Aeropostale could raise going concern doubts as the struggling teen apparel retailer burns up cash amid mounting losses

Aeropostale could raise going concern doubts: Morgan Stanley

Fri, May 23 2014

(Reuters) – Aeropostale Inc (ARO.N: Quote,ProfileResearchStock Buzz) could raise going concern doubts as soon as next year, as the struggling teen apparel retailer burns up cash amid mounting losses, Morgan Stanley analysts warned.

The company lost more than a fifth of its market value on Friday, a day after it reported its sixth straight quarterly loss and forecast a bigger-than-expected loss for the current quarter.

“We think (Aeropostale) is a structurally challenged business in decline,” Morgan Stanley analyst Kimberly Greenberger said in a note.

Greenberger said she expects “going concern issues in 2015/2016” unless the company stabilizes its business. Greenberger is a top-rated analyst for the company, according to Thomson Reuters StarMine.

“Aeropostale occupies the weakest competitive position in teen retail, and continues to cede market share to cheap fashion retailers and other teen retailers,” the analyst said.

Aeropostale’s shares touched a low of $3.38 in midday trading — their lowest in more than 11 years, making the stock the top percentage loser on the New York Stock Exchange.

The company said on Friday its first priority continues to be maintaining appropriate levels of liquidity.

“We have sufficient liquidity to work through our working capital needs with our $230-million revolver …,” the company said in an email.

Aeropostale reported on Thursday a 13 percent drop in same-store sales for the first quarter.

The sharp drop in same-store sales and the mounting losses have raised liquidity concerns.

Aeropostale has a rating of 26 out of 100, according to research firm Rapid Ratings, which gauges the financial health of companies. The rating of 26 puts Aeropostale in the high-risk category.

The company ended the first quarter with cash and cash equivalents of just $24.5 million, its lowest since 2000, according to Cowen & Co analyst John Kernan.

Cowen & Co said in a note that the company burned $123 million in cash in the first quarter and was forced to tap into its credit facility as it continued to discount to attract shoppers.

Aeropostale struck a $150 million funding deal with Sycamore Partners in March, but Kernan said that even with that lifeline “a turnaround is hard to conceptualize”.

“With a core business too far off the mark, and threatening to tarnish the brand, we don’t see things turning for Aero with the environment as challenging as it is currently,” BMO Capital Markets analyst John Morris said in a client note.

Morgan Stanley, BMO, Cowen & Co, Janney Capital Markets, Jefferies & Co and Topeka Capital Markets cut their price targets on the stock.

According to Thomson Reuters data, at least four analysts have a “sell” rating on Aeropostale, while 21 recommend “hold”.


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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