Ann Earnings Call Insights: Factory Outlet Outlook and e-Commerce Business

Ann, Inc. (NYSE:ANN) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

Factory Outlet Outlook

Janet Kloppenburg – JJK Research: Couple of questions, Kay. Can you talk a little bit more about your outlook for the Factory Outlet to deliver? I think you’re looking for the Factory stores and the Outlet stores to deliver positive comps in the third quarter, although I’m not sure. Can you talk about what the drivers are there? On the gross margin front, do you expect that shipping and handling will continue to be a pressure? Lastly, Mike, can you just give us what our share count should be for the third quarter?

Michael J. Nicholson – EVP, CFO, and Treasurer: Sure Janet, let me do my best. So in terms of the first question, regarding our outlook for outlet, as you know, our strategy year-to-date has clearly been on focusing on maximizing profitability and we’ve been very, very disciplined with respect to our inventory investment. We said on the prior call that we fully expect beginning in Q3 that we are going to position this business to comp positive in the back half of the year, and I think it’s important to note that we will begin to anniversary much easier traffic compares as we move through the back half of the year. Importantly, as we turn the corner into the third quarter, we did begin to see an uptick in the trend with respect to the outlet business on a combined basis as compared to the second quarter. In fact, outlet on a combined basis reported quarter-to-date three weeks, doesn’t necessarily make a trend, but three weeks in on a combined basis the outlet channel is comping positive. Your second question regarding gross margin rate and the impact of shipping and handling in terms of the framework of the guide that we provided in terms of the third quarter gross margin rate outlook the way I think about it versus last year we’re anticipating about 50 basis point impact of shipping and handling versus last year. Also as I mentioned in our prepared remarks we are anniversarying a one-time benefit last year that was a benefit to the tune of about 40 basis points in terms of the gross margin rate. So on an adjusted basis year-on-year after taking those two items into account we’re effectively providing you with a framework that is essentially equal to last year’s gross margin rate outcome. Then finally, your third question, Janet can you remind me. I apologize. So operator let’s move on to – sorry share count for the third quarter. So what I did say in terms of our full year outlook in terms of share count for the full year we provided a framework of approximately 47 million shares, including the million shares of participating securities and what I’d say is in terms of the third quarter you can expect – you can utilize the share count that is slightly below that 47 million share guide. With that let’s move on to the next question.

e-Commerce Business

Kimberly Greenberger – Morgan Stanley: Kay, I’m wondering, what are the pros and cons about bringing your e-commerce business in-house, I think right now there is a third-party fulfilling it and just given the growth you’re seeing and the future opportunities in cross-channel inventory management, is there any thought that perhaps that could be an incremental opportunity for you going forward?

Michael J. Nicholson – EVP, CFO, and Treasurer: Kimberly, it’s Mike. I’m happy to take that question. We have a longstanding partnership with a third-party service provider that has positioned us well throughout the growth of this business and what I’d say is for the foreseeable future we continue to anticipate working with this partner. We’ve had good success year-to-date and historical to-date and while we continue to plan for significant growth in this business moving forward. We’re incredibly confident in this partner and confident that we’ll be continuing to work with this third-party.

Kimberly Greenberger – Morgan Stanley: Just here on third quarter to-date the stores look fantastic Kay and I’m wondering if you care to comment on just the trends that you’re seeing so far with all of the new fall transition deliveries?

Kay Krill – President and CEO: Yes, August is off to a strong start for us, both brands are comping positive month to-date and in fact we comped positive in both brands every month of Q2. So far in Q3 at Ann Taylor, we’re getting a great response to our fall offering with sweaters, blouses, pants, shirts and jackets performing particularly well and as I said on the call, our new shoe and jewelry collections are off to an unbelievable start. At LOFT, the fall assortment is also performing extremely well. She’s loving our new pant offering LOFY Lounge, denim, dresses, fall tops and statement necklaces. So I’m also very pleased that our inventory carryover was minimal at both brands with 90% of our product representing fresh fall goods. So we are well-positioned to support continued momentum at LOFT and Ann for the back part of the year. Overall, we’re on track to deliver positive comp performance at both brands and another year of record performance.