On the surface, things were heading in the right direction for Aéropostale.
Since renaming former CEO Julian Geiger to the helm in August, shares of the teen retailer had risen 17 percent over the course of seven months. Then on Thursday, the purveyor of Ts and hoodies announced its first quarterly profit in two years.
Digging deeper into the earnings beat, however, tells another story. Although the retailer last year successfully cut $12 million in expenses, and plans to further prune its store base into a more productive fleet, sales continue to lag behind.
After preannouncing that comparable-store sales fell 9 percent in the fourth quarter, Aéropostale on Thursday issued a forecast for a larger-than-anticipated loss for the first quarter, sending its shares 16 percent lower, to $3.09 on Friday.
Among analysts' key concerns are merchandise that still isn't resonating with shoppers, inventory levels that have been trimmed to the point where growing sales will be difficult, and backlog at the West Coast ports that will likely result in late spring deliveries.
"We think it is unlikely Aéropostale can earn a profit again," Morgan Stanley analyst Kimberly Greenberger wrote in a note to investors on Thursday. "Management is hoping for a [second-half] top-line turnaround, but we remain skeptical Aéropostale can turn the tide after 10 consecutive quarters of negative same-store sales."
Along with bringing back Geiger, who led the company during its heyday in the late 1990s and early 2000s, the retailer has attempted to grow its emerging fashion brands, including YouTube star Bethany Mota's line. It's also working to remove the glut from its store footprint to cut costs, and will have closed more than 200 stores, or about 20 percent of its fleet, by the end of the year.
Despite these efforts, Aéropostale continues to be the laggard among the teen retailers known as the "Three A's," which include American Eagle and Abercrombie & Fitch. All three names are in the midst of reworking their businesses to regain the interest of middle- and high-school age shoppers, who traded in their logo Ts for trendier fast-fashion stores such as H&M.
Sales have begun to turn at American Eagle, which last week topped fourth-quarter consensus earnings estimates and posted flat same-store sales. And while sales trends remain weak at Abercombie, the company still managed a $1.15 per share profit in the most recent quarter.
"As far as 2015, we heard a lot of 'ifs' [from Aéropostale]—'if all things align properly,' 'if you get a higher [average unit retail],' 'if you have enough transactions' " Wells Fargo analyst Paul Lejuez wrote in a research note.
He added that with store traffic down and management planning to increase inventory levels in the second half, "We don't feel good about those 'ifs.' "