Ahead of the Bell: Aeropostale

AP News
Posted: Aug 17, 2012 7:29 AM
Ahead of the Bell: Aeropostale

NEW YORK (AP) — Teen retailer Aeropostale needs to have a deeper supply of fashion merchandise and keep a close eye on its pricing, an analyst said Friday.

Late Thursday the company provided a lackluster third-quarter forecast, saying back-to-school sales have been weak. Aeropostale Inc. also said its second-quarter net income declined as it faced tough competition and had to take steeper discounts on merchandise.

Adrienne Tennant of Janney Capital Markets said in a client note that the company needs to build up its inventory of fashion/fashion basic items, as these goods typically sell fast. The analyst said that right now the retailer's fashion/fashion basic merchandise makes up less than 20 percent of the space at its stores.

Stifel Nicolaus' Richard Jaffe agreed, saying that "it is vital that the company improves upon this and grows its fashion offering quickly, focusing on having the right offering, the right trends, in the right quantity and the right price."

He maintained a "Hold" rating.

Aeropostale also needs to watch how it is pricing merchandise, Tennant said, as shoppers at lower-end malls are sensitive to cost and less likely to pay more for fashion-oriented goods.

The analyst cut the company's price target to $15 from $18 but reaffirmed a "Buy" rating, saying downside is limited.