New York based specialty retailer of casual apparel for young men and women, Aeropostale Inc.‘s (ARO) reported earnings of 95 cents per share for the fourth quarter 2010, which fell short of the Zacks Consensus Estimate by 2 cents and dipped 4% from the prior-year quarters’ earnings. The decline was primarily attributable to increased costs of raw materials and higher interest expenses.
Financial Details
Net sales for the reported quarter increased 4.8% to $839.3 million compared with $801.2 million in the prior-year quarter, principally due to a robust increase of 21% in its e-commerce business, partially offset by a 3% decline in same store sales. Net sales for the quarter were in line with the Zacks Consensus Estimate.
During the reported quarter, the company faces inflationary pressure on its margins. Aeropostale reported a decline of 9.6% in its operating income to $143.9 million compared with $159.2 million in the prior-year period primarily due to increased commodity costs and selling, general and administrative expenses. Consequently, the company’s operating margin contracted by 280 basis points (bps) to 17.1% from 19.9% in the prior period.
Aeropostale has cash and cash equivalents of $265.6 million at the end of 2010, which was below 23.5% from the prior-year figure of $347.0 million. Its merchandise inventory grew by 17.8% to $156.6 million from $132.9 million. Non-current liabilities were $137.0 million at the end of fiscal 2010 compared with $116.0 million in the prior fiscal.
During fiscal 2010, Aeropostale uses $257.5 million to repurchase 10.3 million shares of its common stock. The company invested $100.8 million during 2010 toward capital expenditure.
Direction Ahead
Aeropostale expects earnings to be between 35 cents and 38 cents per share in the first quarter of fiscal 2011, which reflects the impact of inflationary pressure and clearing through holiday inventories. For full fiscal 2011, the company has projected net earnings to be in the range of $2.20 to $2.40 per share. The Zacks Consensus Estimates for first-quarter and fiscal 2011 earnings are 43 cents and $2.56 per share.
Also, the company wants to give emphasis on opening new stores and remodel the existing stores. Aeropostale will invest approximately $70.0 million to accomplish its goal of opening 30 stores, 20 P.S. from Aeropostale stores, remodel 50 stores and information technology enhancement.
Aeropostale, which competes with Pacific Sunwear of California Inc. (PSUN) and GAP Inc. (GPS), currently holds a Zacks #3 Rank, implying a short-term ‘Hold’ rating on the stock. Besides, the company retains a long-term ‘Neutral’ recommendation on the stock.
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