Aeropostale Inc (OTCMKTS:AROPQ) Still Has Hope

Bankrupt teen retailer Aeropostale Inc (OTCMKTS:AROPQ) exploded up the charts on Friday after the company received a $160 million lifeline. Aeropostale said that "this financing, combined with Aeropostale's operating cash flow, will allow the Company to meet its financial commitments and enable Aeropostale to focus on completing its restructuring process, confirming a plan of reorganization and emergence from Chapter 11 during the third quarter of 2016." Shares ran over 200% as investors start to bet that the retailer will make it through the bankruptcy process and there will be a piece for common shareholders.Aeropostale is "a specialty retailer of casual apparel and accessories, principally serving young women and men through its Aeropostale and Aeropostale Factory stores and website and 4 to 12 year-olds through its P.S. from Aeropostale stores and website. The company provides customers with a focused selection of high quality fashion and fashion basic merchandise at compelling values in an exciting and customer friendly store environment. Aeropostale maintains control over its proprietary brands by designing, sourcing, marketing and selling all of its own merchandise. As of May 1, 2016 the Company operated 739 Aeropostale stores in 50 states and Puerto Rico, 41 Aeropostale stores in Canada and 25 P.S. from Aeropostale stores in 12 states. In addition, pursuant to various licensing agreements, the Company's licensees currently operate 322 Aeropostale and P.S. from Aeropostale locations in the Middle East, Asia, Europe, and Latin America. Since November 2012, Aeropostale, Inc. has operated GoJane.com, an online women's fashion footwear and apparel retailer."One of Aeropostale's main problems has been with Sycamore Partners. The retailer has been in a dispute with Sycamore Partners, which has lent the company $150 million and is also Aeropostale’s chief supplier. Sycamore Partners has been using its financial resources and feasting on the carcasses of beleaguered retailers and has bought Talbot’s, Hot Topic and Coldwater Creek. Aeropostale shareholder Aria Partners GP claims that the best shot to recoup losses is by going after Sycamore and that Sycamore is the reason Aeropostale is in bankruptcy. In court papers, Aria said Aeropostale has outlined a case for damages against Sycamore, one that “may very well be the sole source of any meaningful recovery for stakeholders in these chapter 11 cases.”Sycamore is not backing down, however. Sycamore wants Aeropostale to pick a lead bankruptcy auction bidder by July 1 so buyers, possibly including liquidators, get the advantage of taking over when students hit the stores for their fall wardrobes. Aeropostale, on the other hand, says the money that will come in from back-to-school sales could help with a reorganization or attract a buyer that will keep the chain in operation. The alternative is a liquidation, which threatens to wipe out thousands of jobs and could leave hundreds of stores dark.Aeropostale is pursuing a two-track strategy and will select the best course, reorganization or sale, in the coming months. A chapter 11 reorganization plan is due by July 3. Rules for bidding at a bankruptcy auction are due July 18. If a decision is made to liquidate in mid-July, there is time to take advantage of the back-to-school selling season, Aeropostale said in its filings.Aeropostale says that racing to a sale, as Sycamore is urging, threatens to sacrifice the value of its international licensing business, which is worth more attached to an operating U.S. retail chain. Aeropostale is resisting pressure to step up the pace, saying a measured sale or turnaround strategy will save jobs and produce the most money for creditors other than Sycamore without threatening Sycamore’s collateral. Aeropostale says its strategy of pushing merchandise through factory stores is working, suggesting positive results that could support a reorganization, or at least a better price at a bankruptcy auction.The $160 million lifeline is certainly a game changer for Aeropostale common shareholders. The teen retailer looks to be doing all that it can to preserve some shareholder value. In a court filing, Aeropostale said it is in talks “with multiple well capitalized and financed parties” that may be willing to sponsor a reorganization plan that will preserve the business. We will be updating Insider Financial as soon as we know more. For continuing coverage on AROPQ, sign up for our free newsletter today and get our next hot stock pick!Disclosure: We have no position in AROPQ and have not been compensated for this article.