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Aeropostale Inc Analysis

Aeropostale Inc Analysis



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Published by mclennan68_13

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Published by: mclennan68_13 on Jan 25, 2012
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Matt's Fundamental Stock Analysis 
Content Disclaimer: I am only a retail investor and I onlyintend these reports to be used as a guidance. Irecommend you do your own research as this will betterhelp you to understand how companies work and operateand what drives their growth. What stocks you decide topurchase, should be chosen by you and this report ismade only to display companies which I think areworthwhile to look at and discuss. Just because it is agood company or I like the company does not mean thatit will do good in the future.If you want to copy or replace my report, please do sowith a link connecting to my blog.
Aeropostale Inc. (ARO)
Company BusinessAeropostale is a retail mall based casual clothing store which targets teenagers (14 - 17 years old)through its Aeropostale stores and targets 7 to 12 year olds through its P.S. from Aeropostale stores.Clothes can be purchased from inside the respective stores or online through their website. Theycurrently have 918 Aeropostale stores in 50 states and Puerto Rico, 68 Aeropostale stores in Canada,and 72 P.S. from Aeropostale stores in 21 states. Also, after they signed their first Licensing Agreement,one of its international licensees operated 11 Aeropostale stores in the United Arab Emirates as of October 29,2011. They have announced that they have signed a second licensing agreement in March2011 and is expected to open approximately 25 stores in Singapore, Malaysia, and Indonesia over thenext 5 years. The third license agreement was signed on November 15, 2011, which is expected to openapproximately 30 stores in Turkey over the next 5 years. Aeropostale does not assumes inventory riskon the merchandise sold in their licensee's stores and do not own/lease the real estate where the storesoperate.
Their competitive advantage comes from having lower prices and offering longer promotionsthan their competitors.
 Additional Notes:
Aeropostale P.S. was launched in June 2009 and may provide future growth.
Their 2012 Strategic Initiatives include investing in future growth with e-commerce,international, and P.S. from Aeropostale
Middle East - 3 new stores in 2011 / total of 12 stores including P.S.
Singapore - 2 new stores in 2011
Total International - 14 stores in 2011
Next Countries - Turkey in Summer 2012
P.S. partnered with Marvel in Q3 and showed strong holiday results
Did not repurchase shares of their common stock during Q3, 2011 but have been repurchasingshares over the years
Highly seasonal business with high demand in back to school and Christmas shopping (secondpart of the year)
Has not paid a dividend for the last 3 fiscal years and does not plan on paying a dividend
Strategies in place to mitigate the rising cost of raw materialsPotential Risks
Aeropostale has been experiencing declining demand for its women's fashion design
The company has been having an increasing inventory amount (may be due to an increase in theamount of stores they are creating) and higher clothing discounts that is putting pressure on itsprofit margins
Massive amount of operating leases are expected from 2012 to 2016 (off-balance sheetfinancing)
Have currency foreign risks and they do not hedge currency risks
Gains/Losses from currency have not been significant to date, also hedging currencyrisks does not always work (almost all international companies are exposed to currencyrisk)
Increased competition in the pre-teen and teenager focused clothing store where morecompanies are following Aeropostale's promotional based business model
Business is highly sensitive to consumer spending patterns and how the economy is performingHistorical Ratio Analysis**
If the value is green than the number is believed to be better than the previous number, vice versa if the value isred
The big difference between the current and quick ratio shows that Aeropostale's inventories take up alarge portion of its current assets. With no long term and short debt, the companies ratios thus far lookto be very good.
Profitability Ratios
ROE43.1%24.5%29.2% 35.3%29.5%34.2% 65.5%42.1%52.8% 53.5%
ROA9.3%14.0% 17.7% 20.7%16.7%18.4% 25.1%22.7%29.0% 29.9% ROIC33.2%31.6%37.5% 44.0%35.9%39.8% 65.5%51.5%69.5%69.4% CROIC-7.3%13.8% 28.7% 29.2%22.8%31.8%28.0% 24.7%51.0%29.2%
Solvency Ratios
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Quick Ratio
0.231.69 2.102.04 1.96 1.80 0.751.52 1.641.45
Current Ratio
1.172.50 2.972.88 2.69 2.42 1.442.252.19 2.17
Total Debt/Equity Ratio
3.610.74 0.650.70 0.77 0.86 1.610.85 0.82 0.79
Long Term Debt/Equity Ratio
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Short Term Debt/Equity Ratio
1.340.000.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Efficiency Ratios
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Asset Turnover
2.522.47 2.39 2.382.39 2.43 3.092.87 2.813.10
Cash % of Revenue
2.1%15.9% 18.8%11.0%17.0%14.2% 7.0%12.1% 15.6%11.1%
Receivables % of Revenue
0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
SG&A % of Revenue
21.9%20.1% 19.3% 19.1% 18.9%20.5% 21.7%21.5% 20.8% 20.8%
R&D % of Revenue
0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

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