Zacks Investment Research downgraded
) to a Zacks Rank #5 (Strong Sell) on Aug 14, 2014.
Why the Downgrade?
ANN has witnessed sharp downward estimate revisions after the
company updated its business outlook for the second quarter of
fiscal 2014 due to dismal preliminary comparable store sales
(comps) and gross margin results.
ANN's second-quarter preliminary results point to sales of $648
million as against $670 million projected earlier. The decline is
due to a 2.3% decrease in comps for the second quarter compared
with a marginal improvement guided previously.
The company blamed the weaker-than-anticipated comps on soft
traffic trends and a highly promotional environment across the
industry in the latter half of the quarter. However, the company
noted that sales trends remained positive through mid-June.
Coming to segment performance, the company remains encouraged by
the positive comps delivered at Ann Taylor, while comps at LOFT
were dismal due to soft demand for its basic knit tops which form a
key component of LOFT's summer collection.
Comps at the Ann Taylor brand rose 0.7% driven by a 2.0% rise at
Ann Taylor, offset by a 1.9% decline in the Ann Taylor Factory
channel. Meanwhile, the company posted a 4.1% decline in comps for
LOFT resulting from a 5.2% decline at LOFT marginally offset by a
0.3% gain in the LOFT Outlet Channel.
Further, the company expects gross margin of 52.4% compared with
53.5% guided earlier. The built-up pressure on gross margin was due
to the measures taken by the company to clear summer inventory
which resulted in clean inventories at both brands although it
weighed on margins.
The company expects selling, general and administrative (SG&A)
expenses to be $286 million while the company had earlier projected
SG&A expense of roughly $295 million. Shares outstanding for
the second quarter is anticipated at 46.9 million when taking into
account the effect of participation in securities and buyback of
1.3 million shares during the quarter.
Given the soft preliminary results, we remain less constructive on
the company's earnings results for the second quarter, slated to be
released on Aug 22, 2014.
The Zacks Consensus Estimate for second-quarter 2014 and fiscal
2014 decreased 14.6% and 10.9%, respectively, to 70 cents and $2.13
per share over the last 7 days. For 2015 as well, most of the
estimates were revised downward over the same time frame with the
Zacks Consensus Estimate declining 7.6% to $2.56 per share.
Other Stocks to Consider
Not all stocks in the retail sector are performing as
disappointingly as ANN. Better-ranked stocks among apparel and shoe
retailers include Citi Trends Inc. (
), The Men's Wearhouse Inc. (
) and Kate Spade & Co. (
), all carrying a Zacks Rank #1 (Strong Buy).
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