Now Might Be The Time To Look At Aeropostale As A Short

| About: Aeropostale, Inc. (ARO)


On Aug. 19, shares of Aeropostale soared after news broke that it was reinstating its former CEO and had pre-released revenue and earnings.

Revenue and earnings beat out analyst forecasts, but based on the data provided, Aeropostale is still sinking.

This data is accompanied by evidence from recent years - falling sales and recent losses - which suggests that a radical change needs to be made if Aeropostale is to be saved.

One of the biggest movers on Aug. 19 was Aeropostale (NYSE:ARO). After the retailer announced it was bringing back its former CEO and made public results for the quarter that weren't as poor as analysts expected, shares of the business soared 21%. While news that the company isn't in as bad a spot as expected might come across as good, investors might not want to jump for joy just yet. Aeropostale still has many problems.

The ship looks to be sinking… just slower

For the quarter, Aeropostale pre-reported revenue of $396.2 million. Although this is higher than the $395.44 million Mr. Market had been expecting, it represents a 13% drop compared to the $454 million management reported during the second quarter of its 2013 fiscal year. In light of a tough retail environment and difficulty retaining customers, sales fell because of a 13% drop in comparable sales (including the positive effects of its e-commerce operations).

Earnings Overview

Last Year's Forecasted Pre-Released
Revenue (millions) $454 $395.44 $396.2
Earnings per Share (adj.) -$0.34 -$0.58 -$0.42 to -$0.45
Click to enlarge

While sales are pretty straight forward, profits are a bit more problematic because the company reports both net loss and non-GAAP figures. For the quarter, management expects its non-GAAP loss to range between $0.42 and $0.45 per share, down from the $0.58 analysts anticipated and the $0.34 the business reported in last year's quarter. Adding back its non-GAAP deductions, however, will yield a net loss per share of between $0.80 and $0.83, which implies a total net loss of $61 million to $64 million.


Unfortunately, this isn't the first time Aeropostale has posted poor results. Over the past five years, revenue at the company has declined by 6% from $2.2 billion to just shy of $2.1 billion as comparable store sales have declined, in aggregate, 12% and its net income of $229.5 million has turned into a loss of $141.8 million. This picture, combined with the less disastrous but still downtrodden, results pre-released implies that Aeropostale's picture is still getting worse; just a little slower. Based on the data provided, it's like a ship that's sinking. Sure, you plugged the holes partially, but the end result will be no different than it was for Titanic if some significant changes don't take place.

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