Aeropostale Inc., a favored target for short-sellers, got a backer last week when investor Dana Messina disclosed he held options to buy a 14.7 percent stake in the teen clothing store chain.
Messina, who specializes in buying retail and apparel stocks, reported in a regulatory filing on Friday that his Aria Partners of Santa Monica, California, held the equivalent of 11.7 million Aeropostale shares. That includes 143,300 actual shares and options to purchase another 11.54 million.
Aeropostale’s market value has declined to $114 million from more than $2 billion in February 2010, when Julian Geiger departed as chief executive officer. Since returning last August, Geiger has taken steps to restore the retailer’s profitability, ranging from store closures to new licensing agreements in India.
“This is really an investment in Julian’s ability to sort of bring back the company to what it had been,” Messina said in a telephone interview. “An option position of this size,” he added in an interview, “is not for the faint of heart.”
A junior banker in the high yield bond department at Drexel Burnham Lambert Inc. during his mid-twenties, Messina later acquired saxophone maker Selmer Industries through a bankruptcy proceeding and used it to buy Steinway Musical Instruments. Messina, who took Steinway public and served as its CEO for about 12 years, said he reaped a 400 fold return when John Paulson bought the piano maker for $512 million in 2013.
As of early July, about 27 percent of Aeropostale’s shares had been sold short, according to a Bloomberg Intelligence research report. That ranked it second only to Abercrombie & Fitch as the most shorted teen apparel stock, according to the report. Short sellers borrow shares to bet on a decline.
Teen retail sales have been struggling for two years, the report said. Aeropostale shares traded earlier today at $1.40 each, a 52-week low, before rising to $1.43 at 12:45 p.m.
About two-thirds of Messina’s options expire next year, with the remainder exercisable into 2017. Call options, which convey the right to buy stock at a set price in the future, amplify both the potential returns and risks of an investment.