to in his remarks, we are ushering in a new Gen Z consumer, who is curious, connected, informed and savvy, not only does she want options in her wardrobe that fit into your complex lifestyle, she also wants to be part of what is new, now and next. Last year, we made significant changes to the composition and mix of our assortments. We added more newness by modernizing existing categories and adding new ones and made our product more authentic to trends, finishes and quality. I am proud of our teams for innovating, developing, and delivering cohesive collection that enable us to project a new and more relevant Aeropostale.

In terms of category performance, as our comp rates suggest, we saw similar trends in Q4 to what we saw in Q3. In women’s, we experienced strength in sweaters, boots, Live Love Dream and the Bethany Mota line. In men’s we saw good performance in sweaters and wovens. Our core knit business, including graphics and fleece continued to experience pressure. However, while early, quarter-to-date, we have seen an improvement in some of these down-trending categories.

Now that we have two quarters of experience with our new assortment strategy, we have the quantitative data to support more decisive action with our product development as well as with our planning and allocation. From a merchandising perspective, our greatest opportunity remains in knit tops, specifically within the fashion basics category. We will drive our fashion basics business through a key item strategy by offering our customer proven bodies and new fabrics, washes and treatments. Our plans are to leverage our strong sourcing structure to pursue better average unit costing, so we can drive margin, flex our promotional strength more effectively, and offer our girl authentic fashion.

Additionally, our exclusive sub-labels, we have a stronger presence in our assortments through the year. Live Love Dream has enjoyed success, because it highlighted our lifestyle proposition and capitalized on the active trend that we have seen emerge in the recent seasons. In 2014, we expect to reach $150 million in sales and we will drive even more momentum by building on the success of cozy fabrics and washes and also launch improved active fabrics and fits.

Our uniquely innovative Bethany Mota collection exceeded our expectations achieving very high sales, AURs, and margins. Bethany embodies what is new, now and next and we plan to grow our Bethany Mota collection by more than $50 million in sales. Our customers will be able to find elements of Bethany’s collection year-round and in new categories are planned for this year such as fragrance and home. Based on the successes we have experienced with our sub-labels, we plan to test and offer more sub-brands product extensions and explore new partnerships. We believe this strategy is essential to changing brand perception more rapidly and accelerating customer adoption.

We are also aligning planning and allocation with our customers’ buying behavior. As they move into the second quarter of 2014 and to the back half of this year, we are reducing our overall inventory buys by double-digits. We are refining our tiered buying strategy and tailoring store assortments based on volume and more granular segmentation in order to further optimize inventory. Additionally, as Tom mentioned earlier, we are looking at opportunities in merchandise flow and SKU count reduction with the assistance of our external consultants. I know our progress is not yet reflected in our financial results, but I believe our product assortments had delivered differentiation and our brand has achieved greater fashion creditability in the eyes of today’s teen girls. Our experience in 2013 has given us more insight and we are better positioned to adapt to the changing needs of our teen customer. We capture our market share and improve our overall performance.

I will now turn the call over to Marc, who will review our financial strategies for the year.

Marc Miller - Chief Financial Officer

Thank you, Emilia. Total net sales for the quarter were down 16% versus last year, reflecting a negative 15% comp, which includes our e-commerce channel and an extra week of sales last year partially offset by average square footage increase of 4%. Including our e-commerce channel, our guys businesses was down 14% and our girls business was down 15% for the quarter. Our comp for the quarter was driven by a 12% decrease in transactions and a 3% decline in average unit retail, slightly offset by 1% increase in units per transaction. During the quarter, we opened five Aeropostale and three P.S. for Aeropostale stores. We closed 32 Aero stores in the fourth quarter, bringing our year-to-date total closings to 49. Accordingly, we ended the year with 949 Aero and 151 P.S. stores.

On a GAAP basis, including store asset impairment charges of $32.4 million, gross margins for the quarter were 13% versus 19.8% last year. On an adjusted basis, excluding the impairment charges, gross margins for the quarter were 17.8% versus 24.0% last year. The 620 basis points decrease was driven by 420 basis points of lower merchandise margins, 100 basis points from the de-leveraging of occupancy and 100 basis points from the de-leveraging of other expenses.

SG&A for the quarter was 24.9% of sales versus 19.9% last year. Our SG&A for the quarter included legal settlement charges of $3.1 million. And as a reminder during the fourth quarter of last year we had an incentive comp reversal of $4.9 million. Normalizing this incentive comp reversal and excluding legal costs, SG&A dollars were flat year-over-year.

Our tax rate for the quarter was 12.2% and includes a charge of $20 million or $0.25 per share from the establishment of reserves against deferred tax assets. The effective tax rate was 37.1% after excluding this charge versus our original expectation of 36%. This resulted in a net loss of approximately $70.3 million or $0.90 per diluted share. On an adjusted basis, excluding impairment charges, deferred tax reserves and legal costs, the net loss for the quarter was $27.1 million or $0.35 per diluted share.

Cash and cash equivalents at the close of the quarter were $106.5 million versus $231.5 million last year. Inventory at the end of the quarter was $172.3 million, up 10.8% in total or up 12% on a retail per square foot basis driven by strategic investments we made in Bethany Mota, Live Love Dream and our year around denim strategy as well as inventory overhang from holiday product. Our capital expenditures for the year were approximately $84 million, and depreciation and amortization was approximately $64 million.

I will now update everyone on the key financial strategies we mentioned on our third quarter earnings call maintaining appropriate levels of liquidity, optimizing our real estate portfolio and managing our expenses prudently. Our first financial priority continues to be maintaining appropriate levels of liquidity. As Tom mentioned we announced earlier this afternoon the signing of a commitment letter with Sycamore Partners and its affiliates for a strategic partnership and $150 million in senior secured credit facilities. Senior secured credit facilities will consist of a 5-year $100 million term loan facility and a 10-year $50 million term loan facility that includes a sourcing arrangement with MGF Sourcing, an affiliate of Sycamore. We are pleased with the additional capital infusion and believe the sourcing arrangement will be beneficial to Aeropostale by augmenting our sourcing capabilities with the broader vendor portfolio as well as providing the potential for improved product cost.

In addition to this strategic partnership and financing with Sycamore, we announced in an 8-K filed on February 27 that we have increased the borrowing base for our revolver to $230 million from $175 million. As expected we did not access this revolver during the fourth quarter. Working capital will also be tightly managed as Emilia mentioned earlier with our conservative inventory buy plans in 2014. These announcements and actions will provide the liquidity necessary to execute this turnaround during this difficult macro environment.

Our second financial priority is the optimization of our real estate portfolio. On our last earnings call we announced the expansion of our store closure plan to 175 stores. This assessment was based on the thorough review of our real estate portfolio on a market-by-market basis. Following this analysis, we have retained a real estate consultant firm to investigate the economics of accelerated lease buyouts as well as to identify opportunities for rent relief across our portfolio. We have authorized them to enter into negotiations on our behalf regarding early lease buyouts and lease negotiations in 2014. We believe real estate rationalization is the right step towards positioning our portfolio for the long-term.

In terms of expense management historically Aeropostale has always been diligent in maintaining a lean operating structure and managing our SG&A spend carefully. During our current transitional period we are taking additional steps to address the company’s expense structure. We have already taken several actions to manage expenses from a payroll and benefits perspective in 2014. We will continue to evaluate all spending carefully only making investments that are critical to our transformation and that will generate appropriate returns. In addition as Tom mentioned earlier, we have engaged a consultant firm to identify operational improvements across our organization such as refining merchandising flow and streamlining processes to maximize efficiencies. These consultants are also looking at how we can further optimize our expense structure given our current business model. This is in addition to the actions we already took in 2013 to reduce our annualized spending.

The announcement of our increased liquidity position and the careful management of our investments and expenses, we believe we have the runway to support the repositioning of the brand, execute of turnaround strategy and to stabilize the financial performance which will create value for our shareholders over the long-term.

I will now discus our first quarter outlook. Although our quarter-to-date comp trends have modestly improved, we are still running at a negative high-single digit rates and we continue to experience margin pressure. Both as a result of the competitive environment as well as our work on reducing our fourth quarter inventory overhang. Additionally, we anticipate a first quarter tax rate of 13% as we will have utilized the vast majority of our tax carry backs during 2013 versus a 41.2% rate last year. Accordingly we are initiating guidance for the first quarter of 2014 at an operating loss range of $64 million to $68 million, which ties to a loss of $0.70 to $0.75 per diluted share at this 13% tax rate and a share count of 79.2 million.

This guidance excludes the impact of any consulting fees, accelerated store closings as well as any financial or accounting impacts including professional fees related today’s announcement of the Sycamore commitment letter. With respect to 2014 capital expenditures, we completed another critical assessment of our capital needs and are now projecting and investment of approximately $22 million versus previous guidance of $35 million and versus $84 million in 2013. Includes a reduction of our Aero store openings to 7 from 11 previously announced primarily located in highly productive outlet centers and one P.S. store from our previous announcement of five. We will also remodel 10 stores either partial or full compared to the 30 full remodels completed in 2013.

Now, I will turn the call over to Tom for closing remarks.

Tom Johnson - Chief Executive Officer

Thank you, Marc. Clearly, our fourth quarter results are not a reflection of the progress we believe we have made in transforming our brand. We are looking closely at every aspect of our organization to improve our financial results. While our largest opportunity continues to be improving our core Aeropostale business, we are also looking diligently to support our future growth drivers, e-commerce, P.S. and international. Against the backdrop of a challenging retail environment and declining mall traffic, we must capitalize on every sales channel available to us. Last year, although our e-commerce business was not immune to the overall promotional environment, conversions were higher.

Looking to 2014, we are refining our merchandising strategy for our online business to match the steps that we have taken in our brick-and-mortar stores. We are investing in product extensions, expanding online exclusives, including third-party product and increasing our buys in extended sizes. Regarding P.S., we continued to believe in the opportunity for this brand. We have signed the licensing deals to expand P.S. brand internationally, with an agreement to distribute kids’ product in Mexico and the Philippines starting this year. In addition to international distribution, we are exploring opportunities to offer P.S. product through other third-party channels.

Finally, our P.S. locations, particularly our early leases are being included in our aggressive real estate rationalization efforts being handled by our third-party consultants. As for the international expansion of the Aeropostale brand, our global licensing business remains robust and momentum continues to build as we pursue new expansion opportunities. Last year, we opened 70 new stores, primarily in the Philippines, Panama, Colombia and Mexico ending the year with 96 licensed stores across the Middle East, Asia, Europe and Latin America. I am also very pleased to share that we have signed a new licensing deal to launch the Aeropostale brand in Chile. And we expect to announce new key licensing deals over the coming months. As our international popularity demonstrates, Aeropostale is an established and powerful brand with a strong foundation to build upon. While we are facing domestic headwinds in the retail today, every employee is imperative within our organization is to stabilize and improve our performance.

Before I turn to Q&A, I’d like to thank all of our employees for their continued commitment to Aeropostale during its pivotal time in our brand’s history. Operator, we are now ready for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And our first question comes from Jennifer Black of Black & Associates. Please go ahead.

Carla White - Black & Associates

Good afternoon and thank you for taking my call. This is actually Carla White on behalf of Jennifer Black. Last quarter, you talked about highlighting your loyalty program can you talk about how that’s progressing and any new learnings that you take from that? And is there any discussion of implementation and timeframe? Thank you.

Tom Johnson

Sure, Carla. It’s Tom. We launched it in the very back end of the year. And to-date, we really don’t have enough information wrapped around to give you anything definitive as far as the loyalty program to-date. I will say on the flipside of that, our P.S. loyalty program has been very productive for us with close to 400,000 members in our loyalty program. And we know that, that drives great brand loyalty as well as repeat visits to the store. So we are very pleased with that loyalty program overall.

Operator

Thank you. The next question is from Betty Chen of Mizuho. Please go ahead.

Betty Chen - Mizuho

Hello, thank you. Good afternoon everyone. I was wondering if we could get a little bit more color regarding Bethany and Pretty Little Liars and the product sub-labels, it sounds like that you have seen a great success there and certainly we have seen a lot of huge turnouts also during part of our Bethany’s tour. Can you give us a sense where those businesses sizes are in 2013 so that we can get a sense of how much they were growing in the 2014 timeframe. And then remind us if you can the duration of the partnership with Bethany? Thanks.

Emilia Fabricant

Sure. With Bethany Mota remember we did launch her for the first time in December. So we only had four weeks of sales in December, but we are growing her over $50 million for 2014. Live Love Dream is a combination of new products and some of the categories that we had embedded in Aero, so difficult to extract that but we are seeing substantial growth in Live Love Dream. And Pretty Little Liars did launch in the second week of January and what we have seen from Pretty Little Liars in addition to higher AURs in that collection is a tremendous amount of social media and twitter following based on the fact that this show was really based on the success of social media and twitter. But, yes all three collections have showed a success and substantial growth year-over-year.

Operator

Thank you. Our next question is from Tom Filandro of Susquehanna. Please go ahead.

Tom Filandro - Susquehanna

Hi, thank you. First, congratulations on the partnership with Sycamore, they are a pretty powerful team.

Tom Johnson

Thanks Tom.

Tom Filandro - Susquehanna

But can you guys provide maybe a little more the metrics to point to definitively that you have confidence in the merchandising transformation that it’s headed in the right direction. And I just want to ask this question as it relates to you have got Bethany Mota, Pretty Little Liars, LLD, so there is a lot going on, so maybe Emilia if you can give us an understanding of the design, merchandising structure to give us confidence that talents aren’t being spread too thin? Thank you.

Emilia Fabricant

So what we do know about our target customer is they want exclusive differentiated product. And what these sub-brands allow us to do is offer that within our 3500 square foot wall. When we look at (pure rated) curetted collections which offer that exclusivity and choice we have had success. When we look at our mix, we believe that our mix like Bethany Mota was an unprecedented collection and connected to the scene on a relevant label. We do believe that the biggest part of the product that we will sell at Aeropostale will be Aero product. This is just intermixing to offer them that choice. We haven’t landed on the total percent of sub-brands that we are going to be testing this spring and summer but we will let you know as it develops we will keep you abreast of that.

Tom Johnson

And Tom this is Tom as far as metrics obviously the third and fourth quarter were disappointing overall and late on the backdrop of what many of us talked about in terms of weak mall traffic and certainly we have to do everything that we can to change that, the trajectory of our business. We were encouraged by with some respect and not obviously on a total basis, some of the products sell-throughs were very significant specifically the items that Emilia focused on which were new businesses for us, the sell-throughs were very productive and true that the AURs were strong. We still experienced quite a bit of pressure in some of the core areas that we did buy down but clearly on a like-to-like basis we didn’t buy down enough that’s why we think going forward the recovery will come in the way of AUR expansion which we think that we have opportunity for headed probably in the back half of spring considering how we brought down in the first half and going into the second half.

Operator

Thank you. The next question is from Susan Anderson of FBR Capital Markets. Please go ahead.

Susan Anderson - FBR Capital Markets

Hi, thanks for taking my question. You talked about improvement in some of the down trending categories such as the graphics, maybe if you can talk a little bit about what’s driving that. And then also the opportunity being in fashion basics may be if you can give a little bit more color on how these performed including the sub-brands versus the company average and then core and basics?

Emilia Fabricant

Sure. Graphics is the – we actually – most of the graphics is what we consider test, read, react or chase. So this is the product that we keep opened to the very last second. And we found it successful to being in touch with the teenager and understanding what’s trending at the moment to capitalize on that and trigger that in the graphics area. That includes Live Love Dream graphics, it includes Bethany Mota graphics, it includes Pretty Little Liars graphics and it does include Aero graphics. So we have seen that across both – all sub-brands including our own brand and across Guys & Girls. As far as the fashion basics when the product is right and the fashion is right, we do see fashion basics being very successful. We do believe that this is a source of opportunity for us. Sweaters is a perfect example. The sweater season was successful across all categories, core fashion basics and fashion and the teens did a great job on capitalizing on that. As far as the fashion basics we have definitely built a stronger key item business going into late spring and summer and we are getting early reads and we are poised to be able to react to those reads and build upon our fashion basics area for this season.

Operator

Thank you. The next question is from Adrienne Tennant – I am sorry from Janet Kloppenburg of JJK Research. Please go ahead.

Janet Kloppenburg - JJK Research

Hi everybody.

Tom Johnson

Hi Janet.

Janet Kloppenburg - JJK Research

Nice to hear from you guys. I think I am a little bit confused, so maybe you could help me, I am not sure how the core business is doing versus the new sub-brands and would you say that the comp in the core business is down more, it would help me to note the comp – to know how the comp in the core businesses were versus the Bethany, Live Love Dream, and Pretty Little Liars and if you have seen any improvement in the comp in the core business. And I am also wondering about inventories, I think you said they are up about 12% of retail, it seems a little high, where do you see them at the end of the first quarter and maybe you could give us an idea of where you see inventories as you enter the back to school season? Thank you.

Emilia Fabricant

Sure, hi Janet.

Janet Kloppenburg - JJK Research

Hi.

Emilia Fabricant

I will take the first part. In Q4 we saw equal pressure across core fashion basics and fashion. Though – when we say we have seen improvement in fashion graphics, and fashion graphics is definitely where we have seen that improvement. We have seen some improvement in fleece and we do believe we were able to regain some of the fleece sales at least last through Live Love Dream, so those are the three, as far as inventory.

Marc Miller

Janet, it’s Marc, on inventory we did end up 12% per square foot and we agreed that level is too high. The majority of the increase was related to strategic investments that we made in Live Love Dream, in Bethany Mota, and Pretty Little Liars as well as our year end denim strategy. As a reminder last year we were exiting out of our previous size scales on denim and we entered into a program by which we would carry denim year around. So this year we have made strategic investments in those denim styles. That said, we would have expected the remainder of our inventories to be down and they weren’t. So we view as the first half of Q1 to work down the Q4 inventory overhang. And as we work down and then certainly in a better place today than we were – than when we ended Q4, we do expect to see ending inventories at the end of Q1 to be flattish. As Tom mentioned and Emilia mentioned we did buy conservatively, as we move into Q2 our buys were down double digits and our back half buys placed so far are down double digits. We do leave room to chase to open to buy, but with those inventory levels we do expect to see improvement even from that flattish level that we are ending in Q1.

Operator

Thank you. The next question is from Simeon Siegel of Nomura. Please go ahead.

Unidentified Analyst

Good afternoon everyone. This is actually Gene (indiscernible) on for Simeon Siegel. I want to see what you guys thought about the current promotional environment kind of the cadence you have been seeing. And if – what your trends are for the rest of the year and if there is any implied guidance on margins for that for the first quarter and then playing out throughout the year? Thank you.

Marc Miller

I will speak to just how that’s baked into margins and then Tom might comment on the promotional environment overall. Clearly, as we just mentioned we have been working through a Q4 overhang and we have been doing at time where the competitive environment is very promotional. So the guidance contemplates margins being down year-over-year.

Tom Johnson

Gene, as far as the current environment obviously we spend a ton of time in the malls. The fourth quarter was just a blood bath with regard to signage and promotions and people were really liquidating goods. I know that weather has been a call-out set especially in January and February, we think that obviously impacted the amount of foot traffic and mall traffic was down. So through that we’ve seen quite a bit of competition while some people have kind of normalized their promotional activity and we certainly have attempted to do that as well. We see that in some cases there is some inventory backup because of the weak mall traffic and you have to do the inevitable which is promote a little bit deeper and specifically some of the brands that we have been looking at or promoting much harder on the weekends so the Thursday, Friday, Saturday, Sunday. So it’s a very different kind of promotional cadence versus one promotion kind of fits all for the whole week. So we think that promotional activity is going to continue while traffic trends are down. We do believe that at some point the weather will break and we think that it will hopefully pent-up demand and all of us will be enjoying better foot traffic.

Operator

Thank you. The next question is from Edward Yruma of KeyBanc. Please go ahead.

Edward Yruma - KeyBanc

Hi, good afternoon. Thanks for taking my question. So you recently upsized the revolver to $230 million, you have $100 million of cash I believe on the balance sheet at the end of the quarter. I guess just trying to understand the rational or potential uses for the $150 million. And if you give us a little bit of guidance on kind of how you think about cash burn through the remainder of the year? Thanks.

Marc Miller

Sure Edward. I mean the most important thing is to make sure that we have ample runway to execute our turnaround in all our strategies. So the first use of the $150 million will be towards general working capital purposes. We do in addition to general (WC) see the opportunity to investigate accelerated lease closings. As we mentioned in the third quarter call we had identified 175 stores for closing but we’d expect that the close of those on natural lease expirations or kick-outs. With this added capital infusion we had the opportunity to look at the possibility of accelerating buyout of certain of those stores if the deal terms are attractive to us.

In addition you’ll note in our guidance that we took down full year CapEx from $84 million last year to $35 million in Q3 that we flashed for full year 2014 and we’ve taken it down further to $22 million. As we see the business stabilize we do see the opportunity potentially to invest back against some of the high ROIC projects that we took off the list as we brought our CapEx down to bare minimum. I’m not going to flash anything about full year cash usage or burn rates; our guidance is just going to remain on a quarter-to-quarter basis.

Operator

Thank you. The next question is from Adrienne Tennant of Janney Capital Markets. Please go ahead.

Adrienne Tennant - Janney Capital Markets

Good afternoon. Can you talk about the inventory Emilia I think you had said down double-digits, was that for spring or fall and what type of comp is that supportive of? I think it would be hard to comp flattish on down double-digit inventory, but I was just wondering what type of comp you could expect from that? And then for Marc really quickly with the gross margin, should we expect it to be slightly better than the 17%? It sounds like you’re (indiscernible) Tom said in the first quarter and a little bit of color on SG&A dollar growth for the first quarter would be helpful? Thank you.

Emilia Fabricant

Hi Adrienne. As far as inventory what I said was that we were down double-digits from Q2 on (indiscernible).

Marc Miller

As it relates to comps Adrienne we do believe in the opportunity for AUR growth really tied to the merchandise shift that Emilia has spoken to and the development of sub-brands would carry a higher AUR. One early and modest bright-spot is that in February we actually achieved a positive AUR for the month and we think that’s a sign of people responding to some of Emilia’s fashion strategies and merchandising strategies even despite the fact we’re working through an inventory overhang as it relates to gross margin as our guidance that contemplates a range of comp and margin. But directionally we expect our comps to be down high single-digit for low double-digit fourth quarter. We do expect overall margins to be down year-over-year. And then from an SG&A standpoint we do expect to see dollar growth in SG&A for Q1 in the high-single digit millions. The reason for that increase in SG&A is two fold. We are making strategic marketing investments. In Tom’s upfront comments he talked about social media and some of the digital investments that we are making. So that’s one source. The other is related to the accounting impact that we had in Q2 of last year related to a change in accounting policy concerning certain stock based compensation. This year, for 2014 we take the entire impact in Q1. So, those two factors lead to that high-single digit millions increase in SG&A and from that you can probably solve for an assumption on gross profit rate.

Operator

Thank you. Our next question is from John Morris of BMO Capital Markets. Please go ahead.

John Morris - BMO Capital Markets

Thanks, hi everybody. Tom, I guess first of all on the store size and kind of the right footprint for the fleet, I hear you in terms of and applaud the thought process about the potential for accelerating similar store closings. It sort of creatively here if you could wave a wand and get to the right size of the fleet that you would want to, what would that be for Aero or for a period of years, for core Aeropostale stores and also P.S. for those two segments. And then maybe if you can tell us a little bit more about the performance of P.S., are you happy with the performance that we have seen as far as performing about in line with – I guess with totals that we are seeing or is it actually a little bit better. And then finally, just a little confused about the mix of the partnership products Bethany, Pretty Little Liars, etcetera, is it – can you just give us your feel is it 5% of the mix or is it 10% just kind of roughly where you see that coming in for the course of this upcoming year as you grow that business? Thanks.

Tom Johnson

Sure John, this is Tom. I will hit couple upfront then I will have E key in on the percentage of the total business with regard to our sub-brands. We look at the entire fleet and we probably longer term like a 750 range with the number of stores based on extensive research and looking at mall type market-by-market, size of market, demographics, etcetera. In addition to landlords and how they are investing capital into their malls and as well as the general condition of what we see in the composition of the malls as we move forward. Obviously it’s not something that we are going to overnight, but if you said I had my magic wane and if I get to about that kind of a range. And we believe that’s the right thing to do on the right strategy. For years we all chased square footage growth. And I think that there has been some seismic shifts in the way people are shopping especially in the teen sector obviously it’s affecting all of us. The way that the teenagers socialize is completely different than it was just a few years back. So we do think that it’s incumbent in us to reduce our overall footprint. So that number long winded answer, but probably in the 750 range.

The other component, which is P.S. we still feel good about the brand and what it does and what it represents in the marketplace. This year having the capital constraint we are not opening stores to really speak up one on the books. And we are pursuing other channels of distribution, which we think is a wise move, more to come with that if we have got something to announce down the road. I won’t get you too excited, but it’s something that we are contemplating and think that it could be a good avenue for us. And lastly, we think real growth for that brand in any area of international and as we have already said we have signed a few deals. There is a great appetite for the kids business globally right now and we think that it makes a lot of sense for us.

In terms of kind of how the performance overall, P.S. was not immune to be the down beat, down draft in traffic. Aero experienced the down beat and the down draft during the course of the year and the comps were down as well in P.S. But they were not as negative as Aero. So I hope that answers all of your questions and as far as the composition is concerned of the sub-brands….

Emilia Fabricant

So as far as the composition is concerned of the sub-brands inclusive of LLD we are approximately at about 15%. We are however, testing additional sub-brands and based on their performance we will decide on whether to expand them or not.

Operator

Thank you. (Operator Instructions) And the next question is from Jennifer Davis of Buckingham Research Group. Please go ahead.

Jennifer Davis - Buckingham Research Group

Hey guys.

Tom Johnson

Hi Jennifer.

Jennifer Davis - Buckingham Research Group

Hi. Good afternoon, couple of questions, I will try limit it. Can you talk a little bit about recent traffic trends, what you have seen in terms of traffic and sales over the last several weeks. And then – and also in the warmer weather regions. And then I think that someone asked and maybe I didn’t hear the answer did you talk about the length of Bethany’s contract? Thanks.

Emilia Fabricant

Well, as far as Bethany’s contract, we have not disclosed our contract terms and I have said that we are very excited to and expected to grow the collection in 2014, but I won’t discuss any further detail.

Marc Miller

And in terms of recent traffic, traffic has remained relatively similar to what we saw in Q4. As we mentioned the comp store sales rate has been slightly less negative, down high single digits quarter-to-date versus the negative $15 million that we experienced most of last year and its performing a little bit better in some of our warmer weather areas.

Operator

Thank you. The next question is from Kimberly Greenberger of Morgan Stanley. Please go ahead.

Kimberly Greenberger - Morgan Stanley

Great, thank you. I am just looking at inventory, it’s up $17 million year-over-year, it looks like, but I think your accounts payable balance is up $50 million year-over-year, it looks like maybe you are not paying the vendors on time, I just wanted to understand a little bit more about what’s happening there. And then if you could just help us with the conversion of the newly issued preferred shares, what is the share count assuming conversion at some point in the future what is the share count then looks like. And lastly you said I think February AUR was up I just want to make sure I heard that correctly and I am just trying to reconcile how it helps comps to be down high single digits if AUR is up? Thanks so much.

Marc Miller

Hi Kim, first of all on the accounts payable it is up most of that is due to the timing of rent payments at year end, so nothing strategically different about how we are working with our vendors. The preferred shares, you asked about related to the Sycamore investment, as we mentioned it offers the equivalent of approximately of 5% of our common shares, the opportunity to convert to 5%. So we haven’t yet calculated or worked through all the accounting or financial impacts of today’s commitment letter. We will have an 8-K that we will release tomorrow and then certainly more to say on the following call. And then as it relates to AUR, yes we did say that AUR was up in February that was mostly tied to mix.

Operator

Thank you. The next question is from Marni Shapiro of The Retail Tracker. Please go ahead.

Marni Shapiro - The Retail Tracker

Hey guys.

Emilia Fabricant

Hi.

Tom Johnson

Hi.

Marni Shapiro - The Retail Tracker

I know the environment is awful out there, but for it’s worth I think you sourced like the best they’ve have looked in years?

Emilia Fabricant

Thanks Marni.

Marc Miller

Thanks Marni. We have heard – we have actually heard that directly from some independent market research.

Marni Shapiro - The Retail Tracker

They look fantastic. So could you talk a little bit about your reception online and what you are seeing, historically customers tend to test and try brands online, I am curious if you are seeing her gravity to your stores a little bit more in spite of the environment a little bit more online or is it a different customer online, is she looking at Pretty Little Liars, Live Love and Bethany quicker and quicker to convert online, I am just curious if there is any difference between what you are seeing in stores and what you are seeing online with how she is responding to the assortments?

Emilia Fabricant

Well, when it comes to Pretty Little Liars and Bethany Mota I would say it was equally receptive across all channels. However, they did perform extremely well online as they are both social media and YouTube based. Bethany definitely had higher AURs and gross margin and as well as PLL in both launches. So I would say they were equally receptive online, which is great. We saw traffic be affected buy it online and we saw lots of girls show up in stores to buys the collection. So across all channels we did see an increase based on those two launches.

Tom Johnson

Yes, and I – Marni this is Tom. I would say just from an e-com perspective clearly we are not happy with our overall business on e-com and I know that wasn’t your direct question but as it relates to what we did achieve online with this exclusive product with Bethany specifically was we captured quite a few new entrants into our brand and we are pretty happy about that. And knowing how we can capture market information about these teenagers shopping us, we have captured nice data from them. So they are all new customers essentially throughout the – about 70% of the ones that were registering were all new to us. Our focus online will continue to bring exclusivity online and we think that, that’s the opportunity for us to differentiate our business online versus brick-and-mortar.

Emilia Fabricant

In addition, we do intend to grow our exclusive SKUs online significantly and we will continue to test extended categories online.

Operator

Thank you. The next question is from Brian Tunick with JPMorgan. Please go ahead.

Kate Fitzsimons - JPMorgan

Yes, hi. This is Kate on for Brian. Thank you for taking my question. Just the commentary on SG&A dollars up about high single-digits in the first quarter, just wondering if maybe you could help us figure out how we should think about it for the year? Should we think about SG&A dollars being up year-over-year? That would be helpful. And then also if you could just walk us through the change in the – you said the tax carry-back rate in 2014 just kind of the implications there? Thank you.

Marc Miller

Sure, Kate. SG&A up for Q1, it’s really premature to comment on full year SG&A. As you know, we always watch expenses very carefully and we have the additional program this year where as we mentioned in the upfront remarks, we are working with an outside consultant to understand further opportunities to take out direct and indirect spend. So I just don’t want on this call to provide SG&A full year guidance. On the next call, we will have more information share from that work with our consultants and we will give you more of a view on it at that time. The tax rate carry-back, effectively we have a 13% tax rate for Q1. And that’s roughly what you should assume in your models for the full year. What that represents is the fact that we have taken most of the tax carry-backs against taxes that we paid over the prior two years through the end of 2013. And from a point in the first quarter going forward, we will then be collecting NOLs, which we can use in the future. So it had an impact on our Q4 tax rate and it will have impact on our go-forward tax rate which we expect to be in the neighborhood of 13%.

Operator

Thank you. The next question is from Richard Jaffe of Stifel. Please go ahead.

Richard Jaffe - Stifel

Thanks very much. And just a follow-on thought given the varieties of fashion that have been introduced both your brand and these outside brands, I am wondering how you are gauging the results compared to the historical success of aero, whether it turns our pacing historical levels sell-throughs at regular price or markdown, if you could give us some sense of how well some of these fashioned or branded products are doing compared to your historical successes?

Emilia Fabricant

Well, for example, the Bethany Mota collection is definitely outperforming with sell-throughs. And just to quantify our growth – while our gross margin was challenged equally, we did see improvement in fashion, but it still is the smaller part of our assortment. We continue to hold a 50%, 55% core, 25% to 30% fashion basics and a 15% to 20% fashion. And when the product is right, we see velocity and sell-through, strong sell-throughs across all three.

Operator

Thank you. The next question is from Lindsay Drucker Mann of Goldman Sachs. Please go ahead.

Lindsay Drucker Mann - Goldman Sachs

Hi, thanks. Good afternoon everyone. I was hoping for some clarification on the sourcing arrangement with MGF, can you help us understand what the minimum commitments are? How does that partnership look different besides the obligatory factor from the way you typically source and how do you ensure that you are getting a competitive rate? And then secondly, just as far as the secured debt is concerned, number one are you able to prepay that if you are able to and should we just model? Does your Q1 guidance contemplate interest expense at essentially 6.7% of that $150 million? Thanks.

Tom Johnson

Sure Lindsay this is Tom. I will take the sourcing piece and Marc will hit the convert. The – with regard to the sourcing it will be in the 8-K tomorrow, but the commitment is that $240 million commitment of sourcing. Obviously, there will a phase in time over a period of time and that’s an annual commitment for 10 years. And we will have to ramp up and it will take some time for that. So any new vendor there is kind of a phase in time. The way we see this work competitively, we are actually excited about that. We have core vendor group that have been outstanding for us for many, many years. We feel very good about our past existing supply chain and we feel really great about our future and future supply chain with regard to having another large scale player at the table. And there will be plenty of room for all of them to be competitive with one another from a pricing standpoint. So that’s all details that we work through with all of our vendors and that’s why the comment in the upfront remarks was that we continue to do a bidding process with our vendors construct. But what we are excited about with Sycamore and specifically is that these guys are a very good at quick turns. We feel very good about their capabilities and it’s just a very strong strategic alliance.

Marc Miller

And on the financial aspects we are able to prepay the debt portion, the $100 million in debt structural debt. The Q1 guidance does not contemplate any interest or other financial or accounting impacts from this. So including in SG&A where we have excluded in our guidance the idea that there will be fees payable upon the closing of this deal.

Operator

Thank you. The next question is from Dorothy Lakner of Topeka Capital Markets. Please go ahead. The next question is from John Kernan of Cowen. Please go ahead.

John Kernan - Cowen

Hi guys. Thanks for taking my question. Just on the – what seems to be implied merchandise margin guidance for the first quarter with the AUR up in February, is the mix of your business changing to the point where even with AUR increases you could – we could continue to see merchandise margin declines even in the back half of the year?

Marc Miller

Yes, John its Marc, I will take that one. While AUR is up slightly as well our average unit costs in the first half are up and as we have made this merchandise shift in the back half of 2013 and the first half of 2014 our costs will be up year-over-year. That said as we anniversary the change that we made in merchandising strategies and investments in the back half of 2014 we will see a reversal. And we expect average unit cost to actually be down year-over-year. So the way we are thinking about margin is that we have opportunities for expansion moving forward. In Q2 while average unit costs will be up, our buys are down and that provides some tailwinds to lead to margin expansion. And then in the back half we have the added benefit of both lower buys as well as AUC reductions.

Operator

Thank you. The next question is from Rick Snyder of Maxim Group. Please go ahead.

Rick Snyder - Maxim Group

Thank you. Good afternoon, the $240 million minimum is that the entire commitment or is there upside with that – upside to that. And I am sorry it appears you are expecting about a 15% gross margin in the first quarter, if my math is correct, is that assuming that you are going to take heavy mark downs and just clear what inventory is there and maybe re-merchandise it with the mass merchandise?

Tom Johnson

Well, I will hit the $240 million, there is always upside obviously all of our vendors would love that upside. I think it really boils down to competitive in terms of pricing. Not just pricing but quality and the capabilities of those vendors. And with regard to the margins…

Marc Miller

I won’t comment specifically on the number directionally the thought is correct. We have been working hard quarter-to-date to get those Q4 ending inventories which are characterized as having a overhang of inventory back in line so that we can get to that ending inventory in the flattish range. So yes, it contemplates the impact of the, in order to say, heavier markdowns related to liquidation of that product.

Operator

Thank you. The next question is from Paul Lejuez of Wells Fargo. Please go ahead.

Paul Lejuez - Wells Fargo

Hey, thanks guys. It seems like you have a lot of consultants running around there. Just wondering I don’t think that the cost of the consultants are in your first quarter guidance at least, I am just wondering what your view is about what they will cost for the year? What sort of a drain on cash? And then just going back to Kimberly’s question just a clarification I think you explained the payables being up by saying something about timing of rent, but is it – did I understand right that rent is in your account payable, not your accrued expenses, what else is in that payable line? And if you can just comment on where merchandise payables are year-over-year? That will be helpful. Thanks.

Tom Johnson

Hey, Paul. The cost of the consultants, when we speak to the consultants I am really talking to the real estate consultants that we hired, where it’s kind of success fee based as well as the consultants that are looking at our expenses as well as other operational improvements which have a fixed fee component. What I characterize it is single-digits and lower single-digits millions associated with the cost of those two consultants. When I mentioned the accounts payable, I was just literally talking about rent that was due at the end of the year that shifted from Q4 into Q1. So when the checks were actually cut, while we have not changed in anyway our vendor terms and we are completely compliant with all the terms, payment terms that we have with our vendors. So that does exist, that merchandise vendor does exist in our accounts payable line, but it represents not a change in policy or anything else with that group.

Operator

Thank you. The next question is from Stephanie Wissink of Piper Jaffray. Please go ahead.

Stephanie Wissink - Piper Jaffray

Hi guys. Thanks for letting me sneak our question in. I really just wanted a question for you, Emilia, on the merchandise margin of the collection business versus the balance of the assortment, including the fees or royalty that you have to pay are those margins higher or lower than the balance of the aero assortment? Thank you.

Emilia Fabricant

So some of them are sub-brands, some of them are partnerships and some of them is what we classify with licenses. So all three has higher margins and it’s relatively speaking depending on which partnership it is, but Bethany, PLL and some of the sub-brands we do expect the higher margins to continue throughout the year.

Operator

Thank you. Our next question comes from Howard Tubin of RBC Capital Markets. Please go ahead.

Howard Tubin - RBC Capital Markets

Thanks guys. Maybe aside from the new arrangement with MGF Sourcing, can you just remind us what else you are doing to like reduce your lead times more closer to need and we need to react to what the customer is responsible?

Emilia Fabricant

Well, we do continue to have a robust test-and-react strategy. We are leaving more open than ever before. And just to remind everybody, our chase timeframe is 21 to 120 days, which we have been utilizing regularly.

Operator

Thank you. The next question comes from Matt McClintock of Barclays. Please go ahead.

Greg Baglione - Barclays

Hi, good afternoon everyone. This is Greg Baglione filling for Matt. Just want to go back to the international piece real quick, it appears you are pretty positive on that opportunity. Just wondering how quickly you think you can ramp that up to get to the significant portion of business and maybe any findings you or your partners have between sort of your international customer and your domestic customer? Thanks.

Tom Johnson

Sure, Greg. International, we ended last year with 97 licensed stores. We think this year we can end with about 167 stores across 15 countries versus the 11 that we ended last year. We do believe we can add three to four new territories each year. Tom already announced one today with Chile and he also announced that we would be extending P.S. We are going to have a big rollout in Mexico for back-to-school with the P.S. brand and we will also be opening in the Philippines. As you know, we charge licensing fees for the international business. So it’s highly accretive, but it’s not something that you see the impact on the revenue line. Beginning of last year we have set a three-year target to be at $0.21 EPS by 2015 and we are well on pace to exceed that goal. So we believe it’s become a meaningful part of our business already and we will continue to grow quickly. In terms of insights the appetite for the Aeropostale brand across these markets is substantial. There is a customer that I believe is slightly older customer that we attract in our international markets and the customer also tends to be a little more balanced male, female than what we see in the U.S. domestic market. So there is great receptivity it is still positioned as teen brand in those markets where we find ourselves attracting I will call it up to 10 to 15 years older than our target across the territories where we operate.

Operator

Thank you. We have time for one more question. It comes from the line of Dana Telsey of Telsey Advisory Group. Please go ahead.

Dana Telsey - Telsey Advisory Group

Good afternoon everyone. As you talked about the potential for AUC reduction in the future, how much could it be what categories and how much could it add to the margin. And then just on the Sycamore loans what’s the interest rate on that and how do you see that fitting in? Thank you.

Emilia Fabricant

So as far as AUC reduction we do believe we have an opportunity to offer quality core at lower AUC which would impact our gross margin. And like-for-like as we are getting smarter and better at the fashion part of the business as well as the fashion basic we believe we have an opportunity there to adjust AUCs accordingly.

Marc Miller

And Dana on the Sycamore piece, we found the $150 million total to be a very attractive financing rate at a blended cost of capital at 6.7%. The way you get to the 6.7% is the $100 million tranche is at a 10% interest rate, but the effective cost of capital on the $50 million other tranche is effectively zero. So blended at 6.7% and should we hit our minimums, the $50 million loan actually self amortizes over time, so our actual cost of capital can be even lower than that 6.7% rate that we spoke to.

Operator

Thank you. And that was all the time we have for questions. I would now like to turn the floor back over to management for any additional remarks.

Tom Johnson - Chief Executive Officer

Thank you everybody and thank you for your continued support. We have a – even with the difficult business that we had during the course of last year, we still represent the largest unit share in the teens sector and we have a very powerful brand. And we believe that even with the introduction of some sub-brands and some collections like the Bethany what we are doing is increasing the interest in our brand and ushering in new customers while maintaining the true core of our business which we have always positioned as a high school and middle school brand focused on the 16-year-old. And that is our goal and that’s what we are striving to do. With the introduction of some of the newness that we have done specifically with Bethany Mota, we think that is just a very strong move for us to create the halo effect that we know that we can get from some of these additional partnerships, while maintaining the soul of the Aeropostale brands. Thanks again everybody and we will talk to you on the next quarter.

Operator

Thank you. Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. And thank you for your participation.

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