Aeropostale Reports Another Grim Quarter

| About: Aeropostale, Inc. (ARO)
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Summary

There are still no signs of improvement from teen fashion retail.

In fact, things seem to be getting worse, as Aeropostale again posts a decline in earnings and revenue.

At the moment, there is no reason to be bullish on the company or the industry.

Analyzing teen fashion retailer earnings has become a bit of a broken record over the last few years. This quarter there was again little to be optimistic about, as one company after another reports a decline in sales and earnings. Things don't actually seem to be getting much better either. Aeropostale (NYSE:ARO), one of the major players in the space, delivered a pretty awful earnings report, sending shares skidding following the release.

Losses mounting

It hasn't been the best of years for Aeropostale. In fact, it's doing even worse than last year, when it lost $1.13 per share and missed earnings estimates three times in a row. This fiscal year, the company beat for its first two quarterly reports, but losses widened to $0.52 per share in Q1 and $0.46 in the second quarter. The third quarter too saw losses increase.

Adjusted Q3 EPS of -$0.45 met analyst expectations, but was down from a loss of $0.29 in the previous year for the eighth consecutive quarter of losses. Including special items, the company lost $52.3 million for the period. The most expensive item was a $0.13 per share charge related to store asset impairment.

Revenue didn't look too good either. Although sales of $452.9 million beat the analyst consensus, the figure was down 12% year-over-year. Comp store sales, including e-commerce, declined by a hefty 11%. Following the news, shares lost around 9% after hours.

Merchandising

Management didn't sound too pleased about the results either. Still, the tone struck during the earnings call was a determined one. CEO Julian Geiger stressed the need to better adapt to teen fashion preferences in order to remain competitive with fast-fashion houses that have been cornering the market in recent years.

In fact, much of the earnings call focused on merchandise, and returning to the company's core business of selling cool clothes to teenagers. However, this is easily said than done. In Geiger's view, the company has been "overly influenced by the lure of fast fashion". However, fast fashion is what seems to be working at the moment, as evidenced by the huge success of chains like H&M. As such, it will be interesting see how exactly the turnaround plans play out. Management seems to think that the second half of 2015 will see some improvement.

In the near term though, expectations are fairly low. Aeropostale is guiding for a loss in the range of $0.37 to $0.44 per share for the fourth quarter, while analysts were on the whole expecting a loss of around $0.37. This is disappointing, as the holiday season is of course a crucial one for retailers. Last year, the company lost $0.35 per share in the fourth quarter, for comparison.

Conclusion

Aeropostale, like many of its competitors, is fighting an uphill battle against a very tough market and the quickly-shifting preferences of a fickle demographic. It has now lost money for eight quarters in a row and it expects to lose money next quarter as well. Management seems acutely aware of the need for change, but the question is very much whether the firm will be able to regain its competitive edge, especially facing the rise of fast fashion retailers. At the moment, there's no reason to be bullish on the stock, or in fact, the industry.

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The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.