ANN INC. reports record third quarter 2012 EPS results

Added by on November 28, 2012

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.”

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.

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.

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.

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.