Aeropostale Hopes for a Better Future

Like an angel waiting in the shadows, the market has heard our cries and come to our aid. When Aeropostale (NYSE: ARO  ) fell last week, a collective wave of shock spread. We wondered aloud, "Just because this poor company has falling sales, lacks a vision for the future, and can't connect with today's teen market, does it deserve to be punished?" Yesterday, all was put right, and Aeropostale bounced back, rising 5.5%, and putting it right back where it belongs -- down 20% during the past week.

Aeropostale falls behind, gets left behind
All fashion brands face down one issue each and every day -- being popular. To be a successful company, you have to be able to maintain popularity even when the market pulls back from fashion. Companies like Gap (NYSE: GPS  ) have been able to come back from the brink, but the damage of falling out of favor -- as Gap did in the mid-2000s -- is lasting and real.

Right now, Aeropostale is yesterday's news. In 2013, the company's comparable-store sales fell 15% as teens fled. Compare that to middle-of-the-road Gap, which managed to at least boost comparable-store sales by 2%. Both brands paled in comparison to the popularity of Urban Outfitter's (NASDAQ: URBN  ) Anthropologie line.

Anthropologie managed to rip customers out of the desperate, sweaty grasp of Aeropostale, increasing comparable sales by 10% last quarter. That helped lead Urban Outfitters to a record level of net income for the year, while Aeropostale lost $141.8 million during 2013. 

Private equity takes an interest in Aeropostale
It seems like whenever things are at their bleakest in retail, there's always a helping hand that suddenly appears. Sometimes, that hand is skeletal, and the other hand is holding a scythe; but help is help, right? Aeropostale's savior has come in the form of Sycamore Partners, which has extended a $150 million loan to the company. 

During the past two years, Sycamore has acquired other retailers, including Talbots and Hot Topic, so its interest in Aeropostale is not overly surprising. In addition to getting its money back, Sycamore Partners has the option to purchase preferred stock. If Sycamore opts in, it will end up owning 12.3% of Aeropostale, putting it well on the way to a much bigger role.

The future of Aeropostale
Right now, Aeropostale doesn't need to worry about what happens with ownership. Instead, it needs to buckle down and make consumers happy, or, at the very least, interested. Aeropostale's focus in 2014 is on building a strong foundation that it can then expand on. It's focusing on basics, and a handful of new lines to entice shoppers. It's a better plan than the business has had recently, and it needs to work. Aeopostale may not be on its last leg, but it doesn't have three legs left, either.

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