Why Aeropostale, Darden Resturants, and Chuy's Holdings Set New Lows Last Week

These three stocks hit new yearly lows over the past week. Find out why.

Jul 13, 2014 at 3:33PM
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The stock market took a pause in its bullish run, with the S&P 500 (SNPINDEX:^GSPC) losing almost 1% on the week as investors worried about whether U.S. economic growth will bounce back from a terrible winter season and whether a potential crisis in Europe also distracted from more positive sentiment. Because the market remains close to its recent record levels, though, relatively few stocks have been in danger of setting new yearly lows. But a few still did, with Aeropostale (NYSE:ARO), Darden Restaurants (NYSE:DRI), and Chuy's Holdings (NASDAQ:CHUY) among the rare group that sank to their worst levels in more than a year last week.

Aro

Aeropostale dropped 7.5% on the week, reaching prices not seen in more than a decade. The retailer hasn't been able to pull out of its recent dive as it still reels from poor earnings results that pointed to a rising likelihood of all-out collapse. Aeropostale's operating losses have grown as it reported a 15% drop in same-store sales as well as margin-crushing promotional discounting activity. Although Aeropostale managed to draw interest from private-equity firm Sycamore Partners, its financial assistance came in the form of a loan rather than a purchase of equity, and that suggests that expert investors are positioning themselves for the possibility of a restructuring at some point in the future.

Dri

Darden fell almost 3%, hitting its worst levels since early 2012. The restaurant chain managed to win a small victory last week, with a New York judge dismissing what could have become a class action lawsuit alleging violations of consumer protection laws. Yet the bigger question is whether Darden's proposed $2.1 billion sale of its Red Lobster chain will help Olive Garden and its other restaurant concepts recover from tough times. On Friday, credit agency Moody's said that Darden would likely keep its investment-grade bond rating if the sale occurs as planned, although Darden's bonds would get a negative outlook going forward. The last thing Darden needs is the more-expensive financing costs that a junk bond rating would bring.

Chuy Rick Munarriz

Source: Rick Munarriz.

Chuy's plunged more than 17%, falling below the $30 per share mark for the first time since early 2013. The Mexican-food restaurant company was just one of many fast-casual stocks that suffered this week, with Potbelly getting the brunt of the damage as it reduced its full-year guidance in light of weak growth. Newly public restaurant stocks have been moving higher based on momentum, but investors seem to believe now that their gains have been overblown. Given the high valuations in the space, Chuy's will need to demonstrate strong earnings growth in order to satisfy nervous shareholders this quarter.

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Dan Caplinger 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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