Aeropostale Inc. (ARO:US), a retail chain that sells teen and children’s apparel, tumbled 20 percent after mounting losses and a $150 million loan raised concerns that the company is running out of cash.
The first-quarter loss will be 70 cents to 75 cents a share, New York-based Aeropostale said yesterday in a statement. Analysts had projected a loss of 17 cents on average, according to data compiled by Bloomberg. The company also said it has entered a strategic partnership with Sycamore Partners, which will provide the $150 million loan.
Aeropostale Chief Executive Officer Tom Johnson is trying to turn around the retailer by adding updated fashions and closing 52 underperforming stores this year. The company has lost money for five straight quarters. Meanwhile, Crescendo Partners has been pressing Aeropostale management, sending a letter in November demanding that it find a buyer.
“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 in the statement. The financing agreement “provides us with the flexibility to continue executing on our strategies designed to reposition the Aeropostale brand.”
Aeropostale shares (ARO:US) fell to $5.83 at the close of trading in New York, the biggest one-day decline since August. The stock has dropped 36 percent this year, compared with a decline of less than 1 percent for the Standard & Poor’s 500 Index.
The retailer may run out of cash at the end of the first quarter, earlier than previously expected, Kimberly Greenberger, a New York-based analyst at Morgan Stanley, wrote in a note to clients yesterday. While the company ended the fourth quarter with $106 million in cash, Aeropostale’s accounts payable “ballooned,” driven by delayed rent payments. Greenberger estimates that Aeropostale’s cash burn will be $61 million in the first quarter, leaving the retailer with about $7 million to end the period.
Aeropostale’s adjusted loss per share was 35 cents last quarter, wider than the loss of 31 cents estimated by analysts. Sales at stores open at least a year, including online sales, fell 15 percent in the period, which ended Feb. 1. That was worse than the 14 percent analysts had projected.
As part of the financing pact, Stefan Kaluzny, a managing director at Sycamore, will join Aeropostale’s board. Sycamore can name an additional director, and a third independent appointee will be agreed upon by the firm and the retailer, expanding Aeropostale’s board to 12 members.
The financing agreement also includes a strategic partnership with MGF Sourcing, an affiliate of Sycamore, that will diversify Aeropostale’s clothing production. The company will issue convertible preferred stock to Sycamore, giving it the right to buy as much as 5 percent of Aeropostale common stock at $7.25 a share, the closing price on March 12. Sycamore’s stake, with all shares converted, would rise to about 12.3 percent, Aeropostale said in the statement.
Sycamore owns a 7.96 percent stake in Aeropostale, the company said in a filing.
Sycamore’s financing gives Aeropostale more time to execute a turnaround, Simeon Siegel, a New York-based analyst at Nomura Securities, said in a phone interview.
“Right now, they’re basically getting a lift from big brother,” said Siegel, who has the equivalent of a hold rating on the shares. “At the end of the day, retailers need to sell product and they need to be selling it at a reasonable margin.”
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