AnnTaylor Stores Corp. said Thursday first-quarter income fell 17.7 percent because of the softness and uncertainty weighing on the retail sector.

For the three months ended May 3, income dropped to $25.9 million, or 43 cents a diluted share, compared with $31.5 million, or 46 cents, in the year-ago quarter. Sales gained 2 percent to $591.7 million from $580.3 million. Same-store sales declined 4.3 percent. By division, comps fell 11.5 percent at Ann Taylor, but inched up 0.7 percent at Loft.

“As we look ahead to the balance of the year, we remain cautious due to the highly volatile nature of the current economic environment as well as our expectation for continuation of the erratic traffic trends we are experiencing,” president and chief executive officer Kay Krill said.

However, citing markdowns and inventory control during a conference call with Wall Street analysts, Krill said that given the pullback in spending among consumers the quarter was a good one for the New York-based women’s specialty chain.

“Despite the highly promotional nature of the sector this quarter, we successfully managed our business to deliver a gross margin that was only 40 basis points below a year ago and inventories that were significantly below a year ago,” Krill said. “From my perspective, this quarter was all about controlling what we could control and driving down our cost of doing business.”

Ann Taylor anticipates second-quarter earnings of 42 cents to 47 cents a diluted share, excluding restructuring costs. It also affirmed a fiscal 2008 earnings forecast in the range of $1.80 to $1.90 a diluted share.

The company anticipates opening 66 new stores in fiscal 2008, up from the 50 to 55 new stores originally planned. The increase is due to the retailer’s intention to aggressively expand the Factory and Loft outlet openings. The company also plans to cut the ribbon on 10 new Loft stores that were initially slated to open in 2009.

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