Monday, November 19, 2007

Ann Taylor Inventory Question?

Ann Taylor (ANN) announced earnings this past Friday and wants you to focus on diluted EPS increasing by 22%. Because that's good isn't it? Parse the financials carefully. Read this comment and you will know how they are window dressing the statements

"Ann Taylor President & Chief Executive Officer Kay Krill stated, "Despite a difficult retail environment for much of the third quarter, we delivered solid margins and record earnings per share, reflecting our heightened focus on tightly managing the business and the ongoing benefit of our share repurchase program."

The increase is a result of share repurchase; a well known financial engineering technique. The underlying fundamentals reflect the current challenges of retail. That's code for trouble.

The cash position is 25% of what it used to be from comparable previous periods. The press release indicates that inventories per square foot have improved by moving down by 4%. The press release ignores the balance sheet comparables which compare current to Feb 3 which of course is year end after Jan sales. We all know you stock up for the season and hope for the best. But in the context of a drastically reduced cash position inventories as presented by management are up 24%.

Retail is in for a rough ride. Ann Taylor may need to come clean on fundamental operating ratios and stop merchandising the financial engineering stuff.