Aeropostale Slips on Wider Q2 Loss; Gives Bleak Q3 Outlook

Aeropostale Inc. ARO continued with its soft performance for yet another quarter. The company posted adjusted loss of 56 cents a share for the second-quarter of fiscal 2015, much wider than the prior-year quarter loss per share of 46 cents but in line with the Zacks Consensus Estimate.

Lower sales owing to weak traffic and store closures hurt the bottom line. Further, the company provided a bleak outlook for the third quarter of fiscal 2015.
 

The soft bottom-line performance and sluggish third-quarter guidance were enough to raise investor concern. Consequently, shares of this mall-based specialty retailer of casual apparel and accessories for young women and men dropped about 1.6% during after-market trading hours yesterday.

Including one-time items, the company's net loss came in at 55 cents per share compared with a loss of 81 cents reported in the year-ago quarter.

Quarter in Detail

Aeropostale's net sales plunged 17.5% to $326.9 million due to store closures and a fall in comps. Comparable-store sales (comps), including the e-commerce channel, declined 8% year over year. However, net sales surpassed the Zacks Consensus Estimate of $325.8 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 international expansion in a big way. In July, the company announced that it has entered into licensing agreements with India-based Arvind Lifestyle Brands Limited and Indonesia-based PT Mitra Adiperkasa TBK with an aim 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, in order to turn around its performance.

Coming back to the results, gross profit declined 6.7% to $58.3 million due to lower sales. Adjusted gross margin contracted 190 basis points to 18.7% in the quarter due to lower merchandise margin.

Store Count

During the quarter, the company shuttered three U.S. and 20 Canadian outlets. At quarter end, the company operated 826 Aeropostale stores, including 26 P.S. from Aeropostale stores.

Other Financial Aspects

Aeropostale ended the quarter with cash and cash equivalents of $86.5 million, long-term debt of $142.7 million and shareholders' equity of $8.9 million. The company incurred $6 million in capital expenditures during the quarter.

Outlook

Management estimates net loss in the band of 30–38 cents a share for third-quarter fiscal 2015. The current Zacks Consensus Estimate for the quarter is pegged at a loss of 26 cents a share, which may witness downward revision. The guidance is based on the company's anticipation of low-single-digit decrease in comps.

Zacks Rank

Aeropostale currently has a Zacks Rank #2 (Buy). Other favorably placed stocks in the same industry include Boot Barn Holdings Inc. BOOT, Express Inc. EXPR and American Eagle Outfitters Inc. AEO. While Boot Barn Holdings and Express Inc. carry a Zacks Rank #1 (Strong Buy), American Eagle Outfitters holds a Zacks Rank #2.

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