ANN INC. (ANN)

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AnnTaylor Stores (ANN)

Q4 2010 Earnings Call

March 11, 2011 8:30 am ET

Executives

Judith Lord -

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

Katherine Krill - Chief Executive Officer, President and Executive Director

Analysts

Jeff Black - Citigroup Inc

Adrienne Tennant - Janney Montgomery Scott LLC

Linda Tsai - MKM Partners LLC

Paul Lejuez - Credit Suisse

Roxanne Meyer - UBS Investment Bank

Janet Kloppenburg - JJK Research

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to Ann Taylor Stores Corporation's Fourth Quarter 2010 Earnings Conference Call. [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, Caroline, and good morning, everyone. We're very pleased you could join us to review our results for the quarter and fiscal year 2010. I'm here today with Kay Krill, Ann Taylor's President and CEO; and Mike Nicholson, our CFO. Kay will provide an overview of the quarter and address our strategic priorities for 2011, and then Mike will review our financial results and comment on our outlook for our first quarter and fiscal year 2011. 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 March 11, 2011, concerning future events, and are subject to a number of factors and uncertainties that could cause actual results to differ materially.

And with that, let me hand it over to Kay.

Katherine Krill

Good morning, everyone, and thanks for joining us. I am very pleased to report on our strong performance for the fourth quarter, which capped off a terrific year for the company. For both the quarter and the 2010 fiscal year, we achieved substantial increases on both top and bottom line and we are excited about our continued growth and momentum as we enter fiscal 2011.

For the quarter, earnings per share, excluding charges, reached $0.19, an almost fourfold increase from the $0.05 we reported, excluding charges, in the fourth quarter last year. Net sales for the quarter increased 10% to $515 million and comparable sales for the quarter were up 11% over last year, with both brands comping positively. In fact, the company achieved positive comps in every quarter of fiscal 2010.

I'm especially pleased with our sales growth for the quarter, which was higher than our earlier expectations despite the impact of weather events during the fourth quarter. While the storms resulted in lost sales, we nevertheless moved efficiently and thoroughly through our fall inventory and prepared the stores for the arrival of fresh spring products at both brands.

Overall, the company delivered significantly better results for fiscal 2010 that were well ahead of fiscal 2009. As Mike will review in more detail, earnings per share for the year, excluding charges, increased to $1.30, almost $1 per share greater than the $0.32 we reported for fiscal 2009. This dramatic improvement reflected sales growth of more than $150 million and a higher gross margin rate for the year, up nearly 150 basis points to a fiscal-year record of 55.8%.

Coupled with this significant growth, we also delivered on our commitment to further enhance shareholder value through the repurchase of our shares. During the year, we repurchased 4.2 million shares at a total cost of $100 million. And during the first quarter of 2011, we repurchased an additional 4.2 million shares, also at a cost of approximately $100 million. I am also pleased that our board has authorized an additional $200 million under our existing share repurchase authorization, giving us nearly $260 million available to repurchase our shares.

With that, I'll turn now to a review of fourth quarter performance at our brands. The Ann Taylor brand continued its strong momentum, delivering on all fronts and resulting in another quarter of exceptional performance. Comparable sales for the brand increased 21%, with significantly higher sales across all channels. This included a 19% increase in the stores channel, a 74% increase in our e-commerce channel and a 9% increase in our factory channel.

Importantly, the strong sales growth was accompanied by a much improved gross margin rate for the brand, compared with its fourth quarter of last year. Overall, the performance this quarter reflected a continuation of the successful strategies that have worked for us throughout the year, as we have provided a highly relevant product assortment, including a balanced mix of versatile core items, perfect pieces and fashion; built on our legacy as the go-to-work destination for her wear-to-work wardrobe; and offered her truly exceptional quality and value. In addition, our team has supported these initiatives with effective marketing and targeted promotional strategies that have driven higher traffic and increased conversion.

From a product perspective, wear-to-work separates, suiting, dresses, sweaters, holiday occasions separates, pants, jewelry were all particularly strong, and in fact, every category generated positive comp performance. Overall, we appropriately balanced the mix of self-purchase and gifting items and saw positive results across the assortment.

Our success in stores was also replicated online, with Ann Taylor's e-commerce business delivering another quarter of tremendous growth. In terms of product, results were consistent with in-store, with our core offering performing well, in addition to the continued success with our online exclusive sizes, colors, styles and categories. The 74% comp sales increase was driven by much higher traffic, significantly improved conversion and solid growth in average order value. One of our key priorities in 2011 is to further capitalize on the enormous potential of this channel, as I will address a little later.

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