Aeropostale Loses Its Air of Invincibility

Aeropostale (NYSE: ARO  ) seemed to let the air out of investors' expectations with its third-quarter results. But leaving this newly tattered stock on the rack might be a big mistake.

Third-quarter net income dipped 6.6%, to $58.5 million, or $0.63 per share. Net sales increased 6%, to $602.8 million. Same-store sales were flat, after having surged 10% this time last year.

Unfortunately, the difficult promotional period in retail is taking its toll on Aeropostale. Although the company experienced a mid-single-digit increase in same-store sales on Black Friday, it said sales actually "decelerated significantly" for the rest of the weekend.

As disappointing as the quarter may seem to some investors -- the shares plunged today --  it's good to remember that Aeropostale is up against difficult comparisons. Along with Buckle (NYSE: BKE  ) , the company has bucked the prevailing gloomy trends of the past several years to become one of the few relatively thriving retail outliers.

Although the departure of one of Aeropostale's co-CEOs is another logical reason to be a little concerned, the fact that the company sells fashionable clothes for reasonable prices remains a compelling reason to like this stock. This holiday season's cutthroat promotional environment will be much harder on retailers that rely on higher prices, like Abercrombie & Fitch (NYSE: ANF  ) .

Speaking of Abercrombie & Fitch, its shares soared today, as November same-store sales surged 22%. Before you start thinking that it's superior to Aeropostale, bear in mind that its comparisons to last year's comps performance are incredibly easy. Abercrombie's same-store sales plunged 17% in November 2009, making its seemingly huge comps increase not nearly as impressive as it sounds.

Meanwhile, although Aeropostale's a teen retailer, it's still a safer stock than retailers like Talbots (NYSE: TLB  ) and Coldwater Creek (Nasdaq: CWTR  ) , which cater to the financially strapped Baby Boomer demographic.

Aeropostale was my 11 O'Clock Stock pick back in August, and although its third-quarter results weren't exactly awe-inspiring, today's price plunge represents a buying opportunity. It's still a darn cheap stock with a single-digit trailing P/E (9) and a history of luring trendy but frugal teens into its stores. What do you think? Should you buy Aeropostale now, or is the competition eating its lunch? Let us know in the comment box below.

The Fool owns shares of Aeropostale. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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Comments from our Foolish Readers

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  • Report this Comment On December 02, 2010, at 7:05 PM, sprsprt wrote:

    My fashion-conscious 16 year old daughter says Aeropostale is still her "favorite store," for what that's worth.

  • Report this Comment On December 02, 2010, at 7:36 PM, esxokm wrote:

    I too believe that ARO is a buy on the dips. However, those who buy now may have to remain patient for a while...

  • Report this Comment On December 02, 2010, at 8:20 PM, eldindo wrote:

    I bought it today at 23.17

  • Report this Comment On December 03, 2010, at 9:32 AM, rcbrannon wrote:

    I can't wait for it to bottom in the next few days because I plan to load up the truck.

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