Ann Taylor Profit Falls

Before a charge, however, earnings are better than expected.
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Earnings slid in

Ann Taylor's

(ANN)

second quarter as the company marked down merchandise and took a lease-related charge.

The clothing retailer earned $7.1 million, or 10 cents a share, in the quarter, compared with $30.1 million, or 41 cents a share, a year ago. Excluding the charge, Ann Taylor earned 18 cents a share in the quarter, a penny ahead of estimates.

Sales rose 7.6% from a year ago to $508.7 million.

Ann Taylor said its gross margin as a percentage of net sales was 47.5% in the most recent quarter, down from 53.0% a year ago.

"The decrease in gross margin as a percentage of net sales is primarily due to lower full-price sales at Ann Taylor Loft and lower margins achieved on non full-price sales at both divisions, largely due to an increase in promotional activities at both divisions," the company said.

The company left full-year earnings guidance intact at $1.17 a share, about 9 cents better than the existing Thomson First Call estimate.

"The company expects to see gross margins improve from current levels in both the third and fourth quarters as inventory levels continue to decline and merchandise margins improve," it said. "Additionally, the company expects to see a reduction from current levels in selling, general and administrative expenses as a percentage of sales in both the third and fourth quarters."

Shares closed at $25.04 on Thursday.