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Summary

  • The company updated fiscal 2Q guidance and announced a new CEO.
  • We’re still long-term bulls of the turnaround strategy with the idea that with no debt and a plan in place the risk/reward is appealing.
  • We didn't expect the company to appoint a new CEO but believe it is a positive.

Aeropostale (NYSE:ARO) updated its fiscal 2Q guidance, with numbers that are now expected to come in better than Wall Street consensus. The company guided 2Q EPS (without one-time charges) to between a loss of $0.42 and $0.45 (Wall Street consensus was a $0.58 loss). 2Q 2013 EPS was a $0.34 loss. But comparable store sales is expected to fall 13% y/y and revenues down 13% y/y.

There was also a management shakeup, with the current CEO, Thomas Johnson, stepping down. There are now bringing back Julian Geiger as CEO. Geiger was the company's CEO from 1996 to 2010. From the time that Geiger took Aeropostale public in 2002 until his February 2010 retirement, shares of the stock were up 192% -- compared to the S&P 500, which was up a mere 2% over the same time period.

We've taken a beating since we first covered Aeropostale back in March. Shares are down 38% since then. But we note that the key to its plans still holds true, which include new brands and store closings. In March, we noted,

In the meantime, Aeropostale will look to close at least 100 stores in "C" rated malls. The move to accelerate lease holdings will ultimately save the company over the long-term and help preserve liquidity over the near-term...the retailer has been rehauling its designs and merchandise. One such move was decreasing the reliance on logo-based products. Aeropostale is also looking to get its brand in front of more shoppers, including its partnership with Pretty Little Liars and Bethany Mota, as well as increasing customer engagement in-store and online.

With negligible debt, the stock trades at an EV/sales ratio of just 0.12x, compared to the likes of an Abercrombie & Fitch (NYSE:ANF) or American Eagle (NYSE:AEO) that both trade above 0.5x.