ANN (UNKNOWN:ANN.DL) is among the largest specialty retailers of women's merchandise in the U.S. Despite weakness in the apparel industry, the company has performed reasonably well. ANN has successfully bounced back after the recession (grey area in the chart below) and has delivered consistent growth in revenue and earnings, outperforming peers such as Chico's FAS (NYSE:CHS) and Guess? (NYSE:GES).

ANN EPS Diluted TTM Chart

ANN EPS Diluted TTM data by YCharts

The company's recent results were also strong. It reported better than expected second-quarter results where revenue increased 7% from last year to $638.2 million. Revenue growth was driven by positive comparable sales at both its brands -- Ann Taylor and Loft. ANN reported net comps increase of 3%.

Moreover, comp growth was better than its peers. In fact, growth was far better than a decline of 2.6% at Chico's FAS and a 2% drop at Guess?.

Historically, ANN has delivered gross margin growth in four out of the last five years, and recorded an impressive figure of 54.7% in the previous quarter. The decision of the company to gradually move away from China to Vietnam, Indonesia, and India as sourcing destinations has helped its gross margin grow. Going forward, it is looking at decreasing shipments from China as labor costs are increasing in the country.

In addition, ANN has a strategic pricing policy of pricing its merchandise at three different price points -- good, better and best -- to satisfy the needs of different types of customers.

Market opportunity
The global women's clothing industry is expected to exceed $621 billion in 2014, marking a 12% increase over five years. The women's apparel market saw 3% growth in 2012 and is estimated to grow at a rate of 4%-5% during the next five years.

Given the strong track record of ANN and also its brand image, the company looks well positioned to keep its growth momentum going. Its strategic pricing policy, which enabled it to sell the majority of its products without offering discounts despite weakness in the apparel market, is an important factor which might help it deliver further growth in the future.

Moreover, the modern store format of ANN is intended to provide a memorable shopping experience, and it has gained considerable customer attention. Its new format is modeled around making stores appear light and feminine while maintaining the brand image and aspirational value. The company intends to convert 80% of its stores to this new format by the year end. The updated format should help ANN maintain the freshness of its stores and attract customers to the newly formatted locations. 

Its marketing campaigns have been focused on creating brand awareness and also to grow its customer base. During the quarter, the Loft brand witnessed a significant rise in the number of clients, which should help its growth in the future.Loft will continue to expand in small and mid-markets in the future.

In addition, expanding beyond national boundaries has worked well for Ann. The performance of the company in Canada has been stellar as per management and during the quarter, it opened new Loft stores and one new Ann Taylor store in the country. It has plans to open 10 new stores in Canada by the end of the year.

Also, Internet users now account for one-third of the world population. It is expected that one billion users are expected to make a purchase online in 2013. Hence, it's no surprise that ANN's e-commerce channel has also been performing well. It registered double-digit growth in the previous quarter.

Performing ahead of others
However, the apparel industry is a competitive arena and ANN's needs to keep an eye on the developments at peers such as Chico's FAS and Guess?

Chico's is a more direct competitor as it serves women in the 30 and above age group, selling casual-to-dressy apparel and accessories under brands such as Chico's, White House/Black Market, Soma Intimates etc. However, it looks like ANN is fighting off competition from Chico's pretty well so far.

This is illustrated in the fact that Chico's comparable store sales in the previous quarter fell 2.6% and SG&A increased 3.7%. This resulted in a margin squeeze in its latest quarter. Sales increased just 1.2% from the prior-year period to $649.5 million, and were short of consensus estimates.

Guess?, on the other hand, has been doing well as it posted better-than-expected quarterly results last time. However, Guess?' North American same-store sales declined 2% in the previous quarter as against a 10% decline in the preceding one. But Guess? is looking to turn comps profitable and it has been engaged in building a strong omni-channel strategy over the last one year, integrating e-commerce into its stores in the U.S. and Canada.

This move might help Guess? salvage its comps decline in the future. But since Guess? is valued identically to ANN with a P/E ratio of 16.30, I think ANN is the better pick right now as it is reporting growth.

The bottom line
ANN's forward P/E comes down to 13.20, which means analysts are expecting earnings growth in the future. As we saw, there's some good potential in the women's apparel market. ANN's brand equity, smart cost control measures, store remodeling, and strategic pricing policy should help the company outperform its peers going forward, and since the company isn't expensive at current levels, investors should take a look at it.

Fool contributor Prabhat Sandheliya has no position in any stocks mentioned. The Motley Fool recommends Guess?. 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.