Why Aeropostale Shares Bombed

Why Aeropostale Shares Bombed

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 were getting torpedoed today, falling as much as 20.8% after the company posted an underwhelming earnings report.

So what: Like its fellow teen retailers American Eagle and Abercrombie and Fitch, Aeropostale had a miserable quarter of its own, turning in an adjusted per-share loss of $0.34, worse than expectations of $0.29. Revenue was down 6% to $454 million, while comparable sales plummeted 15%. Aeropostale had already alerted investors that the quarter would be disappointing, but the market did not expect it to be this bad. CEO Thomas Johnson noted "pressure by a challenging teen retail environment with weak traffic trends," and heavy discounting. Making matters worse was the company's guidance for the current quarter, as it now expects a loss of $0.21 to $0.26 a share during the normally strong back-to-school season. Analysts had projected a profit of $0.25.

Now what: This looks like a stock in free fall after today's report. Johnson assured the market that the company was focused on changing its brand to regain market share, but the fashion industry is notoriously fickle, and marketing to teens makes it especially so. Changing tastes have led Aeropostale to begin focusing on more expensive, less logo-centric apparel as it's lost market share to chains like Forever 21 and H&M. More quarters like this will also put pressure on the company's cash flow. Aeropostale may eventually make a comeback, but I see shares falling more until the company proves it can grow again.

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The article Why Aeropostale Shares Bombed originally appeared on Fool.com.

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Originally published