Women’s apparel retailer Ann’s (NYSE:ANN) stock crashed by 7% Thursday, after the company provided a weaker-than-anticipated fourth quarter performance update.^[1] The primary reason behind weak Q4 sales was disappointing performance in Ann Taylor stores channel, which recorded a decline of 11% in comp sales. Additionally, significantly high promotions in Ann Taylor stores to improve comps also took a toll on company’s overall gross margins, with the figure tumbling to 49% during the quarter. The “affordable luxury” retailer competes with other brands like Aeropostale (NYSE:ARO), Jones Apparel Group (NYSE:JNY) and Limited Brands (NYSE:LTD).

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Weak Performance in Ann Taylor stores channel ruins Ann’s Q4

While Ann recorded comp increase across all its other channels, a disappointing performance in Ann Taylor stores channel resulted in company lowering its Q4 sales estimate to $566 million from the previous expectations of $580 million. In our holiday updates, we had earlier covered how Ann was struggling in Ann Taylor stores channel throughout the holidays, and how despite deep promotions, Ann was expected to end its holiday season with an inventory hangover.

See: Ann Updates: Deep Discounts Raise Concerns on Margins

Ann Updates: Rising Sweater Inventories Could Weigh on Results

Additionally, the company’s strategy to woo the holiday shoppers by providing deep promotions also backfired, with Ann’s gross margins plummeting to 49%, a massive 8.5% decline in margins compared to that of Q3. As the company prepares to release its Q4 results on March 9, inventory figures will be one of the key things on our radar, because high inventory level may further effect the margins going ahead as it would take Ann even greater time for realizing the benefits of declining input prices like cotton.

Understand How a Company’s Products Impact its Stock Price at Trefis

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