UBS and Piper Jaffray are out positive on AnnTaylor (NYSE:
):
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UBS is upgrading ANN to Buy from Neutral and raising their target to $15 (prev. $12) saying they believe the Street is laser focused on a potential turn at the company’s heritage Ann Taylor business, with little mention of Loft. However, they view Loft as the division that should be in the spotlight for two key reasons: one, Loft is currently and will continue to be a more meaningful contributor to total sales, and two, the still very challenging environment could allow Loft to gain share from customers who continue to trade down, especially as the fashion and fits have improved meaningfully, in firm's view.
Loft is currently 50% of sales, Ann Taylor only 30%, with balance at Factory. Loft has become a significant piece of the total business, now representing about 50% of total company sales, up from just 37% in 2003. This compares with Ann Taylor at currently 30% of sales and down from its peak of 55% in 2003
UBS notes their recent channel checks at Loft show positive customer response to new fashion and fit. They have become increasingly impressed with Loft’s product assortment, which has shifted from more basic items to modern, fashion-right and feminine looks under the helm of President Gary Muto (joined Nov ’08).
UBS Q3 est of $0.14 is well above the Street's $0.05; they believe the key difference is in gross margin. They assume 380 bps of GM improvement, which is 200 bps of erosion vs Q2 on a 3-yr stacked basis (despite better product/leaner inventory). ANN’s model is highly sensitive; 15 pts of GM in 3Q equals ~$0.01 to EPS. They are raising their 2009 EPS estimate to $(0.29) from $(0.34) and 2010 to $0.21 from $0.19.
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Piper Jaffray is raising their target to $17 (prev. $11) reiterating Overweight.
In view of what Piper believes will likely begin a pattern of besting consensus expectations in the back half of this year, they are reiterating their Overweight rating on ANN shares ahead of the company's second-quarter earnings report slated for Friday, August 21. That said, they are aware that the market has not been kind to retailers thus far in the second-quarter earnings cycle and they would, as such, use any stock price weakness to begin or accumulate to ANN positions.
Product Holding Price Akin To The Days Of Margin Gains Seen In Fall 2005 and Fall 2006.
