Aéropostale is about to get back on its feet in a big way.
Mall developer Simon Property Group (SPG), which led the consortium that recently won a bankruptcy auction for the assets of Aéropostale, told investors last week that the struggling retailer’s U.S. store base could reach 500 again.
It’s been six months since Aéropostale filed for Chapter 11 and few expected the teen retailer to avoid complete liquidation of its 720 U.S. stores—an outcome that its lead lender, private-equity firm Sycamore Partners, was gunning for.
But SPG, along with Authentic Brands Group, General Growth Properties, Hilco Merchant Resources and Gordon Brothers Retail Partners, stepped in to save the day with an offer worth $243 million and a plan to keep 240 of its stores open.
Now it would appear that the consortium not only expects the chain to recover, but that its fleet will almost double again in time.
“The only reason we decided to make this investment is because we believe we can make money,” said David Simon, chairman and chief executive officer of SPG, pointing out that his company’s share of the venture is worth only $33 million, compared with its total market value of $65 billion.
He added: “If our model is right, we think we are buying this company at one to two times EBITDA with future growth opportunities ahead of it and we continue to believe that this will be an astute investment.”
Basically, once the new owners have closed underperforming and lossmaking stores, improved the supply chain and refined Aéropostale’s offering, they plan to grow its base and are confident that each location will be profitable.
“We were thinking we could justify our investment at a much lower store base,” Simon said. “The fact of the matter is, we found out there’s a lot more store profitability out there than we thought, so it is going to be around 500, give or take.”