Recently, my Foolish colleague Matthew Crews wondered whether youth retailer Aeropostale (NYSE: ARO) was a buy or a sell; the stock had just been downgraded by an analyst, despite significant buying from a value-oriented asset manager. Who's right? Voice your opinion by rating the stock in Motley Fool CAPS, the Fool's free stock-rating service.
I haven't offered a rating yet on Aeropostale, but I can tell you where I am leaning. After going through the company's newly released third-quarter results and listening in on its conference call, I say thumbs up!
Sales results exceeded management's expectations, with the top line increasing 18.7% compared to the same period a year ago. Equally impressive, revenues derived from those stores open for more than a year were up 5.6%; this time last year, comps were down 1.5%.
During the call, management expressed pleasure with the performance, attributing much of the gains to an improved merchandise assortment. One of the company's primary goals for FY 2006 was to integrate more fashion-forward looks into its apparel offerings. As a result, CEO Julian Geiger has been spending the bulk of his time on merchandising, which he admitted in the question-and-answer portion of the call. The time was apparently well spent, since he now believes Aeropostale carries greater fashion balance in apparel than it did this time last year.
With merchandise margins also improving, Aeropostale was able to post a nearly 30% gain in diluted EPS. This was accomplished despite a $0.01 charge related to stock options expensing and a loss of $0.03 from its Jimmy'Z subsidiary.
Geiger sees much of the same fashion trends going forward into the holiday season. Gift cards and, particularly, its e-commerce biz, which is exceeding internal plans, will both contribute significantly in the fourth quarter.
The youth retailing market is a crowded one, with American Eagle Outfitters (Nasdaq: AEOS), Abercrombie & Fitch (NYSE: ANF), Pacific Sunwear (Nasdaq: PSUN), Urban Outfitters (Nasdaq: URBN), and Buckle (NYSE: BKE) all dropping elbows on each other faster than Shaquille O'Neal in the paint. Still, Geiger believes Aeropostale is "gaining brand awareness."
Admittedly, I too am becoming more aware of Aeropostale; it's now on my short list of retailers to look out for.
More Foolishness dressed in Aeropostale's clothing:
American Eagle and Pacific Sunwear are
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Fool contributor Jeremy MacNealy has a player rating of 97.29 and is ranked 391st out of 14,382 participants in Motley Fool CAPS, the stock-rating service that's open to everyone. He has no financial interest in any company mentioned. The Motley Fool has a disclosure policy.
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