Amid Aeropostale’s Persistent Struggle, Sycamore MD Leaves The Board

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ARO: Aeropostale logo
ARO
Aeropostale

Nothing has worked out for Aeropostale (NYSE:ARO) over the last couple of years. Its fashion launches have failed to entice customers and basic logo merchandise still continues to go for heavy discounts. The company is burning cash at a rapid pace and is finding it difficult to raise capital in the public market. A while back, Sycamore partners did give Aeropostale $150 million in cash in exchange of 5% of the  shares, but given the retailers low cash generation capabilities and its plans to re-locate its P.S. from Aeropostale outlets, it may use up this cash quickly. Last year, the company stated that it is planning to shut 125 mall-based P.S. stores in the wake of weak mall traffic, and shift them to other more lucrative off-mall locations. However, given that it does not have much cash at hand, it is unclear how aggressively the company would be able to expand this promising brand.

Our price estimate for Aeroposatle is at $6.38, implying a premium of over 80% to the current market price.

See our complete analysis for Aeropostale

There is little hope for the teen apparel retailer’s revival in the near term, as its turnaround strategies centered on its product portfolio have not yielded fruitful results. Aeropostale’s brand image is such that fashion-forward products it launched at relatively premium prices were met with a skeptical customer response. To address these issues, rejuvenate its brand image, and keep investor confidence running, the retailer needed fresh new direction, and Sycamore Partners came to the company’s rescue. The private equity firm was one investor that showed ample confidence in Aeropostale as it consistently raised its stake in the company, even when its value was diminishing. The firm’s director Stefan Kaluzny even joined the retailer’s board in order to work closely with the management and advice on probable revival strategies. Surprising, he is leaving now.

In a recent update, Aeropostale reported that Robert B. Chavez and Stefan Kaluzny have decided to opt against their re-election in the board. Mr. Chavez told the company that he will not seek re-election to the board of directors at the 2015 annual stockholder meeting due to his time commitment and responsibilities as the President and CEO of Hermes of Paris, Inc. More surprising news is that the Managing Director of Sycamore Partners, who joined the board after the firm raised its stake in the company, has decided not to continue serving in the board. When he joined the company, it was stated that Sycamore Partners will try to advise Aeropostale’s management and board on revival strategies. However, his departure from the company raises concerns that the firm is now not confident about Aeropostale’s turnaround, even though Mr. Kaluzny said that he believes the company has tremendous value. [1]

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Notes:
  1. Aeropostale Inc. Announces Changes To Its Board Of Directors, Aeropostale, Apr 23 2015 []