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Wall Street Bullish on Ann Taylor’s Weil

Wall Street is betting on the arrival of former American Eagle Outfitters Inc. chief financial officer Laura A. Weil at Ann Taylor Stores Corp. today as the key to the retailer's turnaround success.

NEW YORK — Wall Street is betting on the arrival of former American Eagle Outfitters Inc. chief financial officer Laura A. Weil at Ann Taylor Stores Corp. today as the key to the retailer’s turnaround success.

Analysts feel Weil can cure the retailer’s inventory and fashion hiccups, which helped cause a 37 percent drop in profits in full-year 2004. Weil’s expertise and no-nonsense manner is expected to complement the skills of Kay Krill, Ann Taylor’s president. The addition of Weil also will allow Krill to focus on what she does best: merchandising and marketing.

Krill, 49, who will replace J. Patrick Spainhour as chief executive officer of Ann Taylor next month, already has been credited with turning around the company’s Loft division. On the company’s quarterly conference call in August, Krill said the company’s new priority is to improve financial performance in the Ann Taylor division.

The company initially announced its search for a chief operating officer — a new position — in late March after detailing a succession plan for Krill to become ceo following the retirement of long-standing chairman and ceo Spainhour, 55.

Weil’s background certainly makes her well suited for the chief operating officer role. Weil worked at American Eagle for 10 years, focusing on all financial aspects of the business, including real estate, pricing, assortment sourcing and logistics. Prior to American Eagle, Weil was head of the retailing investment banking practice at Oppenheimer & Co. Prior to that, she held several executive positions at R.H. Macy & Co.

Analysts agree that inventory management is surely one of the areas where Weil, 48, can help Ann Taylor, which operates 792 stores and an online business. Sanders Morris Harris analyst Liz Pierce said Weil, who will be the number-two executive at Ann Taylor behind Krill, likely will act as the intermediary between finance and merchandising, which is what the struggling company needs.

According to Ann Taylor’s August 31 press release announcing Weil’s appointment, she will focus on finance and accounting; investor relations; merchandise planning; information systems; all supply chain operations including sourcing, logistics and distribution; real estate; construction and facilities, and related purchasing.

An Ann Taylor spokeswoman said Krill was unavailable for comment. Weil, whose last day at American Eagle was Sept. 9, could not be reached for comment.

While Ann Taylor has been showing signs of a turnaround lately, most recently with a 3.7 percent rise in August same-store sales, comps still have been negative in eight of the last 10 months. In its latest quarter, net profits fell 76 percent to $7.1 million, partially due to a onetime charge, on a 7.6 percent rise in sales to nearly $509 million.

Analysts expect Ann Taylor to report a profit of 37 cents a share in its current third quarter, which would compare favorably with earnings of 20 cents a year ago.

Meanwhile, there have been murmurs in the market recently that Ann Taylor is up for sale. The rumblings follow a WWD report from late April that said leveraged buyout firms had been eyeing the chain, which, at the time, was said to be worth around $2 billion. The company currently has a market capitalization of about $1.9 billion.

At American Eagle, Weil navigated some rough financial waters, which is why analysts believe she will be a valuable addition to Ann Taylor. “Laura has matured into the cfo position [at American Eagle]. The Bluenotes [divestiture] was not a fun exercise, but clearly helped her in terms of her maturity and ability to deal with those things,” explained Pierce, referring to American Eagle’s sale of its underperforming Bluenotes division, a 109-store Canadian-based retail chain, to Canadian retailer Michael Gold last December for an undisclosed sum.

“The thing with Ann Taylor is that the chief operating officer function is kind of in there to make sure the left hand knows what the right hand is doing,” Pierce said. “She has the financial expertise and skills and, I think, the understanding of the merchandising side. I think she’s grown with American Eagle and that’s what Ann Taylor needs right now.”

Independent retail analyst Jennifer Black of Jennifer Black & Associates, agreed. “I would be terrified to hire a cfo that has seen nothing but good times. Because [Weil] has seen the worst and the best, that’s really a plus,” said Black, who currently lists Ann Taylor as her top stock pick with the potential to reach $40 a share. It currently is trading at around $25, down about 4.3 percent year-over-year.

Banc of America Securities analyst Dana Cohen said in a research note earlier this month that Ann Taylor has been trying since fall 2004 to rebuild gross margins and operating margins, which had dropped more than 600 basis points from highs reached in 1999.

American Eagle was in a similar situation in 2003 after it had blundered on fashion in the fall of 2002. Cohen noted that operating margins fell roughly 1,000 basis points following negative same-store sale results. But in the past two years, Cohen said, American Eagle’s operating margins have jumped and are expected to reach an all-time high of around 20 percent in 2005. American Eagle also has posted 18 months of consecutive comparable-store sales advances in its U.S. stores.

“It is this experience with both the downside of specialty retailing and the strong organizational upgrades at American Eagle that Ms. Weil brings to Ann Taylor at this important juncture,” Cohen wrote.