Earnings Preview: Aeropostale

Aeropostale (ARO) is expected to report Q4 earnings Thursday with a conference call scheduled for 4:15 p.m. ET.

Guidance

Analysts are looking for a profit of 88c on revenue of $584.79M. The consensus range is 87c to 89c for EPS, and revenue of $552.32M to $616.3M, according to First Call. The company recently reported its February same store sales were up 7% vs. consensus of up 4.6%. Previously, the retailer forecast Q4 EPS of 87c, below previous expectations of approximately 91c. Citigroup, which downgraded shares to Sell from Hold on March 10, believe inventory levels for Aeropostale are building, particularly in women's, which will contribute to first quarter gross margin risk and downside risk to first quarter estimates. Inventory levels, the analyst added, are especially concerning in a slowing spending environment. The firm is concerned about accelerating inventory in slowing consumer spending environment while Aeropostale attempts to anniversary peak gross margin performance, as inventory growth above sales growth will likely drive increased markdowns and gross margin declines.

Analyst Views

Citigroup expects disappointing March sales given tough comps, earlier Easter, earlier Spring deliveries and greater weather risk. Apparel companies will be vulnerable to ratings downgrades in the coming months as a weak economy hurts sales, according to analysts at Standard & Poor's. Factors most likely to affect their ratings include brand relevance and acquisitions. The firm maintains a Cautious stance on the sector.