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TheStreet Open House

Aeropostale (ARO) Plunges After Fourth Quarter Miss

NEW YORK (TheStreet) -- Aeropostale (ARO) is plummeting in extended trading after missing analysts' top and bottom line estimates in its year-ending quarter.

After the bell, shares dropped 13% to $6.35.

In the three months to Feb. 1, the New York-based retailer reported a 16% year-over-year sales decrease to $670 million. Comparable-store sales, which include its e-commerce channel, tumbled 15% compared to an 8% drop a year earlier.

Analysts had forecast sales of $683.79 million, according to averages compiled by Thomson Reuters.

The teen-focused chain reported a net loss of $70.3 million, or 90 cents a share, compared to analysts' estimated loss of $23.75 million, or 31 cents a share.

Excluding tax and legal-related charges, losses of $27.1 million, or 35 cents a share, were wider than an expected $22.9 million, or 31 cents a share.

Aeropostale had previously guided for a net loss between 24 cents and 32 cents a share.

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"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," said CEO Thomas P. Johnson in a statement.

Gross margins fell 680 basis points to 13% as Aeropostale engaged in deep discounting over a more promotional holiday shopping season than normal.

For its first quarter ending April, the company anticipates a net loss in the range of 70 cents to 75 cents a share, stripping away the impact of expected consulting fees and the potential for accelerated store closures.

Analysts had forecast a net loss of 17 cents a share in the first quarter.

In the first quarter, Aeropostale expects to close around 50 namesake stores and two of its kids clothing locations, P.S. from Aeropostale.

"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 Johnson.

In a separate release, the company announced it had signed with Sycamore Partners for $150 million in senior secured credit, including a five-year $100 million and ten-year $50 million term loan facility which includes an apparel sourcing arrangement with Sycamore affiliate MGF Sourcing.

As part of the partnership, Aeropostale will offer Sycamore convertible stock equivalent to up to 5% of common stock at $7.25 a share. On an as-converted basis, this will increase Sycamore's stake in Aeropostale to 12.3% of outstanding shares.

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TheStreet Ratings team rates AEROPOSTALE INC as a Sell with a ratings score of D. The team has this to say about their recommendation:

"We rate AEROPOSTALE INC (ARO) a SELL. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, disappointing return on equity, poor profit margins and weak operating cash flow."

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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