This summary is based on the second quarter fiscal 2007 earnings call conducted by Mothers Work. (MWRK: chart) on April 24, 2007.

Management:

- President and Chief Operating Officer: Rebecca Matthias
- Executive Vice President and Chief Financial Officer: Edward M. Krell

Key Investors Issues

- Net sales were $143.9 million, a 0.5% decrease from last year’s $144.6 million.
- Net income was $2.6 million or 41 cents a share, up 420% from the prior year.
- The firm had 795 stores, down from 831 stores in the prior year.

Year-to-date Highlight:

- Net sales were $292.3 million, a 1.2% decrease over $296.0 million in the prior year.
- Operating income was $14.5 million, a 59% increase over the prior year.
- Comparable store sales decreased 1.9%, versus a comparable store sales increase of 2.4% in 2006.

Second Quarter Highlights

Net sales were $143.9 million, a 0.5% decrease from last year’s $144.6 million due to a decrease in comparable store sales largely offset by increased sales from the leased department and licensed relationships and marketing partnerships.

- Significantly colder weather during the month of January and February negatively impacted sales of spring merchandise and overall sales.
- Comparable store sales decreased 1.6%, versus a comparable store sales increase of 1.4% in 2006, which was favorably impacted by one percentage point due to having one more Saturday in this fiscal year’s second quarter compared to last year.
- The firm ended the quarter with 795 stores, 821 leased department locations and 1,616 total retail locations, compared to 831 stores, 728 leased department locations and 1,559 total retail locations in 2006.
- This net decrease of 36 stores reflects opening 16 new stores including 5 multi-brand stores and closing 52 stores with 13 of the store closings related to multi-brand store openings.
- Further, the firm added 146 leased department locations and closed 53 leased department locations.

Gross profit remained constant at $76.1 million, though gross margin increased marginally to 52.9% resulting from less price promotional activity, a continued reduction in product costs and increased marketing partnership revenues.

- The increase in margins was offset by increased product overhead expenses and the effect of increased sales from the licensed arrangement.
- SG&A expenses were 3.3% lower at $69.1 million, than the prior year expense figure of $71.4 million.
- The decrease in the expenses resulted from decreased store closing costs, lower variable incentive compensation cost and a sharp focus on expense controls partially offset by increased employee benefit expenses.
- Operating income was $7.0 million, a 52% increase over the prior year, resulting in an operating income margin of 4.9%.
- Depreciation and amortization expense was $3.9 million as in the prior year.

Interest expense was $2.8 million, a reduction of $1.0 million or 26% from $3.8 million in the prior year resulting from the repurchase of $35 million of senior notes from August 2006 through December 2006.

- The recently completed redemption of the outstanding 11.25% senior notes through the new $90 million term loan financing will result in a decrease in annualized pre-tax interest expense of $3.6 million, yielding an annualized benefits to earnings per share of 35 cents per share.
- Net income was $2.6 million or 41 cents a share, up 420% from $0.5 million or 9 cents a share due to expense management.

The firm has been able to reduce debt balance by $35 million, while still carrying the balance of cash and cash equivalent of $7.1 million.

- The company had an average outstanding borrowing from credit line of $1.2 million and ended the period with no outstanding borrowings under the credit line and more than $57 million of availability under the credit line.
- On a firm retail locations square foot basis, total inventory, excluding their related cost, was 2.7% higher the prior year, reflecting both the weaker than planned sale as well as continued play inventory control.

Fiscal 2007 Outlook:
- The firm is targeting net sales in the $597 million to $608 million, reflecting plans to open 17 to 20 new stores including 9 to 11 new multi-brand stores, and to close 38 to 42 stores.
- The firm plans to open 120 new leased department locations from recent agreements for exclusive lease department relationships with Boscov’s and Gordmans.
- In addition, the firm will distribute the Oh Baby! by Motherhood collection through a licensed arrangement at Kohl’s stores throughout the United States and on kohls.com.

Gross margin is expected to increase by 70 basis points, to 52.9% driven by higher plan merchandise gross margin and to a lesser extent increased marketing partnership revenues.

- Operating income is expected to be between $33.3 million and $38.7 million.
- Earnings per share is expected to be between $2.52 and $3.50 per share.
- Capital expenditures are anticipated to be between $15 million and $17 million, driven by new store openings, expanding and relocating selected stores, store remodeling and some continued investment in the management information systems and for continued distribution center automation.

Inventory Management:

- The firm will focus on carrying over inventory on those basic items that will be saleable next spring, such as basic short T’s and denim, while taking markdowns where needed to sell fashion items that should be cleared rather than carried over.
- Mnagement believes that the company can manage inventory levels without restoring to a excessive markdown levels.