A new age of fiscal responsibility born from the financial crisis is altering the retail landscape. This shift has left many retailers facing brand deterioration, heaping inventory levels, and even bankruptcy. However, Aeropostale's
During the same period that higher-end rival Abercrombie & Fitch
All was not perfect, though. Like nearly all of its competitors, Aeropostale found itself marking merchandise down in order to attract the frugal shopper. Consequently, its gross margins dipped 250 basis points. This, coupled with higher compensation expenses, led earnings to rise 5% from last year, clocking in at $1.01 per share.
While bottom-line growth didn't pace along with revenue growth, there is still a lot to like about Aeropostale. The retailer ended the quarter with no long-term debt and $228.5 million in cash on its balance sheet. It reduced its inventory level per square foot by 17%. And most importantly, management announced a new business extension.
Following in the footsteps of many of its competitors, including Gap
Unlike the majority of its sector, Aeropostale is actually performing extraordinarily well, giving it some leverage to expand. The company has plenty of cash to perform the expansion and isn't sidetracked by a faltering core concept. Further, while higher-end brands bearing premium prices are a tougher sell in this economy, Aeropostale's price points are in line with what today's money-conscious parent is seeking. This is especially true for parents shopping for younger children who outgrow their clothes each season.
The downturn in the economy has helped Aeropostale muscle its way to the top of the retail world as it offers trendy clothes with price tags that fit more-modest budgets. At 11 times trailing earnings, Aeropostale certainly isn't at the bottom of the bargain bin of teen retailers. However, in my opinion, it has earned its relatively higher valuation and is worth a closer look by investors looking to invest in the sector.