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Aeropostale Inc. (ARO - Snapshot Report) posted yet another dismal quarter. Blaming weak traffic and increased promotional expenses, the company reported adjusted loss per share of 34 cents for second-quarter fiscal 2013. This compares to the break-even results posted in the year-ago quarter.

The Zacks Consensus Estimate for the quarter was a loss of 24 cents. Including one-time items, the quarterly loss came in at 43 cents a share.

Top line waned 6% to $454 million and marginally missed the Zacks Consensus Estimate of $455 million. Double-digit decline in store traffic and weakness in some core categories hurt the quarterly sales.

Comparable-store sales (comps) including the e-Commerce business declined 15% during the quarter, reflecting a decline of 10% and 5% in transactions and average unit retail, while units per transaction decreased 1%. Revenue from e-Commerce including the GoJane business jumped 22% year over year to $39 million during the quarter

The company’s competitors also cited the same reason for disappointing second-quarter results. American Eagle Outfitters, Inc.’s (AEO - Analyst Report) earnings plunged 52.4% year over year. Weak sales and higher operating expenses led to a decline.

Casual apparel retailer, Abercrombie & Fitch Co.’s (ANF - Analyst Report) earnings decreased 20% year over year and missed the Zacks Consensus Estimate by nearly 43%. The company blamed reduced traffic for the sluggish results.

We believe these retailers need to focus more on their assortments in order to drive traffic. This is well evident from the second-quarter results of the industry leader Gap Inc. (GPS - Analyst Report).  Gap’s second-quarter earnings jumped 31% year over year as the demand for the company’s assortments drove sales. The company also raised its full year earnings guidance.  

Coming back to Aeropostale, gross profit tumbled 33.9% to $81.2 million, whereas gross margin contracted 740 basis points to 17.9%. However, excluding one-time items, gross margin contracted 570 basis points, reflecting decreased merchandise margins and deleveraging of non-merchandise costs.

Stores Update

During the quarter, the company opened 4 Aeropostale and 19 P.S. from Aeropostale stores. Alongside, it closed 9 Aeropostale and 1 P.S. from Aeropostale stores. Battered by sluggish results, the company now plans to shutter 30 to 40 stores in fiscal 2013. Earlier, the company had stated its plans to close 15 to 20 Aeropostale stores. Currently, the company operates 899 Aeropostale outlets across 50 states and Puerto Rico, 79 Aeropostale stores in Canada and 145 P.S. from Aeropostale stores across 31 states and Puerto Rico.

Balance Sheet & Guidance

This Zacks Rank #4 (Sell) company ended the quarter with cash and cash equivalents of $100.3 million, with no debt and shareholders' equity of $368.3 million.

Going forward, Aeropostale stated that weak traffic, higher costs and competition will adversely affect its margins and in turn earnings. Consequently, it expects to report loss per share in the range of 21 cents to 26 cents in the third quarter of fiscal 2013.

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