ANN (NYSE: ANN) is a successful turnaround story. Emerging from the depths of the recession, it has managed to become a winner post-recession despite headwinds that plagued the apparel-retail sector. While many retailers have been on a roller-coaster ride, ANN has done well.

Let's examine how well ANN stacks up against the likes of Chico's FAS (NYSE:CHS) and Aeropostale (NYSE:AROPQ) and take a look at its long-term prospects.

What's working?
ANN has grown by providing customers with fashionable and versatile products, excellent value for their money, and an engaging shopping experience both in-store and online. Its third-quarter comparable-store sales grew 4% on top of 6% growth in the year-ago quarter. On the back of strong comps growth and 20 new store openings, sales increased 7% to $658 million. Earnings per share soared 17.1% year over year to $0.89 amid strong revenue growth, a reduced share count, and effective cost management, 

Going forward, ANN is looking to strengthen its year-old multi-channel initiative, which includes e-commerce. Its online sales grew at a double-digit rate, driven by higher traffic and conversion at both brands. Its strategy of increasing LOFT's footprint by moving into small- and mid-sized markets is also on course. On the international front, ANN's expansion into Canada has been a home run, and the company plans to expand in the Canadian market.

A slight headwind
A worrying factor has been the negative comps at Ann Taylor factory-outlet stores, which were negative 6.9% year over year, resulting in modest 0.6% comps growth for the brand. The fourth quarter hasn't been any better, and the factory-outlet stores have witnessed weak traffic and muted consumer spending. Even the bad weather has added to the woes. Sales during the holidays were below analysts' estimates, and this will have an impact on the fourth quarter.

However, despite the soft traffic, muted spending, and bad weather, ANN provided a favorable margin forecast for the fourth quarter and fiscal 2013. It also reiterated that fiscal 2013 will mark positive comps at both Ann Taylor and LOFT for the fourth consecutive year. Moreover, its policy of pricing merchandise at three different price points -- good, better, and best -- is helping the retailer to sell the majority of its products without discounts, thereby helping margins even in a harshly competitive environment.

Better than peers
Whereas ANN's revenue growth was comps-driven, Chico's had to rely on its new store openings to drive revenue higher in its fiscal third quarter. Its comps declined 1.3% year over year due to weak traffic and a highly promotional environment. On the back of 115 new store openings, revenue grew 3% year over year to $655.6 million. Earnings, however, declined 12% year over year to $0.22 per share.

Chico's fourth quarter has been off to a promising start. Its long-term growth initiatives are based on the expansion of its omni-channel and also stepping beyond national borders for international growth. It will be opening its first store in Canada in 2014. It is planning to invest between $140 million and $150 million toward opening 120 to 130 new stores in 2014, bolstering its presence in these markets.

Considering the fact that Chico's was up against tough comps, it has done remarkably well. It's a different story at Aeropostale, which continued its run of disappointing performance. In its third quarter, Aeropostale's comps declined 15%, as a result of which the top line nosedived 15.1% to $514.6 million. Its losses widened to $0.29 per share. Going forward, it expects a loss in the range of $0.24-$0.32 per share. In short, it has lost its connection with target customers.

So, ANN has done outstandingly well in a tough environment. While other apparel retailers are having difficulty growing comps and earnings, ANN is chugging along nicely and is quite reasonably priced at a trailing P/E of 15.9. Hence, it could make for a good pick in a difficult apparel-retail environment.


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