ANN TAYLOR LOFT: BLUEPRINT FOR GROWTH

Byline: Thomas J. Ryan

NEW YORK — Ann Taylor Stores is pumping up its Loft operation into a key vehicle for growth.
Banking on the success of a rollout last year to regional malls, the retailer said Wednesday it plans to nearly double its Ann Taylor Loft concept in 2000, with 70 store openings planned.
The Loft openings will fuel a 22 percent expansion in companywide square footage next year, significantly greater than the 12 percent footage growth set for the current year. Ann Taylor also announced plans to open 15 Ann Taylor Stores and expand or relocate another five Ann Taylor stores.
The specialty chain also announced a $40 million program to buy back stock and its convertible debentures due 2019.
Investors apparently liked the news. Shares of Ann Taylor leaped 2 7/8 to 41 7/8 on the New York Stock Exchange.
“Initial results of the first Ann Taylor Loft stores in regional malls, shopping centers and urban locations, opened over the past year and a half, have been very encouraging,” chairman and chief executive J. Patrick Spainhour said in a statement. “We believe there is a distinct market for Ann Taylor Loft, which extends the Ann Taylor brand’s refined style and sensibility to women with a more relaxed lifestyle, at moderate prices.”
Ann Taylor currently has 68 Loft stores and plans to add eight more by yearend. It has opened 21 so far this year.
The Loft, which offers clothing aimed at a younger customer than usually found at the traditional Ann Taylor store, was officially launched in 1996 in factory outlet malls, and last year the first 16 were opened outside the outlet mall, primarily in regional malls and strip centers focused on the moderate-priced consumer.
To support the growth, Ann Taylor said its board had approved an $85 million capital expenditure budget for next year, up from $55 million in the current year. The company is opening 18 Ann Taylor stores in the current year in addition to the 29 Loft locations and expanding nine Ann Taylor stores. Besides Loft, there are currently 331 Ann Taylor stores.
“I think it’s good news for the long-term growth rate of the Ann Taylor company and the stock,” said Maura Hunter Byrne at Salomon Smith Barney, of the Loft expansion. “The Ann Taylor Store rollout was going to run up against saturation in a couple of years, and Loft has proven to be a viable growth vehicle that should help the firm expand its market share in the competitive women’s apparel arena.”
Janet Joseph Kloppenburg, at BancBoston Robertson Stephens, said the Loft “has emerged as a viable growth vehicle for the company, enabling it to significantly increase its square footage growth rate, and based on the concept’s success so far, we believe that the Loft should help sustain the company’s overall growth for the next several years.” Kloppenburg said there exists the potential for upward revisions to her fiscal 2000 estimates, since she had been projecting 15 percent square-footage growth for 2000.
“Based on the 22 percent square-footage growth for fiscal 2000, coupled with a mid-single comp estimate for the year, we estimate the company should achieve sales growth at 20 percent or better, significantly higher than our current 17.4 percent sales growth for fiscal 2000,” Kloppenburg said.
Kloppenburg also said continued better-than-expected business trends, improving operating margins and potential benefits from the stock repurchase program could lead to upward revisions in estimates for this year and next.
BancBoston currently projects Ann Taylor will earn $2.10 a share this year and $2.54 in 2000. Ann Taylor earned $1.44 a diluted share, or $1.53 a basic share, in 1998, with net income of $39.3 million and sales of $911.9 million. In the first six months of this year, the firm earned $27.2 million, or 89 cents a diluted share, on sales of $515.1 million.
Regarding its stock and debenture repurchase, Spainhour said: “We believe that purchasing the company’s securities, given current market conditions, represents an attractive investment and will enhance shareholder value.”
With Wednesday’s closing price, Ann Taylor’s shares are trading below its 52-week high of 53 1/16, but still well above its 52-week low of 19 1/4.