Aeropostale (ARO) Stock Implodes After Earnings

Sorry, ARO stock owners, but sometimes there is no silver lining

Aeropostale Inc (NYSE:ARO) stock plunged on Friday in the wake of a disappointing first quarter and wildly unimpressive second-quarter guidance. Shares were off as much as 15% in early trading.

AEROPOSTALELOGOPoor performance is becoming the norm for ARO stock, which had already plunged 41% over the past year before today’s plummet.

The teen-focused retailer seems to be caught in a death spiral as competition heats up, mall traffic declines and consumers cut back on branded products.

With ARO stock hitting a 12-year low in pre-market trading today, what’s a shareholder to do? First, let’s take a look at Aeropostale earnings and see what we can glean from performance last quarter.

A Dire Predicament

To be honest, there’s not much to like about ARO earnings today. The company saw sales fall nearly 20% year-over-year, from $395.8 million to $318.6 million, missing the consensus estimates of $325.9 million. Earnings per share, excluding one-time items, were actually negative; ARO posted a loss of 56 cents per share, a penny worse than the 55-cent loss analysts expected.

But more important than the sales or EPS disappointment was the miserable, 11% decline in same-store sales, which is seen as perhaps the most important financial metric for brick-and-mortar retailers like Aeropostale.

That said, the main reason ARO stock found itself at 12-year lows this morning was its gloomy second-quarter guidance. It expects to lose between 52 cents and 60 cents per share, a far cry from the consensus Wall Street forecasts, which called for a loss of 37 cents per share.

Owners of rival retailer Abercrombie & Fitch Co. (NYSE:ANF) stock can’t be too happy about that; Abercrombie reports next week, and ANF stock was down modestly in early trading as investors wonder whether Aeropostale’s weak showing indicates broader weakness in the industry itself.

That wouldn’t appear to be the case, as not all competitors in the space are dropping the ball like ARO. American Eagle Outfitters (NYSE:AEO), for instance, is up 52% over the last year, and is fresh off a strong quarter in which AEO saw revenue, same-store sales, and EPS all grow year-over-year — and beat expectations to boot.

The Bottom Line

Unfortunately, there’s just no compelling reason to own ARO stock. Numbers don’t lie, and right now they’re telling a rather depressing story of a company in decline that just can’t seem to right itself. Aeropostale is not profitable and is suffering through constant same-store sales declines, and last quarter it opened just one new store and shuttered 11.

Analysts don’t see any end in sight, predicting another 12% revenue slump this fiscal year, which would make it the third straight year ARO saw revenue fall by 12%. And Wall Street literally cannot see when this company will actually start making money again; current projections only go out to fiscal 2018, and even then ARO stock is expected to lose 26 cents per share.

It’s possible that a private equity firm could swoop in and take ARO private, turn it around, and take it public once more. But that’s a thesis based more on hope than cold, hard facts. And, as we all know, picking stocks based on hope is not much of an investing strategy.

Which is just as well, because Aeropostale is looking pretty hopeless.

As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid or email him at [email protected]

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