Aeropostale could raise going concern doubts - Morgan Stanley

Fri May 23, 2014 11:00am EDT

May 23 (Reuters) - Aeropostale Inc could raise doubts about continuing as a going concern as soon as next year, brokerage Morgan Stanley said a day after the teen apparel retailer reported its seventh straight quarterly decline in comparable sales.

Aeropostale lost more than a fifth of its market value on Friday after it also reported its sixth straight quarterly loss and forecast a bigger-than-expected loss for the current quarter.

"Aeropostale occupies the weakest competitive position in teen retail, and continues to cede market share to cheap fashion retailers and other teen retailers," brokerage Morgan Stanley said in a note.

"We think it is a structurally challenged business in decline," said Morgan Stanley analyst Kimberly Greenberger, a five-star rated analyst, according to Thomson Reuters StarMine.

Greenberger, who cut her price target on the stock to $3 from $3.50 and maintained an "underweight" rating, said she expects "going concern issues in 2015/2016" unless the company stabilizes its business.

Aeropostale could not be immediately reached for comment.

Its shares fell to $3.50 in morning trading, making the stock the top percentage loser on the New York Stock Exchange.

The company reported on Thursday a 13 percent drop in same-store sales for the first quarter as shoppers shun its logo-centric clothes in search of trendier alternatives.

Brokerage BMO Capital Markets cut its target price to $3.50 from $6.

"With a core business too far off the mark, and threatening to tarnish the brand, we don't see things turning for Aero with the environment as challenging as it is currently." BMO analyst John Morris wrote in a note to clients.

At least five brokerages including Cowen & Co, Janney Capital Markets and Jefferies & Co cut their price targets on the stock.

According to Thomson Reuters data, at least four analysts have a "sell" rating on Aeropostale, while 21 recommend "hold".

Only two analysts have a "buy" rating on the stock, which has lost about three-quarters of its value in the last 12 months up to Thursday's close. (Reporting by Siddharth Cavale and Shailaja Sharma in Bangalore; Editing by Don Sebastian)

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