Aeropostale (NYSE:ARO) competes with a variety of other retailers like American Eagle (NYSE:AEO), Abercrombie & Fitch (NYSE:ANF), Gap (NYSE:GPS). We have a $36.55 price estimate for Aeropostale’s stock, implying a hefty premium to the stock’s market price.
Aeropostale reported first quarter 2011 earnings last week. The net sales for the quarter increased 1% as compared to the same period last year. Though comparable store sales decreased 7%, online sales increased 18%. Gross margin as well as operating margin were both down by around 10% as compared to the same period last year. Looking ahead to the second quarter, management lowered its profit forecast. [1]
Though Aeropostale reported strong results throughout the recent economic downturn, largely attributed to its lower pricing and promotional strategy, its results have been going downhill since then. The company is facing stiffer competition from its more upmarket competitors such as Abercrombie & Fitch and American Eagle, who have lowered their prices to lure shoppers after the recession.
The EBITDA margin for Aeropostale stores consistently increased between 2005 and 2009. However, 2010 saw this metric decline. We expect this downward to continue in 2011, as increased retail prices are unable to counteract the pressure on profit margins caused by heightened cotton costs. Beyond 2012, margins could recover, a trend we believe could bring for EBITDA margin towards 18% by the end of our forecast period.
See our full analysis for Aeropostale stock here
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