Billionaire Steve Cohen Bets Big on Ann Taylor – Ann Inc (ANN): The Gap Inc. (GPS), Limited Brands, Inc. (LTD)

Steve Cohen is a billionaire hedge fund manager and founder of SAC Capital. The hedge fund manages some $14 billion, and Cohen was the third highest earning hedge fund manager during 2012, pulling in an impressive $1.3 billion (see the top five). Cohen founded SAC Capital in 1992 and the hedge fund utilizes both fundamental and quantitative analysis. It’s reported that Cohen has managed to return an average of 30% over the last twenty years. Cohen’s sizable Ann Inc (NYSE:ANN) purchase comes shortly after fellow billionaire Ken Griffin made a big bet on the retail industry, with Griffin quadrupling his stake in Express (see Griffin’s Express buy).

What makes Ann worth buying?Ann should continue capturing market share from high end retailers as women seek better value in “casual” and “wear to work” clothing. Key drivers going forward for the company includes increasing its store count in the U.S. and expanding into Canada. Last quarter, the company opened its first three stores in Canada. An advantage of Ann Inc (NYSE:ANN)’s retail operations is its unique three-prong offering. Its AnnTaylor line is well positioned in the luxury market for more “professional” women, while its LOFT line offers a more “relaxed” clothing selection. Meanwhile, its AnnTaylorFactory line offers its past season items from both Ann Taylor and LOFT. Recent performance has also been impressive. Ann saw total comp sales up 1% for 2012, with the leader being a 5% rise in its Ann Taylor brand. Analysts are expecting solid earnings growth, where 2012 EPS came in at $1.70, and 2013 expectations are $2.27 and 2014 $2.63. Cohen also has fellow billionaires Jim Simons and D.E. Shaw as investors in Ann (check out all hedge funds owning Ann).

Major peers in the fragmented apparel industry

The Gap Inc. (NYSE:GPS) has been trying to navigate the tough economic environment by being less dependent on North America. This includes increasing its online and international presence, as well as, reducing its North America store count by 700 specialty stores and 250 outlets during 2013. Meanwhile, overseas expansion is being driven by Brazil. This country is the fifth largest country in the world and South America’s largest economy. The long-term plan for The Gap Inc. (NYSE:GPS) is to generate 30% of total sales from overseas operations and online business.

Nordstrom, Inc. (NYSE:JWN) is one of the well recognized “high end” retail brands. The company has been expanding its stores and plans to double the number of Rack stores over the next four years, opening 24 in 2013 and 30 in 2014. Although store expansion is not the ideal way to navigate a fragmented apparel market, the customer base for Nordstrom affords the company this opportunity, where they cater to a more affluent customer that is less impacted by economic changes. Other major expansion plans for Nordstrom includes increasing its presence in Canada and Manhattan, where the planned CapEx of $750 million for 2013 will be used to develop stores and enhance its ecommerce platform.

Limited Brands, Inc. (NYSE:LTD) is looking for differentiation with the initiative of placing smaller Victoria Secret stores in airports and tourist destinations. This is a one of Limited’s recent ploys to increase its exposure and brand recognition. Meanwhile, all of Limited Brands, Inc. (NYSE:LTD)’s brands appear to be performing well. January comp sales were up 8% for Victoria Secret, 10% for Bath & Body Works and White Barn Candle Co., and 15% for La Senza.

Fifth & Pacific Companies Inc (NYSE:FNP) has seen some struggles from its Juicy Couture brands, where clearance markdowns pressured earnings last quarter. I think the turnaround of this segment will continue to put pressure on the retailer, but the company does have its Kate Spade and Lucky Brand businesses to help prop the company up in the interim. Despite recently lowered 2012 and 2013 EBITDA guidance the stock is up nicely year to date…

The recent run up does make the a bit too too expensive though, not to mention the company’s continued negative earnings.

Valuation

Ann is the one of the cheapest retail stocks when compared to major peers based on a variety of metrics:

Price to Earnings

Ann 15
The Gap 16
Nordstrom 15
Limited Brands 18
Fifth & Pacific n/a