Ann Inc (ANN), Aeropostale, Inc. (ARO), Francesca’s Holdings Corp (FRAN): Strong Retailer, but Highly Sensitive to Macro Trends

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Another difference between these two companies is that while ANN has been consistently profitable on a quarterly basis, Aeropostale, Inc. (NYSE:ARO) has suffered losses in its past three quarters.

Some high-risk retail investors would look at Francesca’s Holdings Corp (NASDAQ:FRAN). Like ANN, Francesca’s Holdings Corp (NASDAQ:FRAN) targets fashion-conscious female consumers. However, ANN ($1.60 billion market cap) is approximately twice the size of Francesca’s ($784 million market cap), which should make it at least a little more resilient to downside market corrections. Francesca’s Holdings Corp (NASDAQ:FRAN) sports a net margin of 15.69%, versus 4.10% for ANN; and Francesca’s Holdings Corp (NASDAQ:FRAN) ROE of 87.93%, versus 25.90% for ANN is impressive. Plus, Francesca’s is consistently profitable.

The problem is that while Francesca’s Holdings Corp (NASDAQ:FRAN) manages to grow its top line, its comps recently dropped 1%, indicating that top-line growth was due to new store openings (79 over the past year), not improved performance at existing stores. Therefore, Francesca’s Holdings Corp (NASDAQ:FRAN) isn’t likely to be a better investment option than Ann Inc (NYSE:ANN) at this point.

Conclusion
ANN is a well-run company, but the current economic environment leads to downside risk outweighing upside potential. The consumer is cautious, and it doesn’t look as though this will improve in the near future. If you want to own ANN, you might be better off putting it on your watch list and buying at a better price in the future.

The article Strong Retailer, but Highly Sensitive to Macro Trends originally appeared on Fool.com and is written by Dan Moskowitz.

Dan Moskowitz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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