(By Rich Bieglmeier) ANN INC (ANN) is expected to report earnings before the market opens on Wednesday, November 28, 2012. Wall Street anticipates that ANN will earn $0.75 for its 3rd quarter. iStock expects the women's apparel retailer will report earnings that will exceed Wall Street's consensus number. The iEstimate is $0.79 – a 4 cents upside surprise.
ANN is a retailer of women's apparel, shoes, and accessories in the United States. The company offers a range of career and casual separates, dresses, tops, weekend wear, shoes, and accessories under the Ann Taylor and LOFT brands. It sells its products through traditional retail stores and on the Internet at anntaylor.com and LOFT.com.
In the last four year, investors fared well when the lady's clothes operator beat earnings. Thirteen of ANN's last 16 quarterly checkups resulted in positive earnings surprises. The stock price gained an average of 6.78% in nine of the 13 occurrences. Four time, shareholders suffered losses of 0.4%, 7.6%, 8.3% and 13.1% on bullish beats, take them out and the average gain jumps to 13%.
On the flip side, investors checked their receipts hoping for a favorable return-policy when the retail chain disappoints. In the two bearish surprises, the stock lost a whopping 48.6% and 24.2%. The one on target result produced a gain of 3.9% in the days surrounding earnings.
ANN is at an inflection point on its chart. The stock gapped up 25% following second quarter results and hit a 52-week high of $39.78 in mid-September. Since then, the stock has come under pressure with the rest of the market, and broke support at the gap up peak of $35. If ANN posts another positive surprise, then it could challenge its 52-week high. However, a miss and then ANN shares have no technical support all the way to $30.
The second quarter was helped by the company's move towards "highly productive and profitable new concept format" stores and managing inventory per square foot. The strategy paid off as costs as a percentage of revenue fell in the quarter to 47 form 47.5% and margins increased to 55.9% from 55%. If this margin trends continue in Q3, it opens the door for the iEstimate to be conservative.
iStock's biggest concern is Superstorm Sandy's impact at the end of the quarter; although, analysts left the consensus "as is" following the hurricane. Overall, only three of the last 26 retailers reported earnings misses in the last 30 days. The consumer is breaking out the plastic, and we anticipate that ANN INC (ANN) will be yet another beneficiary.
To limit downside, investors might consider December 35 call options, which are trading at an ask price of $1.50 as we type. If our iEstimate proves correct, traders will make a profit at $36.50 or higher. Meanwhile, $1.50 is less downside than $30, should ANN miss.