Aeropostale Crashing on Wider-Than-Expected Q4 Losses

Joel Anderson  |

Small-cap clothing maker Aeropostale (ARO) saw shares fall sharply on lower-than-expected earnings Friday. The stock plummeted as much as 18 percent before recovering slightly and appearing to hold at losses of about 14.5 percent on volume that exceeded five times its daily average before noon.

Shares gapped down $1.16 to $6.15 apiece at open after after-hours trading showed losses. The lowest point of the day, $5.99 a share in the morning, represents a new 52-week low for the company’s stock.

Driving the heavy losses was a Q4 2013 earnings report released after market close on Thursday that had investors disappointed. The store reported Q4 sales of $670 million, a year-over-year decrease of 16 percent from 2012’s $797.7 million and behind the consensus estimate of $685.2 million from analysts polled by FactSet.

Losses for the quarter reached $70.3 million, or $0.90 a share, which was a much wider loss than 2012’s Q4 loss of just $0.01 a share. It was also much wider than the FactSet consensus estimate of $0.31 a share. What’s more, Aeropostale is now estimating Q1 2014 losses of $0.70 to $0.75 a share, well ahead of the analyst forecast of $0.17.

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While CEO Thomas P. Johnson dubbed 2013’s results “not acceptable” in a statement, he painted a sunnier picture for the future on the earnings call.

“We are responding aggressively to our current business status,” he said. “… we are taking swift, bold and aggressive action to improve our performance. Customers are beginning to notice the changes we have made to our brand and we firmly believe that we have laid the appropriate groundwork on which to build our future success.”

One result of the dismal 2013 earnings was the decision to give a larger stake in the company to private equity firm Sycamore Partners. In exchange for $150 million in loans, Aeropostale is giving Sycamore Partners preferred convertible stock and the option to buy up to 5 percent of the company’s float. Should Sycamore exercise these options, it would increase their ownership of Aeropostale to 12.3 percent.

"The just-announced capital infusion from Sycamore Partners provides a liquidity cushion, but nonetheless, we have extremely low visibility on when a turnaround might occur, despite management's numerous efforts to right the ship," wrote analyst Randal Konik for Jefferies, maintaining his hold rating but cutting his price target for the stock to $6.

Aeropostale’s stock has been battered of late, shedding over 55 percent during the last year. The stock currently finds itself in a downward wedge pattern that developed after a huge sell-off in August of last year. Friday’s losses come after the stock was trading near a resistance level that was moving largely in tandem with the stock’s 50-day SMA. For most of March, Aeropostale has traded between its 50-day and 20-day SMA, but Friday’s losses had the stock crossing the 20-day SMA from above.

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