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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of teen clothing retailer Aeropostale (NYSE: ARO ) are spiraling downward by 12% today after a flurry of news came out last night after the bell, including the company's November sales figures, third-quarter report, and fourth-quarter guidance.
So what: Margins and management tell the story here of why Aeropostale is down. Same-store sales figures fell by 1% in November, and the company came up short of Wall Street's expectations by reporting a $0.63-per-share quarter profit when the Street had been looking for $0.66. On top of this, fourth-quarter guidance was on the low end of estimates and co-CEO Mindy Meads, who is the main reason inventory levels have been so well-controlled, announced she is leaving the company to pursue other interests.
Now what: Although it's not prudent to let one month determine the long-term outlook for Aeropostale, I have to say its penchant for discounting to drive sales is definitely beginning to eat into its margins. Competitors Abercrombie & Fitch (NYSE: ANF ) and J.C. Penney (NYSE: JCP ) appear to have the stronger pricing power at the moment and could use that momentum to trade higher as we get closer to Christmas. Still, I think patience is the key with Aeropostale. It has shown strong growth over recent years and understands how to control its inventory, but this situation bears watching.
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