The beleaguered Aéropostale Inc. started off the week with a mini stampede of bulls who drove the stock up as much as 58 percent to 35 cents in morning trading today.
By 11:30 on Wall Street, the stock had settled some and was up 40 percent to 30 cents, giving it a market capitalization of $24.4 million. More than 6.1 million shares traded hands, well above the daily average of 1.8 million for the past three months.
There was no obvious catalyst that drove the stock higher, but Aéropostale is in a tenuous situation that’s ripe with possibilities.
The retailer has said that as of the end of January it had $65.1 million in cash and short-term debt payments of just $5 million with no borrowings under its revolving credit facility. Still, market observers and analysts see it in a dire position.
The teen retailer’s struggled in recent years to get its formula right and recently settled on an approach that splits the 810-door chain in two parts. Sixty percent of the stores have been converted over to a factory concept that offers a narrow and deep assortment of basics, while the balance of the fleet goes after the more fashion-forward mall shopper.
Chief executive officer Julian Geiger said last month the early read from business after the split was promising, but observers have been left wondering if the turn is too little, too late.
Last month, Geiger told shareholders: “While we have seen a perceptible improvement in the overall business due to the merchandise and the institution of the Factory and Mall allocation strategy, regrettably we are experiencing a disruption in our supply of some merchandise due to a dispute with a key vendor.”
That dispute centers around Sycamore Partner’s MGF Sourcing division, which Aéropostale said has violated their sourcing agreement (a claim the production company denies).
Aéropostale has said its first-quarter adjusted operating losses could be negatively impacted by up to $8 million if shipping delays from the dispute continue.
Sycamore, led by the very acquisitive Stefan Kaluzny, is not just a key supplier to the retailer, but also its primary lender, having given the company a $150 million term loan.
That leaves the private-equity player, who has already snatched up Talbots, Hot Topic and Coldwater Creek, with a lot of sway in the future of the retailer, which said last month that it is exploring its strategic options.
After Aéropostale inked its sourcing arrangement with Sycamore, it tried to blunt the vendor’s influence by inking a decade-long deal with Li & Fung to, as Geiger told investors just over a year ago, “foster greater competition among our sourcing partners.”
“Having MGF and Li & Fung in place, I think, puts us in an absolutely perfect position to be getting – consistently getting great prices,” the ceo said in March 2015. “Our history so far this year, which continues through this period, is that costs are down and we believe that they should continue to do so.”
It seems, though, that the company’s reliance on a limited number of suppliers has instead sparked uncertainty.