We expect teen apparel retailer, Aeropostale, Inc. (ARO) to beat expectations when it reports second-quarter fiscal 2014 results on Aug 21. In the last quarter, it posted a positive surprise of 27.8%.
Why a Likely Positive Surprise?
Our proven model shows that Aeropostale is likely to beat estimate this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 or 2 or 3 for this to happen. Aeropostale has the right combination of two key components.
Zacks ESP: Aeropostale currently has an Earnings ESP of +17.86%. This is because the Most Accurate estimate stands at a loss of 46 cents, while the Zacks Consensus Estimate is pegged at a loss of 56 cents.
Zacks Rank: The company carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Ranks of #1, 2 and 3 have a significantly higher chance of beating estimates. The Sell-rated stocks (Rank #4 and 5) should never be considered going into an earnings announcement.
What is Driving Better-than-Expected Results?
Recently, Aeropostale updated its operating loss guidance for the quarter. The company now envisions operating loss to range from 42–45 cents per share, compared with 55–61 cents projected earlier. This excludes various one-time charges and any impact of the company’s deal with Sycamore Partners and its affiliates. In addition, management provided sales data for the quarter. Net sales declined 13% to $396.2 million during the quarter with comparable store sales (comps), including e-commerce sales, plunging 13% year over year. Also, the company announced the return of Julian R. Geiger in the company as the Chief Executive Officer (CEO). Alongside, he will continue serving as one of the directors on the board.
Management is looking forward to welcome Geiger, as he proved to be an able leader in his previous tenure. With his knowledge of fashion and understanding of mechanisms in the retail market, he hopes to drive the company’s growth by improving its sales network and profitability.
Going forward, the company plans to remain focused on undertaking initiatives to transform and grow its brand. With sustained implementation of operational, marketing and merchandising strategies, coupled with its cost-curtailment program, Aeropostale is likely to continue to improve in the long term.
Stocks that warrant a Look
Here are some other companies you may want to consider as our model shows these to have the right combination of elements to post an earnings beat:
Abercrombie & Fitch Co. (ANF) has an Earnings ESP of +10.00% and a Zacks Rank #2 (Buy).
Zoe's Kitchen, Inc. (ZOES) has an Earnings ESP of +50.00% and a Zacks Rank #2.
Dollar Tree, Inc. (DLTR) has an Earnings ESP of +7.69% and a Zacks Rank #3.
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