ANN Soars on Golden Gate Stake Buy - Analyst Blog

Shares of ANN Inc. ANN gained momentum and soared to a record 52-week high of $43.61 on Friday, March 21, after Golden Gate Capital Corp. revealed that it has bought a 9.5% stake in this women's apparel and accessories retailer. Eventually, the stock closed trade at $42.05, up 13% from the previous day's session.

As per Bloomberg, the move has made Golden Gate the largest shareholder of ANN, followed by BlackRock Inc. BLK that has a 9.3% stake in the company. The private equity firm, Golden Gate believes that the owner of Ann Taylor and LOFT clothing brands is highly undervalued in spite of the company being managed efficiently.

For the past one year, various private equity firms have acquired stakes in retail companies amid the recovering U.S. economy and improving job environment. Last month, Vintage Capital, a private equity firm, made an offer of $30.50 per share or $2.3 billion to acquire the leading rent-to-own retailer, Aaron's Inc. AAN. Last year, the Los Angeles based teen apparel retailer, Hot Topic Inc. was taken over by NY-based private equity firm, Sycamore Partners for a total sum of approximately $600 million.

In its letter to ANN's management, Golden Gate revealed its intention of working with the retailer to enhance shareholders' value. ANN, which had posted record earnings for two consecutive years and the four straight year of improving comparable-store sales, welcomed the move.

Last week, ANN, which competes with American Apparel, Inc. APP, came out with its fourth-quarter fiscal 2013 results, wherein earnings of 10 cents per share increased twofold from the year-ago quarter and surpassed the Zacks Consensus Estimate of 7 cents. The stock has gained 28.7% since the company's preliminary earnings announcement on Feb 6.

Buoyed by better-than-expected fourth-quarter results, this Zacks Rank #3 (Hold) stock provided an impressive guidance for fiscal 2014. It anticipates net sales of $2.6 billion, with comps rising in the low single digits range. Moreover, gross margin is expected to be around 54%. Further, the company projects to spend $120 million as capital expenditure.

Management believes that the company is well positioned for sustained growth in the future, given that both of its brands will begin the spring season with solid product offerings. ANN also plans to further its international operations as it intends to enhance its brands in Canada and introduce its first LOFT store in Mexico at the end of 2014. These initiatives, along with its integrated stores and e-Commerce structure, are expected to push ANN to a new height in the omni-channel world.