Sycamore Partners increasing stake in Aeropostale

AP News
Posted: Mar 13, 2014 5:47 PM

NEW YORK (AP) — Aeropostale Inc. said Thursday that it is giving private equity firm Sycamore Partners a larger stake in its business as it reported another weak quarter and gave a dismal forecast.

The New York-based teen retailer is trying to turn around its operations after waning popularity has hurt its sales and profitability.

Aeropostale had already posted four consecutive quarterly losses when reports began to circulate in January that it was looking at its strategic options, including going private. The company reported another loss Thursday as it announced that it is giving Sycamore a larger role in shaping its future.

The retailer has struck a deal in which the firm and its affiliates will provide $150 million in loans. In exchange, Sycamore Partners will receive convertible preferred stock that gives the firm the right to buy up to 5 percent of the company's stock.

If Sycamore takes advantage of this, it would raise the firm's stake in the company to roughly 12.3 percent of its outstanding shares, making it the company's second-largest shareholder, according to FactSet.

Aeropostale also said that a managing director at Sycamore Partners will join its board, and the firm will receive the right to appoint another director. Its board will expand to 12 members from 11. The retailer also signed an apparel sourcing agreement with an affiliate of Sycamore.

This comes as the company reported results that fell far short of market forecasts.

Aeropostale lost $70.3 million, or 90 cents per share, for the quarter ended Feb. 1, versus a loss of $671,000, or 1 cent per share, in the prior year. On an adjusted basis, it lost 35 cents per share versus a profit of 24 cents per share. Revenue fell 16 percent to $670 million from $797.7 million. The prior-year quarter had an extra week.

Analysts polled by FactSet were anticipating a loss of 31 cents per share on revenue of $685.2 million for the period.

Aeropostale's quarterly revenue from stores open at least a year fell 15 percent. This is considered a key indicator of financial performance as it strips away the impact of recently opened and closed sites.

The company is one of a number of retailers to report a tough holiday shopping season as shoppers kept their spending subdued and many resorted to extreme promotions to draw customers.

Aeropostale said that it expects a loss of 70 to 75 cents per share for its first quarter, which excludes some unusual costs. Analysts had forecast a loss of 17 cents per share.

Shares plunged 13 percent, or 92 cents, to $6.38 in after-hours trading following the announcements. Its shares added 5 cents to close regular trading Thursday at $7.30. The stock has lost about half its value in the past year.