Why Aeropostale Shares Went on the Sale Rack

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 discount retailer Aeropostale (NYSE: ARO  ) dipped as much as 11% after the company released its second-quarter results and provided guidance for the third quarter.

So what: It's official: We've entered a backwards parallel dimension, wherein Aeropostale is guiding lower and perennial underperformer Gap (NYSE: GPS  ) is raising its guidance. For the second quarter, Aeropostale reported breakeven results on a 4% rise in sales. If you recall, however, Aeropostale received quite a haircut just two weeks ago after cutting its forecast due to weaker traffic in its stores.

Well, here we are again! Because of a weaker start to the all-important back-to-school season, Aeropostale is slashing EPS estimates for the third quarter to a range of $0.25 to $0.30 versus Wall Street expectations for $0.38. Aeropostale noted that discounting and competition from its peers is dragging on its bottom-line results.

Now what: Who would have thought that a discount retailer based in malls would be having issues with discounts and competition? Where's my "Duh!" button? In all seriousness, though, the apparel industry is highly cyclical, and Aeropostale is not a company you typically want to be holding on to when consumer spending and U.S. GDP figures are weakening. Although I like Aeropostale over the long term, as its brand name alone will carry sales with younger audiences, after a second earnings warning just this month, I'm not even remotely intrigued by the stock here.

Craving more input? Start by adding Aeropostale to your free and personalized watchlist so you can keep up on the latest news with the company.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool owns shares of Aeropostale. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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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Related Tickers

5/27/2016 3:59 PM
AROPQ $0.04 Down +0.00 -8.00%
Aeropostale CAPS Rating: **
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Gap CAPS Rating: ***