• Q3 sales down 4.3%
  • Gross margin at 52.6%
  • Ann Taylor sales down 6.6%

Ann Inc says it has initiated an assessment of its supply chain after lowering its outlook on the back of a challenging and highly promotional retail environment.

For the third quarter, the women's apparel group said it expects revenue to amount to US$647m, reflecting a decline of 4.3%.

At the Ann Taylor brand, sales decreased 6.6%, reflecting decreases of 4.8% at Ann Taylor and 10.4% in the Ann Taylor Factory channel, it said. At the Loft brand, sales are down 2.9%.

Gross margin rate for the company is expected to be 52.6%, which includes the impact of around $5m of incremental air freight costs as a result of labour uncertainty at the West Coast ports.

CEO Kay Krill, said the results have fallen short of its expectations, reflecting lower mall traffic and a highly promotional retail environment.

"In addition, sales during the first half of the quarter were negatively impacted by product shipment delays related to labour uncertainty at the West Coast ports, which were mitigated by the use of air freight later in the quarter. Further to these external pressures, Ann Taylor also experienced soft product performance in select categories, resulting in its first negative comparable sales performance in the last ten quarters."

For the full year, the company said it expects total sales of $2.52bn, reflecting a total company comparable sales decline in the low-single digits. Gross margin is expected to be 51.2%, including the impact of $13m of incremental air freight costs.

As a result, Krill said the company has initiated "a comprehensive, end-to-end assessment" of its supply chain.

"This initiative is designed to identify opportunities to enhance profitability, with a focus on speed, flexibility, improving product sell-through and reducing the cost of goods sold."

Stifel analyst Richard Jaffe noted that the significant ownership stake in Ann held by Golden Gate provides a lift regarding the stock valuation.

"While we believe the shares will pull back on today's announcement of weak results, the shares benefit from the perception that Golden Gate will either take Ann private or be able to drive significant EPS improvement (and thus share price appreciation) by utilising Golden Gate's retail industry expertise to take an active role in Ann, Inc's operations, likely limiting the share price decline today."