Will Aeropostale Smash Earnings?

On Wednesday, Aeropostale (NYSE: ARO  ) is due to report its results for its third quarter earnings. With hard times hitting retailers (NASDAQ: BODY  ) like Sears Holdings (NASDAQ: SHLD  ) and J.C. Penney Company (NYSE: JCP  ) , it's not out of the question to ask if Aeropostale will follow suit or surprise analysts like Macy's (NYSE: M  ) did.

What Mr. Market expects on revenue
For the quarter, Mr. Market expects very little from the $810 million retailer. Revenue is expected to come in at approximately $520.04 million, which would imply a 14.2% drop from the $605.92 million the company reported in the same quarter a year ago. But before you get scared and run for the door, you should take a gander at some of the other retailers that already reported for the quarter.

Sears saw its revenue decline by 6.6% from $8.86 billion during last year's third quarter to $8.27 billion this year. Meanwhile, J.C. Penney saw its revenue decline a more modest 5.1% from $2.93 billion to $2.78 billion. Probably the best performer in the retail segment over this time horizon has been Macy's, which grew revenue by 3.3% from $6.08 billion to $6.28 billion.

Bottom line blues
In terms of net income, Mr. Market is, once again, expecting very little out of Aeropostale. For the quarter, the company is expected to report earnings per share of -$0.24. This represents a significant decrease from the $0.31 the company reported in the same quarter a year ago. In addition to an expected falloff in revenue, higher costs as a percentage of sales are expected to weigh on the company's bottom line. If this estimate proves to be true, then the additional costs will likely be incurred in the company's cost of goods sold, and selling, general and administrative expenses categories.

As is the case with revenue, Aeropostale wouldn't be alone in experiencing an earnings drop. J.C. Penney fell short of what Mr. Market expected, with earnings per share coming in at -$1.85, just shy of the -$1.77 expected of it and far lower than the -$0.56 the company reported the same quarter a year earlier.  In juxtaposition, Sears saw its earnings per share rise from a loss of $4.70 in the same quarter a year ago to a loss of $3.13 this year.  This was slightly better than the -$3.39 that analysts expected.

In the case of J.C. Penney, lower revenue played a role in its shortfall, but so too did an increase in costs. The company saw its cost of goods sold rise from 67.5% of sales to 70.5%. Meanwhile, the company experienced a modest improvement in its selling, general and administrative expenses, which decreased from 37.1% of sales to 36.2%. This was similar to the case with Sears, which saw its cost of goods sold rise from 74.6% of sales to 76.7%, while its selling, general and administrative expenses fell from 28.2% of sales to 27.3%.  Despite its positive results, Macy's saw its cost of goods sold rise from 60.4% of sales to 60.8%, while its selling, general and administrative expenses improved slightly.

Foolish takeaway
Unfortunately, there is no way to tell whether or not a company will beat analyst forecasts (if you find a way, please let me know so that I can become very, very rich!). However, we can see that retailers have been full of surprises this earnings season. Aside from those listed above, other players in the industry like Body Central and Kohl's, have fallen short of analyst estimates, while others like Dillard's have outperformed. For this very reason, it might make sense for the Foolish investor who is up in the air about Aeropostale to sit by the sidelines until after it reports.

While this may rob you of short-term gains, the benefit comes from having the most up-to-date information on the company before rendering an investment decision. On the other hand, for the Foolish investor who believes that it either will report good numbers this quarter, or that its results for the quarter shouldn't impact the company's long-term viability, then now might be as good a time as ever to pick up a piece for your portfolio.

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Related Tickers

4/17/2014 4:01 PM
ARO $4.48 Down -0.11 -2.40%
Aeropostale CAPS Rating: ***
JCP $7.50 Up +0.24 +3.31%
J.C. Penney Compan… CAPS Rating: *
M $56.83 Down -1.83 -3.12%
Macy's, Inc. CAPS Rating: **
SHLD $38.33 Up +4.73 +14.08%
Sears Holdings CAPS Rating: *

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