Better Product, Strong Gross Margin and Cost Savings Contribute to Higher Earnings
NEW YORK, Nov. 20 /PRNewswire-FirstCall/ -- Ann Taylor Stores Corporation (NYSE: ANN) today reported results for the third quarter of fiscal 2009, ended October 31, 2009.
For the quarter, the Company reported earnings per diluted share of $0.20 excluding after-tax restructuring and asset impairment charges of $0.17 per diluted share, compared with earnings per diluted share of $0.03 in the third quarter of 2008, excluding after-tax restructuring and asset impairment charges totaling $0.27 per diluted share. On a GAAP basis, including the aforementioned restructuring and impairment charges, earnings per diluted share was $0.03 in the third quarter of 2009, compared with a loss per diluted share of $0.24 in the third quarter of 2008.
Kay Krill, President and Chief Executive Officer, commented, "Our results for the quarter were a direct result of our strategy to maximize gross margin performance by tightly managing inventories, focusing on full-price selling and controlling costs. I am pleased that our performance also reflects the cumulative benefits of our ongoing restructuring program initiatives. Today, we are a more efficient and effective Company. Our emphasis going forward is to continue the repositioning of the Ann Taylor division and to ensure that LOFT further strengthens its positioning as the destination for casual, feminine and stylish product at great value.
"We have made significant progress on enhancing and differentiating our brands and providing our clients with style, quality and value. LOFT's product offering resonated with our clients, with casual apparel performing particularly well. I am pleased with the response to our newer categories, which expand the LOFT brand to better serve our clients' lifestyle needs. At Ann Taylor, the launch of the new Fall collection was an important first step in our multi-season strategy to reposition the brand. The initial client response has been encouraging, and we look forward to further progress as we continue to test, learn from and refine the assortment. Looking ahead, we expect to build on the product successes we've achieved to date and move forward on our objective of building sales momentum and profitable growth."
Fiscal 2009 Third Quarter Results
Net sales for the third quarter of fiscal 2009 were $462.4 million, compared with net sales of $527.2 million in the third quarter of fiscal 2008. By division, net sales at Ann Taylor were $112.3 million in the third quarter of 2009, compared with net sales of $159.5 million in the third quarter of 2008. At LOFT, net sales were $234.0 million in the third quarter of 2009, compared with net sales of $263.0 million in the third quarter of 2008.
Comparable store sales for the quarter declined 13.7% versus the prior year. At Ann Taylor, comparable store sales declined 25.8% and at LOFT, comparable stores sales declined 9.7%.
Gross margin, as a percentage of sales, was 57.3%, 850 basis points higher than the gross margin rate achieved in the third quarter of 2008. This strong gross margin performance reflected the success of the Company's strategy to conservatively position inventory levels across both divisions as well as a lower level of promotional activity in the quarter.
Selling, general and administrative expenses for the third quarter of 2009 declined by approximately $8.6 million, or 3.4% versus year-ago, to $246.2 million, relative to a 2.5% decline in weighted average square footage for the quarter. This decline in expenses reflected restructuring program savings, as well as continued aggressive management of expenses, partially offset by an increase in performance-based compensation versus the 2008 period.
During the quarter, the Company recorded a pre-tax restructuring charge of $0.6 million associated with its previously announced strategic restructuring program, compared with pre-tax restructuring charges totaling $19.9 million in the third quarter of 2008. On an after-tax basis, third quarter 2009 restructuring charges totaled $0.4 million, or $0.01 per diluted share, compared with total restructuring charges of $13.2 million, or $0.24 per diluted share, in the third quarter of 2008.
The Company also recorded pre-tax non-cash asset impairment charges totaling $15.3 million related to stores not included in the Company's restructuring program, compared with pre-tax non-cash asset impairment charges totaling $2.7 million in the third quarter of 2008. On an after-tax basis, third quarter 2009 asset impairment charges totaled $10.2 million, or $0.16 per diluted share, compared with after-tax asset impairment charges of $1.8 million, or $0.03 per diluted share, in the third quarter of 2008.
Excluding restructuring and asset impairment charges, the Company reported operating income of $18.7 million for the quarter, compared with operating income of $2.4 million in the third quarter of 2008. On the same basis, the Company reported net income in the quarter of $12.0 million, or $0.20 per diluted share, compared with net income of $1.6 million, or $0.03 per diluted share in the third quarter of 2008. The tax rate used to calculate non-GAAP after-tax restructuring and asset impairment charges and non-GAAP net income for the third quarter of 2009 was adjusted to remove the cumulative impact of an updated full year estimated effective tax rate, and therefore reflects the expected rate for the period.
On a GAAP basis, the Company reported operating income of $2.7 million in the third quarter of 2009, compared with an operating loss of $20.2 million in the third quarter of 2008. On the same basis, the Company reported net income of $2.1 million, or $0.03 per diluted share, in the third quarter of 2009, compared with a net loss of $13.4 million, or $0.24 per diluted share, in the third quarter of 2008.
During the third quarter of 2009, the Company opened one LOFT store and closed one Ann Taylor store and one LOFT store. In addition, we converted one Ann Taylor store to LOFT. The total store count at the end of the third quarter was 932, comprised of 313 Ann Taylor stores, 509 LOFT stores, 92 Ann Taylor Factory stores and 18 LOFT Outlet stores.
Balance Sheet Highlights
During the quarter, the Company paid down the balance of outstanding borrowings on its revolving credit facility, totaling $75 million. Following the debt pay down, the Company ended the third quarter with $134 million in cash and cash equivalents.
Total inventory per square foot at the end of the third quarter of 2009 was down 20.7% versus year-ago, primarily reflecting total inventory declines of 19.4% and 17.0% per square foot at the LOFT and Ann Taylor divisions, respectively.
Fiscal 2009 Nine-Months Results
Net sales for the first nine months of fiscal 2009 were $1.4 billion, compared with net sales of $1.7 billion in the first nine months of fiscal 2008. By division, net sales at Ann Taylor were $328.6 million in the first nine months of 2009, compared with net sales of $542.9 million in the first nine months of 2008. At LOFT, net sales were $707.7 million in the first nine months of 2009, compared with net sales of $857.1 million in the first nine months of 2008.
Comparable store sales for the first nine months of 2009 declined 22.6%, with a 36.1% decline at Ann Taylor and a 16.7% decline at LOFT.
Gross margin, as a percentage of net sales, increased 340 basis points to 55.0% in the first nine months of 2009, compared to the first nine months of 2008. Selling, general and administrative expenses declined by approximately $60.2 million, or 7.7% versus year-ago, to $725.0 million in the first nine months of 2009, relative to a weighted average square footage decline of 0.6%.
During the first nine months of 2009, the Company recorded pre-tax restructuring charges of $32.7 million, compared with pre-tax restructuring charges totaling $26.8 million in the first nine months of 2008. On an after-tax basis, restructuring charges for the first nine months of 2009 totaled $22.1 million, or $0.39 per diluted share, compared with total restructuring charges of $16.4 million, or $0.29 per diluted share, in the first nine months of 2008.
The Company also recorded pre-tax non-cash asset impairment charges totaling $15.3 million in the first nine months of 2009, related to stores not included in the Company's restructuring program, compared with pre-tax non-cash asset impairment charges totaling $2.8 million in the first nine months of 2008. On an after-tax basis, asset impairment charges in the first nine months of 2009 totaled $10.3 million, or $0.18 per diluted share, compared with after-tax asset impairment charges of $1.7 million, or $0.03 per diluted share, in the first nine months of 2008.
Excluding the aforementioned pre-tax restructuring and asset impairment charges, operating income in the first nine months of 2009 was $22.9 million, compared with operating income of $97.0 million in the first nine months of 2008. On a GAAP basis, including restructuring and asset impairment charges, operating loss in the first nine months of 2009 was $25.2 million, compared with operating income of $67.5 million in the first nine months of 2008.
Net income, excluding the aforementioned after-tax restructuring and asset impairment charges, totaled $14.2 million, or $0.25 per diluted share, in the first nine months of 2009, compared with net income of $59.8 million, or $1.03 per diluted share, for the first nine months of 2008. On a GAAP basis, including restructuring and asset impairment charges, net loss for the first nine months of 2009 was $18.2 million, or $0.32 per diluted share, compared with net income of $41.7 million, or $0.71 per diluted share, for the first nine months of 2008.
Strategic Restructuring Program Update
The Company's Strategic Restructuring Program, which was launched in January 2008, is expected to generate total ongoing annualized savings of $125 million over the 2008-2010 period. Of these, approximately $40 million in savings were realized in fiscal 2008, an incremental $60 million is expected to be generated in fiscal 2009, and the remainder is expected in fiscal 2010.
Costs for the multi-year program are expected to total $130-140 million, of which approximately $80 million are expected to be non-cash costs and $50-60 million are expected to be cash costs. Approximately $125 million of these program costs have already been incurred as of the third quarter of 2009.
Fiscal 2009 Fourth Quarter Outlook
The Company will continue to manage the business with a focus on gross margin performance, tightly managing inventories and expenses, and being competitive in what the Company expects to be a highly promotional retail environment in the fourth quarter.
For the fourth quarter of 2009, the Company provided the following outlook:
-- Total sales dollars are expected to be slightly below those achieved in
the third quarter of 2009.
-- Gross margin rate performance is expected to decline from the levels
achieved in the third quarter of 2009, reflecting anticipated heightened
promotional activity to drive traffic and sales volume throughout the
holiday season. We expect the fourth quarter 2009 gross margin
performance to be considerably stronger than the levels achieved in the
fourth quarter of 2008.
-- Selling, general and administrative expenses are estimated to be
approximately $245 million.
-- The Company will continue to focus on maintaining a healthy balance
sheet and expects to achieve a year-end cash position in excess of its
fiscal third quarter 2009 cash position.
About Ann Taylor
Ann Taylor Stores Corporation is one of the leading women's specialty retailers for fashionable clothing in the United States, operating 932 Ann Taylor, LOFT, Ann Taylor Factory, and LOFT Outlet stores in 46 states, the District of Columbia and Puerto Rico as of October 31, 2009, as well as online at AnnTaylor.com and LOFTonline.com. Visit AnnTaylorStoresCorp.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 achieve the results of its restructuring
program, including the risk that the benefits expected from the
restructuring program will not be achieved or may take longer to achieve
than expected;
-- changes in management's assumptions and projections concerning costs and
timing in execution of the restructuring program;
-- general economic conditions and the current financial crisis, including
the effect on the Company's liquidity and capital resources, and a
downturn in the retail industry;
-- the behavior of financial markets, including fluctuations in interest
rates and the value of the U.S. dollar against foreign currencies, or
restrictions on the transfer of funds;
-- continuation of lowered levels of consumer spending, changes in levels
of store traffic, lowered levels of consumer confidence and higher
levels of unemployment resulting from the worldwide economic downturn;
-- the commercial and consumer credit environment;
-- continued volatility and further deterioration of the capital markets;
-- fluctuation in the Company's level of sales and earnings growth and
stock price;
-- 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;
-- competitive influences and decline in the demand for merchandise offered
by the Company, and the Company's ability to manage inventory levels;
-- the Company's ability to manage the profitability of its existing
stores, effectively renew or re-negotiate the terms of existing store
leases, or locate new store sites or negotiate favorable lease terms for
additional stores;
-- risks associated with the bankruptcy or significant deterioration of one
or more of our major national retail landlords;
-- the Company's ability to predict accurately client fashion preferences;
-- 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 and new
concepts;
-- the Company's ability to secure and protect trademarks and other
intellectual property rights in the United States and/or foreign
countries;
-- risks associated with the performance and operations of the Company's
Internet operations;
-- 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;
-- risks associated with the possible inability of the Company,
particularly through its sourcing and logistics functions, to operate
within production and delivery constraints and the Company's dependence
on a single distribution facility;
-- the uncertainties of sourcing associated with the current quota
environment, including changes in sourcing patterns resulting from
legislation relating to import quotas, the imposition of duties, or
other possible trade law or import restrictions;
-- risks associated with the Company's reliance on foreign sources of
production, including financial or political instability in any of the
countries in which the Company's goods are manufactured and supplier
inability to obtain adequate credit or access to liquidity to finance
operations;
-- risks associated with a failure by independent manufacturers to comply
with the Company's quality, product safety and social practices
requirements;
-- 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;
-- acts of war or terrorism in the United States or worldwide;
-- work stoppages, slowdowns or strikes;
-- 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; and
-- the Company's ability to continue operations in accordance with its
business continuity plan in the event of an interruption.
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.
ANNTAYLOR STORES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Quarters and Nine Months Ended October 31, 2009
and November 1, 2008
(unaudited)
Quarters Ended Nine Months Ended
-------------- -----------------
October 31, November 1, October 31, November 1,
2009 2008 2009 2008
---- ---- ---- ----
(in thousands, except per share amounts)
Net sales $462,410 $527,216 $1,359,386 $1,711,194
Cost of sales 197,555 270,060 611,500 828,911
------- ------- ------- -------
Gross margin 264,855 257,156 747,886 882,283
Selling, general and
administrative expenses 246,200 254,770 725,019 785,268
Restructuring charges 630 19,893 32,722 26,761
Asset impairment charges 15,318 2,741 15,318 2,764
------ ----- ------ -----
Operating income/(loss) 2,707 (20,248) (25,173) 67,490
Interest income 186 311 750 1,571
Interest expense 788 325 2,598 1,025
--- --- ----- -----
Income/(loss) before
income taxes 2,105 (20,262) (27,021) 68,036
Income tax provision/
(benefit) 36 (6,815) (8,772) 26,336
-- ------ ------ ------
Net income/(loss) $2,069 $(13,447) $(18,249) $41,700
====== ========= ======== =======
Earnings per share:
-------------------
Basic earnings/(loss)
per share $0.04 $(0.24) $(0.32) $0.71
Weighted average shares
outstanding 56,855 56,252 56,727 57,697
Diluted earnings/(loss)
per share $0.03 $(0.24) $(0.32) $0.71
Weighted average shares
outstanding assuming
dilution 58,037 56,252 56,727 57,861
Number of stores open
at beginning of period 933 959 935 929
Number of stores opened
during period 1 15 14 63
Number of stores closed
during period (2) (8) (17) (26)
-- -- --- ---
Number of stores open
at end of period 932 966 932 966
--- --- --- ---
Number of stores
expanded/relocated
during period * - - 1 8
Converted Stores** 1 - 1 -
* Expanded stores are excluded from comparable store sales for the first year following expansion.
** During the quarter ended October 31, 2009, the Company converted one Ann Taylor store to a LOFT store.
ANNTAYLOR STORES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
October 31, 2009, January 31, 2009 and November 1, 2008
(unaudited)
October 31, January 31, November 1,
2009 2009 2008
---- ---- ----
Assets (in thousands)
Current assets
Cash and cash equivalents $134,104 $112,320 $80,687
Short term investments 5,698 - -
Accounts receivable 26,283 14,081 23,421
Refundable income taxes 7,717 35,270 -
Merchandise inventories 211,194 173,447 274,450
Deferred income taxes 28,475 25,422 33,925
Prepaid expenses and other
current assets 62,196 63,056 61,406
------ ------ ------
Total current assets 475,667 423,596 473,889
Property and equipment, net 388,370 469,687 545,958
Goodwill - - 286,579
Deferred financing costs, net 1,048 1,275 1,370
Deferred income taxes 42,082 53,253 25,840
Other assets 7,064 12,628 20,051
----- ------ ------
Total assets $914,231 $960,439 $1,353,687
======== ======== ==========
Liabilities and Stockholders' Equity
Current liabilities
Trade notes and accounts
payable $92,228 $109,205 $118,835
Accrued salaries and bonus 27,426 23,883 26,103
Accrued tenancy 44,332 42,710 44,693
Gift certificates and
merchandise credits redeemable 35,842 45,605 38,043
Accrued expenses and other
current liabilities 81,861 84,180 89,698
------ ------ ------
Total current liabilities 281,689 305,583 317,372
Deferred lease costs 194,864 217,614 224,646
Deferred income taxes 1,673 1,898 1,633
Other liabilities 25,271 18,832 18,560
Commitments and contingencies
Stockholders' equity
Common stock, $.0068 par value;
200,000,000 shares authorized;
82,476,328, 82,476,328 and
82,476,328 shares issued,
respectively 561 561 561
Additional paid-in capital 773,450 791,852 788,638
Retained earnings 414,253 432,502 808,108
Accumulated other comprehensive
loss (6,648) (7,702) (4,230)
------ ------ ------
1,181,616 1,217,213 1,593,077
--------- --------- ---------
Treasury stock, 23,695,785,
25,220,809 and 25,358,195
shares respectively, at
cost (770,882) (800,701) (801,601)
-------- -------- --------
Total stockholders' equity 410,734 416,512 791,476
------- ------- -------
Total liabilities and
stockholders' equity $914,231 $960,439 $1,353,687
======== ======== ==========
SOURCE Ann Taylor Stores Corporation
Investors: Judith Pirro, Director, Investor Relations, ext. 3598, or Press: Catherine Fisher, Vice President, Corporate Communications, ext. 2199, both of Ann Taylor Stores Corporation, +1-212-541-3300
