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For you purists..this is a retread write up, but I liked the stock then and I like it again now:
Your teenage daughter opens up the doors to her cavernous closet and peers inside With a look of fear she slams the doors shut and screams. No…this isn’t another teen horror movie. She absolutely has nothing to wear. She’ll be so mortified at school today. You tell her, “What are you kidding, look at all these clothes.” She turns up her nose and says, “Geeeeeeeez THOSE clothes….those are so 5 minutes ago!! I need new stuff.” Now it’s your turn to see your college tuition savings fritter away. However there is a solution. You schlep out to the mall with your happy teen queen.
Lower-priced apparel retailer Aeropostale (ARO) has come to the rescue. Today I bought ARO at 33.26. I will sell it in 4 to 6 weeks at 38.38. Here’s why I like ARO:
ARO’s stock is up 166% over its 52 week low which occurred back in December 2008, so this is a pretty hefty gain in only 5 months. While the rest of the stock market is still trying to decide if there is a recession, ARO is going up like a, well, arrow. That’s price momentum for you and we’re not even talking about some bio-tech gene that’s going to make us more virile. We’re talking about just another retail store. Yea….a retail store with pheeeenomenal growth prospects.
It's grown seven of the last eight fiscal years at a 25% pace or better. Before the latest quarter, its worst in the past eight quarters was a 17% gain from the year-ago period. Aeropostale runs 874 stores in 48 states and Puerto Rico, plus 29 stores in Canada.
ANAL-ysts attribute its success to its ability to stay on-trend and sell its fashions at good value. It typically sells at lower prices than its main rivals and offers year-round promotions.
For FY 2010, ANAL-ysts are forecasting earnings of $2.59 a share, essentially flat with 2009. I will discuss these ANAL-ysts later. In 2011, they expect $2.74, a mere 6% increase. Return on equity in the latest year was a healthy 54%. See where I’m going here???
Aeropostale uses a value-pricing approach. Its goods generally are priced lower than its main rivals. It offers promotions throughout the year.
ARO is a mall-based specialty retailer of casual apparel and accessories that targets both young women and young men aged 11 to 20. The Company provides its customers with a focused selection of active-oriented, fashion basic merchandise. The great thing about this market segment is that the kids make the choices but the parents whip out their credit card. There is lots of purchasing power here.
With cash-drained consumers hungry for bargains, that strategy helped keep Aeropostale's business smoking through the recession. Sales have grown at double-digit rates for 12 of the past 13 quarters.
Aeropostale plans to open the first P.S. from Aeropostale store in June in the New York metro area with an online launch soon after. This is going to be a little kids’ version of Aeropostale. So prê-teen queen can get into daddy’s wallet even sooner now.
Aeropostale sells and designs its own brand of clothes and accessories aimed at youths ages 14 to 17 so its move to open a children's store brand makes sense since the kids’ retail market is less saturated with direct competition than the teen space.
The new concept would be a key expansion vehicle for Aeropostale going forward. P.S. from Aeropostale could eventually have 400 to 500 stores.
Meanwhile, Aeropostale has been faring well on the financial front.
Most recently, in February, Aeropostale's same-store sales climbed 11%. The teen apparel sector's same-store sales sank 6.2%. Fourth-quarter earnings rose 9% to $1.01 a share, 1 cent ahead of views. Sales climbed 17% to $690 million. Same-store sales rose 6% vs. a year ago.
So what has helped drive Aeropostale's sales?
When times were tough , ARO’s numbers held up better than those at higher-end teen clothier Abercrombie & Fitch (ANF ), where the figures fell significantly below consensus expectations. The first Aeropostale store was opened in 1987 so this guy has been around the block for a while now and it is still cool to be seen in Aeropostales.
Since ARO has its own brand of clothes, it can follow what the trendy Abercrombie stores are doing and let them waste all the money with marketing and research. ARO then simply mimics their styles at lower prices. At the end of the day, what they are selling is T-shirts, flip flops, shorts and polos…pretty basic stuff.
The stores play popular music so that the teenage girls enjoy hanging out there. Then the moms hang out there because they want to be cool like their kids.
ARO is well positioned to sustain strong back-to-school sales momentum from a favorable response to its fall products, and its ability to chase sales. ARO is cheaper but the kids still like their stuff. Its lower price points and promotional brands mitigate any downside risk in a difficult retail environment. But now things are getting better. Yes…read the lips of $$$MR. MARKET$$$...this recession is in the rear view mirror. Good bye and good riddance! You read it here first.
Earnings for 1Q were not bad at all…. and the big guns, back to school 3Q and Xmas 4 Q are coming up. Remember there is a lot of pent up demand from people who were being frugal when they were afraid they were going to lose their jobs. I look for some big big BIG numbers from ARO this year.
ANALysts say ARO will make $0.48 this quarter (reporting May 21, 2009). They are smoking crack. With revenues in excess of 400 million, they will easily make $0.60 this Christmas will be out of this world. Remember, last winter was the coal in the stocking Christmas. Their year over year numbers will be HUGE!
My bet is they’ll hit $3.18 in FY 2010 and, at today’s PE of 15, would translate into a stock price of 47.70 which is already well ahead of my target. But look at the stinking PE will you? This is a trendy retailer…its PE should be in the high 20’s. This stock is a steal right here. All of the stars are aligned for the cylinders to be pumping. Overall economy is better, same store sales are growing enormously and they are adding new stores and a new brand – which WILL succeed by the way.
With a return on equity of 54%, it’s no secret that the kids are shopping at ARO and ruining their parents vacation fund. Since ARO is only in the early stages of their renaissance growth, new growth will come more efficiently and a great deal of their fixed costs will be amortized over bigger sales volumes. Furthermore, as ARO grows, they will have more leverage over suppliers that will lower their variable cost structure as well. What’s really exciting is that the growth is accelerating….and they don’t carry any debt…zero…zip…nada. The balance sheet is squeaky clean. Zero debt. None..zip..nada. Return on assets is 27% indicating that they do a good job picking their sites and managing inventory.
So much for what $$$MR. MARKET$$$ thinks…here is what ARO’s big kahuna, Julian R. Geiger, said, "We are extremely pleased with our record fourth quarter performance and our strong finish to fiscal 2008. The ongoing strength of our merchandise assortment, coupled with our powerful promotions, led to another record quarter and another record year. Throughout the year we have maintained strong brand momentum and we have executed consistently on our strategies to meet our corporate goals."
The Big Dr. J. used to be CEO of Federated Specialty Stores. That means as ARO grows, he will be more suited to manage the operation and more efficiencies should be expected.
Ask your babysitter if Aeropostale makes cool stuff and see what she says. They make stuff for skinny kids, so I can’t try it on myself. Oh by the way, they just opened their first store outside of North America.
Let me know if you liked this write up. If you go ahead and buy this stock and make some money on it, please remember the Little Tigers. www.golittletigers.com
I am HUGE!
$$$MR. MARKET$$$
www.mrmarketishuge.com
Your teenage daughter opens up the doors to her cavernous closet and peers inside With a look of fear she slams the doors shut and screams. No…this isn’t another teen horror movie. She absolutely has nothing to wear. She’ll be so mortified at school today. You tell her, “What are you kidding, look at all these clothes.” She turns up her nose and says, “Geeeeeeeez THOSE clothes….those are so 5 minutes ago!! I need new stuff.” Now it’s your turn to see your college tuition savings fritter away. However there is a solution. You schlep out to the mall with your happy teen queen.
Lower-priced apparel retailer Aeropostale (ARO) has come to the rescue. Today I bought ARO at 33.26. I will sell it in 4 to 6 weeks at 38.38. Here’s why I like ARO:
ARO’s stock is up 166% over its 52 week low which occurred back in December 2008, so this is a pretty hefty gain in only 5 months. While the rest of the stock market is still trying to decide if there is a recession, ARO is going up like a, well, arrow. That’s price momentum for you and we’re not even talking about some bio-tech gene that’s going to make us more virile. We’re talking about just another retail store. Yea….a retail store with pheeeenomenal growth prospects.
It's grown seven of the last eight fiscal years at a 25% pace or better. Before the latest quarter, its worst in the past eight quarters was a 17% gain from the year-ago period. Aeropostale runs 874 stores in 48 states and Puerto Rico, plus 29 stores in Canada.
ANAL-ysts attribute its success to its ability to stay on-trend and sell its fashions at good value. It typically sells at lower prices than its main rivals and offers year-round promotions.
For FY 2010, ANAL-ysts are forecasting earnings of $2.59 a share, essentially flat with 2009. I will discuss these ANAL-ysts later. In 2011, they expect $2.74, a mere 6% increase. Return on equity in the latest year was a healthy 54%. See where I’m going here???
Aeropostale uses a value-pricing approach. Its goods generally are priced lower than its main rivals. It offers promotions throughout the year.
ARO is a mall-based specialty retailer of casual apparel and accessories that targets both young women and young men aged 11 to 20. The Company provides its customers with a focused selection of active-oriented, fashion basic merchandise. The great thing about this market segment is that the kids make the choices but the parents whip out their credit card. There is lots of purchasing power here.
With cash-drained consumers hungry for bargains, that strategy helped keep Aeropostale's business smoking through the recession. Sales have grown at double-digit rates for 12 of the past 13 quarters.
Aeropostale plans to open the first P.S. from Aeropostale store in June in the New York metro area with an online launch soon after. This is going to be a little kids’ version of Aeropostale. So prê-teen queen can get into daddy’s wallet even sooner now.
Aeropostale sells and designs its own brand of clothes and accessories aimed at youths ages 14 to 17 so its move to open a children's store brand makes sense since the kids’ retail market is less saturated with direct competition than the teen space.
The new concept would be a key expansion vehicle for Aeropostale going forward. P.S. from Aeropostale could eventually have 400 to 500 stores.
Meanwhile, Aeropostale has been faring well on the financial front.
Most recently, in February, Aeropostale's same-store sales climbed 11%. The teen apparel sector's same-store sales sank 6.2%. Fourth-quarter earnings rose 9% to $1.01 a share, 1 cent ahead of views. Sales climbed 17% to $690 million. Same-store sales rose 6% vs. a year ago.
So what has helped drive Aeropostale's sales?
When times were tough , ARO’s numbers held up better than those at higher-end teen clothier Abercrombie & Fitch (ANF ), where the figures fell significantly below consensus expectations. The first Aeropostale store was opened in 1987 so this guy has been around the block for a while now and it is still cool to be seen in Aeropostales.
Since ARO has its own brand of clothes, it can follow what the trendy Abercrombie stores are doing and let them waste all the money with marketing and research. ARO then simply mimics their styles at lower prices. At the end of the day, what they are selling is T-shirts, flip flops, shorts and polos…pretty basic stuff.
The stores play popular music so that the teenage girls enjoy hanging out there. Then the moms hang out there because they want to be cool like their kids.
ARO is well positioned to sustain strong back-to-school sales momentum from a favorable response to its fall products, and its ability to chase sales. ARO is cheaper but the kids still like their stuff. Its lower price points and promotional brands mitigate any downside risk in a difficult retail environment. But now things are getting better. Yes…read the lips of $$$MR. MARKET$$$...this recession is in the rear view mirror. Good bye and good riddance! You read it here first.
Earnings for 1Q were not bad at all…. and the big guns, back to school 3Q and Xmas 4 Q are coming up. Remember there is a lot of pent up demand from people who were being frugal when they were afraid they were going to lose their jobs. I look for some big big BIG numbers from ARO this year.
ANALysts say ARO will make $0.48 this quarter (reporting May 21, 2009). They are smoking crack. With revenues in excess of 400 million, they will easily make $0.60 this Christmas will be out of this world. Remember, last winter was the coal in the stocking Christmas. Their year over year numbers will be HUGE!
My bet is they’ll hit $3.18 in FY 2010 and, at today’s PE of 15, would translate into a stock price of 47.70 which is already well ahead of my target. But look at the stinking PE will you? This is a trendy retailer…its PE should be in the high 20’s. This stock is a steal right here. All of the stars are aligned for the cylinders to be pumping. Overall economy is better, same store sales are growing enormously and they are adding new stores and a new brand – which WILL succeed by the way.
With a return on equity of 54%, it’s no secret that the kids are shopping at ARO and ruining their parents vacation fund. Since ARO is only in the early stages of their renaissance growth, new growth will come more efficiently and a great deal of their fixed costs will be amortized over bigger sales volumes. Furthermore, as ARO grows, they will have more leverage over suppliers that will lower their variable cost structure as well. What’s really exciting is that the growth is accelerating….and they don’t carry any debt…zero…zip…nada. The balance sheet is squeaky clean. Zero debt. None..zip..nada. Return on assets is 27% indicating that they do a good job picking their sites and managing inventory.
So much for what $$$MR. MARKET$$$ thinks…here is what ARO’s big kahuna, Julian R. Geiger, said, "We are extremely pleased with our record fourth quarter performance and our strong finish to fiscal 2008. The ongoing strength of our merchandise assortment, coupled with our powerful promotions, led to another record quarter and another record year. Throughout the year we have maintained strong brand momentum and we have executed consistently on our strategies to meet our corporate goals."
The Big Dr. J. used to be CEO of Federated Specialty Stores. That means as ARO grows, he will be more suited to manage the operation and more efficiencies should be expected.
Ask your babysitter if Aeropostale makes cool stuff and see what she says. They make stuff for skinny kids, so I can’t try it on myself. Oh by the way, they just opened their first store outside of North America.
Let me know if you liked this write up. If you go ahead and buy this stock and make some money on it, please remember the Little Tigers. www.golittletigers.com
I am HUGE!
$$$MR. MARKET$$$
www.mrmarketishuge.com
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