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Summary

  • Aeropostale is the latest teen fashion retailer to come out with poor quarterly results.
  • Having lost money for seven consecutive quarters now, things don't seem to be improving.
  • The Gap, on the other hand, seems to have figured out how to stay afloat in the troubled fashion industry.

As if one needed any more evidence to be worried about the prospects of US teen fashion retailers, yet another player in the space just came out with some fairly dire results. Aeropostale (NYSE:ARO) is the latest company to bite the dust. Although the company's loss for the quarter was smaller than expected, shares were punished on a weak outlook. The results contrast sharply with those of the Gap (NYSE:GPS), which is one of the precious few companies in the industry to report growth at the moment.

Losing streak

Aeropostale has been having a rough time in the last few years, having posted a loss for seven straight quarters. For the second quarter of this fiscal year, the company lost an adjusted $0.46 per share, which was slightly better than the expected loss of $0.48 per share, but wider than last year's $0.34 loss.

Sales figures weren't much better. Revenue plunged 13% to $396.2 million for the period, missing the consensus estimate, and same-store sales including the e-commerce channels also declined by 13%, following a 15% drop in the same period last year.

It was the outlook though that really had investors worried though. The company is now projecting a loss of between $0.44 and $0.48 for the third quarter, while analysts were expecting a loss of around $0.33 per share. The update sent the stock down over 7%, as things do not look like they are improving meaningfully for the embattled retailer.

Like other mall-based retailers, the company has been struggling in the face of reduced traffic and shifting consumer trends, especially among teens. Most companies in the industry seem to be faring badly, which makes the Gap's performance all the more surprising.

Doing it right

Somehow, the Gap seems to be succeeding where others fail. For the second quarter, EPS increased by 17% to $0.70 excluding items, beating the consensus. Net sales increased by 3%, but comp store sales were flat compared to a 5% gain last year.

By brand, Old Navy Global was the best performer with a 4% increase in comp store sales, but this was offset by 5% in the Gap Global business. Although the US is still by far the company's most lucrative market, accounting for around 80% of sales, the Gap is looking to expand internationally, and into Asia especially. The latest report stated that the company was looking to enter the Indian market, and also increase its store count in China.

So what is the Gap doing right? According to some analysts, the company is simply ahead of the game in predicting changes in fashion trends. Additionally, the company has a strong handle on controlling costs and lowering operating and marketing expenses, which were down around 5% and 6% respectively for the quarter. As such, the key to success in this volatile market seems to be a key eye for fashion, combined with sharp execution and cost reductions.

Conclusion

Aeropostale is the latest teen retailer to come up with disappointing results. Although the quarterly loss was not quite as bad as expected, a weak outlook for the coming quarter sent shares tumbling. Comp store sales were especially worrying, down 13%. In this tough industry, only a select few companies are performing well, one of which is the Gap, which seems to do a better job of adjusting to fashion trends and controlling costs.

Source: Aeropostale Falls Further Behind Rival Gap