Aeropostale (ARO) Crashes As the Brand Continues to Deflate

Shares of apparel retailer Aeropostale (ARO) plunged last week, after the company reported lackluster earnings and revenue, that was worsened by a first quarter forecast for continued losses. Daily Chart

Even with an additional week in the quarter, Aeropostale reported a loss of $671,000, or $0.01, down from a profit of 32 cents per share, or $26.1 million, it reported in the prior year quarter.
Adjusting for one-time charges, Aeropostale earned 24 cents per share, ahead of the FactSet consensus of 22 cents per share. Revenue slid 1% to $797.7 million, topping the analyst consensus of $775.70 million. Same-store sales plunged a whopping 8%, worse than the 7% decline it posted a year earlier. What's worse, those same-store sales include its e-commerce segment, which is usually a bright spot of growth for apparel retailers. Revenues from its e-commerce business, which includes GoJane brand (which sells female apparel, shoes and dresses), rose 16% year over year to $96.8 million. The company attributed its poor fourth quarter earnings to weak holiday sales. Although units per transaction rose 5%, a 6% decline in total transactions and 7% drop in average unit retail price offset those gains. In other words, Aeropostale sold more products per customer, but those it sold cheaper, lower-margin products to a lower number of total customers. That caused the company's gross margin to contract 210 basis points to 24%. Looking ahead, Aeropostale expects to post a loss between 15 cents to 20 cents per share, completely missing the profit of 9 cents per share that analysts had been expecting. During the quarter, Aeropostale added three namesake stores and a single P.S. from Aeropostale store. It closed 11 non-performing namesake locations, bringing its total store count at the end of the quarter to 984 namesake stores and 100 P.S. from Aeropostale stores. Its Aeropostale brand is geared towards teenage boys and girls, while its P.S. brand is aimed at younger children. In fiscal 2013, the company intends to open 14 Aeropostale stores and 60 P.S. locations. It also plans to renovated roughly 30 stores, and close 15 to 20 namesake locations. The company has no debt, and finished the quarter with cash and short term investments of $213.5 million. Throughout fiscal 2012, the company bought back three million shares, worth $40.8 million. Judging from the company's steep post-earnings plunge, however, those repurchases may have been a bit premature. Analysts expect Aeropostale to struggle in the coming year, as the company's inventory rises. To clear its inventory, Aeropostale will likely have to slash prices and crimp its own margins. Macro challenges - such as a payroll tax hike and delayed tax refunds - will also slow down discretionary spending in the first half of the year. Shares of Aeropostale trade at 17.6 times forward earnings with a 5-year PEG ratio of 2.25 - suggesting that the stock may be both overvalued and face sluggish growth ahead - not an attractive combination. The stock also does not pay a dividend. Other News About ARO Aeropostale Drops as it Sees Unexpected Loss Aeropostale reports weak top and bottom line growth on weak holiday sales. Aeropostale Stock Falls On Unusually High Volume Bears chomp down on Aeropostale as the stock crashes. Other Stocks in the News Should You Buy the Dip at Dick's? Is the sell-off at Dick's overdone? IsQuiksilverAbouttoSurfIntoaTsunami? Is Quiksilver dead in the water? Copyright 2013 by, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA, Inc.) or its employees responsible.

Published on Mar 21, 2013
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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