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| Exhibit 99.1 |
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FOR IMMEDIATE RELEASE
Ann Taylor Reports First Quarter 2008 Results
Company Reiterates Outlook for Fiscal 2008 and Announces Second Quarter Guidance
New York, NY, May 22, 2008 – AnnTaylor Stores Corporation (NYSE: ANN) today reported results for the first quarter of fiscal 2008, ended May 3, 2008. Diluted earnings per share, excluding costs associated with the Company’s previously-announced restructuring program, totaled $0.47, compared with earnings per diluted share of $0.46 in the first quarter of 2007. On a GAAP basis, including the aforementioned restructuring costs, which totaled $0.04 per diluted share, earnings per diluted share were $0.43 in the first quarter of 2008. Net sales for the first quarter of 2008 advanced 2% versus year-ago.
Commenting on the results, Ann Taylor President and Chief Executive Officer Kay Krill stated, “We are pleased with our performance in the first quarter, particularly in light of the ongoing macroeconomic softness and uncertainty that is weighing on the retail sector. We are pursuing a two-pronged strategy focused on strengthening our core businesses and improving our cost structure, and this focus is clearly working.”
“As we look ahead to the balance of the year, we remain cautious due to the highly volatile nature of the current economic environment, as well as our expectation for a continuation of the erratic traffic trends we are experiencing. We believe, however, that our ability to successfully manage our cost structure and keep our inventory levels lean in this environment will continue to serve us well in the months ahead, and we are comfortable, as we head into the second quarter, that we will achieve our full-year EPS guidance in the range of $1.80 to $1.90, before restructuring costs,” Ms. Krill stated.
First Quarter Results
Net sales in the first quarter of fiscal 2008 advanced 2.0% to $591.7 million, compared with net sales of $580.3 million in the first quarter of fiscal 2007. This performance was primarily driven by growth from the LOFT division and, to a lesser extent, our Factory and Internet businesses, partially offset by softness at the Ann Taylor division.
Specifically, net sales at Ann Taylor were $197.6 million in the first quarter of fiscal 2008, compared with net sales of $222.2 million in the first quarter of fiscal 2007. At LOFT, net sales were $295.0 million in the first quarter of fiscal 2008, compared with net sales of $274.3 million in the first quarter of fiscal 2007.
Comparable store sales for the quarter declined 4.3% versus the prior year. By division, comparable store sales at Ann Taylor declined 11.5%, while comparable store sales at LOFT increased 0.7%. Weak traffic trends at both divisions weighed on top-line results, although strong in-store metrics and positive client response to product assortments at LOFT helped to offset the soft traffic.
For the first quarter of fiscal 2008, despite the difficult macroeconomic conditions and a highly promotional retail environment, the Company achieved a gross margin of 53.2%, as a percentage of sales, compared with a gross margin of 53.6% in the year-ago period. This performance reflected strong gross margin results at LOFT and Factory, stemming from successful inventory management and strong product assortments, offset by gross margin softness at Ann Taylor, reflecting a product assortment that lacked the fashion newness clients are currently seeking.
Total inventory per square foot at the end of the first quarter of fiscal 2008 was down 16% versus year-ago, driven by a 17% decline in total in-store inventory. By division, in-store inventory on a per square foot basis at Ann Taylor, excluding Beauty, decreased 23% and, at LOFT, in-store inventory on a per square foot basis declined 22%.
Selling, general and administrative expenses for the first quarter of fiscal 2008 were $270.0 million, or 45.6% of net sales, compared to $261.3 million, or 45.0% of net sales, for the first quarter of fiscal 2007. This performance primarily reflected the negative impact of deleveraging, higher performance-based compensation expense and planned investments in LOFT Outlet, partially offset by restructuring program savings.
During the quarter, the Company recorded pre-tax restructuring charges totaling $3.7 million, reflecting $2.2 million in non-cash charges related to the additional write-down of assets associated with planned store closures, and $1.5 million in cash charges. On an after-tax basis, the restructuring charges totaled $2.3 million, or approximately $0.04 per diluted share.
On a GAAP basis, including restructuring costs, operating income in the first quarter of fiscal 2008 was $41.2 million. Excluding the aforementioned restructuring costs, operating income in the first quarter of fiscal 2008 was $44.9 million, compared with operating income of $49.6 million in the first quarter of fiscal 2007.
Net income, on a GAAP basis, in the first quarter of 2008 totaled $25.9 million, or $0.43 per diluted share. Excluding the aforementioned restructuring charges, net income in the quarter totaled $28.2 million, or $0.47 per diluted share, versus net income of $31.5 million, or $0.46 per diluted share in the first quarter of 2007. The increase in diluted earnings per share in the 2008 quarter reflected the benefit of a reduced number of weighted shares outstanding.
During the quarter, the Company opened four Ann Taylor stores, eight LOFT stores and 13 Ann Taylor Factory stores. The Company closed six Ann Taylor stores and seven LOFT stores during the quarter, in line with the store optimization component of the Company’s restructuring program. The total store count at the end of the quarter was 941, comprised of 347 Ann Taylor stores, 513 LOFT stores and 81 Ann Taylor Factory stores. For the year, the Company continues to expect to close 64 stores, as part of its strategic restructuring program. Of these, 25 will be Ann Taylor stores and 39 will be LOFT stores.
The Company indicated that it currently expects to open 66 new stores in fiscal 2008, versus its previous expectation of opening approximately 50-55 new stores. The change in outlook reflects the Company’s intention to more aggressively expand Factory and LOFT Outlet openings. In addition, the Company currently plans to open 10 additional LOFT stores, originally expected to be opened in 2009. As a result, the current outlook for 2008 new stores is comprised of 25 LOFT stores, 23 Factory stores, 14 LOFT Outlet stores and four Ann Taylor stores.
The Company repurchased approximately 1.5 million shares of its common stock during the first quarter, at an approximate cost of $35 million.
Second Quarter Outlook
The Company indicated that it expects second quarter earnings per diluted share, excluding restructuring costs, to be in the range of $0.42 to $0.47. This outlook reflects the expectation for continued traffic volatility at both divisions, in what is likely to remain a difficult macroeconomic and consumer environment in the months ahead.
Fiscal Year Outlook
The Company reiterated its expectations for earnings per diluted share in fiscal 2008, excluding restructuring costs, to be in the range of $1.80 to $1.90. The Company noted that, while its overall outlook has not changed, the drivers of its expected full-year performance have been modified somewhat to reflect the Company’s first quarter results and revised expectations regarding the balance of the year.
| • | | Total net sales growth in the low single digits, with comparable store sales slightly negative for the year. |
| • | | Total square footage growth of approximately 1%, driven by a significant increase in square footage for the factory channel, including LOFT Outlet, almost entirely offset by a decline in square footage at both Ann Taylor and LOFT. |
| • | | The sales reduction impact in 2008 associated with stores planned for closure during the year is estimated at approximately $35 million, with minimal operating income impact. |
| • | | Costs totaling approximately $10 million associated with the launch of LOFT Outlet in the summer. |
| • | | Restructuring program savings of approximately $20-25 million, excluding anticipated restructuring costs of approximately $7-10 million. |
| • | | Gross margin improvement expected for the year, with SG&A rate under pressure due to slightly negative comps, costs associated with the launch of LOFT Outlet and an expected year-over-year increase in performance-based compensation. |
| • | | Capital expenditures of approximately $125-$130 million. |
| • | | Continued repurchase of shares under the Company’s existing share repurchase authorization. |
About Ann Taylor
Ann Taylor is one of the country’s leading women’s specialty retailers, operating 941 stores in 46 states, the District of Columbia and Puerto Rico, and also Online Stores atwww.anntaylor.com andwww.anntaylorLOFT.com as of May 3, 2008.
Contact:
Judith Pirro
Director, Investor Relations
Ann Taylor Stores Corporation
212-541-3300 ext. 3598
FORWARD-LOOKING STATEMENTS
Certain statements in this press release are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements may use the words “expect”, “anticipate”, “plan”, “intend”, “project”, “may”, “believe” and similar expressions. Forward-looking statements also include representations of the expectations or beliefs of the Company concerning future events that involve risks and uncertainties, including:
| | • | | the Company’s ability to predict accurately client fashion preferences; |
| | • | | competitive influences and decline in the demand for merchandise offered by the Company; |
| | • | | the Company’s ability to successfully execute brand extensions and new concepts; |
| | • | | effectiveness of the Company’s brand awareness and marketing programs, and its ability to maintain the value of its brands; |
| | • | | the Company’s ability to secure and protect trademarks and other intellectual property rights in the United States and/or foreign countries; |
| | • | | general economic conditions, including the impact of higher fuel and energy prices, interest rates, a downturn in the retail industry or changes in levels of store traffic; |
| | • | | fluctuation in the value of the U.S. dollar against foreign currencies or restrictions on the transfer of funds; |
| | • | | fluctuation in the Company’s level of sales and earnings growth; |
| | • | | the Company’s ability to locate new store sites or negotiate favorable lease terms for additional stores or for the lease renewal or expansion of existing stores; |
| | • | | risks associated with the performance and operations of the Company’s Internet operations; |
| | • | | a significant change in the regulatory environment applicable to the Company’s business; |
| | • | | risks associated with the possible inability of the Company, particularly through its sourcing and logistics functions, to operate within production and delivery constraints and the Company’s dependence on a single distribution facility; |
| | • | | the uncertainties of sourcing associated with the current quota environment, including changes in sourcing patterns resulting from the elimination of quota on apparel products and the re-imposition of quotas in certain categories, and other possible trade law or import restrictions; |
| | • | | risks associated with the Company’s reliance on foreign sources of production, including financial or political instability in any of the countries in which the Company’s goods are manufactured; |
| | • | | risks associated with a failure by independent manufacturers to comply with the Company’s quality, product safety and social practices requirements; |
| | • | | the potential impact of natural disasters and public health concerns, particularly on the Company’s foreign sourcing offices and manufacturing operations of the Company’s vendors; |
| | • | | acts of war or terrorism in the United States or worldwide; |
| | • | | work stoppages, slowdowns or strikes; |
| | • | | the Company’s ability to hire, retain and train key personnel; |
| | • | | the Company’s ability to successfully upgrade and maintain its information systems, including adequate system security controls; |
| | • | | the Company’s ability to continue operations in accordance with its business continuity plan in the event of an interruption; |
| | • | | the Company’s ability to achieve the results of its restructuring program, including the risk that the benefits expected from the restructuring program will not be achieved or may take longer to achieve than expected; and |
| | • | | changes in management’s assumptions and projections concerning costs and timing in execution of the restructuring program. |
Further description of these risks and uncertainties and other important factors are set forth in the Company’s latest Annual Report on Form 10-K, including but not limited to Item 1A – Risk Factors and Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations therein, and in the Company’s other filings with the SEC. Although these forward-looking statements reflect the Company’s current expectations concerning future events, actual results may differ materially from current expectations or historical results. The Company does not assume any obligation to publicly update or revise any forward-looking statements at any time for any reason.
ANNTAYLOR STORES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Quarters Ended May 3, 2008 and May 5, 2007
(unaudited)
| | | | | | | | |
| | | Quarters Ended | |
| | | May 3,
2008 | | | May 5,
2007 | |
| | | (in thousands, except per
share amounts) | |
Net sales | | $ | 591,663 | | | $ | 580,266 | |
Cost of sales | | | 276,738 | | | | 269,270 | |
| | | | | | | | |
Gross margin | | | 314,925 | | | | 310,996 | |
Selling, general and administrative expenses | | | 269,968 | | | | 261,348 | |
Restructuring and asset impairment charges | | | 3,723 | | | | — | |
| | | | | | | | |
Operating income | | | 41,234 | | | | 49,648 | |
Interest income | | | 792 | | | | 3,076 | |
Interest expense | | | 424 | | | | 541 | |
| | | | | | | | |
Income before income taxes | | | 41,602 | | | | 52,183 | |
Income tax provision | | | 15,705 | | | | 20,728 | |
| | | | | | | | |
Net income | | $ | 25,897 | | | $ | 31,455 | |
| | | | | | | | |
Earnings per share: | | | | | | | | |
Basic earnings per share of common stock | | $ | 0.43 | | | $ | 0.47 | |
Weighted average shares outstanding | | | 59,577 | | | | 67,331 | |
Diluted earnings per share of common stock | | $ | 0.43 | | | $ | 0.46 | |
Weighted average shares outstanding assuming dilution | | | 59,883 | | | | 68,404 | |
| | |
Number of stores open at beginning of period | | | 929 | | | | 869 | |
Number of stores opened during period | | | 25 | | | | 12 | |
Number of stores closed during period | | | (13 | ) | | | (3 | ) |
| | | | | | | | |
Number of stores open at end of period | | | 941 | | | | 878 | |
| | | | | | | | |
Number of stores expanded/relocated during period * | | | 5 | | | | 2 | |
Total store square footage at end of period (000’s) | | | 5,487 | | | | 5,132 | |
| * | Expanded stores are excluded from comparable store sales for the first year following expansion. |
ANNTAYLOR STORES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
May 3, 2008, February 2, 2008 and May 5, 2007
(unaudited)
| | | | | | | | | | | | |
| | | May 3,
2008 | | | February 2,
2008 | | | May 5,
2007 | |
| | | (in thousands) | |
| Assets | | | | |
Current assets | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 119,169 | | | $ | 134,025 | | | $ | 174,321 | |
Short-term investments | | | — | | | | 9,110 | | | | — | |
Accounts receivable | | | 27,328 | | | | 16,944 | | | | 31,132 | |
Merchandise inventories | | | 252,350 | | | | 250,697 | | | | 281,314 | |
Deferred income taxes | | | 30,214 | | | | 29,161 | | | | 25,710 | |
Prepaid expenses and other current assets | | | 54,477 | | | | 67,954 | | | | 48,587 | |
| | | | | | | | | | | | |
Total current assets | | | 483,538 | | | | 507,891 | | | | 561,064 | |
Property and equipment, net | | | 552,045 | | | | 561,270 | | | | 552,545 | |
Goodwill | | | 286,579 | | | | 286,579 | | | | 286,579 | |
Deferred financing costs, net | | | 1,517 | | | | 288 | | | | 561 | |
Deferred income taxes | | | 21,902 | | | | 23,314 | | | | 22,463 | |
Other assets | | | 14,921 | | | | 14,413 | | | | 8,875 | |
| | | | | | | | | | | | |
Total assets | | $ | 1,360,502 | | | $ | 1,393,755 | | | $ | 1,432,087 | |
| | | | | | | | | | | | |
| Liabilities and Stockholders’ Equity | | | | | | | | | | | | |
Current liabilities | | | | | | | | | | | | |
Accounts payable | | $ | 99,549 | | | $ | 125,388 | | | $ | 103,200 | |
Accrued salaries and bonus | | | 19,824 | | | | 13,000 | | | | 10,715 | |
Accrued tenancy | | | 44,817 | | | | 44,945 | | | | 39,780 | |
Gift certificates and merchandise credits redeemable | | | 43,585 | | | | 54,564 | | | | 41,620 | |
Accrued expenses | | | 81,079 | | | | 74,979 | | | | 82,096 | |
| | | | | | | | | | | | |
Total current liabilities | | | 288,854 | | | | 312,876 | | | | 277,411 | |
Deferred lease costs | | | 227,020 | | | | 230,052 | | | | 214,971 | |
Deferred income taxes | | | 1,885 | | | | 1,960 | | | | 1,419 | |
Other liabilities | | | 9,025 | | | | 9,383 | | | | 10,289 | |
Commitments and contingencies | | | | | | | | | | | | |
Stockholders’ equity | | | | | | | | | | | | |
Common stock, $.0068 par value; 200,000,000 shares authorized; 82,331,358, 82,288,607 and 82,200,407 shares issued, respectively | | | 560 | | | | 560 | | | | 559 | |
Additional paid-in capital | | | 780,855 | | | | 781,048 | | | | 760,086 | |
Retained earnings | | | 792,305 | | | | 766,408 | | | | 700,628 | |
Accumulated other comprehensive loss | | | (3,738 | ) | | | (3,460 | ) | | | (5,257 | ) |
| | | | | | | | | | | | |
| | | 1,569,982 | | | | 1,544,556 | | | | 1,456,016 | |
| | | | | | | | | | | | |
Treasury stock, 22,768,209, 21,408,843 and 16,502,596 shares respectively, at cost | | | (736,264 | ) | | | (705,072 | ) | | | (528,019 | ) |
| | | | | | | | | | | | |
Total stockholders’ equity | | | 833,718 | | | | 839,484 | | | | 927,997 | |
| | | | | | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 1,360,502 | | | $ | 1,393,755 | | | $ | 1,432,087 | |
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