NEW YORK (TheStreet) -- Analysts suspected it would be bad but no one was prepared for the sea of red as Aeropostale (ARO) reported a larger-than-expected loss for its third quarter, prompting a sell-off in after-hours trading.

The apparel retailer recorded a net loss of 29 cents a share, a 5-cent wider gap than analysts surveyed by Thomson Reuters had forecast. Sales of $514.6 million came in 15% below last year, missing consensus by $5.6 million.

The New York-based retailer's comparable sales paint a grim picture, dropping 15% in the third quarter. Aeropostale's online channels, typically seen as a revenue generator at other retailers, came in flat compared to a year earlier.

After the bell, Aeropostale shares tripped 3.9% to $9, adding to the day's 3.9% falls already suffered.

Fourth-quarter guidance failed to hit the mark. The company expects to see a net loss between 24 cents and 32 cents a share, while analysts had hoped for a more optimistic 8-cent loss.

"Our comparable sales decline was in-line with our year-to-date trend, and we were more promotional than anticipated in order to strengthen our inventory position going into the fourth quarter," said CEO Thomas P. Johnson in a statement. "However, we were disappointed in our overall performance as customer adoption is occurring more slowly than we would like against the backdrop of a challenging teen retail environment."

Encouraging the teen demographic to spend is a challenge the market knows well. Competitor Abercrombie & Fitch (ANF) has been dealing with the same issues, reporting a third-quarter same-store sales drop of 14% with weak sales over August and September hitting the company hard.

Johnson tempers expectations for the fourth quarter, remaining wary as retailers ramp up for a discounting bloodbath this holiday season.

"We believe it is prudent to be cautious with our outlook for the remainder of the holiday period given heightened promotional levels and inconsistent mall traffic trends," he said.

Fellow apparel retailer Express (EXPR) also warned of "heightened levels" of holiday promotions this season. The news wasn't welcomed by Wall Street. Investors ran from the stock, causing it to fall 23% on Wednesday.

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 multiple 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."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Aeropostale's earnings have gone downhill when comparing its most recently reported quarter with the same quarter a year earlier. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, Aeropostale reported lower earnings of 43 cents a share vs. 86 cents a share in the prior year. For the next year, the market is expecting a contraction of 283.7% in earnings (-79 cents vs. 43 cents).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Specialty Retail industry. The net income has significantly decreased by 47612.7% when compared to the same quarter one year ago, falling from $0.07 million to -$33.73 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Specialty Retail industry and the overall market, Aeropostale's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for Aeropostale is rather low; currently it is at 21.44%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -7.42% is significantly below that of the industry average.
  • Net operating cash flow has significantly decreased to -$20.25 million or 67.51% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
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