Ann Earnings Call Insights: Ann Taylor and LOFT Brands, Promo Cadence

On Friday, Ann, Inc. (NYSE:ANN) reported its first quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Ann Taylor and Loft Brands

Kimberly Greenberger – Morgan Stanley: Congratulations on a great start to the year.

Kay Krill – President and CEO: Thank you.

Kimberly Greenberger – Morgan Stanley: Kay, your stores have had some of the best color that we have seen in the mall this year. I would imagine however, that the trends changed throughout the year and without discussing perhaps your approach to fashion, I am wondering if you can maybe just talk about your expectations for both the Ann Taylor and the LOFT brands here over the next three quarters. If we are sitting here at the end of the year and both have had a successful year, what will they have achieved in your mind?

A Closer Look: Ann Earnings Cheat Sheet>>

Kay Krill – President and CEO: I will address the color question first, Kimberly, absolutely we are seeing color selling across both brands, all channels, and in fact, LOFT really stepped out with great conviction and bought far more color than they ever had and are seeing great success because of it. Ann Taylor did double their color investment from last year and actually we could have used more. So, we sold color in every product category that we headed at. I fully expect color to continue trending throughout the year in both brands and we fully expect improvement in comp sales in Q2 and for the remainder of the year in both brands. LOFT has strong momentum so far and Ann Taylor stores performance has dramatically improved from first quarter, in fact, the Ann Taylor brand is positive comp May to-date and our e-commerce business is significantly strong than first quarter. So, we fully expect to deliver positive comps for both brands for the second quarter and the remainder of the year.

Kimberly Greenberger – Morgan Stanley: Is it possible that you could actually see the Ann Taylor division accelerate more than LOFT just because the Ann Taylor division has the easier comparisons as we work our ways through the year?

Kay Krill – President and CEO: I think that we are seeing continued strong momentum at LOFT and in all channels and we are beginning to see the positive momentum in Ann Taylor and are actually very encouraged with our store performance May to-date.

Promo Cadence

Janet Kloppenburg – JJK Research: Congratulations on a great performance. Kay, just if you’re talking about Ann Taylor for a minute, I’m interested in your reduced promotional cadence as a brand. I’m wondering if that hurt traffic in the quarter and if you think the infusion of more appropriate opening price points could help offset traffic declines going forward? Just on the note about the May business, I’m wondering if you’re promotional cadence in May has been lower than last year despite the fact that the business has accelerated?

Kay Krill – President and CEO: Janet, those are lots of questions. Let me just address like multiple issues with Ann Taylor to try to answer some of those questions because we’re moving forward with many initiatives to increase sales and productivity in the Ann Taylor stores channel. We are definitely improving our product assortment by offering a greater selection in key categories in tops, dresses, and skirt in all stores. We were just too narrow in our assortment of especially at the majority of our stores. We’re also increasing the offering and opening a good price points to offer the client even greater value at full price and we are definitely seeing success thus far in Q2 with this strategy. We were already on it for fall 2012, for third and fourth quarter, so we’re really pleased that that was the right strategy. We definitely have become more surgical in our approach to markdowns and promotions in the channel and we definitely improved our gross margin rate and we will continue to be surgical in our approach as well. We’re also really excited about rolling out our new concept stores as we downsize and open selectively new stores. We also have one more strategy too and that is we’re working on a capital light refresh strategy for the balance of the chain, other than the new concept stores because we really feel like every store needs to look modern and up-to-date. So, I’ll say that the team is highly focused on winning again and we’re all crystal clear on what needs to be accomplished, and as you can hear, we have several things that I think we’ve made meaningful progress on so far. We’re thrilled to see the comp improvement so far in May and expect to see continued improvement with each quarter.

Janet Kloppenburg – JJK Research: Even though the promotional activity will be lower than last year?

Kay Krill – President and CEO: Yes. We’re seeing the opening price points Janet really resonate with her that she is willing to pay full price when the price is right. As a matter of fact…

Michael J. Nicholson – EVP, CFO, and Treasurer: Couple of things. One, in terms of first quarter, we saw no impact on traffic patterns in-store. So, I think that’s a good indicator in terms of the trend in where we are headed. AUR was stronger year-on-year and we’re seeing that trend continue into Q2 so we continue to drive higher gross margin rates on a year-on-year basis consistent with what we experienced in Q1.