Stifel Comments on Aeropostale (ARO) Following Q3 Report; Maintains 'Hold' Rating

Stifel maintains Aeropostale at Hold following Q3 results reported after markets closed Wednesday.

Analyst Richard Jaffe noted that Aeropostale's Q3 adjusted loss of $0.45 per share was just about flat with the firm's estimate. Lower traffic and increased promotions hit the retailer's quarterly performance.

Jaffe highlighted key takeaways from the report:

• Divergent Results in November – During much of November the company achieved low single digit increases in both comparable sales and comparable gross margin dollar contributions. However, these trends reversed over Black Friday weekend with comps decreasing in the mid-teens. Given the comp fluctuations during the month, management is taking a cautious outlook for 4Q. The high end of management’s 4Q EPS guidance is in-line with consensus.
• Merchandise Turnaround is a Work in Progress - We believe the company’s merchandise has improved with its fashion offerings (about 15%-20% of the merchandise assortment vs. fashion basics at 25%-30% and core at 50%-55% of the assortment) looking more on trend, especially the company’s sub-label brands Bethany Mota and Tokyo Darling. However, management acknowledges that there remains work to be done to improve the merchandise assortment. The floorsets are overly assorted and lacking depth (management believes SKU count can decrease 10% while depth can increase 20%). Additionally, the company’s color pallet became too neutral and going forward the merchandise assortments will have more color and prints.
• Taking Time to Win Back Customers - Given the company’s consistently poor merchandise offerings over the past several years, we believe it will take time for ARO to win back its customers, despite the improving fashion assortment. The company launched a new advertising campaign to highlight the company’s differentiated, fashion focused merchandise late in the 2Q, however traffic remains weak.

For an analyst ratings summary and ratings history on Aeropostale, Inc. click here. For more ratings news on Aeropostale, Inc. click here.

Aeropostale, Inc. closed at $3.19 yesterday.

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