Editor's pick: This article was originally published March 18.Once-hot teen apparel chain Aeropostale ( ARO) , which said Thursday it was exploring a potential sale of the company, has just about given up on being the cool place to shop.
With its financials in shambles because of a series of fashion missteps and heightened competition, Aeropostale has started to re-brand some of its mall stores into what it calls "Aeropostale Factory." According to the company, about 60% of its stores -- or roughly 486 -- tend to attract customers looking for basic, affordable items such a hoodies and t-shirts with the Aeropostale logo. The stores, said Aeropostale, are located primarily in select B and C-rated malls across the U.S.
The product assortment within the new factory stores will have less fashion pieces in order to reduce the risk of damaging markdowns. Instead, the products will be of the more basic, affordable variety that target the masses that frequent outlet stores. Aeropostale expects to have the new assortment in most of its factory stores by back-to-school season. A factory tab on the company's Web site also will be introduced.
"While it is still early, we have seen a significant change in our overall sales trends, since implementing the factory strategy across the store group as well as introducing new spring merchandise in old stores -- factory comparable sales and gross margin dollars have increased by a low double-digit percentage since its introduction at the end of February," said Aeropostale CEO Julian Geiger on a call with analysts Thursday evening,
As for the other 40% of Aeropostale's store base, don't expect any big fashion risks as the retailer seeks to preserve its dwindling cash pile.
Geiger said the merchandise assortment in those stores will focus on "updated classics with a twist" and a reduced assortment of logo merchandise.
The major shift in strategy comes as Aeropostale tries to stay alive following another lackluster holiday season.
Shares of Aeropostale plunged about 55% in after-hours trading Thursday as the company posted a fourth-quarter loss of 14 cents a share, excluding one-time items. Same-store sales declined 6.7%. For the year, Aeropostale incurred a whopping $124.5 million loss excluding one-time items, wider than the $112 million loss from the prior year. Aeropostale's cash pile dropped dangerously low, falling 57% year over year to $65 million.
The company disclosed that its board approved the exploration of strategic and financial alternatives, including a potential sale or restructuring. It has retained Stifel and other advisers to assist in the review.