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Why Aeropostale Inc. Shares Plunged

By Brian Pacampara – Mar 14, 2014 at 9:59AM

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Is this meaningful? Or just another movement?

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 teen-oriented apparel retailer Aeropostale (AROPQ) plunged 14% today after the company's quarterly results and outlook disappointed Wall Street.

So what: The stock has plummeted over the past year on rapidly declining fundamentals, and today's fourth-quarter results -- adjusted loss of $0.35 on a revenue drop of 16% -- coupled with downbeat guidance suggest that things are only getting worse. In fact, Aeropostale also announced a strategic deal with Sycamore Partners which will provide a $150 million loan, reinforcing serious concerns on Wall Street over the company's suddenly stressed liquidity position.

Now what: Aeropostale now sees a first-quarter loss of $0.70 to $0.75 per share, much larger than Wall Street's view of only a $0.17 per-share loss. "We are moving aggressively and taking swift actions across all areas of our business that we expect will improve our operational and financial performance over time," said CEO Thomas Johnson in a press release. "The commitment letter for a strategic partnership and financing that we announced today more strongly positions the Company and provides us with the flexibility to continue executing on our strategies designed to reposition the Aeropostale brand." When you couple the gale-force competitive headwinds facing Aeropostale with its very real cash concerns, however, conservative Fools would probably do well to sit tight on the sidenlines.

Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not 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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