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Ann Taylor (ANN)
Ann Taylor Stores Hit Hard in the Fourth Quarter
Speculation of $4 gas prices in the coming months is the last thing women's apparel chain Ann Taylor wants to hear. Weakened consumer spending on rising prices has already dealt a powerful blow to the retailer, resulting in disappointing fourth quarter results and revised forecasts for 2008 that have investors selling off shares in early trading today. The company is undergoing restructuring efforts to combat further losses, but will these new initiatives be enough to weather the choppy market? Or will they be forced to try a completely new strategy on for size?
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For the quarter ended February 2, retailer Ann Taylor posted a loss of $6.7 million, or 11 cents per share. The same quarter last year saw a profit of $21.5 million, or 31 cents per share. This quarter's results include a charge of 30 cents per share for its restructuring program, so net income would have been 19 cents per share excluding this charge. Revenues for the quarter dropped 2 percent to $600.8 million from $610.5 million last year (which was longer by one week). Analysts had expected profits of 20 cents per share on revenues of $609 million. The company has cited costs resulting from the restructuring program as well as a reduction in customer traffic as the main culprits for the loss. The decreased consumer spending was evident in the results from same-store sales, or sales for stores that have been open at least one year, where sales dropped 3.2 percent.
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Ann Taylor stores pride themselves on a "total wardrobing strategy" to fit a wide spectrum of client needs. Through the Ann Taylor, Ann Taylor Loft, and Ann Taylor Factory brands, the company offers a wide range of professional and casual apparel including separates, shoes, and accessories. For the fourth quarter, revenue from the Ann Taylor brand fell 12 percent to $214 million and sales store sales plummeted 78 percent, while the Loft brand saw sales increase 3 percent to $284.8 million with a 0.5 percent drop in same store sales. The company is using this information to restructure its operations and cut costs. In January, the company launched a program aimed at reducing costs by $50 million per year by closing stores, reducing its workforce and streamlining operations.
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Ann Taylor is trying to position itself to best take advantage of the weakened economy and evermore calculated discretion spending. The company will be broadening its Ann Taylor Factory brand, which offers lower-priced alternatives to the Ann Taylor clothing line, as well as unveiling an outlet brand for Ann Taylor Loft. After criticism that the clothes offered by the company lack the "newness" customers are looking for, they may hope that offering lower priced clothing would outweigh the so-called out datedness.
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So far 2008 has shown a continued slide for the company. Guidance for the first quarter and the full year are below analyst expectations with first quarter profit forecasted at 35 to 40 cents per share where analysts had estimated 41 cents. Company president and chief executive Kay Krill commented, "We expect fiscal 2008 to be challenging -- particularly in the first half." It is their hope that cutting back on costs and reducing new store growth will help achieve better results in the coming quarters. Whether these efforts can outweigh the will of the consumer remains to be seen.
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