Don't Bank On AnnTaylor Rebound (ANN)

Shares of women's apparel retailer AnnTaylor (NYSE:ANN) are trading right near their 52-week low, but that doesn't mean the stock is set to rebound. Frankly, I think the stock has the potential to drift downward toward the end of the year.

Q2 Recap
First off, lets take a quick peek at the company's second quarter results. They were decent but not stylish. Total sales were up almost 1% to $614.5 million, and its earnings came in at 50 cents per share, which was about two cents north of Wall Street estimates.

Management also re-affirmed that it thinks that the company can earn between $2.15 and $2.25 per share this year, which is well north of the current $2.12-per-share consensus estimate. It also announced that its board authorized a $300 million stock repurchase program.

Negatives in the Mix
Of course, there were some negatives to the quarter too. For example, take a look at its gross margins. They were down 3.6% to 50.6% of sales - not a good sign. Also, its same store sales declined 6.2% during the period. And comps at its Loft concept were down a sickening 10.8%!

And what about its full-year earnings guidance? While I like the fact that management seemingly has confidence in its fall and winter selection and its ability to keep costs in check, I worry that they may have set the bar too high. There is no where for the company to go from here. If AnnTaylor simply meets those estimates, I sense that the Street will be disappointed. If they come in short, look out below. I sense the company may have set itself up for failure.

Insiders have sold more than 114,000 shares over the last six months, and no shares were purchased. I think the fact that it's highly compensated management team isn't stepping up and buying stock, despite the recent price declines, speaks volumes.

Finally, I am concerned about the potential for tax loss selling. You see, with the stock trading near its lows, I suspect that it could get hit pretty hard as investors look to book their investment losses before year end.


The Good News
AnnTaylor has a terrific name, and its wares are held in high regard by its consumers. I also have little doubt that when the cloud of over the retail sector abates that the company will turn things around and its same store sales and overall revenue levels will start to hum again.

Also, from a valuation perspective, the company is starting to look attractive. At present, AnnTaylor trades at roughly 14.7-times this year's consensus estimate. That's actually at a slight discount to its anticipated earnings growth rate in the coming year of about 18%, and at a discount to its anticipated five-year growth rate of 15.25% per year.


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