AnnTaylor (NYSE:[[ANN]]) is a leading specialty retailer of
women's apparel, shoes and accessories in the United States. They
compete with Aeropostale (NYSE:[[ARO]]), American Eagle Outfitters
(NYSE:[[AEO]]), Christopher and Banks Corp. (NYSE:[[CBK]]), Limited
Brands (NYSE:[[LTD]]), and Ascena Retail Group, Inc. (Nasdaq:
[[ASNA]]) . Over the past five years, ANN Inc.'s success has become
more dependent on LOFT than any other store.
LOFT as representing 60% of the company's value. Ann Taylor also
operates in the e-commerce space and has recently introduced global
shipping to more than 100 countries.
Strong Product Performance and Brand Strength
Ann Taylor brand maintained its strength during the first two
quarters due to quick responses to changing trends, wide product
range, appealing shopping experience and balanced pricing strategy.
The Ann Taylor factory strategy for the first half of 2013 has been
to position inventory to maximize gross margin due to the softer
traffic trends at outlet centers. This channel, along with LOFT
Outlets, had weaker than hoped for performance in the first half of
the year, but is positioned for top-line growth going forward.
In the 11 months since this initiative was launched, ANN has
been leveraging this new capability to drive increased sales and
customer satisfaction. The multi-channel effort has made more
productive use of inventory and has proven effective at clearing
sale items while improving margins on that merchandise.
Multi-channel has also provided management a better view of the
online demand for marketing looks and key fashion. And beginning
this fall, the company will invest in inventory that will better
meet this demand. Overall, multi-channel has been a major win for
ANN with more opportunity to come.
E-commerce continues to be a major contributor to growth. Online
sales increased at double-digit rates, again, this quarter. This
trend is expected to continue while traffic and conversion continue
to be up at both brands. Combining ongoing investments in this
platform and the client experience with a continued expansion of
exclusive online products will continue driving results.
International Growth Strategies
Ann Inc.'s expansion into Canada continues to prove very
successful. Stores are outperforming management expectations. In
2Q, the company opened 2 LOFT stores and 1 Ann Taylor store in the
Greater Toronto market. The company is on track to have 10 stores
in Canada by year end. Both brands are benefiting from a loyal
client base in Canada, and there is significant potential for the
company to continue to gain market share.
Separately, their international shipping capability, launched
earlier this year, is generating a very strong response and should
continue as a platform for growth.
ANN Inc. continues to benefit from a remodeling effort designed
to enhance the customers' overall shopping experience. Management
is on-track to meet their stated objective of having 80% of the
store fleet updated in the modern format by year end. This
cost-effective and capital-light initiative has had very positive
feedback, and is considered to be part of their larger real estate
Overall, these strategic initiatives provide a strong foundation
for the continued long-term profitable growth of the company, and I
expect, per management implications, equally powerful strategic
visions to be developed for 2014.
My price target for ANN Inc. is $41 based on a half-way point
between an EV/EBITDA derived price target and a P/E target. Both
multiple numerators are below the peer-group mean.
Business and Products
Ann Taylor is a leading specialty retailer of women's apparel,
shoes and accessories in the United States. The company's two
brands are Ann Taylor and LOFT.
The Ann Taylor brand is higher-end and targets women making
$150,000 a year
. Ann Taylor has continued to generate strong sales and higher
profitability. The brand is seeing stronger, more consistent
performance driven by the continued execution of their multi-part
strategy to offer customers an expanded assortment of fashion in
all stores and online; to enhance the value by continuing to
provide a balanced assortment across good, better and best price
points; to be more targeted in our promotional strategy; and to
elevate the shopping experience, both in-store and online. Ann
Taylor saw strength across the entire assortment. Dresses, tops,
skirts, suits, jewelry, accessories and shoes all received positive
results for the quarter. In addition, Ann Taylor's color offering,
grounded in white, navy and black, was well-received. The Kate
Hudson capsule collection was also highly successful, and Weddings
performed exceptionally online. From a product perspective, the
assortment is stylish and versatile, offering transitional fabrics
and a strong offering in neutrals. Black, navy and camel will
anchor the collection, with pops of color and a broad assortment of
print, pattern and novelty items. The new shoe collection, designed
in partnership with Vince Camuto, is in stores and online this
month and is off to an unbelievable start. Ann Taylor will be
offering special occasion dresses again this fall, which have
historically been successful for the brand.
LOFT is considered the lower of the two Ann Taylor brands,
targeting women making between
$75,000-$100,000 a year
. The brand has seen strength across the assortment. Leathers,
woven and knit tops, casual dresses, denim, LOFT lounge and jackets
all generated positive comps. Customers were most responsive to
denim and color offerings in the last quarter. Similar to Ann
Taylor, LOFT online continues to be a significant contributor to
the growth of the brand, driven by the strength of the product
offering. Customers responded to the expanded offering in both
denim and LOFT lounge, resulting in another quarter of substantial
The second quarter represented the fifth consecutive quarter
delivering positive comps performance.
Net sales for the second quarter were $638.2 million, an
increase of approximately 7.3% versus the $594.9 million in net
sales reported in the second quarter of 2012. By brand, net sales
across all channels of the Ann Taylor brand were $245.2 million, a
5.1% increase over the $233.3 million reported last year. At the
LOFT brand, net sales were $393 million, up 8.7% versus $361.6
million reported last year.
Second quarter gross margin sat at 54.7%, 120 basis points below
last year's record rate of 55.9%. Gross margin is expected to
finish the year at around 54.3%.
SG&A as a percentage of net sales was 45.3%, a
170-basis-point improvement compared with 47% in the second quarter
of last year. SG&A expenses in the second quarter were $289.3
million compared with $279.5 million reported in the second quarter
Second quarter net income was $35.6 million, representing a 16%
increase compared to net income of $30.7 million achieved during
the second quarter of 2012.
The company has no bank debt or long-term debt and is not
expected to take any on in the next year.
Capital Expenditure are expected to sit at around 160MM in the
(click to enlarge)
For my valuation, I've used a combination of management,
industry, and analyst guidance to forecast next year's sales and
major drivers. You'll find Gross Margin to be hovering around 54.3%
and I've increased overall sales at mid-single digits. I believe
SG&A is just slightly conservative on my valuation, but not
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Moving on to the cash statement. The only thing here that I'd
like to draw attention to is CapEx spend. Again this is largely
in-line with management projections.
(click to enlarge)
Finally, the table above shows my metrics used in deriving my
price target. The EV/EBITDA and P/E multiples are both beneath the
industry mean and I expect they will converge slowly as the company
continues to perform well and expand going forward.
Ann Taylor sports strong brands with an expanding reach. The
company is very profitable by industry standards and is competently
managed. The lack of debt and great cash flow streams provide ample
opportunity for management to create or return value. In fact,
management just wrapped up a $600 million share repurchase program,
and has planned for another $250 million to return value to
shareholders. I expect Ann Inc. to continue to meet and/or exceed
analyst expectations going forward which could mean a steady rise
in share price as performance and multiples improve.
I have no positions in any stocks mentioned, and no plans to
initiate any positions within the next 72 hours. I wrote this
article myself, and it expresses my own opinions. I am not
receiving compensation for it. I have no business relationship with
any company whose stock is mentioned in this article.
Unless otherwise noted via superscript, information obtained on Ann
Inc. was gathered from the company's Annual Report, Earnings Call,
and investor presentation materials.
GNC: Continued Top And Bottom Line Strength