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I was wrong about Ann Taylor Stores Corp. (ANN). Thought it might make a possible earnings trade. Well, Q3 earnings are out, and it looks like the market has given a thumbs down to my thesis. At the time of this writing, shares were off by almost 4%.
It's funny, because Ann Taylor has done so well in 2009 as a stock that one could have supposed that a wide earnings beat would serve as a catalyst for capital appreciation. The retailer made 20 cents per share on an adjusted basis. According to my earnings preview, 6 cents was the analyst number. I mean, come on, that's an example of solid performance, correct?
Not exactly. Sure, management made it when it came to the beat-the-experts-on-Wall-Street game, but it completely failed in terms of delivering same-store sales growth. Completely failed is an understatement, actually. Comps as a whole were down by over 13%. At Ann Taylor itself? Try a decline of almost 26% on for size. Doesn't fit so well, does it?
I'm not begrudging the sell-off. With comps like these, I think any trader/investor would have to consider ditching the shares.
Still, as I've mentioned, the stock has been strong this year, so a pullback like the one seen in the last couple months did appear to be something of an opportunity. Goes to show that questionable fundamentals can make a trading situation very risky, and it further reinforces the idea that technical buying-and-selling is not for everyone.
I expect Ann Taylor to have a tough Christmas, and unless the quality of the price action changes, I would avoid the stock for now. Most investors would be better off checking out Target Corporation (TGT) or Wal-Mart Stores, Inc. (WMT) as retail plays, even though these two operate under a different inventory scheme than Ann Taylor.
Disclosure: I don't own any company mentioned; positions can change without notice.
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