Earnings Preview: Will Promotions Hurt Ann's Quarterly Results?

Women's retailer Ann Inc. ANN is set to report its quarterly earnings results on Friday.

Thus far in 2014, the stock has outperformed the broader market, rising a little less than 7 percent. The stock was upgraded to Outperform at Macquarie in early April, and has been trading around the $40.00 level ever since. At the time, the Macquarie analysts said that the stock was "undervalued."

Over the long-term, ANN has been a very solid investment, climbing an extremely impressive 420 percent over the last 5 years. A Morgan Stanley report from May 18, however, suggests that the retailer has been very promotional in recent weeks and this could be a concern for investors heading into the company's earnings report.

Excessive promotions could imply that the company is struggling with inventory overhangs, which in turn may hurt quarterly results.

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Analyst Expectations

Heading into the report, Wall Street analysts have consensus earnings per share estimates of $0.31. The high estimate on the Street is $0.35 with a low estimate of $0.25. In the year ago period, the company reported EPS of $0.44. Over the last 3 months, analysts' earnings estimates have fallen sharply from $0.49 to the current estimate of $0.31. During this period, the stock has risen 11 percent. On the sales front, 18 analysts have consensus revenue estimates of $598.25 million. The high estimate is $603.13 million with a low estimate of $586.00 million. The consensus estimate represents 4.10 percent growth over the $574.51 million in sales the company reported in last year's corresponding quarter. Analyst Color Among the catalysts that the Macquarie analysts cited for their upgrade of ANN shares in April was the March 20th announcement that Golden Gate Capital had taken a 9.5 percent stake in the company. They added that "in our view ANN has done a solid job differentiating its two main brands and expanding those brands through different channels of distribution." The analysts also said that they thought activist shareholders could press for a share buyback or even an outright sale of the company. A report from Morgan Stanley on May 18 based on store checks showed heavy promotional activity at Ann Taylor. The analysts wrote, "we observed a much higher % of store on promotion and similar clearances" vs. last year. At the company's LOFT brand, in-store promotions were down, while clearances were up. The Company Ann Inc. is comprised of two main brands, Ann Taylor and the LOFT. The company is a specialty retailer of women's apparel, shoes and accessories. Based in New York City, Ann operates a total of 1,025 stores in 47 states, the District of Columbia, Puerto Rico, and Canada. This includes 268 Ann Taylor stores, 539 LOFT locations and 218 Ann Taylor Factory and LOFT Outlet stores.