ARO's EPS Meets, Revenue Beats

Aeropostale Inc. ( ARO - Snapshot Report ) , an operator of specialty retailer of casual apparel and accessories, reported second-quarter 2012 earnings per share at break-even, meeting the Zacks expectations. The quarterly earnings witnessed an improvement from a loss of 2 cents in the comparable prior-year quarter.

Quarter in Detail

Moving on to its top-line result, Aeropostale registered an increase of 4% in its total sales to $485.3 million from $468.2 million in the prior-year quarter, mainly due to a rise of 4% in average square footage area. Moreover, the reported revenue came ahead of the Zacks Consensus Estimate of $484 million.

The company’s comparable-store-sales (comps) remained flat as against the 12% decrease in the last-year quarter, reflecting a rise of 5% in units per transaction, offset by a fall of 4% and 1% in transactions and average unit retail, respectively.

During the second-quarter 2012, net sales at the e-commerce business marked an increase of 27% year over year to $31.9 million. The company’s online sales enabled it to generate additional sales while broadening its existing customer base throughout the world. It also boosted the visibility and reputation of Aeropostale as a global firm.

However, Aeropostale lagged behind its competitor, American Eagle Outfitters Inc. ( AEO - Analyst Report ) , in terms of sales as the later registered an 11% increase in its top line with 9% jump in its comparable store sales.

Gross profit increased 7.7% year over year to $122.8 million compared with $114.0 million in the prior-year quarter. Adjusted gross margin expanded 90 basis points to 25.3% during the quarter, reflecting a contraction of 90 basis points in cost of goods sold as a percentage of sales.

Stores Update

During the quarter, the company opened 7 Aero and 15 P.S. from Aeropostale stores. The company closed 4 Aero stores. Aeropostale ended the quarter with 914 Aeropostale stores in 50 states and Puerto Rico and 75 Aeropostale stores in Canada. Aeropostale operates 97 P.S. from Aeropostale stores in 22 states.

Further, the management expects to open 5 Aero stores, 5 P.S. from Aeropostale stores, while closing 2 Aeropostale stores in third-quarter of fiscal 2012. For the fourth-quarter 2012, management anticipates to open one Aero store and shut down 5 Aero stores in U.S.

Other Financial Details

Aeropostale ended the quarter with cash and cash equivalents of $169.6 million with no debt and shareholders’ equity of $422.1 million. The company has an authorization to buyback $145.2 million worth of shares under its share repurchase program.

Guidance Update

Management believes that during the quarter, Aeropostale witnessed a strong pricing pressure mainly due to increased promotional and competitive retail environment. Due to this, revenue and margins are likely to suffer in the third-quarter 2012.

Aeropostale expects earnings in the range of 25 cents - 30 cents a share, compared to net earnings of 30 cents in the prior-year quarter.

Aeropostale carries a Zacks #3 Rank, which implies a short-term Hold rating for the next 1-3 months and correlates with our long-term ‘Neutral’ recommendation on the stock.