Ann Taylor Swings to Profit

| About: Ann, Inc. (ANN)

Ann Taylor Stores Corp. (NYSE:ANN) recently reported fiscal 2010 second-quarter results. The company swung to adjusted earnings of 32 cents per share from an adjusted loss of 32 cents in the year-ago quarter primarily driven by higher sales, improved gross margin and management initiatives to contain costs. Quarterly earnings also matched the Zacks Consensus Estimate.

Quarterly Details
During the quarter, Ann Taylor’s net sales grew 2.8% to $483.5 million from $470.2 million in the year-ago quarter. The growth was primarily driven by a 6.1% growth in same-store sales, partially offset by the net closure of 39 stores in the last one-year period. In terms of brands, same-store sales rose 15.2% at Ann Taylor, while they remained flat at LOFT.

Ann Taylor’s gross profit recorded a growth of 8.1% year-over-year to $266.1 million, while gross margin jumped 270 basis points (bps) to 55.0%. The growth was mainly attributable to better merchandise and reduced markdowns at Ann Taylor coupled with prudent inventory management and effective marketing efforts.

Selling, general and administrative expenses dipped 2.0% year-over-year to $235.4 million due to cost savings related to the company’s restructuring initiatives. Accordingly, Ann Taylor swung to an operating profit of $29.9 million from an operating loss of $25.2 million in the year-ago quarter, which included a restructuring charge of $31.1 million.

Balance Sheet and Cash Flow
Ann Taylor exited the quarter with cash and cash equivalents of $262.6 million, compared to $204.0 million in the year-ago quarter. During the first half of fiscal 2010, the company generated $67.5 million of cash from operations and utilized $19.0 million towards capital expenditure and $5.4 million towards share buybacks.

Guidance and Zacks Consensus
Moving forward, Ann Taylor targets total sales of $1.95 billion in fiscal 2010, lagging the Zacks Consensus Estimate of $1.96 billion. For the third quarter, the company expects sales of $495 million, assuming mid-to-high-single-digit growth in same-store sales, which was slightly above the Zacks Consensus Estimate of $494 million. The company also stated that it now expects to close 56 stores in fiscal 2010 as part of a three-year restructuring program, compared to the earlier forecast of 61 closures.

Ann Taylor operates a nationwide chain of fashionable clothing for women. As of July 31, 2010, the company operated 894 Ann Taylor, LOFT, Ann Taylor Factory, and LOFT Outlet stores across 46 states, the District of Columbia and Puerto Rico. We currently have a Zacks #3 Rank (short-term Hold rating) and a long-term Neutral recommendation on the company.