Aeropostale Receives Delisting Warning from NYSE

More trouble for apparel retailer Aéropostale, Inc. ARO, as it has received a warning from the New York Stock Exchange (NYSE) since its share price has dipped below $1. Per NYSE rules, non-compliance occurs if a company's average closing share price over a 30-day period is less than $1.00.

The company once enter a red zone could result in suspension of trading and delisting after 6 months. However, it can avoid delisting by getting its stock price above $1 within the stipulated period of 6 months. Aéropostale plans to inform the NYSE by Oct 13, 2015 that it is willing to take necessary actions to fulfil NYSE listing agreement.

To increase its stock price the company may consider a reverse stock split option along with other available alternatives.

We believe the best solution would be to hope for a revival in business during the upcoming holiday season that will prompt the market to recognize the company's value and in turn, push its share price to at least $1.00. However, chances for revival during the holidays look bleak given the company's ongoing struggle with increasing competition in the teen apparel industry. The company has been reporting in red for eleven successive quarters.     

Alternatively, the company can opt for a reverse stock split. For example, a 1-for-10 reverse split will reduce the company's outstanding share count by 90%, while increasing price by tenfold.

We believe the reverse split will temporarily increase the prices of its shares and save the stock from slouching into the abnormally low category, which might invoke the delisting proceeding. If the company goes for reverse stock split, only time will tell whether the company will be able to keep it stock price above $1 or not in the long run.

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.

Zacks Rank

Aéropostale currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in this sector include Express Inc. EXPR, Foot Locker, Inc. FL and American Eagle Outfitters, Inc. AEO. Express and Foot Locker sport a Zacks Rank #1 (Strong Buy), whereas American Eagle Outfitters has a Zacks Rank #2 (Buy).

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