Ann Taylor Stores Corporation Reports Significantly Higher Third Quarter Sales and Earnings

NEW YORK, Nov. 19, 2010 /PRNewswire-FirstCall/ -- Ann Taylor Stores Corporation (NYSE: ANN) today reported results for the fiscal third quarter ended October 30, 2010, and commented on its outlook for the fourth quarter and fiscal year 2010.

For the third quarter of 2010, the Company reported earnings per diluted share of $0.42, excluding after-tax restructuring charges totaling $0.01 per diluted share, compared with earnings per diluted share of $0.20 in the third quarter of 2009, excluding after-tax restructuring and asset impairment charges totaling $0.17 per diluted share.  On a GAAP basis, including the aforementioned charges, earnings per diluted share were $0.41 in the third quarter of 2010, compared with $0.03 per diluted share in the third quarter of 2009.

Kay Krill, President and Chief Executive Officer, said, "We are extremely pleased with the Company's excellent performance for the third quarter of 2010, with earnings for the quarter more than doubling from the year-ago period.   The significantly higher sales and near-record gross margin rate reflect another standout quarter at the Ann Taylor brand and improved results at the LOFT brand for the third quarter.

"The Ann Taylor brand delivered meaningful gains across all of its channels, resulting in a 22% comparable sales increase for the brand.  We continue to see an enthusiastic client response to the compelling fashion, quality and value Ann Taylor offers and are capturing a greater share of her overall spend.  The LOFT brand also showed progress during the quarter, with outstanding performance in the online and outlet channels and steady improvement in the stores channel, which, as expected, delivered stronger sales in September and October as we received new product.  

"While we anticipate a promotional environment in the upcoming months, we feel good about our overall business as we enter the fourth quarter and believe we are well-positioned in terms of our product, inventories, marketing initiatives and our planned promotional strategies for the Holiday season," Ms. Krill said.  

Fiscal 2010 Third Quarter Results

Total net sales for the third quarter of fiscal 2010 were $505.3 million, compared with net sales of $462.4 million in the third quarter of fiscal 2009.  By brand, net sales across all channels of the Ann Taylor brand totaled $223.2 million in the third quarter of 2010, compared with net sales of $195.0 million in the third quarter of 2009.  At the LOFT brand, net sales across all channels were $282.1 million in the third quarter of 2010, compared with net sales of $267.4 million in the third quarter of 2009.

Total Company comparable sales for the quarter increased 11.7%, versus a decline of 13.0% in the prior year.  At Ann Taylor, total brand comparable sales increased 21.9%, reflecting increases of 23.4% at Ann Taylor stores, 57.0% in the Ann Taylor e-commerce channel and 11.3% in the Ann Taylor Factory channel.  At LOFT, total brand comparable sales were up 4.5%, reflecting a decrease of 0.6% at LOFT stores, which was more than offset by an increase of 64.6% in the LOFT e-commerce channel and a 22.0% 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 57.2%, compared to the 57.3% gross margin rate achieved in the third quarter of 2009.  This strong third quarter gross margin rate performance was primarily driven by improved product offerings and higher full-price selling at the Ann Taylor brand, effective marketing initiatives and the success of the Company's strategy to appropriately position inventory levels at both brands.

Selling, general and administrative expenses for the third quarter of 2010 were essentially flat at $247.4 million, versus $246.2 million in the third quarter of 2009, on a $43 million increase in sales.

During the quarter, the Company recorded pre-tax restructuring charges of $0.6 million associated with its previously announced strategic restructuring program, compared with $0.6 million in the third quarter of 2009.  On an after-tax basis, third quarter 2010 restructuring charges totaled $0.3 million, or approximately $0.01 per diluted share, compared with $0.4 million, or $0.01 per diluted share, in the third quarter of 2009. 

The Company did not have any non-cash asset impairment charges related to stores not included in the Company's restructuring program, compared to pre-tax non-cash asset impairment charges totaling $15.3 million in the third quarter of 2009.  On an after-tax basis, third quarter 2009 asset impairment charges totaled $10.2 million, or $0.16 per diluted share.

Excluding restructuring and asset impairment charges, the Company reported operating income of $41.4 million for the quarter, compared with operating income of $18.7 million in the third quarter of 2009.  On the same basis, the Company reported net income in the quarter of $24.5 million, or $0.42 per diluted share, compared with net income of $12.0 million, or $0.20 per diluted share, in the third quarter of 2009.

On a GAAP basis, the Company reported operating income of $40.8 million in the third quarter of 2010, compared with an operating income of $2.7 million in the third quarter of 2009.  On the same basis, the Company reported net income of $24.2 million, or $0.41 per diluted share, in the third quarter of 2010, compared with a net income of $2.1 million, or $0.03 per diluted share, in the third quarter of 2009.  

The Company closed the quarter with approximately $224 million in cash and cash equivalents.  During the fiscal third quarter of 2010, the Company repurchased 1.2 million shares of its common stock at an approximate cost of $19.8 million. 

Total inventory per square foot, excluding e-commerce, at the end of the third quarter increased eight percent versus year-ago, reflecting a 16% increase at Ann Taylor stores, a one percent increase at LOFT stores, and an 18% increase in the factory outlet channel to support new LOFT Outlet stores.

During the third quarter of 2010, the Ann Taylor brand closed two Ann Taylor stores.  At the LOFT brand, the Company closed one LOFT store and converted four LOFT stores to LOFT Outlet stores.  The Company opened five new LOFT stores and 11 new LOFT Outlet stores during the quarter.  The total store count at the end of the third quarter was 907, comprised of 276 Ann Taylor stores, 92 Ann Taylor Factory stores, 506 LOFT stores, and 33 LOFT Outlet stores.  The Company updated expectations related to the store closure component of its previously announced strategic restructuring program.  Under the program, the Company now expects to close approximately 43 stores in fiscal 2010, bringing the total closures associated with the three-year program to approximately 145.  Of these, approximately half are expected to be Ann Taylor stores and half are expected to be LOFT stores. 

Fiscal 2010 Nine-Month Results

Net sales for the first nine months of fiscal 2010 were $1.5 billion, compared with net sales of $1.4 billion in the first nine months of fiscal 2009.  By brand, net sales across all channels of the Ann Taylor brand were $628.8 million in the first nine months of 2010, compared with net sales of $565.1 million in the first nine months of 2009.  At the LOFT brand, net sales across all channels were $836.1 million in the first nine months of 2010, compared with net sales of $794.3 million in the first nine months of 2009.

Total Company comparable sales for the first nine months of 2010 increased 10.5%, versus a decline of 22.2% in the prior year.  At Ann Taylor, total brand comparable sales increased 17.9%, including increases of 19.4% at Ann Taylor stores, 46.0% in the Ann Taylor e-commerce channel and 9.3% in the Ann Taylor Factory channel.  At LOFT, total brand comparable sales increased by 5.4%, including an increase of 1.6% at LOFT stores, an increase of 60.3% in the LOFT e-commerce channel and a 19.3% 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 57.2%, reflecting a 220 basis point improvement over the 55.0% gross margin rate achieved in the first nine months of 2009.  Selling, general and administrative expenses for the first nine months of 2010 were $726.6 million, versus $725.0 million in the first nine months of 2009.

During the first nine months of 2010, the Company recorded pre-tax restructuring charges totaling $1.7 million, compared with $32.7 million in the first nine months of 2009.  On an after-tax basis, restructuring charges totaled $1.0 million, or $0.02 per diluted share, in the first nine months of 2010, compared with restructuring charges of $22.1 million, or $0.39 per diluted share, in the first nine months of 2009.

The Company did not have any non-cash asset impairment charges related to stores not included in the Company's restructuring program during the first nine months of 2010, compared to pre-tax non-cash asset impairment charges totaling $15.3 million in the first nine months of 2009.  On an after-tax basis, third quarter 2009 asset impairment charges totaled $10.3 million, or $0.18 per diluted share.

Excluding restructuring and asset impairment charges, the Company reported operating income of $111.1 million for the first nine months of 2010, compared with operating income of $22.9 million in the first nine months of 2009.  On the same basis, the Company reported net income in the first nine months of 2010 of $66.4 million, or $1.12 per diluted share, compared with net income of $14.2 million, or $0.25 per diluted share, in the first nine months of 2009.

On a GAAP basis, the Company reported operating income of $109.4 million in the first nine months of 2010, compared with an operating loss of $25.2 million in the first nine months of 2009.  On the same basis, the Company reported net income of $65.4 million, or $1.10 per diluted share, in the first nine months of 2010, compared with a net loss of $18.2 million, or $0.32 per diluted share, in the first nine months of 2009.  

Outlook for Fiscal Fourth-Quarter and Full-Year 2010 Update

For the fiscal fourth quarter of 2010, the Company expects total net sales to approach $500 million, reflecting mid- to high-single digit comparable sales performance at the Company, including a double-digit comparable sales performance at the Ann Taylor brand, and a low-single-digit comparable sales increase at the LOFT brand.  Gross margin rate performance is expected to approach the gross margin rate of 52.5% achieved in the fiscal fourth quarter of 2009.  Selling, general and administrative expenses are estimated to be approximately $250 million, including approximately $5 million of incremental marketing investment versus the fourth quarter of last year.  

In terms of the full year, the Company updated its outlook as follows:

• The Company currently expects fiscal 2010 total net sales to approach $1.965 billion.  In addition, the Company anticipates positive comparable sales at both brands;
• Gross margin rate performance is expected to reflect a nearly 150 basis point improvement from the 54.4% rate achieved in fiscal 2009;
• Selling, general and administrative expenses for fiscal 2010 are expected to be approximately $975 million, representing an $8 million dollar increase in SG&A from 2009 levels while achieving an anticipated increase of nearly $140 million in net sales and making an incremental marketing investment of approximately $20 million in fiscal 2010;
• The full-year 2010 effective tax rate is approximately 40%;
• Incremental restructuring savings for the year are expected to total approximately $20 million and one-time restructuring costs are estimated to be in the range of $7-$10 million.
• Total weighted average square footage is expected to decline approximately 3% by year-end, reflecting the impact of 43 store closures in fiscal 2010 under the Company's previously announced restructuring program.  This is partially offset by the opening of approximately 30 stores, comprised of approximately 20 LOFT Outlet stores and 10 LOFT stores, to support the continued growth of the LOFT brand;  
• Capital expenditures are expected to be approximately $70 million;
• A continued focus on maintaining a healthy balance sheet including a disciplined approach to inventory management throughout the fiscal year; and,
• The Company will repurchase shares under its existing $400 million share repurchase authorization.

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 accurately predict client fashion preferences and trends and provide merchandise that satisfies client demands in a timely manner;
• the Company's ability to optimize its store portfolio and effectively manage the profitability of its existing stores;
• the Company's ability to hire, retain and train key personnel;
• the Company's ability to successfully upgrade and maintain its information systems, including adequate system security controls;
• the Company's reliance on independent foreign sources of production, including financial or political instability, supplier inability to obtain adequate access to liquidity to finance their operations, the decision by suppliers to curtail or cease operations, the imposition of duties or other possible trade law or import restrictions, including legislation relating to import quotas, and increases in the costs of raw materials and freight;
• 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 successfully execute brand extensions;
• competitive influences and decline in the demand for merchandise offered by the Company, and the Company's ability to manage inventory levels and merchandise mix;
• the performance and operations of the Company's websites;
• the Company's ability to continue operations in accordance with its business continuity plan in the event of an interruption;
• 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;
• general economic conditions and the recent financial crisis, including the resultant downturn in the retail industry, and their effects on the Company's liquidity and capital resources;
• continuation of lowered levels of consumer spending and consumer confidence, changes in levels of store traffic and higher levels of unemployment resulting from the worldwide economic downturn;
• continued volatility or deterioration of the financial markets, including further tightening of the credit environment, fluctuations in interest rates and exchange rates or restrictions on the transfer of funds;
• failure by independent manufacturers to comply with the Company's quality, product safety and social practices requirements;
• the Company's dependence on its Louisville distribution facility and third-party transportation companies;
• fluctuation in the Company's level of sales and earnings growth and stock price;
• the Company's ability to secure and protect trademarks and other intellectual property rights;
• the inability of the Company, particularly through its sourcing and logistics functions, to operate within production and delivery constraints;
• acts of war or terrorism in the United States or worldwide;
• the potential impact of natural disasters and public health concerns, including severe infectious diseases, particularly on the Company's foreign sourcing offices and manufacturing operations of the Company's vendors;
• work stoppages, slowdowns or strikes;
• the Company's ability to achieve the results of its restructuring program, including changes in management's assumptions and projections concerning costs and timing;
• the Company's ability to realize deferred tax assets; and
• the effect of external economic factors on the Company's future funding obligations for its defined benefit pension plan.

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.  

About Ann Taylor

Ann Taylor Stores Corporation is one of the leading women's specialty retailers for fashionable clothing in the United States, operating 907 Ann Taylor, Ann Taylor Factory, LOFT and LOFT Outlet stores in 46 states, the District of Columbia and Puerto Rico as of October 30, 2010, as well as online at AnnTaylor.com and LOFT.com.  Visit AnnTaylorStoresCorp.com for more information (NYSE: ANN).

SOURCE Ann Taylor Stores Corporation

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