Aeropostale Valuation

1927 Words Mar 27th, 2011 8 Pages
Executive Summary

Since its’ inception in 1987, Aéropostale, named after the 1920s French airmail firm, has become one of the leaders in designing, making and retailing of teen casual apparel and accessories. Aéropostale stores are primarily located in malls, shopping plazas and large outlet centers where they can best reach their teen clientele. The company’s main competitors include other clothing brands that cater to teens. Some of these competitors that we considered for Part I of this analysis were Gap Inc. , Abercrombie, Forever 21, Express Inc., and American Eagle Outfitters. During our analysis of historical and current financial performance of Aeropostale, we found out that the main triggers of revenue growth for the company
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This is because the market will likely eventually become too saturated to sustain 3% growth on the increasing stores base. Also the effects of the short-run growth drivers will likely taper off after some years. In the long run, the company may likely have to close more stores than it opens to maintain its strong store productivity levels. (2) Given the short-run period growth drivers outlined, especially the impact of the economic recession, store productivity is expected to increase. We have assumed a ceiling of ~$750 sq.ft; as only very high-end boutique apparel stores have sustained such productivity levels. From 2014, productivity is forecast to decrease to normal industry average levels of sales of ~$550 $600/Sq.ft. (3) Average Sq.ft/store is assumed to remain the same over the forecast period. This assumption appears reasonable since historically the four-year CAGR is 0.43%.

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(4) The same-store revenue growth rate provided in the 10-Q for 2010 is assumed for the shortrun; as the company has proven that it can achieve that. However, as the stores base increases in the long-run, it become harder to sustain this growth rate. Therefore we have assumed a lower long-run rate; more aligned to more mature companies in the industry. Sensitivity Analysis Upon conducting the sensitivity analysis (see Exhibit 1), we determined the key factors driving the valuation:  Discount rate  Tax rate 

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