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Ann Inc. Bullish on Second Half

In an interview on Friday, Kay Krill and other executives outlined why they feel the business will continue to breeze along nicely.

NEW YORK — Ann Inc., operator of Ann Taylor and Loft, likes what it sees for the duration of the year.

This story first appeared in the August 26, 2013 issue of WWD.  Subscribe Today.

“August is off to a good start at both of our brands. Both are comping positive for the month to date,” Kay Krill, chairman and chief executive officer of Ann Inc., told WWD. “We are anticipating a good third quarter and another record year for Ann Inc. We are incredibly focused on driving top-line productivity gains.”

In an interview on Friday, just after Ann Inc. posted strong second-quarter results, Krill and other executives outlined why they feel the business will continue to breeze along nicely, while most retailers battle consumer headwinds.

They cited:

• Inventories emphasizing the right categories and colors to capitalize on trends and entering the third quarter with about 90 percent of the inventory composed of “fresh fall product.”

• A balance of good, better and best prices so shoppers have options and perceived values.

• Targeted promotions such as 30 percent off dresses driving higher margins, rather than storewide promotions, and new customer-relationship management technology to help increase sales and the efficiency of marketing initiatives.

• An evolving omnistrategy beginning with last year’s launch of shipping from stores and at some unspecified future time, advancing with shipping from online inventory to meet requests emanating from the stores.

• Continuing to downsize and modernize Ann Taylor stores to the more productive format introduced in 2010. By the end of this year, 80 percent will be updated.

• Driving continued Loft expansion with a focus on sites in small and midsize markets. Loft also just relaunched pants with new fabrics and fits.

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Executives also see much more growth in Canada, where 10 stores will be operating by yearend and ultimately 50 to 70 are seen.

Overall, the company sees opening 65 stores this year, with 34 opened so far, and closing 30 this year, with 11 closed so far. Ann Taylor and Loft outlets are expected to comp positively in the second half, as they begin to anniversary softer traffic trends. Full-line stores have been comping positive.

The Street raised its outlook for Ann Inc., anticipating year-end earnings per share of about $2.22 compared to a previous estimate of $2.14, against the $2.10 reported last year. The company does not typically provide earnings per share guidance but it did project total 2013 sales to reach $2.5 billion versus $2.4 billion in 2012. While the sales forecast is conservative, a projected decline in sales, general and administrative expenses should help the bottom line.

For the second quarter, ended Aug. 3, Ann’s results were strong, particularly considering the tough, promotional retail climate. Earnings per share rose 21 percent to 76 cents, compared with 63 cents in the second quarter of 2012. Net income reached $35.6 million, an increase of 16 percent from the $30.7 million in the year-ago quarter.

Comparable sales increased 2.8 percent. At Ann Taylor, comparable sales increased 3.1 percent; Loft rose 2.5 percent. Regular-priced stores comped positively while the outlets were negative due to weak traffic trends at outlet centers.

Total net sales for the quarter rose to $638.2 million, compared to $594.9 million in last year’s quarter.

Krill said the stores are assorted to capitalize on the trends. “We are entering a blouse trend, cotton pants are back now, as well as skirts in a variety of silhouettes. Our color offering in both brands are really well balanced. Color has been so important for the past year and a half. Now we are heading into a neutral cycle, with pops of color. We are right on trend with that.” Statement necklaces are also strong, as are the shoes produced by Vince Camuto, which were launched in August. At Loft, pants, loungewear, denim, dresses, tops and statement jewelry were strong, Krill said.

“Product is the main thing that drives success,” Krill said. “For the second quarter, the vast majority of our product categories did really well. That was a real win. Obviously, the environment was competitive and promotional in the second quarter, but if you look at our company by brand, Ann Taylor was less promotional than last year. Loft was about the same.”