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Topic: Growth Stocks

AEROPOSTALE INC. $21.81 – New York symbol ARO

AEROPOSTALE INC. $21.81 (New York symbol ARO; TSINetwork Rating: Extra Risk) (646-485-5410; www.aeropostale.com; Shares outstanding: 81.0 million; Market cap: $1.8 billion; No dividends paid) is a mall-based retailer of casual clothing and accessories. It now has 983 stores, and mainly targets 14- to 17-year-old women and men. Its active-oriented clothing has a reputation for high quality and low prices.

Aeropostale also has 71 P.S. from Aeropostale stores, which are aimed at seven- to 12-year-old elementary school students.

In the three months ended January 28, 2012, Aeropostale’s sales fell 3.7% to $808.4 million from $839.3 million a year earlier. Same-store sales declined 9%. Sales from the company’s e-commerce business rose 8%, to $83.2 million from $77.3 million. Earnings dropped 57.6%, to $16.4 million, or $0.44 a share, from $45.4 million, or $0.95 a share.

The company’s clothing costs continued to rise in the latest quarter, but these increases are slowing due to a drop in the price of cotton. Aeropostale also had to offer significant discounts to clear out old inventory. That hurt its profit margins.

Aeropostale operates in a highly competitive market. That means it has to constantly refresh its clothing lines with popular new colours and styles.

However, its online sales are growing rapidly as its customers do more of their shopping on the Internet instead of in malls. In addition, its P.S. from Aeropostale stores continue to perform well. Over the longer term, the company could grow internationally, especially in Asia and Latin America.

Aeropostale is a buy.

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