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Aeropostale Q3 Loss Narrower Than Expected, Outlook Bleak

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Aeropostale Inc.ARO posted adjusted loss of 31 cents a share for the third-quarter of fiscal 2015, narrower than the prior-year quarter loss per share of 45 cents and the Zacks Consensus Estimate of loss of 35 cents.

Aeropostale Inc. (ARO) - Earnings Surprise | FindTheCompany

We note that though the loss was narrower than expected, it was not enough to encourage investors. Lower sales owing to weak traffic and warm weather hurt the bottom line. Further, the company provided a bleak outlook for the fourth quarter of fiscal 2015. Consequently, shares of this mall-based specialty retailer of casual apparel and accessories for young women and men dropped about 2.8% after market yesterday.

Including one-time items, the company's net loss came in at 33 cents per share compared with a loss of 66 cents reported in the year-ago quarter.

Quarter in Detail

Aeropostale's net sales plunged 20% to $363.3 million due to store closures and a fall in comparable-store sales or comps. Including the e-commerce channel, comps declined 10% year over year. Moreover, net sales missed the Zacks Consensus Estimate of $389 million.

Aeropostale has been facing lack of demand for its products due to a challenging teen retail environment. However, to battle dwindling revenues, the company has taken to both national and international expansion in a big way. In October, the company entered into a domestic licensing agreement with Himatsingka America, a home textile major with vast global reach, to expand its reach to new customers. Further, in July, the company had announced licensing agreements with India-based Arvind Lifestyle Brands Limited and Indonesia-based PT Mitra Adiperkasa TBK to expand in these countries.

Further, the company continues to undertake a number of initiatives, such as retail store downsizing, effective merchandising management and cost curtailment to turn its performance around.

Coming back to the results, gross profit increased 8.3% to $74.6 million, while gross margin expanded 530 basis points to 20.5%.

Store Count

During the fiscal third quarter, the company shuttered one Aeropostale store and one P.S. from Aeropostale outlet. At quarter end, the company operated 758 Aeropostale stores, including 25 P.S. from Aeropostale stores.

Other Financial Aspects

Aeropostale ended the reported quarter with cash and cash equivalents of $41.8 million, long-term debt of $142.8 million and shareholders' deficit of $15.8 million. The company incurred $5.4 million in capital expenditures.

Outlook

Management estimates net loss in the band of 4-17 cents a share for fourth-quarter fiscal 2015. Analysts polled by Zacks expect earnings of 1 cent share for the quarter, which may witness downward revision in the coming days. The guidance is based on the company's anticipation of low-to-mid single-digit decrease in comps.

For fiscal 2016, the company anticipates incurring $14 million in capital expenditures.

Zacks Rank

Aeropostale currently has a Zacks Rank #3 (Hold). Some favorably placed stocks in the retail sector include Abercrombie & Fitch Co. ANF , American Eagle Outfitters Inc. AEO and Foot Locker, Inc. FL . While Abercrombie & Fitch carries a Zacks Rank #1 (Strong Buy), American Eagle Outfitters and Foot Locker hold 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 Nasdaq, Inc.


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

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