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Why Aeropostale Inc. Stock Plunged Today

By Timothy Green - Mar 13, 2015 at 1:09PM

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What investors need to know about the company's continuing efforts to right the ship.

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 apparel retailer Aeropostale (AROPQ) plummeted on Friday after the company reported a significant decline in sales during the fourth quarter. By noon, the stock had fallen around 18%.

So what: Aeropostale managed to beat analyst estimates for both revenue and earnings, but expectations were extremely low. Revenue of $593.8 million was $17 million above what analysts were anticipating, but down 11.4% year over year. Comparable sales decreased by 9% year over year, with the rest of the revenue decline the result of store closings.

Non-GAAP net income of $0.01 per share was four cents better than analyst estimates, representing a significant improvement over the same period last year, when the company posted a $0.35-per-share non-GAAP loss.

Along with the big decline in revenue, weak guidance also helped to drive down the stock. Aeropostale expects a net loss in the range of $0.53 and $0.61 per share during the first quarter, and the company is considering closing 50 to 75 additional stores.

Now what: Aeropostale's fourth quarter showed some signs of improvement compared to the same period last year. Comparable sales declined by less, 9% compared to 15% last year, and the net loss got smaller. But the company is still struggling mightily to stabilize the business, and the little progress that Aeropostale made led to the stock being punished.

The company ended 2014 with $152 million in cash and $139 million in long-term debt, and it has an additional $117 million available under a credit facility. At the rate that Aeropostale is losing money, the company has a couple of years at most to turn things around before its finances become truly precarious.

Timothy Green has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. 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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