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AnnTaylor Upbeat For Summer

By Glenn Curtis

Tickers in this Article: ANN, TLB, M

The retail clothing business is an extremely difficult space to operate in these days. That's largely due to the slowing economy, high occupancy and labor costs, and stiff competition. Given all this turmoil, I was surprised when I read AnnTaylor's (NYSE:ANN) optimistic first-quarter and full-year outlook.

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Upbeat in a Down Market
Management said that for the quarter it now expects to earn 45-47 cents per diluted share, not counting restructuring costs. For the full year management confirmed expectations of $1.80-1.90 a share, not counting restructuring costs. Management credited improved results at its LOFT Outlet concept and better inventory management for its recent performance.

The new upbeat guidance is great news. Back in March, management said it expected the first quarter of fiscal 2008 to be the "most challenging of the year, from a sales and margin perspective". It set expectations low at 35-40 cents per share for Q1. Such a quick turnaround is impressive, especially because the new expectations are north of Street expectations.

Wall Street analysts had been expecting the company to earn about 36 cents a share, which leads me to my next point. Analysts like it when companies under promise and over deliver on the earnings front. I wouldn't be surprised to see upbeat research come out of the sell side in the days ahead. (To explore the controversies surrounding companies commenting on their forward-looking expectations, read Can Earnings Guidance Accurately Predict The Future?)

Confirmation of the full-year forecast is also good news, as AnnTaylor is just at the beginning of a new fiscal year. To be clear, the company did still say that it was cautious about its outlook for the remainder of the year, but it could have backed off its full year forecast. The fact that it didn't shows confidence.

Boomer-Focus Be Gone
In conjunction with the forecast management also said it is shelving plans to open a chain that targets mature customers (i.e. baby boomers). I think it's smart for the company to focus on what's working. AnnTaylor's time and resources are better spent trying to grow the concepts it has now, and making sure that it has the right merchandise mix, rather than making a foray into a new venture.

Scrapping the idea could also boost the stock. It no longer has to shell out for opening costs and building a new brand. This could lead to a bump up in analyst's estimates going forward. This in turn could drive the stock.

Caution is Key
While the news coming out of AnnTaylor certainly seems upbeat, it should be remembered that the apparel business remains a tough business, and that its earnings at any point could be under pressure. AnnTaylor isn't immune to this economic slowdown. The competition from Talbots (NYSE:TLB) and department stores such as Macy's (NYSE:M) remains stiff.

Bottom Line
AnnTaylor's Q1 and full-year earnings guidance is encouraging. It scrapped plans for a new boomer-centric store, which is a big relief as well. Amidst all this optimism, however, it should be remembered that the lingering economic uncertainty, and the competition it's seeing from the likes of Talbots and Macy's among others remains a threat.

For further reading, check out Analyzing Retail Stocks.

By Glenn Curtis

Glenn Curtis started his career in the 1990s as an equity analyst for a regional firm in New Jersey. There, he covered companies in the technology, entertainment, and gaming industries. Curtis has since worked as a financial writer at a series of both web and print publications, including TheStreet.com and Registered Rep Magazine. He has held his series 6,7,24, and 63 securities licenses.

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