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Ann Taylor Profits Fall 21.5% in 4th Quarter

Fashion misses, the warm December and heavy markdowns hurt fourth-quarter sales and earnings at AnnTaylor.

Fashion misses, the warm December and heavy markdowns hurt fourth-quarter sales and earnings at AnnTaylor Stores Corp., though the specialty retailer came out ahead for the year overall.

Kay Krill, president and chief executive officer, said in a conference call that, while the business suffered from merchandise issues primarily at the Loft division, they could be corrected for fall and there were no fundamental brand issues at either Loft or Ann Taylor. Both are poised for growth, Krill said.

For the fourth quarter ended Feb. 3, net income dropped 21.5 percent to $21.5 million, or 31 cents a diluted share, compared with $27.4 million, or 38 cents, in the year-ago quarter.

Operating income declined 29.3 percent to $30.5 million from $43.2 million. Comparable-store sales declined 6 percent and fell 5.9 percent at Ann Taylor and 8.9 percent at Loft. Total sales in the quarter rose 6.3 percent to $610.5 million from $574 million. The retailer’s 2006 fourth quarter and fiscal year included an extra week.

“At Loft, we had much success in the first half with the brand-appropriate product offering that our clients loved,” Krill said. “However, in the second half we did not offer the appropriate balance of updated classics versus fashion.”

The results for the year overall were better, largely due to a strong first half and good inventory management. Net sales rose 13 percent to $2.3 billion on a 2.8 percent gain in comp-store sales. Net income rose 75 percent to $143 million, and on a per-share basis, to $1.98.

Loft’s sales advanced 15.6 percent to $1.15 billion and Ann Taylor sales grew 4.4 percent to $912.8 million.

The firm also revealed a string of growth initiatives, including:

-Developing an exclusive beauty business and partnering with Robin Burns and her new product-development business, called Venustas International, as reported in WWD Friday.

-Loft maternity will launch at select stores and online.

-A new stand-alone concept will be unveiled in fall 2008. No details were available.

-A Loft Factory concept will bow in summer 2008.

-A $300 million share repurchase program was authorized, the largest in its history.

The company projects earnings per diluted share in fiscal 2007 in the range of $2.15 to $2.25, comp-store gains in the low-single-digit range and capital expenditures of $150 million to $160 million.