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Aeropostale's Earnings Drop Sharply

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Aeropostale Inc. posted fourth-quarter fiscal 2012 adjusted earnings of 24 cents a share that plunged 45.5% year over year on account of lower holiday sales. However, adjusted earnings surpassed the Zacks Consensus Estimate by a couple of cents.

Including one time items, Aeropostale reported a loss of 1 cent per share compared with earnings of 32 cents in the comparable year-ago quarter.

The company’s net sales inched down 1% year over year to $797.7 million but came ahead of the Zacks Consensus Estimate of $783 million.

Comparable-store-sales (comps) including the e-Commerce business waned 8% against 7% decrease in the year-ago quarter. Aeropostale noted that a rise of 5% in units per transaction was more than offset by a decline of 6% and 7% in transactions and average unit retail, respectively.

Revenues from e-Commerce including the GoJane business jumped 16% year over year to $96.8 million during the quarter under review. The company’s online sales enable it to generate additional sales while broadening its existing customer base worldwide. Alongside, it boosts the visibility and reputation of Aeropostale as a global firm offering great fashion and value.

Aeropostale’s adjusted gross margin contracted 210 basis points to 24%, reflecting decreased merchandise margins and deleveraging of costs.  

Stores Update

During the quarter, the company opened 3 Aeropostale and 1 P.S. from Aeropostale store. Alongside, it closed 11 Aeropostale stores. The company currently operates 984 Aeropostale stores and 100 P.S. from Aeropostale stores.  

In fiscal 2013, ARO plans to open 14 Aeropostale stores and 60 P.S. from Aeropostale stores. Alongside, it plans to remodel around 30 stores, while closing 15 to 20 Aeropostale stores. 

Balance Sheet & Guidance

Aeropostale ended the quarter with cash and cash equivalents of $213.5 million with no debt and shareholders' equity of $410.3 million. Moreover, the company bought back 3.0 million shares for $40.8 million in fiscal 2012.

Going forward, Aeropostale stated that macro headwinds and unfavorable inventory position will adversely affect its margins and in turn its earnings. Consequently, it expects to report loss per share in the range of 15 cents to 20 cents in the first quarter of fiscal 2013 compared with earnings of 13 cents in the prior-year quarter. The current Zacks Consensus Estimate for the first quarter stands at earnings of 9 cents a share.

Our Recommendation

Currently, Aeropostale holds a Zacks Rank #5 (Strong Sell), which reflects the company’s sluggish performance.

However, until any further upward revision in the Zacks Rank on Aeropostale, other stocks worth considering in the retail, wholesale sector include Macy’s Inc. (M - Free Report) and Big 5 Sporting Goods Corp. (BGFV - Free Report) , both of which hold a Zacks Rank #1 (Strong Buy) and are expected to continue with its upbeat performance. Hot Topic Inc. carrying a Zacks Rank #2 (Buy) is also worth considering.

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