By Elizabeth Holmes and Melodie Warner
Savvy sourcing by the parent of Ann Taylor and Loft means those chains won't see any increase in the cost of their merchandise later this year, even as their mall peers struggle with rising prices for cotton and overseas labor.
Ann Inc. said Friday it expects its average cost per item to be flat for the rest of the year compared with a year earlier. The comments, just a day after Gap Inc. shocked investors by forecasting an unexpectedly big increase in costs for the second half, underscores how retailers are showing vastly different impacts from pressures the entire industry is facing.
Gap, which also operates Banana Republic and Old Navy, said its costs would rise by as much as 20% later this year, a hike that it won't be able to fully pass along to customers. Teen retailer Aeropostale Inc. said it will also raise prices this fall. Both companies saw shares tumble Friday on the news.
Ann says its costs will hold steady, the result of long-term strategy that included placing early orders for fabric and buying off-season factory time. It will only selectively raise prices at its Ann Taylor division, which are the result of in-demand styles not higher input prices, the company said.
"It was no one silver bullet, for sure, but I think we got way ahead of it a year ago," Chief Executive Kay Krill said in an interview. "I hope that this will tremendously benefit us in the back part of the year."
Ann said earnings rose 21% for its fiscal first quarter and raised its full-year sales estimate, though the clothing retailer's margins contracted.
For the quarter ended April 30, the company reported a profit of $27.3 million, or 51 cents a share, up from $22.6 million, or 38 cents, a year earlier.
Ann has seen sales rebound from depressed levels even as consumers remain cautious. Sales at stores open at least a year, a crucial measure of a retailer's health, rose 7.8% in the first quarter from a year earlier. Ann Taylor brand same-store sales were up more than 15%, with Loft up 2.4%. Net sales jumped 10% to $523.6 million, topping the company's March projection of $510 million.
The New York-based company raised its full-year sales estimate to $2.2 billion from its March forecast of $2.18 billion.
Ann used promotions to pull in reluctant customers during the quarter. Demand was damped by cool weather and a late Easter, leading gross margin to narrow to 57.3% from 59.4%. Easter is a bigger shopping holiday than Christmas for the company, which tends to attract women buying for themselves, Ms. Krill said.
Going forward, the company plans to offer fewer promotions, as inventories fall in line with sales and the weather become more seasonable.
