AnnTaylor Stores Corp. (ANN)
Q1 2010 Earnings Call Transcript
May 21, 2010 8:30 a.m. ET

Executives

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

Analysts

Michelle Tan – Goldman Sachs
Betty Chen – Wedbush Morgan
Lorraine Hutchinson – Bank of America/Merrill Lynch
Liz Dunn – Thomas Weisel Partners
Neely Tamminga – Piper Jaffray
Roxanne Meyer – UBS
Brian Tunick – J.P. Morgan
Jeffrey Black – Barclays Capital
Jennifer Black – Jennifer Black & Associates
Robin Murchison – Sun Trust Robinson Humphrey
Stacy Pak – SP Research
Barbara Wyckoff – Jesup & Lamont Securities
Dana Telsey – Telsey Advisory Group

Presentation

Operator

Good morning, ladies and gentlemen and welcome to the AnnTaylor Stores Corporation''s First 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 opportunity to ask questions. I would like now to turn the conference over to Judy Pirro, Vice President, Investor Relations, please go ahead.

Judith Pirro

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

Kay Krill

Good morning and thanks for joining us. I''m pleased to report on the Company''s strong performance for the first quarter of 2010. The year is off to an excellent start, with both Ann Taylor and LOFT performing well ahead of our initial expectations.

A dramatic uptick in sales, coupled with our continued focus on maximizing gross margins, enabled us to deliver significantly stronger results, both sequentially from the fourth quarter of 2009 and versus the year-ago period. We are very excited about our progress in both brands and all channels.

When I spoke to you in March, I noted that a key objective for 2010 was to profitably grow our top line sales. Clearly, the first quarter performance was a significant step in that direction.

For the company, comparable sales rose 14%, with both brands achieving a significant increase in sales and profitability. As you saw in our press release this morning, we are now providing enhanced transparency on our results by brand and channel.

Beginning this quarter, we are giving you our results as we and frankly our clients, view the business as two brands, each with three channels. The Ann Taylor brand, including stores, our e-commerce channel and Ann Taylor Factory, delivered positive comps during the quarter of 16.4%. For the LOFT brand, again including stores, our e-commerce channel and LOFT Outlet, achieved a comp gain of 12.5%.

Another highlight of the quarter was our gross margin rate, which reached 59.4% and reflects our ongoing focus on growing full priced sales. One more compelling product assortment was the primary reason for our success, which bodes well for the future, as we are winning back customers and appealing to new customers as well.

An effective promotional strategy and well-managed inventory levels were also key drivers of the performance as we continue to run the business to optimize profitability. Both brands started the quarter on a strong note, with sales accelerating in March in advance of the Easter holiday. Traffic was up at both brands and our clients'' response to the product remained positive throughout the quarter as our newer spring assortments hit the floor. In fact, we achieved positive comps in every month of the quarter.

Clearly, we have been delivering compelling fashion and value and she is responding. Let''s take a closer look at each of the brands. Turning first to Ann Taylor. Overall, the Ann Taylor brand achieved an excellent performance, with both sales and gross margin coming in well ahead of our expectations. We continue to make meaningful progress in our multi-season strategy to enhance and grow the brand and this is reflected in the improved metrics across the business.