Ann Taylor Stores (NYSE: ANN) reported earnings for the second quarter this past Friday. I didn't think the results were good at all, but the stock did close higher by the end of the trading session. On an adjusted basis, net income dropped like a rock to 6 cents per share from 53 cents per share in the year-ago period. According to Bloomberg, Ann Taylor beat estimates by 3 cents.
Interestingly enough, the market did agree with me early on. That Bloomberg piece mentioned how the shares experienced a decline upon the release. Later on, the shares rebounded as buyers stepped in to partake of a perceived opportunity.
Well, it doesn't look like Ann Taylor offers much of an opportunity, does it? Net sales went down rather significantly, and same-store sales were ugly, dropping 22.5%. How can you possibly but this stock with comps like that?
Of course, traders might want to think differently than investors in this case. From a price-action perspective, the behavior of Ann Taylor on Friday, when juxtaposed with the year-to-date strength of the stock, clearly indicates to me that further momentum might be in the offing. Ann Taylor is a mess, but it did top projections, and the gross margin remained stable. Therefore, if you like to buy companies with technical potential, this may be one to study.
People who don't like to buy and sell quickly should probably not consider Ann Taylor. Looking at better brands would be more advisable. A Wal-Mart (NYSE: WMT) or a Target (NYSE: TGT) come to mind.
Ann Taylor is cutting costs and thinking strongly about the inventory it carries. Maybe the worst is behind it. But I shudder to think about how Christmas will treat this retailer. That's why if you do get yourself involved with this idea, sell out on any reasonable gain.
Disclosure: I don't own any company mentioned; positions can change without notice.
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