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Strong Margins Buoy Ann Taylor Profits

The suit came back for Ann Taylor Stores in the fourth quarter, and there were profits tucked into the pockets, as it posted net income of $16.1 million.

NEW YORK — The suit came back for Ann Taylor Stores in the fourth quarter, and there were profits tucked into the pockets.

However, the chilly weather and lackluster economy forced the New York-based company to warn it was lowering its forecast for the first quarter.

Saying it reversed fortunes by slashing inventories and selling more merchandise at full price in the final quarter of 2002, the 588-unit women’s specialty retailer reported net income of $16.1 million, or 35 cents a diluted share, for the three months ended Feb. 1, matching Wall Street estimates. AT bounced back from a year-ago loss of $332,000, or 1 cent. Earnings in the year-ago period were negatively impacted by $17 million pretax one-time charges and $2.8 million in goodwill amortization.

The bottom and top lines went in different directions, as they have for many retailers this reporting season.

Sales in the quarter notched down 5.2 percent to $352.2 million from $371.4 million in last year’s quarter and dwindled 12.3 percent on a comparable-store basis, including a 14.6 percent decrease at Ann Taylor stores and a 7.1 percent decrease at the Loft division, its more casual, lower-priced concept.

Full-price selling and lower inventory drove gross margins to 52 percent of sales compared with 45.3 percent of sales in last year’s quarter.

Results arrived after the close of the markets, but AT’s shares Tuesday closed down 31 cents, or 1.6 percent, at $18.75 in New York Stock Exchange trading. The stock has hovered less than $1 above its 52-week low of $17.84 reached on Jan. 27.

Chairman and chief executive J. Patrick Spainhour said, “Our continued progress in aligning our product assortments to our core brand competencies and enhancing our client’s overall shopping experienced enables us to sell more merchandise at full price.”

In addition, he attributed the profit increase to AT’s tight inventory control and efficiencies in the global sourcing.

Spainhour said, “Our merchandise team for AT and Loft honed their focus on serving our unique clients by better aligning with the concept’s classic styling.” Looking ahead, he noted the company will refocus its efforts on relaxed tops.

Spainhour also noted that, while the search for a new AT president to replace Kim Roy, who left in January, continues, he hopes it will be concluded in a few weeks.

Speaking about its AT division, Spainhour said careerwear, AT’s core competency, continued to perform well, as sales in both suits and dresses were up to plan. However, tops and separates remained challenging, and Spainhour acknowledged they were too basic and lacked color.

In addition, he said the holiday selling season was not as powerful as he would have liked, blaming a lack of key gift-giving items for the shortfall.

Kay Krill, president of Loft, said key items were tops, footwear, accessories and outerwear, which represent roughly 60 percent of sales during the quarter. In addition, Loft was successful with the $10 off any sweater promotion, which created multiple purchases.

“Sweaters with versatile styles that could be worn dress up or down performed well,” Krill said. “During the quarter, we drove the business through better full-price selling and a focus on tops and accessories and more planned promotions.”

She also noted merchandise will be allocated by store location so that stores in suburban areas will receive more relaxed and casual clothing and stores in locations in close proximity to high office populations will have more refined merchandise.

The company said it was lowering first-quarter earnings guidance to between 39 and 41 cents, from 45 to 47 cents, and said it expects first-quarter comps to fall in the low- to mid-single digits.

In 2002, profits soared 175.4 percent to $80.2 million, or $1.72 a diluted share, over income in 2001 of $29.1 million, or 67 cents. Excluding the effects of the amortization of goodwill in 2001, income would have been $39.8 million, or 90 cents. Sales for the 12 months rose 6.3 percent to $1.38 billion over $1.3 billion, but declined 3.9 percent on a comp basis, with AT stores down 5.3 percent and Loft falling 1 percent.