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Aeropostale Downgraded to Strong Sell

by Zacks Equity Research

February 05, 2013 | Comments : 0 Recommended this article: (0)

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Zacks Investment Research downgraded Aeropostale Inc. ( ARO - Snapshot Report ) to a Zacks Rank #5 (Strong Sell) on Feb 2, 2013.

Why the Downgrade?

Aeropostale witnessed sharp downward estimate revisions after reporting soft holiday sales numbers that prompted management to take a conservative stance on its future earnings.

Total net sales came in at $645 million for the nine-week period ended Dec 29, 2012, down 6% from $682.6 million reported in the prior-year period. The specialty retailer of active and casual apparel, footwear and accessories for the youth witnessed an 8% decline in comparable-store sales (including the e-Commerce channel) for the nine-week period. Excluding the contribution of the e-Commerce channel, comparable-store sales dipped 9%.

The company stated that the decrease in sales on account of lower traffic dented its December sales. Moreover, the company’s merchandising strategy backfired as its core offering, including graphics and fleece, was not well received by the consumers.

Following soft holiday sales, Aeropostale now expects fourth quarter fiscal 2012 earnings between 20 cents and 24 cents per share, down from a range of 36 cents to 41 cents forecasted earlier.

The Zacks Consensus Estimate for the fourth quarter and fiscal 2012 dropped 35% and 17.9%, to 26 cents and 69 cents a share, respectively, over the past 30 days. Moreover, for the first quarter and fiscal 2013, the Zacks Consensus Estimate fell by 28.6% and 19.4% to 10 cents and 87 cents a share, respectively, over the same time frame.

Other Stocks to Consider

Not all apparel, shoe store chains are performing as disappointingly as Aeropostale. Abercrombie & Fitch Co. ( ANF - Analyst Report ) holds a Zacks Rank #1 (Strong Buy), and is expected to continue with its upbeat performance in the coming quarters. Other stocks that should be merited are Urban Outfitters Inc. ( URBN - Analyst Report ) and Foot Locker, Inc. ( FL - Snapshot Report ) , both of which hold a Zacks Rank #2 (Buy) and look promising.

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