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No. of Recommendations: 4
Another one of HR's zombie retailer basket -- several already declared BK, but several have done quite well.

One can argue whether this concept should exist at all, esp. since its better competitors like AEO/ANF have struggled to find new identities. Losing gobs of money. negative SSS.

So what's to like? It is a story getting LESS worse, maybe even incrementally better. ARO got back its old CEO who had tremendous success during his tenure (or just luck), and the macro environment seems to have improved somewhat. Combined with a clean inventory (down 20%), ARO was able to pre-announce to the upside despite still -9% SSS, which itself is a sequential improvement. We have seen this play out over and over again. new CEO, cut inventory, better gross margin, and hopefully a few positive SSS against easy compares, and off we go.

valuation is admittedly tricky with no earnings. This is essentially a long-dated option. At after hour price, it trades around 0.15x EV/sales. I wouldn't be surprised to see anywhere from 0.1x to 0.5x over the next 12 months depending on SSS, so a really wide range, but upside is very interesting. The only thing I am sure of is that it will grind higher if it keeps the trajectory of improving SSS/margin. I think the company will be EBITDA positive in '15, and that should be good for 0.2-0.3x.

I think we see some fireworks tomorrow, and stock will grind to $4 into earnings and could hit $8 (0.4x EV/sales) if they ever hit a positive SSS in a quarter.

Short interest is 25%. For the life of me, I don't understand why anyone would short this thing at 0.1x EV/sales with no immediate liquidity risk. FLPSX owns 10% (not his finest hour. i think he rode it all the way up and then down). Sycamore owns another 8-9% through convert at much higher prices.

this is the ultimate hope/faith stock, but ironically my highest batting average (probably slugging % as well) type of stock. still don't have the guts for a small position.
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