NEW YORK ­— ­After floundering for years, AnnTaylor Stores Corp. appears to have found its way again. The firm is headed for a turnaround, but is not quite there.

The key is a long run of sustained positive results, say retail consultants.

“When a company first starts to do well, it’s probably up against depressed figures and the degree of turnaround is unclear,” observed Arnold Aronson, managing director of retail strategies for Kurt Salmon Associates. “Before you can declare victory, you’ve got to have pretty much two years of positive performance on different financial indices. The first would be store-for-store sales. The second would be gross margin improvement. The third would be SGA [sales, general and administrative expenses] improvement, to be able to lower SGA percentage by maintaining or decreasing expenses as sales rise. That’s what you call leverage, and then ultimately the net profit is the sum total of the three areas.” And even then, Aronson added, “there has to be a sense of a growing customer base, and not just a temporary turnaround by doing expedient things. Remember, Allen Questrom [former J.C. Penney chairman and chief executive] said it would be three to five years before Penney’s could declare victory” with a turnaround. “It was two or three years before they could say a major phase of a turnaround had happened. The J. Crew turnaround didn’t happen in a year. Mickey Drexler has been there three years and just now they are thinking of an IPO. A solid turnaround is at least two years in the making, or maybe more, depending on the complexity of the problems the company was encountering.”

Why does it take so long? According to Michael Appel, managing director of Quest Turnaround Advisors: “First you’ve got to figure what’s gone wrong and then you have to figure out a new design direction. Then you have to develop product and get it produced and then you have to deal with presentation issues and marketing issues. You can’t put a new message out until you have the product to support the new message. For a vertically integrated retailer, it’s a pretty long process. It could easily take a year.”

This story first appeared in the June 26, 2006 issue of WWD. Subscribe Today.

Dawn Mello, president of Dawn Mello & Associates, a consultant to fashion and retail firms, sees the turnaround phenomenon a bit differently. “Forget the dollars and the cents,” she stated. “It’s when the customers appreciate the product, and then that will be reflected in sales and profits.”

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