Aeropostale: South of the Border

J.A. is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

When the going gets tough in retail, management becomes excited about international expansion.  Abercrombie & Fitch (NYSE: ANF) went to Europe and beyond several years ago in an effort to keep growth alive as its U.S. business began to stall.

From a conference call way back in 2010, when expansion seemed like a good idea:

CEO Michael Jeffries recently spent a week in Europe visiting "average markets," not major cities like London and Paris, to explore options for Hollister's growth.  "We're very excited about what Mike came back with,” CFO Kramer said. "There is opportunity for us to significantly grow the Hollister brand in Europe."

When Abercrombie & Fitch sales and comps began to slide, it went overseas. By the end of 2012, international revenue increased with increased square footage, but same store sales were down double-digits dragging on total performance. Flagship store returns were particularly disappointing.

In the first quarter of 2013 not much has changed.  U.S. sales fell 17% while international revenue was up 10%.  But international same store sales continued to slide with comps declining by more than 10%.  It seems square footage increases do not always translate into successful retailing.

Next up

Taking a page from the international expansion playbook, Aeropstale (NYSE: ARO) is heading for la vida loca in Mexico. Of course, Thomas P. Johnson is excited about the expansion—CEOs are an excitable group.

From July 1 press release:

Thomas P. Johnson, Chief Executive Officer, stated, "We are thrilled to bring the Aeropostale brand to Mexico through both branded shops and standalone stores. We consider Mexico a pivotal market as we look at our overall global expansion strategy.

To be precise, he said he was thrilled but it’s close enough.  If business is being sucked into a black hole at home, the easiest thing to do is to move to a different neighborhood.

A change in philosophy

The Buckle (NYSE: BKE) thinks long distance expansion is unnecessary:

Buckle has grown significantly over the past ten years, with the number of stores increasing from 304 at the beginning of 2003 to 440 at the end of fiscal 2012. The Company's plan is to continue expansion by developing the geographic regions it currently serves and by expanding into contiguous markets. The Company intends to open new stores only when management believes there is a reasonable expectation of satisfactory results.

In other words, things are satisfactory at home and international expansion is not a roll of the dice they need to prop up growth. The Buckle tends to be a consistently high performer in an industry that sees competition suffer through wildly swinging cycles. Same store sales were uncharacteristically lower in 2012 at 2.1% and 1.2% comps in this years first quarter, but the business continues to grow steadily if at a slightly slower pace.  It has no reason to attempt to shore up its returns with a risky and expensive international expansion.

Aeropostale’s long slow death

Unbelievably this teen retailer used to be one of the hottest properties in retail. Under founder Julian Geiger the company positively flourished with revenue growth averaging in the high teens and same store sales in the same territory.

In 2010, Thomas P. Johnson became co-CEO with Mindy Meads -- a talent from Victoria’s Secret. Meads departed shortly after being promoted and Johnson remained firmly in control. It has not been a pretty tenure.

Source:  Aeropostale 10K

As you can guess, EPS has continued to evaporate. In 2012, Aeropostale earned $0.43 per share and in the first quarter of 2013, it lost $0.16 per share. Same store sales in the first quarter were down 10%.

Final thoughts

What better time to start a new venture across the border? At the very least, it may distract investors and provide them with something new to look at. Should it fail (likely), then it’s only going to magnify the problems at home.

Aeropostale might want to consider cleaning up the mess here before exporting itself to Mexico. Johnson has talked extensively about newness, freshness, color palette, core customer, and inventory fixes over the past couple of years, but obviously still has no idea of what fashion trends to follow. It's a gift and founder Julian Geiger was gifted.

Fittingly, Mr. Johnson was nominated for worst CEO in specialty retail by RetailGeeks and won in a landslide.

The Motley Fool's chief investment officer has selected his No. 1 stock for this year. Find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.


jean graham has no position in any stocks mentioned. The Motley Fool recommends The Buckle. The Motley Fool owns shares of The Buckle. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus

Compare Brokers

Fool Disclosure