ANN INC.: Back On Track?

Price:$23.50

Forward P/E:12

Earnings Growth:31%

Projected Sales Growth:12%

Market Cap:$1.21 billion

Why It's Featured: May be good entry point; sales and earnings show solid growth; almost no debt; high return on equity.
Danger Zones: Volatile earnings history; same with the price.

ANN INC. (ANN-NYSE) operates as a specialty retailer of women's apparel, shoes, and accessories primarily in the United States.  It offers a range of career and casual separates, dresses, tops, weekend wear, shoes, and accessories under the Ann Taylor and LOFT brands.

The company sells through traditional retail stores and on the Internet at anntaylor.com and LOFT.com.  As of October 29, 2011, it operated 950 Ann Taylor, Ann Taylor Factory, LOFT, and LOFT Outlet stores in 46 states, the District of Columbia, and Puerto Rico.  The company was formerly known as AnnTaylor Stores Corporation and changed its name to ANN INC. on March 15, 2011.  ANN INC. was founded in 1986 and is headquartered in New York, New York.

Here's what caught my eye about ANN: earnings went from $1.83 in 2007 to 2 cents in 2008.  The stock went from $29.20 to $2.40 from '08 to early '09.  Remember that as you read more about this retailer.  It can be a wild ride. (For more stock ideas, see www.theonlineinvestor.com)

The stock bounced back in 2009, then went higher in 2010, peaking in early 2011 at $32.50 a share.  Earnings did the same, going from 2 cents in '08 to 31 cents in '09.  In 2010, they finished at $1.30.  For 2011, 19 analysts think the total was $1.71 (fiscal year ended January 31....earnings will be out March 9).  For 2012, those same 19 analysts forecast $1.92.

Earnings in the third quarter of 2011 beat estimates by 7% (61 cents vs an estimate of 57 cents).  Compared to the same period in 2010, they were ahead by 45%.  Same-store sales increased and so did margins.  Analysts see the trend continuing as the company's Loft division with its more casual styles and prices hits the sweet spot with consumers as they look to find value in these troubled economic times.  To help more traffic through the stores, management is giving a face lift to many of them.  Further aiding sales is the company's Web site which is growing and starting to add to earnings in a meaningful way.

But all is not positive.  Same store sales at the Ann Taylor stores are coming in below Wall Street forcasts.  These are the flagships for the brand.  They're beginning to show bulging inventories, as high as 20% above last year's levels at this time.  Usually, large inventories lead to large markdowns which lead to lower margins.  It's probably why the stock is down over the last several weeks.

Management is channeling cash flow away from stock buybacks and into new store openings, increasing the brand's presence.  That will help restore consumer (and investor) confidence as many stores were closed over the last several years when the economy was its weakest.

- Essential Numbers:
- Price to sales ratio: .56
- Price to book: 2.77
- Operating margin: 7.27%
- Profit margin: 4.27%
- Return on equity: 20.11%
- Return on assets: 10.19%
- Revenues for the last 12 months: $2.16 billion
- Total cash: $139.59 million
- Cash per share: $2.71
- Total debt: $4.5 million
- Debt to equity: 1.03%
- Current ratio: 1.86
- Book value per share: $8.47
- Beta: 1.26
- 52 week change: 1.9%
- Shares outstanding: 51.5 million
- Float: 41.87 million
- Insiders own: 1.82%
- Held by institutions: 106.9%
- Dividend: 0

Aggressive investors look for stocks that have volatility.  This one will give them what they want.  While there is some concern about inventory levels at Ann Taylor, they're only part of the picture.  Sales at The Loft are robust, as is the growth of Internet sales.  With new stores opening, consumers will most likely regain confidence that the brand is here to stay and will return.  With almost no debt on the books, management has plenty of room to deploy cash flow to help rebuild the brand and the stock or maybe buy other companies or start a dividend.

- Company Web site: www.anntaylor.com

- Ted Allrich
February 9, 2012