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Ann Taylor Trading Spikes

NEW YORK — Speculation of a takeover bid as well as buzz that chairman J. Patrick Spainhour would leave Ann Taylor Stores Corp. triggered higher-volume options trading on the retailer.<BR><BR>A Wall Street source in New York described the options...

NEW YORK — Speculation of a takeover bid as well as buzz that chairman J. Patrick Spainhour would leave Ann Taylor Stores Corp. triggered higher-volume options trading on the retailer.

A Wall Street source in New York described the options trading as “unusually active” in the last few days, which usually signals a key event for a public company. Today, the company said it would be commenting on sales and earnings guidance for its fourth quarter as well as its outlook for the first quarter.

One options expert said murmurs of a takeover bid by Liz Claiborne and the possibility of Spainhour’s departure were driving options volume up.

Volume has been fairly heavy for call options with a strike price of $25, and the exercise of that option expiring on Feb. 18. The strike price gives the holder the right to buy Ann Taylor stock at $25 by Feb. 18, a move one might do if the stock should rise above $25 before then. The call also could be sold before Feb. 18 if the holder anticipates the stock wouldn’t move much higher than its current $22- to $23-per-share range.

A source at a brokerage firm on Thursday said 552 calls were traded as of the early afternoon. He didn’t know initially whether the trade was to buy or sell the calls. The source said for the same strike price and expiration date, 100 calls were traded last Thursday, followed by 186 traded on Friday. On Tuesday, 447 calls were traded.

The company could not be reached for comment.

Late Wednesday, Ann Taylor said it would host a conference call today regarding comments on fourth-quarter 2004 earnings as well as an outlook for its first quarter.

“The conference call tomorrow will be recorded, without any opportunity for questions. That tells you that the company doesn’t want to talk about something,” said Paul Foster, chief options strategist at Theflyonthewall.com, which provides real-time market information from Wall Street on U.S. equities.

He said there is a presumption of a question-and-answer period on conference calls, and that the typical conclusion for not having one is that there might be some unexpected news.

This story first appeared in the February 11, 2005 issue of WWD.  Subscribe Today.

Foster said options trading is measured by an “implied volatility.” Generally, the higher the volatility, the higher the anxiety. In the case of Ann Taylor, the volatility “hasn’t been this high for a year and a half,” Foster said.

Foster also noted a Wedbush Morgan Securities report that reiterated its “sell” rating of shares of the retailer. According to Foster, the report mentioned waning growth at Ann Taylor as one reason for the “sell” rating.

Earlier this month, Wedbush downgraded the stock to “sell” from “hold,” based on the belief that “fundamentals at both divisions [are] still in decline mode, with Loft going against very difficult comps” in the first half of 2005 and on “what we believe to be an impending negative [earnings per share] outlook on 2005.”

While the latest talk on the Street about a takeover has centered on Liz Claiborne, Foster said past rumblings include Limited Brands Inc.

Shares of Ann Taylor closed Thursday down 1.9 percent to $22.42. Trading volume was 1.9 million, which is above the average trading volume of 1.4 million.

The stock’s 52-week high is $31.43, and the low is $19.98.