ANN INC. Reports Record Third Quarter 2012 EPS Results -- Company Performance Driven By Increased Sales and Strong Gross Margin Rate --

-- Company Successfully Launches Multichannel Initiative --

-- Delivers Positive Comp Performance at Both Ann Taylor and LOFT Brands --

-- Raises Outlook for Fiscal 2012 --

NEW YORK, Nov. 28, 2012 /PRNewswire/ -- ANN INC. (NYSE: ANN) today reported results for the fiscal third quarter of 2012, ended October 27, 2012.  The Company also provided its outlook for the fourth quarter and increased its outlook for the full year of fiscal 2012.

For the fiscal third quarter of 2012, the Company reported diluted earnings per share of $0.84, compared with earnings per diluted share of $0.61 in the third quarter of 2011.  Diluted earnings per share for the fiscal third quarter of 2012 included a benefit of $0.08 related to the recognition of gift card and merchandise credit breakage, without which, diluted earnings per share reached a third quarter record of $0.76.

Kay Krill, President and CEO, said, "We are very pleased to report that ANN INC. delivered record EPS results again this quarter.  Significant top-line growth, coupled with a double-digit percentage increase in operating income, contributed to a 25 percent increase in diluted earnings per share, excluding the $0.08 benefit.  Our strong performance was driven by both Ann Taylor and LOFT.  Both brands delivered a positive comp for the quarter by remaining clearly focused on what's important to our clients:  great fashion, excellent quality, outstanding value and a seamless and engaging shopping experience.  

"In addition, we have made significant progress on our strategic initiatives to drive future growth and profitability.  Among the highlights, in September we successfully launched the first phase of our multi-channel initiative, which is off to a strong start and will provide meaningful opportunities to better leverage our inventory investment and maximize sales and gross margin.  During the quarter, we also made our entry into Canada, opening our first store in Toronto in September, followed by two additional stores in November.  The response has been outstanding, and we are very excited about the opportunities in this market.  Overall, it was an excellent quarter for ANN INC., and we have entered the fourth quarter in a strong position."     

Fiscal 2012 Third-Quarter Results

Total net sales for the third quarter of fiscal 2012 were $612.5 million, compared with total net sales of $564.0 million in the third quarter of fiscal 2011.  By brand, net sales across all channels of the Ann Taylor brand totaled $244.6 million in the third quarter of 2012, compared with net sales of $229.7 million in the third quarter of 2011.  At the LOFT brand, net sales across all channels were $368.0 million in the third quarter of 2012, compared with net sales of $334.3 million in the third quarter of 2011.

Total Company comparable sales for the quarter increased 5.5%, on top of an increase of 5.5% in the third quarter of 2011.  At Ann Taylor, total brand comparable sales increased 4.3%, reflecting increases of 5.6% at Ann Taylor, which includes sales results from both Ann Taylor stores and anntaylor.com, and 1.7% in the Ann Taylor Factory channel.  At LOFT, total brand comparable sales were up 6.2%, reflecting an increase of 8.0% at LOFT, which includes sales results from both LOFT stores and LOFT.com, slightly offset by a decline of 3.0% 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 57.9%, compared with the 57.5% gross margin rate achieved in the third quarter of 2011. The strong gross margin performance in the third quarter of 2012 reflected favorable client response to our product and lower promotional activity versus the third quarter of 2011 at both brands.

Selling, general and administrative expenses for the third quarter of 2012 were $287.5 million versus $269.5 million reported in the third quarter of 2011.  As a percentage of net sales, selling, general and administrative expenses improved 90 basis points to 46.9% compared to the third quarter 2011 rate of 47.8%.  The improved SG&A rate during the third quarter of 2012 primarily reflected fixed cost leveraging resulting from higher net sales, partially offset by expenses associated with our year-over-year store growth and other expenses supporting the expansion of the business.  

The Company reported operating income of $66.9 million in the third quarter of 2012, compared with operating income of $54.7 million in the third quarter of 2011.  Net income was $40.7 million in the third quarter of 2012, versus the $32.3 million reported in the third quarter of 2011.  Diluted earnings per share of $0.84 included the aforementioned benefit of $0.08 related to recognition of a portion of the unredeemed value of gift cards and merchandise credits.  Excluding this benefit, diluted earnings per share was $0.76, an increase of 25 percent compared with earnings per diluted share of $0.61 in the third quarter of 2011.

The Company ended the quarter with approximately $167 million in cash and cash equivalents.

Total Company inventory per square foot, including inventory for both stores and e-commerce, at the end of the fiscal third quarter of 2012 decreased 5%, reflecting a 1% increase at Ann Taylor, a 1% decrease at LOFT and an 18% decrease in the factory outlet channel.       

During the third quarter of fiscal 2012, the Company opened 25 stores, comprised of four Ann Taylor stores, one Ann Taylor Factory store, eight LOFT stores and twelve LOFT Outlet stores.  The Company also closed three Ann Taylor and three LOFT stores.  The total store count at the end of the fiscal third quarter was 981, comprised of 278 Ann Taylor stores, 101 Ann Taylor Factory stores, 510 LOFT stores, and 92 LOFT Outlet stores.

Fiscal 2012 Nine-Month Results

Net sales for the first nine months of fiscal 2012 were $1.8 billion, compared with net sales of $1.6 billion in the first nine months of fiscal 2011.  By brand, net sales across all channels of the Ann Taylor brand were $690.2 million in the first nine months of 2012, compared with net sales of $670.5 million in the first nine months of 2011.  At the LOFT brand, net sales across all channels were $1,077.6 million in the first nine months of 2012, compared with net sales of $975.3 million in the first nine months of 2011.

Total Company comparable sales for the first nine months of 2012 increased 4.7%, on top of an increase of 7.3% in the comparable period of 2011.  At Ann Taylor, total brand comparable sales increased 0.9%, including increases of 0.6% at our multichannel Ann Taylor business and 1.5% in the Ann Taylor Factory channel.  At LOFT, total brand comparable sales increased 7.1%, including increases of 8.2% at our multichannel LOFT business and 0.4% 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 56.8% in the first nine months of 2012, compared with 56.6% in the first nine months of 2011. 

Selling, general and administrative expenses for the first nine months of 2012 were $839.0 million, versus $788.7 million in the first nine months of 2011.  As a percentage of net sales, selling, general and administrative expenses improved 40 basis points versus the prior year to 47.5%.  The improvement in the SG&A rate primarily reflected fixed cost leveraging resulting from higher net sales, partially offset by expenses associated with our year-over-year store growth and other expenses supporting the expansion of the business.

The Company reported operating income of $165.2 million in the first nine months of 2012, an increase of 16% compared with operating income of $142.3 million in the first nine months of 2011.  Net income was $100.2 million in the first nine months of 2012, an increase of 19% versus the $84.4 million reported in the first nine months of 2011.  Diluted earnings per share in the first nine months of 2012 was $2.05, an increase of 30% over the $1.58 per diluted share reported in the first nine months of 2011.

Outlook for Fiscal Fourth-Quarter and Full-Year 2012

For the fiscal fourth quarter of 2012, the Company expects total net sales to be approximately $625 million, reflecting a total Company comparable sales increase in the mid-single digits.  Gross margin rate performance is expected to be 51.0%.  Selling, general and administrative expenses are estimated to be $300 million.

In terms of the full year, the Company anticipates the following:

  • Total net sales for fiscal 2012 are now expected to be $2.395 billion, reflecting a total Company comparable sales increase in the mid-single digits.

  • Gross margin rate performance is expected to be approximately 55%.

  • Total SG&A expenses are expected to approach $1.140 billion.

  • The Company's effective annual tax rate is expected to be approximately 40%.

  • Capital expenditures are expected to be approximately $160 million.

  • Total weighted average square footage for fiscal 2012 is expected to increase slightly, reflecting the opening of approximately 65 new stores, partially offset by the impact of downsizes at Ann Taylor stores and approximately 30 store closures.  The Company expects to have approximately 985 stores at fiscal year-end.  

  • The Company expects to maintain its healthy balance sheet, including a disciplined approach to inventory management for the remainder of 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.  The Company operates 981 Ann Taylor, Ann Taylor Factory, LOFT and LOFT Outlet stores in 47 states, the District of Columbia, Puerto Rico and Canada as of October 27, 2012, as well as online 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, 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 reliance on key management and its ability to hire, retain and train qualified associates;
  • the Company's ability to successfully implement its business transformation initiatives and 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 Company's ability to secure and protect trademarks and other intellectual property rights;
  • the performance and operation of the Company's websites and the risks associated with Internet sales;
  • the Company's ability to successfully execute brand goals, objectives and new concepts;
  • the impact of fluctuations in sourcing costs, in particular increases in the costs of raw materials, labor, fuel and transportation;
  • the depressed levels of consumer spending and consumer confidence resulting from the worldwide economic downturn and financial crisis;
  • 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 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 Company's ability to successfully manage store growth and optimize the productivity and profitability of its store portfolio;
  • 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 failure by independent manufacturers to comply with the Company's social compliance program requirements;
  • the effect of competitive pressures from other retailers;
  • 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 distribution facilities and transportation companies, including any significant interruptions due to work stoppages, slowdowns or strikes by employees of the third-party vendors that it utilizes;
  • the impact on the Company's stock price relating to 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 dependence on shopping malls and other retail centers to attract customers;
  • the impact of potential consolidation of commercial and retail landlords on the Company's ability to negotiate favorable rental terms;
  • the effect of external economic factors on the Company's future funding obligations for its defined benefit pension plan; and
  • the impact of climate change on the Company's business.

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 and Nine Months Ended October 27, 2012 and October 29, 2011

(unaudited)

Table 1.



Quarter Ended 


Nine Months Ended


October 27,


October 29,


October 27,


October 29,


2012


2011


2012


2011










(in thousands, except per share amounts)

















Net sales

$    612,548


$    564,003


$1,767,831


$1,645,832

Cost of sales

258,149


239,763


763,660


714,839

Gross margin

354,399


324,240


1,004,171


930,993

Selling, general and administrative expenses

287,480


269,498


838,954


788,656

Operating income

66,919


54,742


165,217


142,337

Interest income

398


97


1,054


430

Interest expense

389


541


1,209


1,352

Other non-operating expense

(24)


-


(24)


-

Income before income taxes

66,904


54,298


165,038


141,415

Income tax provision

26,156


22,018


64,823


57,029

Net income

$      40,748


$      32,280


$    100,215


$      84,386









Earnings per share:








Basic earnings per share

$           0.85


$           0.62


$           2.07


$           1.61









Weighted average shares outstanding

47,422


51,389


47,638


51,583









Diluted earnings per share

$           0.84


$           0.61


$           2.05


$           1.58









Weighted average shares outstanding, assuming dilution

47,973


52,072


48,256


52,441

 

ANN INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

October 27, 2012, January 28, 2012 and October 29, 2011

(unaudited)

Table 2.



October 27,


January 28,


October 29,


2012


2012


2011

Assets

(in thousands, except share amounts)

Current assets






  Cash and cash equivalents

$       166,532


$       150,208


$       139,590

  Accounts receivable

30,873


19,591


31,132

  Merchandise inventories

270,385


213,447


278,174

  Refundable income taxes

10,179


11,965


25,953

  Deferred income taxes

34,933


30,999


29,742

  Prepaid expenses and other current assets

66,611


49,107


56,367

Total current assets

579,513


475,317


560,958

Property and equipment, net

412,626


360,890


363,901

Deferred income taxes

17,027


39,134


25,117

Other assets

15,073


12,340


12,447

Total assets

$    1,024,239


$       887,681


$       962,423







Liabilities and Stockholders' Equity






Current liabilities






  Accounts payable

$       120,303


$          94,157


$       107,499

  Accrued salaries and bonus

25,862


16,122


15,094

  Current portion of long-term performance compensation

32,069


19,373


19,383

  Accrued tenancy

46,419


41,435


41,938

  Gift certificates and merchandise credits redeemable

34,147


50,750


37,643

  Accrued expenses and other current liabilities

101,071


64,060


79,966

Total current liabilities

359,871


285,897


301,523

Deferred lease costs

162,092


159,435


164,558

Deferred income taxes

402


1,320


575

Long-term performance compensation, less current portion

24,777


42,122


36,484

Other liabilities

28,669


35,030


23,215







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

828,054


811,707


806,837

  Retained earnings

674,473


574,257


572,077

  Accumulated other comprehensive loss

(4,816)


(5,318)


(2,284)

  Treasury stock, 34,192,540; 33,284,631  and 






   30,190,855 shares, respectively, at cost

(1,049,844)


(1,017,330)


(941,123)

        Total stockholders' equity

448,428


363,877


436,068

        Total liabilities and stockholders' equity

$    1,024,239


$       887,681


$       962,423

 

ANN INC.

Brand Sales and Store Data

For the Quarters and Nine Months Ended October 27, 2012 and October 29, 2011

(unaudited)

Table 3.


During the third quarter of Fiscal 2012, the Company revised its presentation of certain sales data from a channel-specific approach that segregated brand store sales from brand internet sales to an approach which considers the impact of our multi-channel initiative. All year-to-date and prior period sales and comps have been adjusted to conform to the current period presentation.



Quarter Ended


Sales and Comps

October 27, 2012



October 29, 2011



Sales


Comp % (1)



Sales


Comp % (1)



($ in thousands)


Ann Taylor brand










Ann Taylor  (2)

165,906


5.6

%


155,897


2.8

%

Ann Taylor Factory

78,649


1.7

%


73,816


1.8

%

Total Ann Taylor brand

$      244,555


4.3

%


$      229,713


2.5

%











LOFT brand










LOFT  (2)

307,736


8.0

%


281,290


7.7

%

LOFT Outlet

60,257


(3.0)

%


53,000


10.9

%

Total LOFT brand

$      367,993


6.2

%


$      334,290


7.9

%











Total Company

$      612,548


5.5

%


$      564,003


5.5

%




Nine Months Ended


Sales and Comps

October 27, 2012



October 29, 2011



Sales


Comp % (1)



Sales


Comp % (1)



($ in thousands)


Ann Taylor brand










Ann Taylor (2)

$      459,806


0.6

%


$      450,631


8.4

%

Ann Taylor Factory

230,400


1.5

%


219,854


5.8

%

Total Ann Taylor brand

$      690,206


0.9

%


$      670,485


7.5

%











LOFT brand










LOFT (2)

$      907,099


8.2

%


$      833,024


6.5

%

LOFT Outlet

170,526


0.4

%


142,323


16.3

%

Total LOFT brand

$   1,077,625


7.1

%


$      975,347


7.1

%











Total Company

$   1,767,831


4.7

%


$   1,645,832


7.3

%

  

Table 3. (Continued)



Quarter Ended

Stores and Square Footage

October 27, 2012



October 29, 2011


Stores


Square Feet



Stores


Square Feet


(square feet in thousands)

Ann Taylor brand









     Ann Taylor Stores

278


1,414



276


1,448

     Ann Taylor Factory

101


697



97


691

Total Ann Taylor brand

379


2,111



373


2,139










LOFT brand









     LOFT Stores

510


2,948



503


2,931

     LOFT Outlet

92


627



74


519

Total LOFT brand

602


3,575



577


3,450










Total Company

981


5,686



950


5,589










Number of:









    Stores open at beginning of period

962


5,594



942


5,563

    New stores

25


134



12


60

    Downsized/expanded stores (3)

-


(13)



-


(12)

    Closed stores

(6)


(29)



(4)


(22)

    Stores open at end of period

981


5,686



950


5,589











Nine Months Ended

Stores and Square Footage

October 27, 2012



October 29, 2011


Stores


Square Feet



Stores


Square Feet


(square feet in thousands)

Number of:









    Stores open at beginning of period

953


5,584



896


5,283

    New stores

49


267



68


436

    Downsized/expanded stores (4)

-


(54)



-


(51)

    Closed stores

(21)


(111)



(14)


(79)

    Stores open at end of period

981


5,686



950


5,589

(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 front-line stores and online.

(3)

During the quarter ended October 27, 2012, the Company downsized five Ann Taylor stores and three LOFT stores and


expanded one Ann Taylor store and one LOFT store. During the quarter ended October 29, 2011, the Company


downsized two Ann Taylor stores.

(4)

During the nine months ended October 27, 2012, the Company downsized 14 Ann Taylor stores, four Ann Taylor


Factory stores, four LOFT stores and one LOFT Outlet store and expanded two Ann Taylor stores and one LOFT store.


During the nine months ended October 29, 2011 the Company downsized nine Ann Taylor stores and two Ann Taylor


Factory stores.

 

 

SOURCE ANN INC.



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