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Executives

David R. Jaffe – President, Chief Executive Officer

Armand Correia – Senior Vice President, Chief Financial Officer

Keith Fulsher – Chief Merchandising Officer of Dress Barn

Lisa Rhodes – Chief Merchandising Officer of Maurice's

Analysts

Christopher Kim – J.P. Morgan

Gary Giblen – Goldsmith & Harris

Samantha Panella – Raymond James

Robin Murchison – Sun Trust Robinson Humphrey

Greg Margolis – Visium Capital

Jeffrey Gunter – Beverly Capital Management

Dress Barn Inc. (DBRN) F1Q09 Earnings Call November 19, 2008 4:30 PM ET

Operator

(Operator Instructions) I would like to remind participants that remarks made by management during the course of this call, may contain forward-looking statements within the meaning of the federal securities laws and Private Securities Litigation Reform Act of 1995. These remarks are based on management's current expectations, estimates, and projections and are subject to a number of factors and uncertainties that could cause actual results to differ materially. A detailed discussion of these risk factors and cautionary statements are contained in the Company's filings with the SEC.

I will now turn the call over to our host, Mr. David Jaffe, President and CEO.

David Jaffe

Good afternoon. Thank you for joining us today to review our first quarter fiscal 2009 results. Joining me are Armand Correia, CFO, Keith Fulsher and Lisa Rhodes, Chief Merchandising Officers for Dress Barn Stores and Maurices stores.

First, I'd like to start off with an overview. Dress Barn, Inc.'s comp sales dropped 1% for the first quarter, flat at Dress Barn division and minus 3% for Maurices was a reflection of the difficult retail environment this fall. While the more seasonable weather this year helped business, economic concerns reduced our traffic and transaction counts across the board. This performance, while below our initial plan was offset by strong inventory and cost control that enabled us to increase our earnings 5% over last year for an EPS of $0.32 versus $0.30 LY.

The tone of business has been a particular concern in the two and a half weeks since the quarter ended. Certainly the Election, a Friday Halloween, and an Indian summer were partially to blame but the tenor of business is very weak. For this time period, comps were down high single digits at Dress Barn and off mid single digits at Maurices.

In response, we have moved quickly and aggressively to control our inventory and put incremental promotions in place to help drive traffic. Our outlook for the spring is cloudy at best and given the current environment, we have taken an appropriately defensive stance. During these difficult times, until both of our divisions are very well positioned, our fashion focus allows higher end customers to trade down without sacrificing style, while our value prices and impactful promotions enable cash-strapped shoppers to stay within their budget. We will be refining our marketing and in-store displays to emphasize these two messages in the coming months.

I'll now turn it over to Armand for review of our financial performance.

Armand Correia

Thank you, David. Reviewing our financial results for our first quarter of fiscal 2009, net earnings increased to $20.5 million or $0.32 per share, compared to $19.6 million or $0.30 per share for the same quarter last year. This performance exceeded our expectations given the 1% decrease in comp store sales. The year-over-year increase in quarterly earnings was primarily driven by increases in gross profit related to merchandise margin improvement from our Dress Barn stores.

Quarterly net sales increased 3% to $376.4 million versus the year ago quarter. The increase reflected the overall net store growth of 5%, combining both Dress Barn stores and Maurices' growth, offset by a quarterly comp store sales decline of 1%. By division, Dress Barn stores quarterly sales increased 2% to $232.8 million versus last year, while comp store sales were flat. Dress Barn stores were up against easier comparisons from the prior year.

Reviewing sales performance by region, the Northeast and the Midwest had the better results while the West Coast and the Southeast, specifically Florida, had the weaker results. Customers in these areas were more affected by the housing market crisis and its impact on the local economy.

Reviewing some key Dress Barn stores sales components versus last year, Dress Barn stores do not monitor store traffic but sales transactions decreased 1% to last year. Average dollar sales increased 2% to $68.35 reflecting lower markdowns, while average unit retail also increased 2% to $21.98. Units per transaction increased 1% to 3.1.

Maurices' quarterly sales increased 6% to $143.6 million versus last year. The increase was driven by net store growth of approximately 11.5%, offset by a comp store sales decrease of 3%. This year's comp sales decrease compares to a strong increase of 8% last year for the same quarter. Reviewing sales performance by region for our Maurices' stores, the Midwest and Mid-Atlantic had the better performances while the Northwest and Southeast the weaker.

Maurices' stores key sales components versus last year include traffic decline of 5% during the quarter, average dollar sales increased 1% to $50.64, which included a 1% increase in average unit retail to $18.17. Units per transaction were flat at 2.8. Our traffic conversion rate improved 2% versus last year and helped offset some of the traffic decline.

Moving on to gross profit, we were pleased with our performance, which was driven primarily from tight inventory control. Total company gross profit dollars grew by 5% to $147.2 million versus last year. Gross profit percentage increased 70 basis points to 39.1% versus 38.4% last year. The year-over-year increase was primarily in merchandise margins from our Dress Barn stores. By division, gross profit percent for Dress Barn stores was 38.3%, an increase of 230 basis points versus last year's 36%. This year's increase was merchandise margin-driven primarily from lower markdowns.

Gross profit percent from Maurices' stores was 40.4%, a decrease of 190 basis points versus last year's very strong 42.3%. The decrease was primarily from higher markdowns and occupancy costs deleverage.

Total SG&A expenses for the quarter increased 6% to $102.7 million or 27.3% of sales versus $96.7 million or 26.6% of sales last year. The 70 basis points increase was primarily due to the impact of deleveraging from the decrease in comp store sales. More specifically, there were increases in marketing spend during the quarter versus last year. That accounted for approximately 30 of the basis points and store impairment charge, primarily related to Dress Barn stores, which accounted for approximately 40 basis points.

So therefore, excluding store impairment charge, the SG&A as a percent of sales over last year, would have increased 30 basis points instead of the 70 basis points. Total quarterly operating income dollars grew by 3.5%, in line to the sales increase versus last year coming in at $32.3 million or 8.6% of sales. This compares to last year's $31.2 million and 8.6% of sales. By division, operating income percent for Dress Barn stores improved 240 basis points to 7.8% compared to 5.4% last year. And again, the increase was merchandise margin related from decreases in markdowns.

Maurices store's operating income percent was 9.9% during the quarter compared to a very strong 14% last year. Last year's percent was driven by comp sales increases of 8% during the quarter as well as strong merchandise margin performance. Maurices operating income decreased 410 basis points this year to last year, which came from, 190 basis points of this amount was a decrease in gross profit from increased markdowns, occupancy cost deleverage and the remaining 220 basis point increase was SG&A expenses from deleveraging and increases in marketing spend.

Our quarterly effective tax rate was 38.9%, slightly above last year's 38.5%. Our quarterly weighted average diluted shares outstanding were 64.9 million, a decrease to last year's 65.9 million shares. This year's decrease of approximately 1 million shares was due to less dilution from our 2.5% convertible senior note as a result of a lower average stock price compared to last year. This year's average stock price during the quarter was $14.53 versus last year's price, average price, of $16.92.

Moving on to our balance sheet, it continues to strengthen and remains highly liquid. We ended the quarter with cash and marketable securities of nearly $300 million or approximately $5 per average share. This compares to $198 million to the year ago quarter. Our marketable securities also include another line caption on the balance sheet of approximately $52 million, which are auction rate securities, either student loan obligation notes, which are 100% backed by the U.S. government.

The issue with these investments is not risk, but liquidity. However, we are encouraged by recent developments on the redemption of these securities and have been notified on approximately $20 million of this amount for redemption. These settlements are expected to be at par.

Inventory levels were well controlled throughout the quarter at both Dress Barn and Maurices stores, ending the quarter at $187 million, down 4% versus last year. And on our per square foot basis, inventories decreased 8% versus last year. By division, Dress Barn stores inventory was $117 million at cost, down 6% versus last year. And on a per square foot basis, inventory decreased 8% versus last year.

Average store of inventory levels were also down 7% with fall/winter average store inventory levels down 12%. For Maurices stores, total inventory was $70 million, flat to last year. However on a per square foot basis, inventories decreased 10% to last year, while average store inventory levels were also down 10% with fall/winter average store inventory levels down 13%.

I now would like to turn the call over to Keith Fulsher, Dress Barn stores Chief Merchandising Officer.

Keith Fulsher

Thanks, Armand. For the quarter, we were pleased with the flat comp store performance of Dress Barn stores in spite of the difficult business environment. Our full product has resonated well with our customer, especially in our two key categories, sweaters and cut and sewn knitwear.

In sweaters, fashion cardigans in all shapes and sizes drove the business. The fine gauge wearing piece business also performed above plan, driven by a balanced assortment of styles from sleeveless looks to long sleeve items. In knitwear, printed and novelty comps were very strong in addition to key item solid layering pieces. Our early focus on denim, which has been merchandise in the front of our store for the entire season, drove the sales in our casual shop.

Fashion outerwear performed extremely well with faux fur trims, faux leather and vests all selling well. Our continued investment in special occasion apparel has paid dividends as we exceeded our sales plan for the quarter. On the negative side, the bottoms business outside of denim continue to struggle, as our customer chose to spend her limited funds to purchase fashion tops at the expense of pants.

The blouse business also softened, mainly due to the strength to the sweater category. And suits were down substantially to last year due to a planned decrease in this down turning business. Our main focus remains to controlling our inventory level.

As Armand has stated average store inventory levels end in the quarter were down 7% in total, with fall/winter levels down 12%. This clean inventory position allows us to transition more aggressively with four [inaudible] and merchandise in November and December rather than rely solely on fall markdowns to drive the business. This improved flow of merchandise should impact our sales and margins in a positive margin.

That being said the retail environment is currently much more promotional than last year and business in November has not started out strong. We will move aggressively with additional promotions as needed to drive the traffic and keep our inventory current. In summary I feel we are well positioned to weather a difficult business environment given our focus on value priced fashion merchandise coupled with strong inventory control.

I would now like to turn it over to Lisa Rhodes, Chief Merchandising Officer of Maurices.

Lisa Rhodes

Thanks, Keith. As Armand mentioned Maurice’s posted a 3% comp decrease on last year’s 8% comp increase. While disappointed with the quarter’s results, our business showed improvements with early October receipts and the accompanying floor set. In general during the first quarter we saw the customer behaving differently than in the past both in terms of spending and selection. The product disappointments were predominately in the casual collection.

Neutral colors and basic styles performed well throughout the quarter as did trendy styles. However, many of the key fashion looks such as tunics, grandpa cardigans, leggings and fashion denim underperformed to our expectation.

Our shoe and jewelry results remain challenging. Conversely we continue to see healthy results from our dressier wear at work collection. This shop was driven by knit tops and transitional weight sweaters, which both posted strong comp increases throughout the quarter. Within accessories sales of new fragrances and add on items such as fashion scarves helped build UPTs and drove significant comp increases within these classifications.

Our plus size division continued to gain traction during the quarter with casual and dressy knit tops and denim jeans posting double-digit comp increases. In its second full year the plus division is pacing to meet its sales and margin targets for the year, a significant improvement to last year’s fall performance.

As we look ahead to the holiday selling season we have taken a conservative stance with our investments, carrying 10% less inventory than last year on a per square foot basis heading into the second quarter. More importantly inventory levels of the more perishable fall collections are 13% lower than a year ago. We have focused this inventory to make an impact on key gift giving categories such as sweaters and hoodies, as well as stocking stuffers like scarves, fragrances and slumber socks.

This compelling product strategy will be paired with a strong promotional cadence stressing our fashion and value message. Complementing the holiday gift-giving assortment we'll deliver the new spring transitional collections in early December. These life style collections offer new color and excitement giving the customer a reason to buy. To weather these challenging economic times we are working harder than ever to shorten production lead times, ensuring flexibility and preserving top line sales and margin results. With customers more cautious in their spending behavior we remain focused on offering the product versatility, great shopping experience and value our customers expect from Maurices.

Our continued to commitment to developing a unique concept shops plays to the customer focus, providing looks for all life styles and keeping Maurices high on the customer’s list of preferred stores.

I’d like to turn the call back over to David Jaffe

David Jaffe

Thanks Lisa. Touching on real estate, at Dress Barn for the fall season, Dress barn opened 20 stores and is projected to close 15. Given the turmoil in the real estate market our best guess for spring is 15 openings and seven closings.

This would be a net square footage increase of 1% for the fiscal year. Maurices has opened 20 stores this fall and expects to close four. Spring is less certain but 30 to 35 openings are forecast with only one closing. Net square footage growth for the year will be about 7%. In marketing for the first quarter, Dress Barn first, in this challenging economic climate we continue to refine our marketing strategies to in incent customer behavior and build market share.

At Dress Barn we remain committed to our most productive vehicle, direct mail, and have increased quantities to over two million pieces per mailer. During the first quarter there were two major direct mail events, our fall preview mailer and our fall fashion book and postcard. These direct mail pieces drove positive increases across all metrics. We continue to see an improvement in the response rate list of our promoted customers versus our controlled groups, indicating the importance of communicating Dress Barn's value message to our customers.

Our Dress Barn credit card in the first quarter represented 27% of the market share, up almost 6% over last year. At Dress Barn during the second quarter we anniversary three mailers, our holiday book and postcard which just ended, our holiday scratch off post card and our January private sale. We will continue to mail to increase quantities, leveraging our most productive offers.

Additionally we are layering new, harder-hitting in store window promotions bounce backs, events like our T-shirt VIP event and a holiday toy drive as well as the incremental friends and family event to drive new and existing customers into our store. November advertising in magazines supports our holiday offerings and in PR we’ve significantly increased our national and local editorial coverage.

At Maurices in the first quarter we mailed two direct mail promotions. The first was a back to school mailer targeting 1.7 million customers. In September we targeted 1.8 million customers with our Girls Guide to Style. Combined these mailers represented a 30% increase in quantity over last year. Promoted response rate lift versus our controlled group was up over 8% and continues to underscore our customers need for incentive to shop. And in the first quarter our Maurice’s credit card represented almost 30% market share.

The second quarter Maurices' current November mailing is posting a [6]% increase in quantity over last year’s promotion, which mailed in December. The current promotion is demonstrating strong results overall but is slightly behind last year’s metrics. Additionally to help drive sales we have layered new in store promotions including holiday bonus dollars as well as an event to boost gift card sales.

In concluding although we are pleased with the first quarter's result, the weakness of our current business and our concern for the retail climate this spring has led us to reduce our outlook for the rest of the year. For fiscal ’09 we are now projecting EPS in the range of $.90 to $1.00., assuming that comp sales for the balance of the year will be down mid single digits.

Our balance sheet is stronger than ever with $300 million in cash in marketable securities. In addition we have $100 million line of credit that can be expanded to $150 million at our request.

Although we recently did repurchase half a million shares of stock, we do not anticipate undertaking an aggressive buy back program at this time. Also with respect to any acquisition, while we still have an interest in several other retailers, we will only be watching them until at least the new year. Given the uncertainty of next year’s economy and therefore our business we believe in maintaining a strong, highly liquid balance sheet is the prudent strategy.

However this does not preclude us from continuing to invest in our future by opening new stores, remodeling existing ones and upgrading technology. All of these investments will be made thoughtfully with our primary concern being long-term ROI.

With our new guidance and no immediate planed reduction to our $70 million CapEx budget, we expect to end the year with net free cash flow of $75 million. Thank you for your continued interest in Dress Barn, Inc., and I will now open it up for questions. Operator.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Chris Kim – J.P. Morgan.

Christopher Kim – J.P. Morgan

Thanks. Hey, Armand could you give us a little more color in terms of what your expectations are for EBIT margins and comps by division for the fiscal year, at least directionally

Armand Correia

I think at this point David’s pretty much already given you kind of the guidance. We’re looking at it this point. I think we’ll want to keep it at the DB Inc level, and again the comps are going to – we’re looking at our estimates comps down in the mid single digits. Certainly saying that Dress Barn stores do have easier comparisons for the remainder of the year, but at this point we need a little more clarity.

Christopher Kim – J.P. Morgan

And so as you kind of look at the current landscape you’ve toned down your expectations. Do, I mean it sounds like from a marketing perspective you guys are probably going to spend a little more this year as a percentage of sales assuming a negative mid single digit comp?

David R. Jaffe

Certainly as a percent of sale is going to go up, but more importantly I think if you look in total dollars, I think you’re also going to see it go up a bit as we throw in some of these incremental promotions, Chris.

Christopher Kim – J.P. Morgan

If that’s the case, do you guys see any sort of opportunity to tweak SG&A lower whether it’s corporate overhead or any other areas should the environment get materially worse?

David R. Jaffe

Well, if it gets materially worse certainly we’d have to go back and look at all our expenses, but right now I think we operate fairly leanly as it is. So we’re comfortable with where we are. If the weak climate continues through the holidays and into the spring kind of all bets are off and we’ve got to rethink our strategy.

Christopher Kim – J.P. Morgan

So from an SG&A dollar growth perspective, can we assume a similar kind of growth rate for the year excluding the asset impairments? So maybe 3% to 4% increase in SG&A for the year? Is that fair?

Armand Correia

That’s certainly – that’s a good goal. And obviously again, it’s going to be predicated on the tone of the business. But again, as you well know, sometimes it’s a situation trying to chase that a little. And it may be slightly higher than that if the business does continue at this level.

Christopher Kim – J.P. Morgan

And just finally, you gave us the comp trend quarter to date, any material differences week-to-week just around the election, etc. or is it pretty consistent?

David R. Jaffe

It was bad.

Christopher Kim – J.P. Morgan

So kind of through out that whole period it’s pretty consistently –

David R. Jaffe

I think we’ve all heard the same stories in the papers and from the street and whatever. It’s been a very challenging couple of weeks because of the election, because of Halloween, because of the Indian summer. Now you’ve got the Thanksgiving shift that we’re all facing the week that we’re currently in. I think the cold weather is certainly helping and as we get past Thanksgiving we’ll have kind of a few weeks to see if Christmas happens or not, but we’re being very conservative about it. You heard Keith and Lisa’s comments about controlling inventory. That’s really our biggest concern right now.

Operator

Your next question comes from Gary Giblen – Goldsmith & Harris.

Gary Giblen – Goldsmith & Harris

I know, David, you mentioned you’ve had planned suits down appropriately by about 10% I think it was in inventory, but I mean if unemployment rates pick up a lot, would that be an incremental hit beyond what you’re contemplating now in terms of career wear and related items?

David R. Jaffe

Well, I’ll let Keith and Lisa answer it, but I tell you that we have career wear in many different shapes and forms. So, suits specifically is down dramatically from where it was, but we also have suit separates and blazers and [inaudible] bottom so we have a whole range –

Gary Giblen – Goldsmith & Harris

Right, that’s why I’m trying to understand whether you’re still vulnerable on career wear beyond what you –

Keith Flusher

No, career business is holding its own. The structured suit business is what we’ve been cutting back. And it’s been a few years and we really took a pretty substantial chunk out of it for this past fall and that’s our policy going forward. We’re really going to continue doing that. It’s not a growth category for us. We’re investing more in separates as a way for career, adjusting to move forward. So that was planned. We took inventories down and we reinvested in other departments and categories and it paid off for us.

Lisa Rhodes

And at Maurices the strongest category we had were our Wear At Work collections and that was really driven by knit tops and lightweight sweaters. And this could be an instance where Maurices has been able to capitalize on some trade down from higher end retailers and fill the customer's market basket with an eye full.

Operator

Your next question comes from Sam Panella – Raymond James.

Samantha Panella – Raymond James

I know you gave the planed store openings and closings for fall and spring but just wondering what the actual numbers were for the first quarter?

David R. Jaffe

We don’t have it broken down by the quarter right in front of me, Sam. So if you just call Armand or me back. Here it is, I’m sorry. Dress Barn opened 18 and Maurices opened 15.

Samantha Panella – Raymond James

I just am curious about new store productivity at Maurices, and this could potentially just be a timing issue, but it looks like it’s come down some, so just wondering what you’re seeing there as you expand the Maurices division into new markets?

David R. Jaffe

Well it depends on the market. We’ve had more success in some than others or as we’ve gone into outlets, for example, versus small shadow centers versus metro fringe centers, they have slightly different results. But in general our core markets have performed better. Our new stores in core markets have performed better than our further distant markets as you would expect. But overall our new stores are running about 90% of our pro forma.

So we feel pretty good about them even in this market to be doing that well and obviously they’re very, very profitable at that level. And we’re going to continue to see them grow, I believe both as the economy turns around and also as our name gets better known in some of these more distant markets.

Samantha Panella – Raymond James

Just one last question, are you seeing any let up when it comes to real estate negotiations?

David R. Jaffe

It’s really of case by case. A lot of the landlords are simply holding back because they can’t get financing or they can’t get the anchor tenants. So, projects are being delayed. At the same time, we are seeing more opportunities in what we call secondary space where it’s an existing center and they’ve had vacancies so we’ve had opportunities to get into some of those centers or markets that we’ve been trying to for a while.

So, we’re actually very active because you heard we’re opening a fair amount of stores between the two divisions and there’re not that many other guys of our use or our size out there in an aggressive way like we are.

Operator

(Operator Instructions). Your next question comes from Robin Murchison – Sun Trust.

Robin Murchison – Sun Trust Robinson Humphrey

Did I hear correctly you bought back a half million shares during the quarter?

David R Jaffe

Yes, just under.

Robin Murchison – Sun Trust Robinson Humphrey

Just under a half million shares, and obviously you’ve got the wherewithal to buy more. What might, I mean, what would it take – how do you think about going back in and buying more at this point?

David R Jaffe

Well we have a back and forth on it. We have a general principle that we like to buy shares at a minimum to eliminate share creep from options. Having said that, as the world turned into a more volatile place in the last couple months, we thought it would be prudent just to sit on our cash and then in the last month or two to see the dramatic drop in value of a lot of our friends I think may create an interesting opportunity to find a partner in the next year or so.

So to have the cash especially when the credit markets are very tight, I think it’s only a wonderful strength that we have as we go into the new year, whether it’s just to continue to have the wherewithal of what I’ll call war chest, or in terms of being able to at the right time, make a more aggressive move to buy back our own stock.

Robin Murchison – Sun Trust Robinson Humphrey

Right, and keep your powder dry. Can you tell us how much you spent on the slightly more than a half million shares?

David R. Jaffe

Our average price was $8.50 or so, something like that, so

Armand Correia

So we spent a little above $4 million.

David R. Jaffe

Makes that $8.50 look like a steal.

Robin Murchison – Sun Trust Robinson Humphrey

I agree, and then for Keith interestingly, so we – it sounds like, career separates and then casual dominating in terms of preference in your division. And then over at Maurices wear to work sort of picking up wear to work is sort of picking up vis-à-vis casual. Is there a trend with that older mature customer, Keith, in just away from staid looks?

Keith Fulsher

Definitely, we definitely have been seeing that trend and that's one of the reasons why the true suit business where your one price for a jacket and a skirt or a pant, we've been winding down because that has been less and less accepted and it's more about mix and match separates. So whether it's a little bit more on the structured side or a little bit more on the fashion side, that's where the action is and that's where really we've invested our money. And both those businesses are doing well. In addition to special occasion our dressing business exceeded plan for the quarter so we seem to have all three doing fairly well at this point, all three life styles.

Robin Murchison – Sun Trust Robinson Humphrey

Any comments on EVOS?

Keith Fulsher

Yes EVOS are up and running now in 200 stores. We're pleased with the performance. We continue to tweak the assortments as we find what the customer is responding to and we're kind of happy. We rolled that out now for spring. We start in March out to 400 stores in Dress Barn and our first 100 stores in Dress Barn Woman.

So we're really going forward with this. Average unit retail is about 20 to 25% higher than the core Dress Barn assortments, and we found that as long as the fashion is right the customer is giving us credit for that so we think we have a nice new label in our store right now.

Robin Murchison – Sun Trust Robinson Humphrey

Then back to Armand, actually I thought I have heard what you said the November comp to dates for the two divisions. I thought you said high single digits down for which one?

Armand Correia

Dress Barn.

Robin Murchison – Sun Trust Robinson Humphrey

Dress Barn, Okay and the Maurices so far?

Armand Correia

Mid single digit down

Robin Murchison – Sun Trust Robinson Humphrey

Then if comps for, I'm trying to get a grip on the sensitivity, let's say comps, if we sort of planned a continuation of trends for the balance of the year it looks like EPS might be more in the range of 60, I'm coming up with about $0.60, $0.65. Does that sound reasonable?

David R. Jaffe

Say that again?

Robin Murchison – Sun Trust Robinson Humphrey

See, if comps, let's say comps were down high single digits for the balance of the year just sensitivity analysis from a projected decline of mid single digits –

David R. Jaffe

For GB Inc.

Robin Murchison – Sun Trust Robinson Humphrey

Well just sort of all in.

David R. Jaffe

Yes, so if we're saying now that $0.90 to $1 is mid single digits, if we went to high single digits you could easily drop that a dime to $0.15 on the back of an envelope. We could certainly – unfortunately the further down you go the less squeezing you've got available because you've already squeezed with the first drop.

Robin Murchison – Sun Trust Robinson Humphrey

Absolutely your leverage is – it gets more non existent.

David R. Jaffe

Right. You've got less variable as you get further down.

Robin Murchison – Sun Trust Robinson Humphrey

So even at $0.50 it's still a cheap stock.

Operator

Your next question will come from Gary Giblen – Goldsmith & Harris.

Gary Giblen – Goldsmith & Harris

I just wondered whether you have fully contemplated the tactic of going out of business sales or taking Mervyns and other cases where there's overlap, and what is the gross modification of the impact on that, let's say on your coming holiday quarter?

David R. Jaffe

Gary, there is a fair number of Mervyns but not many that overlap with us. And then if you look around at all the other GOBs there's a couple here, a couple there, but not enough that we think it's going to materially impact our business.

Gary Giblen – Goldsmith & Harris

Do you think that the holiday season could get more heavily promotional than it is now or I mean is it pretty well set in stone that it's going to be super promotional and that's that?

David R. Jaffe

Well, I used a vulgarism about a bear doing his business in the woods, but I just think no question it's going to get worse, Gary, because it's a shorter holiday season. And if you look at the fall performance of whether it's department stores or the big chains or whatever, everybody, almost to a man, is down double digits and as you know nobody plans to be down double digits. So the inventory's backed up and they got spring coming in, so you don’t have to be a genius to see that they're going to have to get rid of that inventory at whatever cost. So I see, as dramatic as the markdowns that we're seeing now pre-Thanksgiving are, I think it's only going to get worse.

Gary Giblen – Goldsmith & Harris

Okay and then finally, to what extent are you seeing a fall off in gift cards as the NRF has talked about or others and so forth?

David R. Jaffe

At both divisions we have seen a slight drop, kind of low to mid single digits, but for both divisions we really don’t see the big dollars until December. So the numbers we're talking about are fairly deminimus and the big numbers, as I say are kind of the weeks before Thanksgiving and Christmas and those last one or two weeks are really big. So we've got some promos as you may have heard to help drive gift card sales and hopefully we'll maintain our volume.

Operator

Your next question comes from Greg Margolis – Visium.

Greg Margolis – Visium Capital

Just curious what your plans are in terms of growing Internet sales, how you guys are thinking about that? I know it's been something that you discussed in the past and just talk about the future of the Internet for you guys?

David R. Jaffe

Sure, the Internet is something that we're now going after very seriously at Maurices. We are in the final throes of negotiation with several third party vendors. We hope to make a decision in the next several weeks. Once we've signed with a vendor we're off to the races and we're hoping to get off the ground for back to school. That may be a little aggressive but we think it's feasible. And then assuming things go well there the hope would be to launch Dress Barn's e-commerce site for spring of '10, so six months later.

Greg Margolis – Visium Capital

And any sense for as we look out, let's say 12 to 18 months, how big of a business it can be for you guys?

David R. Jaffe

Well, the rule of thumb when you talk to all the smart guys is that at maturity it could probably be 5% of your sales. And you probably have seen or had conversations with more managers than I have, more companies than I have, but that's the kind of number we're looking at and are hopeful that we'll be able to obtain over kind of a three to five-year ramp up period.

Operator

Your next question comes from Jeffrey Gunter – Beverly Capital Management.

Jeffrey Gunter – Beverly Capital Management

I'd like to know, I hear the purchase buy back is like $8.50. Am I mistaken that it was a purchase buy back at $17 a share in fiscal 2008, which I saw in Value Line of1.63 million shares?

David R. Jaffe

Fiscal 2008, yes, the stock was a whole lot higher back then unfortunately. So as I mentioned earlier we have a policy of trying to buy back a little stock every year to eliminate our share creep. So back then, as we all go back and look at the two or five-year charts, Dress Barn stock had been much higher and so again, at $17 we were feeling that was a reasonable thing --

Jeffrey Gunter – Beverly Capital Management

Right, which is reasonable, but my question is if you – what is the buy back then? Why wouldn't you buy it back now?

David R. Jaffe

Can I ask you, do you think the world is the same place it was a year and a half ago? Do you think the market is the same place it was a year and a half ago?

Jeffrey Gunter – Beverly Capital Management

If I did I'd commit myself to an institution, so absolutely not.

David R. Jaffe

Well, I would rather own Dress Barn than go to an institution. I think you answered that.

Jeffrey Gunter – Beverly Capital Management

Absolutely not. I'm happy with the response.

Operator

Your next question is from Robin Murchison – Sun Trust.

Robin Murchison – Sun Trust Robinson Humphrey

Hey, just a follow-up, David, you recently amended your letter of credit for provision to $35 million to be allocated out to additional stores in order to invest in another and just piggybacking off of that I want to – if we could probably go back a year ago you were talking more about an acquisition and now I hear language; strategic partnership. So I just want you to explain what the change in thinking might be if anything?

David R. Jaffe

Well acquisition sounds a little more cold-hearted I think than partnership and I think when we look at the markets there are a lot of great values and a lot of great companies and with limited access to debt financing, even with our cash balance, it may behoove us to look at doing partnerships with companies of a similar size to get the overhead synergies and best practice in set up as we learned at Maurices.

So I don't think we're looking at going after a company and just acquiring it and taking it over and throwing out management. We're really looking to find a partner that can provide complementary strengths in both ways.

Operator

Mr. Jaffe, there are no further questions in the queue.

David R. Jaffe

Thank you, operator and thank you everyone for listening in today and we wish everyone happy holidays and we'll speak to you in the new year.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.

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Source: Dress Barn Inc. F1Q09 (Qtr End 10/25/08) Earnings Call Transcript
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