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Morgan Stanley: Aeropostale May Never Be Profitable Again

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Kimberly Greenberger of Morgan Stanley is skeptical that Aeropostale Inc (NYSE: ARO) can earn a profit again. The analyst lowered her price target on shares to $2.00 from a previous $2.50 on Wednesday while maintaining an Underweight rating.

“We believe there is a very high probability Aeropostale will never be debt free again,” Greenberger wrote. The analyst jumped to this conclusion by noting that once the company runs out of Sycamore's $150 million of financing (likely next quarter), the company can turn to its $230 million revolver which is partially restricted until it can meet its covenants, but should be mostly available due to collateral backing the loan.

Shares of Aeropostale were down 14 percent in the premarket following a poor earnings report on Wednesday.

Greenberger estimates the company will burn through $80 million of cash in fiscal 2015 and burn through $40 million in cash in fiscal 2015.

The analyst adds that the company's performance over Black Friday isn't instilling confidence. The company offered 60 percent off its entire store, yet the company achieved a low-single-digit comps until Thanksgiving but saw a mid-teens comp decline over Black Friday weekend, which may indicate that the company is "uncompetitive in the broader retail marketplace."

Latest Ratings for ARO

Aug 2015Wolfe ResearchInitiates Coverage onPeer Perform
Jul 2015UBSDowngradesNeutralSell
May 2015Stephens & Co.MaintainsEqual-Weight

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Posted-In: Aeropostale Black Friday Kimberly Greenberger Morgan Stanley retailersAnalyst Color Price Target Analyst Ratings


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