Q1 2011 Earnings Call

May 20, 2011 8:30 am ET


Judith Lord -

Michael Nicholson - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Treasurer

Katherine Krill - Chief Executive Officer, President and Executive Director


Lizabeth Dunn - FBR Capital Markets & Co.

Jeff Black - Citigroup Inc

Stacy Pak - Prudential

Adrienne Tennant - Janney Montgomery Scott LLC

Betty Chen - Wedbush Securities Inc.

Brian Tunick - JP Morgan Chase & Co

Roxanne Meyer - UBS Investment Bank

Jennifer Black - Jennifer Black & Associates

Unknown Analyst -

Kimberly Greenberger - Morgan Stanley

Lorraine Hutchinson - BofA Merrill Lynch


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Good morning, ladies and gentlemen, and welcome to ANN INC.'s First Quarter 2011 Earnings Conference Call. At the request of the company, today's conference call is being recorded. [Operator Instructions] I would now like to turn the call over to Judy Lord, Vice President, Investor Relations. Please go ahead.

Judith Lord

Thank you, Gwenie, and good morning, everyone. We're very pleased you could join us to review our results for the fiscal first quarter of 2011. I'm here today with Kay Krill, ANN INC.'s President and CEO; and Mike Nicholson, our CFO.

Kay will begin with an overview of the quarter, and then Mike will discuss our financial results and outlook. After that, we’ll open it up for your questions.

Before turning it over to Kay, we would like to remind you that our discussion this morning includes forward-looking statements, which are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect the company's current expectations as of May 20, 2011, concerning future events and are subject to a number of factors and uncertainties that could cause actual results to differ materially.

With that, it's my pleasure to hand it over to Kay.

Katherine Krill

Good morning, everyone, and thanks for joining us. I am very pleased to report that we have gotten off to an excellent start in fiscal 2011, with a strong first quarter performance. We delivered significant increases on both the top and bottom line over the year-ago period. And we have continued to lay the groundwork for further profitable growth this fiscal year and beyond.

Sales for the quarter increased 10% to $524 million, up from $476 million in the first quarter last year. Comparable sales rose 8%, which came on top of last year's 14% comp increase. The Ann Taylor brand was up 15% on top of last year's 16% increase, and the LOFT brand was up 2% on last year's 13% increase.

These increases were all the more gratifying, given the combination of the double-digit comps we achieved last year, the unseasonably cool weather this spring, continued macro pressure and the very late Easter holiday. As you all know, Easter is our most significant holiday selling period of the year, for both brands. Ann Taylor and LOFT generate more sales in the week prior to Easter than the week prior to Christmas.

On the bottom line, net income increased by more than 20% compared with last year's first quarter. Diluted earnings per share grew 34% to $0.51, up from $0.38 in the year-ago period, reflecting higher sales due to a better product assortment, our continued focus on managing our costs and inventory and our share repurchase program. Overall, a very positive start to 2011. And we are on track to exceed our financial objectives for the year.

Let's now turn to the brands. First, Ann Taylor. The Ann Taylor brand achieved another outstanding quarter, continuing the momentum from our strong fall season. All channels delivered positive comp performance, with the stores channel up 14%, the online channel up 43% and the factory channel, up 9%. With this quarter's 15% comp increase for the brand on top of last year's 16%, our 2-year comp is up a very strong 31%.

Gross margin was strong despite a slightly higher level of promotional activity versus last year. Our clients continue to respond positively to Ann Taylor's successful formula of offering a balanced mix of versatile core items, perfect pieces and fashion with an outstanding quality and value.

Wear-to-work remains the cornerstone of the Ann Taylor assortment and with the brand's updated modern perspective, we continue to gain in this important segment of the women's market. Wear-to-work separates, suiting, dresses and pants all performed very well during the quarter. In fact, we were chasing the suiting category throughout the quarter.

In addition, sweaters were strong, and our client responded positively to our assortment of color, print and pattern. We would have benefited from even a broader selection of color throughout the quarter, and we do have more color options for the second quarter.

Ann Taylor's e-commerce business achieved another quarter of significant growth. The comp sales increased a 43%, was on top of a 51% increase in this channel in the first quarter last year. This strong performance again, reflected substantially higher traffic, improved conversion and an increased average order value. In addition to the strength of our wear-to-work offering, we also generated exceptional results with our online exclusives, including the weddings category, which was a standout.

We continue to be very excited about the potential for further growth in the e-commerce channel and remain focused on the significant opportunity we see to drive multichannel sales and better leverage our inventory investment across all of our channels. Our goal is to serve our client on her terms, not ours. If she wants it and we have it, we will get it to her.

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