When I'm in the mood to blow some cash on clothes, Ann Taylor (NYSE:ANN) is probably my favorite store. No, wait, hold it -- Ann Taylor Loft is. And that continues to be one of Ann Taylor's problems -- its lower-priced, slightly more casual and fashion-conscious concept has been consistently performing far better than its namesake retail division. That theme continued in last week's quarterly earnings announcement (issued with this correction).
For the third quarter, Ann Taylor's profit decreased by 53%, at $14.2 million, or $0.20 per share. Total sales for the quarter increased by 16% to $460.4 million. Same-store sales eked out a mere 1.4% gain, although if you look at it by division, you'll see that Loft continues to shine, with a 9.2% increase despite a tough comparison to last year's success.
However, the Ann Taylor division's same-store sales decreased 4.2%. And it was Ann Taylor's weakness that's key to the disappointing quarter, seeing how the company cites additional promotional activity at the division as having a negative impact on earnings and gross margin, which fell to 51% from 57.7%. Meanwhile, a quick check reveals that free cash flow generation is currently in negative territory, underlining the challenges.
For anyone who's been following this business, Ann Taylor's woes are a case of "same story, different day." It's been an ongoing challenge for the company to emulate the continued success of Loft with its namesake division. And until the company can figure out what's going wrong at Ann Taylor, it seems as though it will continue to be a drag on the company's financial outlook.
There's also the competition. The namesake Ann Taylor division's rivals include Chico's (NYSE:CHS), Talbots (NYSE:TLB), and J. Jill (NASDAQ:JILL) (and soon, a new concept from Motley Fool Stock Advisor pick Gap (NYSE:GPS)). However, those retailers have had varying degrees of success in tempting the mature female shoppers they target.
Meanwhile, though, the company recently promoted Kay Krill, who is credited with having launched and nurtured the Loft division, to president. On the optimistic side, the company is apparently attempting to use her expertise to foster more growth in the namesake division, although it might be a perfectly legitimate concern to worry that the Loft division's success might be tempered by her distractions with the rest of the business.
It appears that Ann Taylor's still got a bit of an identity crisis, although there are some reasons to be upbeat that the namesake stores could be on the road to rejuvenation. Although shares are trading at 16 times earnings and 18 times forward earnings, which might not sound too pricey, one might think more proof is in order before jumping into this stock.
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Alyce Lomax does not own shares of any of the companies mentioned.
