Higher Comps Drive Ann's Profit - Analyst Blog

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Ann Inc. ( ANN ) recently reported third-quarter 2011 results. The company's adjusted earnings leapt to 61 cents per share from 42 cents in the year-ago quarter, primarily driven by higher sales, improved gross margin and management initiatives to contain costs. Quarterly earnings also beat the Zacks Consensus Estimate of 57 cents a share.

Quarterly Details

During the quarter, Ann's net sales grew 11.6% to $564.0 million from $505.3 million in the year-ago quarter. The growth was primarily driven by a 5.5% rise in same-store sales. In terms of brands, same-store sales rose 2.5% at Ann Taylor and a sharp 7.9% at LOFT. However, quarterly revenue fell short of the Zacks Consensus Estimate of $566.0 million.

Ann's gross profit recorded a growth of 12.3% year over year to $324.2 million, while gross margin expanded 30 basis points to 57.5%. The growth was mainly attributable to better product execution coupled with higher full-pricing selling at LOFT stores, and benefits coming through growth in the e-commerce and factory/outlet channels.

Selling, general and administrative expenses dipped 120 basis points to 47.8% of net sales due to cost savings and increased net sales, partially masked by higher factory outlet costs. Accordingly, Ann's operating profit climbed to $54.7 million from $40.8 million in the year-ago quarter. Consequently, operating margin expanded 160 basis points to 9.7% compared with the prior-period margin of 8.1%.

Balance Sheet

Ann exited the quarter with cash and cash equivalents of $139.6 million compared with $223.6 million in the year-ago quarter. Total shareholders' equity came in at $436.1 million compared with $482.3 million in the year-ago period.


Moving forward, Ann targets total sales of $2,225.0 million for fiscal 2011, assuming an increase of mid-single digit growth in comparable store sales. Further, the company expects to achieve a gross margin rate of 55.5% in fiscal 2011.

For the fourth quarter, the company expects sales of $580.0 million, assuming mid-to-single-digit growth in comparable store sales.

The company also stated that it now estimates capital expenditure of $125.0 million for fiscal 2011 comprising $55.0 million for the opening of 75 new stores at both brands, $25 million for downsizing and remodeling of 30 stores, $20 million for store renovation and refurbishment programs, and $25 million for information technology and e-commerce channel.

Ann operates a nationwide chain of fashionable clothing for women. As of July 30, 2011, the company operated 950 Ann Taylor, LOFT, Ann Taylor Factory, and LOFT Outlet stores across 46 states, the District of Columbia and Puerto Rico.

The company is in direct competition with Chico's FAS Inc. ( CHS ). Ann Taylor currently retains a Zacks #3 Rank implying a short-term 'Hold' rating on the stock.

ANN INC ( ANN ): Free Stock Analysis Report
CHICOS FAS INC ( CHS ): Free Stock Analysis Report
Zacks Investment Research

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

This article appears in: Investing , Business , Stocks
Referenced Symbols: ANN , CHS

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