Aéropostale to Get $150M in Financing From Sycamore Partners

The partnership includes a sourcing arrangement for the teen retailer through MGF Sourcing, Sycamore’s sourcing firm.

Aéropostale Inc. has a little more breathing room.

This story first appeared in the March 14, 2014 issue of WWD.  Subscribe Today.

The teen retailer said Thursday it inked an agreement with Sycamore Partners that includes a strategic partnership and $150 million in financing.


Under the terms of the commitment letter, the financing will consist of a five-year, $100 million term loan facility and a 10-year, $50 million term loan facility. Both are considered senior secured credit facilities.

In addition, Aéropostale will issue convertible preferred stock to Sycamore Partners. The convertible stock gives Sycamore the right to acquire up to 5 percent of the chain’s common stock at an exercise price of $7.25 a share, the closing price of Aéropostale’s stock on Wednesday. On a converted basis, including existing ownership of common shares, Sycamore would own a 12.3 percent stake in the retailer’s outstanding common shares.

The partnership includes a sourcing arrangement for Aéropostale through MGF Sourcing, Sycamore’s sourcing firm.

While the financing from Sycamore provides additional liquidity, the retailer still needs its business to pick up to avoid continued financial pressure and slow its cash burn rate.

Aéropostale on Thursday after the markets closed said it widened its fourth-quarter loss for the three months ended Feb. 1 to $70.3 million, or 90 cents a diluted share, from a loss of $671,000, or 1 cent, a year ago. Net sales fell 16 percent to $670 million from $797.7 million last year. Same-store sales fell 15 percent in the period.

For the year, the loss was $141.8 million, or $1.81 a diluted share, against net income of $34.9 million, or 43 cents, in 2012. Net sales fell 11.6 percent to $2.09 billion from $2.37 billion.

Thomas P. Johnson, Aéropostale’s chief executive officer, said in a conference call to Wall Street analysts that once the preferred stock is issued to Sycamore, the private equity firm will have the right to appoint two members to the retailer’s board, increasing that number to 12 members.

Johnson said the chain has been working to increase the fashion content of its overall assortment. He also spoke about the changing teen landscape: “We worked diligently to evolve our product…but what we did not foresee is how drastically consumer behavior would change throughout last year. Today, the consumer environment is changing at a rate we have not seen in our 12 years as a public company and it has negatively affected our rate of customer adoption.”

During the question-and-answer session, executives on the call said that the $150 million in financing will be used primarily for general working capital, and that in lowering its cash-burn rate, it was looking at the possibility of accelerated lease closings.

For first-quarter guidance, Marc D. Miller, chief financial officer, estimated the operating loss at between $64 million to $68 million, or a loss of 70 cents to 75 cents a diluted share.

Shares of Aéropostale closed up 0.7 percent to $7.30 in Thursday trading, but in early after-market action the retailer saw its shares fall 12.5 percent to $6.39.