Aeropostale's Profits Rise, Margins Sink

Aeropostale's(ARO - Cramer's Take - Stockpickr) overall sales and earnings rose in its fourth quarter, despite a sharp fall in the apparel chain's same-store sales growth.

The New York-based retailer earned $17.7 million, or 46 cents a share, on $206.4 million in sales in its quarter ended Feb. 1, Aeropostale said on Thursday. In the year-ago quarter, the company earned $13.9 million, or 38 cents a share, on sales of $158 million.

Analysts surveyed by Thomson Financial/First Call were expecting Aeropostale to post earnings of 45 cents a share. The company increased its earnings guidance last month to a range of 44 cents to 46 cents a share from its previous projection of 38 cents to 40 cents per share.

The company reiterated its guidance for fiscal 2003, saying it expects to earn between $1.06 to $1.10 a share on revenue between $670 million to $674 million. For the first two quarters combined, Aeropostale expects to post a bottom line of between break-even to a loss of 2 cents a share.

Analysts have projected that the company will break even in the first quarter and earn $1.10 a share for the year.

For all of fiscal 2002, the teen clothing chain earned $31.3 million, or 82 cents a share, on $550.9 million in sales. In fiscal 2001, Aeropostale posted profits of $26.5 million, or 71 cents a share, on $404.4 million in revenue. The company's 2001 earnings benefited from an accounting change that added 5 cents a share to its bottom line.

Aeropostale's fourth-quarter earnings surge came despite a same-store sales increase of just 0.3% in the quarter. In the year-ago period, the apparel chain's same-store sales, which compare results at outlets open more than one year, rose 23.1%.

Earnings also rose despite a steep drop in the company's gross profit margins. Aeropostale's gross profit margin, which measures the difference between what a company charges consumers for its products and what it pays suppliers for them, fell 410 basis points from the year before to 30.7% of sales.