* Q1 loss 4 cts; Wall Street expected loss of 11 cts
* Sales fell 27.9 pct to $426.7 mln
* Announces new strategy for product flow
* Sees “modest improvement” in Q2 sales, gross margin flat
* Shares down 8 pct (Recasts with outlook, adds CEO comments, analyst, byline)
By Martinne Geller
NEW YORK, May 20 (Reuters) - AnnTaylor Stores Corp ANN.N gave a cautious outlook on Wednesday as the recession cuts into sales of its women’s clothing, sending shares 8 percent lower.
The company reported a smaller-than-expected first-quarter loss on tight inventory management and cost cuts, but said it expects sales to remain “under significant pressure,” especially at its flagship Ann Taylor chain, given the recession and “the particular impact it has had on the aspirational luxury sector and professional working women.”
Sales at the company’s LOFT chain -- which sells more casual, less expensive women’s clothing -- were more than double the flagship line‘s, but also fell from the year-earlier quarter.
As the retailer battles falling sales, its main weapon has been to control inventories, which keeps costs low and lessens the chance of profit-sapping markdowns. AnnTaylor announced plans on Wednesday to intensify that strategy by changing how it brings in new merchandise to the flagship chain.
Starting this summer, Ann Taylor will sell core items such as “the perfect pencil skirt, perfect pants, perfect jacket, perfect dresses” throughout an entire season, and will bring in more fashionable pieces monthly to complement them.
But Wall Street Strategies analyst Brian Sozzi said the plan could backfire and leave stores looking stale, which could then create an inventory buildup for the key fourth quarter.
“If you’re a consumer and you go into the store and you see a particular (pair of) pants, and you go back two weeks later, you want to see something new on the floor ... regardless of if you have a new fashion top,” Sozzi said.
Sozzi, who has a “sell” rating on the shares, said AnnTaylor is counting on the successful repositioning of its flagship brand, but that success is not definite, given inconsistent execution in the past.
“I‘m erring on the side of caution,” Sozzi said. “Not that the assortment falls flat on its face, but it may not live up to what they’re doing.”
AnnTaylor Chief Executive Kay Krill said that beginning in the fall, “you will see Ann Taylor’s product offering, marketing and in-store environment begin to evolve to a far more modern, relevant and compelling point of view.”
AnnTaylor posted a net loss of $2.3 million, or 4 cents per share, in its first quarter, ended May 2, compared with a net profit of $25.9 million, or 43 cents per share, a year earlier.
Analysts on average had expected a loss of 11 cents per share. The retailer said last week that its loss per share would be much smaller than the 24 cents analysts had then been expecting.
Net sales slid 27.9 percent to $426.7 million, below analysts’ estimate of $454.0 million. Same-store sales fell 30.7 percent, with a 42.7 percent drop at Ann Taylor and a 24.2 percent drop at the LOFT chain.
Yet the company’s gross margin improved 2.3 percentage points to 55.5 percent, driven by tight inventories and cost savings.
It expects its gross margin to be flat with the year-ago period in the second quarter but sees an improvement for the full year, due to inventory management, better product at both brands and an expectation for “a gradual return to more rational promotional activity in the sector.”
Regarding sales trends, AnnTaylor said it expects “only modest improvement” during the second quarter, with trends improving in the back half of the year.
AnnTaylor also said it expects second-quarter general and administrative expenses of $245 million.
The company said it expects to open 14 new stores this year and close 37 stores, for a total square footage decline of 2 percent by the end of the year.
AnnTaylor shares were down 72 cents, or 8 percent, at $8.23 on the New York Stock Exchange. (Reporting by Martinne Geller, editing by Gerald E. McCormick, John Wallace, Gary Hill)