Women's specialty retailer Ann Taylor Stores Corp. (ANN) reported Friday better-than-expected profit for the third quarter, compared to a loss last year, helped by strong gross margin growth as well as cost saving initiatives, despite a drop in quarterly revenues.
The company projects total sales dollars in the fourth quarter to be slightly below that of the third quarter, while it expects gross margin performance to be considerably stronger than the levels achieved in the fourth quarter last year.
In a statement, president and chief executive officer, Kay Krill said, "Our results for the quarter were a direct result of our strategy to maximize gross margin performance by tightly managing inventories, focusing on full-price selling and controlling costs. I am pleased that our performance also reflects the cumulative benefits of our ongoing restructuring program initiatives."
Ann Taylor added that its emphasis going forward would be to continue the repositioning of the Ann Taylor division and to ensure that LOFT further strengthens its positioning as the destination for casual, feminine and stylish product at great value.
Third Quarter Results
The New York-based company reported net income of $2.07 million or $0.03 per share for the third quarter, compared to a net loss of $13.45 million or $0.24 per share in the prior-year quarter.
The results for the latest quarter include after-tax restructuring and asset impairment charges of $0.17 per share, while the year-ago quarter results included after-tax restructuring and asset impairment charges totaling $0.27 per share.
Excluding the charges, net income for the quarter climbed to $12.0 million or $0.20 per share from year-ago quarter's $1.6 million or $0.03 per share. On average, 19 analysts polled by Thomson Reuters expected the company to report earnings of $0.07 per share for the third quarter. Analysts' estimates typically exclude special items.
Net sales for the quarter dropped to $462.41 million from $527.22 million last year, and missed fourteen Wall Street analysts' consensus estimate of $473.85 million. Comparable-store sales decreased 13.7%.
Peer Performance
Among Ann Taylor's peers, Fort Myers, Florida-based Chico's FAS, Inc. (CHS) posted higher profit for the third quarter totaling $22.75 million or 0.13 per share, compared to $2.00 million or $0.01 per share in the year-ago quarter, aided by higher sales and margins. Quarterly net sales rose 13.3% to $446.86 million from $394.24 million in the previous year. Comparable store sales grew 12.8% for the third quarter.
Another peer, Hingham, Massachusetts-based Talbots, Inc. (TLB) is scheduled to report financial results for the third quarter on December 8, 2009. Talbots expects to report a loss from continuing operations of about $0.24 to $0.30 per share, excluding restructuring and impairment charges. This projection is based on a top-line sales decline estimate in the range of about 14% - 17%. Analysts currently expect a loss of $0.15 per share for the third quarter, on revenues of $318.53 million for Talbots.
Segmental Details
On a divisional basis, net sales at Ann Taylor's namesake stores, where professional working women represent a large part of its client base, were $112.3 million, down from last year's sales of $159.5 million, and sales at LOFT declined to $234.0 million from $263.0 million last year.
During the third quarter, comparable-store sales at namesake stores dropped 25.8% and comparable-store sales at LOFT declined 9.7%.
Other Metrics
Operating income for the third quarter was $2.71 million, compared to operating loss of $20.25 million in the prior-year quarter. Excluding restructuring and asset impairment charges, operating income was $18.7 million compared to operating income of $2.4 million last year.
Gross margin for the quarter increased to $264.86 million from $257.16 million in the year-ago quarter, while gross margin percentage climbed 850 basis points to 57.3% from the year-ago quarter's 48.8%, reflecting managed inventory levels and lower level of promotional activity.
Total inventory per square foot at the end of the third quarter dropped 20.7% from the year-ago quarter, primarily reflecting total per square foot inventory declines of 19.4% at the LOFT division and 17.0% at the Ann Taylor division.
Selling, general and administrative expenses were $246.20 million, down 3.4% from $254.77 million in the year-ago quarter. Restructuring charges for the quarter sharply dropped to $0.63 million from $19.89 million in the same quarter last year.
However, asset impairment charges rose sharply to $15.32 million from $2.74 million in the prior-year quarter. The company also had an income tax benefit of $6.82 million last year.
During the third quarter, Ann Taylor opened one LOFT store and closed one Ann Taylor and one LOFT store. The company also converted one Ann Taylor store to LOFT. At the end of the third quarter, total store count was 932, with 313 Ann Taylor stores, 509 LOFT stores, 92 Ann Taylor Factory stores and 18 LOFT Outlet stores.
The company also noted that its Strategic Restructuring Program, which was launched in January 2008, is expected to generate total ongoing annualized savings of $125 million over the 2008-2010 period. While about $40 million is already achieved in savings in fiscal 2008, an incremental $60 million is expected in fiscal 2009 and the remainder is expected in fiscal 2010.
Meanwhile, costs for the program are expected to total $130-140 million, of which about $80 million are expected to be non-cash costs and $50-60 million cash costs. About $125 million of these costs have already been incurred as of the third quarter of 2009.
Nine-Month Highlights
For the nine-month period, the company posted a net loss of $18.25 million or $0.32 per share, compared with a net income of $41.70 million or $0.71 per share in the prior-year period.
Excluding restructuring and asset impairment charges, net income for the period dropped to $14.2 million or $0.25 per share from $59.8 million or $1.03 per share in the year-ago period.
Net sales for the year-to-date period dropped to $1.36 billion from $1.71 billion in the same period last year. Comparable store sales were down 22.6%, with a 36.1% slide at Ann Taylor and a 16.7% decline at LOFT.
Looking Ahead...
"Looking ahead, we expect to build on the product successes we've achieved to date and move forward on our objective of building sales momentum and profitable growth," Krill added.
Like other retailers, Ann Taylor too cautioned that it expects to see a highly promotional retail environment in the fourth quarter. However, the company would continue to focus on being competitive with gross margin performance and to tightly manage inventories and expenses.
For the fourth quarter, Ann Taylor projects total sales dollars to be slightly below the sales in the third quarter, and gross margin performance to be considerably stronger than the levels achieved in the fourth quarter last year. Further, expenses are estimated to be about $245 million.
Ann Taylor also expects to achieve a year-end cash position in excess of its fiscal third quarter 2009 cash position.
Stock Quote
In Friday's regular trading session, ANN is currently trading at $13.94, up $0.13 or 0.94% on a volume of 0.61 million shares. In the past 52-week period, the stock has been trading in a broad range of $2.41 to $17.50.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.