ANN INC. Reports First Quarter 2014 Results

-- Company Provides Outlook for the Fiscal Second Quarter 2014 --

30 May, 2014, 07:49 ET from ANN INC.

NEW YORK, May 30, 2014 /PRNewswire/ -- ANN INC. (NYSE: ANN) today reported results for the fiscal first quarter of 2014, ended May 3, 2014.  The Company also provided its outlook for the second quarter and updated its outlook for fiscal 2014.

For the fiscal first quarter of 2014, the Company reported earnings per diluted share of $0.11 on a GAAP basis, or $0.33 per diluted share excluding the after-tax impact of a restructuring charge of approximately $0.22 per diluted share.  This compares with earnings per diluted share of $0.44 in the first quarter of 2013.  There was no restructuring charge recorded in the first quarter of 2013. 

Kay Krill, President and Chief Executive Officer, commented, "Despite the headwinds of severe winter weather, soft traffic across the industry and the resulting higher than anticipated promotional environment, we delivered first quarter results that met our bottom-line expectations. Importantly, traffic and sales accelerated with the return of more seasonable weather, driving positive comparable sales for April and into May.

"Looking ahead, we continue to make meaningful progress on our strategic initiatives, and we are planning for a stronger year-over-year performance in each quarter for the balance of the year.  We remain highly focused on our objective to deliver our third consecutive year of record earnings per share in 2014," said Ms. Krill.   

Fiscal 2014 First Quarter Results

Total net sales for the first quarter of fiscal 2014 were $590.6 million, compared with net sales of $574.5 million in the first quarter of fiscal 2013.  By brand, net sales across all channels of the Ann Taylor brand totaled $219.9 million in the first quarter of 2014, compared with net sales of $219.3 million in the first quarter of 2013.  At the LOFT brand, net sales across all channels were $370.6 million in the first quarter of 2014, compared with net sales of $355.2 million in the first quarter of 2013.

Total Company comparable sales for the quarter decreased 1.8% versus a decrease of 0.5% in the first quarter of 2013.  At Ann Taylor, total brand comparable sales declined 2.3%, reflecting flat comparable sales at Ann Taylor, which includes Ann Taylor stores and anntaylor.com, and a decline of 7.1% in the Ann Taylor Factory channel.  At LOFT, total brand comparable sales declined 1.6%, reflecting decreases of 1.8% at LOFT, which includes LOFT stores and LOFT.com, and a decline of 0.2% in the LOFT Outlet channel.  (Please refer to Table 3 for a breakdown of sales by brand and channel.)

Gross margin, as a percentage of net sales was 53.4%, versus the 55.8% gross margin rate achieved in the first quarter of 2013.  This performance primarily reflected stronger merchandise margin at Ann Taylor that was more than offset by higher-than-anticipated promotional levels at LOFT and in our factory outlet channels as compared with the first quarter of 2013. 

Selling, general and administrative expenses for the first quarter of 2014 were $288.7 million, versus $286.7 million reported in the first quarter of 2013.  As a percentage of net sales, selling, general and administrative expenses were 48.9%, a 100 basis point improvement compared to the first quarter of 2013, reflecting a decrease in performance-based compensation expense as well as the benefit of ongoing disciplined expense management. These decreases were partially offset by an increase in payroll, occupancy and other variable expenses related to store growth. 

The Company recorded a pre-tax restructuring charge of $17.3 million during the first quarter of 2014 in connection with its previously announced strategic realignment. There was no such restructuring charge recorded in the first quarter of 2013. 

During the first quarter of 2014, the Company reported operating income of $9.2 million on a GAAP basis.  Excluding the aforementioned restructuring charge, operating income in the first quarter of 2014 was $26.5 million, compared with operating income of $33.9 million in the first quarter of 2013. 

Net income for the first quarter of 2014 was $5.2 million, or $0.11 per diluted share, on a GAAP basis, which reflects the impact of the $10.2 million, or $0.22 per diluted share, after-tax restructuring charge.  Excluding the effect of the restructuring charge, the Company reported net income of $15.4 million, or $0.33 per diluted share, in the first quarter 2014 compared with net income of $20.9 million, or $0.44 per diluted share, in the first quarter of 2013. 

The Company ended the quarter with approximately $128 million in cash and cash equivalents.

Total inventory per square foot at the end of the first quarter increased 3% versus year-ago, reflecting increases of 15% at Ann Taylor and 8% in our factory outlet channel, partially offset by a decrease of 6% at LOFT.  The results at Ann Taylor and in our factory outlet channel reflect a change in merchandise mix. The decrease at LOFT was primarily due to the successful clearance of early Spring product, as well as an overall decrease in unit inventory per square foot.

During the first quarter of fiscal 2014, the Company opened 13 new stores, comprised of three Ann Taylor Factory stores, seven LOFT stores and three LOFT Outlet stores, and closed four Ann Taylor stores and two LOFT stores.  Our total store count at the end of the fiscal first quarter of 2014 was 1,032, comprised of 264 Ann Taylor stores, 111 Ann Taylor Factory stores, 544 LOFT stores and 113 LOFT Outlet stores.

Outlook for Fiscal Second-Quarter and Full-Year 2014

For the fiscal second quarter of 2014, the Company expects total net sales to be $670 million, reflecting a total Company comparable sales increase in the low-single digits.  Gross margin rate performance is expected to be 53.5%.  Selling, general and administrative expenses are expected to be $295 million.

For fiscal 2014, the Company provided the following outlook:

  • Total net sales are expected to be $2.610 billion, reflecting a total Company comparable sales increase in the low-single digits.
  • Gross margin rate performance is expected to be 53.2%.
  • Total SG&A expenses are expected to be $1.200 billion, which excludes the impact of the first quarter pre-tax restructuring charge of approximately $17 million.
  • Our effective tax rate is expected to be 40%.
  • Capital expenditures are expected to be approximately $120 million.
  • Total weighted average square footage for fiscal 2014 is expected to increase approximately 3%, reflecting the opening of approximately 50 new stores, partially offset by the impact of downsizes at Ann Taylor stores and approximately 30 store closures.  The Company expects to have approximately 1,045 stores at fiscal year-end.

The Company expects to maintain its healthy balance sheet, including a disciplined approach to inventory management throughout the fiscal year.

About ANN INC.

ANN INC. is the parent Company of Ann Taylor and LOFT, two of the leading women's specialty retail fashion brands in North America.  As of May 3, 2014, the Company operated 1,032 Ann Taylor, Ann Taylor Factory, LOFT and LOFT Outlet stores in 47 states, the District of Columbia, Puerto Rico and Canada.  Our Ann Taylor and LOFT brands are also available online in more than 100 countries worldwide at AnnTaylor.com and LOFT.com.  Visit ANNINC.com for more information (NYSE: ANN).

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 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, its ability to maintain brand image, engage new and existing clients, drive traffic to its stores and websites and gain market share;
  • the effect of competitive pressures from other retailers;
  • the Company's reliance on key management and its ability to hire, retain and develop qualified associates as well as ensure that the Company has the appropriate organizational structure and processes in place to achieve its strategic initiatives;
  • the performance and operation of the Company's websites and the risks associated with Internet sales;
  • the impact of a privacy breach and the resulting effect on the Company's business and reputation;
  • the Company's ability to successfully upgrade and maintain its information systems in a timely and secure manner to support the needs of the organization and to operate in accordance with its business continuity plan in the event of a disruption;
  • 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 impact of fluctuations in sourcing costs, in particular, increases in the costs of raw materials, labor and transportation;
  • the Company's reliance on foreign sources of production and the associated risks of doing business in foreign markets;
  • the Company's dependence on its Louisville distribution center and third-party distribution and transportation providers;
  • the Company's ability to successfully optimize implementation of its omni-channel retail strategy and maintain a relevant and reliable omni-channel experience for its clients;
  • the Company's ability to manage inventory levels and changes in merchandise mix as well as optimize the operational aspects of its omni-channel fulfillment strategy;
  • the Company's ability to successfully execute brand goals, objectives and new concepts and strategies, including international expansion;
  • the Company's ability to secure and protect trademarks and other intellectual property rights;
  • 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 effect of general economic conditions on consumer spending and the Company's liquidity and capital resources;
  • the impact of fluctuations in sales and profitability on the Company's stock price;
  • the potential impact of natural disasters, extreme weather, public health concerns, acts of war or terrorism in the United States or worldwide;
  • the failure by independent manufacturers to comply with the Company's social compliance program requirements or applicable laws and regulations;
  • the Company's ability to successfully manage store growth and optimize the productivity and profitability of its store portfolio;
  • the Company's dependence on shopping malls and other retail centers to attract clients and the impact of potential consolidation of commercial and retail landlords on the Company's ability to negotiate favorable rental terms; and
  • the effect of tax matters on its business operations.

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. 

ANN INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Quarters Ended May 3, 2014 and May 4, 2013

(unaudited)

Table 1.

Quarter Ended

May 3, 2014

May 4, 2013

(in thousands, except per share amounts)

Net sales

$

590,592

$

574,506

Cost of sales

275,400

253,941

Gross margin

315,192

320,565

Selling, general and administrative expenses

288,672

286,653

Restructuring charge

17,303

Operating income

9,217

33,912

Interest and investment income/(expense), net

(497)

87

Other non-operating income, net

25

54

Income before income taxes

8,745

34,053

Income tax provision

3,562

13,141

Net income

$

5,183

$

20,912

Earnings per share:

Basic earnings per share

$

0.11

$

0.45

Weighted average shares outstanding

45,578

46,079

Diluted earnings per share

$

0.11

$

0.44

Weighted average shares outstanding, assuming dilution

46,043

46,540

ANN INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

May 3, 2014, February 1, 2014 and May 4, 2013

(unaudited)

Table 2.

May 3,  2014

February 1,  2014

May 4,  2013

(in thousands, except share amounts)

Assets

Current assets

Cash and cash equivalents

$

127,691

$

201,707

$

80,482

Accounts receivable

29,953

22,448

32,414

Merchandise inventories

282,912

239,667

265,836

Refundable income taxes

7,190

7,252

9,661

Deferred income taxes

32,936

28,854

30,443

Prepaid expenses and other current assets

64,206

61,287

69,651

Total current assets

544,888

561,215

488,487

Property and equipment, net

438,838

443,086

411,573

Deferred income taxes

5,142

6,599

1,931

Other assets

22,168

22,060

19,205

Total assets

$

1,011,036

$

1,032,960

$

921,196

Liabilities and Stockholders' Equity

Current liabilities

Accounts payable

$

107,481

$

101,276

$

108,568

Accrued salaries and bonus

29,324

24,546

18,624

Current portion of long-term performance compensation

5,109

20,339

18,178

Accrued tenancy

37,137

38,331

37,256

Gift certificates and merchandise credits redeemable

41,801

48,150

39,840

Accrued expenses and other current liabilities

82,073

97,101

83,567

Total current liabilities

302,925

329,743

306,033

Deferred lease costs

160,180

164,703

163,645

Deferred income taxes

36

36

2,963

Long-term performance compensation, less current portion

7,111

15,456

11,330

Other liabilities

56,775

54,566

29,308

Commitments and contingencies

Stockholders' equity

Common stock, $.0068 par value; 200,000,000 shares authorized;  82,563,516 shares issued

561

561

561

Additional paid-in capital

737,687

751,765

748,245

Retained earnings

784,455

779,272

697,754

Accumulated other comprehensive loss

(2,688)

(2,874)

(4,660)

Treasury stock, 35,736,212; 36,344,643 and 35,411,598 shares, respectively, at cost

(1,036,006)

(1,060,268)

(1,033,983)

Total stockholders' equity

484,009

468,456

407,917

Total liabilities and stockholders' equity

$

1,011,036

$

1,032,960

$

921,196

 

ANN INC.

Brand Sales and Store Data

For the Quarters Ended May 3, 2014 and May 4, 2013

(unaudited)

Table 3.

Quarter Ended

Sales and Comparable Sales

May 3, 2014

May 4, 2013

Sales

Comp % (1)

Sales

Comp % (1)

($ in thousands)

Ann Taylor brand

Ann Taylor (2)

$

150,656

0.0%

$

150,783

6.2%

Ann Taylor Factory

69,293

(7.1)%

68,484

(5.8)%

Total Ann Taylor brand

$

219,949

(2.3)%

$

219,267

1.9%

LOFT brand

LOFT (3)

$

306,289

(1.8)%

$

298,497

(0.9)%

LOFT Outlet

64,354

(0.2)%

56,742

(7.9)%

Total LOFT brand

$

370,643

(1.6)%

$

355,239

(1.9)%

Total Company

$

590,592

(1.8)%

$

574,506

(0.5)%

Quarter Ended

Stores and Square Footage

May 3, 2014

May 4, 2013

Stores

Square Feet

Stores

Square Feet

(square feet in thousands)

Ann Taylor brand

Ann Taylor

264

1,306

273

1,375

Ann Taylor Factory

111

748

102

698

Total Ann Taylor brand

375

2,054

375

2,073

LOFT brand

LOFT

544

3,106

516

2,965

LOFT Outlet

113

744

98

661

Total LOFT brand

657

3,850

614

3,626

Total Company

1,032

5,904

989

5,699

Number of:

Stores open at beginning of period

1,025

5,873

984

5,685

New stores

13

71

13

66

Downsized/expanded stores, net (4)

(10)

(6)

Closed stores

(6)

(30)

(8)

(46)

Stores open at end of period

1,032

5,904

989

5,699

 

(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.

(2)

Includes sales at Ann Taylor stores and anntaylor.com.

(3)

Includes sales at LOFT stores and LOFT.com.

(4)

During the quarter ended May 3, 2014, we downsized one Ann Taylor store and one LOFT Outlet store. During the quarter ended May 4, 2013, we downsized two Ann Taylor stores, one Ann Taylor Factory store and two LOFT stores.

SOURCE ANN INC.



RELATED LINKS

http://www.anntaylor.com


http://www.ANNINC.com