Retailers are reporting their fall sales in droves, and right in line is women's clothier Ann Taylor Stores (NYSE:ANN), which will report third-quarter results on Friday before the market opens.

What analysts say:

  • Buy, sell, or waffle? Nineteen analysts walk the runway with Ann Taylor. Three of them say "buy," 13 say "hold," and two say "sell." Surprisingly, there's also one "strong sell."

  • Revenues. On average, the analysts expect an 11.6% increase in revenues to $573.8 million.

  • Earnings. Per-share income is estimated at $0.52, a 23.8% increase over last year.

What management says:
Third-quarter sales were strong last year, up more than 11% from 2004, and that was followed by a strong performance in the fourth quarter. Even so, sales came in less than analysts forecast in Q3, and comps for last month fell 0.5%, whereas they rose 1.2% the year before.

The picture at the company's LOFT division was tough in October; comps fell 3.4% from last year. And though the Ann Taylor segment saw same-store sales rise 1.5%, these were not as strong as last year's 2.2% increase. In all, the company is facing a tough comparison year over year, and its stock may end up becoming a little threadbare as a result.

Even so, both of the company's divisions reported an increase in sales in October and saw profits increase as a result of scaled-back promotions. One analyst even foresees 20% growth in earnings while predicting a 130-basis-point increase in margins.

What management does:
Those margins have been getting thicker all year long, so the analysts' forecast may yet prove true. And the fact is that sales have continued to grow at this retailer, even if there are occasional slips -- like last month's comps. For the past three months, the company has said that total net sales have grown to $566.3 million, versus $514 million during the comparable weeks the year before.

Margins

07/05

10/05

01/06

04/06

07/06

Gross

48.1%

49.0%

50.9%

52.4%

54.0%

Operating

2.2%

3.5%

6.6%

8.1%

10.3%

Net

1.3%

2.1%

3.9%

4.8%

6.2%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Ann Taylor has been having some issues with its clothing lines that seem out of step with the fashions women want. The company has pointed to sweaters at LOFT as a recent example of a styling that didn't click, though it believes it has corrected those problems and now walks in step with the fashionable crowd. But it's got a tough act to follow. When it was performing like a lower-tier retailer, it had a relatively easy time beating comparisons to the year before -- as it did last year. Now, sales and margins have a much higher bar to clear, and even if the company is able to make it this quarter and match last year's performance, it will still have a tough time ahead.

The company needs to iron out those issues at LOFT. Meanwhile, the rest of the business does not seem robust enough to propel the women's retailer to make it to the spotlight -- remember, comps last month were half of what was expected. With shares trading at only 10% under their 52-week highs, this Fool finds some runs showing in Ann Taylor's stockings. It's hard to imagine that shares have much upward momentum here.

Competitors:

  • Chico's FAS (NYSE:CHS)
  • New York & Co. (NYSE:NWY)
  • Charming Shoppes (NASDAQ:CHRS)
  • Talbots (NYSE:TLB)
  • Guess? (NYSE:GES)
  • Dress Barn (NYSE:DBRN)

New York & Co. is a recommendation ofMotley Fool Hidden Gems. See what other promising small caps Tom Gardner and his team have recommended by trying out Hidden Gemsfree for 30 days.

Fool contributor Rich Duprey does not own any of the companies mentioned in this article.