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ANN Up 8.1% on Q4 Earnings & Revenue Beat; Guides FY15 - Analyst Blog

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Shares of ANN INC.ANN jumped 8.1% on Friday as the company's fourth-quarter fiscal 2014 adjusted earnings per share surged 20% year over year to 12 cents, faring far better than the Zacks Consensus Estimate of a loss of 2 cents.

Ann Inc. - Earnings Surprise | FindTheCompany

ANN's bottom line mainly benefited from solid comparable store sales (comps) and efficient expense management even amid intense promotional and competitive headwinds.

However, including one-time items such as costs associated with port labor disruptions at the West coast, the company's quarterly earnings plunged 90% year over year to 1 cent a share.

Sales

The company's sales for the quarter climbed 3.9% year over year to $647.4 million, cruising ahead of the Zacks Consensus Estimate of $631 million.

Going by brands, Ann Taylor sales came in at $249.9 million compared with $246.2 million in the prior-year quarter. Further, LOFT sales advanced 5.4% to $397.5 million.

Overall comps during the quarter inched up 1% compared with a 2.9% increase in the prior-year period. Brand wise, comps for the Ann Taylor brand were down 0.4%, including flat comps at Ann Taylor stores and website, and a 1.5% decline in the Ann Taylor Factory channel. At the LOFT brand, comps grew 1.9%, characterized by a 1% rise at LOFT stores and website, coupled with a 6.6% improvement in the LOFT Outlet Channel.

Margins and Costs

Gross profit during the quarter declined 3.6% to $296.2 million, with gross margin contracting 350 basis points (bps) to 45.8%. This can be attributed to excess promotional activity at both brands along with the adverse impact of port labor disruptions at the West coast, which affected the gross margin by 130 bps.

Selling, general and administrative (SG&A) expenses contracted 280 bps to 45.6% of net sales due to a decline in marketing expenses, cost savings pertaining to the company's first-quarter fiscal 2014 restructuring and an overall tough expense management.

Adjusted operating income soared 60.3% year over year to $9.3 million. Adjusted operating margin improved 50 bps to 1.4%, backed by efficient cost management.

Fiscal 2014: A Quick Look

ANN's fiscal 2014 adjusted earnings decreased 11.4% year over year to $1.94 per share. However, adjusted earnings were much ahead of the Zacks Consensus Estimate of $1.73. On a reported basis, the company's earnings came in at $2.19 per share, down 33.3% year over year.

Net sales for the year rose 1.6% to $2,533.5 million, surpassing the Zacks Consensus Estimate of $2,517 million.

Stores Update

ANN operates a nationwide chain of fashionable clothing for women. During the reported quarter, the company introduced 6 new stores, including 1 Ann Taylor store, 1 Ann Taylor Factory store, 1 LOFT store and 3 Lou & Grey stores. Also, during the same period, the company shut down 26 stores, including 17 Ann Taylor and 9 LOFT stores.

The total store count at the end of fiscal 2014 was 1,030, in line with the company's previous guidance. This includes 245 Ann Taylor stores, 116 Ann Taylor Factory stores, 537 LOFT stores, 127 LOFT Outlet stores and 5 Lou & Grey stores.

The company aims at opening about 40 new stores in fiscal 2015, while shutting down nearly 35 stores. This is expected to result in a total of 1,035 stores at the end of fiscal 2015, leading to flat total weighted average square footage year over year.

Balance Sheet

ANN ended fiscal 2014 with cash and cash equivalents of $207.7 million compared with $201.7 million in fiscal 2013. As of Jan 31, 2015, its total shareholders' equity stood at $510.7 million compared with $468.5 million as of Feb 1, 2014.

Outlook and Conclusion

Though management is disappointed that ANN failed to deliver earnings growth in fiscal 2014, it is satisfied with the company's response to the hurdles faced during the period.

Going forward, the company remains focused on enriching customer experience by enhancing its brands and omnichannel capacity; efficient cost and inventory management and gross margin improvement. Additionally, the company intends to continue implementing its strategic plans, including its recently introduced SG&A optimization program and supply-chain initiatives. Together, all these endeavors are likely to drive ANN's profitability and boost shareholder value over time.

Consequently, management initiated guidance for the first quarter and fiscal 2015.

For first-quarter fiscal 2015, the company targets total sales of $605 million, with comps witnessing marginal year-over-year growth. It projects gross margin of 53% and SG&A expenses of roughly $295 million. Effective tax rate is expected to be 40.5% while shares outstanding should total 46.2 million.

For fiscal 2015, the company anticipates total sales of $2.565 billion while comps are anticipated to climb in the low single-digits range.

Further, it expects gross margin to be roughly 52%. SG&A expenses are projected at $1.175 billion for the fiscal, including the impact of targeted savings worth $20 million with regard to the company's SG&A optimization program. Effective tax rate is projected to be 40.5% while shares outstanding are anticipated to be 46.5 million. The company envisions capital spending of about $85 million for fiscal 2015.

Zacks Rank

ANN currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the apparel-shoe retail space include Citi Trends, Inc. CTRN , with a Zacks Rank #1 (Strong Buy), American Eagle Outfitters Inc. AEO and DSW Inc. DSW , each carrying a Zacks Rank #2 (Buy).

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


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

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