A key element of the restructuring program involves optimizing the store portfolio including the closure of 117 stores over the next three years.
- In 2008, 64 of these stores will be closed with 25 Ann Taylor closing and 39 LOFT stores closing.
- Year to date the company has closed 18 stores, eight of which were Ann Taylor stores and 10 of which were LOFT stores.
- Ann Taylor expects to close the remaining 46 stores during the second half of fiscal 2008 with the majority of these stores closing at the very end of the fiscal year.
- The sales impact of these 2008 closures is expect to total approximately $35 million.
For the second quarter Ann Taylor incurred approximately $3.1 million in pre-tax restructuring costs comprised of:
- $2 million in cash charges related to planned store closures and other restructuring costs;
- $1.1 million in non-cash costs related to the additional write-down of assets associated with these planned closures.
In the second quarter last year Ann Taylor incurred $900,000 in pre-tax cash charges related to consulting services to support the launch of the program.
For the first half the pre-tax restructuring program costs totaled $6.9 million in 2008 versus $900,000 in 2007.
The company has planned the second half very conservatively with inventory receipts down significantly versus last year and importantly aligned with the expectations that the macro and consumer environment will remain challenging.
Ann Taylor expects its defensive positioning during this period to enable it to maximize gross margin dollars as in the first half. In addition aggressive cost containment and restructuring program savings are also expected to benefit the company throughout the balance of the year.
For the second half, earnings per diluted share excluding restructuring costs are expected to be in the range of $0.80 to $0.90.
This compares to the $0.87 per share we recorded in the second half of 2007.
Ann Taylor expects third quarter EPS to be in the range of $0.50 to $0.55 which is below year ago. This performance incorporates not only the company’s outlook for a continued weak economy but also the impact of higher performance based compensation expense versus the third quarter last year. The company reduced its performance expectations and therefore the accrual for performance based comps.
Also impacting results in the third quarter are start-up costs associated with LOFT Outlet.
The third quarter last year was by far the strongest of the year so the company is up against its toughest compare of the year in the coming quarter.
For the fourth quarter earnings per diluted share excluding restructuring costs are expected to be in the range of $0.30 to $0.35.
This anticipates that the economy will continue to be tough and also factors in the expectations for higher performance based comp expenses and LOFT Outlet start-up costs. However, it also factors in the benefits of a tight inventory receipt plan that is very focused on categories that have been trending well and that are expected to be strong for holiday. It also recognizes that the fourth quarter last year was a very soft quarter, with an inventory buy that was in hindsight much greater then the demand the company experienced in a rapidly deteriorating economy.
For the year the company continues to expect EPS excluding restructuring costs to be in the range of $1.80 to $1.90 per share.
Total net sales are expected to be flat to down slightly with the comparable store sales down in the mid single-digit range for the year.
Total square footage growth is expected to be approximately 1% driven by a significant increase in footage for the factory channel including LOFT Outlet almost entirely offset by a decline in square footage at both Ann Taylor and LOFT and this decline reflects the reduction in square footage associated with the restructuring program which is partially offset by new store openings.
The company plans to open approximately 66 new stores in 2008 with:
- 25 LOFT stores,
- 4 Ann Taylor stores,
- 23 Ann Taylor factory stores,
- 14 LOFT Outlet stores planned.
The company expects the net cost of launching LOFT Outlet to approximate $10 million in fiscal 2008.
- The company anticipates restructuring program savings of approximately $20 million to $25 million excluding anticipated restructuring costs of approximately $10 million.
- The company continues to expect gross margin improvement for the year although SG&A rate is expected to be under pressure due to negative comps, costs associated with the launch of LOFT Outlet and an expected year-over-year increase in performance based compensation.
Ann Taylor expects to close the year with inventories down in the low to mid single-digits compared to year end 2007.
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