Net revenue decreased 27.9% during the quarter-ended May 2, 2009, driven by lower traffic and a 14 percent drop in average dollars per transaction. Management attributed the 42.7 percent plunge in comparable store sales at the Ann Taylor chain to a combination of the recession and a dearth of unexciting merchandise on the racks, according to the 10-Q regulatory filing:
In terms of overall performance, as expected, Ann Taylor experienced a very difficult quarter. We continued to work through assortments that were too serious and not as compelling, modern or versatile as needed to meet the more fashionable and stylish apparel needs our clients now demand.
The company had better success in reducing its cost structure, with gross margin improving 230 basis points to 55.5 percent, driven by smaller inventories (down 16 percent per square foot) and a 50 percent decline in mark-down activity. In addition, only nine new stores opened in the quarter, down from 25 in the year-ago period.
A recently hosted fall fashion preview for the fashion community—for both Ann Taylor and LOFT—was well received, said Krill. I am not convinced, however, that Ann Taylor’s reliance on “taste” will be enough to stop shoppers from looking elsewhere, especially if consumer spending trends do not improve and competitors—such as New York & Co., Nordstrom, and Saks—actively promote discounting to offset sluggish sales.
Krill also remarked on the conference call that in a continuing effort to watch its margins, the company will continue its conservative inventory control practices for fall merchandise as it “tests and learns [the] way to a more robust performance.” This strategy of investing behind success rather than ahead of it could backfire on the company, however, if customers perceive the store shelves to be empty of fashionable items. Either way, the company is betting that most women are weary of their old clothes, and unlike the late comedian Gilda Radner, do not base their fashion sense “on what doesn’t itch!”
Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.