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Aeropostale Struggling to Show it Can Still Be Cool Like Forever 21, H&M

NEW YORK (TheStreet) -- Purveyors of cheap, fashion clothing for youth like Forever 21, H&M, and Uniqlo have caused significant profit margin pressure at the former cool kids in the mall, Abercrombie & Fitch (ANF - Get Report), Aeropostale (ARO - Get Report) and American Eagle Outfitters (ARO - Get Report).

Now, those nimbler fast-fashion retailers may be on the verge of triggering one more major development: complete rebranding, the first being at the beleaguered Aeropostale.

On its first-quarter earnings call, Aeropostale, which my first Belus Capital Advisors rates a sell due to concerns about viability, said it will remodel 10 stores in 2014, a slower pace than the 32 touched in 2013. In a series of self-snapped photos below, Aeropostale's intentions with its remodeling become clear. It's attempting a compete rebranding.

The company is doing its best to trigger a sense of curiosity and social media sharing on the part of teens walking the mall, conveying to them that Aeropostale is no longer a place to buy boring hoodies at an affordable price. From an entirely new logo on the front that only bears part of the company's corporate name, to black signage inside the stores as well as its Web site that emphasize the word "change," Aeropostale is making a last ditch effort to improve its traffic, transaction value, and ultimately its weakened financial state.  These efforts join others by the company revolving incubating new, fashion-focused brands such as those from YouTube sensation Bethany Mota.

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When reached for comment, Aeropostale, which is currently in its quiet period, shared a couple of details on the remodels:

It is the Aero Now campaign which launched on July 28th.  It includes the new imagery in the stores, imagery on the website and social media initiatives, to name a few.

Competitive intrusion on Aeropostale's turf is evident on the gross profit margin line. According to Bloomberg data, for the 12-year period of FY02 to FY14, Aeropostale's gross profit margin peaked in FY10 at 37.99%. Since then, things have been downhill, with gross profit margins hitting a mere 17.09% in FY14. Aeropostale's cash hoard has subsequently been nailed. At $106.5 million to conclude FY14, cash and equivalents for the company were a far cry from the $347 million attained in FY10.

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The company's troubled state of affairs led it to secure a funding deal with Sycamore Partners in March of this year to the tune of $150 million. If Aeropostale's investments in rebranding fail to produce a same-store sales lift following a store's remodel and associated social media marketing, the company could be back in a very precarious financial position by the back to school season of 2015.

Intense margin pressure for the traditional teen apparel retailers comes as the fast fashion players aggressively open new locations. From November 2006 to November 2013, per Bloomberg, H&M's U.S. store count went to 305 from 114. Forever 21 now operates in excess of 450 U.S. stores, and some in a fresh design format boasting larger display windows. Uniqlo has 24 U.S. states situated on the East and West Coasts, and has announced 18 new stores will open before the end of the year.

At the time of publication, the author's firm had a sell rating on Aeropostale.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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