You know the retail world is challenging when a 75% surge in profits makes your stock price fall.
That's what happened to Aeropostale
Let's quickly break down the numbers. Net income jumped 74.5% to $14.7 million on a gross-margin gain of 470 basis points. There's no denying that's tremendous. Next, we see that total sales increased 13.3% to $311.2 million. Again, very impressive. Then the trouble begins.
Despite the gain in total sales, same-store sales declined 4.1% year over year. Naturally, comps provide a better indication of a company's performance, because they include only locations that are open in the comparative periods.
The company's third-quarter forecast also prompted a cautious response from investors. Aeropostale expects to earn $0.43 to $0.45 per share in the third quarter. That would represent an increase of 5% to 10% over last year's third quarter. That's decent, but the Street was expecting more rapid growth of 20%.
Investors may be reacting somewhat harshly to what is overall very good news. However, that's what happens when a company and its stock price grow as quickly as Aeropostale has. I warned about this possibility after Aeropostale's extraordinary first-quarter results. Despite the impressive earnings gains, underlying problems, including negative comps, have been lurking just beneath the surface.
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