Can Julian Geiger Pick Up the Crumbs at Aeropostale?
Shares of the teen retailer were surging on Tuesday by 21% to $3.91 following its decision to bring back Geiger to replace Thomas Johnson as CEO as well as its disclosure that second-quarter losses would be narrower than expected. But the retail industry overall has rapidly changed in the past few years, particularly so for the mall-based teen sector, leaving a tall order for Geiger to get the company up to speed.
"While Geiger's knowledge of Aero is unmatched, we expected a CEO replacement to provide a fresh look at the business given the changing teen landscape," Bank of America Merrill Lynch analyst Lorraine Hutchinson wrote in a research note. Hutchinson maintained her "underperform" rating for the stock.
Read More: Aeropostale Struggling to Show it Can Still Be Cool Like Forever 21, H&M
Geiger was CEO of Aeropostale from 1996-2010 and chairman from 1998-2012, where he led the company through a successful run as teens flocked to malls in search of logo-specific and homogenous clothing. Geiger left Aeropostale to run Crumbs Bake Shop from late 2011 to December 2013. But last month Crumbs closed all of its stores and is in the process of Chapter 11 bankruptcy.
Despite Aeropostale's effort to reinvent itself by offering a wider assortment of fashion brands and new categories like footwear, a rebranding effort under the Aero Now campaign , and the consideration of closing up to 16% of its store base, reinstating a CEO that just came off of a failed business seems questionable.
"While we expect ARO to rise today on the return of Mr. Geiger, who effectively and impressively led Aero in its heyday from 1996 to 2010, we believe the near-term problems in the name remain deeper than a CEO change, and, despite our reduced losses, we believe the company remains somewhat of a 'show me' stock until some path to profitability can be ascertained," Wunderlich Securities analyst Eric Beder wrote in a note to clients. Beder rated the company at "hold."
Times have changed. Teens are no longer heading to the malls, increasingly making purchases online. They also prefer stores like Forever 21 and H&M that sell more fashion-forward merchandise at cheap prices over Abercrombie & Fitch
"Teenagers want to look different now instead of looking the same," Jharonne Martis, director of consumer research at Thomson Reuters , told TheStreet last month. "Now the idea is to try and look as different as possible. Because of that Abercrombie, American Eagle and Aeropostale, which used to be the traditional winners, are losing market share ."