Dana Cohen (Bank of America): Where LOFT’s been holding extremely well here both in terms of comp and margin through the first quarter, second quarter comps were more under pressure. What was the rate of change from the first quarter to the second quarter?
Kay Krill: As far as the second quarter goes, I think definitely we had too much in the refined separates area that we should have infused the assortments more with casual and relaxed separates because that’s really what performed in the second quarter. I think also in hindsight dresses were phenomenal particularly knit dresses and dresses that were under $50 and we did not have enough investment in that category.
The non-apparel whole bucket did not perform as well in the second quarter as the first quarter. So as we head into the fall season though I feel like the product gets much better in September and reflects the influence of the new design direction at LOFT and is much better then the August product which is a transitional month. I feel like we’ve invested in the third quarter in the categories that did perform well in the second quarter such as feminine casual separates and denim and soft blouses, there’s a lot more categories that we obviously invested behind in the third quarter but I feel like we’re on track and there’s no emphasis on refined separates in the back part of the year which is really what we should be focused on is casual. And I also think that the holiday assortment is far better this year then it was last year in LOFT. So I’m more hopeful for September forward in LOFT then the second quarter and the month of August.
Brian Tunick (JP Morgan): It feels like we’ve seen a lot of friends and family coupons or 25% off the entire store. Are you seeing the benefit on the top line that you’re expecting those days or do you worry about training your customer not to pay full price longer term? Tailored suitings continue to struggle worse then the chain, what is a percentage of the business right now and where do you think you can shrink that to? And can you talk about the marketing spend for the back half of the year either in dollars or in rates?
Kay Krill: We definitely have been approaching this from a quarterly perspective and we are seeing some benefit on the top line and we really feel like right now in this environment it is about the deal but its not going to hurt the full price business during the entire quarter because these are limited days that we’re doing this.
Regarding the tailored suiting, in the Ann Taylor division, that particularly hurt us for the first half of the year and going into the back half of the year we’ve taken that category down substantially and we’re focused more on versatile separates and dresses and non-apparel and great tops, rather then the suit business. The separate jacket category is going to be more meaningful as we head into the back half of the year but serious suitings is definitely not something she wants right now and we have not invested in that.
Tracy Kogan (Credit Suisse): Could you talk preliminarily about what you’re thinking for 2009 in terms of store growth and CapEx and then secondly can you talk a bit about the strategy at LOFT and Ann Taylor to bring in product from outside designers into the assortment and how you build assortments around this product if you do and how big it is as a part of the assortment?
Michael Nicholson: It’s a little too early to talk 2009 but would be happy to engage in that conversation in another six months.
Kay Krill: Regarding outside vendors, it’s a very small percentage of what we’re doing right now and as a matter of fact in LOFT we have just delivered very few tops across the chain. They definitely have performed well and it’s something that we have been chasing fashion but it’s a very small percentage of the business and in Ann Taylor we have tried some outside resources, brands in the store and its limited to about 20 to 25 stores so it’s very insignificant right now. We’re still focused primarily on our design and our proprietary brand. So it’s not something that we’re seeing growing significantly in the next 12 months.
Adrienne Tennant (Friedman, Billings, Ramsey): Can you talk about the 117 stores that are slated for closure over the next three years? Can you give us any color about the sales productivity levels, gross margin impact to the whole or four wall and how we might think about that as they come out of the total store pool?
Michael Nicholson: In terms of the total annualized impact of the 117 in terms of total top line, that approximates $210 million to $220 million in volume. In terms of the 64 that will come out of the fleet during fiscal 2008, the annualized impact of the 64 approximates $110 million and when you think about the calendarization of when these stores will close, the 64, the impact on 2008 is about $35 million. I think we’ve previously stated that the operating income contribution on a dollar basis of these stores was negligible so essentially what we’re suggesting is $200 million comes out of the top line with no impact on the bottom line.
There was an assessment that we performed literally store by store, market by market to assess where they have been historically and what we thought we could realize from these properties going forward also taking into consideration new malls within the local markets and made a strategic decision to edit these locations. As it relates to the LOFT component of the store closures, many of those stores were some of the earlier openings in the life of LOFT.
Adrienne Tennant (Friedman, Billings, Ramsey): Can you talk about some of the changes that you’re doing to the marketing for the back half of fall, when you talk about modern are you going after a different target age range as well?
Kay Krill: I don’t think this is as much about age as it is about a style. I think the marketing in Ann Taylor is just more modern and more sophisticated then we have been in the past especially vis-à-vis last year. Last year was not a good marketing moment for us. So I think that this year we definitely look more relevant and we look more stylish and it’s exactly who we’re going after from a client perspective.
Michelle Tan (Goldman Sachs): Could you fill us in on some of the open positions that are still there at the two divisions, and then any key ones that have been filled in the meantime? What’s the penetration of dresses and the assortments versus last year at both divisions?
Kay Krill: The key positions that we have open right now that we will be filling shortly is the Head of Design for Ann Taylor which we’re making very good progress and we’ll have an announcement shortly. The Head of Stores for the Ann Taylor division is open but our Head of Stores for LOFT is overseeing both brands right now. And we will be announcing a new Chief Supply Chain Officer shortly. So those are the key positions that are open right now.
Michelle Tan (Goldman Sachs): What is the penetration of dresses and assortments for fall relative to where it was last year?
Kay Krill: Relative to where it was last year, we’re definitely up ticking it from last year. It’s been very meaningful in both divisions for the whole first half of the year. I think it was a missed opportunity in both brands. We should have had more and definitely we are ramping it up for fall. We did not have much of a dress assortment in either division last year.
Samantha Panella (Raymond James): On the businesses at Ann Taylor division, could you give us an update on where you stand with collection also how celebration and beauty both are doing?
Kay Krill: On the product extensions in both divisions we are viewing beauty and celebration to be the two product extensions that we feel have the most potential and we definitely have strategies behind both of those to grow in the future. We are folding our collection line into our overall assortment and looking at it as a good, better, best merchandising strategy for Ann Taylor beginning this quarter so that we do have a good, better, best price point and quality and selection in all stores. And we’re still testing our maternity offering at LOFT and will be continuing to monitor its performance and determine if we’re going to stay in that business or exit that business.
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