Amid growing pressure from its investors, struggling apparel
retailer Aeropostale (
), has contacted at least two private equity firms to look for
strategic options, sources close to the matter said. The retailer
is also seeking assistance from investment banks to deal with the
pressure from activist investor Crescendo Partners.
Aeropostale's stock has stumbled by more than 35% over the past
one year as it reported substantial revenue decline during four
consecutive quarters. In November 2013, Crescendo Partners, which
holds an undisclosed stake in the company along with its
affiliates, had urged the company to sell itself in a letter to the
Though the sources said that the company has not yet initiated a
sales process, we believe that a buyout might be imminent.
Aeropostale's strategies aren't working, its stock price is at a
five-year low and Crescendo sees it going for $14 - $16 per share
(which is more than 80% premium to its current stock price).
Therefore, this might be the apt moment for the retailer to sell
its business, to either a strategic or financial buyer.
Our price estimate for Aeroposatle is at $10
, implying a premium of about 30% to the market price
See our complete analysis for Aeropostale
Aeropostale's Business Is Struggling
Aeropostale has been struggling to achieve positive
comparable store sales growth for the past three years due to low
store traffic and high markdowns. The company mainly offers basic
products such as hoodies, jeans and t-shirts, which no longer
resonate with fashion conscious teenagers. Although these products
were quite popular during the recessionary environment due to their
low prices, their demand gradually subsided as customers moved
towards other fast-fashion brands. As a result, Aeropostale's
comparable store sales fell by 9% and 4% in 2011 and 2012
respectively. This continued in the first quarter of 2013, as the
retailer's comparable store sales further declined by 14%. Although
the company felt that offering more fashionable clothes will help
its sales, it did not work out as expected.
Aeropostale attempted a complete product overhaul for the second
quarter, with a head-to-toe approach as it extended its fashion
offerings and added new product categories such as
footwear. It started offering trendy products like lacy
ruffled tunics, studded combat boots, floral anorak jackets, and
other similar merchandise. Management also launched some
marketing campaigns to reposition the brand as
fashionable. However, these products have so far failed to
attract customers as hoped due to high pricing and abrupt change of
styles. As a result, Aeropostale reported dismal results in Q2
and Q3 fiscal 2013 (-15% comparable store sales growth in both the
quarters), and slashed its outlook for the fourth quarter. As
things stand, the consensus revenue estimate for the January
quarter is $690 million and represents a steep 13% decline from the
prior year level. Consensus EPS estimate is a sizable loss of 30
cents. Clearly, the turn around has faltered.
Buyout May Be Around The Corner
Even though Aeroposatle adopted a poison pill last November, we
believe that a near term buyout is very much possible. Indeed, the
stated intention of the Shareholder Rights Plan is not to prevent a
sale, but to insure any transaction process is orderly.
Recently, the company cancelled an appearance at the ICR
XChange Conference and has no upcoming events listed on its
website. Additionally, as we noted above, Aeropostale is said to be
reaching out to private equity firms and investment banks to
explore probable strategies.
Despite its troubles and the stumbling stock price, many
investors have taken a keen interest in the company. A few months
back, Sycamore Partners acquired an 8% stake in the company,
followed by Hirzel Capital Management LLC's 6% stake. Sycamore
Partners is know to acquire struggling retailers as it has bought
Talbots, Hot Topic, and most recently,
). We believe that it can extend an offer to Aeropostale as well
given its low market price. Going private might be the only option
left for the company since survival for long looks difficult with
its dismal sales.
See More at Trefis |
View Interactive S&P Capital IQ