Update: Aeropostale Earnings

| About: Aeropostale, Inc. (ARO)


The company beat consensus on the top and bottom lines.

We still have a long-term bullish thesis despite the volatility of late.

We felt the company could easily beat consensus and that the guidance would come in lower given the long-term turnaround.

Aeropostale (NYSE:ARO) beat 2Q earnings by posting a loss of $0.46 (besting a $0.49 loss consensus) and revenues were $396 million (topping consensus of $394). This included a $0.23 a share store impairment charge. Shares are down 10% since earnings.

It's been somewhat of a wild ride. Shares soared as much as 25% on the earnings preannouncement from earlier this month. But we got some actual details on 2Q earnings that the market didn't like. 2Q gross margin was 15.8%, down from 17.9% in the same quarter last year.

The company guided for a 3Q loss of $0.43, compared to consensus of $0.35. But it also has a new CEO at the helm, Julian Geiger. Geiger noted that the company had better expense control in 2Q which led to higher average unit margins.

As we mentioned in our initial article back in March,

The ability to turn around margins and earnings could well take a year or two, but as Aeropostale closes stores and manages to reduce costs, the opportunity is there. Its 2015 target is to get EPS back to positive territory, and assuming free cash margins stay depressed, with long-term free cash flow growing at a mere 1%, coupled with a 10% discount rate, fair value is still around $8. Then there's the private equity option, where Aeropostale could be taken out at 0.5x to 0.6x sales, which implies an over $12 takeout price.

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