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Aeropostale Drops as Clothing Chain Predicts Wider Loss

Aeropostale Inc. (ARO), a struggling retail chain that sells teen and children’s apparel, tumbled the most in 21 months after forecasting a bigger loss than analysts had estimated.

The second-quarter net loss will be 55 cents to 61 cents a share, the New York-based company said yesterday in a statement. Analysts had projected a loss of 51 cents on average, according to data compiled by Bloomberg.

Chief Executive Officer Tom Johnson is trying to turn around the retailer after six straight quarters of losses. In April, the company announced it would close about 125 of its P.S. kids-focused stores and cut about 100 jobs. The chain entered a strategic partnership in March with Sycamore Partners, which provided a $150 million loan. Meanwhile, investor Crescendo Partners has been pressing Aeropostale management for bigger changes, including possibly a sale of the company.

“The question ultimately with them is, when do these losses stop?” Simeon Siegel, a New York-based analyst at Nomura Securities, said in an interview. “Aeropostale has been burning cash. You bring Sycamore in to create this lifeline -- it’s very important that at some point they’re able to dig out of it.”

The shares fell 25 percent to $3.41 at the close in New York for the biggest one-day decline since August 2012. The stock has slid 62 percent this year.

Diversifying Production

Aeropostale ended last quarter with $24.5 million in cash, according to the statement. The cash-burn rate this quarter will be about $70 million, offset by a $45 million expected tax refund, executives said on a conference call after the results.

The chain is still working to finalize its agreement with Sycamore, Aeropostale said in the statement. As part of the financing pact, Stefan Kaluzny, a managing director at Sycamore, will join Aeropostale’s board. Sycamore can name an additional director, and a third independent appointee will be agreed upon by the firm and the retailer, expanding Aeropostale’s board to 12 members.

The financing agreement also includes a strategic partnership with MGF Sourcing, an affiliate of Sycamore, that will diversify Aeropostale’s clothing production. The company will issue convertible preferred stock to Sycamore, giving it the right to buy as much as 5 percent of Aeropostale common stock at $7.25 a share, the closing price on March 12. Sycamore’s stake, with all shares converted, would rise to about 12.3 percent, Aeropostale said when it announced the agreement in March.

Sycamore owns a 7.96 percent stake in Aeropostale, the company said in a filing.

To contact the reporter on this story: Lindsey Rupp in New York at lrupp2@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net Kevin Orland, John Lear

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