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Nothing Stale About Aeropostale

By Timothy M. Otte – Updated Nov 16, 2016 at 2:08PM

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First quarter strong at teen apparel retailer, but is sales growth slowing?

As was widely expected, Aeropostale (NYSE:ARO) posted another strong performance when it released first-quarter earnings on Thursday. This is a company that has been hitting the mark for quite a while now, and this quarter demonstrates that it still knows what teens are looking for in fashion.

Sales advanced by 26%, a combination of same-store increases of 4% and year-over-year square-footage growth of 22%. Gross margins were off 90 basis points from the prior year, reflecting a higher promotional spend. But this was offset by SG&A leverage. Earnings per share grew to $0.15, a 36% increase over $0.11 recorded in the same quarter last year, meeting analyst expectations.

Aeropostale continues its rapid pace of store growth, adding 36 stores during the quarter, and is well on track to grow the store base by 100 this year. In addition, a new concept named "Jimmy's" will debut in July, featuring a California lifestyle brand. The company will also launch an e-commerce business in the second quarter.

The company acknowledged a few speed bumps in the quarter. It transitioned into the summer assortment in March, and was caught with a shortage of cooler weather apparel just as the temperature dipped in March and April. I'm not usually a fan of weather-related excuses for sales, but the company stressed on the call that the sales slowdown happened only in northern climes. Sales momentum continued in southern stores, so the company believes it's not an inventory problem, just a missed sales opportunity. But with comparable-store sales declining 5.7% in April, there may be more to it than just weather.

The company gave second-quarter sales guidance of low single-digit same-store increases. Now I can't be sure whether this is just a conservative view, or if the teen jean scene is noticing a slowdown. Certainly women's retailer Chico's (NYSE:CHS) isn't feeling a pinch, as it reported a double-digit same-store sales increase for April.

I read a report earlier today that Abercrombie & Fitch (NYSE:ANF) is trying to cancel denim orders for the fall; the rumor is of a "denim glut." This resulted in early share trading declines for other jean purveyors like American Eagle Outfitters (NASDAQ:AEOS) and Pacific Sunwear (NASDAQ:PSUN). I'm not sure whether there's anything to this yet, but I intend to be watching May sales releases for these companies like a hawk.

In the meantime, Aeropostale seems to be continuing its strong run. A short-term scare could mean a chance to buy into this long-term growth story at a bargain price.

Slip on some comfy jeans and check out other news on these companies below:

Fool contributor Timothy M. Otte still hasn't figured out how to pronounce Aeropostale. He welcomes comments on his articles, but doesn't own the stock of any company mentioned in this article.

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Stocks Mentioned

Chico's FAS, Inc. Stock Quote
Chico's FAS, Inc.
CHS
$4.81 (-1.43%) $0.07
Abercrombie & Fitch Co. Stock Quote
Abercrombie & Fitch Co.
ANF
$15.88 (1.73%) $0.27
Aeropostale, Inc. Stock Quote
Aeropostale, Inc.
AROPQ

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