Market Slang, The Dead Cat Bounce & Why Aeropostale (ARO) Is One

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Dealing rooms are full of jargon and slang. Foreign exchange, which is where I started, has more than most. That is probably because it is, or at least was for many years, dominated by London traders, and Londoners have a long history of creative slang. As brokers, my colleagues and I were among the worst offenders even in that slang-happy world.

For example, if either the bid or the offer that constituted a price was less that 5 million, we would always specify the amount, but if that amount happened to be 4 million, split between two equal counterparties, then it would be quoted as “a Desmond.” Why would 4 million, equally split, be known as a Desmond, you may ask; obviously it’s because it’s two twos (Tutu).

Many of the phrases we used and references we made were even more obscure than that, being a weird mixture of bad puns, Cockney rhyming slang and betting slang. “One,” for example, was a “Spaniard” (think Juan), while two was a “bottle” (rhyming slang: bottle of glue = two). I could go on, but I’ll spare you the confusion. My cynical theory is that all of this was designed to make the market seem a lot more complex and confusing than it was and thus to keep outsiders out and salaries high, but it could just be the product of sharp minds getting bored on quiet days.


Whichever it is, slang is everywhere in financial markets, but it is not always obscure. A “dead cat bounce” is one that you may have heard of and is pretty self explanatory. If the image it conjures up is graphic I apologize, but the point that the phrase makes is a valid one. Anything, if it falls far enough, will bounce to some extent at some point, and stocks are no exception.

The most recent example of the phenomenon is Aeropostale (ARO).

 

 

The 1 year chart is pretty gruesome, showing a stock that has lost around three quarters of its value in that time. Look closely at the far right of such a chart, however, and you will see signs of life. Yesterday, ARO jumped nearly 20 percent. Surely this must be on some great news... a potential buyout maybe, or a shift to profitability; perhaps some radical change and new approach. Any of those could result in a 20 percent jump, but, while there was news out, it didn’t really fall into any of those categories.

The teen clothing company’s press release announced that CEO Tom Johnson would be stepping down and says several nice things about his vision and leadership. At the same time, though, they also updated their outlook in advance of earnings to be released tomorrow, and that probably gives a better picture of why Johnson is leaving than the “mutual consent” that the press release refers to. Sales continue to fall and the company continues to lose money.

Part of the rally, though, came because on a full year basis, that drop in sales is expected to be not quite as large as Wall Street estimates, nor are the losses not expected to be as big. Stop and think about that for a while. After a year of accelerating declines in revenue and rapidly increasing losses, the pace of acceleration is slowing. Is that really a reason to buy the stock?

“Ah,” the buyers say,” but former CEO Julian Geiger has returned!” Yes, he has, but if you think that Aeropostale’s problems are about who is running the company then I would venture to guess that you don’t have children under the age of sixteen. Put simply, Aeropostale is a victim of the curse of trendy. Go back a couple of years and the brand was ubiquitous. You couldn’t walk down a street without seeing the name on the chest, and often the rear end, of dozens of teenagers.

In fashion, though, that level of brand saturation cannot possibly be sustained as the success itself makes the brand undesirable. Could ARO re-invent itself and create another brand that catches fire? Of course it could, but re-appointing a past CEO doesn’t strike me as a great leap forward in that direction.

After a year and a half of increasingly depressing news and a downward spiral in the stock it is little surprise that when a change of CEO was announced, along with an estimate that losses might not be quite as bad as everybody feared, the stock reacted positively. That reaction, though, looks to me more like the inevitable slight bounce of an inanimate object dropped from a great height than the beginnings of a recovery in the stock.



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 , Investing Ideas , Business , Stocks

Referenced Stocks: ARO

Martin Tillier


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