Struggling youth retailer Aéropostale Inc. has triggered a cost-reduction program involving cutting 100 jobs from headquarters and closing 125 mall-based P.S. from Aéropostale kids stores.
Through the cuts, the company estimates pretax savings of $30 million to $35 million, with about $5 million to $10 million expected to be achieved in fiscal 2014.
The company said the P.S. from Aéropostale stores will close by the end of fiscal 2014, putting the focus on selling the brand through faster-growing sales channels including off-mall locations, outlets, e-commerce and international licensing. The company is also exploring selling P.S. from Aéropostale through other retailers.
By taking these steps, Aéropostale expects to eliminate pretax losses of about $15 million that were generated in fiscal 2013, excluding impairment charges. The company estimates it will record pretax restructuring, asset impairment and other charges of about $40 million to $65 million during fiscal 2014, with $25 million to $40 million seen as cash expenses.
There was no word on how many store jobs will be lost. P.S. from Aéropostale launched in 2009.
“The steps we are announcing today build on our turnaround efforts from the past year,” said Thomas P. Johnson, chief executive officer of Aéropostale Inc. “Through the restructuring of our P.S. from Aéropostale brand, and expansion of our expense savings program, we will be better positioned financially and have laid the groundwork for the future. In addition to today’s steps, our transaction with Sycamore Partners continues to proceed as planned, and will also provide additional runway to continue to implement our merchandising, marketing and operational strategies designed to reposition the Aéropostale brand.”
In March, Aéropostale inked an agreement with Sycamore for a strategic partnership and $150 million in financing in exchange for stock. Combined with Sycamore’s ownership of Aéropostale’s outstanding common stock, Sycamore’s ownership on an as-converted basis would increase to 12.3 percent of the company’s outstanding common stock under the terms of the commitment letter announced March 13.
The partnership includes a sourcing arrangement for Aéropostale through MGF Sourcing, Sycamore’s sourcing firm. Crescendo Partners, which also has a stake in the chain, has been pressing Aéropostale to find a buyer. Aéropostale’s stock has been declining over the past year, from a high of $17.10. It closed at $4.97 on the New York Stock Exchange Wednesday, up 0.2 percent.
Turnaround efforts over the past year included redirecting design efforts to target 16-year-olds; reduced product cycle times; added details, fabric combinations and trendier fits to the product mix, like skinny jeans with patchwork; expanded footwear offerings, and the launch of activewear called Live Love Dream.
The strategy is to update the image, reconnect with consumers and reverse a string of quarterly losses.
AlixPartners LLP advised Aéropostale during its strategic business review process. Aéropostale also works with real estate consultants to optimize its real estate portfolio.
First-quarter 2014 operating losses are seen in the range of $64 million to $68 million, which translates to a net loss in the range of 70 cents to 75 cents a diluted share. Aéropostale stores cater to 14- to 17-year-olds while P.S. from Aéropostale caters to 4- to 12-year-olds.