Mea Culpa: Here’s One of My Worst Stock Calls, Aeropostale, Inc. (ARO)

Page 1 of 2

It’s really fun and satisfying to talk about investing successes. It’s much harder to talk about more unpleasant moments in making predictions and even putting real money behind the best stocks to buy. So in the spirit of discussing a real downer moment for me, I’m going to bring up beleaguered Aeropostale, Inc. (NYSE:ARO).

Mea culpa.

Aeropostale options active as shares gain on Abercrombie’s earnings beatAeropostale, Inc. (NYSE:ARO) falls flat
I recommended Aeropostale as a solid buy for investors many times in past years. In fact, it was my choice for our 11 O’Clock Stock series in 2010, during which many Foolish analysts purchased a huge array of stocks with real Fool money.

As of this writing, Aeropostale is one of the worst performers in the series, down 44%. Gulp. (See all the returns here.)

For years, Aeropostale did very well, and during the post-financial-crisis recession, it was one of the few retailers that admirably navigated the difficult retail environment. When I recommended it, I believed that its past performance was a good indicator of its ability to continue excelling. Even as the stock continued its downward trajectory, I didn’t fret; I suspected difficult comparisons to the previous good years could have been a major part of the problem.

Unfortunately, that’s where I was wrong. Aeropostale’s business really has gotten shabby over the course of the last two years. The retailer’s margins began to disintegrate as it indulged in higher levels of promotional activity, and as it faced its inability to adequately deal with a spike in the cost of cotton in 2011. Its profits began to plunge as its business execution faltered.

Despite the fact that cotton prices have improved, Aeropostale’s results have still suffered all throughout 2012, and the retailer looks no closer to a turnaround even now. Recently, Aeropostale lowered its outlook given disappointing sales and margins during the all-important holiday quarter.

Aeropostale’s holiday season ended up a disappointment, with teen customers choosing rivals like Abercrombie & Fitch Co. (NYSE:ANF) , which stooped low enough to get more promotional with its merchandise . Unfortunately, if a company like Abercrombie lowers its prices, hitting a lower-cost chain like Aeropostale makes less sense for discerning teen customers. Meanwhile, Aeropostale’s misses have allowed rivals to take away market share, possibly for good.

Given how difficult it is for retailers to executive turnarounds, I feel I have to issue a major mea culpa on Aeropostale.

Shopping for retail substitutes
At this point, I wouldn’t buy Aeropostale here, given the lack of any meaningful signs of a turnaround thus far. I wouldn’t necessarily sell it, either, but investors do need to weigh the fact that retail turnarounds are frankly difficult. They may have to wait a long time for business and share recovery, and there’s always the possibility that that may not happen, particularly given macroeconomic factors that remain shaky.

I won’t sugarcoat it. Aeropostale has morphed into a risky retail stock in recent years.

For investors who decide to sell and would like a substitute teen retail stock, consider The Buckle, Inc. (NYSE:BKE) . Although this mall-based teen retailer has recently suffered some negative sentiment on tough comparisons to its success during the recession, the truth is, its financial performance has been good for years. It’s held up far better than Aeropostale has.

In the 12 months ended January 2012, Buckle reported an 11.9% increase in sales to $1.1 billion and an 11.9% increase in net income, to $159 million, or $3.20 per share. Same-store sales also increased 8.4% for the year. Whatever negativity has surrounded Buckle in the last year, it doesn’t seem particularly founded given the difficult economic climate.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!