AnnTaylor Stores Corp. eliminated 19 percent of the staff at company headquarters in New York’s Times Square on Wednesday and lowered sales and profit expectations for the third quarter, leading the firm’s stock to tumble 25 percent to $8.93 from $12.
This week’s cutbacks represent an acceleration of a restructuring and cost-savings program triggered in January that also entailed store closings. While the maneuvers are severe, the company said they’re yielding better-than-expected savings, enabling the company to withstand the deepening recession, which seems to be hitting fashion as hard as any sector.
For the third quarter ended Nov. 1, which gets reported on Nov. 21, the company expects flat earnings per share, estimated by analysts at 46 cents. The company also will report net sales of $527 million, compared with $601 million in the year-ago quarter, and a comparable-store sales decline of 19 percent.
At the Ann Taylor division, comparable-store sales declined 25 percent, and in-store inventory per square foot, excluding beauty, was down 20 percent. Loft’s comparable-store sales fell 15 percent and inventory was down 15 percent. The retailer sees weak consumer spending persisting through the fourth quarter into 2009.
On Thursday, Kay Krill, Ann Taylor’s president and chief executive officer, stated, “Following a solid first-half performance, during which we effectively navigated a difficult economy, the dramatic deterioration in both the financial markets and the macroeconomic environment in September and October has put additional pressure on the retail industry in general, and the women’s apparel sector in particular. As a result, third-quarter financial results are tracking well below our previous expectations.”
But Krill said the company has “a strong, debt-free balance sheet” with $295 million in available liquidity including more than $80 million in cash. During the third quarter, no shares were purchased under the repurchasing program, and capital spending will be “significantly scaled back” next year. “We are well positioned to support our brands and focus on strengthening our underlying business, even as we take aggressive steps to reduce our cost structure,” Krill said.
A spokeswoman said 260 positions across all functions at corporate and divisions were eliminated, three-quarters of which were filled. “This did not affect any client-facing associates in our stores, and all functions participated in the process to identify potential efficiencies,” she added.
About a third of the team at headquarters has been eliminated this year, including 19 percent this week and 13 percent last January. The latest cuts should generate $25 million in savings on an annualized basis. The entire strategic restructuring will save Ann Taylor $80 million to $90 million on an annual basis over a three-year period, versus the $50 million previously forecast, added the spokeswoman. “We performed a very careful and thorough analysis and identified opportunities where we could be more efficient and effective while, at the same time, driving more empowerment and accountability at the divisional level” before determining where to cut, she said. “This reduction involved reducing layers of management, increasing span of control and driving more ownership and accountability at the divisional level, as opposed to eliminating entire functions.”
Total pretax restructuring costs over the next three years are expected to range from $65 million to $70 million.
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