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Ann Beats, Ups Fiscal Guidance

CHS ANN

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Driven by strong top-line performance along with improved margins, the upscale segment retailer, Ann Inc.’s (ANN - Snapshot Report) earnings of 63 cents per share for the second quarter of fiscal 2012 surged over 34% from the prior-year quarter’s earnings of 47 cents. Moreover, quarterly earnings beat the Zacks Consensus Estimate of 51 cents per share.

Quarterly Details

During the quarter, Ann’s net sales grew approximately 6.6% to $594.9 million from $558.2 million in the year-ago quarter. In terms of brands, the company’s Ann Taylor brand generated total sales of $233.3 million, while its LOFT brand made a contribution of $361.6 million. Moreover, quarterly revenue strides ahead of the Zacks Consensus Estimate of $586 million.

The year-over-year growth was primarily driven by a 4.7% rise in same-store sales. In terms of brands, same-store sales improved 5.6% at Ann Taylor and 4.2% at LOFT.

Ann’s gross profit recorded a growth of 8.3% year over year to $332.4 million, while gross margin expanded 90 basis points (bps) and touched a record high of 55.9%. The growth was mainly attributable to better product execution along with lower promotional expenses.

Selling, general and administrative expenses dipped 50 basis points to 47% of net sales due to cost savings and increased net sales, partially masked by higher store expansion costs. Accordingly, Ann’s operating profit climbed to $52.9 million from $41.7 million in the year-ago quarter. Consequently, operating margin expanded 140 basis points to 8.9% compared with the prior-period margin of 7.5%.

Balance Sheet

Ann exited the quarter with cash and cash equivalents of approximately $132.7 million compared with $145.2 million in the year-ago quarter. Total shareholders’ equity came in at $368.2 million compared with $393.9 million in the year-ago period.

Further, during the second quarter Ann deployed approximately $40 million to repurchase about 1.6 million shares of its common stock.

The company reported an increase of 2% in its total inventory per square foot excluding e-commerce, during the quarter. The year-over-year increase was primarily due to an 11% and 2% rise in inventory level at the company’s Ann Taylor and LOFT stores, respectively, partially offset by a 9% decline at the company’s factory outlets.

Store Update

Ann operates a nationwide chain of fashionable clothing for women. During the quarter, the company opened 17 stores, consisting of 3 Ann Taylor stores, 1 Ann Taylor Factory store, 7 LOFT stores, 6 LOFT Outlet stores while closed 2 LOFT stores. As of July 28, 2012, the company operated 962 Ann Taylor, LOFT, Ann Taylor Factory, and LOFT Outlet stores across 46 states, the District of Columbia and Puerto Rico.

Guidance

Moving forward, Ann now targets total sales of $2.385 billion for fiscal 2012, assuming an increase of mid-single digit growth in comparable store sales. At the end of first quarter, the company had estimated to generate $2.375 billion of sales in fiscal 2012. Presently, the company expects to achieve a gross margin rate of 55% in fiscal 2012.

The company also stated that it now estimates capital expenditure of $160 million for fiscal 2012, up from the previous guidance of $150 million. Moreover, Ann intends to open nearly 65 new stores and shut down approximately 30 stores during the fiscal.

For the third quarter of fiscal 2012, the company expects sales of $600 million, assuming mid-single-digit growth in comparable store sales. Moreover, gross margin is expected to touch 58% while selling, general and administrative expenses are pegged at $290 million.

The company is in direct competition with Chico's FAS Inc. (CHS - Snapshot Report). Ann Taylor currently retains a Zacks #1 Rank implying a short-term Strong Buy rating. However, we are maintaining a long term ‘Neutral’ recommendation on the stock.

Headquartered in New York, New York, Ann operates as a national retailer of upscale women's clothing. Its stores offer a full range of apparel and accessories under the names Ann Taylor, Ann Taylor Studio, ATdenim, Ann Taylor Petites and LOFT. It serves customers through its traditional retail stores, online stores - anntaylor.com and LOFTonline.com, as well as via phone. The company targets college-educated women between the ages of 25 and 55 who are employed in professional and managerial positions.

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