Discounts weigh on Ann Taylor parent's margins; shares fall

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BANGALORE (Global Markets) - Ann Inc (ANN.N), the parent of Ann Taylor and LOFT stores, saw first-quarter margins slip as it discounted more to get sales in an unseasonably cold spring and a highly competitive space, raising concerns about the company's turnaround this year.

Shares of the women's clothing retailer fell 6 percent to a near two-month low of $28.47 in Friday morning trade on the New York Stock Exchange.

Chains like Ann and Chico's FAS Inc (CHS.N), which cater to women over 35, have benefited from increased traffic as they overhaul merchandise, but an extremely competitive environment has forced them to discount and keep prices low.

A rapid rise in prices of raw materials have further pressured margins, forcing many retailers to forecast weak quarters ahead.

On Wednesday, Chico's beat quarterly profit estimates, but its sales fell short of estimates.

Ann, which sells office wear through its Ann Taylor chains and more casual clothes at LOFT, saw the margins slip to 57.3 percent from 59 percent last year.

However, sales rose 10 percent to $523.6 million, beating estimates. Comparable sales increased 7.8 percent.

Ann, which dropped "Taylor" from its corporate name in March, has been investing in e-commerce and outlet stores as it grows its presence beyond traditional retail.

Ecommerce sales on a comparable basis rose 43.1 percent at Ann Taylor and 32.8 percent at LOFT. Traditional stores at Ann Taylor saw a 13.7 percent rise, while LOFT comparable sales at brick-and-mortar stores dropped 1 percent.

The growth of higher margin ecommerce businesses and stabilization of sales at Loft should drive sales and margin gains in 2011, UBS analyst Roxanne Meyer said in a note.

Sales at Loft, being called out as a brand that was beginning to fundamentally improve at the store level, could have contributed to the share movement as well, added Wall Street Strategies analyst Brian Sozzi.

The company expects second-quarter profit to be "slightly higher" than current analyst estimates, on strong sales.

For the first quarter, the company earned 51 cents a share, while analysts, on average, expected 48 cents a share, according to Thomson Global Markets I/B/E/S. [ID:nWNAB0453]

Ann shares were down 3 percent at $29.43 On the New York Stock Exchange on Friday. (Reporting by Nivedita Bhattacharjee; Editing by Maju Samuel)