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Promotions Depress Aeropostale Earnings

NEW YORK — Increased promotional pressures erased a sales gain at Aeropostale Inc. and led to an 8.3 percent decrease in third-quarter profits.<br><br>The New York-based specialty retailer, which sells casual apparel and accessories to young...

NEW YORK — Increased promotional pressures erased a sales gain at Aeropostale Inc. and led to an 8.3 percent decrease in third-quarter profits.

The New York-based specialty retailer, which sells casual apparel and accessories to young adults, said for the three months ended Nov. 2, its income dropped to $15 million, or 39 cents a share, at the upper end of its revised guidance. Income in the year-ago quarter was $16.4 million, or 45 cents, including income of $1.6 million related to an accounting change for negative goodwill. Excluding the gain, earnings were 40 cents.

Sales surged 34.3 percent to $169.2 million from $126 million, including results from 88 new stores, and comparable-store sales rose 5 percent. Gross margins skidded down 870 basis points due to the increased promotional activity.

Saying the quarter ended better than it could have because of an October sales rebound, Julian R. Geiger, chairman and chief executive, said on an afternoon conference call that Aeropostale’s nimbleness and sensitivity to the needs of its customers helped improve its financial results.

As reported, the company said Oct. 1 that its third- and fourth-quarter earnings would fall well short of expectations, in ranges of 31 to 33 cents and 30 to 34 cents, respectively. The new guidance was significantly below what analysts had anticipated at that time — 50 and 52 cents, respectively.

As a result of the slowdown, Aeropostale quickly turned on the burners and “increased the breadth and depth of our promotional activity and opened outlet stores,” Geiger said.

Optimistic about the holiday selling season, the company raised its outlook for the fourth quarter and full year. It now expects quarterly earnings to land between 38 and 40 cents a share, with sales in the range of $204 million to $207 million versus prior guidance in the range of $199 million to $202 million. On a full-year basis, the company said it is forecasting earnings of roughly 81 to 83 cents, excluding a pretax, noncash charge related to equity-based compensation of $4.5 million incurred in the first half of the year. It also said it expects sales of $671 million to $674 million. For 2003, it said it expects earnings in the range of $1.06 to $1.10 and sales between $671 million and $674 million.

This story first appeared in the November 22, 2002 issue of WWD.  Subscribe Today.

For the nine months, income was $13.6 million, or 35 cents a diluted share, a 8.1 percent increase over income of $12.6 million, or 33 cents. Excluding charges, income in the year-ago period was $16.3 million, or 42 cents. Sales rose 39.8 percent to $344.5 million from $246.4 million, and comps increased 10.8 percent.