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Investors Send Aeropostale Stock Down After Earnings

By Steve Symington - May 22, 2015 at 10:46AM

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Is Aeropostale's drop 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 Aeropostale (AROPQ) were down 12% as of 10:40 a.m. Friday after the clothing and accessories retailer reported weaker-than-expected first-quarter results Thursday after the market closed.

So what: Quarterly revenue declined 20% year over year to $318.6 million, hurt by an 11% decrease in comparable-store sales including the e-commerce channel. That translated to an adjusted net loss of $44 million, or $0.56 per diluted share. Analysts, on average, were expecting Aeropostale to achieve a slightly narrower adjusted net loss of $0.55 per share on higher sales of $324.9 million.

"As we anticipated, the first quarter of 2015 represented a period of transition for us," explained Aeropostale CEO Julian Geiger in a press release. "We worked our way through a number of issues, including a merchandise assortment that was not consistent with our future direction, unseasonably cool weather, and the West Coast port slowdown."

Now what: That said, Geiger also noted performance of Aeropostale's women's division exceeded expectations, and the company is "encouraged by the demand we were able to create through certain key items and promotions."

Even so, for the current quarter Aeropostale expects continued operating losses of $37 million to $43 million, which should result in a net loss per diluted share in the range of $0.52 to $0.60.  Analysts were projecting a smaller second-quarter net loss of $0.38 per share.

This also represents the key "Back to School" period for Aeropostale, which should offer the company crucial insights on whether its direction is yielding favorable results. For now -- and given Aeropostale's continued losses during this period of transition -- I prefer to continue watching the retailer's progress from the sidelines. If it shows promising results in the current quarter, only then might I consider initiating a long position.

Steve Symington owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. 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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