Can Aeropostale Inc (ARO) Survive its First Quarter Fashion Faux Pas?

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Can Aeropostale Inc (ARO) Survive its First Quarter Fashion Faux Pas?

By Carly Forster 

Aeropostale Inc (NYSE:ARO) is an American mall-based, specialty retailer of clothing and accessories targeted at men and women between the ages of 14 to 17. The company also has stores called P.S. from Aeropostale that targets children between the ages of 4 to 12. The retailer currently owns and operates 914 Aeropostal stores in 50 states and Puerto Rico, 75 stores in Canada, 97 P.S. from Aeropostale stores in 22 states, and a total of 20 of both stores combined in Asia, Europe and the Middle East. Shares of the company dropped almost 18% on the morning of May 23, after they reported lackluster first quarter results the night prior.

During its Q1 results, Aeropostale Inc (NYSE:ARO) reported -$0.52 earnings per share, beating analysts’ consensus estimate of -$0.72 by $0.20. During the same quarter last year, the company posted -$0.16 earnings per share. The retailer had profits of $395.90 million for the quarter, compared to analysts’ consensus estimate of $410.04 million. Aeropostal’s quarterly proceeds were down 12.5% on a year-over-year basis. On average, analysts’ predict Aeropostal will post $-1.72 earnings per share for the current fiscal year.

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The retailer blames the holiday season’s bad weather conditions for its weak first quarter performance. CEO Thomas Johnson explained, “As other retailers experienced, the macroeconomic environment was challenging during the first quarter with aggressive promotions, lower mall traffic, and unseasonable weather. While our overall results were disappointing, we were able to exceed guidance and end the quarter with inventories well-controlled.” As a result of Aeropostale Inc (NYSE:ARO)’s continuous revenue loss, the company plans to close several P.S. from Aeropostal stores and cut jobs.

Shares of Aeropostale Inc (NYSE:ARO) opened at $3.62 on Friday, May 23. The company has a 1-year high of $15.73 and a 1-year low of $3.37. The stock’s daily moving average is $3.64 and has a 50-day moving average of $52.20. The market cap for the retailer is $267.88 million and its P/E ratio is not applicable.

On May 23, Brean Capital analyst Eric Beder reaffirmed a HOLD rating for Aeropostale Inc (NYSE:ARO), noting that even though “Aeropostale has identified areas to cut expenses, and is vigorously working to revamp the assortment and revitalize the brand image, given the current retail environment and change in consumer preferences and shopping behaviors, we believe turning the business is a long ways away.”Beder has a +7.0% average return and a 52% success rate according to TipRanks.

Jeffries analyst Randal Konik also kept a HOLD rating for the retailer on May 23 and cut his price target from $6 to $5. He believes the company’s second quarter guidance is “disappointingly bleak.” Konik has a +1.7% average return and a 51% success rate.

On the other hand, on May 22 Piper Jaffray analyst Stephanie Wissink reiterated an Underweight rating for the stock. She reasoned, “Fashion apparel for the teenager is not the first considered purchase. In 2005, fashion apparel was how you signaled your popularity. Today it’s food.” Wissink has a +3.8% average return and a 50% success rate.

Also on May 22, Investorplace.com blogger Portfolio Grader rated the retailer a STRONG SELL, noting “As of May 22, 2014, 26.6% of outstanding Aeropostale Inc (NYSE:ARO) shares were held short.” Portfolio Grader has a +0.1% average return and a 43% success rate.

Aeropostale Inc (NYSE:ARO) currently has an analyst consensus of MODERATE SELL.

Carly Forster writes about stock market news. She can be reached at [email protected]

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