Will Pretty Little Liars Change the Story for Aeropostale?

Teen retailer Aeropostale's stock hasn't been too pretty since the summer but a collaboration with a hot TV teen property may change its story.

Jan 17, 2014 at 6:30PM

Four Pretty Little Liars may just change the sad story of Aeropostale (NYSE:ARO) the specialty mall-based teen retailer whose stock price has been halved since last summer. The company announced that it will collaborate with ABC Family TV show Pretty Little Liars' costume designer Mandi Line for a character-driven clothing collection.

Aeropostale Pretty Little Liars

source: Aeropostale

The Pretty Little Liars collaboration may also make the company more attractive to possible acquirers. Aeropostale has been under pressure from activist shareholder Crescendo Partners to sell itself. On January 14, Bloomberg News, quoting unnamed sources, reported the company has reached out to two private-equity firms to explore a possible sale. Note: the company is not currently negotiating a sale.

Drama queens
The show has been a teen sensation and its season finale propelled it to become the most-tweeted show in TV history with almost 2 million tweets. You're probably unfamiliar with the ongoing teen traumas of Aria, Spencer, Hanna, and Emily.  Over 4 million viewers, mainly female viewers between the ages of 12-34, watched the show's Halloween special and over 2 million watch weekly episodes.

This is exactly the demographic that Aeropostale needs. Designer Mandi Line told Fashionista.com she was inundated with requests for a retail outlet to stock the show's designs. Originally hoping for a larger retailer, Line is satisfied with Aeropostale and she expects to work up four collections. She added, "I'm going to bring you a customer you've never had — a Pretty Little Liars customer who's like, 'Wow, Aero? Really?'"

Aeropostale strategically scheduled the collection launch for the same day as the season premiere, January 7, at its 976 stores and online in the US, Puerto Rico, and Canada.

Teen Trauma
Like beleaguered teen-retail rival Abercrombie & Fitch (NYSE:ANF), Aeropostale received a downgrade from Jefferies analyst Randal Konik on January 2 from Buy to Hold. He gave a $7 price target for Aeropostale (which closed at $8.63 on January 8). The median target is $10 out of 23 analysts. The stock also has a huge short interest at 38.6%. This isn't surprising given its fundamentals: profit margin of -3.25%, quarterly revenue growth of -15.10%, and a price of twice its book value of $4.42.

On the third quarter earnings call, which included Black Friday results, CEO Thomas Johnson gave a downbeat recap using the dreaded phrase, "clearly disappointing," noting a turnaround has taken, "longer than expected." Unlike many retailers, even Aeropostale's e-commerce sales were down, for a total comp sales decline of 15%.

The litany of bad news continued for Aeropostale with cash and cash equivalents declining to $68 million from $184 million. Store closings will triple to 46 from its 2013 expectations of only 15. Finally, Aeropostale guided for a loss of $0.24-$0.32 per share for the fourth quarter, making this the fourth quarter in a row with disappointing results.

Johnson partially blamed a challenging and promotional environment in retail. Other teen retailers like American Eagle Outfitters (NYSE:AEO) and Urban Outfitters (NASDAQ:URBN) have also underperformed. However, Jefferies' Konik thinks these latter two are top 2014 picks if a promotional ceasefire takes hold and their strong managements prevail.

Aeropostale's management said it was cutting expenditures but how to bring in sales? The company highlighted another promising brand launch. Teen YouTube sensation Bethany Mota with over 4 million subscribers, debuted a much-anticipated Aeropostale collection in December. EVP Emilia Fabricant said "The collection truly underscores how we are evolving our business in terms of relevancy and speed to market as the line progressed from concept to launch in just 3 months."

Bethany Mota At Aeropostale


Better late than never
On the eroding relevance of the Aero logo brand, CEO Johnson admitted," Teen preference has changed so significantly it has been a seismic shift over the past 5 years...We know these truths because of the declining business over a multi-year scenario." He also said the change from almost 100% logo merchandise to a more fashion-oriented inventory has been a pleasant surprise for teens questioned in exit interviews.

In Aeropostale's defense the speed of the Mota and Liars launches has shown improving responsiveness, a must-have trait for teen retailers. Rival Abercrombie & Fitch has been working to overcome last year's  public relations snafus and teens' perception that its pricey, preppy cool is wearing thin.

Urban is generally lumped in with teen retailers but it better represents an 18-34 Millennial demographic. At a 20 trailing earnings multiple and a $54 price target it offers significant upside if Jefferies is right. Its Free People division is outperforming and the company is expanding in Europe and Japan.

American Eagle at a 17.72 trailing multiple and a 3.30% yield looks interesting. More so after the Konik upgrade as he argued, " We believe the company can drive a significant margin and earnings rebound against easy compares, and restore brand momentum through more focused merchandising, faster speed to market, and strict inventory and expense control."

The Foolish takeaway
To be fair, Aeropostale is definitely improving speed to market, and expense and inventory control was the main thrust of the Aeropostale earnings call. The something drastic the company needed are these two launches; bold moves that may just change the Aeropostale story into one with a happy ending even if it doesn't sell itself.

1 stock for a truly happy ending in 2014
There’s a huge difference between a good stock, and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it’s one of those stocks that could make you rich. You can find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

AnnaLisa Kraft has no position in any stocks mentioned. The Motley Fool recommends Urban Outfitters. Try any of our Foolish newsletter services free for 30 days. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers