AnnTaylor Stores Corp. (ANN)
Q2 2010 Earnings Call Transcript
August 20, 2010 8:30 a.m. ET

Executives

Judith Pirro – Vice President, Investor Relations
Kay Krill – President and Chief Executive Officer
Michael J. Nicholson – Executive Vice President and Chief Financial Officer

Analysts

Jennifer Black – Jennifer Black & Associates
Lorraine Hutchinson – Bank of America/Merrill Lynch
Neely Tamminga – Piper Jaffray
Michelle Tan – Goldman Sachs
Brian Tunick – J.P. Morgan
Roxanne Meyer – UBS
Marni Shapiro – The Retail Tracker
Laura Champine – Cowen and Company
Stacy Pak – SP Research
Samantha Panella – Raymond James
Janet Kloppenburg – JJK Research
Dana Telsey – Telsey Advisory Group

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to Ann Taylor Stores Corporation''s second quarter 2010 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 the prepared remarks by the company, you will have the opportunity to ask questions. I would now like to turn the call over to Judith Pirro, Vice President, Investor Relations. Please go ahead.

Judith Pirro

Thank you, Tammie and good morning everyone. We''re very pleased you could join us to review our results for the second quarter and first half of fiscal 2010. I''m here this morning with Kay Krill, Ann Taylor''s President and CEO and Mike Nicholson, our CFO. Kay will begin with an overview of the quarter and provide an update and then Mike will review the financials in more detail. After that, we''ll open it up for your questions.

Before turning it over to Kay, we 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 as of August 20, 2010, concerning future events and are subject to a number of factors and uncertainties that could cause actual results to differ materially.

With that, let me hand it over to Kay.

Kay Krill

Good morning, everyone. Thanks for joining us today to hear more about our second quarter and the initiatives we have under way to build on our progress in the second half of the year and beyond. For the second quarter, the company delivered substantially stronger earnings over the second quarter of last year.

Our EPS of $0.32 excluding charges and our sales and operating margins as well underscore the significant progress we have made over the past year. In fact, our more than five-fold increase in operating profit was driven both by higher sales and a 260 basis point gross margin improvement, reflecting higher full priced selling, especially at the Ann Taylor brand.

We have also continued to be extremely disciplined in managing our expenses. Overall, sales for the company increased to approximately $484 million, compared to $470 million in the second quarter last year. Total comparable sales increased more than 6%.

Our strategy of focusing on delivering top-line growth while maximizing gross margin and carefully managing inventory levels has delivered and continues to deliver strong results. Our gross margin rate was 55%, a record for a second quarter period, driven by significant improvement at the Ann Taylor brand and a solid performance from LOFT.

We have entered the third quarter with clean inventories at levels which we believe position the company for profitable top-line growth in the fall season. Our balance sheet continues to be exceptionally strong with more than $260 million in cash at quarter end. This represents an increase of more than $55 million since the end of the first quarter and approximately double the cash that we had at quarter end, a year ago and we have no debt.

We continue to look at ways to use our strong balance sheet and free cash flow to further enhance shareholder value. To that end, I''m pleased to report that our Board has voted to expand our existing share repurchase authorization to $400 million. We now have approximately $260 million currently available under this authorization to repurchase our shares.

Now, let''s turn to the brands. Ann Taylor, the Ann Taylor brand achieved outstanding results as the earlier momentum continued to accelerate throughout the quarter. Comparable sales for the brand increased more than 15%.