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ANN Inc. - Aggressive Growth

Posted
10/25/2012 1:00:00 AM
By: Zacks.com
Referenced Stocks:ANN

ANN Inc. ( ANN ) has surpassed the Zacks Consensus Estimate for seven straight quarters with an average surprise of 11.1%. This specialty retailer of women's clothing will report again in mid-November. Shares of this Zacks #1 Rank (Strong Buy) are up more than 40% year to date, thanks to bright prospects ahead with significant growth in brands and sales.

Solid Second Quarter Beat

On August 17, ANN reported adjusted earnings of 63 cents per share for the second quarter, beating the Zacks Consensus Estimate by 23.5%. Earnings also increased 34% from the prior-year quarter, driven by significant growth in net sales, comparable sales and margins.

Net sales of $595 million were up 6.6% from the prior-year quarter, thanks to strong acceptance for both of its leading fashion brands - Ann Taylor and Loft. Comparable sales grew 4.7%. Both Ann Taylor and Loft delivered positive comps across all retail channels, resulting in sales increases of 7.1% and 6.3%, respectively.

Gross margins expanded 90 basis points over the prior-year quarter to 55.9% and were also above management's guidance of 55%. It was driven by top-line growth and lower promotional activity.

In the second half, ANN expects both brands to make solid progress and further boost sales. The company also intends to enter the Canadian market with its first stores in Toronto.

ANN will report fiscal third-quarter results on November 16. The Zacks Consensus Estimate is calling for 74 cents per share.

Impressive Outlook

For the third quarter, the company projects sales at $600 million, driven by comparable sales growth in the mid-single digits. Gross margins are seen at around 58%.

For full year 2012, sales are expected to reach $2.39 billion, up from the prior outlook of $2.38 billion. Sales growth should be driven by mid-single digit growth in comparable sales. Gross margin is expected to be approximately 55.0%.

Rising Earnings Estimates

The Zacks Consensus Estimate for fiscal 2012 has moved up 0.9% to $2.20 per share over the last 60 days, representing a year-over-year increase of 29.4%. For fiscal 2013, the Zacks Consensus Estimate has increased 1.6% to $2.55 per share over the same time frame, suggesting a year-over-year increase of 16.1%.

Valuation

ANN currently trades at a price-to-book (P/B) multiple of 4.72x, reflecting a 58.4% premium to the peer group average of 2.98x. The P/S multiple for the stock is 0.74x, which is at a slight premium of 4.2% to the peer group average of 0.71x. However, the stock is justified as it has a trailing 12-month return on equity (ROE) of 25.3%, which is above its peer group average of 16.3%.

Chart Showing Consistent Rise

Shares of ANN have been rising consistently since the end of July and jumped sharply following the announcement of its solid second quarter results. Shares reached a new 52-week high of $39.78 on September 13. Moreover, the stock is currently trading above its 200-day moving average ($28.75) and slightly below its 50-day moving average ($36.26). In fact, the stock has been consistently trading above its 50-day and 200-day moving averages since end of July 2012.

Volume is strong, averaging roughly 978K daily. ANN has outperformed the S&P 500 over the past three months. The year-to-date return for the stock is 40.43% compared with the S&P 500's return of 12.36%.

Based in New York, ANN Inc. is a national retailer of upscale women's clothing, shoes and accessories, which are sold mainly under the Ann Taylor and Loft brands. It offers both business as well as casual wear through its traditional retail stores and online at anntaylor.com and LOFTonline.com, as well as by phone. The company operated 962 stores as of July 28, 2012. The market cap of the company is $1.69 billion.


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