Aeropostale Touches 52-Week Low; Should You be Cautious?

Aeropostale, Inc. ARO touched a new 52-week low of 81 cents yesterday. Investors appear to be losing confidence in the company after this specialty retailer of casual apparel and accessories posted soft second-quarter fiscal 2015 results and provided a bleak outlook for the third quarter. The company's shares have dropped 35.7% since the earnings announcement on Aug 27, while year-to-date, the stock has plunged 66.1%.

In the second quarter, this New York-based company's adjusted loss of 56 cents per share was in line with the Zacks Consensus Estimate but was much wider than the prior-year quarter loss of 46 cents per share. Net sales plunged 17.5% to $326.9 million, with comparable-store sales (comps), including the e-commerce channel, declining 8% year over year.

Aeropostale's performance was mainly impacted by weak demand of its products and stiff competition. Management now estimates net loss in the band of 30–38 cents a share for third-quarter fiscal 2015. Moreover, the company hinted that comps in the third quarter might decline in the low-single-digits.

Further, the estimates for Aeropostale have been displaying a downtrend since the company reported second-quarter results and provided a subdued guidance. The Zacks Consensus Estimate for fiscal 2015 tumbled to a loss of $1.43 from a loss of $1.35 in the past 30 days. For fiscal 2016, the Zacks Consensus Estimate has slid to a loss of 95 cents from a loss of 84 cents over the same time frame.

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, this Zacks Rank #3 (Hold) 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.

Stocks that Warrant a Look

Some better-ranked stocks in the same industry include Express Inc. EXPR, Destination XL Group, Inc. DXLG and Foot Locker, Inc. FL. All three stocks carry a Zacks Rank #1 (Strong Buy).

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