Dramatic sales declines and charges for impairment and restructuring led AnnTaylor Stores Corp. to a larger-than-expected fourth-quarter loss, an acceleration of its store closing plans and a 38.5 percent drop in its stock Friday.

This story first appeared in the March 9, 2009 issue of WWD. Subscribe Today.

The company now plans to close 163 stores, up from an earlier projection of 117.

For the three months ended Jan. 31, the New York-based specialty retailer posted a net loss of $375.6 million, or $6.66 a diluted share, compared with a net loss of $6.7 million, or 11 cents a share, in the 2007 quarter. Ann Taylor said the results included $317 million, or $5.63 per share, in restructuring, goodwill and asset impairment charges. Excluding charges for restructuring and goodwill and asset impairment, the loss was $58.1 million, or $1.03 a share, nearly twice the 55-cent loss expected by analysts polled by Yahoo Finance.

Net sales fell 19.5 percent, to $483.4 million from $600.8 million, and dropped 24.5 percent on a comparable-store basis. At Ann Taylor Loft, volume was off 21.2 percent, with comps down 21.9 percent, while Ann Taylor sales fell 31.6 percent, to $146.3 million, and its comps pulled back 29.4 percent.

The shortfall pushed shares down $2.13 Friday to close at $3.41, earlier establishing a new 52-week, and all-time, low of $3.18.

On the company earnings call, Michael Nicholson, executive vice president, chief financial officer and treasurer, called the most recent quarter an “earnings trough” and noted the retailer took the “precautionary measure” of drawing down $125 million of its $250 million revolving credit facility “as insurance against potential disruption in the credit markets,” should it need access to working capital in spring.

Kay Krill, president and chief executive officer, told investors, “While this economic crisis was felt across all demographics, the aspirational luxury consumer was particularly hard hit, including the professional working woman, our Ann Taylor division core client.”

Both the Ann Taylor and Loft divisions felt the sting of the promotional climate at retail, and their margins experienced “significant” erosion, according to Krill.

Gross margin for the quarter fell to 35.7 percent of sales from 48.7 percent in the prior-year period.

Krill said the company ended the quarter with in-store inventories down 27 percent and total inventories down 39 percent. This will help the company plan a more “strategic promotional and markdown approach,” she said.

For the year, Ann Taylor had a net loss of $333.9 million, or $5.82 a share, versus a profit of $97.2 million, or $1.53 a share, in the prior year. Sales slid 8.4 percent, to $2.19 billion from $2.40 billion, while comps descended.

Ann Taylor said it ended the year with cash of $112 million and no debt, and that excluding any revolver borrowings, it expects to close fiscal 2009 with a comparable cash level.


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