Stumbling Blocks at ANN

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Last week, ANN (UNKNOWN: ANN.DL  ) updated its quarterly outlook, and things aren't looking great. Comparable sales are forecast to be down, gross margin compressed, and expenses up. The company owns both the Ann Taylor and Loft brands, with Ann Taylor focusing on higher-end consumers and Loft aiming at a younger, price-conscious crowd.

Both brands also have an outlet channel, but sales at those outlets are looking even grimmer. With everything turning against the retailer, is there anything left for investors to be excited about?

Retail vs. outlet
Looking at ANN's newest release, you'll quickly see the distinction between the company's two main channels. Ann Taylor outlets are forecast to have a 5.8% decrease in comparable sales, and Loft outlets are expecting a 7.9% drop. Conversely, the retail channels of Ann Taylor and Loft are expecting a 6.2% increase and a 0.9% decrease, respectively.

The drag in sales at the outlets has resulted from ANN focusing on profitability in that channel. On the company's last earnings call, it highlighted that focus, saying that it had "managed the LOFT Outlet business for profitability this quarter."

That worked out in the fourth quarter, and the company was able to sell more consistently at a higher price point. The trade-off for that profitability was in volume, and gross margin increased over the quarter. The balance for investors is going to be finding a happy medium between sales and profitability. So far, ANN has been unable to strike that balance.

The missing pieces
Right now, it seems like ANN is having trouble walking a thin line. The company could learn a lot from Coach (NYSE: COH  ) , which has found a more subtle way to make its factory outlet locations work. Recently, the company has moved away from broad discounting, which erodes margins, to focused discounting on specific products. Management has claimed that the approach has "had an incredible impact on mix and ticket within the factory channel."

ANN has the potential to refine its own approach. The rise in comparable sales at Ann Taylor retail stores is a result of the company being able to produce products that customers want and that fit the current seasonal trends. In other words, ANN has figured out the basics of successful apparel sales at Ann Taylor.

The gap between that success and the shortfall in the outlet stores can be overcome if ANN can entice customers without relying on promotional systems. The Coach approach of targeted sales could make a big difference for ANN, but it's not yet clear to me that management can handle all the moving pieces. For now, the fact that ANN is struggling with three of its four brands puts me off the company, but there is distinct turnaround potential here, and more adventurous investors could strike gold.

One of the best-performing stocks in retail
Michael Kors is one of today's hottest high-end fashion brands -- and since its debut on the market in late 2011, the share price has more than doubled. But with all that growth, has the stock finally become too expensive, or is there still room left to run? The Motley Fool's premium report on Michael Kors gives investors all the information they need to make the right decision. We cover the key must-watch areas, opportunities, and threats to the company that investors need to know. To claim your copy, simply click here now for instant access.

Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2430025, ~/Articles/ArticleHandler.aspx, 9/28/2016 6:33:31 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,339.24 110.94 0.61%
S&P 500 2,171.37 11.44 0.53%
NASD 5,318.55 12.84 0.24%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
ANN.DL $0.00 Down +0.00 +0.00%
ANN CAPS Rating: **
COH $35.90 Up +0.25 +0.70%
Coach CAPS Rating: ****