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Summary

  • On Aug. 21, after the market closed, Aeropostale reported revenue that matched management's prior forecast but an adjusted net loss that sent shares down in after-hours trading.
  • This action from both management and Mr. Market confirms my stance that, while Aeropostale isn't necessarily a lost cause, the business carries with it a great deal of risk.
  • While this specific bottom line miss was not anticipated in my previous release, the possibility of poor results moving forward was certainly implied.

After the market closed on Aug. 21, shares of Aeropostale (NYSE:ARO) fell nearly 8% to $3.61 in response to the retailer's management team reporting revenue that matched its pre-announcement on Aug. 18 but earnings that were worse than the company anticipated. According to its press release, Aeropostale reported revenue of $396.2 million, 13% below the $454 million management reported the same quarter a year earlier. This decline was due largely to a 13% drop in comparable sales (inclusive of its e-commerce operations).

Earnings Overview
Last Year'sForecastedActual
Revenue (millions)$454$395.4$396.2
Earnings per Share (adj.)-$0.34-$0.42-$0.45-$0.46

From an earnings standpoint, the business did even worse. For the quarter, Aeropostale reported a loss per share of $0.81. This is significantly worse than the $0.43 loss seen during the same quarter a year earlier but was within range of its most recent forecast of $0.80 to $0.83. After adjustments (mostly impairment charges), the company's loss per share amounted to $0.46. This, too, was worse than last year's adjusted loss of $0.34 and narrowly missed the $0.42-$0.45 range management forecasted three days prior.

In a previous article, I highlighted the dangers of buying into Aeropostale. While a turnaround is possible and its sales and losses were better than analysts initially forecasted, not even the use of nearly unregulated, non-GAAP accounting could allow the business to report an adjusted loss that fell in the range management expected just three days earlier. This, combined with the business's falling sales and profits in recent years suggests that there's a lot of danger for investors at the moment.

Source: Update: Aeropostale's Earnings

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