Why Aeropostale Inc. Stock Bounced Back Today

Is this meaningful? Or just another movement?

May 27, 2014 at 5:27PM

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 Aeropostale Inc. (NYSE:ARO) were getting liftoff today, gaining as much as 17% and finishing 15% higher after securing financing from Sycamore Partners.

So what: Shares of the teen apparel retailer had plummeted 25% on Friday after the company released yet another disappointing report, but today's news breathed some life back into the stock as The clothing chain secured a $150 million credit facility from the private equity firm. After seeing sales decline rapidly, the company has just $24.5 million in cash on its balance sheet, and saw negative free cash flow of $122 million last year, a sign it might have run out of cash as soon as this quarter without the lifeline from Sycamore.

Now what: Today's announcement certainly buys Aeropostale time, but it's still unclear how the company will solve its cash burn problem. Tastes have changed in teen apparel, impacting not only Aeropostale, but also American Eagle and Abercrombie & Fitch, which have also struggled, as shoppers have shifted to fast-fashion sellers like H&M and Forever 21. The stock's climb today is a reflection of how troubled the company is. Based on historical measures, investors would reap a windfall if the company is able to turn things around, but with comps in the negative double-digits, a turnaround anytime soon is unlikely.

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Jeremy Bowman and The Motley Fool have no position in any of the stocks mentioned. 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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