Aeropostale plunges 22% on earnings miss
The teen-apparel retailer disappointed investors with a steep drop in cash and a weak forecast for the current quarter.
Teen-apparel retailer Aeropostale's (ARO) shares tumbled 22 percent Friday after the company reported a disappointing first-quarter comparable sales slide of 13 percent.
Its second-quarter loss forecast also was bigger than analysts expected. Its online sales, usually a bright spot even for retailers facing weak in-store sales, slumped 18 percent. Its cash and cash equivalents tumbled 83 percent to $24.5 million.
On a conference call with analysts, Chief Executive Tom Johnson focused on the positives, including a first-quarter loss that was smaller than the company had expected.
He said the company has managed inventory well in the face of a challenging economy, declining mall traffic, and fiercely competitive pricing. He said Aeropostale will continue to cut costs, including the closure of its mall-based P.S. kids' clothing stores and job cuts at its corporate headquarters.
Johnson said Aeropostale is introducing more brands for teens seeking "individuality and uniqueness." He said such introductions as the Bethany Mota collection featuring the YouTube star has helped to drive the company's average unit retail price up for the first time in seven quarters.
"We believe this is an early sign that our merchandising strategies are moving in the right direction," he said on the call, adding some social media metrics have showed that "teens are noticing the changes we have made."
Meanwhile, Chief Financial Officer Marc Miller said the company's first financial priority continues to be maintaining appropriate liquidity, adding it has "sufficient liquidity to work through" its working capital needs with $230 million in revolving credit. He said the company also is finalizing its transaction with Sycamore Partners regarding a $150 million capital infusion to the retailer. Miller also thought to add the company will get another $45 million tax refund to add to its cash balance.
While Aeropostale isn’t alone in its struggle to fight against fast fashion players, from H&M to Forever 21, its rivals Abercrombie & Fitch (ANF) and American Eagle Outfitters (AEO) also are trying to reinvent themselves.
However, analysts say Aeropostale's traditionally low-priced position in the market leaves the company even less wiggle room to compete on prices or its brand equity. Judging from the stock's continued slide after the call, management's reassurances didn’t appear to do much to appease skeptical investors.
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