ANN INC. Reports Second Quarter 2011 EPS of $0.47, an Increase of 52% over Second Quarter 2010

NEW YORK, Aug. 19, 2011 /PRNewswire/ -- ANN INC. (NYSE: ANN) today reported results for the fiscal second quarter of 2011, ended July 30, 2011.  The Company also provided its outlook for the third quarter and full year of fiscal 2011.

For the fiscal second quarter of 2011, the Company reported earnings per diluted share of $0.47, compared with earnings per diluted share of $0.31 in the second quarter of 2010.

Kay Krill, President and CEO, commented, "With our second quarter results, ANN INC. delivered an eighth consecutive quarter of double digit growth in earnings and diluted earnings per share. Our results reflect strong performance at the LOFT brand across all channels for the quarter, as clients responded to the assortment of feminine basics and fashion at great value.  We also delivered solid results in the Ann Taylor brand, with strong performance in the e-commerce and factory channels and positive, but softer-than-expected, performance in the stores channel.

"During the second quarter, we continued to expand our presence in highly profitable channels through the addition of 12 factory outlet stores and the successful transition of both brands to a new e-commerce platform, which will enable accelerated growth in this important channel.  Looking ahead to the third quarter, we are pleased by client response to our new pre-Fall product assortments, and we fully expect to deliver positive comparable sales performance at both brands in all channels."

Fiscal 2011 Second Quarter Results

Total net sales for the second quarter of fiscal 2011 were $558.2 million, compared with net sales of $483.5 million in the second quarter of fiscal 2010.  By brand, net sales across all channels of the Ann Taylor brand totaled $217.9 million in the second quarter of 2011, compared with net sales of $207.2 million in the second quarter of 2010.  At the LOFT brand, net sales across all channels totaled $340.3 million in the second quarter of 2011, compared with net sales of $276.2 million in the second quarter of 2010.

Total Company comparable sales for the quarter increased 8.6% versus the second quarter of 2010.  At Ann Taylor, total brand comparable sales increased 5.3%, reflecting increases of 0.6% at Ann Taylor stores, 32.0% in the Ann Taylor e-commerce channel and 6.5% in the Ann Taylor Factory channel.  At LOFT, total brand comparable sales were up 11.0%, reflecting increases of 8.6% at LOFT stores, 33.5% in the LOFT e-commerce channel and 23.7% in the LOFT Outlet channel.   (Please refer to Table 3 for a breakdown of sales by brand and channel.)

Gross margin, as a percentage of net sales, was 55.0%, equivalent to the record gross margin rate achieved in the second quarter of 2010.  The strong gross margin performance in the second quarter of 2011 reflected excellent product execution and lower promotional activity at LOFT stores, and a higher promotional cadence at Ann Taylor stores to move through select Summer product that did not resonate with our client.

Selling, general and administrative expenses for the second quarter of 2011 were $265.1 million versus $235.4 million reported in the second quarter of 2010.  As a percentage of net sales, selling, general and administrative expenses declined 120 basis points versus the prior year to 47.5%.  The improvement in SG&A rate reflected substantially higher net sales and continued aggressive management of expenses, partially offset by costs associated with the Company's accelerated factory outlet strategy, an increase in variable costs associated with higher sales versus the 2010 period and higher performance-based compensation expense.  

During the second quarter of 2011, the Company did not incur any pre-tax restructuring charges, but did record pre-tax restructuring charges of $0.8 million in the second quarter of 2010.  On an after-tax basis, these second quarter 2010 charges totaled $0.5 million, or approximately $0.01 per diluted share.

The Company reported operating income of $41.7 million in the second quarter of 2011, an increase of 39% compared with operating income of $29.9 million in the second quarter of 2010.  Net income was $24.8 million in the second quarter of 2011, an increase of 33% versus the $18.6 million reported in the second quarter of 2010.  Diluted earnings per share were $0.47, an increase of 52% compared to the $0.31 per diluted share reported in the second quarter of 2010.  

The Company ended the quarter with approximately $145 million in cash and cash equivalents.

Total inventory per square foot, excluding e-commerce, at the end of the fiscal second quarter of 2011 increased 9%, reflecting an 8% increase at Ann Taylor stores, a 3% increase at LOFT stores and an increase in the factory outlet channel in the mid-teens.  

During the second quarter of fiscal 2011, the Company opened 24 stores, comprised of seven Ann Taylor stores, one Ann Taylor Factory store, five LOFT stores and 11 LOFT Outlet stores. During the quarter, the company closed four LOFT stores and one Ann Taylor store.  The total store count at the end of the fiscal second quarter was 942, comprised of 272 Ann Taylor stores, 97 Ann Taylor Factory stores, 501 LOFT stores, and 72 LOFT Outlet stores. 

First Half Fiscal 2011 Results

Net sales for the first six months of fiscal 2011 were $1,081.8 million, compared with net sales of $959.7 million in the first half of fiscal 2010.  By brand, net sales across all channels of the Ann Taylor brand were $440.8 million in the first half of 2011, compared with net sales of $405.6 million in the first half of 2010.  At the LOFT brand, net sales across all channels were $641.1 million in the first half of 2011, compared with net sales of $554.1 million in the first half of 2010.

Total Company comparable sales for the first half of 2011 increased 8.2%, on top of an increase of 9.9% in the prior year.  At Ann Taylor, total brand comparable sales increased 10.2%, including increases of 7.0% at Ann Taylor stores, 38.1% in the Ann Taylor e-commerce channel and 7.8% in the Ann Taylor Factory channel.  At LOFT, total brand comparable sales increased by 6.7%, including an increase of 3.8% at LOFT stores, an increase of 33.1% in the LOFT e-commerce channel and a 20.0% increase in the LOFT Outlet channel.   (Please refer to Table 3 for a breakdown of sales by brand and channel.)

Gross margin, as a percentage of net sales, was 56.1% in the first half of 2011.  

Selling, general and administrative expenses for the first half of 2011 were $519.2 million, versus $479.2 million in the first half of 2010.  As a percentage of net sales, selling, general and administrative expenses declined 190 basis points versus the prior year to 48.0%.  The improvement in the SG&A rate reflected substantially higher net sales and continued aggressive management of expenses, partially offset by costs associated with the Company's accelerated factory outlet strategy and an increase in variable costs associated with higher sales versus the 2010 period.

During the first six months of 2011, the Company did not record any restructuring charges, compared with pre-tax restructuring charges totaling $1.1 million recorded in the first six months of 2010.  On an after-tax basis, restructuring charges totaled $0.7 million, or $0.01 per diluted share, in the first six months of 2010.

The Company reported operating income of $87.6 million in the first half of 2011, an increase of 28% compared with operating income of $68.6 million in the first half of 2010.  Net income was $52.1 million in the first half of 2011, an increase of 26% versus the $41.2 million reported in the first half of 2010.  Diluted earnings per share in the first half of 2011 were $0.97 per diluted share, an increase of 41% over the $0.69 per diluted share reported in the first half of 2010.  

Outlook for Fiscal Third-Quarter and Full-Year 2011

For the fiscal third quarter of 2011, the Company expects total net sales to be $565 million, reflecting a total Company comparable sales increase in the mid-single digits.  Gross margin rate performance is expected to be slightly better than last year's performance of 57.2%.  Selling, general and administrative expenses are estimated to approach $275 million, with the increase versus last year primarily reflecting support for the Company's strategic growth initiative to accelerate factory outlet expansion, an increased investment in marketing compared to the third quarter of 2010 and higher variable store operating costs to support planned top-line growth.  

In terms of the full year, the Company has updated its outlook for fiscal 2011, as follows:

• The Company currently expects fiscal 2011 total net sales to approach $2.225 billion, an increase of nearly $250 million, or 12%, versus fiscal 2010.  This reflects a total Company comparable sales increase in the mid-single digits.
• Gross margin rate performance is expected to approach 55.5%.
• Selling, general and administrative expenses, as a percentage of net sales, are expected to leverage by more than 150 basis points to approximately 48%, reflecting continued disciplined expense management and expected sales growth versus fiscal 2010.  Total SG&A expenses in fiscal 2011 are expected to be approximately $1.065 billion, compared with $979 million in fiscal 2010.  The overall increase primarily reflects support for the Company's 2011 strategic growth initiatives, as follows:  
  • Approximately $35 million of incremental expense associated with the opening of 44 factory outlet locations in fiscal 2011, as well as the full year impact in 2011 of the 2010 LOFT Outlet openings;
  • $25 million in variable store operating costs to support sales growth at the Ann Taylor and LOFT brands;
  • $15 million in incremental brand marketing investment to drive traffic growth to all channels, as well as continued investment in our high growth e-commerce business, and;
  • $5 million associated with reinstatement of the Company's 401k match and $5 million associated with merit increases.

• The Company's effective tax rate is expected to be approximately 40%.
• Capital expenditures are expected to be approximately $130 million, reflecting investments of approximately:
  • $60 million in support of approximately 80 new stores for both brands;
  • $25 million to support approximately 35 downsizes and remodels, largely associated with the accelerated conversion of select Ann Taylor stores to the new, more productive, smaller store format;
  • $20 million for store renovation and refurbishment programs, primarily for LOFT stores, and;
  • $25 million to support continued investment in information technology and our high-growth e-commerce channel.
• Total weighted average square footage for fiscal 2011 is expected to increase approximately 4% by year-end, reflecting the opening of approximately 80 new stores, partially offset by approximately 30 store closures and the impact of downsizes.  The Company expects to have approximately 945 stores at fiscal year-end, and,
• The Company expects to maintain its healthy balance sheet, including a disciplined approach to inventory management throughout the fiscal year.

About ANN INC.

ANN INC. is the parent Company of Ann Taylor and LOFT, two of the leading women's specialty retail fashion brands in the United States. The Company operates 942 Ann Taylor, Ann Taylor Factory, LOFT and LOFT Outlet stores in 46 states, the District of Columbia and Puerto Rico as of July 30, 2011, as well as online at AnnTaylor.com and LOFT.com. Visit ANNINC.com for more information (NYSE: ANN).

FORWARD-LOOKING STATEMENTS

Certain statements in this press release are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  The forward-looking statements may use the words "expect," "anticipate," "plan," "intend," "project," "may," "believe" and similar expressions.  Forward-looking statements also include representations of the expectations or beliefs of the Company concerning future events that involve risks and uncertainties, including:

• the Company's ability to anticipate and respond to changing client preferences and fashion trends and provide a balanced assortment of merchandise that satisfies client demands in a timely manner;
• the effectiveness of the Company's brand awareness and marketing programs, and its ability to maintain the value of its brands;
• the Company's ability to manage inventory levels and changes in merchandise mix;
• the impact of fluctuations in sourcing costs, in particular increases in the costs of raw materials, labor, fuel and transportation;
• the Company's ability to successfully upgrade and maintain its information systems, including adequate system security controls, successful transitioning of certain information technology functions to third parties and the ability to operate in accordance with its business continuity plan in the event of a disruption;
• the performance and operation of the Company's websites and the risks associated with Internet sales;
• the Company's reliance on key management and its ability to hire, retain and train qualified associates;
• the Company's ability to successfully manage store growth and optimize the productivity and profitability of its store portfolio;
• the Company's reliance on foreign sources of production and the associated risks of doing business in foreign markets, including fluctuations in the value of the U.S. dollar against foreign currencies, the imposition of duties or other possible trade law or import restrictions, including legislation relating to import quotas, and financial or political instability in any of the countries in which the Company's merchandise is manufactured;
• the Company's reliance on third-party manufacturers and key vendors, including operational risks such as reduced production capacity, errors in complying with merchandise specifications, insufficient quality control and failure to meet production deadlines;
• the Company's ability to secure and protect trademarks and other intellectual property rights;
• the Company's ability to successfully execute brand goals, objectives and new concepts;
• the Company's dependence on its Louisville distribution center and third-party transportation companies, including any significant interruptions due to work stoppages, slowdowns or strikes by employees of the transportation companies;
• the depressed levels of consumer spending and consumer confidence resulting from the worldwide economic downturn and financial crisis;
• the impact of a privacy breach and the resulting effect on the Company's business and reputation;
• a significant change in the regulatory environment applicable to the Company's business and the Company's ability to comply with legal and regulatory requirements;
• the failure by independent manufacturers to comply with the Company's social compliance program requirements;
• the effect of continued uncertainty in the global economy on the Company's liquidity and capital resources;
• the effect of competitive pressures from other retailers;
• the impact on the Company's stock price of fluctuations in the Company's level of sales and earnings growth;
• acts of war or terrorism in the United States or worldwide, and the potential impact of natural disasters and public health concerns, including severe infectious diseases, particularly on the Company's foreign sourcing offices and the manufacturing operations of the Company's vendors;
• the Company's ability to sustain the results of its restructuring program;
• the Company's ability to realize its deferred tax assets;
• the effect of external economic factors on the Company's future funding obligations for its defined benefit pension plan;
• the Company's dependence on shopping malls and other retail centers to attract customers; and
• the impact of potential consolidation of commercial and retail landlords on the Company's ability to negotiate favorable rental terms.

Further description of these risks and uncertainties and other important factors are set forth in the Company's latest Annual Report on Form 10-K, including but not limited to Item 1A – Risk Factors and Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations therein, and in the Company's other filings with the SEC.  Although these forward-looking statements reflect the Company's current expectations concerning future events, actual results may differ materially from current expectations or historical results.  The Company does not assume any obligation to publicly update or revise any forward-looking statements at any time for any reason.  

(1) A store is included in comparable sales in its thirteenth month of operation. A store with a square footage change of greater than 15% is treated as a new store for the first year following its reopening.

(2) During the quarter ended July 30, 2011, the Company downsized six Ann Taylor stores and two Ann Taylor Factory stores.  During the quarter ended July 31, 2010, the Company downsized one Ann Taylor store and one LOFT store.

(3) During the quarter ended July 31, 2010, the Company converted one Ann Taylor store to a LOFT store.

(4) During the six months ended July 30, 2011, the Company downsized seven Ann Taylor stores and two Ann Taylor Factory stores. During the six months ended July 31, 2010, the Company downsized 3 Ann Taylor stores and one LOFT store.

(5) During the six months ended July 31, 2010, the Company converted six Ann Taylor stores to LOFT stores.

SOURCE ANN INC.

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