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Not cool: Aeropostale’s mall traffic troubles

After a 15% fourth-quarter same-store sales decline, Aeropostale is looking to accelerate the pace of previously announced store closures, further reduce an already limited store expansion program and has secured new financial flexibility from a private equity firm.

Sales and traffic at the teen retailer’s roughly 1,100 stores were in free fall for much of last year. The fourth-quarter comp decline of 15%, on top of an 8% decline the prior year, followed a comp decline of 15% in the third and second quarters. Sales during the 13-week fourth quarter declined to $670 million compared to $798 million during the 14-week fourth quarter the prior year. Even revenues from the company’s e-commerce business declined, dropping 12% to $85.6 million, as teens shunned the brand online as well as at the mall.

The company reported a net loss of $70 million, or 90 cents a share, which included charges totaling 55 cents a share. In conjunction with the release of its financial results, Aeropostale said it signed a commitment letter with Sycamore Partners and one the private equity firm’s holding company’s for a $150 million credit facility and product sourcing services. Sycamore is already an investor in the retailer and if it exercises convertible preferred stock granted at $7.25 a share it could end up owning 12.3% of the company. In addition, Aeropostale will now begin using a company controlled by Sycamore, MGF Sourcing, to diversify apparel production. Aeropostale said it will continue to award orders through a competitive bidding process but also said as part of the sourcing partnership it is required to complete minimum merchandise purchases each year for ten years.

"We are moving aggressively and taking swift actions across all areas of our business that we expect will improve our operational and financial performance over time,” said Aeropostale CEO Thomas Johnson. “The commitment letter for a strategic partnership and financing that we announced today more strongly positions the company and provides us with the flexibility to continue executing on our strategies designed to reposition the Aeropostale brand."

In addition, the company said it had retained a real estate consulting firm to investigate accelerating the pace of 50 planned store closing and other opportunities to reduce occupancy costs. Further cuts were also made to the company’s capital expenditure budget which now stands at an estimated $22 million, down from guidance provided December 4, 2013of $35 million and a prior year expenditure of $84 billion.

As a result, the company said this year it will open approximately seven Aeropostale stores, down from 11 previously, and remodel, either partially or fully, approximately ten Aeropostale stores, versus 26 previously. Only one new P.S. from Aeropostale store will open this year versus prior plans for five P.S. stores.

"The results we generated in 2013 are not acceptable nor are they a reflection of the progress we believe we have made in transforming our brand,” Johnson said. “Having evaluated what we set out to do in 2013 and what we learned, we believe our strategy surrounding product, brand projection, process and growth is even more crucial to winning in today's challenging retail landscape."
 

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