For fall the product offering is more on trend with what the clients are seeking. The assortments are well balanced and focused on fashion items as well as key wardrobe essentials. Ann Taylor has reduced SKU count to support this key item focus. The company will be offering an expanded assortment of soft blouses, new cardigan silhouettes, a powerful denim presentation, shaped jackets, and new fall dresses.
The company has increased its color penetration significantly and added more print to the assortments. The fall product hits stores beginning in mid September. The holiday assortment this year features giftable sweaters, tops and accessories as well as dresses.
The Factory business continues to deliver strong bottom line results.
Despite the soft traffic the division managed its inventories and expenses very well to deliver an impressive increase in gross margin. In addition Ann Taylor launched LOFT Outlet in July in 10 locations. Ann Taylor plans to open another four LOFT Outlet stores in the second half and expect this business to represent significant future growth.
The internet business continues to perform well and despite the weak economy registered double-digit sales growth in the quarter.
In addition, this channel is becoming and increasingly important marketing driver for Ann Taylor as it represents a cost effective way of reaching the clients and advertising the company’s brands.
Net sales declined 3.6% vs. a year ago to $592.3 million reflecting the overall comp store decline of 10.8% partially offset by growth from new stores and the internet channel.
- Net sales at Ann Taylor declined 14.4% to $185.7 million on a comp store decline of 14.3%.
- At LOFT net sales declined 3.5% to $299.1 million on a comp store decline of 8.6%.
Gross margin in the quarter improved 180 basis points to 52.4% versus 50.6% in Q2 last year.
This improvement was achieved despite the very difficult macro and consumer environment. Importantly all three divisions posted solid margins with LOFT and factory up significantly versus year ago.
SG&A spending for the quarter at $261 million was less than 1% above last year, despite the 8% increase in the store base, higher performance based compensation expense and planned investments in LOFT Outlet.
This was due to aggressive expense management and restructuring program savings.
During the quarter restructuring program charges impacted pre-tax income by $3.1 million and net income by $2 million or $0.03 per diluted share.
- In the second quarter last year, Ann Taylor incurred $900,000 in restructuring costs which amounted to $500,000 on an after-tax basis or less then $0.01 per diluted share.
- Excluding these restructuring costs operating income in the quarter was $49.7 million compared to $51.9 million last year.
- Net income on the same basis was $31.2 million or $0.54 per diluted share compared with net income of $32.2 million or $0.51 per diluted share in the second quarter of 2007.
The weighted average diluted shares outstanding for the quarter declined 9% to 57.6 million shares versus 63.4 million shares in the second quarter last year.
- The effective tax rate for the quarter was 37.4% versus 39.4% in Q2 last year and for the full year Ann Taylor now expects effective tax rate to be approximately 38.5%.
- Depreciation and amortization in the second quarter totaled $30 million versus $29 million in the prior year.
- Capital expenditures for the second quarter totaled $39 million versus $42 million in the prior year.
Total store square footage at the end of the quarter totaled 5.6 million square feet, an 8.3% increase vs. the 5.2 million square feet at the end of the second quarter 2007.
During the second quarter Ann Taylor opened 23 new stores and closed five ending the quarter with 959 stores.
The LOFT division opened nine stores and closed three, Ann Taylor factory opened four new stores and LOFT Outlet opened 10 new stores. The company did not open any Ann Taylor stores but closed two during the quarter.
LOFT Outlet was launched this business in late July with the opening of 10 stores in the outlet channel. While it’s still very early the company is pleased with the results to date. Ann Taylor is also planning to open four additional LOFT Outlet stores in the second half bringing LOFT Outlet store count to 14 by year end. The net investment behind the launch of this business in 2008 is expected to be approximately $10 million.
Ann Taylor continues to make good progress on its restructuring program which is benefiting the company’s results this year.
The company expects the program to generate at least $50 million in ongoing annualized pre-tax savings by fiscal 2010 and for 2008 Ann Taylor expects ongoing annualized savings to be in the range of $20 million to $25 million excluding the $10 million in restructuring program costs that is anticipated this year.
|
