Management and Financial Analysis of Aeropostale Company, Inc

Managementand Financial Analysis of Aeropostale Company, Inc

Task

SubmissionDate

Thispaper has been researched and written by the authors mentioned onthis page. Sources of research help have been cited in the paper.

Tableof content Table of Contents

Table of content 2

Introduction 3

Chapter 1-Management 4

Management problems faced by Aeropostale Company, Inc 4

a) Lack of skilled labors 5

b) Changing brand innovation 5

c) Unmotivated employees 6

Benchmark to the above problems 7

Chapter 2- Finance 8

Problems related to Aeropostale financial performance 8

a) Reduced revenues 8

b) Decreased liquidity Vs increased debts 9

c) Low equity ratio 10

Reference List 11

Managementand Financial Analysis of Aeropostale Company, Inc

Introduction

Aeroposatle,inc. is a huge business center that is specializes on retailing thecasual accessories and apparel mostly for the youths. The businessmajorly target fourteen to seventeen year old young men and women.However the store also sell items for as young as four years totwelve years kids whose selections are made available through the P.Sfrom the Aeropostale stores. Consequently, after visiting the storeyou will realize that the company is committed to provide itscustomers with all sorts of selections which are of high quality,modern fashion, active oriented, and basic fashions that are easy tomerchandise at a compelling costs and values. The Company, therefore,is known of maintaining effective business control especially in thebrands that are common that are demanded by most of the people bothlocally or internationally. Consequently, the company has gone anextra mile to ensure that all the brands in the store are of highquality and correct design for sourcing, selling, and marketing thisaspect has promoted its sales and merchandise strategies

Onthe other hand, all the products that are sold at Aeropostale Companycan only be accessed in the company’s store or online at theCompany’s website. Additionally, the Aeropostale Company is so hugebecause it operates 914 stores that are located in fifty Puerto Ricoand States. In addition, there are other 75 stores and 79 P.S thatare based in Canada and other parts of the states. Consequently, inpursuit of the license used by this Company, the company is operatingmore than twenty Aeropostale and P.S stores in Asia, Middle East, andin Europe.

However,despite the fact that the company is doing greatly on the number ofsales, profits, and overall performance, the company is faced bymanagement problems such as lack of enough skilled labors due to highnumber of untrained employees, changing brand innovation, unmotivatedemployees, and a competitive market due to international expansions.Consequently, there is a need to address the company’s managementchallenges the resulting financial challenges such as reduced salesper day, high debt to total asset ratio, and lack of enough assets torun the company’s demands. Therefore, is a need to address theseissues to enable the company carry on with its operations and giveits customer a compelling satisfaction both the kids and theirparents.

Chapter1-ManagementManagementproblems faced by Aeropostale Company, Inc

Asmentioned above, Aeropostale Company, Inc. has experienced a numberof challenges in the recent past that are related to its managementstrategies. Additionally, although the company is a notableretailer’s store, the numbers of sales have declined drasticallybecause of the fickle experience evidenced in teen’s fashion whims.Moreover, according to the information given by the customers whoattend Aeropostale stores, the stores are no longer the ‘best’especially to the teenagers. Consequently, most of the young peoplehave fled from the Aeropostale stores in huge numbers. As a result,the company has reported profit decline and double digit reduction onthe revenue collected for the last nine quarters the trend seems tocontinue in future unless the management strategies are changed. Dueto this reduction, the company has experienced share loss of close to90 percent of its total value over the last five years. Lastly, thecompany has experienced a drastic reduction on its market share orcap the value has reduced from a straight 2.5 billion dollars to thecurrent 273 million dollars for the last five years. The loss can belinked to the following management problems facing the company:

  1. Lack of skilled labors

Mostof the young people employed in Aeropostale, Inc. are not welltrained to handle the customers, who are in this case are teenagers,who frequent to buy the products in the stores. Consequently, basedon the report that conducted by Piper Jaffray, the semi-annual reportindicated that most of the teenagers were disappointed by theservices they received at Aeropostale stores. Additionally, most ofthe teenagers confirmed that the stores were no longer selling theleading brands especially the girls who like wearing the most recentfashion. As a result, the report conducted by Piper affirmed that 32percent of the teenagers, in this case girls, said that they willcease from wearing Aeropostale merchandise because the employees werenot offering the beast services and because the products had lost itstouch with the core market. Most of the employees in Aeropostalestores do not understand the consumer taste and the preference whenhandling them. Additionally, the stores handle all demographics agesincluding both women and teenagers’ products the two groupsrequire sensitive handing to keep them buying the products.Consequently, since the customers are not satisfactorily attendedtheir prevalence and the purchasing behavior has changed drasticallythus reducing the number of sales made in a day. However, in some fewyears ago, the company was leading on fitness and health productsacross the globe. The company should start employing workers who areknowledgeable and with adequate skills. Additionally, the managementcan initiate a training program to the newly employed workers toequip them the skills required to handle customers workshop andtraining can solve this problem (Leong,2014).

  1. Changing brand innovation

Mostof the customers interviewed affirm that the company has continued tosell products that are out of fashion and outdated thus reducing itsvalue in the competitive market. This has resulted to massive declinein its popularity. Additionally, the problem can be attributed toindustrial changes and wide shifts in the fashions and trend. As aresult, the major problem that is facing Aeropostale Company ischanging brand innovation. For example, all the products sold by thecompany have the company’s logo stapled in the clothing and otherproducts as the centerpiece. However, most of the teenagers areagainst this innovation because it appears outdated and oldfashioned. Additionally, the teenagers have become sensitive on theway they look on a clothing worn unless it is a school uniform.Moreover, it is evident that the managers of the company aremisinformed about what the teenagers what to wear in this day youngpeople are not interested on Logo-Centric clothes and are willing tobuy clothes that are luxurious, fast-fashions, and unique such asforever 21, Zara, and others. The managing team do not understandthat the teenagers what something that is fashionable that is notcostly teenagers do not want to spend a lot of money of clothing.Additionally, the fast fashions fits so well for the teenagers.Capital analysts have tried to help Aeropostale management on thisissues but the management has failed to follow the recommendedtactics thus the massive fail. For example, the manager, Geiger,affirmed that the company will continue to spend less energy onkeeping up with new and fast fashions and rather stick to itsoriginal teen uniform such as jeans and t-shirts. This is thebeginning of its massive failure because there is no brand innovation(Russellet al., 2012).The proposed solution to the above problem is to embrace the newbrands and innovation that are rated high by the young people.

  1. Unmotivated employees

Employees’motivation is very crucial in an organization because it enhancespositive performance (Donnellan,2013).To cut short the huge expenses in Company’s stores the company paysits workers so poorly despite the many working hours. On the otherhand, the company has closed most of the stores that are performingpoorly to trim the operational costs this has rendered most peoplejobless this has discouraged the employees in Aeropostale becausethere is no job security, the working condition are not favorable,and the employees are not motivated there is a need to motivate theemployees through rewards to up their performance. For instance, in2014 only, the company closed more than 240 stores making its storecount to reduce to 860 stores.The solution to this problem is toinitiate a rewards program for the employees who are performing wellin their duties. This will motivate other to work hard in their workstations.

Benchmarkto the above problems

Inthe recent past new companies that sell new and fashioned productsfor kids, men, and women have taken their position in the market thusthreatening the performance of Aeropostale, Inc. Additionally, thecompany is currently, trying to revamp the old fashioned and outdatedproducts to lure back the teenage customers. However, based on thecompetitive market and availability of new fashions on the market,teenage customers have rated Aeropostale Company as the first companythat is selling old fashion or clothes that they do not wear anymore.For example, the company introduced the ‘’flight tomboy’ linefor teenage girls something that is outdated. This shows that thecompany has a long way to go to revive its competitive and stablemarket value. However, solution to this problem is to embrace newfashions that meet the demand placed by the teenagers.

Chapter2- Finance Problemsrelated to Aeropostale financial performance

Aeropostale,Inc. has faced a number of unstable financial metrics such as reducedrevenues, high debt and equity ratio, and poor returns on itsinvestments. As a result, the company’s financial statementindicates lack of financial stability due to its poor performanceover the last five years (Bliss,2012).Moreover, auditors have realized troubling numbers from the company’scost inefficiencies thus a decrease on its liquidity and increaseddebt that shows that the company is headed downwards or is makingloss.

  1. Reduced revenues

Onthe company’s income statement, the figures show a decline on therevenue thus presenting a major problem within the company. However,we can assume that the company can take another turn and revive itsrevenue margin by maintaining a stable performance across its stores. For example compared with other stores such as COGS, the companyreported revenue increase of 7.6 percent in 2010-2011 financial yearswhile COGS registered revenue increase of 9.4 percent this posed itsoverall revenue returns to be less by 2.4 percent. In the past twoyears Aeropostale, Inc. has faced a revenue reduction of 12.4percent. The assumption made here is that the company was makingminimal sales in its stores thus subjecting its profit and revenuereturns to decline drastically. However, the problem can also beattributed to the Company’s huge expenses as indicated on itsinventory level and balance sheet. Additionally, the auditors affirmthat the company’s second largest expenses are the SG&ampA costswhich are prevalent in the income statement this has created costinefficiencies experienced in the last four periods. However, theSG&ampA of the company’s financial report has continued toincrease despite the fact that the revenue collected has continued todecline in the same four periods. For example, in the year 2014, thecompany’s SG&ampA increased with a flat rate of 1.5 percent, whilethe revenue decreased by 12.5 percent.

  1. Decreased liquidity Vs increased debts

Theamount of liquidity in the Company’s financial performance isinfluenced by the level of the huge expenditures registered in thecompany’s stores. The company has failed to manage its expendituresin an effective manner that the increase on the debts this hasresulted to a dramatic reduction in the company’s EBIT margins yearafter year. The liquidity margin registered a reduction of 172.4percent between 20111 and 2014. If this trend continues the company’swill continue to seek loans from banks and other financialinstitutions to services its operations and, therefore, its EBIT anARO might go to as low as -4 percent in the 2019. For example, thebalance sheet indicates that the ARO will continue to face liquidityproblems in the Company’s future life. This is because its cashamount has continued to decrease from the year 2011 to 2014 from 347million dollars to 106 million dollars respectively this is becauseof the huge debts in the company. However, the company’s inventoryhas increased over the past few years with an CADR of about 6.8percent despite the decrease on the revenue levels. The maincontributor of the above problem is inability of the Company’smanagement to accurately forecast the sales the solution is to startforecasting on making huge sales by the management (Ehrhardt&amp Brigham, 2013).

Consequently,the company’s level of liquidity decreased through its currentratio. For example, the liquidity was stabilized to 2.2x in the year2011 and 2013 in the year 2014 the liquidity dropped to 1.6x in2014. As a result, the ratios show that the company might go down infuture. The experience on the ratios between liquidity and the debitsis worrying because the company has a ration of 1.6x this occurredcurrently after the company experienced a long term debt of 136million dollars. In the year 2011 and 2013 the company was financedby the equity but the management opted to make 68 percent of itstotal capital to compose debt from the year 2014. Consequently, thereare high chances that the company will fall in future due toincreased debt and reduced liquidity (Mann,Byun, Kim, &amp Hoggle, 2014).

  1. Low equity ratio

Thecompany is currently experiencing low equity ratio because it is notexperiencing positive income from its operations. For this reason,the company is experiencing low benefits from tax shields due to hugeaccumulation of NOLs. Additionally, the cash that would be used toservice the equity ratio is channeled towards paying the debts. Thisshows that the high level of debt is causing a lot of stress to thecompany and forces it to meet the interest of the payments. Thistranslates to decline in the company’s tangible book value thusposing high risk to all the investors of the company.

Thebenchmark to the above problems is that the company should reduce thelevel of its debts to a level below 50 percent. At this level thecompany will be able to cater for its expenditures thus improving thelevel of its liquidity and equity value.

ReferenceList

Bliss,R. (2012). The Financial Challenge: Reconciling Social andEnvironmental Value with Shareholder Value. MorePraise for The New Entrepreneurial Leader,135.

Donnellan,J. (2013). Merchandisebuying and management.A&ampC Black.

Ehrhardt,M., &amp Brigham, E. (2013). Corporatefinance: A focused approach.Cengage Learning.

Leong,H. H. (2014). Litigationagainst public companies that fail to disclose timely information(Doctoral dissertation, Massachusetts Institute of Technology).

Mann,M., Byun, S. E., Kim, H., &amp Hoggle, K. (2014). Assessment ofleading apparel specialty retailers’ CSR practices as communicatedon corporate websites: Problems and opportunities. Journalof business ethics,122(4),599-622.

Russell,B., Vanetta, F., Aguilar, J., Aguilar, I., Humphrey, J., Apap, C.,… &amp Brinkman, C. (2012). SunTrust Portfolio Recommendations:Crummer Investment Management [2012].