Aeropostale Up 20% on Return of CEO Julian Geiger

New York City, New York – (StockNewsDesk) – 08/20/2014 — CEOs coming back to rescue struggling retailers is becoming a pattern, with Aeropostale the latest looking to recapture its glory days as it brought back Julian Geiger.

First, JC Penney begin to languish after the disastrous reign of Ron Johnson, backed by Bill Ackman. Johnson was a visionary who accomplished impressive feats at Target and Apple; however, his effort to turn JC Penney into a new type of upscale retailer was a disaster as the stock plunged more than 80%.

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In stepped Myron Ullman, the previous JC Penney CEO, who had a largely successful reign during his tenure, and the stock price has rebounded more than 100% off its lows with customer traffic and sales coming back. Just as Ullman was able to restore JC Penney to its roots, Aeropostale is going back to its past success and tabbing Julian Geiger to do the same.

For much of the past decade under Geiger’s leadership, Aeropostale was one of the best performing retail stocks in the market. Its clothes were marketed in the same hip category as Abercrombie and Fitch or American Eagle but more affordable, with T-shirts around $10 and jeans around $20. The company’s strategy was to appeal to Gap shoppers with Old Navy budgets.

Aeropostale-Julian-Geiger

Since Geiger’s departure in mid 2010, the company has moved away from this strategy. The stock has paid the price as it has dropped from $30 to a low of $3.10, almost a 90% decline. Considering that the company IPO’d around $3 under Geiger, this is a stunning loss of shareholder value. Additionally, it’s a testament to his leadership abilities that the stock gained almost 20% upon his appointment.

Thomas Johnson, the previous CEO, stepped down after a troubled run as head of the apparel giant. His tenure was marred by six consecutive quarters of losses, store closings, and job cuts at the corporate and retail level. Another factor in the company’s decline was its high interest loan taken out with Sycamore Partners, seen by many as Johnson attempting to fend off activist investors. Sycamore Partners were allied with Geiger, and Johnson’s ouster was a sign that Sycamore had won the dispute.

The company was under pressure from activist investors as the stock was in free fall. The 52 week high was around $12.42, so the company’s crisis was intensifying. Many skeptical retail analysts are seeing it as a hail mary move by the company, seeing Geiger’s appointment as an act of desperation for a company out of ideas. Clearly, some investors were enthused by the idea, as they bid up shares. The resurrection of JC Penney must be on their minds as there are many parallels between the two.

Stock Price Impact

In addition to the CEO news, another potential catalyst for today’s move was the results showing losses were slightly less than expected. Retail is a notoriously tricky environment, and some of the biggest winners in the past are not able to adapt to the changing tastes of consumers. Three companies with similar aesthetics, but varying price points – Abercrombie and Fitch, American Eagle, and Aeropostale – are struggling as their style of business is no longer in fashion.

Instead, newer retailers like H&M, Forever 21, and Uniqlo are taking market share and expanding rapidly, with their clothes differing from the “preppy” look of Aeropostale. It will be interesting to see whether Geiger can adapt to this new retail environment. No doubt that he was a capable CEO in the past decade, as ARO rose almost 15 times from its IPO to his leaving the company. Here is the lifetime chart of Aeropostale:

Aeropostale

In the short term, there does seem to be some reason for optimism around Aeropostale’s stock price. The company seems to have found support near the $3 line with the stock moving sideways for almost two months. This was despite a rough macroeconomic climate, in which many stocks were making lower lows. This is the first time in years that ARO displayed any relative strength.

Here is the six months, a daily chart of ARO:

ARO

Given these constructive technicals and the two catalysts in the reappointment of Julian Geiger as CEO and the better than expected earnings report, and based on JC Penney’s recovery experience and the oversold nature of ARO and Geiger’s previous successful run, a 100% gain from these levels would be an appropriate mean reversion.

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