Aeropostale, Inc., a mall-based specialty retailer of casual apparel for young women and men, provided an update on its strategic initiatives and announced a comprehensive cost reduction program as part of the Company's on-going turnaround plans.
Following a strategic business review, the Company has identified key initiatives it estimates will generate approximately $30 million to $35 million in annualized pre-tax savings, of which approximately $5 million to $10 million is expected to be achieved in fiscal 2014.
Plans to exit the P.S. from Aeropostale mall locations – Based on changing consumer patterns, particularly of the "mom" shopper, the Company has made the determination to close approximately 125 mall-based P.S. from Aeropostale stores by the end of fiscal 2014.
Highlights:
-Plans to Exit Mall-Based Locations of the P.S. from Aeropostale Brand to Focus on Faster Growing Distribution Channels
-Expands Company-Wide Expense Savings Program
-Expects to Generate Total of Approximately $30 Million to $35 Million in Annualized Cost Savings Beginning in 2015
-Reaffirms First Quarter 2014 Outlook
The Company plans to restructure the brand to focus on faster growing sales channels, including off-mall locations (including outlets), e-commerce, and international licensing. The Company is also exploring other potential third party distribution channels. By taking these steps, the Company expects to eliminate pre-tax losses of approximately $15 million that were generated in the mall-based business in fiscal 2013, excluding any impairment charges.
Streamlining and improvement of expense structure – Following a thorough review of the Company's current cost structure, Aeropostale has implemented a cost reduction plan that will target both direct and indirect spending across the organization. This includes the Company's plans to reduce corporate headcount by approximately 100 positions to align with current business strategies, in addition to the workforce reductions from the Company's on-going store closure program.
The Company estimates that it will record pre-tax restructuring, asset impairment, and other charges of approximately $40 million to $65 million during fiscal 2014 related to these actions, of which approximately $25 million to $40 million are estimated to be cash expenses.
"The steps we are announcing build on our turnaround efforts from the past year," said Thomas P. Johnson, Chief Executive Officer of Aeropostale, Inc. "Through the restructuring of our P.S. from Aeropostale brand, and expansion of our expense savings program, we will be better positioned financially and have laid the groundwork for the future. In addition to these steps, our transaction with Sycamore Partners continues to proceed as planned, and will also provide additional runway to continue to implement our merchandising, marketing, and operational strategies designed to reposition the Aeropostale brand."
Mr. Johnson continued, "This day's actions reflect the very difficult but necessary decisions we have made to align our business with overall retail market trends. We thank all of the employees who have contributed to Aeropostale's turnaround plans for their diligence and dedication."
Global business advisory firm, AlixPartners LLP, served as advisor during the Company's strategic business review process. The Company continues to work with real estate consultants to optimize its real estate portfolio and will provide an update at a later date.
Reaffirms First Quarter 2014 Outlook
In line with prior guidance, the Company continues to expect first quarter 2014 operating losses in the range of $64 million to $68 million, which translates to a net loss in the range of $0.70 to $0.75 per diluted share. This outlook is provided on a non-GAAP basis because it excludes the impact of this day's announced strategic initiatives, as well as any expected consulting fees associated with these announcements. Due to uncertainties in estimating the absolute costs of these items, there is no readily accessible GAAP reconciliation available at this time.
