Ann (ANN) 10-Q 2011 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 29, 2011

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number 1-10738

ANN INC.

(Exact name of registrant as specified in its charter)

Delaware	13-3499319
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

7 Times Square, New York, NY	10036
(Address of principal executive offices)	(Zip Code)

(212) 541-3300

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding as of November 14, 2011
Common Stock, $.0068 par value	52,366,305

INDEX TO FORM 10-Q

		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Statements of Operations for the Quarters and Nine Months Ended October 29, 2011 and October 30, 2010 (unaudited)		5
	Condensed Consolidated Balance Sheets at October 29, 2011, January 29, 2011 and October 30, 2010 (unaudited)		6
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 29, 2011 and October 30, 2010 (unaudited)		7
	Notes to Condensed Consolidated Financial Statements (unaudited)		8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		29
Item 4.	Controls and Procedures		29
PART II. OTHER INFORMATION
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		30
Item 6.	Exhibits		31
SIGNATURES			32
EXHIBIT INDEX			33

2

Statement Regarding Forward-Looking Disclosures

Certain sections of this Quarterly Report on Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contain 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 ANN INC. (the “Company”) concerning future events that involve risks and uncertainties, including:

• the Company’s ability to anticipate and respond to changing client preferences and fashion trends and provide a balanced assortment of merchandise that satisfies client demands in a timely manner;

• the 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 manage inventory levels and changes in merchandise mix;

• the Company’s ability to successfully upgrade and maintain its information systems, including adequate system security controls, successful transitioning of certain information technology functions to third parties and the ability to operate in accordance with its business continuity plan in the event of a disruption;

• the performance and operation of the Company’s websites and the risks associated with Internet sales;

• the impact of fluctuations in sourcing costs, particularly increases in the costs of raw materials, labor, fuel and transportation;

• the Company’s reliance on third-party manufacturers and key vendors, including operational risks such as reduced production capacity, errors in complying with merchandise specifications, insufficient quality control and failure to meet production deadlines;

• the depressed levels of consumer spending and consumer confidence resulting from the worldwide economic downturn and financial crisis;

• the Company’s reliance on key management and its ability to hire, retain and train qualified associates;

• the Company’s ability to successfully manage store growth and optimize the productivity and profitability of its store portfolio;

• the Company’s ability to secure and protect trademarks and other intellectual property rights;

• the Company’s reliance on foreign sources of production and the associated risks of doing business in foreign markets, including fluctuations in the value of the U.S. dollar against foreign currencies, the imposition of duties or other possible trade law or import restrictions, including legislation relating to import quotas, and financial or political instability in any of the countries in which the Company’s merchandise is manufactured;

• the impact of a privacy breach and the resulting effect on the Company’s business and reputation;

• a significant change in the regulatory environment applicable to the Company’s business and the Company’s ability to comply with legal and regulatory requirements;

• the Company’s ability to successfully execute brand goals, objectives and new concepts;

• the failure by independent manufacturers to comply with the Company’s social compliance program requirements;

• the effect of continued uncertainty in the global economy on the Company’s liquidity and capital resources;

• the Company’s dependence on its Louisville distribution center and third-party transportation companies, including any significant interruptions due to work stoppages, slowdowns or strikes by employees of the transportation companies;

• the effect of competitive pressures from other retailers;

• the impact on the Company’s stock price of fluctuations in the Company’s level of sales and earnings growth;

• acts of war or terrorism in the United States or worldwide, and the potential impact of natural disasters and public health concerns, including severe infectious diseases, particularly on the Company’s foreign sourcing offices and the manufacturing operations of the Company’s vendors;

• the Company’s ability to sustain the results of its recent restructuring program;

• the Company’s ability to realize its deferred tax assets;

• the effect of external economic factors on the Company’s future funding obligations for its defined benefit pension plan;

3

• the Company’s dependence on shopping malls and other retail centers to attract customers; and

• the impact of potential consolidation of commercial and retail landlords on the Company’s ability to negotiate favorable rental terms.

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.

4

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

ANN INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Quarters and Nine Months Ended October 29, 2011 and October 30, 2010

(unaudited)

		Quarter Ended				Nine Months Ended
		October 29,		October 30,		October 29,		October 30,
		2011		2010		2011		2010
		(in thousands, except per share amounts)
Net sales		$	564,003	$	505,281	$	1,645,832	$	1,464,934
Cost of sales			239,763		216,505		714,839		627,193
	��
Gross margin			324,240		288,776		930,993		837,741
Selling, general and administrative expenses			269,498		247,381		788,656		726,601
Restructuring charges			—		550		—		1,693
Operating income			54,742		40,845		142,337		109,447
Interest income			97		245		430		582
Interest expense			541		369		1,352		1,254
Income before income taxes			54,298		40,721		141,415		108,775
Income tax provision			22,018		16,525		57,029		43,351
Net income		$	32,280	$	24,196	$	84,386	$	65,424
Earnings per share:
Basic earnings per share		$	0.62	$	0.41	$	1.61	$	1.11
Weighted average shares outstanding			51,389		57,467		51,583		57,630
Diluted earnings per share		$	0.61	$	0.41	$	1.58	$	1.10
Weighted average shares outstanding, assuming dilution			52,072		58,270		52,441		58,492

See accompanying Notes to Condensed Consolidated Financial Statements (unaudited).

5

ANN INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

October 29, 2011, January 29, 2011 and October 30, 2010

(unaudited)

	October 29,			January 29,			October 30,
	2011			2011			2010
	(in thousands, except share amounts)
Assets
Current assets
Cash and cash equivalents	$	139,590		$	226,644		$	223,614
Accounts receivable		31,132			17,501			28,578
Merchandise inventories		278,174			193,625			231,953
Refundable income taxes		25,953			26,631			31,363
Deferred income taxes		29,742			28,145			27,244
Prepaid expenses and other current assets		56,367			57,367			50,096
Total current assets		560,958			549,913			592,848
Property and equipment, net		363,901			332,489			333,772
Deferred income taxes		25,117			31,224			26,446
Other assets		12,447			13,194			11,471
Total assets	$	962,423		$	926,820		$	964,537
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	107,499		$	97,330		$	90,964
Accrued salaries and bonus		15,094			29,346			21,454
Current portion of long-term performance compensation		19,383			—			—
Accrued tenancy		41,938			42,620			46,785
Gift certificates and merchandise credits redeemable		37,643			49,103			36,177
Accrued expenses and other current liabilities		79,966			63,509			74,204
Total current liabilities		301,523			281,908			269,584
Deferred lease costs		164,558			165,321			164,861
Deferred income taxes		575			850			1,000
Long-term performance compensation, less current portion		36,484			32,299			24,205
Other liabilities		23,215			22,997			22,577
Commitments and contingencies
Stockholders’ equity
Common stock, $.0068 par value; 200,000,000 shares authorized; 82,563,516, 82,554,516 and 82,554,516 shares issued, respectively		561			561			561
Additional paid-in capital		806,837			801,140			793,408
Retained earnings		572,077			487,691			479,718
Accumulated other comprehensive loss		(2,284	)		(2,378	)		(3,741	)
Treasury stock, 30,190,855, 27,205,853 and 24,584,175 shares, respectively, at cost		(941,123	)		(863,569	)		(787,636	)
Total stockholders’ equity		436,068			423,445			482,310
Total liabilities and stockholders’ equity	$	962,423		$	926,820		$	964,537

See accompanying Notes to Condensed Consolidated Financial Statements (unaudited).

6

ANN INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended October 29, 2011 and October 30, 2010

(unaudited)

	Nine Months Ended
	October 29,			October 30,
	2011			2010
	(in thousands)
Operating activities:
Net income	$	84,386		$	65,424
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes		4,258			4,952
Depreciation and amortization		71,688			73,048
Loss on disposal and write-down of property and equipment		782			1,446
Stock-based compensation		17,009			15,185
Non-cash interest and other non-cash items		364			(487	)
Non-cash restructuring charges		—			504
Tax benefit from exercise/vesting of stock awards		8,242			5,262
Changes in assets and liabilities:
Accounts receivable		(13,601	)		(6,445	)
Merchandise inventories		(84,549	)		(64,250	)
Prepaid expenses and other current assets		1,206			(4,832	)
Refundable income taxes		678			(6,434	)
Other non-current assets and liabilities, net		19,611			2,393
Accounts payable and accrued expenses		(12,428	)		(27,623	)
Net cash provided by operating activities		97,646			58,143
Investing activities:
Purchases of marketable securities		(1,145	)		(732	)
Sales of marketable securities and short-term investments		84			6,061
Proceeds from insurance settlement		—			863
Purchase of intangible asset		—			(2,750	)
Purchases of property and equipment		(96,292	)		(36,515	)
Net cash used for investing activities		(97,353	)		(33,073	)
Financing activities:
Proceeds from the issuance of common stock pursuant to the Associate Discount Stock Purchase Plan		1,707			1,676
Proceeds from exercise of stock options		7,984			2,483
Excess tax benefits from stock-based compensation		8,113			12,094
Repurchases of common and restricted stock		(105,109	)		(25,323	)
Repayments of fixed asset financing and capital lease obligations		(1,157	)		(664	)
Change in trade payable program obligation, net		1,115			2,925
Proceeds from fixed asset financing and capital leases		—			862
Net cash used for financing activities		(87,347	)		(5,947	)
Net (decrease)/increase in cash		(87,054	)		19,123
Cash and cash equivalents, beginning of period		226,644			204,491
Cash and cash equivalents, end of period	$	139,590		$	223,614
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	1,092		$	1,041
Cash paid during the period for income taxes	$	32,797		$	41,815
Property and equipment acquired through capital lease	$	—		$	767
Accrual for purchases of property and equipment	$	19,631		$	15,591

See accompanying Notes to Condensed Consolidated Financial Statements (unaudited).

7

ANN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Basis of Presentation

The Condensed Consolidated Financial Statements are unaudited but, in the opinion of management, contain all adjustments (which are of a normal recurring nature) necessary to present fairly the financial position, results of operations and cash flows for the periods presented. All intercompany accounts and transactions have been eliminated.

The results of operations for the 2011 interim periods presented in the Condensed Consolidated Financial Statements (unaudited) are not necessarily indicative of results to be expected for Fiscal 2011.

The January 29, 2011 Condensed Consolidated Balance Sheet has been derived from the audited Consolidated Balance Sheets of ANN INC. (the “Company”) included in its Annual Report on Form 10-K for the fiscal year ended January 29, 2011.

Detailed footnote information is not included in this report. The financial information set forth herein should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2011.

2. Recent Accounting Pronouncements

Recently Issued Standards

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-05,Presentation of Comprehensive Income. ASU 2011-05 amends ASC 220-10,Comprehensive Income, and requires that all changes in comprehensive income be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements, and also requires the presentation of reclassification adjustments on the face of the financial statements from other comprehensive income to net income. ASU 2011-05 is effective for the first interim or annual reporting period beginning on or after December 15, 2011. Early adoption is permitted. The Company is in the process of evaluating ASU 2011-05 and its impact on the presentation of the Company’s Condensed Consolidated Financial Statements.

Recently Adopted Standards

In January 2010, the FASB issued ASU 2010-06,Fair Value Measurements and Disclosures. ASU 2010-06 amended ASC 820-10,Fair Value Measurements and Disclosures, and requires new disclosures surrounding certain fair value measurements. ASU 2010-06 became effective for the first interim or annual reporting period beginning on or after December 15, 2009, except for certain disclosures about purchases, sales, issuances, and settlements in the rollforward of activity in Level 3 fair value measurements, which became effective for the first interim and annual reporting periods beginning on or after December 15, 2010. During Fiscal 2009, the Company early adopted the disclosure requirements effective for the first interim or annual reporting period beginning on or after December 15, 2009. The Company adopted the remaining disclosure requirements in the first quarter of Fiscal 2011. The adoption of the remaining disclosure requirements of ASU 2010-06 did not have any impact on the Company’s Condensed Consolidated Financial Statements or notes thereto.

In October 2009, the FASB issued ASU 2009-13,Multiple Deliverable Revenue Arrangements. ASU 2009-13 amended ASC 605-10,Revenue Recognition, and addresses accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit, and provides guidance on how to measure and allocate arrangement consideration to one or more units of accounting. ASU 2009-13 became effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The Company adopted ASU 2009-13 during the first quarter of Fiscal 2011. The adoption of ASU 2009-13 did not have any impact on the Company’s Condensed Consolidated Financial Statements.

8

ANN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

3. Fair Value Measurements

ASC 820-10,Fair Value Measurements and Disclosures, establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

• Level 1 — Quoted prices in active markets for identical assets or liabilities.

• Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

• Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The following tables segregate all financial assets and liabilities of the Company as of October 29, 2011, January 29, 2011 and October 30, 2010 that are measured at fair value on a recurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine fair value at the measurement date:

			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
	October 29,		Identical Assets		Inputs		Inputs
	2011		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Non-qualified deferred compensation plan assets (1)	$	3,796	$	1,123	$	2,673	$	—
Total assets	$	3,796	$	1,123	$	2,673	$	—
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
	January 29,		Identical Assets		Inputs		Inputs
	2011		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Non-qualified deferred compensation plan assets (1)	$	2,804	$	103	$	2,701	$	—
Total assets	$	2,804	$	103	$	2,701	$	—

			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
	October 30,		Identical Assets		Inputs		Inputs
	2010		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Non-qualified deferred compensation plan assets (1)	$	2,606	$	—	$	2,606	$	—
Total assets	$	2,606	$	—	$	2,606	$	—

(1) The Company maintains a self-directed, non-qualified deferred compensation plan structured as a rabbi trust for certain associates at the vice-president level and above. The investment assets of the rabbi trust are valued using quoted market prices multiplied by the number of shares held in the trust. The classification of all prior year amounts was updated to reflect current year classification.

9

ANN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

3. Fair Value Measurements (Continued)

For the quarter and nine months ended October 29, 2011, no non-financial assets or liabilities measured at fair value on a non-recurring basis were impaired. For the quarter and nine months ended October 30, 2010, impairment charges related to non-financial assets or liabilities measured at fair value on a non-recurring basis were immaterial.

At October 29, 2011, the Company believes that the carrying value of cash and cash equivalents, receivables and payables approximates fair value, due to the short maturity of these financial instruments.

4. Restructuring Charges

In connection with its multi-year strategic restructuring program (the “Restructuring Program”) launched during the fourth quarter of Fiscal 2007, the Company recognized approximately $0.6 million and $1.7 million in restructuring charges during the quarter and nine months ended October 30, 2010, respectively. There were no such charges during the quarter or nine months ended October 29, 2011.

The following tables present detailed information related to restructuring charges recorded during the quarter ended October 30, 2010, and the restructuring-related liability balances as of October 29, 2011 and October 30, 2010:

	Quarter ended October 29, 2011
	Asset Impairment (1)			Severance and Related Costs			Other Restructuring Costs			Total
	(in thousands)
Balance at July 30, 2011	$	—		$	534		$	2,305		$	2,839
Cash payments		—			(328	)		(144	)		(472	)
Non-cash adjustments		—			(29	)(2)		(34	)(2)		(63	)
Balance at October 29, 2011	$	—		$	177		$	2,127		$	2,304
	Quarter ended October 30, 2010
	Asset Impairment (1)			Severance and Related Costs			Other Restructuring Costs			Total
	(in thousands)
Balance at July 31, 2010	$	—		$	514		$	2,955		$	3,469
Restructuring provision		260			(56	)		346			550
Cash payments		—			(277	)		(501	)		(778	)
Non-cash adjustments		(260	)		—			—			(260	)
Balance at October 30, 2010	$	—		$	181		$	2,800		$	2,981

(1) Asset impairment charges represent the write-down of store assets to their estimated fair value for those store locations identified for closure under the Company’s Restructuring Program.

(2) Represents adjustments to the restructuring accruals due to changes in accounting estimates. For the quarter ended October 29, 2011, these adjustments were immaterial and were included in “Selling, general and administrative expenses.”

10

ANN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

4. Restructuring Charges (Continued)

The following tables present detailed information related to restructuring charges recorded during the nine months ended October 30, 2010, and the restructuring-related liability balances as of October 29, 2011 and October 30, 2010:

	Nine months ended October 29, 2011
	Asset Impairment (1)			Severance and  Related Costs			Other Restructuring Costs			Total
	(in thousands)
Balance at January 29, 2011	$	—		$	2,177		$	3,404		$	5,581
Cash payments		—			(1,792	)		(948	)		(2,740	)
Non-cash adjustments		—			(208	)(2)		(329	)(2)		(537	)
Balance at October 29, 2011	$	—		$	177		$	2,127		$	2,304
	Nine months ended October 30, 2010
	Asset Impairment(1)			Severance and Related Costs			Other Restructuring Costs			Total
	(in thousands)
Balance at January 30, 2010	$	—		$	2,382		$	4,401		$	6,783
Restructuring provision		371			27			1,295			1,693
Cash payments		—			(2,228	)		(2,763	)		(4,991	)
Non-cash adjustments		(371	)		—			(133	)		(504	)
Balance at October 30, 2010	$	—		$	181		$	2,800		$	2,981

(1) Asset impairment charges represent the write-down of store assets to their estimated fair value for those store locations identified for closure under the Company’s Restructuring Program.

(2) Represents adjustments to the restructuring accruals due to changes in accounting estimates. For the nine months ended October 29, 2011, these adjustments were immaterial and were included in “Selling, general and administrative expenses.”

Restructuring-related severance accruals are included in “Accrued salaries and bonus” on the Company’s Condensed Consolidated Balance Sheets as of October 29, 2011, January 29, 2011, and October 30, 2010. Other restructuring-related accruals are included in “Accrued tenancy” and “Other liabilities,” as applicable, as of October 29, 2011, January 29, 2011, and October 30, 2010, and within “Accrued expenses and other current liabilities” as of January 29, 2011 and October 30, 2010, on the Company’s Condensed Consolidated Balance Sheets.

5. Net Income Per Share

Basic earnings per share is calculated by dividing net income associated with common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share assumes the issuance of additional shares of common stock by the Company upon exercise of all outstanding stock options and contingently issuable securities if the effect is dilutive, in accordance with the treasury stock method discussed in ASC 260-10,Earnings Per Share.

11

ANN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

5. Net Income Per Share (Continued)

The determination and reporting of earnings per share requires the inclusion of time and performance-based restricted stock as participating securities, since they have the right to share in dividends, if declared, equally with common shareholders. During periods of net income, participating securities are allocated a proportional share of net income determined by dividing total weighted average participating securities by the sum of total weighted average common shares and participating securities (“the two-class method”). During periods of net income, participating securities have the effect of diluting both basic and diluted earnings per share. During periods of net loss, no effect is given to participating securities, since they do not share in the losses of the Company.

The following tables present a reconciliation of basic and diluted earnings per share for the quarters and nine months ended October 29, 2011 and October 30, 2010, respectively:

	Quarter Ended
	October 29, 2011						October 30, 2010
	(in thousands, except per share amounts)
Basic Earnings per Share	Net Income		Shares		Per Share Amount		Net Income		Shares		Per Share Amount
Net income	$	32,280					$	24,196
Less net income associated with participating securities		544						384
Basic earnings per share	$	31,736		51,389	$	0.62	$	23,812		57,467	$	0.41
Diluted Earnings per Share
Net income	$	32,280					$	24,196
Less net income associated with participating securities		537						379
Effect of dilutive securities				683						803
Diluted earnings per share	$	31,743		52,072	$	0.61	$	23,817		58,270	$	0.41

12

ANN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

5. Net Income Per Share (Continued)

	Nine Months Ended
	October 29, 2011						October 30, 2010
	(in thousands, except per share amounts)
Basic Earnings per Share	Net Income		Shares		Per Share Amount		Net Income		Shares		Per Share Amount
Net income	$	84,386					$	65,424
Less net income associated with participating securities		1,425						1,198
Basic earnings per share	$	82,961		51,583	$	1.61	$	64,226		57,630	$	1.11
Diluted Earnings per Share
Net income	$	84,386					$	65,424
Less net income associated with participating securities		1,402						1,180
Effect of dilutive securities				858						862
Diluted earnings per share	$	82,984		52,441	$	1.58	$	64,244		58,492	$	1.10

For the quarter and nine months ended October 29, 2011, non-participating securities (stock options) representing 2,570,642 and 1,984,653 shares of common stock, respectively, were excluded from the above computations of weighted-average shares for diluted earnings per share due to their antidilutive effect, since their exercise prices exceeded the average market price of the common shares during those periods. In addition, non-participating securities (performance-based restricted units) representing 28,250 and 18,833 shares of common stock were excluded from the above computations of weighted-average shares for diluted earnings per share for the quarter and nine months ended October 29, 2011, respectively, due to the fact that they are contingently issuable securities whose contingencies were not met and whose measurement period had not concluded as of that date.

For the quarter and nine months ended October 30, 2010, non-participating securities (stock options) representing 3,100,217 and 3,261,488 shares of common stock, respectively, were excluded from the above computations of weighted-average shares for diluted earnings per share due to their antidilutive effect, since their exercise prices exceeded the average market price of the common shares during those periods. In addition, non-participating securities (performance-based restricted units) representing 28,250 and 9,417 shares of common stock were excluded from the above computations of weighted-average shares for diluted earnings per share for the quarter and nine months ended October 30, 2010, respectively, due to the fact that they are contingently issuable securities whose contingencies were not met and whose measurement period had not concluded as of that date.

13

ANN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

6. Share-based Payments

Stock Incentive Plans

During the quarter and nine months ended October 29, 2011, the Company recognized approximately $6.3 million and $17.0 million, respectively, of share-based compensation expense. During the quarter and nine months ended October 30, 2010, the Company recognized approximately $4.7 million and $15.2 million, respectively, of share-based compensation expense. As of October 29, 2011, there was $10.1 million, $9.6 million, and $3.5 million of unrecognized compensation cost related to unvested stock options, unvested restricted stock awards and unvested restricted unit awards, respectively, which is expected to be recognized over a remaining weighted-average vesting period of 1.8 years, 1.7 years and 1.2 years, respectively. During the quarter and nine months ended October 29, 2011, shares underlying stock award grants and option exercises were generally issued out of treasury stock.

Stock Options

The following table summarizes stock option activity for the quarter and nine months ended October 29, 2011:

	Quarter Ended					Nine Months Ended
	October 29, 2011					October 29, 2011
	Shares			Weighted - Average Exercise Price		Shares			Weighted - Average Exercise Price
Options outstanding at beginning of period		4,805,496		$	21.71		4,942,755		$	19.46
Granted (1)		—			—		520,250			27.63
Exercised (2)		(109,142	)		13.31		(763,576	)		9.97
Forfeited or expired		(27,347	)		30.00		(30,422	)		29.73
Options outstanding at October 29, 2011		4,669,007		$	21.86		4,669,007		$	21.86
Vested and exercisable at October 29, 2011		2,821,303		$	25.21		2,821,303		$	25.21
Options expected to vest at October 29, 2011		1,125,170		$	18.76		1,125,170		$	18.76

(1) Options granted during the nine months ended October 29, 2011 vest annually over a three-year period, and expire ten years after the grant date.

(2) Shares issued in connection with option exercises are generally issued from treasury stock.

The fair value of options granted under the Company’s stock plans was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

	Nine Months Ended
	October 29,			October 30,
	2011			2010
Expected volatility		57.1	%		54.9	%
Risk-free interest rate		1.8	%		2.2	%
Expected life (years)		4.54			4.65
Dividend yield		—			—

There were no options granted during the quarters ended October 29, 2011 or October 30, 2010. The weighted-average fair value of options granted during the nine months ended October 29, 2011 and October 30, 2010, estimated as of the grant date using the Black-Scholes option pricing model, was $13.21 and $9.29 per share, respectively.

14

ANN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

6. Share-based Payments (Continued)

Stock Options (Continued)

The Company estimates the volatility of its common stock at the date of grant based on an average of its historical volatility and the implied volatility of publicly traded options on its common stock.

Restricted Stock

The following table summarizes restricted stock activity for the quarter ended October 29, 2011:

	Time - Based					Performance - Based
	Number of Shares			Weighted - Average Grant Date Fair Value		Number of Shares			Weighted - Average Grant Date Fair Value
Restricted stock awards at July 30, 2011		606,860		$	17.45		281,336		$	16.92
Granted		6,739	(1)		22.26		349	(2)		24.00
Vested		(15,834	)(3)		25.45		(2,015	)(3)		17.34
Restricted stock awards at October 29, 2011		597,765		$	17.29		279,670		$	16.93

(1) These shares vest in August 2014.

(2) These shares vested in August 2011 and were earned in connection with Fiscal 2010 performance targets.

(3) Shares returned to cover employee tax withholding obligations are returned to treasury stock.

The following table summarizes restricted stock activity for the nine months ended October 29, 2011:

	Time - Based					Performance - Based
	Number of Shares			Weighted - Average Grant Date Fair Value		Number of Shares			Weighted - Average Grant Date Fair Value
Restricted stock awards at January 29, 2011		604,846		$	9.46		289,673		$	3.13
Granted		299,912	(1)		27.58		181,920	(2)		27.88
Vested		(306,993	)(3)		11.92		(191,923	)(3)		6.49
Restricted stock awards at October 29, 2011		597,765			17.29		279,670			16.93

(1) Of this amount, 249,625 shares vest equally in each of March 2012, 2013 and 2014, 7,000 shares vest equally in each of May 2012, 2013 and 2014, 3,500 shares vest equally in each of June 2012, 2013 and 2014, 27,641 shares vest in May 2012, 5,407 shares vest in March 2014 and the remaining 6,739 shares vest in August 2014.

(2) Of this amount, 135,500 shares vest over a three-year period based on achievement of performance targets set bi-annually for each tranche of the grant. Based on Company performance, grantees may earn 75% to 125% of the shares granted with respect to each tranche. If the Company does not achieve the minimum threshold goal associated with such shares, grantees will not earn any shares with respect to that tranche. The remaining 46,420 of these shares were performance vesting restricted stock which vested in March, April and August 2011 and were earned in connection with Fiscal 2010 performance targets.

(3) Shares returned to cover employee tax withholding obligations are returned to treasury stock.

15

ANN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

6. Share-based Payments (Continued)

Restricted Units

There was no restricted unit activity during the quarter ended October 29, 2011.

The following table summarizes restricted unit activity for the nine months ended October 29, 2011:

	Time - Based					Performance - Based
	Number of Shares			Weighted - Average Grant Date Fair Value		Number of Shares			Weighted - Average Grant Date Fair Value
Restricted unit awards at January 29, 2011		284,500		$	19.58		169,500		$	19.58
Vested		(94,813	)(1)		19.58		(56,496	)(1)		19.58
Restricted unit awards at October 29, 2011		189,687			19.58		113,004			19.58

(1) Shares issued from treasury stock.

7. Debt and Other Financing Arrangements

Credit Facility

On April 23, 2008, the Company’s wholly-owned subsidiary AnnTaylor, Inc. and certain of its subsidiaries entered into a Third Amended and Restated $250 million senior secured revolving credit facility with Bank of America N.A. and a syndicate of lenders (the “Credit Facility”), which amended its then existing $175 million senior secured revolving credit facility which was due to expire in November 2008. The Credit Facility provides the Company with an option to increase the total facility and the aggregate commitments thereunder up to $350 million, subject to the lenders’ agreement to increase their commitment for the requested amount. The Credit Facility expires on April 23, 2013 and may be used for working capital, letters of credit and other general corporate purposes. The Credit Facility contains an acceleration clause which, upon the occurrence of a Material Adverse Effect, as defined in the Credit Facility, may cause any outstanding borrowings to become immediately due and payable.

The maximum availability for loans and letters of credit under the Credit Facility is governed by a monthly borrowing base, determined by the application of specified percentages of certain eligible assets. Commercial and standby letters of credit outstanding under the Credit Facility totaled approximately $15.1 million, $17.6 million and $14.1 million as of October 29, 2011, January 29, 2011 and October 30, 2010, respectively, leaving a remaining available balance for loans and letters of credit of $234.9 million, $120.2 million and $192.8 million, respectively. There were no borrowings outstanding under the Credit Facility at October 29, 2011, January 29, 2011, October 30, 2010 or as of the date of this filing.

Amounts outstanding under the Credit Facility bear interest at a rate equal to, at the option of AnnTaylor, Inc., 1) the Base Rate, defined as the higher of (i) the federal funds rate plus a margin of 0.5% and (ii) the Bank of America prime rate, or 2) the LIBOR Rate, plus a margin of 1.25% to 1.75%, depending on the Average Daily Availability as defined in the Credit Facility. In addition, AnnTaylor, Inc. is required to pay the lenders a monthly commitment fee on the unused revolving loan commitment at a rate ranging from 0.325% to 0.375% per annum also depending on the Average Daily Availability. Fees for outstanding commercial and standby letters of credit range from 0.50% to 0.75% and from 1.25% to 1.75%, respectively. The Credit Facility contains financial and other covenants, including limitations on indebtedness and liens, and a fixed charge coverage ratio covenant that is triggered if certain liquidity thresholds are not met.

16

ANN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

7. Debt and Other Financing Arrangements (Continued)

Credit Facility (Continued)

The Credit Facility permits the Company to pay cash dividends (and permits dividends by AnnTaylor, Inc. to fund such cash dividends) subject to certain Liquidity requirements (as defined in the Credit Facility) and other conditions as set forth in the Credit Facility. Subject, in some cases, to specific exceptions, certain subsidiaries of the Company are also permitted to pay dividends to the Company to fund certain taxes owed by the Company, fund ordinary operating expenses of the Company not in excess of $500,000 in any fiscal year; repurchase common stock held by employees not in excess of $100,000 in any fiscal year and for certain other stated purposes.

The lenders have been granted a pledge of the common stock of AnnTaylor, Inc. and certain of its subsidiaries, and a security interest in substantially all real and personal property (other than leasehold interests) and other assets of AnnTaylor, Inc. and certain of its subsidiaries, as collateral for its obligations under the Credit Facility.

Other

In the second quarter of Fiscal 2010, the Company entered into a vendor financing program (the “Trade Payable Program”) with a financing company. Under the Trade Payable Program, the financing company makes accelerated and discounted payments to the Company’s vendors and the Company, in turn, makes its regularly-scheduled full vendor payments to the financing company. As of October 29, 2011, January 29, 2011 and October 30, 2010 there was $4.5 million, $3.4 million and $2.9 million outstanding, respectively, under the Trade Payable Program, which is included in “Accrued expenses and other current liabilities” on the Company’s Condensed Consolidated Balance Sheets.

8. Employee Benefits

The following table summarizes the components of net periodic pension cost for the Company:

	Quarter Ended						Nine Months Ended
	October 29,			October 30,			October 29,			October 30,
	2011			2010			2011			2010
	(in thousands)						(in thousands)
Net periodic pension cost:
Interest cost		416			458			1,248			1,374
Expected return on plan assets		(428	)		(408	)		(1,284	)		(1,224	)
Amortization of actuarial loss		24			128			72			384
Settlement loss		—			290			—			290
Net periodic pension cost	$	12		$	468		$	36		$	824

The Company froze its noncontributory defined benefit pension plan in October 2007. The Company was not required to make and did not make any contributions to its pension plan during the quarters or nine months ended October 29, 2011 and October 30, 2010.

17

ANN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

9. Securities Repurchase Program

On March 8, 2011, the Company’s Board of Directors approved a $200 million expansion of the Company’s existing securities repurchase program (the “Repurchase Program”), bringing the total authorized under the Repurchase Program to $600 million. As of October 29, 2011, approximately $259.1 million remained available under the Repurchase Program. The Repurchase Program will expire when the Company has repurchased all securities authorized for repurchase thereunder, unless terminated earlier by the Company’s Board of Directors. Purchases of shares of common stock may be made from time to time, subject to market conditions and at prevailing market prices, through open market purchases or in privately negotiated transactions. Repurchased shares of common stock increase treasury shares available for general corporate purposes. During the quarter ended April 30, 2011, the Company repurchased 4,197,097 shares of its common stock through open market purchases under the Repurchase Program at a cost of $100 million. Since the quarter ended April 30, 2011, there have been no repurchases made under the Repurchase Program during the nine months ended October 29, 2011. During the quarter and nine months ended October 30, 2010, the Company repurchased 1,200,000 shares of its common stock through open market purchases under the Repurchase Program at a cost of approximately $19.8 million.

10. Comprehensive Income

The components of comprehensive income are shown below:

	Quarter Ended				Nine Months Ended
	October 29,		October 30,		October 29,		October 30,
	2011		2010		2011		2010
	(in thousands)
Net income	$	32,280	$	24,196	$	84,386	$	65,424
Amortization of actuarial loss, net of taxes of approximately $7 and $49, respectively, and approximately ($23) and $145, respectively		17		79		94		238
Pension settlement charge, net of taxes of approximately $0 and $111, respectively, and approximately $0 and $111, respectively		—		179		—		179
Comprehensive income	$	32,297	$	24,454	$	84,480	$	65,841

11. Legal Proceedings

The Company is subject to various legal proceedings and claims that arise in the ordinary course of its business. Although the amount of any liability that could arise with respect to these actions cannot be determined with certainty, in the Company’s opinion, any such liability will not have a material adverse effect on its consolidated financial position, consolidated results of operations or liquidity.

18

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

General

ANN INC., through its wholly-owned subsidiaries, is a leading national specialty retailer of women’s apparel, shoes and accessories sold primarily under the “Ann Taylor” and “LOFT” brands. Unless the context indicates otherwise, all references to “we,” “our,” “us” and “the Company” refer to ANN INC. and its wholly-owned subsidiaries.

Ann Taylor is an aspirational luxury brand that offers modern style while remaining true to its legacy as a destination for every generation of working women, with timeless wear-now and wear-to-work fashion of impeccable quality at compelling prices. LOFT provides versatile, accessible and affordable fashion that delivers feminine appeal, special and unexpected details, and a flattering fit. LOFT connects with women on a genuine level, providing fashion advice, ideas and inspiration that make the client’s style aspirations attainable.

Our Ann Taylor and LOFT brands offer a full range of career and casual separates, dresses, tops, weekend wear, shoes and accessories, coordinated as part of a strategy to provide modern styles that are versatile across all occasions and needs. We offer updated past season best sellers from the Ann Taylor and LOFT merchandise collections at our Ann Taylor Factory and LOFT Outlet stores, respectively, and our clients can also shop online at www.anntaylor.com and www.LOFT.com (together, our “Online Stores”) or by phone at 1-800-DIAL-ANN and 1-888-LOFT-444. As of October 29, 2011, we operated 950 stores in 46 states, the District of Columbia and Puerto Rico.

Management Overview

Our results for the third quarter of Fiscal 2011 reflect our fourth sequential quarter of double digit increases in total net sales and our ninth consecutive quarter of double-digit growth in net income and diluted earnings per share compared with the prior-year periods. We experienced strong, profitable sales growth at LOFT stores and in our e-commerce and factory/outlet channels at both brands. In addition, our strong bottom-line performance for the quarter reflected the benefits of increased cost leverage, continued expense management and our success containing product costs across the Company.

Net sales for the third quarter of Fiscal 2011 were $564.0 million, up $58.7 million, or 11.6%, as compared to the same period last year, with comparable sales increasing 5.5%. Gross margin as a percentage of net sales for the third quarter was 57.5%, a 30 basis point improvement over the rate achieved for the third quarter of Fiscal 2010. This performance reflected the benefits of profitable growth in the e-commerce and factory/outlet channels, as well as significant gross margin rate improvement at LOFT stores as compared to the third quarter of Fiscal 2010. In addition, as a result of careful planning and execution of our cost mitigation strategies, we continued to successfully navigate through the challenges of increased labor, commodity and other product costs without negatively impacting gross margin rate performance. These factors also contributed to a significant 33.4% increase in net income to $32.3 million, and a 48.8% increase in diluted earnings per share to $0.61, up from $0.41 in the third quarter of Fiscal 2010.

Total net sales at our Ann Taylor brand increased 2.9%, with comparable sales increasing 2.5%, building on the strong 21.9% increase in comparable sales achieved during the third quarter of Fiscal 2010. This improvement was driven by comparable sales growth of 45.8% and 1.8% at anntaylor.com and Ann Taylor Factory stores, respectively, partially offset by a comparable sales decrease of 5.8% at Ann Taylor stores. The softness at Ann Taylor stores was primarily due to a lack of depth and breadth in color and fashion. In addition, due to the macro-economic uncertainty, our client was far more selective in her purchasing and wanted more fashion, rather than core investment pieces. As a result of these factors, we were more promotional than planned, which enabled us to clear through inventory and affected our gross margin rate performance for the quarter.

19

Our LOFT brand delivered outstanding performance, reflecting strong top-line growth and a substantially higher gross margin rate as compared to last year. All channels delivered on the brand’s promise to offer feminine, casual, high-quality fashion at great value. In addition, our year-over-year strategy to increase the penetration of styles below $50 at LOFT stores resonated positively with clients during the quarter. The combination of these strategies enabled us to increase full price sales performance and decrease our overall level of promotional activity as compared to the third quarter of Fiscal 2010. Total net sales at our LOFT brand increased 18.5%, with comparable sales increasing 7.9% for the quarter. By channel, third quarter comparable sales grew 23.0% at LOFT.com, 10.9% at LOFT Outlet and 5.9% at LOFT stores. Our third quarter results also benefitted from the impact of our aggressive expansion of LOFT Outlet since the third quarter of Fiscal 2010.

Throughout the quarter, we remained committed to maintaining our healthy balance sheet, and closed the quarter with $140 million in cash and no bank debt. Overall inventory per square foot was up 11% at the end of the third quarter, excluding e-commerce, in line with our overall sales performance.

From a real estate perspective, we continued to enhance the overall productivity of our fleet through further roll-out of our new Ann Taylor and LOFT concept stores, as well as continued expansion of our footprint in the factory/outlet channel. During the quarter, we opened a total of 12 new stores, comprised of six new concept Ann Taylor stores, four LOFT stores and two LOFT Outlet stores. We also closed two Ann Taylor stores and two LOFT stores, ending the quarter with 950 stores, comprised of 276 Ann Taylor stores, 503 LOFT stores, 97 Ann Taylor Factory stores and 74 LOFT Outlet stores.

Overall, our bottom-line results for the third quarter were ahead of our outlook and we continued to make progress on the strategic initiatives that we outlined as a foundation for future, profitable growth. As we look to the fourth quarter, continued macro-economic uncertainty and its possible impact on consumer spending could make for a very challenging Holiday selling season. We believe our continued focus on offering clients compelling fashion and value will help us navigate through this potentially difficult time.

Key Performance Indicators

In evaluating our performance, senior management reviews certain key performance indicators, including:

Comparable sales – Comparable sales provide a measure of existing store sales performance. A store is included in comparable sales in its thirteenth month of operation. A store with a square footage change of greater than 15% is treated as a new store for the first year following its reopening. Sales at our Online Stores are included in comparable sales.

Gross margin – Gross margin measures our ability to control the direct costs of merchandise sold during the period. Gross margin is the difference between net sales and cost of sales, which is comprised of direct inventory costs for merchandise sold, including all costs to transport merchandise from third-party suppliers to our distribution center. Buying and occupancy costs are excluded from cost of sales.

Operating income – Because retailers do not uniformly record supply chain costs as a component of cost of sales or selling, general and administrative expenses, operating income allows us to benchmark our performance relative to other retailers. Operating income represents earnings before interest and income taxes and measures our earnings power from ongoing operations.

Store productivity – Store productivity, including sales per square foot, average unit retail price (AUR), units per transaction (UPT), dollars per transaction (DPT), traffic and conversion, is evaluated by management in assessing our operating performance.

Inventory turnover – Inventory turnover measures our ability to sell our merchandise and how many times it is replaced over time. This ratio is important in determining the need for markdowns, planning future inventory levels and assessing client response to our merchandise.

Quality of merchandise offerings – To monitor and maintain client acceptance of our merchandise offerings, we monitor sell-through levels, inventory turnover, gross margin, returns and markdown rates at a class and style level. This analysis helps identify merchandise issues at an early date and helps us plan future product development and buying.

20

Results of Operations

The following table sets forth data from our Condensed Consolidated Statements of Operations expressed as a percentage of net sales:

	Quarter Ended						Nine Months Ended
	October 29,			October 30,			October 29,			October 30,
	2011			2010			2011			2010
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales		42.5			42.8			43.4			42.8
Gross margin		57.5			57.2			56.6			57.2
Selling, general and administrative expenses		47.8			49.0			47.9			49.6
Restructuring charges		—			0.1			—			0.1
Operating income		9.7			8.1			8.7			7.5
Interest income		—			—			—			—
Interest expense		0.1			0.1			0.1			0.1
Income before income taxes		9.6			8.0			8.6			7.4
Income tax provision		3.9			3.3			3.5			3.0
Net income		5.7	%		4.7	%		5.1	%		4.4	%

The following table sets forth selected data from our Condensed Consolidated Statements of Operations expressed as a percentage change from the comparable prior period:

	Quarter Ended						Nine Months Ended
	October 29,			October 30,			October 29,			October 30,
	2011			2010			2011			2010
	increase						increase
Net sales		11.6	%		9.3	%		12.3	%		7.8	%
Operating income		34.0	%		1,408.9	%		30.1	%		534.8	%
Net income		33.4	%		1,069.5	%		29.0	%		458.5	%

21

Sales and Store Data

The following table sets forth certain brand sales and store data:

	Quarter Ended
	October 29, 2011					October 30, 2010
Sales and Comps	Sales		Comp % (1)			Sales		Comp % (1)
	($ in thousands)
Ann Taylor brand
Ann Taylor Stores	$	121,280		(5.8	)%	$	128,505		23.4	%
Ann Taylor e-commerce		34,617		45.8	%		24,122		57.0	%
Subtotal		155,897		2.8	%		152,627		27.7	%
Ann Taylor Factory		73,816		1.8	%		70,576		11.3	%
Total Ann Taylor brand	$	229,713		2.5	%	$	223,203		21.9	%
LOFT brand
LOFT Stores	$	248,532		5.9	%	$	233,356		(0.6	)%
LOFT e-commerce		32,758		23.0	%		26,670		64.6	%
Subtotal		281,290		7.7	%		260,026		3.6	%
LOFT Outlet		53,000		10.9	%		22,052		22.0	%
Total LOFT brand	$	334,290		7.9	%	$	282,078		4.5	%
Total Company	$	564,003		5.5	%	$	505,281		11.7	%

	Nine Months Ended
	October 29, 2011					October 30, 2010
Sales and Comps	Sales		Comp % (1)			Sales		Comp % (1)
	($ in thousands)
Ann Taylor brand
Ann Taylor Stores	$	363,956		2.6	%	$	362,011		19.4	%
Ann Taylor e-commerce		86,675		41.1	%		62,426		46.0	%
Subtotal		450,631		8.4	%		424,437		22.6	%
Ann Taylor Factory		219,854		5.8	%		204,366		9.3	%
Total Ann Taylor brand	$	670,485		7.5	%	$	628,803		17.9	%
LOFT brand
LOFT Stores	$	748,106		4.5	%	$	719,360		1.6	%
LOFT e-commerce		84,918		29.0	%		66,586		60.3	%
Subtotal		833,024		6.5	%		785,946		4.8	%
LOFT Outlet	��	142,323		16.3	%		50,185		19.3	%
Total LOFT brand	$	975,347		7.1	%	$	836,131		5.4	%
Total Company	$	1,645,832		7.3	%	$	1,464,934		10.5	%

22

Sales and Store Data (Continued)

	Quarter Ended				Nine Months Ended
	October 29,		October 30,		October 29,		October 30,
Sales Related Metrics	2011		2010		2011		2010
Average Dollars Per Transaction
Ann Taylor brand	$	83.87	$	84.89	$	81.77	$	81.97
LOFT brand		68.84		64.08		64.45		62.00
Average Units Per Transaction
Ann Taylor brand		2.41		2.38		2.42		2.34
LOFT brand		2.69		2.53		2.65		2.47
Average Unit Retail Sold
Ann Taylor brand	$	34.80	$	35.67	$	33.79	$	35.03
LOFT brand		25.59		25.33		24.32		25.10
Net Sales Per Average Gross
Square Foot (2)
Ann Taylor Stores	$	84	$	85	$	251	$	236
Ann Taylor Factory		108		106		324		306
LOFT Stores		85		79		256		242
LOFT Outlet		103		125		326		349

(1) A store is included in comparable sales in its thirteenth month of operation. A store with a square footage change of greater than 15% is treated as a new store for the first year following its reopening. Sales at our Online Stores are included in comparable sales.

(2) Net sales per average gross square foot is determined by dividing net sales for the period by the average monthly gross square footage for the period. Unless otherwise indicated, references herein to square feet are to gross square feet, rather than net selling space. Sales at our Online Stores are excluded from the net sales per average gross square foot calculation.

23

Sales and Store Data (Continued)

	Quarter Ended
	October 29, 2011						October 30, 2010
Stores and Square Footage	Stores			Square Feet			Stores			Square Feet
	(square feet in thousands)
Ann Taylor brand
Ann Taylor Stores		276			1,448			276			1,501
Ann Taylor Factory		97			691			92			668
Total Ann Taylor brand		373			2,139			368			2,169
LOFT brand
LOFT Stores		503			2,931			506			2,954
LOFT Outlet		74			519			33			217
Total LOFT brand		577			3,450			539			3,171
Total Company		950			5,589			907			5,340
Number Of:
Stores open at beginning of period		942			5,563			894			5,265
New stores (1)		12			60			16			93
Downsized stores (2)		—			(12	)		—			(6	)
Closed stores		(4	)		(22	)		(3	)		(12	)
Stores open at end of period		950			5,589			907			5,340
Converted stores (3)		—			—			4			—

	Nine Months Ended
	October 29, 2011						October 30, 2010
Stores and Square Footage	Stores			Square Feet			Stores			Square Feet
	(square feet in thousands)
Number Of:
Stores open at beginning of period		896			5,283			907			5,348
New stores (4)		68			436			16			93
Downsized stores (5)		—			(51	)		—			(11	)
Closed stores		(14	)		(79	)		(16	)		(90	)
Stores open at end of period		950			5,589			907			5,340
Converted stores (6)		—			—			10			—

(1) During the quarter ended October 29, 2011, we opened six new Ann Taylor stores, four new LOFT stores, and 2 new LOFT Outlet stores. During the quarter ended October 30, 2010, we opened five new LOFT stores and 11 new LOFT Outlet stores.

(2) During the quarter ended October 29, 2011, we downsized two Ann Taylor stores. During the quarter ended October 30, 2010, we downsized two Ann Taylor stores.

(3) During the quarter ended October 30, 2010 we converted four LOFT stores to LOFT Outlet stores.

(4) During the nine months ended October 29, 2011, we opened 13 new Ann Taylor stores, 12 new LOFT stores, five new Ann Taylor Factory stores and 38 new LOFT Outlet stores. During the nine months ended October 30, 2010, we opened five new LOFT stores and 11 new LOFT Outlet stores.

(5) During the nine months ended October 29, 2011, we downsized nine Ann Taylor stores and two Ann Taylor Factory stores. During the nine months ended October 30, 2010, we downsized five Ann Taylor stores and one LOFT store.

(6) During the nine months ended October 30, 2010, we converted six Ann Taylor stores to LOFT stores and four LOFT stores to LOFT Outlet stores.

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Total net sales increased 11.6% and 12.3%, with comparable sales increasing 5.5% and 7.3% for the quarter and nine months ended October 29, 2011, respectively, over the comparable 2010 periods. Full-price sell-through for the quarter increased over the comparable 2010 period at both brands, with a significant increase in the LOFT stores channel. LOFT also experienced a higher level of full-price sell-through during the nine-month period, with much of the increase coming from the LOFT stores channel. Both brands experienced comparable sales gains for both the quarter and nine-month periods ended October 29, 2011, with significant double-digit comparable sales gains at both e-commerce sites and at LOFT Outlet.

By brand, Ann Taylor’s net sales increased $6.5 million, or 2.9%, and $41.7 million, or 6.6%, for the quarter and nine months ended October 29, 2011, respectively, with comparable sales increasing 2.5% and 7.5%, respectively. The brand’s third quarter results were impacted by a merchandise mix at Ann Taylor stores that lacked depth and breadth in fashion and color. Although traffic remained strong, this caused a decrease in AURs and DPTs and a 5.8% decrease in comparable sales at the Ann Taylor stores channel. The brand’s e-commerce business achieved another quarter of significant top-line growth, with comparable sales increasing 45.8%, driven by increases in traffic, conversion and average order value.

At the LOFT brand, net sales increased $52.2 million, or 18.5%, and $139.2 million, or 16.7%, for the quarter and nine months ended October 29, 2011, respectively, with comparable sales increasing 7.9% and 7.1%, respectively. LOFT’s third quarter results reflect the impact of the brand’s feminine, casual fashion and value proposition. This drove increases in AURs, UPTs and DPTs and higher levels of full price sell-through, particularly in the LOFT stores channel. LOFT’s e-commerce and LOFT Outlet channels also experienced significant top-line growth. At LOFT.com, increases in traffic, conversion and average order values contributed to a 23.0% increase in comparable sales for the quarter. Net sales at LOFT Outlet also increased significantly, reflecting the impact of our Spring 2011 accelerated expansion strategy, as well as a 10.9% increase in comparable sales.

Cost of Sales and Gross Margin

The following table shows cost of sales and gross margin in dollars and the related gross margin percentages for the quarters and nine months ended October 29, 2011 and October 30, 2010:

	Quarter Ended						Nine Months Ended
	October 29,			October 30,			October 29,			October 30,
	2011			2010			2011			2010
	(dollars in thousands)						(dollars in thousands)
Cost of sales	$	239,763		$	216,505		$	714,839		$	627,193
Gross margin	$	324,240		$	288,776		$	930,993		$	837,741
Percentage of net sales		57.5	%		57.2	%		56.6	%		57.2	%

Gross margin as a percentage of net sales for the quarter ended October 29, 2011 as compared to the comparable 2010 period increased to 57.5%, up from 57.2% last year. The year-over-year increase in gross margin performance was primarily due to increased full price sell-through at both brands, particularly in the LOFT stores channel, as well as higher gross margin rate performance at LOFT stores. The strong gross margin performance at LOFT stores reflected solid product execution, lower promotional activity and improved inventory positioning. This was partially offset by the impact of increased promotional activity at Ann Taylor stores.

For the nine-month period ended October 29, 2011, gross margin as a percentage of net sales decreased to 56.6% from 57.2% in the comparable 2010 period. This was primarily due to lower full price sell-through at Ann Taylor, particularly in the Ann Taylor stores channel, and slightly lower gross margin rate performance across all of the brand’s channels. These decreases were partially offset by increased full price sell-through at LOFT, particularly in the LOFT stores channel, as well as higher gross margin rate performance at LOFT stores.

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Selling, General and Administrative Expenses

The following table shows selling, general and administrative expenses in dollars and as a percentage of net sales for the quarters and nine months ended October 29, 2011 and October 30, 2010:

		$00000.00			$00000.00			$00000.00			$00000.00
	Quarter Ended						Nine Months Ended
	October 29,			October 30,			October 29,			October 30,
	2011			2010			2011			2010
	(dollars in thousands)						(dollars in thousands)
Selling, general and administrative expenses	$	269,498		$	247,381		$	788,656		$	726,601
Percentage of net sales		47.8	%		49.0	%		47.9	%		49.6	%

The increase in selling, general and administrative expenses for the quarter and nine months ended October 29, 2011 as compared to the comparable 2010 periods was primarily due to higher payroll and occupancy costs related to store growth, primarily in the factory outlet channel, an increase in variable costs related to higher net sales and, for the nine-month period, higher performance-based compensation expense. Selling, general and administrative expenses as a percentage of net sales decreased for both the quarter and nine-month periods ended October 29, 2011 as compared to the comparable 2010 periods, primarily due to fixed cost leveraging resulting from higher net sales, restructuring program savings and a continued focus on controlling expenses.

Income Taxes

The following table shows our effective income tax rate for the quarters and nine months ended October 29, 2011 and October 30, 2010:

		$00000.00			$00000.00			$00000.00			$00000.00
	Quarter Ended						Nine Months Ended
	October 29,			October 30,			October 29,			October 30,
	2011			2010			2011			2010
Effective income tax rate		40.6	%		40.6	%		40.3	%		39.9	%

Our effective income tax rate changed as compared to the comparable 2010 period primarily due to changes in the mix of earnings in various state taxing jurisdictions and certain other discrete items.

Liquidity and Capital Resources

Our primary source of working capital is cash flow from operations. The following table sets forth certain measures of our liquidity:

	October 29,		January 29,		October 30,
	2011		2011		2010
	(dollars in thousands)
Working capital	$	259,435	$	268,005	$	323,264
Current ratio		1.86:1		1.95:1		2.20:1

Operating Activities

Cash provided by operating activities was $97.6 million for the nine months ended October 29, 2011, compared with cash provided by operating activities of $58.1 million for the nine months ended October 30, 2010. This increase was primarily due to higher net income and changes in accounts payables, prepaid expenses and income tax receivable. These increases were partially offset by an increase in cash used for inventory purchases and higher accounts receivable.

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Merchandise inventories increased approximately $46.2 million, or 19.9%, at October 29, 2011 compared to October 30, 2010. On a per-square-foot basis, excluding e-commerce, merchandise inventories increased approximately 11% over the prior year period, consistent with the increase in sales as well as higher inventory levels to support our accelerated expansion in the factory outlet channel.

Investing Activities

Cash used for investing activities was $97.4 million for the nine months ended October 29, 2011, compared with $33.1 million for the nine months ended October 30, 2010. Cash used for investing activities during the nine months ended October 29, 2011 was primarily driven by capital expenditures related to new store openings. During the nine months ended October 29, 2011, we opened 68 new stores as compared to the nine months ended October 30, 2010, during which we opened 16 new stores.

Financing Activities

Cash used for financing activities was $87.3 million for the nine months ended October 29, 2011, compared with $5.9 million for the nine months ended October 30, 2010. Cash used for financing activities for the nine months ended October 29, 2011 was primarily due to the repurchase of $100 million of our common stock under our share repurchase program, partially offset by the impact of excess tax benefits related to stock-based compensation and cash inflows related to exercise of options during the first nine months of Fiscal 2011.

On April 23, 2008, our wholly-owned subsidiary AnnTaylor, Inc. and certain of its subsidiaries entered into a Third Amended and Restated $250 million senior secured revolving credit facility with Bank of America N.A. and a syndicate of lenders (the “Credit Facility”), which amended its then existing $175 million senior secured revolving credit facility which was due to expire in November 2008. The maximum availability for loans and letters of credit under the Credit Facility is governed by a monthly borrowing base, determined by the application of specified percentages of certain eligible assets. The remaining available balance for loans and letters of credit was $234.9 million, $120.2 million and $192.8 million as of October 29, 2011, January 29, 2011 and October 30, 2010, respectively.

On March 8, 2011, our Board of Directors approved a $200 million expansion of our existing securities repurchase program (the “Repurchase Program”), bringing the total authorized under the Repurchase Program to $600 million. As of October 29, 2011, approximately $259.1 million remained available under the Repurchase Program. The Repurchase Program will expire when we have repurchased all securities authorized for repurchase thereunder, unless terminated earlier by our Board of Directors. Purchases of shares of common stock may be made from time to time, subject to market conditions and at prevailing market prices, through open market purchases or in privately negotiated transactions. Repurchased shares of common stock increase treasury shares available for general corporate purposes. During the quarter ended April 30, 2011, we repurchased 4,197,097 shares of our common stock through open market purchases under the Repurchase Program at a cost of $100 million. Since the quarter ended April 30, 2011, there have been no repurchases made under the Repurchase Program during the nine months ended October 29, 2011. During the quarter and nine months ended October 30, 2010, we repurchased 1,200,000 shares of our common stock through open market purchases under the Repurchase Program at a cost of approximately $19.8 million.

Short-Term Borrowings

In the second quarter of Fiscal 2010, we entered into a vendor financing program (the “Trade Payable Program”) with a financing company. Under the Trade Payable Program, the financing company makes accelerated and discounted payments to our vendors and we, in turn, make our regularly-scheduled full vendor payments to the financing company. As of October 29, 2011 and October 30, 2010, there was $4.5 million and $2.9 million, respectively, outstanding under the Trade Payable Program, which is included in “Accrued expenses and other current liabilities” on our Condensed Consolidated Balance Sheets. The average balance at each month end during the quarters ended October 29, 2011 and October 30, 2010 was $4.9 million and $2.8 million, respectively, and we paid no interest on amounts owed under the Trade Payable Program during either period, since remittances to the financing company were made within the agreed-upon timeframe.

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Other

At October 29, 2011, substantially all of our cash and cash equivalents were invested in deposit accounts at FDIC-insured banks. All of our deposit account balances are currently FDIC insured and will remain so through December 31, 2012 as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

We have a credit card program which offers eligible clients the choice of a private label or a co-branded credit card. All new cardholders are automatically enrolled in our exclusive rewards program, which is designed to recognize and promote client loyalty. We provide the sponsoring bank with marketing support of the program, and use our sales force to process credit card applications for both the private label and co-branded credit cards. As part of the program, we received an upfront signing bonus from the sponsoring bank. We also receive ongoing payments for new accounts activated, as well as a share of finance charges collected by the sponsoring bank. These revenue streams are accounted for as a single unit of accounting and accordingly are being recognized into revenue ratably based on the total projected revenues over the term of the agreement.

Certain judgments and estimates underlie our projected revenues and related expenses under the program, including projected future store counts, the number of applications processed, our projected sales growth and points breakage, among other things. During the quarters ended October 29, 2011 and October 30, 2010, we recognized approximately $11.0 million and $9.1 million of revenue related to the credit card program, respectively. During the nine months ended October 29, 2011 and October 30, 2010, we recognized approximately $14.6 million and $13.1 million of revenue related to the credit card program, respectively. At October 29, 2011, January 29, 2011 and October 30, 2010, approximately $4.7 million, $5.8 million and $6.1 million, respectively, of deferred credit card income is included in “Accrued expenses and other current liabilities” on our Condensed Consolidated Balance Sheets. Partially offsetting the income from the credit card program are costs, net of points breakage, related to the customer loyalty program. These costs are included in either cost of sales or in net sales as a sales discount, as appropriate. The cost of sales impact, net of points breakage, was approximately $1.1 million and $(1.3) million and the sales discount impact was approximately $1.4 million and $0.2 million for the quarters ended October 29, 2011 and October 30, 2010, respectively. The cost of sales impact, net of points breakage, was approximately $2.9 million and zero and the sales discount impact was approximately $3.8 million and $2.0 million for the nine months ended October 29, 2011 and October 30, 2010, respectively.

On October 1, 2007, we froze our noncontributory defined benefit pension plan (the “Pension Plan”). Our Pension Plan assets experienced gains in Fiscal 2010. As a result, pension costs in Fiscal 2011 are projected to be lower than pension costs in Fiscal 2010, excluding settlement charges. Our Pension Plan is invested in readily-liquid investments, primarily debt and equity securities. Any deterioration in the financial markets or changes in discount rates may require us to make a contribution to our Pension Plan.

Critical Accounting Policies

Management has determined that our most critical accounting policies are those related to merchandise inventory valuation, asset impairment, income taxes and stock and incentive-based compensation. We continue to monitor our accounting policies to ensure proper application of current rules and regulations. There have been no significant changes to these policies as discussed in our Annual Report on Form 10-K for the fiscal year ended January 29, 2011.

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Recent Accounting Pronouncements

Recently Issued Standards

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-05,Presentation of Comprehensive Income. ASU 2011-05 amends ASC 220-10,Comprehensive Income, and requires that all changes in comprehensive income be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements, and also requires the presentation of reclassification adjustments on the face of the financial statements from other comprehensive income to net income. ASU 2011-05 is effective for the first interim or annual reporting period beginning on or after December 15, 2011. Early adoption is permitted. We are in the process of evaluating ASU 2011-05 and its impact on the presentation of our Condensed Consolidated Financial Statements.

Recently Adopted Standards

In January 2010, the FASB issued ASU 2010-06,Fair Value Measurements and Disclosures. ASU 2010-06 amended ASC 820-10,Fair Value Measurements and Disclosures, and requires new disclosures surrounding certain fair value measurements. ASU 2010-06 became effective for the first interim or annual reporting period beginning on or after December 15, 2009, except for certain disclosures about purchases, sales, issuances, and settlements in the rollforward of activity in Level 3 fair value measurements, which became effective for the first interim and annual reporting periods beginning on or after December 15, 2010. During Fiscal 2009, we early adopted the disclosure requirements effective for the first interim or annual reporting period beginning on or after December 15, 2009. We adopted the remaining disclosure requirements in the first quarter of Fiscal 2011. The adoption of the remaining disclosure requirements of ASU 2010-06 did not have any impact on our Condensed Consolidated Financial Statements or notes thereto.

In October 2009, the FASB issued ASU 2009-13,Multiple Deliverable Revenue Arrangements. ASU 2009-13 amended ASC 605-10,Revenue Recognition, and addresses accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit, and provides guidance on how to measure and allocate arrangement consideration to one or more units of accounting. ASU 2009-13 became effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. We adopted ASU 2009-13 during the first quarter of Fiscal 2011. The adoption of ASU 2009-13 did not have any impact on our Condensed Consolidated Financial Statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We have significant amounts of cash and cash equivalents invested in deposit accounts at FDIC-insured banks. All of our deposit account balances are currently FDIC insured and will remain so through December 31, 2012 as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

AnnTaylor Inc.’s Credit Facility allows for investments in financial instruments with original maturity dates of up to 360 days. As of October  29, 2011, we did not hold any investments that did not qualify as cash and cash equivalents.

Item 4. Controls and Procedures.

The Company conducted an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

During the third quarter of Fiscal 2011, there were no changes in the Company’s internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following table sets forth information concerning purchases made by the Company of its common stock for the periods indicated:

	Total Number of Shares Purchased(1)		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program(2)		Approximate Dollar Value of Shares that May Yet Be Purchased Under Publicly Announced Program
							(in thousands)
July 31, 2011 to August 27, 2011		6,230	$	22.70		—	$	259,083
August 28, 2011 to October 1, 2011		1,403		24.94		—		259,083
October 2, 2011 to October 29, 2011		454		24.78		—		259,083
		8,087				—

(1) Includes a total of 8,087 shares of restricted stock purchased in connection with employee tax withholding obligations under employee equity compensation plans, which are not purchases under the Company’s publicly announced program.

(2) On March 8, 2011, our Board of Directors approved a $200 million expansion of our existing securities repurchase program (the “Repurchase Program”) to a total of $600 million. As of the date of this filing, approximately $259.1 million remained available under the Repurchase Program. The Repurchase Program will expire when we have repurchased all securities authorized for repurchase thereunder, unless terminated earlier by our Board of Directors.

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Item 6. Exhibits

Exhibit Number	Description
31.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1°	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS‡	XBRL Instance
101.SCH‡	XBRL Taxonomy Extension Schema
101.CAL‡	XBRL Taxonomy Extension Calculation
101.DEF‡	XBRL Taxonomy Extension Definition
101.LAB‡	XBRL Taxonomy Extension Labels
101.PRE‡	XBRL Taxonomy Extension Presentation

* Filed electronically herewith.

° Furnished electronically herewith.

‡ Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections.

31

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ANN INC.
Date: November 18, 2011	By:	/s/    Kay Krill
		Kay Krill
		President and Chief Executive Officer
		(Principal Executive Officer)

Date: November 18, 2011	By:	/s/    Michael J Nicholson
		Michael J. Nicholson
		Executive Vice President,
		Chief Financial Officer and
		Treasurer
		(Principal Financial Officer)

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Exhibit Index

Exhibit Number	Description
31.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1°	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS‡	XBRL Instance
101.SCH‡	XBRL Taxonomy Extension Schema
101.CAL‡	XBRL Taxonomy Extension Calculation
101.DEF‡	XBRL Taxonomy Extension Definition
101.LAB‡	XBRL Taxonomy Extension Labels
101.PRE‡	XBRL Taxonomy Extension Presentation

* Filed electronically herewith.

° Furnished electronically herewith.

‡ Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections.

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