This is a summary of the third quarter fiscal 2008 earnings call conducted by Ann Taylor Stores Corporation (ANN) on November 21, 2008.
Management:
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Senior VP of Finance, Communications & Investor Relations: Maria Sceppaguercio
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President and Chief Executive Officer: Katherine Lawther Krill
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Chief Financial Officer: Michael J. Nicholson
Key Investor Issues:
- The company reported a loss of $13.45 million, or 24 cents per share, compared with the year-ago profit of $40.76 million, or 66 cents per share.
- Same-store sales fell 19.4% in the quarter. Same-store sales fell 24.8% at Ann Taylor and 15.4% at LOFT.
- The company said it would expand the scope of a restructuring it announced in January that included closing 117 stores and cutting up to 13% of headquarters staff.
Third Quarter Highlights:
Net sales declined 12.3% versus year ago to $527 million reflecting the overall comp decline of 19.4%.
- By division, net sales at Ann Taylor declined 25% to $159.5 million in line with its comp performance.
- At Loft, net sales declined 11% to $263 million on a comp store decline of 15.4%.
- Gross margin for the quarter declined 730 basis points to 48.8% versus 56.1% last year. This performance primarily reflected the impact of the soft top line and aggressive promotional activity to clear through inventory.
Total inventory for the quarter declined 10% versus year ago, reflecting a total in-store inventory decline of 13% partially offset by in transit inventory that was essentially even with year ago. This in transit inventory will put pressure on the fourth quarter gross margin as the company bought to a much better comp than it now anticipates.
SG&A for the quarter was down 4% or approximately $12 million to $258 million.
This improvement reflected lower store occupancy and payroll costs at existing stores, restructuring program savings and tight management of expenses, as well as reduced performance based compensation expense. Partially offsetting these benefits were operating costs associated with new stores and planned investments supporting the launch of Loft Outlet.
In terms of restructuring details for the quarter, pretax charges totaled $19.9 million.
On an after tax basis, charges totaled $13.2 million or $0.24 per diluted share. In the third quarter last year, we incurred $1.3 million in pretax restructuring costs which amounted to $800,000 on an after tax basis or approximately $0.01 per diluted share.
Excluding these restructuring costs, operating income in the quarter was approximately breakeven compared with $67.9 million last year.
- Net income on the same basis was also approximately breakeven compared with the net income of $41.5 million or $0.67 per diluted share in the third quarter of 2007.
- Weighted average diluted shares outstanding for the quarter declined 8.6% to 56.3 million shares versus 61.5 million shares in the third quarter of last year.
The effective tax rate was 33.6% for the quarter versus 39.5% last year.
- Depreciation and amortization in the third quarter totaled about $33 million versus $30 million last year.
- Capital expenditures for the third quarter were down 45% versus year ago to $28 million versus $51 million in the third quarter of last year.
- The total store square footage at the end of the third quarter totaled approximately 5.7 million square feet, a 5.2% increase versus the 5.4 million square feet at the end of the third quarter 2007.
During the third quarter, the company opened 15 new stores and closed 8 ending the quarter with 966 stores.
- The Loft division opened 8 stores and closed 7.
- Ann Taylor Factory opened 5 new stores and Loft Outlet opened 2 new stores.
- The company did not open any Ann Taylor stores and closed 1 during the quarter.
The company announced the expansion and acceleration of its existing three year restructuring program, which is now expected to generate ongoing annualized savings of $80 to $90 million, up from the previous expectations for $50 million in savings. The company expects to generate $35 million of these savings in fiscal 2008 or $10 to $15 million more than the previous expectations for $20 to $25 million. This increase in expected savings for this year reflects the benefit in 2008 of approximately $6 million from the workforce reduction recently announced, as well as additional savings from initiatives in the company’s stores and in the procurement area.
Costs associated with the overall program are now expected to be in the range of $65 to $70 million over the three year period. These costs include the $40 to $45 million originally anticipated under the January program plus incremental costs of approximately $12 million associated with the workforce reduction announced on November 6, as well as charges totaling approximately $12 million related to the additional non-cash write down of assets associated with the original store closure plan. The company expects to incur approximately $30 million of these costs in fiscal 2008.
