By and  on November 22, 2013

Having the right stuff — new shoes, novelty styles and appealing store sets overall — powered Ann Inc. through a strong third quarter and has raised prospects for healthy holiday gains.

“Things that we offer that are unexpected and really emotional — that’s what customers are responding to,” Kay Krill, Ann Inc.’s president and chief executive officer, told WWD. “It’s continuing into the fourth quarter.”

For the three months ended Nov. 2, Ann posted net income of $41.2 million, or 89 cents a diluted share, which was 1.1 percent above the $40.7 million, or 84 cents, recorded in the third quarter of 2012. Analysts had expected earnings per share of 86 cents in the quarter.

Also beating estimates were sales, which in the quarter rose 7.3 percent to $657.5 million, from $612.5 million a year ago. Sales rose 3.7 percent on a comparable basis.

Revenues at Loft were up 11 percent, to $408.4 million, and at Ann Taylor were ahead 1.9 percent to $249.2 million. Loft comps excelled, rising 5.6 percent, with 6.3 percent growth at Loft stores and Web site, and 1.8 percent growth in the outlets.

At Ann Taylor, comps were up 0.6 percent, with a 4.4 percent increase at stores and online, which was offset by a 6.9 percent decline at outlets.

In fourth-quarter guidance, the firm projected sales of $640 million, below Wall Street’s expectation, with comps up in the midsingle digits.

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Displaying confidence that the company’s performance will transcend the highly competitive, promotional and uncertain retail market, Krill said the “goal is to gain share in the fourth quarter in both brands.”

“We have a planned promotional strategy this year that’s more proactive than reactive. We have a strong marketing strategy and strong promotional strategy and we are more balanced in color and novelty and emotional pieces.”

Krill said holiday shopping “might be starting earlier” and that Ann Inc. is “already off to a strong start” in the fourth quarter. “We are marketing those holiday products for sure. You will see us get more and more into the gifting aspect around Thanksgiving and going forward.”

For the longer term, Krill cited four key strategic initiatives: becoming more omnichannel oriented; continuing to update the Ann Taylor store fleet with 80 percent seen done by yearend; increased personalization and CRM, or customer relationship management, and international growth.

Krill said the omni strategy launched a year ago when the company started shipping online orders from store inventories to better meet demand. By late 2014 or early 2015, the company hopes to be able to ship items requested by customers in the stores but not available on premises from the online inventory.

Online sales are increasing at a double-digit rate and are boosted by online exclusives at both brands, including additional colors, extended sizes, petites, wedding and event dressing, Krill said.

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With international, “Our expansion into Canada has continued to be a home run. Our stores are experiencing outstanding results and we look forward to continued expansion in this market,” where there are currently six Lofts and four Ann Taylor units. “The game plan is to have 35 Lofts and 15 Ann Taylor stores,” Krill said. In a conference call, franchising was cited as a possibility to further the international strategy. “We are absolutely looking at that right now,” Krill said. “More to come on our March call.”

Although there are six fewer shopping days between Thanksgiving and Christmas this year, “I think the customer goes into the season with a set amount to buy gifts,” Krill observed. “We are hopeful that having six fewer days won’t mean she is not going to shop that much.”

The only downside last quarter was the outlet business, which did not meet expectations due to weak traffic and fall products, “a little heavier in nature,” that did not sell well.

Ann Inc.’s inventory was up 8 percent at the end of the third quarter, consistent with the industry trend of increased inventories. But Krill said 90 percent of the inventory entering the fourth quarter is fresh, and that the increase reflects a change in timing merchandise receipts. Loft is seen as less promotional in the fourth quarter, while Ann Taylor will be more so.

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