Ann Inc., the owner of the Ann Taylor fashion brand, should consider alternative strategies including a sale to gain more money for shareholders, two investment funds said.
Ann could be valued at $50 to $55 a share to a purchaser, Engine Capital LP and Red Alder LLC, said in a letter to the retailer's board today. The top price would be 47 percent more than New York-based Ann's closing price of $37.52 on Aug. 22. The funds said they hold more than 1 percent of the company's stock.
"There is a significant gap between the trading value of Ann stock and the intrinsic value of its business," Engine Capital and Red Alder said. Takeovers in recent years have valued competitors at 8 to 9 times earnings before interest, taxes, depreciation and amortization, versus Ann's share price at about 5.5 times Ebitda, they said.
Ann is investing in upgrading its online stores to add capacity to sell more clothes via mobile phones and devices, Chief Executive Officer Kay Krill said on a conference call Aug. 22, when the company announced second-quarter earnings figures. The retailer will close 10 more stores than planned for the year through January 2015 amid a customer shift to electronic commerce among the company's brands, which also include LOFT and LOFT Outlet, Chief Financial Officer Michael Nicholson said on the call.
The retailer reduced its revenue forecast for the year through January 2015 by 1.9 percent to $2.56 billion and predicted its gross margin would amount to 52 percent of sales, compared with analysts' average estimate of 52.8 percent.
The "uncertain retail environment" makes it likely that the "vast majority of the company's shareholders" would support formation of a special committee to explore alternatives for Ann, including a sale, Engine Capital and Red Alder said today.
Officials at Ann didn't immediately answer voice-mail messages asking for comment on their office phones outside of business hours.
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