Aeropostale’s Stock Nosedives After Disappointing Q2 Revenue Update

ARO: Aeropostale logo

Teen apparel retailer Aeropostale’s (NYSE:ARO) stock crashed by roughly 33% Thursday after the company announced its Q2 fiscal 12 revenues update. [1] Aeropostale posted flat sales in Q2, and now expects to only break even after earlier estimates called for $0.03-$0.05 per share profit. Additionally, the company’s comparable sales also missed market expectations, with Q2 comps excluding the e-commerce channel declining by 1% compared to a 14% decline in the same period last year. The results of Aeropostale contrasted sharply with rival American Eagle Outfitters (NYSE:AEO), which recently raised its Q2 forecast based on improved fashion and leaner inventory.

See our full analysis of Aeropostale

Aeropostale’s Weak Q2 Guidance Baffles Investors

Aeropostale’s downbeat guidance for second quarter took the investors by surprise as they were expecting to see a considerable improvement based on enhanced fashion offerings and gradually subsiding promotional environment in U.S. teen apparel market. The results were even below management’s guidance for the second quarter, as summed up by CEO Thomas P. Johnson.

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“We are clearly disappointed that our second quarter results fell below our initial expectations. While we delivered a more cohesive fashion offering and continued to improve our sales per transactions, our overall store traffic was weaker than anticipated.”

U.S. Consumer Confidence

Source: Trading Economics

We believe low consumer confidence remained the primary reason behind this dismal performance. While the company did put in efforts in improving the fashion mix of its product offerings, Aeropostale failed to realize its gains due to the prevailing weak consumer sentiment in the U.S. and hence a lower than expected traffic at its retail stores. Consumer confidence consecutively declined from 68.7 in April-May 2012 to 62.7 in June-July 2012, as depicted by the figure above.

We will be reviewing our price estimate for Aeropostale after the disclosure of Q2 results, which currently stands at $23.73 at a premium of 80% to its current market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

  1. Aeropostale provides Q2 business update, Source: Aeropostale’s investors relations []