Earnings Preview: Aeropostale

Zacks

Aeropostale Inc. (ARO), a retailer of active and casual clothing and accompaniments for the youth, is slated to report its fiscal third-quarter 2012 (ended October 2012) financial results on November 28, 2012.

The current Zacks Consensus Estimate for the quarter stands at 29 cents a share, representing an estimated year-over-year decrease of about 3.2%. Revenue, as per the Zacks Consensus Estimate, is $604 million.

Second-Quarter Synopsis

Aeropostale marked a break-even during the second-quarter of fiscal 2012, meeting the Zacks Consensus Estimate. However, the quarterly results witnessed an improvement from a loss of 2 cents in the comparable year-ago quarter.

Aeropostale, which competes with American Eagle Outfitters Inc. (AEO), registered an increase of 4% in its total sales to $485.3 million from $468.2 million in the year-ago quarter. Moreover, the reported revenue surpassed the Zacks Consensus Estimate of $484 million.

Agreement of Estimate Revisions

Estimate revision for the company is exhibiting a negative trend for the upcoming quarter as well as for the fiscal 2012. Over the last 30 days, 3 out of 20 estimates have been revised downwards, while none were raised for the third quarter. Moreover, for fiscal 2012, 4 out of 21 estimates have been lowered, while none moved in the opposite direction.

Analysts opine that as the company’s assortments are gradually improving, it will help lure its target customers and thus usher in incremental sales. However, heightened competition, pricing pressures, markdowns and higher promotional expenses offset the positives.

Magnitude of Estimate Revisions

Estimates haven’t budged for the upcoming quarter over the last 30 days. However, for the fourth quarter, estimates inched down by a penny to 54 cents.

Moreover, for fiscal 2012 and fiscal 2013, estimates decreased by a penny to 96 cents and $1.21 per share, respectively.

Mixed Earnings Surprise History

With respect to earnings surprises, Aeropostale has topped as well as met the Zacks Consensus Estimate over the last four quarters in the range of 0.0% to 15.8%. The average remained at 13.5%, indicating that the company has surpassed the Zacks Consensus Estimate by the same magnitude in the trailing four quarters.

Our Take

Currently, Aeropostale holds a Zacks #4 Rank, which implies a short-term ‘Sell’ rating (1–3 months) as we believe the company’s aggressive inventory offloading and lower average selling price is likely to disrupt profit margins.

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