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Aeropostale Anticipates Stellar Back to School as Abercrombie Resorts to Price Cuts

Aeropostale is looking for a strong back to school season after posting first quarter profits of 47 cents per diluted share versus 26 cents per diluted share in last year's period.

Results, excluding pre-tax charges of two cents per diluted share related to the closing of the company's Jimmy'Z format, beat a consensus analyst estimate by a penny. Aeropostale, with a net sales increase of 21 percent to $408 million and an 11 percent comparable store sales gain, has come in among the retailer industry leaders during the recent spate of quarterly earnings announcement and has even been cited as helping boost consumer confidence figures. Men's comps, up in the mid teens, beat women's, up high single digits, Mindy Meads, Aeropostale's president and chief merchandising officer, said in a conference call. Tops with graphic patterns were strong as were accessories, a category that has emerged as a critical sales driver. Accessories have succeeded elsewhere as well, as consumers have inexpensively punched up or refreshed outfits with new belts and scarves, a phenomenon commented upon by Target executive vice president of merchandising Kathryn Tesija in its recent first quarter conference call.

The fact it can deliver popular fashion at lower prices than major competitors has been critical to Aeropostale's success, said Zacks analyst Rob Plaza. "They're the discount Abercrombie, the place where hip kids can buy fashionable merchandise at a lower price."

Abercrombie & Fitch, which has up until now resisted lowering prices or delving into significant price promotions in the recession, suffered a steep sales decline and a $27 million, or 31 cents per share, loss in the first quarter with each of its divisions suffering comp declines and even the one performing best, Abercrombie & Fitch itself, down 26 percent. In announcing the numbers, management conceded that it would have to cut prices.

Aeropostale's success wasn't just based upon mall walkers turning to its stores as a lower cost place to shop after checking out pricier retailers such as Abercrombie & Fitch. The company also has been drawing consumers to its website, which actually is generating better revenue improvement than stores. Web-based sales gained 74 percent in the first quarter to $16.7 million.

Looking forward to the critical back to school season, Aeropostale executives expressed confidence that the company's stores were poised for strength. For one thing, Meads said, its prices were set so much lower than its major competition that, even if those rivals cut prices significantly, Aeropostale could raise prices and still undersell them.

Going into the back to school, said Meads:

The top business is going to be strong. I do see the resurgence of denim. We've revamped the line, and we feel that we've got the right authentic branding details, the right washes. There is a trend toward darker, slimmer silhouettes. We will have more of that than we did last year.
Aeropostale was sufficiently confident in its business entering back to school that it established second quarter earnings guidance of 46 cents to 48 cents per share, excluding Jimmy'Z store closing costs, significantly higher than the average analyst estimate for 37 cents per share.
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