AnnTaylor Shares Rise as Earnings Top Estimates


AnnTaylor Stores reported better-than-expected earnings per share Friday, helped by a lower share count from buybacks, and reaffirmed its full-year profit outlook, sending shares up 7 percent.

The company also said the new store concept it announced last week will target baby boomers, who are now mostly in their 40s and 50s.

AnnTaylor's net income for the second quarter ended Aug. 4 fell 27 percent to $31.7 million, or 50 cents per share, from $43.2 million, or 59 cents per share, a year before.

But with a 3 cent-per-share benefit related to a lower share count, the results topped analysts' average estimate of 48 cents per share, according to Reuters Estimates.

Ann Taylor

Net sales rose less than 1 percent to $614.5 million from $610.0 million as new stores and higher factory store and online sales outstripped a decline at existing stores.

"The first half of this year was tough, but we've managed through it very well," said Chief Executive Kay Krill, referring to how weak sales have forced retailers to take bigger-than-planned markdowns to clear their inventory. The practice helps sales but hurts profit margins.

The company, which currently runs its eponymous Ann Taylor chain and the more casual and less expensive Ann Taylor LOFT chain, is in the process of turning around its business, which has suffered weak sales in recent quarters, especially at LOFT, due to declining mall traffic and merchandise that has lacked sufficient newness and color.

AnnTaylor said it is cutting expenses, modernizing and expanding its store base, updating its fall clothes, reducing the amount of inventory it stocks, and launching new product lines.

Such actions, which prompted Standard & Poor's analyst Marie Driscoll to upgrade the shares to "buy" from "hold," come while mall traffic is down nationwide, as consumers react to the slowing housing market, higher food and fuel prices and a gyrating stock market.

Companywide, same-store sales fell 6.2 percent in the second quarter, with a 3.1 percent decline at Ann Taylor and a 10.8 percent decline at LOFT.

"Importantly, our comparisons in the back half ease considerably, particularly in the fourth quarter ... and this contributes to our confidence in our outlook for the year," Krill said.

Later this year, shoppers will see a line of beauty products, starting with a fragrance, and a line of higher-end fashions called Ann Taylor Collections that will use better-quality fabrics and cost about 40 percent more than regular Ann Taylor clothes.

And next year, the company will launch the new chain targeting mature women, a niche analysts have said is underserved but difficult to get right, since these shoppers tend to have fuller closets and more shopping savvy.

Krill did not provide specifics about the chain, except to say it has the potential to generate annual sales of $1 billion.

The company reaffirmed its full-year outlook for earnings per share in the range of $2.15 to $2.25, despite its expectation that traffic will probably not improve.

Separately, the company said it hired Robert Luzzi, a former New York & Co executive, to serve as chief marketing officer.

The company also said its board of directors has authorized a new $300 million share buyback program. AnnTaylor shares were up $2.05 at $31.69 on the New York Stock Exchange. Prior to Friday's news they had fallen 25 percent in the last four months through Thursday's close.

"In light of the pullback of Ann (shares) and our belief that core Ann Taylor remains intact while LOFT is on the verge of a turn, we'd be buyers," said CIBC World Markets analyst Roxanne Meyer. "Longer term, we expect continued share repurchase activity, coupled with progress in sourcing, systems and (expense) reduction initiatives, to benefit the company."