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Why Aeropostale (ARO) Is Up Today

Tickers in this article: ARO
Update (4:07 p.m. EST): Updated with closing price, day high and low prices, year high and low prices, price change and volume information.

NEW YORK (TheStreet) -- Aeropostale Inc.   climbed 0.65% to $7.78, just 5 cents more than its previous close of $7.73, at the close of the trading day on Wednesday after a report that the company had contacted at least two private investors.

The stock had a volume of 5,825,768, nearly twice its average of 2,938,670. It hit a high of $8.21 and a low of $7.70 for the day. The stock has a one-year low of $7.62 and a one-year high of $17.10. It had risen 4.66% to $8.09 just after the market opened on Wednesday morning.

Bloomberg reports that the teen-clothing retailer, which has faced pressure from activist investor Crescendo Partners, has reached out to at least two private-equity firms as the company's management continues to explore strategic options for its future. The report notes that Aeropostale is not yet in negotiations to sell itself. Aeropostale has also contacted investment banks about how to handle the Crescendo Partners pressure or to run a sale process, according to Bloomberg.

Crescendo sent a letter to Aeropostale in November to insist that it sell itself to another clothing retailer or be taken private. Crescendo said in the letter that the stock could be worth $14 to $16 a share. Aeropostale has lost money for four straight quarters and seen its shares slide 37% over the last 12 months. 

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 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 355.8% in earnings (-$1.10 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.
  • You can view the full analysis from the report here: ARO Ratings Report