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Investment Overview for ANN (NYSE:ANN)
- LOFT Stores Revenue per Square Foot:LOFT stores revenue per square foot increased by 6.4% in 2011 to reach $340. The increase was primarily driven by compelling fashion and balanced merchandise assortments at LOFT stores. Owing to LOFT's strong brand positioning in the U.S. women's apparel market and an increase in the number of transactions, we expect the figure to reach $447 by the end of the Trefis forecast period.
However, in the current weak macro-economic conditions the competition among women apparel retailers is exceedingly fierce, and a single merchandise goof-up can cost the company its market share. If the revenue per square foot increases only to $395 by the end of the Trefis forecast period, there can be a downside of 5% to our price estimate. On the other hand if LOFT stores channel maintains its strong run and the revenue per square foot increases to $495 by the end of the Trefis forecast period, there could be a 5% upside to our price estimate.
- LOFT Stores EBITDA Margin: Though LOFT Stores EBITDA Margin declined in 2011 due to an increase in cotton costs, we expect the figure to improve gradually as cotton prices decline and the company realizes more full-priced merchandise sales. We expect the figure to reach 22.3% by the end of the Trefis forecast period.
However, if the apparel market continues to be exceptionally promotional and margins plummet further to 18.5% by the end of the Trefis forecast period, there could be a downside of 10% to our Trefis price estimate. Conversely, if the macro-economic conditions improve and the promotional environment ceases to continue and margins increase to 26%, there could be an upside of 10% to our Trefis price estimate.
Ann Inc. is a leading specialty retailer of women’s apparel, shoes and accessories, sold primarily under the highly recognized national brands “Ann Taylor” and “LOFT”, in the US.
Ann Taylor and LOFT brands offer a full range of career and casual separates, dresses, tops, weekend wear, shoes and accessories, with distinct fashion points of view, though both are equally committed to providing clients with feminine, fashionable, high quality merchandise that is highly relevant to all aspects of a persons lifestyle.
Ann's factory and outlet stores are mainly present in the suburban areas and are larger in size than the full-priced Ann Taylor and LOFT stores. As compared to Ann Taylor stores, LOFT stores offer more relaxed fashions, for both work and home and are more affordable as they are priced in the "upper moderate" segment, offering style and value to customers.
The selection at LOFT stores differs from Ann Taylor stores, while the design and styles of clothes are similar, and the prices lower.
We believe that LOFT stores are almost twice as valuable as the Ann Taylor Factory stores as well as LOFT outlet stores. This compares to Ann Taylor Factory stores and LOFT outlet stores which are of comparable value, due to the following reasons:
More LOFT stores than Ann Taylor stores
The number of LOFT stores operated by Ann is about 1.8 times the number of Ann Taylor stores and more than 3 times the number of Ann Taylor factory stores and LOFT outlet stores combined.
Higher revenue per square foot for factory / outlet stores
The revenue per square foot for factory stores (including both Ann Taylor factory stores and LOFT outlet stores) are much higher than the company's full-priced stores (including both LOFT stores and Ann Taylor stores).
This indicates the increasing popularity of factory stores format in the US and their growth potential in the future.
Online apparel retail growing at double digit rate
Both Ann Taylor e-commerce channel and LOFT e-commerce grew by a staggering 35% and 28% respectively.
The company has identified the increasing significance of the online channel and the tremendous growth potential it offers. It has planned significant investments on its online channel for 2012 and expects to derive an increasing share of its sales from the channel.
Saturation of women's apparel market in the US
The women's apparel market in the US is a mature market and has historically witnessed a low but stable growth rate annually.
After a decline of 5% in 2009, women led the way in the fashion apparel market in 2010 with women's apparel sales increasing by 2.9%. The figure remained comparable in 2011.
However, both of Ann Taylor's primary brands are approaching market saturation. In order to keep growth from stalling, the company has been working on new outlets (like factory stores and online stores) and other fashion styles.
Increasing competition from department stores & specialty retailers
The women’s apparel retail industry is highly competitive, with the number of players increasing year after year. While Ann has made progress by upgrading its namesake store and fine-tuning its Loft brand, expanding market share may prove to be difficult as the company faces increasing competition from department stores (Nordstrom, Macy's) and specialty retailers (Chico's FAS, Talbots, Abercrombie & Fitch, Limited Brands, GAP). In addition, pricing will become increasingly competitive and increasing revenue per square foot will be difficult.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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