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Ann Taylor Q1 performance reflects strong gross margins

21 May '09
7 min read

Selling, general and administrative expenses for the first quarter of 2009 declined approximately $31 million, or 11%, versus year-ago, to $239.4 million, despite a 1% increase in square footage for the quarter. This significant decline in expenses reflected restructuring program savings, as well as aggressive management of expenses.

During the quarter, the Company recorded a pre-tax restructuring charge of $0.2 million, compared with pre-tax restructuring charges totaling $3.7 million in the first quarter of 2008.

Excluding restructuring charges, the Company reported an operating loss of $2.5 million for the quarter, compared with operating income of $44.9 million in the first quarter of 2008. On the same basis, the Company reported a net loss in the quarter of $2.2 million, or $0.04 per diluted share, compared with net income of $28.2 million, or $0.47 per diluted share, in the first quarter of 2008.

On a GAAP basis, the Company reported an operating loss of $2.7 million in the first quarter of 2009, compared with operating income of $41.2 million in the first quarter of 2008. On the same basis, the Company reported a net loss of $2.3 million, or $0.04 per diluted share, in the first quarter of 2009, compared with net income of $25.9 million, or $0.43 per diluted share, in the first quarter of 2008.

The Company ended the first quarter with $199 million in cash and cash equivalents, including $125 million of borrowings under its revolving credit facility.

Total inventory per square foot at the end of the first quarter of 2009 was down 16% versus year-ago, reflecting a 28% decline at Ann Taylor and a 16% decline at LOFT.

During the first quarter of 2009, the Company opened six LOFT stores and three LOFT Outlet stores and closed two Ann Taylor stores and three LOFT stores. The total store count at the end of the first quarter was 939, comprised of 318 Ann Taylor stores, 513 LOFT stores, 91 Ann Taylor Factory stores and 17 LOFT Outlet stores.

During the quarter, the Company adopted FASB Staff Position EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities, which required recasting of earnings per share data in prior periods to conform to current periods. The Company indicated that there was virtually no impact from this accounting change in either the 2008 or 2009 first quarter periods.

Fiscal 2009 Outlook
The Company remains focused on managing the business conservatively through the current recessionary environment, while simultaneously positioning its brands -- especially Ann Taylor -- for an improved second half of 2009. For the second quarter, the Company expects its top-line results to again remain under significant pressure, primarily at the Ann Taylor division. As a result, the Company currently expects only modest improvement in its top-line trend in the second quarter of 2009. At the same time, the Company expects to achieve a solid gross margin rate in the second quarter that is in line with the second quarter of 2008, while selling, general and administrative expenses in the quarter are estimated to be approximately $245 million.

For the full year, the Company provided the following:
• Given the macro environment and the particular impact it has had on the aspirational luxury sector and professional working women, the Company expects sales to continue to be under pressure for the year, with improvement expected at both brands in the second half.
• Total square footage is expected to decline approximately 2% at year-end, reflecting the impact of the 37 stores planned for closure in fiscal 2009 under the Company's restructuring program, partially offset by the opening of 14 new stores.
• Gross margin rate for the year is expected to improve versus year-ago, due to continued aggressive inventory management, improved product at both brands, and the expectation of a gradual return to more rational promotional activity in the sector over the course of 2009.
• Incremental restructuring savings for the year are now expected to total $40-$45 million, versus the $35-$40 million previously expected, resulting in program savings over the three-year period totaling $85-$95 million. One-time restructuring costs for 2009 are estimated to be approximately $5 million.
• Selling, general and administrative expenses are expected to be below year-ago, reflecting restructuring

Ann Taylor Stores Corporation

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