Through its Ann Taylor stores, Ann (NYSE:AEO) offers a wide range of women’s professional attire including career & casual separates, dresses, tops, weekend wear, shoes and accessories. The brand’s stores and e-commerce channel account for about 40% of the retailer’s value according to our estimates. Ann Taylor‘s comparable sales (stores, factory & e-commerce) have increased at an average annual rate of 8% over the past three years driven by strong product performance, fewer markdowns and consolidation of underperforming stores. In addition to these factors, growing online retail sales, the launch of global shipping and the new store format are likely to sustain growth going forward.
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Strong Product Performance
Ann Taylor’s appealing product offerings have helped it establish a strong brand image in the U.S. Also, a quick response to changing fashion trends and marketing campaigns with celebrity brand ambassadors have helped it in successfully launching its seasonal collection. Last year, refreshing changes such as vibrant colors in tops, dresses, skirts, woven tops and knit dresses boosted its product performance.  Ann’s choice of actress Kate Hudson as the face for its ad campaigns added to the brand image.  These factors helped the retailer with solid results in the spring, summer and fall seasons. 
Even during the weak holiday season, Ann Taylor’s core products such as dresses, skirts, wovens, knit tops, casual bottoms and jewelry delivered good results driven by a positive customer response.  Ann also reduced the inventory of suits and shoes in the third quarter, which resulted in fewer promotional discounts for Ann Taylor leading to 5% growth in comparable store sales (excluding factory stores). ((Ann’s SEC filings)) We believe that with a better inventory control, fashion responsiveness and celebrity endorsements, Ann Taylor’s comparable store sales growth will continue in the future.
Growth In Online Retail And Launch Of Global Shipping
Last year, Ann launched a multichannel initiative to improve the delivery responsiveness of its online orders.  It combined its online and store channels to integrate the inventory pool across its stores. Going forward, the anticipated growth in online apparel sales due to growing Internet usage and proliferation of smartphones and tablets is likely to drive Ann Taylor’s comparable store sales. Forrester forecasts that U.S. online retail sales will amount to $262 billion in 2013 (an increase of 13% over 2012) and reach $370 billion by 2017.  Based on the historical trends, we expect online apparel sales to grow faster than the overall online retail sales. 
Ann recently launched international shipping for its Ann Taylor and LOFT products to more than 100 countries. The retailer is now in a better position to cater to the needs of international customers who were previously underserved.  This will provide additional revenues for Ann Taylor with the existing store base resulting in better comparable store sales.
Store Remodel Should Help In Attracting Customers
The retailer is remodeling its Ann Taylor stores to improve the shopping experience of its customers. The company stated that the new store format is designed to appear light and feminine and make customers feel at home.  Ann Taylor believes that this will better reflect its modern aesthetics and aspirational position. 
This format features touch screen TVs for easy access to the company’s website, crystal chandeliers, maple hardwood floors, modern furniture.  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 to create an appealing combination of clothes. Ann launched this format in March 2012 and by the end of fiscal 2012, it had remodeled more than 65% of its stores. The customer feedback has been encouraging so far and we expect it to have a positive impact on its store traffic going forward.
Our price estimate for Ann at $35, implying a premium of about 25% to the market price.Notes:
- Ann’s Q3 fiscal 2012 earnings transcript, Nov 28 1012 [↩] [↩]
- Kate Hudson Is Charged With The Task Of Making Ann Taylor Cool Again, Business Insider, Jan 24 2013 [↩]
- Ann’s Q4 fiscal 2012 earnings transcript, March 8 2013 [↩] [↩]
- Ann Inc. Reports Record Third Quarter 2012 EPS Results, Ann Inc., Nov 28 2012 [↩]
- U.S. Online Retail Sales To Reach $370B by 2017, Forbes, Mar 14 2013 [↩]
- Estimated using the data available with United States Census Bureau [↩]
- Ann Inc. launches international shipping for Ann Taylor and LOFT, Ann Inc., Mar 8 2013 [↩]
- Ann Taylor Bringing Redesigned Stores Concept To Scottsdale Fashion Square, Business Journal, April 3 2013 [↩]
- Ann Taylor unveils new store design at new Michigan Avenue location, Chicago Business, March 1 2012 [↩]