Jefferies Keeps Aeropostale (ARO) as 'Top Pick'; Sees Easier Comps, Leaner Inventory Boosting Numbers
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Rating Summary:
5 Buy, 25 Hold, 2 Sell
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Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
Rating Summary:
5 Buy, 25 Hold, 2 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
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Jefferies issued a refresher on Aeropostale (NYSE: ARO), maintaining its Buy rating and $20 price target. Aeropostale remains one of Jefferies Top Picks the the retail sector.
Aeropostale has both seen sales declines and lost market share for 2011 to-date, but Jefferies sees fundamentals hitting a trough, and easier comps as potentials to upside moving forward. Jefferies commented, "we believe ARO has fixed some of its fashion issues by returning to its classic bright color palette and introducing more newness and fashion in the women's biz."
Notably, Aeropostale reported inventories up 5 percent per square foot in the second-quarter, while comps were down 14 percent. Jefferies sees this gap closing further, as Aeropostale has run special deals to trim inventories heading into the holiday season.
On Aeropostale's key core brand: "We believe ARO's business model remains intact and that ARO will again prove to be a key teen brand as the opening price point in teen retail. While ARO’s comps have been down significantly over the past few qtrs, the declines have been driven by lower AUR while transactions have held up much better. We believe this shows the brand is not dead as customers are still buying ARO product, albeit at lower price points. ARO should be able to stabilize AUR as it gets inventory more in line with sales."
And, "Looking forward to 4Q, as inventories start to come more in line with sales trends ARO should have less pressure to markdown product and be able to increase full price selling and therefore MM%. The quarter should also benefit from easier compares. As such we expect some sequential improvement in merchandise margins in 4Q."
For more ratings news on Aeropostale, Inc. click here and for the rating history of Aeropostale, Inc. click here.
Shares of Aeropostale, Inc. closed at $13.66 yesterday.
Aeropostale has both seen sales declines and lost market share for 2011 to-date, but Jefferies sees fundamentals hitting a trough, and easier comps as potentials to upside moving forward. Jefferies commented, "we believe ARO has fixed some of its fashion issues by returning to its classic bright color palette and introducing more newness and fashion in the women's biz."
Notably, Aeropostale reported inventories up 5 percent per square foot in the second-quarter, while comps were down 14 percent. Jefferies sees this gap closing further, as Aeropostale has run special deals to trim inventories heading into the holiday season.
On Aeropostale's key core brand: "We believe ARO's business model remains intact and that ARO will again prove to be a key teen brand as the opening price point in teen retail. While ARO’s comps have been down significantly over the past few qtrs, the declines have been driven by lower AUR while transactions have held up much better. We believe this shows the brand is not dead as customers are still buying ARO product, albeit at lower price points. ARO should be able to stabilize AUR as it gets inventory more in line with sales."
And, "Looking forward to 4Q, as inventories start to come more in line with sales trends ARO should have less pressure to markdown product and be able to increase full price selling and therefore MM%. The quarter should also benefit from easier compares. As such we expect some sequential improvement in merchandise margins in 4Q."
For more ratings news on Aeropostale, Inc. click here and for the rating history of Aeropostale, Inc. click here.
Shares of Aeropostale, Inc. closed at $13.66 yesterday.
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