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February 1, 2008 |
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ANN TAYLOR: Launches Strategic Restructuring Program Ann Taylor Stores Corporation has announced a multi-year restructuring program that is designed to enhance profitability and improve overall effectiveness, following the company's comprehensive review of its SG&A cost structure. The company also announced that, in light of the ongoing macroeconomic weakness and uncertainty in the retail sector, it is taking a conservative approach to new store growth in fiscal 2008. The key elements of the restructuring program include: -- The optimization of the company's store portfolio, including the closure of 117 underperforming stores over the 2008-2010 period; -- An organizational streamlining, primarily involving the downsizing of the company's headquarters staff by approximately 13%; and -- A broad-based productivity initiative, including the strategic procurement of non-merchandise goods and services, to improve efficiencies and effectiveness across the organization and store base. Commenting on the announcement, Ann Taylor President and Chief Executive Officer Kay Krill stated, "Following a very thorough review of our entire business and cost structure, we are taking actions to enhance our overall effectiveness and improve our profitability, and we believe that doing so will increase our operating margin by more than 200 basis points over the next three years. This restructuring is designed to position us as a stronger, leaner company that can be more agile in responding to economic realities and marketplace opportunities, and we are confident that this program will not only improve our bottom line, but also enable us to reinvest in our business to drive more profitable growth in the future. I firmly believe we are better positioned today to successfully execute a program of this nature than at any time in our history." "For 2008, in light of the current macro environment and retail slowdown, we are taking a very measured approach to capital spending for new store growth, including opening fewer Ann Taylor and LOFT stores and delaying the test of our new concept until 2009. At the same time, we are planning to aggressively invest in factory channel expansion. We believe that this approach mitigates business and financial risk during this period of economic uncertainty and, in concert with the restructuring program, positions the company to accelerate our growth plans as the economy and consumer spending improve," Ms. Krill stated. Restructuring Program Details The restructuring program is expected to result in ongoing annualized pre-tax savings of approximately US$50 million by fiscal 2010, with the benefit to fiscal 2008 expected to total approximately US$20-25 million. The total pre-tax cost to implement the program is expected to be approximately US$40-45 million, with US$29 million, or approximately US$0.29 per diluted share, to be incurred in fiscal 2007. Excluding these expenses, the company indicated that it remains comfortable with its previous outlook for diluted EPS of US$1.80-US$1.85 for fiscal 2007. The company indicated that approximately US$40 million of the expected US$50 million in ongoing annualized savings are cash savings, primarily stemming from the strategic procurement of non-merchandise goods and services, the reduced corporate headcount and other productivity initiatives. The anticipated total program cost of US$40-45 million includes approximately US$25 million in non-cash expenses, primarily associated with the write-down of assets related to store closures. The balance of approximately US$15-20 million in expenses are cash charges and relate primarily to severance and various other costs to implement the restructuring. Commenting on the program, Ms. Krill stated, "On a cash basis, this restructuring program is expected to yield the company approximately US$40 million in ongoing annualized savings, at a cost of approximately US$15-20 million. This expected return is very compelling, and we believe the program delivers real value to our shareholders and positions us for success in the years ahead." The company indicated that the fiscal 2007 costs of US$29 million primarily reflect the non-cash write-down of assets, as well as severance and other expenses. Program costs expected to be incurred in fiscal 2008 total approximately US$7-10 million and are largely cash expenses. The balance of the program costs, to be incurred over the 2009-2010 period, total approximately US$4-6 million and are largely cash charges. The store optimization component of the restructuring involves the closure of 117 underperforming stores and the related non- cash write-off of assets associated with this decision. The company plans to close 64 of the 117 stores during fiscal 2008, with the balance to be closed over the fiscal 2009-2010 period. The company conducted a careful review of options with respect to the method and timing of closing the underperforming stores and determined that the staged approach over the 2008-2010 period was the most cost-effective option. The sales contribution in fiscal 2007 of the 117 stores slated for closure is estimated at approximately US$210 million, with minimal operating income impact. By division, the company is planning to close 25 Ann Taylor stores in fiscal 2008, with an additional 14 stores slated for closure in fiscal 2009-2010. For LOFT, 39 stores are expected to be closed in fiscal 2008, with 39 additional stores slated for closure in fiscal 2009-2010. The company indicated that, in addition to the restructuring program, it expects to continue to close stores over the 2009-2010 period, as part of its normal business process. The organizational streamlining involves the elimination of 180 positions, or 13% of the company's corporate workforce, and is designed to increase span of control and improve efficiency and effectiveness. The broad-based productivity initiative involves the strategic procurement of non-merchandise goods and services in all areas of the company's SG&A cost structure. These efforts involve the internal consolidation of all purchasing activities under a centralized strategic procurement organization to leverage scale, as well as the outsourcing of various activities where cost efficiencies can be achieved without sacrificing quality. In addition, this initiative involves the optimization of all aspects of store productivity and effectiveness. 2008 New Store Openings The company also indicated that, for fiscal 2008, it has conservatively planned its core business performance, particularly in the first half, due to the anticipation of continued weakness in the economy and consumer spending. The company continues to believe that it will enter fiscal 2008 in a healthy inventory position and will be focused throughout the year on keeping its inventories under control. In terms of new store openings for fiscal 2008, the company currently plans to open four Ann Taylor stores, 15 LOFT stores and 20-25 Ann Taylor Factory stores. In addition, the company is proceeding with its rollout of LOFT Outlet and plans to open 10 LOFT Outlet stores in fiscal 2008. "We continue to believe that our company has tremendous untapped growth potential in all of our retail concepts as well as our Internet channel. We also remain very optimistic about our new concept and the consumer it will ultimately serve. However, for 2008, we are focusing our resources on implementing our restructuring program and ensuring our core businesses are strong, healthy and more profitable. In all, the plans we are pursuing are designed to enable us to weather the expected downturn in 2008, while positioning the company for aggressively pursuing growth as the economy recovers," stated Ms. Krill. Headquartered in New York City, Ann Taylor Stores Corporation, through its wholly owned subsidiary, AnnTaylor Inc. -- http://www.anntaylor.com/ and http://www.anntaylorLOFT.com/ -- is a retailer of women's apparel, operating 878 stores in 46 states, the District of Columbia and Puerto Rico. |
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