Aeropostale, Inc. has lost 90% of its value in the last three years; recovery may elude the US-based clothing retailer unless it takes aggressive measures to get back on its feet
Aeropostale, Inc.’s (ARO) shares have been on a downward stream since peaking three years ago. Owing to the company’s lackluster performance, the stock has lost more than 90% of its market value from $2.9 billion,or $31.1 a share in 2011, to $251 million or $3.2 per share currently.
The specialty retailer, founded in 1973, enjoyed an extended period of success, pegging double-digit revenue growth for eight consecutive years following its 2002 IPO. However, a reversal of fortune saw its revenues decline 12% YoY, totaling $2.09 billion in the latest fiscal year. There is speculation that the company may even have to seek a buyout.
The New York-based brand, once revered by teens, no longer holds the same appeal. Customers, instead, are gravitating towards fashion-forward retailers like Forever 21, Zara and Hennes & Mauritz AB (HNNMY), which combine atypical styling with affordable prices.
The company has posted double-digit declines in same-store sales for the last five quarters, which make its revival even more of a challenge.
Aeropostale has now registered its sixth straight quarterly loss, with strategic discounts hitting its margins and taking a toll on the bottom line. The fact that the company has been burning more cash than it has generated over the last four quarters, is another indication of how difficult any recovery is going to be. The cash-in-hand situation deteriorated from $3.09 billion in FY10 to $252 million at the end of Q1FY14, compelling the retailer to strike a $150 million deal with Sycamore Partners. The private equity firm received an additional 5% shares in the company, raising its stake to 12.3%.
Despite the management’s efforts to revive its product line, the company hasn’t been able to overturn its waning popularity. In order to curb losses, the company closed down 125 P.S. stores in April, along with a hundred job cuts. The company had already closed 18 stores in 1QFY14.
The longer Aeropostale takes to initiate drastic recovery measures, the more difficult it will be to stop the slide. The company is already under pressure from its investors, including Crescendo Partners, to seek a buyout.
Article written by Nancy Kross via www.bidnessetc.com.