Why Aeropostale (ARO) Stock Is Surging Today

NEW YORK (TheStreet) -- Aeropostale  (ARO) surged Tuesday after the teen apparel retailer said it had completed its previously announced $150 million financing from affiliates of Sycamore Partners, a private equity firm.

The company announced the financing on March 13 and said it had acquired a five-year, $100 million term loan facility and a 10-year, $50 million term loan facility that includes a sourcing arrangement with Sycamore affiliate MGF Sourcing. Aeropostale issued convertible preferred stock to Sycamore, which allows the firm to buy up to 5% of the company's common shares at an exercise price of $7.25, its closing price on March 12.

Piper Jaffray upgraded Aeropostale to "neutral" from "underweight" and set a $4 price target in the wake of the news. The firm said the deal with Sycamore eliminates significant risk over the next 12 months.

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The stock was up 13.2% to $3.86 at 10:41 a.m.

Separately, 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 a number of negative factors, 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 deteriorating net income, disappointing return on equity, poor profit margins, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share."

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

  • 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 531.0% when compared to the same quarter one year ago, falling from -$12.17 million to -$76.78 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 17.81%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -19.39% is significantly below that of the industry average.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 72.86%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 512.50% compared to the year-earlier quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
  • 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. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, AEROPOSTALE INC swung to a loss, reporting -$1.82 versus $0.43 in the prior year. This year, the market expects an improvement in earnings (-$1.72 versus -$1.82).
  • You can view the full analysis from the report here: ARO Ratings Report

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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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