Ann Taylor Stores Corporation (ANN)
Q2 2008 Earnings Conference Call
August 22, 2008 8:30 am ET

Executives

Maria A. Sceppaguercio – Senior Vice President of Finance, Communications and Investor Relations.
Kay Krill – President and Chief Executive Officer
Michael Nicholson – Chief Financial Officer

Analysts

Lorraine Maikis – Merrill Lynch
Kimberly Greenberger – Citigroup
Jennifer Black – Jennifer Black & Associates
Jeff Black – Lehman Brothers
Dana Telsey – Telsey Advisory Group
Dana Cohen – Bank of America
Brian Tunick – JP Morgan
Tracy Kogan – Credit Suisse
Adrienne Tennant – Friedman, Billings, Ramsey & Co., Inc.
Michelle Tan – Goldman Sachs
Samantha Panella – Raymond James & Associates, Inc.

Presentation

Operator

Good morning ladies and gentlemen and welcome to the Ann Taylor Stores Corporation second quarter 2008 earnings conference call. At the request of the Company today’s conference call is being recorded. If you have any objections, you may disconnect at this time. Following prepared remarks by the Company you will have the opportunity to ask questions. I would now like to turn the call over to Maria Sceppaguercio, Senior Vice President of Finance, Communications and Investor Relations.

Maria A. Sceppaguercio

Thank you and good morning everyone. Here with me today to discuss our results is Ann Taylor President and CEO, Kay Krill and our CFO Mike Nicholson. As you know earlier this morning we issued our results for the second quarter of fiscal 2008.

As indicated in our release diluted EPS excluding restructuring charges was $0.54. This compares to $0.51 in EPS on the same basis that we recorded last year representing a 6% increase in a very difficult environment. On a year-to-date basis, EPS was up 4% to $1.01 versus $0.97 last year.

For the year we continue to expect EPS in the range of $1.80 to $1.90 excluding restructuring charges. For the second half we expect EPS excluding restructuring in the range of $0.80 to $0.90 compared with $0.87 in the second half last year. Mike will take you through the details of our second half expectations shortly.

Turning to our share repurchase program, during the quarter we repurchased approximately 2.6 million shares at a total cost of $66 million. This brings our share repurchase activity to date this fiscal year to $101 million or 4.1 million shares. At the end of the second quarter we had approximately $159 million available under our $300 million share repurchase authorization.

Also this quarter as planned we launched LOFT Outlet with the opening of our first 10 stores in the factory channel in July.

Before I turn the call over to Kay I would like to remind you that our discussion this morning includes forward-looking statements which are subject to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect the Company’s current expectations concerning future events and are subject to a number of factors and uncertainties that could cause actual results to differ materially. A detailed discussion of these factors and uncertainties is contained in the Company’s filings with the SEC. With that I will hand it over to Kay.

Kay Krill

Good morning and thank you for joining us today. Let me start my remarks by stating that all things considered we are pleased with our financial results in what proved to be a very difficult macro and consumer environment. As you know the weak economy has resulted in very soft traffic that pressured our top line results throughout the quarter.

However, the positive news is that we managed our inventories and expenses particularly well during the quarter and together with our stock repurchase program we were able to deliver diluted earnings per share results that were above a year ago.

Our gross margin for the quarter increased almost two full margin points despite the promotional stance we took to move inventory. We closed the quarter with total inventory on a per square foot basis down 4% versus last year with each of the divisions in good shape heading into the fall season. You may recall our discussion last quarter regarding our inventory buy for fall. We have planned our second half receipts and particularly our fourth quarter receipts very conservatively, in fact, on the assumption of an overall negative comp.

We continue to expect the second half to remain uncertain. We believe this cautious approach will enable us to best preserve gross margin as we did in the first half. Turning to SG&A, on the strength of aggressive cost control and restructuring savings, we held our expenses essentially flat with year ago. This was despite an 8% increase in our store base, start-up costs associated with LOFT Outlet and an increase in performance based compensation. Mike will take you through the detailed financials for the quarter, but let me just state that I am pleased we delivered a 6% increase in second quarter EPS in this environment.