Aropostale as the Apparel Industry - Term Paper Example

The apparel industry is one of the biggest businesses that is booming internationally. Aéropostale is one of those industries that is making a big splash for itself by providing the newest fashion to the youth globally. Aeropostale, Inc is a public company categorized under Ready-To-Wear Apparel, Womens and located in New York, NY.  Aéropostale’s customer base consists of teenagers along with young adults. The company provides customers with high-quality merchandise at an affordable price, and only sells their products at their stores. Aéropostale currently has around 950 mall-based stores and sells teen outerwear using his famous trademark. The brand was created by R.H Macy who later sold to Bear Stearns Merchant Banking in 1998. The company also sells its merchandise through its e-commerce website, ww.aeropostale.com. The company is headquartered at New York, the US and employs about 3,210 people. Below are some of the key financial statements about the company itself. KEY RATIOS: AEROPOSTALE Key Ratios Valuation Ratio: ARO P/E (TTM) 10.01 Price to CashFlow 9.28 Price to Sales (TTM) 1.03 Price to Book 4.74 Per Share Ratio: ARO Dividend Per Share (TTM) 0.00 Book Value Per Share 4.99 EPS Fully Diluted 2.27 Revenue Per Share 22.07 5 Year Annual Growth: ARO Net Income 22.23% Revenue 18.26% Dividend Per Share (TTM) 0.00% EPS 28.25% Dividends: ARO Dividend Yield 0.00% Dividend Yield - 5 Yr. Avg. 0.00% Dividend Per Share (TTM) 0.00 Dividend Payout Ratio 0.00 Profit Margins: ARO Operations Margin 17.43% Net Profit Margin 10.29% Gross Profit Margin 38.25% Financial Strength: ARO Quick Ratio (MRQ) 1.43 Current Ratio (MRQ) 2.43 LT Debt to Equity (MRQ) 0.00 Total Debt to Equity (MRQ) 0.00 Return on Equity (ROE) Per Share 56.30 Return on Assets (ROA) 34.08 Return on Invested Capital (ROIC) 58.12 KEY NUMBERS: KEY NUMBERS Fiscal Year-End January 2010 Sales (mil.) $2,230.1 1-Year Sales Growth 18.3% 2010 Net Income (mil.) $229.5 1-Year Net Income Growth 53.6% 2010 Employees 14,460 1-Year Employee Growth (1.6%) Employees At This Location 500 Balance sheet: Top of Form All amounts in millions of       except per share amounts. Bottom of Form View: Annual | Quarterly Assets Jan 10 Jan 09 Jan 08 Current Assets Cash 347.0 228.5 111.9 Net Receivables -- -- -- Inventories 132.9 126.4 136.5 Other Current Assets 50.1 39.0 36.3 Total Current Assets 530.0 393.9 284.7 Net Fixed Assets 251.6 249.0 213.8 Other Noncurrent Assets 10.7 15.0 15.7 Total Assets 792.3 657.9 514.2 Liabilities and Shareholders Equity Jan 10 Jan 09 Jan 08 Current Liabilities Accounts Payable 90.8 77.2 99.4 Short-Term Debt -- -- -- Other Current Liabilities 151.0 98.2 98.0 Total Current Liabilities 241.8 175.4 197.4 Long-Term Debt -- -- -- Other Noncurrent Liabilities 116.0 127.4 119.5 Total Liabilities 357.8 302.9 316.9 Shareholders Equity Preferred Stock Equity 0.0 -- -- Common Stock Equity 434.5 355.1 197.3 Total Equity 434.5 355.1 197.3 Shares Outstanding (mil.) 94.2 94.2 94.2 INCOME STATEMENT: Jan 10 Jan 09 Jan 08 Revenue 2,230.1 1,885.5 1,590.9 Cost of Goods Sold 1,383.0 1,231.3 1,037.7 Gross Profit 847.1 654.2 553.2 Gross Profit Margin 38.0% 34.7% 34.8% SG&A Expense 464.5 405.9 345.8 Depreciation & Amortization 40.5 48.1 28.9 Operating Income 382.7 248.3 202.5 Operating Margin 17.2% 13.2% 12.7% Nonoperating Income 0.0 0.5 (4.9) Nonoperating Expenses 0.1 -- -- Income Before Taxes 382.8 248.8 209.0 Income Taxes 153.3 99.4 79.8 Net Income After Taxes 229.5 149.4 129.2 Continuing Operations 229.5 149.4 129.2 Discontinued Operations -- -- -- Total Operations 229.5 149.4 129.2 Total Net Income 229.5 149.4 129.2 Net Profit Margin 10.3% 7.9% 8.1% Diluted EPS from Total Net Income ($) 2.27 1.47 1.15 Dividends per Share -- -- -- ANALYSIS: This company does have weak points because it is competing in a market of “commercial printing.” The cost of ink and paper continues to increase; it forces Aéropostale to mark-up prices on its merchandise in order to meet the break-even point. Competition from in-house printing due to the advent of technology enables small organizations to produce many jobs that could only be executed by commercial printers. In addition, the cost of owning digital presses may be difficult for this organization, since technology changes will force Aéropostale to hire and train workers that have experience with the new and sophisticated software. This forces Aéropostale to think of other ways to compete with these emerging apparel companies. Another challenge that the company faces is advertising. Since the company has a large customer base and products its merchandise via magazines and catalogs, it is forced to rely on a sales force to attract new and potential customers. Without a doubt, Aéropostale has several competitors that are also striving to gain an edge in the apparel industry. Some of these competitors are Gap, Abercrombie & Fitch, Forever 21, American Eagle, and Urban Outfitters. In fashion retailing, it is a challenge to keep up with the competition. Since new trends emerge every day, all retail companies must rotate their inventory of clothes in an efficient manner to ensure the customers are satisfied. The future looks bright for Aéropostale clearly as the company achieved net sales of $463.6 million for the first quarter in 2010. Even with the economic recession, the organization is achieving impressive profits. The overall store sales increase affected the company in a positive manner since sales increased by 6%. The competitors’ sales increased in both our young women’s and young men’s categories.  The company also purchased some of its common stock for $36.7 million. Overall, the company should do fairly decent as the year’s progress. The output of US commercial printing is predicted to grow at an annual of 7.1% from 2010 to 2014. 52 week high and low: Prev Close $30.01 Open $29.21 Bid -- Bid Size Ask -- Ask Size High $30.00 52 Wk High $32.24 Low $28.66 52 Wk Low $19.10 Restricted No Volume 2,858,027 Market Cap ($ mil.) 2,805 EPS $2.44 P/E Ratio 12.30 Pricing delayed 20 minutes. Latest  (06/04/10 15:01:24 EST) Change ($) Change (%) High Low $28.78  -1.2300  -4.0986 % $30.00 $28.66 COMPETITIVE LANDSCAPE: COMPETITIVE LANDSCAPE KEY: Best of Group. Companies listed are Top Competitors. Key Numbers Aéropostale American Eagle Outfitters The Gap Pacific Sunwear Annual Sales ($ mil.) 2,230.1 2,990.5 14,197.0 1,027.1 Employees 14,460 39,400 135,000 11,300 Market Cap ($ mil.) 2,827.2 2,638.1 14,549.8 243.8 Profitability Aéropostale American Eagle Outfitters The Gap Pacific Sunwear Industry Median Market Median2 Gross Profit Margin 37.99% 38.72% 40.32% 25.18% 38.67% 28.77% Pre-Tax Profit Margin 17.17% 7.77% 12.79% (7.93%) 8.53% 8.48% Net Profit Margin 10.29% 5.65% 7.76% (6.84%) 2.27% 5.53% Return on Equity 58.1% 11.3% 23.8% (20.7%) 7.9% 10.1% Return on Assets 31.6% 8.2% 14.2% (13.4%) 4.0% 1.5% Return on Invested Capital 58.1% 10.9% 23.6% (20.7%) 5.9% 4.4% Valuation Aéropostale American Eagle Outfitters The Gap Pacific Sunwear Industry Median Market Median2 Price/Sales Ratio 1.36 0.88 1.07 0.23 0.87 3.30 Price/Earnings Ratio 13.23 15.58 13.79 (3.44) 15.90 24.21 Price/Book Ratio 6.29 1.75 2.96 0.88 2.85 6.40 Price/Cash Flow Ratio 9.07 6.84 7.91 2.75 8.00 20.49 Operations Aéropostale American Eagle Outfitters The Gap Pacific Sunwear Industry Median Market Median2 Days of Sales Outstanding -- 4.65 -- 1.22 13.46 34.66 Inventory Turnover 10.7 5.9 5.7 7.8 5.0 8.1 Days Cost of Goods Sold in Inventory 34 62 64 47 72 45 Asset Turnover 3.1 1.5 1.8 2.0 1.8 0.3 Net Receivables Turnover Flow -- 78.5 -- 299.1 27.1 10.5 Effective Tax Rate 40.1% 27.3% 39.3% -- -- 37.9% Financial Aéropostale American Eagle Outfitters The Gap Pacific Sunwear Industry Median Market Median2 Current Ratio 2.19 2.85 2.19 2.42 2.33 1.33 Quick Ratio 1.4 1.8 1.2 1.2 1.3 1.2 Leverage Ratio 1.82 1.35 1.63 1.56 1.94 7.13 Total Debt/Equity -- 0.02 0.00 -- 0.27 1.37 Interest Coverage -- -- 303.67 -- 12.45 17.33 Per Share Data ($) Aéropostale American Eagle Outfitters The Gap Pacific Sunwear Industry Median Market Median2 Revenue Per Share 22.07 14.27 20.31 15.69 26.30 7.60 Dividends Per Share -- -- -- -- 0.17 0.25 Cash Flow Per Share 3.31 1.84 2.76 1.34 2.85 1.22 Working Capital Per Share 3.06 3.63 3.80 1.76 4.98 0.64 Long-Term Debt Per Share -- -- -- -- 2.15 4.06 Book Value Per Share 4.77 7.21 7.35 4.18 8.01 3.91 Total Assets Per Share 8.41 10.23 11.96 7.20 15.51 27.90 Growth Aéropostale American Eagle Outfitters The Gap Pacific Sunwear Industry Median Market Median2 12-Month Revenue Growth 18.3% 0.1% (2.3%) (18.2%) (2.0%) 31.9% 12-Month Net Income Growth 53.6% (5.6%) 14.0% -- 203.4% (27.7%) 12-Month EPS Growth 54.1% (5.8%) 17.9% -- 132.2% (50.0%) 12-Month Dividend Growth -- 0.0% 0.0% -- (25.2%) -- 36-Month Revenue Growth 16.4% 2.3% (3.8%) (10.8%) (1.2%) 14.3% 36-Month Net Income Growth 29.1% (24.2%) 12.3% -- (9.0%) (5.6%) 36-Month EPS Growth 37.1% (21.9%) 19.3% -- (5.5%) (14.7%) 36-Month Dividend Growth -- 13.3% 2.0% -- (3.4%) -- 1Data unavailable. 2 Public companies trading on the New York Stock Exchange, the American Stock Exchange, and the NASDAQ National Market. Data Definitions © 2010 Morningstar, Inc. Financial Data provided by  Analysis: Clearly, Aéropostale does not match up equally in sales revenue compared to its competitors. For example, GAP makes around $14 million in sales revenue, and possesses a gross-profit margin of 40%. Some of the factors for this can be the fact that the store specializes in making quality jeans at an affordable price. Moreover, GAP’s brand name is attractive towards older and younger adults rather teenagers only. Furthermore, GAP offers formal and casual wear, which again enables it to beat Aéropostale and American Eagle. In addition, GAP stores have been excellent in replacing its stock with maximum speed, and were able to keep their inventory in check using the LIFO system. It will be interesting to see how Aéropostale reacts to these figures, and whether they will alter their current strategy. Works Cited Hoovers.com “Aéropostale, Inc.”Web. June 5, 2010. Read More