Ann Q2 Profit Down 8%, But Results Beat View; Lowers 2014 Sales Outlook

(RTTNews) - Women's apparel retailer Ann, Inc. (ANN) on Friday reported an 8 percent decline in profit for the second quarter from last year, as higher sales were more than offset by soft traffic and lower margins due to higher-than-anticipated promotional activity.

However, both revenue and earnings per share for the quarter beat analysts' expectations. Looking ahead, the company forecast revenue for the third quarter below Street estimates and also lowered its revenue outlook for fiscal 2014.

Kay Krill, president and CEO of Ann's, said, "...the second half of the period proved challenging, as softer traffic levels and a highly promotional environment pressured sales and margin. In addition, LOFT experienced continued softness in basic knit tops, which represented a significant component of its summer assortment."

New York-based Ann's net income for the second quarter was $32.68 million or $0.70 per share, down from $35.65 million or $0.76 per share in previous-year quarter.

On average, 20 analysts polled by Thomson Reuters expected the company to report earnings of $0.68 per share for the quarter. Analysts' estimates typically exclude special items.

However, net sales for the quarter grew 2 percent to $648.66 million from $638.20 million in the year-ago period. Analysts' revenue consensus was $648.09 million for the quarter.

Net sales for the Ann Taylor brand across all channels rose 2 percent to $249.95 million, while net sales at the LOFT brand increased 1 percent to $398.71 million.

Total company comparable sales for the quarter decreased 2.3 percent, compared to an increase of 2.8 percent in the same period last year. At Ann Taylor, comparable sales edged up 0.7 percent, while comparable sales at LOFT declined 4.1 percent.

Gross margin for the quarter contracted 230 basis points from the year-ago period to 52.4 percent, reflecting an overall decrease in merchandise margin as a result of higher-than-anticipated promotional activity.

During the quarter, the company opened 17 new stores, comprised of two Ann Taylor Factory stores, six LOFT stores and nine LOFT outlet stores. Meanwhile, the retailer closed three Ann Taylor stores and six LOFT stores during the period.

Looking ahead to the third quarter, Ann forecast total net sales of $670 million, reflecting comparable sales of flat to slightly negative. Analysts expect the company to report revenues of $673.31 million for the quarter.

Krill said, "We have entered the third quarter with fresh fall fashion and clean inventory levels at both brands."

For fiscal 2014, Ann's now forecasts net sales of $2.560 billion, down from the prior forecast for net sales of $2.610 billion.

The company also lowered its outlook for full-year comparable sales and expects it to now be flat, compared to its prior forecast for an increase in the low-single digits. Street expects the company to report revenues of $2.56 billion for the year.

ANN closed Thursday's trading at $38.81. In Friday's pre-market activity, the stock is down $1.31 or 3.38 percent to $37.50.