Retailer Ann Taylor Reports Solid Q2, Ups Capital Expenditures

Aug.22.11 | About: Ann, Inc. (ANN)

Ann Taylor Stores Corp. (NYSE:ANN) recently reported fiscal 2011 second-quarter results. The company’s adjusted earnings leapt to 47 cents per share from 32 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 45 cents a share.

Quarterly Details

During the quarter, Ann Taylor’s net sales grew 15.4% to $558.2 million from $483.5 million in the year-ago quarter. The growth was primarily driven by an 8.6% growth in same-store sales. In terms of brands, same-store sales rose 5.3% at Ann Taylor and a sharp 11% at LOFT.

Ann Taylor’s gross profit recorded a growth of 15.3% year over year to $306.8 million, while gross margin remained flat at 55.0%. The growth was mainly attributable to better product execution coupled with lower promotional activity at LOFT stores, and a higher promotional modulation at Ann Taylor.

Selling, general and administrative expenses dipped 120 basis points to 47.5% of net sales due to cost savings and increased net sales partially masked by higher factory outlet costs. Accordingly, Ann Taylor’s operating profit climbed to $41.7 million from $29.9 million in the year-ago quarter.

Balance Sheet

Ann Taylor exited the quarter with cash and cash equivalents of $145.2 million, compared with $262.6 million in the year-ago quarter. Total shareholders’ equity came in at $393.9 million compared with $471.6 million in the year-ago period.

Guidance and Zacks Consensus

Moving forward, Ann Taylor targets total sales of $2.23 billion for fiscal 2011. For the third quarter, the company expects sales of $565 million, assuming mid-to-single-digit growth in same-store sales.

The company also stated that it now estimates capital expenditure of $130 million for fiscal 2011 comprising $60 million for the opening of 80 new stores at both brands, $25 million for remodelling of 35 stores, $20 million for store renovation and refurbishment programs, and $25 million on information technology and e-commerce channel

Ann Taylor operates a nationwide chain of fashionable clothing for women. As of July 30, 2011, the company operated 942 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. (NYSE:CHS). The company currently retains a Zacks #3 Rank (short-term Hold rating) that corresponds with our long-term Neutral recommendation on the stock.