Ann (NYSE:ANN) is one of the leading specialty retailer of women’s merchandise offering apparel and accessories under Ann Taylor and LOFT brands. While Ann Taylor mainly focuses on professional attire, LOFT offers casual separates, dresses, tops, shoes and accessories.  According to our estimates, Ann Taylor contributes about 40% to the company’s value and LOFT accounts for the remaining 60%. In this analysis, we’ll take a look at how these brands have performed in the recent past and what’s their outlook for the future.
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Ann Taylor Will Remain Strong
Performance has been steady: With a quick response to changing fashion and appealing product offerings, Ann Taylor has established a strong brand identity in the U.S. In Q1 fiscal 2013, despite the impact of prolonged cold which subdued the demand for spring clothing, the brand’s mainline stores’ comparable sales jumped 6.2% driven by robust sales of its dresses, skirts, woven tops, shoes and jewelry.  In the quarter before that, when the apparel industry was struggling due to the weak holiday season, Ann Taylor’s growth remained on track due to strong results from knit tops, casual bottoms and jewelry.  With firm inventory control the retailer reduced the inventory of suits and shoes in Q3 fiscal 2012, which resulted in fewer promotional discounts for Ann Taylor in Q4. Ultimately, this translated into 5% growth in comparable store sales of the brand’s mainline stores. 
What’s Behind This Performance: Ann Taylor has maintained its healthy growth on the back of its multi-part strategy. The brand is focused on providing its customers with a wide variety of assortments reflecting relevant fashion across all its stores. It is maintaining a firm control over its balanced pricing strategy that aims at attracting customers from different demographics. Ann Taylor offers an extended variety of products at good, better and best price points and subsequently, targets promotions on fewer products. 
What’s The Company Doing To Boost The Brand: Enhancing the shopping experience remains one of the top priorities of Ann Taylor and its concept and capital-right refreshed stores have garnered significant customer attention.  The company stated that the new store format is designed to appear light and feminine, while reflecting the brand’s modern aesthetics and aspirational position.   Through these stores, the brand will offer a large variety of merchandise in a smaller space along with style assistance where the staff helps customers in choosing an appealing combination of clothes. Ann launched this format in March 2012 and by the end of Q1 fiscal 2013, it had 80 concept and 100 capital-right refreshed stores operational. Currently, these stores account for 66% of the brand’s store fleet and the company plans to increase this figure to 80% by the year end.  For Ann Taylor’s marketing, the company is focused on devising a more personalized and relevant shopping experience. It is looking to build a solid base of brand loyal customers and attract new clients. The retailer is targeting social media, e-mail, direct mail and media to reach its customers. Additionally, Ann Taylor’s celebrity endorsements featuring Kate Hudson, will remain the core of the brand’s marketing strategy. 
LOFT Can Recover From Its Weakness
Lately, Performance Has Been Sluggish: During the last year’s holiday season, Ann invested heavily in LOFT’s bright colors and kept the proportion of black and neutrals low. This led to product imbalance and resulted in weak performance from the brand. For the first quarter of fiscal 2013, the company increased its investments in LOFT‘s warm weather products, and the results didn’t turn out as planned due to unusually long winters.  As a result, LOFT stores’ comparable store sales fell by 0.9%.
Some Signs Of Its Recovery: In its recent earnings, Ann stated that LOFT has started well in the second quarter with latest prints and patterns leading the way. Some of the brand’s product categories such as denim, LOFT lounge, dresses and jackets delivered positive comparable store sales growth in Q1.  Interestingly, denim registered record sales in the quarter driven by appealing silhouettes and color offerings.  Now, the company needs to maintain this strength to fuel the brand’s long term growth.
What’s The Company Doing For The Brand: Ann plans to significantly expand its LOFT lounge category, which has been among the strongest performers over the past three quarters.  In terms of geographical reach, the company will expand the brand’s footprint in small and medium markets. At the same time, it will update and revamp LOFT’s presence in high-profile locations.  For LOFT’s marketing, Ann is focusing more towards increasing the brand awareness and strengthening the connection with existing customers. The company stated that the brand’s marketing campaigns have drawn significant customer attention and it will leverage this to build a vast customer base.
Online Growth Will Help Both The Brands
Growing Online Apparel Industry: Online apparel retail market in the U.S. is growing at a robust pace due to growing Internet usage and proliferation of smartphones and tablets. A number of retailers have thrived on this trend and Ann is no exception. The outlook for the industry is encouraging as eMarketer forecasts the online apparel sales to increase from about $45 billion in 2012 to $90 billion in 2016.  Additionally, the recent launch of international shipping to more than 100 countries positions it well on a global scale. Initial response has been positive from a number of countries, which will inspire Ann to expand its presence in those regions. During Q1 fiscal 2013, both Ann Taylor and LOFT showed strong momentum in their online sales growth. Even though LOFT’s business mostly remained weak, online exclusive products garnered strong customer response. 
Ann’s Initiatives On This Front: Last fall, the company introduced its multichannel initiative, wherein it combined its online and store channel to integrate the inventory pool across its stores.  The idea was to increase the product variety over the Internet and improve delivery responsiveness. The results have been good so far.  The company stated that the multichannel approach has enabled it to effectively clear superfluous inventory without unfavorable margin pressures. Ann plans to continue investing in marketing, site enhancement, inventory and new functionality to bolster the channel. 
Our price estimate for ANN stands at $35, implying a premium of about 10% to the market price.Notes:
- Ann’s SEC filings [↩]
- Ann’s Q1 fiscal 2013 earnings transcript, June 6 2013 [↩] [↩] [↩] [↩] [↩] [↩] [↩] [↩] [↩] [↩] [↩] [↩] [↩]
- Ann’s Q4 fiscal 2012 earnings transcript, Mar 8 2013 [↩] [↩]
- Ann Taylor Bringing Redesigned Stores Concept To Scottsdale Fashion Square, Business Journal, April 3 2013 [↩]
- Ann’s Q4 fiscal 2012 earnings transcript, Mar 8 2013 [↩]
- Retail Ecommerce Set to Keep a Strong Pace Through 2017, eMarketer, Apr 24 2013 [↩]
- Ann’s Q3 fiscal 2012 earnings transcript, Nov 28 1012 [↩]