Women’s specialty retailer Ann (NYSE:ANN) is scheduled to release its Q4 fiscal 2013 results on March 14. In a press release last month, the company stated that its comparable store sales increased by 3% during the quarter. While comparable sales growth at Ann Taylor’s mainline stores remained low at 1%, due to weak consumer confidence and low store traffic, it was positive 8% at LOFT.  The retailer’s LOFT brand has improved tremendously over the last three to four quarters and its strong growth amid retail weakness is very impressive.
However, Ann’s factory channel (which offers past season’s best sellers) still remains a concern as Ann Taylor Factory and LOFT Outlet witnessed a sharp decline in their comparable sales. Since U.S. buyers have become extremely fashion conscious, they are not spending too much on last season’s products in spite of their attractive prices. This indicates that despite a pullback in consumer spending, buyers are still placing a greater emphasis on designs than price.
Our price estimate for ANN stands at $41, implying a premium of about 15% to the market price.
Ann Taylor’s Growth Slows Due To Economic Weakness
With its attractive product offerings and appealing marketing campaigns, Ann Taylor’s mainline stores comparable sales improved by 6.2%, 9% and 4% respectively in the first three quarters of fiscal 2013. However, the brand’s growth slowed down in the fourth quarter to just 1% primarily due to weak consumer confidence and low store traffic. Due to increased taxes, slow job growth, higher healthcare costs and gasoline inflation, U.S. buyers spent cautiously last year. While they were comfortable spending on electronics, building materials and furniture, they were hesitant to spend on apparel. According to a Reuters poll conducted before the holiday season, about 27% of consumers were planning to lower their spending on apparel this holiday season.  Also, U.S. foot-traffic during the holiday season declined by a very sharp 14.6% due to extreme weather conditions that kept buyers away from stores.  This impacted the fourth quarter sales of several U.S. retailers and Ann was no exception.
Ann Taylor Stores contribute about 25% to the retailer’s value as per our estimates.
LOFT Carries On Its Strong Growth Momentum
After a couple of weak quarters, LOFT’s performance improved as Ann worked aggressively on its product mix. The company reduced its focus on bright colors and invested more in white, black and neutral, as well as prints and patterns. This provided the brand with a much better product mix that complemented its strong offerings in denims, casual pants, shorts, tops, etc. Alongside, the company also expanded LOFT’s performing product categories, such as LOFT lounge, and updated its pants with new fits, fabrics and silhouettes.
With these efforts, LOFT’s mainline stores’ comparable sales improved by 3.7% in Q2 fiscal 2013. Ann attributed this growth to strong sales of navy, black and white, along with prints and novelty offerings.  In the third quarter, the brand’s growth momentum picked up as its comparable sales increased by 6%, on top of a 14% rise in the same quarter last year. LOFT Outlet stores also came out of their slump and delivered a 2% rise in comparable store sales. A greater variety of fits and styles, along with balanced color offerings in several product categories resonated well with customers.
The brand performed strongly in the recently concluded holiday season as well, with its balanced colors, prices, fashion and versatility.  As a result, LOFT’s mainline store comparable sales improved by 8% during the fourth quarter.
LOFT stores contribute more than 50% to the retailer’s value as per our estimates.
Factory Channel Continues To Be A Drag
During the past four-five quarters, LOFT Outlet and Ann Taylor Factory stores have struggled to register positive comparable sales growth, suggesting that customers have been a little hesitant in spending on last season’s products. During the second quarter of fiscal 2013, LOFT Outlet and Ann Taylor Factory recorded a comparable store sales decline of 3.2% and 7.2% respectively. In the third quarter, while Ann Taylor Factory comparable sales fell by 7%, LOFT Outlet managed a positive growth of 2%. Performance of the factory channel worsened in Q4 fiscal 2013 as comparable sales at Ann Taylor and LOFT stumbled by 6% and 4% respectively.
As per our estimates, Ann Taylor Factory and LOFT Outlet account for close to 22% of the company’s value.
- ANN INC. Provides Update For Fiscal Fourth Quarter and Full Yar 2013, ANN INC., Feb 6 2014
- U.S. holiday sales expected to rise less than last year: ShopperTrak, Reuters, Sept 17 2013
- Retailers See Fourth Consecutive Quarter Annual Sales Increase During 2013 Holiday Season, ShopperTrak, Jan 8 2013
- Ann’s Q2 fiscal 2013 earnings transcript, Aug 23 2013
- Ann’s Q3 fiscal 2013 earnings transcript, Nov 22 2013
Disclosure: No positions