ANN TAYLOR TELLS ANALYSTS THE WORST IS PAST
Byline: Jennifer L. Brady and Rich Wilner
NEW YORK — After a turbulent winter, Ann Taylor told Wall Street analysts Tuesday its troubles are over but to expect a slow recovery.
Ann Taylor said it will focus on product, profits, tighter inventory control and slower growth to help it return to prosperity, according to analysts who attended the meeting at the Sheraton New York.
The chain’s stock has rebounded from last December’s single-digit levels, when steep same-store sales declines and red ink sparked rumors of a possible Chapter 11 filing. Those rumors have died down, and the stock recently rose above 19, rebounding from a 52-week low of 9 1/4 in January. On Tuesday, the stock eased 1/2 to 18 5/8 on The New York Stock Exchange. The stock activity has triggered some rumors that Ann Taylor could be in play. Ann Taylor officials did not address those rumors at the meeting, but attributed the stock surge to media attention.
Last week, The Gap strongly denied speculation that it was interested in buying Ann Taylor. Other rumors have focused on a manufacturer being interested.
Ann Taylor executives, including Sally Frame Kasaks, chairman and chief executive officer, and Patrick Spainhour, president, addressed the analysts. They said that after a difficult first quarter in 1996, comparable-store sales should show increases over the last nine months. Comparable-store sales are expected to be up about 3 percent for the year, they said.
Executives blamed the poor performance last fall to losing the edge in merchandising. They said having the wrong clothes for the typical Ann Taylor customer stemmed from doing too many things, including opening too many stores. The chain also opened a new distribution center and filled several key management positions.
Ann Taylor executives said expansion plans this year are less ambitious. The company expects square footage to grow 5 percent this year, and 10 percent to 15 percent subsequently. Ann Taylor has not decided the fate of its nine Studio shoe stores, according to analysts.
Plans are to open two Loft stores this year and seven Ann Taylor stores, to expand five Ann Taylor units and add one outlet. Last September, the company said it planned 30 to 35 openings this year.
Other plans call for more in-house designing, and to continue to lower inventory levels over the first three quarters to boost margins and improve profitability. Inventory per square foot was down 22 percent in the fourth quarter and will continue to be limited through the current fiscal year, executives told the analysts. They were also told the company hoped to reduce debt by using cash previously earmarked to fuel growth, and that financial covenants should not be a concern this year because they are tied to higher capital expenditure estimates than will be needed.
“Clearly they are making improvements, but typically, after changes in management, it takes a while to change merchandise and the business,” said Catherine DePuy, analyst at Josephthal Lyon & Ross. “Significant improvement will take longer than a few months, or just a season.”
DePuy noted that the recent stock price climb could reflect the improved same-store sales in February and the expected benefit of an early Easter on March sales. Although same-store sales were off 7 percent in February, that was much better than the expected 15 to 17 percent decline. “The company has refound the focus it had lost this past winter as the spring clothes now in the stores look like the clothes Ann Taylor should carry,” said Lisa Stern, an analyst at M.J. Whitman. Stern, who is bullish on Ann Taylor, said the chain, when properly merchandised, “fills a niche for the working woman who can’t afford Barneys but needs fashionable clothes for the workplace.
“They need to keep an eye on their business, produce what people expect from them, and they will be able to weather the storm,” Stern noted.
Laurence C. Leeds Jr. said Ann Taylor is now “worrying more about profits than sales.” He added that the company’s tone was basically “don’t look for any miracles this year” but do look to see improved product, margins and lower inventories.
— Fairchild News Service