Shares of ANN Inc. (ANN) recently hit a new all-time high after reporting solid second quarter results, which included a 23.5% earnings surprise. In fact, this specialty retailer of womens clothing has surpassed the Zacks Consensus Estimate for seven straight quarters with an average surprise of 11.1%.
ANN Inc. became a Zacks #1 Rank (Strong Buy) on August 21, 2012 due to rising earnings momentum. With a bullish growth projection for the second half of the year and an attractive valuation, this stock looks like a solid momentum pick.
Solid Second Quarter Beat
On August 17, ANN reported adjusted earnings of 63 cents per share for the second quarter, beating the Zacks Consensus Estimate of 51 cents by 23.5%. Earnings also increased 34% from prior-year quarter, driven by significant growth in net sales, comparable sales and margins.
Net sales of $595 million were up 6.6% from the prior-year quarter and were also above managements expectations of $585 million. Strong acceptance for both of its leading fashion brands Ann Taylor and Loft and commendable comparable sales growth of 4.7% led to the top-line beat. Both Ann Taylor and Loft delivered positive comps across all retail channels, resulting in sales increases of 7.1% and 6.3%, respectively.
Gross margins expanded 90 basis points over the prior-year quarter to 55.9%, and were also above managements guidance of 55%. It was driven by top-line growth and lower promotional activity.
In the second half, ANN expects both its brands to make solid progress and further boost sales. The company also intends to enter the Canadian market with its first stores in Toronto.
For the third quarter, the company projects sales at $600 million, which is expected to be driven by comparable sales growth in the mid-single digits. Gross margins are expected to be around 58%.
For full year 2012, sales are expected to reach $2.39 billion, up from prior expectations of $2.38 billion. The sales growth is expected to be driven by mid-single digit growth in comparable sales. Gross margin is expected to be approximately 55.0%.
Earnings Estimates Rising Sharply
Over the last 7 days, ten of 12 estimates for 2012 moved upward following the solid second quarter results and increased guidance. As a result, the Zacks Consensus Estimate is up 4.9% to $2.16. The Zacks Consensus Estimate for 2013 has moved higher by about 5.1% to $2.49 over the same time frame.
An Attractive Valuation
ANN currently trades at a forward price-to-earnings (P/E) of 16.45x, almost similar to the peer group average of 16.49x. However, on a price-to-sales basis, shares trade at 0.75x, a 25.0% discount to the peer group average of 1.00x. On the whole, the stock is attractive as it has a trailing 12-month return on equity (ROE) of 25.3%, which is above its peer group average of 16.1%.
Chart Showing Consistent Rise
Shares of ANN have been rising consistently since the end of June and jumped almost 20% on announcement of the solid second quarter results. Shares reached a new 52-week high of $35.42 on August 21. Moreover, the stock is currently trading above its 50- and 200-day moving averages, which stand at $26.67 and $25.99, respectively. In fact, the stock has been consistently trading above its 50-day and 200-day moving averages since mid-July 2012.
Volume is strong, averaging roughly 1202K daily. ANN has outperformed the S&P 500 over the past six months. The year-to-date return for the stock is 41.81% compared with the S&P 500s return of 12.36%.
Based in New York, ANN Inc. is a national retailer of upscale women's clothing, shoes and accessories, which are sold mainly under the Ann Taylor and Loft brands. It offers both career as well as casual wear through its traditional retail stores and online at anntaylor.com and LOFTonline.com, as well as by phone. The company operated 962 stores as of July 28, 2012. The market cap of the company is $1.68 billion.