Suffering Major Losses, Aeropostale to Explore Strategic Alternatives, Including Sale

Suffering Major Losses, Aeropostale to Explore Strategic Alternatives, Including Sale
Image credit: Reuters | Rick Wilking

Teen apparel retailer Aeropostale Inc. said it was exploring strategic alternatives, including a sale, after posting its 13th straight quarterly loss.

The company's shares fell 52 percent in after-hours trade, after the retailer also said it would likely face liquidity constraints if it failed to resolve a supply dispute with a key vendor.

Aeropostale said the dispute with MGF Sourcing US was disrupting the supply of some merchandise.

While Aeropostale did not provide any details on the dispute with MGF, its Chief Executive, Julian Geiger, said the issue was hurting the company's "short-term visibility."

MGF is an affiliate of private-equity firm Sycamore Partners, which had thrown a lifeline of $150 million to the struggling apparel retailer in 2014 and previously owned an 8 percent stake.

"Sycamore is the obvious choice for a buyer," ITG analyst Jeff Toohig said.

"But given the loans outstanding and the potentially violated sourcing agreement ... one imagines Sycamore will be able to take control of ARO without paying much if anything before too long. That is, if they still want it."

MGF Sourcing said it was not in violation of its sourcing agreement with the company.

Aeropostale also reported a 16 percent drop in quarterly sales as it discounted heavily to attract shoppers and closed unprofitable stores.

The company will now focus on its lower-priced factory concept stores, Geiger said on a conference call where executives did not take questions from analysts.

Although Aeropostale's continues to struggle with falling sales, its rivals such as American Eagle Outfitters Inc. and Abercrombie & Fitch Co. have managed to turn around their businesses by controlling inventories and responding faster to changing fashion trends.

Aeropostale's inventory was down 8.1 percent in the fourth quarter ended Jan.30.

The company has retained Stifel and other advisers to assist in a review of alternatives.

(Reporting by Yashaswini Swamynathan in Bengaluru; additional reporting by Subrat Patnaik; Editing by Anil D'Silva)

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