ANN INC Management Discusses Q2 2012 Results - Earnings Call Transcript

ANN INC (ANN)

Q2 2012 Earnings Call

August 17, 2012 8:30 am ET

Executives

Judith Lord

Katherine Lawther Krill - Chief Executive Officer, President and Executive Director

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

Analysts

Kimberly C. Greenberger - Morgan Stanley, Research Division

Dana Lauren Telsey - Telsey Advisory Group LLC

Roxanne Meyer - UBS Investment Bank, Research Division

Janet Kloppenburg

Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division

Brian J. Tunick - JP Morgan Chase & Co, Research Division

Anna A. Andreeva - FBR Capital Markets & Co., Research Division

Robin S. Murchison - SunTrust Robinson Humphrey, Inc., Research Division

Marni Shapiro - The Retail Tracker

Betty Y. Chen - Wedbush Securities Inc., Research Division

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the ANN INC.'s Second Quarter 2012 Earnings Conference Call. At the request of the company, today's call is being recorded. [Operator Instructions] Following the prepared remarks by the company, you will have the opportunity to ask questions. I would now like to turn the call over to Judy Lord, Vice President, Investor Relations. Please go ahead.

Judith Lord

Good morning, everyone. We're very pleased you could join us this morning to review our results for the second quarter of fiscal 2012. I'm here this morning with Kay Krill, ANN INC.'s President and CEO; and Mike Nicholson, our CFO. Kay will begin with an overview of the quarter and a brief update on our strategic initiatives, followed by Mike, who 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 August 17, 2012, concerning future events and are subject to a number of factors and uncertainties that could cause actual results to differ materially.

And with that, I'd like to hand it over to Kay.

Katherine Lawther Krill

Good morning, everyone, and thank you for joining us to review ANN INC.'s results for the second quarter of fiscal year 2012. We are extremely pleased with our record EPS results this quarter. Our outstanding performance reflected positive sales momentum at both brands and a record gross margin rate for the quarter.

Diluted earnings per share for the quarter increased 34% to $0.63, reflecting significant acceleration at the Ann Taylor brand and continued momentum and strength at the LOFT brand. Operating income increased 27% versus the second quarter of 2011.

On the top line, total sales for the quarter reached $595 million, up 7% from the year-ago period. Comparable sales for this company rose 5%, driven by positive comps at Ann Taylor and LOFT in all channels. In fact, comps at both brands strengthened in each month of the quarter.

Our gross margin rate reached a record 56%, significantly higher than our earlier outlook and was driven by strong client response to our product and less promotional activity at both brands. Based on our outstanding results for the quarter, we are increasing our outlook for the full fiscal year, as Mike will discuss in his remarks.

Our confidence going forward is supported by the success we're achieving in connecting with our client at both brands. Clearly, our results demonstrate that we are providing her with compelling fashion, excellent quality, outstanding value and a more engaging shopping experience in-store and online.

Let me provide some specifics. First, Ann Taylor. At the Ann Taylor brand, performance accelerated significantly from the first quarter, reflecting stronger sales and profitability in the stores channel and continued profitable growth in e-commerce and factory.

Comparable store sales for the brand increased 6%. By channel, this included positive comp sales of 3% at Ann Taylor stores, 29% in e-commerce and 2% at Ann Taylor Factory. We were especially pleased with the return to positive comps in the stores channel this quarter driven by the successful execution of our product, pricing and promotional strategies. In fact, this channel also delivered positive comp sales in every month of the quarter, with each month getting stronger.

As a reminder, we are highly focused on continuing to drive higher sales, productivity and profitability in the Ann Taylor stores channel by offering our client a broader assortment of relevant fashion, providing more selection in opening price points across every category, becoming more surgical in our promotional strategy, offering our full assortment in all stores across the chain and enhancing the in-store shopping experience.

During the quarter, we definitely benefited from our plan to offer her a much higher penetration of color and a greater investment in key categories that she wants, such as dresses, skirts and feminine tops. In addition, we are very encouraged by the response we're seeing to our new pricing strategy, which is designed to provide our client with an expanded selection of merchandise at opening and good price points and even greater value. For the second quarter, we increased the penetration of opening price points in key categories, and she definitely responded at full price.

We also made significant progress in scaling back on our promotions during the quarter, becoming much more surgical in our markdown strategies. We were able to execute a more targeted approach with less emphasis on storewide promotions. This enabled us to drive higher AURs and a much healthier full-price business while further reinforcing the aspirational nature of the Ann Taylor brand.

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