Aeropostale Inc ARO.N could raise going concern doubts as soon as next year, as the struggling teen apparel retailer burns up cash amid mounting losses, Morgan Stanley analysts warned.
The company lost more than a fifth of its market value on Friday, a day after it reported its sixth straight quarterly loss and forecast a bigger-than-expected loss for the current quarter.
"We think (Aeropostale) is a structurally challenged business in decline," Morgan Stanley analyst Kimberly Greenberger said in a note.
Greenberger said she expects "going concern issues in 2015/2016" unless the company stabilizes its business. Greenberger is a top-rated analyst for the company, according to Thomson Reuters StarMine.
"Aeropostale occupies the weakest competitive position in teen retail, and continues to cede market share to cheap fashion retailers and other teen retailers," the analyst said.
Aeropostale's shares touched a low of $3.38 in midday trading -- their lowest in more than 11 years, making the stock the top percentage loser on the New York Stock Exchange.
The company said on Friday its first priority continues to be maintaining appropriate levels of liquidity.
"We have sufficient liquidity to work through our working capital needs with our $230-million revolver ...," the company said in an email.
Aeropostale reported on Thursday a 13 percent drop in same-store sales for the first quarter.
The sharp drop in same-store sales and the mounting losses have raised liquidity concerns.
Aeropostale has a rating of 26 out of 100, according to research firm Rapid Ratings, which gauges the financial health of companies. The rating of 26 puts Aeropostale in the high-risk category.
The company ended the first quarter with cash and cash equivalents of just $24.5 million, its lowest since 2000, according to Cowen & Co analyst John Kernan.
Cowen & Co said in a note that the company burned $123 million in cash in the first quarter and was forced to tap into its credit facility as it continued to discount to attract shoppers.
Aeropostale struck a $150 million funding deal with Sycamore Partners in March, but Kernan said that even with that lifeline "a turnaround is hard to conceptualize".
"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 Capital Markets analyst John Morris said in a client note.
Morgan Stanley, BMO, Cowen & Co, Janney Capital Markets, Jefferies & Co and Topeka Capital Markets 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".
(Reporting by Siddharth Cavale and Shailaja Sharma in Bangalore; Editing by Don Sebastian and Maju Samuel)