November 28, 2011 at 09:00 AM EST
Aeropostale Next to Fall Out of Fashion
Teen retailers have had a rough earnings season; Gap and A&F have tumbled since reporting.

Although earnings season has largely passed, this week’s calendar is hardly empty. In fact, a number of specialty apparel retailers – including Jos. A. Bank (NASDAQ:JOSB), American Eagle (NYSE:AEO), Express (NYSE:EXPR), Coldwater Creek (NASDAQ:CWTR), Charming Shoppes (NASDAQ:CHRS) and Lululemon Athletica (NASDAQ:LULU), to name a few – are on the docket.

One retailer we have on our screen is Aeropostale (NYSE:ARO), which reports on Wednesday (Nov. 30) after the close. Analysts expect the mall-based teen retailer to earn 28 cents per share, a far cry from the 67 cents logged a year ago. But ARO hasn’t reported profit growth for a year, so these low expectations are understandable.

The problem with ARO isn’t that it can’t meet or beat analysts’ expectations. In fact, the last time the company missed an estimate was in May 2007. The problem comes after earnings, when the stock has behaved horribly. During the past four quarters, the shares have averaged a staggering drop of more than 12% in just the one day after reporting.

On the charts, the stock is falling away from resistance at the $18 level. The decline has pulled the shares below the 20-day moving average. The next level of support is the 50-day trendline, which is 10% below the current market price.

Teen retailers have had a rough earnings season. Margins are being squeezed, as stores are reluctant to raise prices to counteract rising input costs. Gap (NYSE:GPS) beat by 2 cents last week while Abercrombie & Fitch (NYSE:AF) fell far short of estimates. Both stocks have tumbled since reporting.

With a recent history of sharp drops after beating or meeting estimates, no signs of chart support, and competitors slumping after reporting, the odds appear to be stacked against ARO. Buy the ARO Dec 15 Put for around a buck. 


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