Ann Outlines Growth Areas Following Lackluster Q1 Results.

Ann (NYSE:ANN), the parent company of Ann Taylor and LOFT, reported its Q1 fiscal 2015 results last week, in the wake its prospective acquisition by the Ascena Group. ^[1]  The company reported earnings per share of $0.29 for the quarter, up from $0.11 in the same quarter last year. Excluding the impact of pre-tax restructuring charges, Ann’s Q1 fiscal 2015’s EPS settled at $0.37, compared to $0.33 in the year ago period. On the topline front, the retailer reported 1% increase in revenues to $597.7 million, with comparable sales declining 1.5%. ^[2]

By brands, Ann Taylor’s comparable sales fell 3% with 2.6% increase at its mainline stores & Internet and a sizable 16% decline at Ann Taylor factory. While the brand witnessed good customer response to its fashion newness in full priced stores, buyers continued to avoid past season products at its factory outlets. At LOFT, performance was consistent across the formats as overall comparable sales declined 0.6% with 0.7% decline at mainline format and flat growth at LOFT outlet. While most of the brand’s categories performed well during the quarter, weakness in sweaters and denim had a significant offsetting impact.

From a long term perspective, apart from working proactively on merchandise design, Ann is looking to increase the efficiency of its supply chain, optimize SG&A expenses, progress on omni-channel integration, and grow its Lou & Grey brand. We believe that if the retailer is able to progress on these fronts swiftly, it can become a valuable business proposition for Ascena Group.

Our price estimate for ANN stands at $40, which is about 15% below the current market price. However, we are in the process of updating our model in light of the recent earnings release.

See our complete analysis for ANN

Areas Where Ann Is Pushing

Supply Chain: Ann launched its supply chain initiative in November last year, in order to improve production speed and flexibility, reduce COGS and increase product sell-through. The company has identified several improvement opportunities including working with vendors to reduce product timeline, ordering inventory close to the season and expanding test and chase categories. The retailer believes that its efforts on the supply chain front will bring in annualized $50 million in incremental gross profits by 2017.

Expense Optimization: It has been among Ann’s top priorities for some time now and it even has certain results to show for it. During the first quarter, the retailer’s SG&A rate improved 140 basis points with better expenses optimization, and it even identified additional opportunities to increase efficiency and save money in staffing model and back room. Ann is looking to add about $35 million to its annualized savings by 2016, which will complement supply chain savings, taking its profitability higher.

Omni-Channel: Ann was among the first retailers in the industry who identified the importance of a seamless operating model and subsequently moved towards omni-channel retailing. The company has recently completed the second phase of its omni-channel rollout . It is witnessing astonishing customer response towards its enhanced mobile capabilities, website enhancements, new features, improved navigation and modern aesthetics. Response has been good for the both the brands as customers now have a vast pool of products to browse through, thanks to the seamless inventory integration across channels.

Lou & Grey: Ann continues to test and improve its latest concept Lou & Grey, which is said possess significant long-term potential. The brand opened its sixth standalone store in the recently concluded quarter, and all of them have garnered significant customer attention so far. The retailer is looking to add some more locations by the end of the year and is on schedule to launch Lou & Grey e-commerce channel later in the summer. The most intriguing aspect about the brand is that it has attracted shoppers who don’t shop at Ann with negligible marketing. Provided that the company now looks to increase its brand visibility, Lou & Grey can easily expand its customer base. ^[3]

Recap Of The Deal

We would like to remind our investors that Ascena Group acquired Ann last week in a cash and stock deal that valued the company at around $47 per share. As per the deal, which is expected to close in the second quarter, Ann’s shareholders will get $37.34 in cash 0.68 of a share of Ascena for every share of Ann. This deal is giving Ann’s investor immediate cash as well as some long term value. Ann had been under constant investor pressure to consider a sale of the company under the pretext that it wasn’t being valued fairly in the market. The company had been in close talks with Golden Gate Capital and JP Morgan ever since to look for probable options. With the acquisition of Ann, Ascena Group that mainly target the plus sized market with casual clothing, has now added an upscale brand to its portfolio. From Ann’s perspective, it is now a part of a larger and a rather stable company, which should provide it with resources necessary for its omni-channel and international expansion.

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap

More Trefis Research

1. Read our article on the deal here. [↩]
2. Ann Reports First Quarter 2015 Results, Ann Inc, May 22 2015 [↩]
3. Ann’s Q1 fiscal 2015 earnings transcript, May 22 2015 [↩]