Sycamore Bets on Aeropostale Stock After One Ugly August

by Alyssa Oursler | September 17, 2013 11:25 am

Last month, teen retailer Aeropostale (ARO[1]) shed almost half of its value after lowering its earnings forecast early in the month … then posting a wider-than-expected loss in the face of weak traffic and heavy discounting.

But what most investors saw as an alarming warning sign — especially as the retail sector as a whole, from teen names like American Eagle (AEO[2]) and Abercrombie & Fitch (ANF[3]) to big guns like Walmart (WMT[4]) and Macy’s (M[5]), seems to be struggling — private-equity firm Sycamore Partners saw as an opportunity.

Sycamore’s Hummingbird LLC has made a nearly $54 million bet on the flailing retailer with an 8% stake that makes it the third-largest shareholder.

According to The Wall Street Journal[6], the firm sees Aeropostale as an “attractive investment,” and “may communicate with the company’s management and board about Aeropostale’s business, assets strategy and future plans, among other issues.”

Aeropostale has already been making cuts, recently doubling its planned store closings, and it’s likely that strategy will continue with Sycamore on board.

Investors seem to have taken the activist investor’s stake to heart as well. Aeropostale stock is up nearly 17% today on the news — a much-needed ray of sunshine following a very stormy month.

Of course, Aeropostale stock still remains more than 21% in the red since Jan. 1 thanks to its August butchering.

But once again, that’s what made the company appealing. Recently, Sycamore also snatched up struggling Hot Topic, which had fallen from its early 2000 highs and also made a failed bid for sinking Australian surf retailer Billabong — which has since written the value of its brand down to zero.

As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.

  1. ARO:
  2. AEO:
  3. ANF:
  4. WMT:
  5. M:
  6. According to The Wall Street Journal:

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