Aeropostale Rolls Out Global Shipping to Improve Sales & Margins
With the Aeropostale’s (NYSE:ARO) stock hitting a new 52-week low, the desperate teen apparel retailer has announced the launch of international shipping with partner FifyOne. [1] The move will allow international consumers in more than 90 countries to purchase directly from Aeropostale.com in their local currency. We believe that Aeropostale is targeting two objectives with this deal. First, the company is trying to diversify globally after a continuing to struggle this year in the domestic market. Second, and more importantly, Aeropostale is trying to improve its margins by increasing the share of Internet sales to its net sales. Aeropostale together with Abercombie & Fitch (NYSE:ANF) and American Eagle Outfitters (NYSE:AEO) form the triad of teen apparel retail.
See our complete analysis for Aeropostale stock here
US Sales Struggling
A lack of balance in the merchandise assortments for Q2 caused net sales to decline by 5%, with comp sales dropping by 14%. The situation was exacerbated by a dismal performance in the crucial back to school season. With the U.S. economy standing on the brink of yet another recession and the consumer spending expected to decrease, Aeropostale has been forced to look out for options internationally. The move to expand via e-commerce channel makes sense as it requires much lesser investments when compared to retail channel.
Internet Sales Will Boost Margins
Shrinking margins is the biggest source of concern plaguing Aeropostale at the moment. Gross margin declined by over 10% in Q2 due to rising production costs and an increase in promotions to attract customers. To address the falling margins, the company has now focused on Internet sales which carry higher margins than retail sales.
Aeropostale does have a decent Internet ambit, having a loyal Facebook fan base with over 5 million fans across the globe. We expect the margins to improve as the share of Internet sales to the overall sales increase.
We have revised our $18.75 price estimate for Aeropostale stock, which is nearly double the current market price. The decline in our price estimate primarily reflects a weak long-term growth outlook and sales adjustments after a disappointing back to school season.
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Notes:- Aeropostale goes international, Source: Aeropostale IR, September 21st [↩]