Wells Fargo Gives Earnings Preview On Aeropostale; Expects An In-Line Quarter

Aeropostale ARO is scheduled to report Q4:10 earnings on 3/10, after the close. The company already reported sales and guided EPS to $0.96-0.97. ARO's top line was disappointing in Q4 due to a lower average unit retail and merchandising issues in women's. Wells Fargo is modeling merchandise margin down 300bps, gross margin down 340bps, and operating margin down 260bps. At the end of Q3:10, inventories were up 8%, or up 1% per foot; given the negative comp in Q4, Wells expects inventories could be somewhat elevated at the end of the year.

ARO's business trends have been slowing in recent quarters; Wells fargo expects Q4 to be the first down comp and EPS quarter since '07. For '11, Wells is modeling comps down 1.5% due to merchandising issues in women's and more pressure on the lower-income consumer from high food and gas prices. This would be the first negative annual comp since 1997.

Wells Fargo expects ARO to provide Q1:11 EPS guidance on Thursday, likely in line with consensus. Q1 faces a tough compare, similar to Q4. Wells Fargo is modeling comps down 3% which represents a similar run rate to Q4:10.

Wells Fargo has an Underperform rating on ARO

ARO is trading lower at $24.71