The New York-based casual teenage apparel retailer announced late on Tuesday it has instituted an aggressive new cost reduction program that is targeting approximately $35 million to $40 million a year in savings, before taxes. The teen retailer also said in the statement that it plans to reduce its corporate headcount by 13%, or 100 positions.
In November, The Deal identified Aéropostale as one of the top 10 troubled retailers heading into the holidays, along with Gymboree, J. Crew Group, Pacific Sunwear of California (PSUN) , Claire's Stores, Toys 'R' Us, J.C. Penney (JCP) , Sears Holdings (SHLD) , Hhgregg (HGG) and Bebe Stores (BEBE) .
Aéropostale CEO Julian R. Geiger said in a statement on Tuesday that the cuts are a result of the company's goal to return to profitability. "We are building upon areas of progress and continue to work to improve our business," he said in the statement.
According to Howard Davidowitz, chairman of national retail consulting and investment banking firm Davidowitz & Associates Inc., Aéropostale "is on life support."
Davidowitz said that the retailer keeps closing stores and cutting costs and putting out an assortment of merchandise in the hopes of bringing in customers, but they need to turn around their sales to get back to profitability.
He said Aéropostale is shrinking the business and noted that management can only cut so much. Eventually, he noted, management will reach a point where there is nothing left to cut. Not helping matters is the fact that Aéropostale is in a "sick segment," as the junior apparel business overall is doing terribly. He said that Aéropostale is one of the weakest players in the segment.
According to Davidowitz, the company is currently restructuring outside of court but if management doesn't fix the sales situation, he sees Aéropostale headed for an in-court proceeding and a "tough road."
The company's stock, which trades on the New York Stock Exchange, closed up more than 2% Wednesday at 24.5 cents. Private equity firm Sycamore Partners LLC holds 7.81% of Aéropostale's common stock, according to data provider Bloomberg News.