Aeropostale Q1 Loss Narrower than Ests, Revs Lag - Analyst Blog

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Saddled with macroeconomic headwinds, Aeropostale, Inc. ( ARO ) began fiscal 2014 on a weaker note, recording an adjusted net loss of 52 cents a share that is wider than the adjusted loss of 16 cents in first-quarter fiscal 2013. However, the adjusted loss was narrower than the Zacks Consensus Estimate of a loss of 72 cents.

Including one-time items, the company's net loss came in at 98 cents per share compared with a loss of 16 cents lasting the year-ago quarter.

Sales

Aeropostale's net sales plunged 12% to $395.9 million, with comparable-store sales (comps) declining 13% year over year versus a 14% fall last year. Net sales also came below the Zacks Consensus Estimate of $410.0 million. Sales disappointed mainly due to soft traffic and erratic weather.

Comps included e-commerce sales, which on a stand-alone basis slumped 18% to $34.3 million during the reported quarter. The fall in comps is attributable to decrease in transactions, partly offset by a rise in average unit retail.

Further Insight

Aeropostale's adjusted gross margin shriveled 390 basis points (bps) to 18.5%, owing to deleveraging of occupancy and other costs on sales coupled with poor merchandise margins.

Also, selling, general and administrative (SG&A) expenses, as a percentage of sales, expanded by 320 bps. However, it came above the company's expectations on account of lower corporate, transaction and store line payroll costs.  

Stores Update

During the quarter, the company shuttered 18 Aeropostale stores and 1 P.S. store, taking their respective store counts to 931 and 150.

During fiscal 2014, this Zacks Rank #3 (Hold) company intends to open 7 Aeropostale stores, 1 P.S. store and renovate nearly 10 stores.

Financials

This specialty retailer of casual apparel and accessories ended the quarter with $24.5 million of cash and cash equivalents, $8.5 million as short-term borrowings and shareholders' equity standing at $206.8 million.

Moreover, during the quarter, the company spent $8.0 million as planned capital expenditure. Going forward, the company anticipates spending nearly $22 million as capex during fiscal 2014.

Looking Ahead

Though management expects the promotional environment to linger during the second quarter, it considers itself well positioned to face competition from peers like American Apparel, Inc. ( APP ). The company's inventories are under control and on track to achieve cost savings, given its efficient expense management.

Given these factors, Aeropostale initiated its guidance for the second quarter, wherein it envisions operating losses to range from $49.0 to $54.0 million. Net loss per share is forecast in the band of 55-61 cents, assuming flat SG&A and negative comps. The outlook excludes any effects of the company's deal with Sycamore Partners and its affiliates.

The current Zacks Consensus Estimate for the second quarter is pegged at a loss of 48 cents a share, which is susceptible to a downward revision.

Going forward, the company plans to remain focused on undertaking initiatives to transform and grow its brand. With sustained implementation of operational, marketing and merchandising strategies, coupled with its cost-curtailment program, Aeropostale is likely to improve in the long term.

Other Stocks to Consider

Other better-ranked stocks in the same industry include Citi Trends, Inc. ( CTRN ), with a Zacks Rank #1 (Strong Buy) and Foot Locker, Inc. ( FL ) with a Zacks Rank #2 (Buy).


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: APP , ARO , CTRN , FL

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