Ann Taylor Apparel Sales Up As New Strategy Pays Off

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For clothing retailers, it's hard enough selling the right styles at the right time at the right price, all while competing against a battalion of other businesses.

It's even trickier when you have to do this across a mix of sales platforms, not only traditional mall-based or stand-alone stores, but outlet stores and online stores as well.

That's where the industry finds itself in the second decade of the 21st century. To compete, large apparel retailers need a multichannel sales approach that connects to a broad range of customers.

One company finding success with this approach isAnn Inc. ( ANN ), operator of the Ann Taylor and Loft chains.

Ann specializes in apparel, shoes and accessories for contemporary women. Loft stores focus on casual wear at affordable prices, while Ann Taylor stores feature career and casual fashions at higher prices.

Online Sales

The company has worked hard over the last few years helping its Ann Taylor and Loft chains recapture market share from rivals such asGap ( GPS ), J.Crew and Banana Republic.

More recently, Ann has implemented a strategy to boost online sales as well as sales at its Ann Taylor Factory and Loft Outlet stores.

"(Ann) is among the limited number of retailers that are beginning to speak to the value of shifting into a multi-channel approach," JPMorgan analyst Brian Tunick noted in a report last month. "We believe e-commerce and factory outlets will be an important driver as they are the fastest growing and higher margin segments, currently representing nearly a quarter of Ann's revenue base."

In September, Ann launched the first phase of a multichannel initiative designed to improve sales across all channels.

The company's new e-commerce platform features simpler and quicker checkouts as well as international shipping options. One change is that online orders are filled directly from stores for products that are not available in warehouses.

"We believe the strategy will boost the company's top line while minimizing costs," Zacks Equity Research noted in a report.

Although Ann does not break out e-commerce sales in its quarterly results, the online business has reportedly more than doubled over the past three years.

Meanwhile, the company has made improvements in other areas as well, watchers say.

"In addition to remodeling stores into more productive assets, Ann is in the process of accelerating its outlet expansion," Tunick noted. "The focus on the outlet strategy is a clear positive, as this channel carries higher volumes and margins."

Ann's factory and outlet stores are mainly located in suburban areas. They are larger in size than the full-priced Ann Taylor and Loft stores.

Through the first nine months of fiscal 2012, sales at Ann Taylor Factory stores rose 5% from the prior year to $230.4 million. Same-store sales increased 1.5%. By comparison, Ann Taylor stores during the same period had a gain of 2% in overall sales and 0.6% in same-store sales.

Loft Outlet stores posted increases of 20% in overall sales and 0.4% in same-store sales during the first nine months of the year. Full-price Loft stores had gains of 9% in overall sales and 8.2% in same-store sales.

Companywide, Ann reported a same-store sales rise of 4.7% during the first nine months of the year. During the third quarter, which ended Oct. 27, same-store sales rose 5.5% from a year earlier.

Full-price Loft stores led the way during Q3 with an 8% gain in same-store sales. Full-price Ann Taylor stores showed a 5.6% gain in comps, while Ann Taylor Factory stores reported a 1.7% increase. Same-store sales at Loft Factory stores declined 3% during the quarter.

That decline was due to "very controlled inventory and stronger gross margin rates," analyst Tunick noted.

Overall sales for the third quarter rose 9% from a year earlier to $612.5 million, topping Wall Street views for $606.1 million.

Earnings gained 38% to 84 cents a share, above estimates for 75 cents. It was the third straight quarter of double-digit EPS growth.

New Stores

The company opened 25 stores during the quarter and closed six. It ended the quarter with 981 locations, including 278 Ann Taylor stores, 101 Ann Taylor Factory stores, 510 Loft stores and 92 Loft Outlet stores.

Ann also entered Canada during the third quarter. It opened its first store in Toronto in September and added two more in November.

In a Q3 statement, Chief Executive Kay Krill said the response in Canada has been "outstanding."

With the move into Canada, Ann is "testing the international waters for the brand," Tunick noted. "Management sees a top and bottom line opportunity that may lead to further intentional expansion."

Analysts polled by Thomson Reuters expect Ann to report fourth-quarter earnings of 25 cents a share, up from 10 cents the prior year.

The company's stock price got a big shot in the arm back in August when Ann logged better-than-expected second-quarter results. Shares rose 20% to a five-year closing high of 34.38 on Aug. 17. The stock moved as high as 39.78 on Sept. 13. It currently trades near 33.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: ANN , GPS

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