Aeropostale's tough measures to save 35 million a year

ANALYSIS_ Aeropostale is taking its turnaround plans quite serious, tackling on drastic costs reduction measures to achieve its business goals. In this vein, the teen apparel retailer will close all mall locations of its P.S. from Aeropostale chain.

"The steps we are announcing today build on our turnaround efforts from the past year," said Thomas P. Johnson, Chief Executive Officer of Aeropostale, Inc. "Through the restructuring of our P.S. from Aeropostale brand, and expansion of our expense savings program, we will be better positioned financially and have laid the groundwork for the future. In addition to today's steps, our transaction with Sycamore Partners continues to proceed as planned, and will also provide additional runway to continue to implement our merchandising, marketing, and operational strategies designed to reposition the Aeropostale brand."

The company has recently announced its plans to shut all 125 stores by the end of the year. However, the group's children's brand will be stocked in outlet locations, online and some Aeropostale stores.

A spokesperson for the ailing retailer explained that this decision is the result of changing consumer patterns and that mall-based P.S. stores lost a total 15 million dollars in 2013.

Sales at Aeropostale in fiscal year 2013 fell 12 percent to 2.1 billion dollars, having lost 141.8 million dollars for the period.

Less P.S. stores and reduced staff, tough measures for Aeropostale's recovery

But the reduction of P.S. footprint is not the only tough measure that Aeropostale has undertaken in the last days. The apparel group is reducing its staff, planning to eliminate 100 corporate positions, to be added to those jobs to be lost in the store closures.

According to the company, together, the job cuts and P.S. closings will save 30 million to 35 million dollars a year.

Analysing the measures, Zacks Equity Research highlighted that “Management hinted that the initiatives announced would help in generating annualised pre-tax savings of approximately 30 million to 35 million dollars, of which approximately 5 million to 10 million dollars is expected to be attained in fiscal 2014. Aeropostale also reiterated its first-quarter fiscal 2014 operating losses between 64 million to 68 million dollars, resulting in net loss of 70 cents to 75 cents a share.”

Aeropostale, which holds a Zacks Rank #4 (Sell), operates 854 Aeropostale outlets in 50 states and Puerto Rico, 77 Aeropostale stores in Canada and 150 P.S. from Aeropostale stores in 31 states and Puerto Rico.

The company estimates that it will record pre-tax restructuring, asset impairment, and other charges of approximately 40 million to 65 million dollars during fiscal 2014 related to these actions, of which approximately 25 million to 40 million dollars are estimated to be cash expenses.

Angela González Rodríguez