Aeropostale mulls raising capital from private equity -sources

By Olivia Oran

NEW YORK (Frankfurt: HX6.F - news) , Feb 10 (Reuters) - Aeropostale Inc (NYSE: ARO - news) is considering raising capital from private equity firms as the struggling teen retailer evaluates various ways to shore up both its balance sheet and its share price, four people familiar with the matter said on Monday.

Aeropostale, which has reported losses for four straight quarters, faces pressure from investors to sell itself and is working with investment bank Barclays Plc (LSE: BARC.L - news) to study its options, the sources said.

If the company decides to raise capital, it may choose to do so in the form of a private investment in public equity (PIPE) transaction of a few hundred million dollars, some of the people said.

A PIPE transaction is often used by small and mid-cap companies that may have difficulty raising capital in public markets. Private equity firms involved in the deal will typically get stock at a discount to the public market valuation.

The situation remains fluid, and Aeropostale is considering other options that may include a sale of the entire company, one of the people said.

All the people requested anonymity because the situation is private. Aeropostale was not immediately available for comment. Barclays declined to comment.

Retailers like Aeropostale, Abercrombie & Fitch Co (NYSE: ANF - news) and American Eagle Outfitters Inc (NYSE: AEO - news) , which focus on selling apparel to teenagers, are struggling to keep up with the changing tastes of young shoppers.

Disappointed with Aeropostale's performance, investors have driven the company's shares down 50.3 percent in the last 12 months to their lowest levels since 2003. The Standard & Poor's 500 Index has risen 19 percent in the last year.

The company has also been burning through cash quickly. Aeropostale had working capital of $166.7 million as of Nov. 2, down from $193.9 million on Aug. 3, while its cash fell to $68 million from $100.3 million. It also has a $175 million credit facility it has not drawn on.

For the quarter ended Nov. 2, Aeropostale reported a net loss of $25.6 million, or 33 cents per share. Sales fell 15 percent to $514.6 million, below the analysts' average estimate of $520.2 million.

Activist investor Crescendo Partners in November urged Aeropostale to sell itself.

Private equity firm Sycamore Partners, which is run by retail veteran Stefan Kaluzny, separately took an 8 percent stake in Aeropostale in September, becoming its third-largest shareholder.

Sycamore's intentions for its investment still remain unclear. The firm may ultimately try to buy the entire company or may just want to pressure Aeropostale to consider alternatives, one of the people said. Sycamore declined to comment.