Aeropostale, Inc. Q2 2008 Earnings Call Transcript

Aug.21.08 | About: Aeropostale, Inc. (ARO)

Aeropostale, Inc. (NYSE:ARO)

Q2 2008 Earnings Call Transcript

August 21, 2008 4:15 pm ET

Executives

Kenneth Ohashi – VP, Investor & Media Relations

Julian Geiger – Chairman and CEO

Mindy Meads – President and Chief Merchandising Officer

Michael Cunningham – EVP and CFO

Tom Johnson – EVP and COO

Analysts

Jeffrey Klinefelter – Piper Jaffray & Co.

Christine Chen – Needham & Company

Adrienne Tennant – Friedman, Billings, and Ramsey

Linda Tsai – MKM Partners

Janet Kloppenburg – JJK Research

Marni Shapiro – The Retail Tracker

Lorraine Maikis – Merrill Lynch

Michelle Tan – Goldman Sachs

Dana Telsey – Telsey Advisory Group

Betty Chen – Wedbush Morgan

Howard Tubin – RBC Capital Markets

Jay Sole [ph] – Morgan Stanley

Robin Murchison – SunTrust

Operator

Thank you for joining us for the Aeropostale conference call to review second quarter fiscal 2008 financial results. 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. And now I would like to introduce Mr. Ken Ohashi, the company's Vice President of Investor and Media Relations. Mr. Ohashi, please go ahead.

Kenneth Ohashi

Thank you all for joining us this afternoon. With me here today are Julian Geiger, our Chairman and Chief Executive Officer, Mindy Meads, our President and Chief Merchandising Officer, Tom Johnson, our Chief Operating Officer and Michael Cunningham, our Chief Financial Officer.

We issued a press release earlier this afternoon announcing our second quarter financial results. A copy of the release can be found on our corporate Web site. Before we begin, I would like to remind you that during this earnings conference call certain statements from participants' 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 of future periods to differ materially from our forecast 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 Web site.

We undertake in obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances. (inaudible) I refer to those filings.

Before I turn the call over to Julian, 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 a round of questions we will go back and you may queue up again at that time. We now like to turn the call over to Julian.

Julian Geiger

Thanks, Ken. Good afternoon, everyone. Thank you for joining us. All of us at Aeropostale are extremely pleased with our results of the second quarter. We delivered another period of record sales, record operating margins and record earnings.

Let me take you through some of the highlights. Net sales for the quarter increased 21% to $377 million and we generated a same-store sales increase of 11%. We increased gross profit by 230 basis points and our operating margins improved by 220 points. Our net earnings per share grew 63% to $0.31 per share from $0.19 per share last year.

Additionally, we ended the quarter with a strong start to the back to school selling season and we believe that we are well-positioned for the remainder of the year. The strategic initiatives that we've outlined have been implementing over the past few years are having a substantial and positive impact on our business.

These initiatives include offering the customer a balanced merchandise assortment that is fresh and focused, managing the inventory carefully while maximizing efficiencies in product flow by making investments in people, process and systems and creating a fun and exciting shopping environment through our new store model and our innovative marketing programs.

The consistency of our results demonstrate that our initiatives are succeeding. Our balanced merchandise assortment, our exciting store experience, our unique promotional model are resonating with our teen customer. Aeropostale has involved into a powerful destination brand as evidenced by our positive mall traffic and recognition as the leading brand in various market research studies.

We are pleased that yet another generation teen customers has embraced Aeropostale as its store. We believe that our strong positioning and our unique operating model of balancing fashion and value will ensure our success for many years to come.

Now I would like to turn the call over to Mindy who will take you through some of the merchandising highlights from the second quarter.

Mindy Meads

Thank you, Julian. We were very pleased with the customer response to our summer and early back to school assortments as we continue to build on our successes from the first quarter.

Our merchandising successes have been a result of our team's intense focus on one, giving the customer an added assortment, the right colors, patterns and detailing the classifications they want, offering the customer the best value to fund and unique promotions and continuing to listen and stay true to our core customer. This strategy has enabled us to achieve strong and consistent results throughout the quarter.

Let me take you through some of the highlights. Our women's comp were up in the high single digit. Men's was up in mid teens. While we experienced broad-based strength across all categories we saw particular strength in women's and men's graphics. Denim for both genders, women's bare knit tops and men's Polo.

During the quarter, we continue to see positive traffic in our stores with comp transactions up in the high single digit and our units per transaction as well as average unit retail were both up in the low single digit.

We are very pleased with the consistent strength we experienced across all geographic region. As a result of higher initial sell-throughs our inventories remain very current. We are all very comfortable with both the level and the composition of our inventories as we head into the remainder of the year.

As Julian mentioned earlier, we are pleased with our strong start to the back to school selling season. We are getting very positive early reads on classifications that will be important for us in the second half of the year.

Before I turn the call over to Michael, I would like to thank the entire product development team for their dedication and hard work in helping the company achieve another regard quarter.

Michael Cunningham

Thanks, Mindy. Total net sales for the quarter were up 21% versus last year driven by average square footage growth of 5.11% and 11% comp. During the quarter, we opened 31 stores ending with a total of 843 Aero stores in the U.S., 22 stores in Canada, and 14 Jimmy'Z stores.

Gross margins for the quarter were 33.4% versus 31.1% last year. The 230 basis point increase was primarily driven by higher merchandise margins. SG&A for the quarter was 24% of sales versus 23.9% last year. While we leverage store line and corporate expenses of approximately 110 basis points this is offset by an 80 basis point increase in incentive comp as a result of the company significantly exceeding its operating plan and a 40 basis point increase in stock-based compensation.

Our tax rate for the quarter was 40.5% which resulted in net income of $21.1 million or $0.31 per share. Cash and cash equivalents were $70.8 million versus cash and cash equivalents together with short-term security of $204 million last year. The $103 million decrease over last year is due to increased repurchase activity during second half of 2007.

During the quarter we repurchased 93,000 shares of our stock for approximately $2.9 million. As of August 2nd 2008, we had approximately $131million of remaining buy back availability.

Inventory at the close of the quarter was $183.7 million and were up 22% in total. On a per square foot basis, our net inventories were up 9% while the book stock component was up 6% per square foot.

Our capital expenditures for the quarter were $26.6 million and depreciation and amortization was $10 million. We expect third quarter earnings to be in the range of $0.59 and $0.61 per diluted share which assumes a 40.5% tax rate.

I would now like to turn the call back over to Julian.

Julian Geiger

Thanks, Michael. As an organization, we are totally focused on continuing our momentum and maximizing the Aeropostale brand potential. While we continue to strengthen our domestic position, we are capitalizing on opportunities for international expansion. Our Canadian stores are performing above plan and at a higher rate than our new domestic stores.

We are also very excited to announce that we have entered into a licensing agreement to open Aeropostale stores in Dubai in early 2009. This new venture will enable us to introduce the Aeropostale brand to new markets overseas and lay the groundwork for what we believe can be a greater expansion of brands globally.

While we continue to focus on the growth in our primary business, we are also investing in other growth vehicles. We are very pleased with the improved performance we are seeing at the Jimmy’Z concept.

We believe that we have identified an underserved market and we have been successfully applying the operating strains of the Aeropostale to the Jimmy’Z business. It's a careful analysis, extensive learning and strategic adjustments. We are seeing a marked improvement in Jimmy’Z.

As you can imagine we are also continuing to make progress on our third concept and we will be excited about sharing more details with you as we approach our launch next year. It would be easy to assume that the current success of Aeropostale is simply the by-product of a struggling economy or of a more aggressive promotional posture.

In reality, however, this is far from the truth. Aeropostale is a brand with an impressive past and an unprecedented history of ten consecutive years of positive comp store sales. Whatever the macroeconomic background has been, this organization has persevered and scheduled.

Our consistently strong performance over the past three quarters is testimony to our desire to listen to our customers, to offer a balanced assortment of trend right merchandise, to spur demand through preplanned promotions and to maintain a vibrant shopping experience in our stores.

I give tremendous credit to the entire Aeropostale team for what is clearly the best merchandise assortment we've ever had. Additionally, we've made systemic improvements in our processes and operations that have benefited and will continue to benefit the company.

The positioning of and the perception of our brand is exactly where we want it to be. We are ready for the height of the back to school selling season and eagerly anticipate pursuing the opportunities that exist throughout the remainder of the year. Our business has never been stronger and we believe there are tremendous opportunities ahead.

Operator, at this point, we will be happy to take questions.

Question-and-Answer Session

Operator

(Operator instructions) We'll go first today to Mr. Jeff Klinefelter of Piper Jaffray.

Jeff Klinefelter – Piper Jaffray

Congratulations everyone on a fantastic quarter.

Julian Geiger

Thank you, Jeff.

Michael Cunningham

Thank you, Jeff.

Jeff Klinefelter – Piper Jaffray

The question is on Jimmy'Z. Julian, you commented you're seeing market improvement. Could you just update us on what the projection at the beginning of the year was for the drag on operating income, what – how is it quantified the EPS and would it be less so now that you're seeing this improvement. And just to clarify something on inventory. Michael, I couldn't understand when you're saying after – up 22%, you gave us two other metrics. Could you just update that?

Michael Cunningham

Sure. Let me handle the inventory first. The inventory is up 22% in total. On a per square foot basis it's up 9%, that's the net inventory, which includes a number of components, book stock, which is the actual caused the inventory, reserve for losses, shrink reserve and a couple other components. While the net inventory is up 9%, the book stock, the actual cost of the merchandise we have on hand is up 6% per square foot. Because as we said on our call back in March, our shrink reserve rate is lower this year and because the ageing of – and composition of our inventory so much improved over last year we have a lower reserve for losses. So those two lower reserves of inventory account for the cost per square foot going from 6% on a pure cost basis to 9% square foot which is really accounting basis that you see on a balance sheet.

Julian Geiger

The question about Jimmy'Z, Jeff, we're still talking about 14 stores out of almost 900. So even with the substantial increase we have seen in the comp sales and in the gross margin, it really doesn't have a material effect on the company. But what is important is the growth and development we're seeing.

Jeff Klinefelter – Piper Jaffray

Maybe just remind us again, Michael, what was the drag – estimated drag this year in EPS?

Michael Cunningham

I think it was about 8%, $0.08 on a full year basis, Jeff.

Jeff Klinefelter – Piper Jaffray

Thank you. Good luck everyone.

Michael Cunningham

Thank you.

Operator

And we'll go next to Christine Chen at Needham & Company.

Christine Chen – Needham & Company

Thank you. Congratulations, everybody, on another wonderful quarter.

Julian Geiger

Thank you.

Michael Cunningham

Thank you, Chen.

Christine Chen – Needham & Company

Wanted to ask, so historically your peak margins were about 14% in 2004, but the company has also evolved quite a bit since then from an infrastructure perspective as well as product and just wondering long-term where you think operating margins could go?

Michael Cunningham

Sure, Christine. This is Mike. We've talked about this lot. I mean, absolutely, lot has changed since 2004. The company has grown. As Julian said, we're investing our third concept right now. You have the event of the expensing of stock options and previously when we were a private company, we heavily used stock options throughout the company. So lot of those put pressure on the margins. But that being said, on a long-term basis, I think we feel very comfortable especially given the recent history over the last three or four quarters that we could achieve and sustain margins – operating margins in the mid teen level as we grow the business but also continue to invest in the future.

Christine Chen – Needham & Company

Great. Thank you and good luck.

Michael Cunningham

Thank you.

Operator

And we'll go next now to Adrienne Tennant with Friedman, Billings and Ramsey.

Adrienne Tennant – Friedman, Billings, and Ramsey

Good afternoon. Congratulations.

Michael Cunningham

Thank you.

Adrienne Tennant – Friedman, Billings, and Ramsey

Just a quick question on some of your competitors are doing incremental promotions, how does that change your strategy? And also as we go into holiday with one fewer weekend and a few fewer days, are you planning on doing anything differently? Thanks.

Mindy Meads

If we talk about the prices, we view this as it's really the fashion value equation that makes our brand so strong and we have a very different promotional model and our competitors have been promoting more recently. It really hasn't impacted our numbers and frankly, even with the reduced prices we still keep quite a distance from them.

Adrienne Tennant – Friedman, Billings, and Ramsey

Okay. Great. And just any changes to either strategy line drops or promotional for holiday period?

Mindy Meads

There really aren't significant changes in the flow as we go to holiday and we don't really talk about future promotions. But we have a lot of variety and unique promotions. I think it's important to keep mixing it up. So, I think you're going to see a lot of things towards the end of back to school and into holiday.

Adrienne Tennant – Friedman, Billings, and Ramsey

Great. Thanks so much and good luck.

Julian Geiger

Thank you.

Mindy Meads

Right.

Operator

And we go next now to Linda Tsai with MKM Partners.

Linda Tsai – MKM Partners

Yes, hi.

Julian Geiger

Hi.

Linda Tsai – MKM Partners

Julian, I have a question. Why did you pick Dubai as the country for your licensing agreement?

Julian Geiger

As everybody knows there are over half a billion teenagers in Asia and we think with – the growth and development for Dubai it's a perfect platform from which we can launch the brand, learn a lot and really position ourselves for potential growth where the majority of the customers in the world really reside.

Linda Tsai – MKM Partners

So had you considered other countries as well?

Julian Geiger

We considered many options and I think by far this is the best opportunity for us in the short run.

Linda Tsai – MKM Partners

Great. And then Mindy, in terms of the early classification strength that you have seen, can you provide us with some examples?

Mindy Meads

Sure. As I mentioned earlier, the graphics are incredibly strong right now and it really starts with the number one best seller being our athletic logo. It clearly represents how strong the strength of the brand with the customers wanting the Aero name on their product. In addition to many of the new techniques and washes and print and even a touch of bling on some of the graphics, it has moved into other classifications from just the cortese into thermal long sleeves and in particularly a lot of techniques into fleece. We are having a very strong early start to fleece. And as you know, it is a key, key classification for fourth quarter and it's also been helping Polo on the men's side and also on women's. So the graphic has taken on a wider range moving into other classification. Another area was strong in Denim, particularly as you moved into the second half of July, it is coming out very similarly with the girls side being skinny flare is with a 50% of our business, we have more washer, we have added new Kirby set, it's still our number 1 although the skinny Jean is gaining importance. We still we have a very good balance of light medium and dark washes, and new back poker treatment. And on the guy's side the original fit, for walk in three washes, it's over 60% of business but we brought in a couple of new style in the slim boot that are gaining importance in solid. That kind of gives you the highlight of the strength.

Linda Tsai – MKM Partners

Great. Thank you. And then also, maybe just a quick update on accessories.

Mindy Meads

Accessories is one area that frankly has been tougher. I think it's been consistent all season and like many of our competitors not an area of strength. I think with the economy the way it is, our customers are gravitating towards graphic tees or Polos or jeans or shorts. So it's an area that we have planned much more conservatively for the back half of the year. There are couple highlights in our tots which again has a graphics and are very strong, it will continue and we think when we get further into holiday we are shifting our assortment a little bit in sleepwear. But we are playing to – plan a little more conservative until we see some changes in the economy.

Linda Tsai – MKM Partners

Great. Thank you and good luck.

Julian Geiger

Thank you.

Operator

(Operator instructions) We'll go next now to Janet Kloppenburg with JJK Research.

Janet Kloppenburg – JJK Research

Hi, everybody. Congratulations.

Julian Geiger

Thank you, Janet.

Michael Cunningham

Thank you, Janet.

Janet Kloppenburg – JJK Research

Can you hear me?

Mindy Meads

Yes.

Janet Kloppenburg – JJK Research

Okay. Great. I just wanted to ask a question about the gross margin rate which has been improving measurably and I think you're going to come up against some tougher compares, Mindy and Julian, as we go into the back half. And I know that it's clear that the product is selling very well. But would you like us to temper our expectations on gross margin or is there that much more opportunity available?

Michael Cunningham

Janet, actually, our end of the margin pressure, I mean, clearly, the 230 basis point increase in the gross profit margin was significant for Q2. Going forward, we wouldn't necessarily expect the same magnitude, but we do plan on seeing the gross margins continually increase over the next two quarters for the rest of the year.

Janet Kloppenburg – JJK Research

And Michael, what – given your expense structure with the higher comp and the stock-based compensation, where is leveragability of SG&A now?

Michael Cunningham

That's a great question which I don't think I've actually ever answered that in the history of Aeropostale.

Janet Kloppenburg – JJK Research

Why don't you start now?

Michael Cunningham

It's actually good question. The reality is if you – for those of you know Aeropostale, you know that we have been very frugal and lean on our infrastructure. And if you look at this quarter, we did leveraged those costs that you need to leverage which is your fixed corporate overhead as well as we strictly manage store line payroll. However, I think we talked about this maybe on one of the earlier calls. We did restructure our stock compensation program to make it more paper performance directly affected by the current year's bonus plan. So in this quarter since we significantly outperformed a plan the incentive comp accrual went up significantly in this quarter. The benefit we will see as a company is to lower stock compensation expense since that's a multi-year accrual, the benefit of that will stretch out a little bit longer. So that being said, I would also look at SG&A being flattish over the next two quarters as we continue to manage and run the business effectively.

Janet Kloppenburg – JJK Research

Great. Mindy, I just wanted to tell you I think the stores look fantastic.

Mindy Meads

Great. Thank you.

Janet Kloppenburg – JJK Research

Have a great season.

Julian Geiger

Thank you.

Michael Cunningham

Thank you.

Operator

We'll go next question now from Marni Shapiro with The Retail Tracker.

Marni Shapiro – The Retail Tracker

Hey, guys. Congratulations. Great quarter.

Julian Geiger

Thank you.

Marni Shapiro – The Retail Tracker

Could you talk a little bit about the direct business and I noticed you've been collecting names in the stores a little bit more aggressively and I have been receiving plenty of e-mails, so I was curious if you were in fact e-mailing more aggressively and if you're getting better click-throughs on them and if you've seen any improving results on your direct business?

Mindy Meads

Our e-commerce business continues to grow, and we have a regular program, pretty frequent e-mail. We haven't really accelerated it, but we are continuing to maintain it. We're very excited about the results and continue to see that growth throughout the fall season.

Marni Shapiro – The Retail Tracker

Is there any change on the online – difference in the online business from the stores or does it mirror your stores?

Mindy Meads

It does mirror the stores. We do have a couple more size of money, commerce, but for the most part the product is the same. Usually, the best sellers that are saying we tend to sell more basics on e-commerce throughout and we're solid but other than that, it is pretty similar.

Julian Geiger

Marni, the store has always been diligent about capturing e-mail.

Marni Shapiro – The Retail Tracker

Great. Thanks, guys. Good luck with the rest of the season.

Julian Geiger

Thank you.

Operator

We go next now to Lorraine Maikis with Merrill Lynch.

Lorraine Maikis – Merrill Lynch

Thank you. Good afternoon. Just to clarify the SG&A question, you said flattish over the next few quarters. Is that as a percentage of sales?

Julian Geiger

It's a good question. Yes, that is as a percent of sales, correct.

Lorraine Maikis – Merrill Lynch

As we look at the 22% dollar increase that you saw this year, should we expect if you continue to outperform that, that would be a good rate to use going forward?

Julian Geiger

Don't want to give out a dollar increase because that tied to a sales number which we don't disclose. I would just stick to the percent of sales five-ish as our guidance.

Lorraine Maikis – Merrill Lynch

And then just a quick question on inventory. You said in the past that you are planning your inventory levels to your comp projections. So should we assume that you are expecting to stay in the positive mid-to-high single digits in the back half?

Julian Geiger

Yes. I don't recall saying we plan the inventories to comp expectations especially this year when we had the forfeit shares which affected it. So I would say obviously we continue to monitor inventory very closely, very carefully and to make sure obviously, we have the proper amounts and the key classifications. I think as Mindy said, we all feel very good in terms of where we are for the back to school season.

Mindy Meads

And as we move into fall we are able to take advantage of many of the contingencies we put in place so that can we react faster particular with the graphic business and how big a part of the business it's becoming, we are able to turn on that much faster and react to the business.

Lorraine Maikis – Merrill Lynch

Great. Thanks a lot.

Julian Geiger

Thank you.

Operator

We'll go Next to Michelle Tan with Goldman Sachs.

Michelle Tan – Goldman Sachs

Hey, great. Thank you. Guess my question and congratulations as well.

Julian Geiger

Thank you.

Michael Cunningham

Thank you.

Michelle Tan – Goldman Sachs

Mike, one of my main questions is as you look at the structural improvements that you talked about in the business, can you elaborate a little bit on the ones that are really incremental still to the back half of the year? Where you have either implemented them in the spring or more ahead of back to school?

Mindy Meads

Are you talking about inventory?

Michelle Tan – Goldman Sachs

Well, I mean – I am sorry you had a guess inventory, management, process, planning and allocation, the type of business.

Michael Cunningham

Yes. Actually, we have done quite a bit, Michelle this year. I think the biggest thing from a planning allocation standpoint, planning process, the partnership with the merchants an all-time high. So we get it right upfront, make sure that we are buying it more correctly. The flow, we specifically flow the product very differently for the early mid and late stores this back to school which benefited us greatly outperformed the company average as they peak and we're flowing the goods proportional as a peak to match their demand when the customers are there and shopping. In addition, we're looking at regional differences and seasonal differences, if you will, with the fact that we are as far down as Puerto Rico and south as far north as Canada we see the seasonality and we know that we can capture incremental business. With the addition of the second DC and the west coast, last fall, it's paid great dividends for us to get speed to market product in the stores. We've split purchase orders in addition to have multi prepack to be able to attack the sizes with the different – regional differences with regard to size. So we do think that big dividends and we will continue to do.

Michelle Tan – Goldman Sachs

Great. And then anything on the merchandise flow side, it's still new for back to school?

Mindy Meads

No changes in the timing of the flow if that's what you mean.

Michael Cunningham

We just feel very good about the timing, matching, demand when it's peak.

Michelle Tan – Goldman Sachs

Okay. And then I guess my one other question is if you look at the higher merchandise margin that you earned in the quarter how much of it is less clearance versus mixed shift versus IMU.

Michael Cunningham

We don't break that down. But I think I would say most of it is what we call better maintained margin which is better initial sell-throughs overall.

Michelle Tan – Goldman Sachs

Perfect. Thank you.

Michael Cunningham

You're welcome.

Operator

And we go next to Dana Telsey with Telsey Advisory Group.

Dana Telsey – Telsey Advisory Group

Good afternoon everyone and congratulations.

Julian Geiger

Thank you.

Mindy Meads

Thank you.

Dana Telsey – Telsey Advisory Group

As you think of next year and planning for 2009, whether it's systems, whether it's product flow, whether it's new stores, how are you thinking about it, whether it's inventory planning, whether it's merchandise planning relative to product cost pressures that we hear about? And also just in terms of the assortment of fashion versus basic? Thank you.

Mindy Meads

In terms of the cost I will talk about costs rising in rest of the world, and at this point don't really want to talk about it to quantify the numbers. But as we move into spring, we are extremely comfortable that where we sit with our spring prices based on our strong relationship with our partner and the other part of the question is–

Julian Geiger

Is how we – we always plan on a very conservative basis, but use our nimbleness and our speed, and our contingencies to react later, so we still think the economy out there is challenging. We don't know the speed with which it will get better next year, so we are playing conservatively to build the contingencies to react as dictated by the business realities.

Mindy Meads

I think your other question now was about fashion and fashion basics.

Dana Telsey – Telsey Advisory Group

Exactly.

Mindy Meads

I feel extremely comfortable the position we are in right now. We are really fine tuning. I think in the past it was more dramatic. We really know what part of our business is basic. We are planning that seasonally, which is having a huge impact on our margin. We are driving the fashion basics, and then we have the right amount of fashion, and then that elevated veneer at the top. So, by category difference, but I feel very comfortable that what we have in place will continue into the balance of this year and into next year.

Dana Telsey – Telsey Advisory Group

And then just on the kids division, how is that going, and what's the real estate environment like for it? Thank you.

Mindy Meads

From a product point of view, and a people, we are moving along nicely with our hires. We're getting great talent into the mix. We are in the process of product development, and we are working on our store design right now. Tom can talk to you more about our real estate.

Tom Johnson

Right. Dana, this is Tom. The real estate environment, as you know, and centers that are the C type centers, the obvious deals that are out there are very advantageous, but in the A and A plus centers, the market is still very tight, although for us, the landlords are very excited about the opportunity for us to expand and launch a new concept. So we are very encouraged about the real estate that we have in our sites for the launch of the Little Aero.

Dana Telsey – Telsey Advisory Group

Thank you very much.

Michael Cunningham

Thank you.

Julian Geiger

Thank you.

Operator

And we'll take our next question now from Betty Chen with Wedbush Morgan.

Betty Chen – Wedbush Morgan

Great. Thank you, and congratulations. I was wondering if you can speak a little bit about any regional variances that you may have seen during the quarter. Obviously, a lot of your competitors have talked about some of the states like California and Arizona where the housing market has been weak. They are definitely seeing an impact. But when we look at Aeropostale stores, it seems like they continue to be very resilient. So I would love to hear some color from you if possible.

Julian Geiger

Sure. Actually, the – for us we are very pleased because across the country, regionally, they are all positive. And the variance between the low and the high is not as large as one might expect, because we think it just fits in with what we are doing right now with the brand acceptance across the country as well as in Canada. The best performing region for us actually has been the west, and that's been fairly consistent, which does include California. As a side note, Texas has been very positive as well, and Florida even with the tax shifts were able to rebound and make up the ground that they lost for the tax shifts that they had during the first week of August. We are very pleased across the board.

Betty Chen – Wedbush Morgan

And I was wondering if I could ask a little bit about Jimmy'Z, it sounds like obviously Julian, you're very pleased with some of the improvements you're seeing there. At what point can we get more details about perhaps additional openings or roll out of the concept?

Julian Geiger

As you know, traditionally, we detail our store opening plan for a year on the first – conference call, the first one in the year. We will be more than happy to share at that point with you our plan not only for Aeropostale and the new concept, but Jimmy'Z, and you will get it as a comprehensive, well thought through, total plan.

Betty Chen – Wedbush Morgan

Great. Thank you. And good luck for next season.

Michael Cunningham

Thank you.

Julian Geiger

Thank you.

Operator

We'll go next to Howard Tubin with RBC Capital Markets.

Howard Tubin – RBC Capital Markets

Hey, guys, super, super quarter.

Julian Geiger

Thank you.

Howard Tubin – RBC Capital Markets

Just as your business has been as strong has it has been over the last several quarters, have you got the number of Aero stores you think you can operate in the U.S. or maybe North America in total?

Tom Johnson

Sure, Howard, this is Tom. We have always said publicly that we think that we could have a thousand stores domestically, and probably 80 to 100 stores in Canada, so we still have quite a bit to go.

Howard Tubin – RBC Capital Markets

Great. And then just one other question on marketing. Any marketing plans with the fall season you like to share with us maybe is it different or incremental to last year?

Mindy Meads

At this point, we normally do not give you future marketing ideas, but I can say that we have a lot of very creative ideas that are going to be running through the entire balance of back to school and into holiday.

Howard Tubin – RBC Capital Markets

Great. Thanks.

Michael Cunningham

Thank you.

Julian Geiger

Thank you.

Operator

We'll go next now to Jay Sole [ph] with Morgan Stanley.

Jay Sole – Morgan Stanley

Hi. Thanks for taking my call. I have a question. As you see your brand getting stronger, are you attracting new customers that are different from your traditional customer?

Julian Geiger

It's hard to really understand that. What we do know is our transactions are up, our traffic is up. We are very, very pleased with the way the brand reads, and the way the merchandise looks. We are true to our heritage, and I think as such we are attracting more and more customers, and we are in the early stages of our brand development so we are very pleased with the customers.

Jay Sole – Morgan Stanley

Thanks, so much.

Operator

And we do have time for one further question this afternoon. We will take that from Robin Murchison of SunTrust.

Robin Murchison – SunTrust

Well, not to pile in here, but you guys are doing just a great job. Congratulations.

Michael Cunningham

Thank you, Robin.

Julian Geiger

Thank you.

Robin Murchison – SunTrust

Any color you can give us on the direction of online sales, or is it just not enough to talk about, up down and different?

Mindy Meads

We don't really quantify those numbers, but let's say we are having significant increases that will continue.

Robin Murchison – SunTrust

Okay. Good. Thank you very much.

Julian Geiger

Thank you.

Operator

Mr. Geiger, I will turn it back to you for any final remarks.

Julian Geiger

Thank you. Again, at this time, our entire management team wants to thank all of you for your participation in the call and your support. We look forward to speaking with you soon. Thanks very much.

Operator

Again, ladies and gentlemen, that will conclude our conference call for this afternoon. I like to thank you all for joining us and wish you all a great day. Good bye.

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