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ANN Is a Good Buy in a Difficult Retail Environment

April 30, 2014 | About:
jaggom

jaggom

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ANN (ANN), with its strong quarterly results, indicates that the company is making a comeback. Despite headwinds in the retail apparel market and competition, ANN emerged as a winner by reporting strong quarterly results. ANN has outperformed in the past and is continually working on improving market share. The company looks positioned for a comeback and could be a good long-term holding as its recent results suggest.

Performing Well

The reason for the success of ANN has been its service of providing customers with fashionable, versatile products, excellent value for money, and an engaging shopping experience both in-store and online. As a result, the company saw a terrific 7% rise in its sales to $658 million. On the back of strong comps growth and strong revenue growth, EPS increased 17.1% year over year to $0.89.

Moving on, ANN is confident regarding a comeback with aggressive strategies. It is focusing on various aspects worldwide to gain market share. It is planning to strengthen its multi-channel initiative including e-commerce. ANN is expecting online sales to boost the business as it is seeing good customer response online led by high traffic and conversion at both brands. The retailer is further working on capturing small and mid markets under a strategy to promote LOFT in such markets.

ANN is worried about the weakness at the ANN Taylor factory outlet stores which declined by 6.9% in the past as a result of weak traffic and muted customer spending. The weakness was also due to the bad weather which further added to its woes. The company is therefore focusing more on online sales to offset the effect of weakness at the Taylor factory outlet that management expects in the next quarter.

Despite ANN’s woes, the retailer provided a favorable margin forecast. Despite soft traffic, muted spending and bad weather, the company expects to see positive comps at both ANN Taylor and LOFT. Moreover, ANN’s good, better and best pricing policy is also helping it to sell its products without discounts.

Peers' Moves

ANN majorly drove its revenue from comps. To drive its revenue up in the third quarter of fiscal 2013, competitor Chico (CHS)'s had to rely on its new store openings. Its comps declined 1.3% year over year due to weak traffic and a highly promotional environment. On the back of 115 new store openings, revenue grew 3% year over year to $655.6 million. However, earnings declined 12% year over year to $0.22 per share.

On the other hand, Chico’s started the fourth quarter on the front foot. It is finding its strength in multi-channel expansion, crossing national boundaries for international growth. With aggressive investment between $140 million and $150 million and opening 120 to 130 new stores in 2014, the company is aiming at bolstering its presence in these markets.

As compared to Chico’s, which was up with a strong third quarter, Aeropostale (ARO) is continually seeing weakness as its comps declined 15%, as a result of which the top-line fell by 15.1% to $514.6 million. The company lost its target customers as a result of poor performance, resulting in the widening of losses to $0.29 per share. It continues to disappoint investors as it expects this loss to continue in next quarter as well.

Conclusion

ANN managed to survive performing outstandingly amid stiff competition, while other apparel retailers are finding difficulty in growing comps and earnings. ANN also looks reasonable and can be a good pick in a difficult retail apparel environment.


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