Aéropostale Reports Dismal Q4; Arranges $150 Million Lifeline

In Industry News, Reports, What's New by Jeff PrineLeave a Comment

aeropostaleNew York—Aéropostale Inc. reported late Thursday its fifth straight quarterly loss as well as a 15% tumble in its comparable store sales. But help may be on the way for the troubled Millennial retailer.

The company also announced that Sycamore Partners, a private equity firm, will provide a $150 million loan to Aéropostale, in exchange for the right to acquire up to 5% of its shares at $7.25, the retailer’s shares closing price as of Wednesday. The loan will consist of a five-year $100 million term loan and a 10-year $50 million term loan, the company said. That would give Sycamore a 12.3% stake in the retailer, up from 7.96%.

Also as part of the deal, Stefan Kaluzny, a managing director at Sycamore, will be joining Aéropostale’s board of directors, and Sycamore will also have the right to appoint another director, too.

Cash Burn?

The deal couldn’t have come at a better time. For the quarter ended Feb. 1, Aéropostale posted a net loss of $70.3 million, or 90 cents a share, wider than a loss of $671,000, or 1 cent a share, a year earlier. Excluding store asset impairment charges, litigation settlement charges and other items, adjusted loss was 35 cents a share.

That’s worse than analysts’ estimate for a loss of 31 cents a share and worse than Aéropostale’s precious warning for a 24 cents to 32 cents a share loss.

Net sales fell 16% to $670 million, missing analysts’ estimate for $683.8 million in sales. Total comp store sales were down 15%.

CEO Thomas Johnson has embarked on a turnaround strategy that includes adding more fast fashion merchandise and closing 52 underperforming stores.

“We are moving aggressively and taking swift actions across all areas of our business that we expect will improve our operational and financial performance,” Johnson said, noting the new financing agreement “provides us with the flexibility to continue executing on our strategies designed to reposition the Aéropostale brand.”

For first quarter, Aéropostale forecast a loss between 70 cents to 75 cents, way higher than analysts’ previous estimate for a 17 cents a share loss.

Analysts pointed out the retailer is in danger of running out of cash in the first quarter though the Sycamore agreement may help. Kimberly Greenberger, analyst at Morgan Stanley, wrote in a note to clients that while the company ended quarter with $106 million in cash, Aéropostale’s accounts payable “ballooned,” driven by delayed rent payments. Greenberger estimates that Aéropostale’s cash burn will be $61 million in the first quarter, leaving the retailer with about $7 million.


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