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Ann Q1 Earnings Preview

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Ann Inc (NYSE: ANN) will report Q1 earnings Friday ahead of the market open.

The company has guided that revenue would come in at $605 million while the Wall Street consensus expected EPS of $0.33 on revenue of $604.87 million.

In a May 4 note, RBC analyst Brian Tunick thought Ann “could make sense as a takeout candidate, given its solid brands, healthy balance sheet, and depressed margins,” however, Tunick felt at the time the probability for a takeout would diminish “the longer we wait for news.”

It did not take much longer for Tunick’s thesis to be proven true about Ann as a takeout candidate. Ascena Retail Group Inc (NASDAQ: ASNA) announced on May 18 it would purchase the company, which caused the stock to spike from the $38 level to over $46.

Ahead of its earnings release, shares of Ann traded at $47.05, up 0.47 percent.

Wall Street analysts gave their previews for the company’s Q1 in early May, before the deal with Ascena. Below are highlights from those notes along with ratings and price targets.

Piper Jaffray - Overweight, $46 price target

“Big picture thesis: fashion showing signs of interest against a backdrop of leaner inventories and meaner cost structures. We believe there is building interest in apparel--particularly higher-margin knit-based goods. We note that the last time we've had a good knits cycle was in 2010/FY11--a time when ANN's gross margin rates were closer to 56% versus the 51% they just recorded in the full year of 2014/FY15. With promotions abating, and a potential for trends in favor of ANN, we believe there could be upside to our and management's gross margin guidance of 53% for FQ1. We note that our estimate for FQ1 GM% of 53% is 350 bps below the company's five-year average rate of 56.5%. Every 50 basis points of FQ1 GM% could lead to $0.04-$0.05 of upside to our $0.33 estimate.”

RBC Capital Markets - Sector Perform, $40 price target

“We are looking for $0.33 in EPS, comprised of a 0.2% consolidated comp (0.0% at Ann Taylor and 0.3% at LOFT), 40 bps of gross margin pressure to 53.0% in line with guidance, SG&A of $294MM, and an EBIT margin of 4.2% versus 4.5% last year[...] Our Sector Perform rating on ANN is due to our expectation for near-term margin headwinds, including heavier inventories through 1H15. After three years at a post-recession peak of 6.8%, ANN saw EBIT margins fall 150 bps in 2014 due to shortfalls at both Ann Taylor and LOFT.”

Macquarie Research -  Neutral, $37 price target

“We are lowering our 1Q15E EPS to $0.24 from $0.32. FY15E EPS to $1.93 from $2.01 and our FY16E EPS to $2.08 from $2.17 [...] we calculate an estimated GM could be as low as 51.2% for 1Q15 – versus current consensus and guidance of 53%. Digging deeper, we notice an increased depth in promotions at both the Ann Taylor and LOFT stores. We are lowering our GM estimate to 52% for 1Q without adjusting other line items since there is overall little visibility on sales. The full line stores are now facing easier comps, however, the question remains if the merchandise margin begins to stabilize in 2015.”

Latest Ratings for ANN

DateFirmActionFromTo
May 2015DowngradesBuyHold
May 2015DowngradesBuyNeutral
May 2015DowngradesOverweightNeutral

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Posted-In: Brian Tunick Macquarie Piper Jaffray RBCAnalyst Color Previews Analyst Ratings Trading Ideas

 

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