Ann Proves Not All Retailers Had a Tough First Quarter

Even though competitors experienced sales losses in the first quarter of this fiscal year, Ann held its own.

Jun 13, 2014 at 9:00AM

Many retailers have been reporting their first-quarter results for the current fiscal year recently and results have been mixed at best. Some retailers, such as Express (NYSE:EXPR) which saw its shares fall 7% following its quarterly earnings release, have fallen on hard times as a highly competitive marketplace has led to disappointing results. On the other hand, retailers such as Ann (NYSE:ANN), owner of such retail brands as Ann Taylor and LOFT, have continued to perform extremely well. Given this strong performance from Ann relative to its competitors, is it possible that the shares are worth considering for Foolish investors?

Full results
On Friday, May 30, Ann reported its earnings for the first quarter ended May 3. Despite the impact of a one-time after-tax restructuring expense, the popular women's apparel and accessories retailer still managed to meet its bottom-line expectations. While the cold weather and winter storms greatly affected consumer traffic at nearly every retailer, forcing these retailers to offer more promotions, Ann still managed to increase its total net sales by 2.8% to $590.6 million.

Comparable-store sales, which are sales in stores open at least one year, however, were negatively affected by the lack of consumers braving the bitter cold. As a result, comparable sales declined by 1.8% compared with last year when comparable sales fell by 0.5%. Net income, though, came close to analysts' estimates of $0.34 per share as Ann reported earnings of $0.33 per diluted share, or 15.4 million, excluding an after-tax impact of $10.2 million, or $0.22 per share.

However, net profit still fell by 26.3% compared to the first quarter in fiscal 2013 when net income totaled $20.9 million, or $0.44 per diluted share. Ann did open 13 new stores in the first quarter despite having to close six under-performing stores, which brought its total store count to 1,032 locations on May 3, 2014. The chart below details how Ann's two brands performed in the first quarter of the current fiscal year.

First-Quarter Results

Ann Taylor brand

LOFT brand

Net Sales

$219.9 million

$370.6 million

Net Sales Growth

0.3%

4.3%

Comparable Sales

(2.3)%

(1.6)%

Stores Closed

4 Ann Taylor stores

2 LOFT stores

Stores Opened

3 Ann Taylor Factory stores

7 LOFT stores, 3 LOFT Outlet stores


From these results, it appears that LOFT is the stronger of the two brands with sales up 4.3% over last year's first quarter whereas Ann Taylor's sales remained pretty flat. In addition, Ann closed more stores and opened fewer new locations under the Ann Taylor brand in comparison with LOFT, which opened three times as many stores as Ann Taylor.

For the fiscal year, Ann stated that it plans on opening a total of 50 new stores while closing 30 stores across its brands. Furthermore, Ann added that it expects its net sales for fiscal 2014 to reach $2.6 billion and a comparable-sales increase in the mid-single digits.  Aside from this positive outlook going forward, how is Ann doing against the competition?

Competition comparisons -- Chico's and Express
For most retailers that recently reported first-quarter results, it was a rough selling season due to decreased traffic at the registers with many companies holding the harsh winter weather conditions responsible for their sales declines. By looking at the chart below, it appears Ann was truly fortunate in the first quarter in comparison with retailers Chico's FAS (NYSE:CHS) and Express.

First Quarter Results

Express,

Ann

Chico's FAS,

Net Sales FY 2013

$509.4 million

$574.5 million

$670.7 million

Net Sales FY 2014

$460.7 million

$590.6 million

$681.6 million

Net Sales Growth

(9.6)%

2.8%

1.6%

Comparable Sales FY 2013

0%

(0.5)%

0%

Comparable Sales FY 2014

(11)%

(1.8)%

(2.6)%

It's clear that Ann could have done better. However, in comparison with its peers, things seem to be looking up. If one assumes that consumers basically shopped less in the first quarter, regardless of the retailer, Ann appears to have an advantage over Express and Chico's FAS in terms of net sales growth and comparable sales growth.

Foolish takeaway
Ann owns two strong brands that cater to professional women looking for reasonably priced and trendy apparel collections. The two brands, Ann Taylor and LOFT, compete for consumers' affection against Express and Chico's. The results presented by all three companies, and numerous other retailers for the first quarter, show that while the quarter wasn't strong, Ann made lemons out of lemonade. Foolish investors should keep in mind that one quarter does not make a year.

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Natalie O'Reilly has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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