Why Aeropostale (ARO) Is Rallying Today

NEW YORK (TheStreet) -- Aeropostale (ARO) was gaining 5.9% to $9.12 Thursday based on speculation that the apparel maker may be considering a sale.

Speculation of a possible deal involving the New York-based company came as executives cancelled an appearance at the ICR XChange Conference, highlighting reports of a potential sale as report by Fly on the Wall. Aeropostale currently has no upcoming event appearances listed on its website.

In November, Crescendo Partners urged the retailer to start a sale process while Hirzel Capital took a 6% stake in the company. At the time Hirzel Capital planned to have discussions with Aeropostale management.

TheStreet Ratings team rates AEROPOSTALE INC as a Sell with a ratings score of D+. TheStreet Ratings 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 INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. 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 INC reported lower earnings of $0.43 versus $0.86 in the prior year. For the next year, the market is expecting a contraction of 353.5% in earnings (-$1.09 versus $0.43).
  • 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 202.7% when compared to the same quarter one year ago, falling from $24.95 million to -$25.62 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 INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for AEROPOSTALE INC is rather low; currently it is at 20.17%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -4.97% is significantly below that of the industry average.
  • Net operating cash flow has significantly decreased to -$8.54 million or 111.95% 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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