Aeropostale Continues its Dismal Show, Shares Nosedive

Aeropostale, Inc. ARO posted adjusted loss of 14 cents a share for the fourth-quarter of fiscal 2015, in line with the Zacks Consensus Estimate of loss. In the prior-year quarter, the company had posted a profit of a penny per share.

Including one-time items, the company's net loss came in at 27 cents per share against a loss of 17 cents incurred in the year-ago quarter.

Aeropostale's net sales plunged 16.1% to $498 million due to store closures and a fall in comparable-store sales. Including the e-commerce channel, comps declined 6.7% year over year. Moreover, net sales missed the Zacks Consensus Estimate of $521 million.

Notably, this mall-based specialty retailer of casual apparel and accessories for young women and men has missed the Zacks Consensus Estimate of revenues in nine out of the last eleven quarters. A dwindling top line raised investor concern about the company's prospects, leading to most of the investors opting to offload the stock from their portfolio. This made the company's shares plunge nearly 44% yesterday in after-hours trading.

Declining sales have compelled the management to look for strategic and financial alternatives, which also includes a potential sale or streamlining of the company's structure. However, Aeropostale has stated there is no specific time line for the review process nor has it provided any guarantee about the benefits of the process.

This Zacks Rank #4 (Sell) company has been facing lower 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. Last 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. Prior to that, 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 the said countries.

Coming back to the fiscal fourth quarter results, gross profit declined 24.9% to $101 million, while gross margin contracted 240 basis points to 20.3%.

Store Count

During the reported quarter, the company closed 13 Aeropostale stores. At quarter-end, the company operated 811 Aeropostale stores, including 25 P.S. from Aeropostale stores.

Other Financial Aspects

Aeropostale ended the reported quarter with cash and cash equivalents of $65.1 million, long-term debt of $138 million and shareholders' deficit of $35.6 million. The company incurred $1.8 million in capital expenditures.

Outlook

Management estimates net loss in the band of 35–42 cents a share for first-quarter fiscal 2016. Analysts polled by Zacks expect a loss of 42 cents per share for the quarter. The company anticipates comparable sales to be in the range of flat-to-positive low single-digit increase. For fiscal 2016, the company anticipates $14 million in capital expenditures in comparison to $15.7 million spent in fiscal 2015.

Zacks Rank

Some better-ranked stocks in the retail sector are Express Inc. EXPR, American Eagle Outfitters, Inc. AEO and Urban Outfitters Inc. URBN. Express and American Eagle Outfitters currently sport a Zacks Rank #1 (Strong Buy), while Urban Outfitters Inc. URBN holds a Zacks Rank #2 (Buy).

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