On Dec 25, 2014, Zacks Investment Research downgraded ANN Inc. (ANN), the upscale women's clothing retailer, to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
ANN seems to be in troubled waters lately due to external pressures like weak mall traffic, a highly promotional retail environment and shipment delays on the west coast. Apart from these, the company witnessed soft product performance in certain categories at its core Ann Taylor brand. This resulted in negative comparable-store sales (comps) for the first time in the past ten quarters for the company’s core brand.
Moreover, estimates for ANN have been showing a downtrend since it reported dismal third-quarter fiscal 2014 results on Nov 21, wherein both top and bottom lines dipped year over year. Further, the company lowered its fiscal 2014 outlook anticipating that the third-quarter trend will continue through the rest of the year.
Negatively impacted by the aforementioned factors, ANN’s net sales for the quarter declined 1.6% year over year to $646.8 million and fell short of the Zacks Consensus Estimate of $653 million as well as its own projection of $670 million. Also, the company’s earnings, which came in at 72 cents per share, plunged nearly 19% year over year. Earnings, however, came ahead of the Zacks Consensus Estimate of 69 cents.
Following the dismal third-quarter results, the company now expects total sales for fiscal 2014 to come in at $2.516 billion, down from the earlier guidance of $2.560 billion. Further, comps for the fiscal are now anticipated to fall in the low single-digit range and gross margin is envisioned to be around 51.2%, compared with 52% predicted earlier.
For the fourth quarter, the company reiterated its total sales forecast of $630 million along with its expectation of negative comps in the low-single digits. It projects gross margin of 46.5% and SG&A of roughly $295 million. Effective tax rate is estimated to be 41% while share outstanding should total 46.2 million
Consequently, the Zacks Consensus Estimate for the fiscal 2014 and 2015 witnessed negative movements in the past 60 days. The Zacks Consensus Estimate fell 13.1% to $1.72 per share for fiscal 2014 and 12% to $2.12 for fiscal 2015.
Other Stocks to Consider
Better-ranked stocks in the same industry that look promising and are expected to continue with their upbeat performance include Shoe Carnival Inc. (SCVL), Bebe Stores Inc. (BEBE) and L Brands Inc. (LB). While She Carnival and Bebe Stores sport a Zacks Rank #1 (Strong Buy), L Brands carries a Zacks Rank #2 (Buy).
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