Aeropostale Loss Widens, Outlook Bleak; Stock Tumbles

(RTTNews) - Teen-clothing retailer Aeropostale Inc (ARO), Thursday reported a sharply wider loss for the fourth quarter, hurt by a 16 percent drop in sales, shoddy gross margins as well as impairment and tax charges.

Aeropostale said it expects to incur a loss for the current quarter, wider to Street estimates, in a sign of the daunting challenges the retailer continues to face. Shares of the company were down 11.6 percent in after-hours trade on the New York Stock Exchange.

Separately, Aeropostale signed a commitment letter with Sycamore Partners for a strategic partnership and $150 million in senior secured credit facilities. The deal includes the induction of Sycamore nominees into the Aeropostale board as well as a merchandise sourcing agreement with MGF Sourcing, an affiliate of Sycamore.

Aeropostale has been losing money for the past few quarters and has closed under-performing stores in an attempt to revive the company. Aeropostale is also under pressure from certain quarters to sell itself in order to enhance shareholder value.

New York-based Aeropostale posted a fourth-quarter net loss of $70 million or $0.90 per share, compared to a loss of $0.7 million or $0.01 per share last year.

Results for the quarter include after-tax impairment charges of $21 million and an after-tax charge of $20 million for the establishment of reserves against deferred tax assets.

Excluding items, adjusted loss for the quarter was $27 million or $0.35 per share, compared with earnings of of $19 million or $0.24 per share a year ago. On average, 28 analysts polled by Thomson Reuters expected a loss of $0.31 per share for the quarter. Analysts' estimates typically exclude special items.

Sales for the quarter dropped to $670 million from $797.7 million in the prior year. Twenty-five analysts had a consensus revenue estimate of $683.8 million for the quarter.

On a same store basis, sales for the quarter slid 15 percent, compared with an 8 percent decline last year.

Gross margin for the quarter dropped to 13 percent from 19.8 percent last year.

For the first quarter, Aeropostale projects a net loss between $0.75 and $0.70 per share, while analysts expect a loss of $0.17 per share.

The company has plans to close about 50 Aeropostale stores and has retained a real estate consulting firm toward that end.

Detailing its deal with Sycamore, Aeropostale said it will also issue convertible preferred stock to Sycamore, which will have the right to acquire up to 5 percent of Aeropostale common stock at an exercise price of $7.25, the closing price of the company's common stock on March 12.

Along with Sycamore' current ownership of Aeropostale's outstanding common stock, Sycamore's stake on an as-converted basis would increase to about 12.3 percent in the company.

Stefan Kaluzny, a managing director at Sycamore, will be joining Aeropostale board upon the closing of the deal. Sycamore will receive the right to appoint one additional member to the board, with a third independent appointee to be mutually agreed upon by Aeropostale and Sycamore. The board strength will increase from 11 to 12 members.

Aeropostale stock closed Thursday at $7.31, up $0.06 or 0.83%, on a volume of 7 million shares on the NYSE. In after hours, the stock dropped $0.85 or 11.64% at $6.45. In the past year, the stock has traded in the range of $6.04 - $17.10.