On May 21, 2009 Aeropostale (ARO) declared financial results for the first quarter of the 2009 financial year. The company reported quarterly earnings of $31.7 Million or an EPS of $0.47 beating the average analyst EPS estimate of $0.45. In spite of difficult market conditions, the company increased its sales by 21% to $408 Million, meeting analyst expectations. It also recorded an impressive 11% increase in same store sales, a key performance metric for retailers. In contrast, its principal competitors have been experiencing a decline in same store sales. As an example, on May 7 American Eagle (AEO) reported that its same store sales declined by 5% in the month of April and by 10% in the previous quarter (AEO declares its quarterly financial results on May 27, 2009). This indicates that Aeropostale has been gaining market share. This gain in market share was in spite of the 5% increase in average selling price.
More importantly, ARO issued guidance for the second quarter in the range of $0.43 to $0.45 a share significantly ahead of average analyst estimates of $0.36 a share. Post results, several analysts have revised their financial year 2010 and 2011 EPS estimates. They now expect ARO to earn $2.59 a share in 2010 and $2.75 a share in 2011.
Based on these revised estimates, I am maintaining my BUY rating on ARO, but increasing my price target by $4 to $44 by applying a multiple of 16 to 2011 average analyst estimates. At these levels, ARO would trade at its historical average multiples and at a slight premium to its peers.
Disclosure: None
