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Aeropostale CEO Makes a Bold Buy of His Sinking Company’s Stock

Weak sales, weaker guidance, and a quarterly loss — those were the “highlights” of teen retailer Aeropostale’s (NYSE:ARO) news when it reported Q1 earnings last month. Today’s news, in contrast, is quite a bit happier.

On June 4, 2015, Aeropostale revealed in a Form 4 filing that over the last two days, CEO Julian Geiger has purchased a total of 250,000 shares of the company he runs. Beginning his buying on Wednesday at a share price of $1.85, Geiger continued buying all the way up through Thursday, at which point the stock had already risen 10%, to $2.04 per share. (It’s up again in after-hours trading, perhaps in response to the Form 4’s revelations).

At last report, Geiger now owns 281,129 shares of Aeropostale — about nine times what he owned before beginning his spending spree.

What does it mean to you?
Geiger couldn’t have picked a much better time to begin his buying, either. After all, the past five years have seen Aeropostale lose 93% of their value, and the shares are down by nearly half over the past year. Much lower than this, and the stock market would be giving them away for free.

And yet, at the same time as we notice this, we can’t help also noticing that despite a share price rapidly approaching “free,” many investors remain decidedly negative on the stock. 25.7% of Aeropostale’s float is sold short. But why?

Well for one thing, sales declined 20% in the most recent quarter, and profits, as already mentioned, were nowhere to be found. Aeropostale is also carrying a sizeable slug of debt — $141 million, against just $76 million in cash. And while Aeropostale has not yet released a cash flow statement for its most recent quarter, all indications are that it will remain firmly free cash flow-negative, which will do nothing good for its debt situation.

Long story short, Geiger’s insider purchase of Aeropostale shares at today’s low price could prove prescient if he manages to turn around the ship. Alternatively, if Aeropostale keeps on its present course, it could go bust — and its CEO with it.


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