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ANN Soars on Solid Gross Margin Outlook

Zacks Equity Research

Shares of ANN INC. (ANN) soared 4.2% during yesterday’s trade as the company provided a favorable margin forecast for the fourth-quarter and fiscal 2013, despite the prevailing soft traffic trends, weak consumer spending and the stormy weather that impacted the company’s sales results.  

As most retailers, ANN stated that its fourth-quarter results fell below expectations, as its factory outlet centers were impacted by the negative industry trends including soft customer traffic and lesser consumer spending. Moreover, the company’s sales results in certain areas were hit hard by the harsh winter storms. Though these factors weighed on the quarterly performance, the company still envisions its sales, gross margin and earnings per share for the fourth quarter to rise year over year.

Additionally, the company remains encouraged by its fiscal-2013 performance citing improved sales, positive comps and healthy gross margins. The company pointed out that this year will mark positive comps at both Ann Taylor and LOFT for the 4th consecutive year.

Updating its forecast for the fourth quarter and fiscal 2013, the company slashed its sales guidance for both periods. The company now expects fourth-quarter sales to reach $623 million, down from its previous forecast of $640 million. Full-year sales are now projected at $2,493 million compared with $2,510 million guided earlier.

Moreover, the company now expects comparable store sales increase of 3% for the quarter and 2% for the year, against the previous guidance of mid-single-digit growth for the fourth quarter and low-to-mid-single digit growth for fiscal 2013. Brand-wise, Ann Taylor is expected to report a 1% decline in comps, while LOFT’s comps will grow 6% during the fourth quarter.

However, the company made little change to its gross margin guidance for the fourth quarter and retained its gross margin forecast for the year. Fourth-quarter gross margin is expected to be 49.2% compared with 49.5% projected earlier, while the fiscal year gross margin forecast is retained at 53.9%.

Further, the company anticipates selling, general and administrative (SG&A) expenses to total $305 million for the fourth quarter and $1.173 billion for fiscal 2013. Earlier, the company had forecasted SG&A expenses of $301 million for the fourth quarter and $1.177 billion for the fiscal year. The company stated that it now estimates capital expenditure of $150 million for fiscal 2013, down from the previous guidance of $155 million.

Headquartered in New York City, this upscale women's clothing retailer is scheduled to release its fourth quarter and fiscal 2013 financial results on Mar 14, 2014. The company currently carries a Zacks Rank #3 (Hold).

Better-performing stocks among apparel/shoe retailers include Christopher & Banks Corp. (CBK), Finish Line Inc. (FINL) and Foot Locker Inc. (FL). While Christopher & Banks carries a Zacks Rank #1 (String Buy), Finish Line and Foot Locker have a Zacks Rank #2 (Buy).

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