Aeropostale Struggles to Make Comeback Amid Slow Foot Traffic, Delisting Threat

  • Fourth-quarter earnings are key after three years of losses
  • Teen-apparel chain faces tough competition, fickle consumers
Aeropostale Store

Aeropostale will deliver its holiday season results next week.

Susana Gonzalez/Bloomberg

Time may be running out for a turnaround at Aeropostale Inc., one of the pioneers of selling apparel to teenagers in U.S. shopping malls.

The company, which started as an experiment by Macy’s Inc. in 1987 and grew into chain with about 800 stores, is trying to avoid a delisting from the New York Stock Exchange after three years of losses. Investors will be looking for signs of recovery when the company reports its fourth-quarter earnings on March 17, but the chances for a dramatic rebound are slim.

The holidays were slow for many retailers, with clothing demand suffering a worse slump than other categories. And today’s teenagers have more options for shopping than ever -- including Aeropostale rivals Abercrombie & Fitch Co. and American Eagle Outfitters Inc. -- and increasingly want to spend their money online or on experiences like dining out.

“I don’t know what’s going to pull them out of this,” said Howard Tubin, a New York-based analyst at Guggenheim Securities. “There’s no edge, and the pricing differentiation has decreased significantly.”

Aeropostale said in January it expects a fourth-quarter loss of as much as $10 million, or about 4 cents to 17 cents a share. Same-store sales, considered a key retail measure, haven’t grown for 13 straight quarters, and the company has posted 12 straight quarters of losses. Investors have driven down its share price by almost 90 percent in the past year.

Staying Away

The company’s debt load includes $143 million in a term loans due in 2019 and 2024 from private equity firm Sycamore Partners, according to data compiled by Bloomberg. It also has access to revolving credit that analysts say can support operations through the fiscal year.

A representative for Aeropostale declined to comment.

Shareholders need to see Aeropostale post sequential improvement in same-store sales before they are convinced a comeback is possible, said Rick Patel, a New York-based analyst at Stephens Inc. Even after the company rolled out new products, customers stayed away, he said.

In January, the chain announced a program to cut costs that it said will generate $35 million to $40 million a year in savings beginning in 2016. That plan includes cutting 100 corporate positions, about 13 percent of the staff. 

Chief Executive Officer Julian Geiger is also working to boost morale. In the January news release, he said he gave up 1 million stock options granted to him by the company so that Aeropostale could use them to motivate and retain other employees.

Potential Savior

The cost-cutting measures may not be enough to turn things around. A potential savior, Sycamore, took a stake in Aeropostale in 2013 and extended the loan the following year. But the New York-based private equity firm has since backed off from its involvement. Sycamore’s directors, Stefan Kaluzny and Kent Kleeberger, left the apparel company’s board, and the firm said it didn’t intend to designate replacements.

Aeropostale’s line of credit will probably keep the company running for the next year, Tubin said. If the company can’t improve its sales, Aeropostale is unlikely to become a buyout candidate because it lacks enough cash flow to offset the debt a purchase would require, he said.

Even with all its woes, Aeropostale’s brand may still hold value, said Patel, who cited the chain’s more than $1 billion in annual sales.

“It does have brand equity, but we think it’s diminishing each year as it continues to struggle,” he said. “It’s not like this thing is left for dead yet.”

Facing Delisting

While it struggles to recover, Aeropostale is facing the possibility of no longer qualifying to trade on the Big Board. On Sept. 29, the NYSE notified the company that its average closing price for 30 consecutive trading days was below $1 a share, the minimum required. As of Oct. 28, the company’s market capitalization had fallen below the $50 million required for 30 straight days.

Aeropostale drew up a plan to return to compliance and said in January that the NYSE had approved the proposal. NYSE will monitor Aeropostale’s progress as part of quarterly reviews, the retailer said in a statement. Still, the company didn’t give details of how it intends to return its share price and market capitalization value to compliance. On Thursday, its market capitalization was $33.7 million, and its stock price was 42 cents.

Boosting sales by persuading customers to come back won’t be easy. The retailer is targeting a crowded teen market and a fickle customer that demands a unique story, said Allen Adamson, founder of Brand Simple Consulting.

“Consumers would not be surprised or incredibly upset if the brand went away,” he said. “There are plenty of other brands that could fill that need. Ultimately, they have to pick one thing and focus and own it.”

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