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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

Scott Krasik – CL King

Samantha Panella – Raymond James

Robin Murchison – Sun Trust Robinson Humphrey

Margot Murtaugh – Snyder Capital

Brian Ronnick – BLR Capital Partners

The Dress Barn, Inc. (DBRN) F2Q09 Earnings Call February 18, 2009 4:30 PM ET

Operator

Welcome everyone to the Dress Barn Inc. second quarter fiscal 2009 conference call. At this time all participants are in a listen-only mode. Later the company will hold a question and answer session and instructions will follow at that time. As a reminder, this conference is being recorded and will be available for replay later today. Information on how to access the replay is available in the earnings news release issued earlier today.

I would like to remind participants that remarks made by management during the course of this call may contain forward-looking statements that are made pursuant to and within the meaning of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995 as amended. Such forward-looking statements involve known and unknown risks and uncertainties that could cause actual future results to differ material from such statements. Those risks and uncertainties are described in today’s news release as well as the company’s filing with the SEC.

I would now like to turn the call over to Mr. David Jaffe, President and CEO. Mr. Jaffe, you may begin.

David R. Jaffe

Thank you for joining us today to review our second quarter fiscal 2009 financial results. Joining me are Armand Correia CFO, Keith Fulsher and Lisa Rhodes Chief Merchandising Officers for Dress Barn stores and Maurice’s stores respectively.

As an overview, we are in an unprecedented economic environment, which our second quarter financial results reflect. We are determined to react prudently. We posted a loss of $0.02 per share in our second quarter well below our original plan. This compares to our EPS of $0.12 last year.

The swing factor was comparable store sales and the discounting necessary to clear inventory. Consolidated comp sales for the quarter were minus 4%, minus 6 at Dress Barn and minus 2 at Maurice’s. In addition to the markdown pressure in gross margin, we saw some de-leveraging of our SG&A. That said we were successful in keeping our inventory at a manageable level.

Aggressive clearance has positioned us very well heading into spring with 14% less fall inventory at Dress Barn and 9% less at Maurice’s. We have adjusted our plans for the spring season to reflect comps down in the mid single digits. While this hopefully will prove conservative, we are, as I said, determined to be prudent and we would prefer to chase business rather than have to deal with excess levels of inventory.

On the cost side, we have taken expenses down with contingencies for further cuts if they are warranted. I am pleased to note that our business seems to show signs of stabilizing. While the numbers are small, January and February month-to-date comps are up low single digits.

Where we did get warm weather last week, our business responded with strong acceptance of spring fashions without incremental promotions. This indication is encouraging but it will take several more months before we have a true read on our customer’s interest and ability to spend on fashion.

As I said in our last call, we believe that both divisions are very well positioned for this recession. Our fashion and value message continue to resonate well with our loyal customers. We believe we are attracting new customers who are searching for better value as well as current fashion.

Our merchandising market initiatives for spring are geared to this positioning and we believe this downturn and the coming shakeout and cutbacks that many of our competitors presents a unique opportunity for us to take market share.

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

Armand Correia

Total sales for the second quarter ended January 24, 2009 decreased 1% year-over-year [inaudible]. Comp sales decreased 4% and in line with our previous reported guidance. However, higher than expected markdown activity during the quarter was primarily responsible for a loss of $1.1 million or a $0.02 loss per share compared to earnings of $7.4 million or $0.12 per share for last year’s comparable quarter.

The increase level of markdowns were necessary to lower clearance levels going into February, the start of our spring season. By division, Dress Barn stores quarterly sales decreased 4% to $196.5 million with comp sales decreasing 6%. The comp sales decrease resulted primarily from a decrease in the number of transactions.

Other key sales components included average unit retail, which increased 2.5% while units per transaction decreased 2%. This net impact resulted in a slight increase in average dollar sales. Reviewing comp sales performance by geographic region, Dress Barn stores better performers were the Gulf States, while the Southeast, particularly Florida, this along with Phoenix, Las Vegas and Southern California were the most challenging areas.

Maurice’s stores quarterly sales increased 4% to $146.7 million. The increase was primarily driven by new store growth offset by comp store sales decrease of 2%. Maurice’s key sales component included a decline in store traffic of 3% while the average unit retail declined 3% as well reflecting the increased markdowns. However, units per transaction increased 1.5% resulting in an overall 1.5% decrease in average dollar sales.

Our traffic conversion rate for Maurice’s improved 2.5% helping offset the store traffic decline. Reviewing comp sales performance by geographic regions, Maurice’s stores better performers were the Midwest and mid-Atlantic, while the southeast and the northeast were the most challenging regions.

Moving on, total company gross profit was down 7% to $112.7 million or 32.8% of sales. The 240 basis points decline was primarily due to two factors. First, merchandise margin was down 170 basis points. This decrease was due to higher markdowns, again, required during the quarter to drive in customer traffic, as well as getting our inventories in line.

The second factor was buying occupancy cost de-leverage of 78 basis points. Total SG&A expense came in at $103 million, a slight increase in dollars versus last year or 30% of sales up 60 basis point. This increase was primarily due to de-leverage on store operating expenses, and in terms of dollar increase per se, it was well below our combined net store growth of 5%.

The importance of controlling costs is and has been part of our corporate culture of accountability. As a result, our company has never operated a high cost structure organization. However, in anticipation of continued challenging times we have taken a proactive approach by meeting with all areas to identify and develop a three phase contingency plan of cost savings initiatives.

Phase one actions are already implemented and are underway and are estimated to result in approximately $6 million in cost reductions on an annual basis with $3 million impacting the second half of fiscal 2009. The remaining two phases are part of a more comprehensive cost reduction plan that would be further evaluated depending on the severity of business conditions going forward.

For the quarter, we came in with an operating loss of $2.4 million, which compares to an operating income of $8.5 million for the comparable year ago quarter. The 320 basis point swing as a percent to sale versus last year consists of 240 basis points from the decrease in gross profit, again, primarily from higher markdowns and de-leverage on buying occupancy costs, as well as on SG&A.

By division, Dress Barn stores had a quarter operating loss of $11.8 million compared to last year’s operating loss of $4.4 million. The dollar variance was all on the gross profit line. By contrast, Maurice’s stores came in with a solid operating income of $9.4 million despite a comp sales decline. This compares to last year’s $12.9 million. The dollar variance the last year was a decrease in gross profit and an increase in SG&A due to new store growth.

Our quarterly weighted average diluted shares outstanding were 59.9 million shares, a decrease of 3.4 million shares compared to last year’s 63.3 million shares. This year’s decrease was due to no dilution impact on our 2.5% convertible senior note as a result of our average stock price being below the conversion price during the quarter, as well as a stock buyback of 546,000 shares earlier in the fiscal year.

During this tough environment, our liquidity remains strong with $303 million in cash and marketable securities, which also includes $42 million of auction-rate securities. Our business continues to generate strong cash flow despite our quarterly operating loss, which readily funds our working capital needs and planned capital expenditures while still adding to our cash balance.

During the second quarter, we generated cash flow from operations of approximately $20 million. Our debt remains unchanged and includes $115 million in 2.5% convertible senior notes due 2024 with the first put and call feature December of 2011. In addition, we have a 5.3% fixed rate mortgage loan due 2023, which is outstanding in the amount of $28 million on our suffering New York facility.

We have a $100 million credit facility, which is expandable to $150 million. We have not drawn on this line and it’s supported approximately $32 million in outstanding letters of credit at the end of the quarter. Our credit facility contains a number of customary covenants and we remain comfortably in full compliance with all of them.

Depreciation came in at $12.1 million with CapEx for the period of $9.3 million and of the total quarterly CapEx approximately $6 million was for new stores. We have tiered back capital spending for the remainder of the fiscal year from a plan for the full year of $70 million to approximately $60 million.

Turning to inventories, we are in excellent shape entering February with clearance levels well below last year. By division, Dress Barn’s inventory was $105.8 million down 2% from last year, however, down 4% on a per square foot basis and down 4% on an average store basis.

Clearance levels on an average store basis, as David indicated, were down 14%. Maurice’s inventory was $53.4 million flat to last year, however, down 9% on a per square foot and average store basis. Clearance levels on an average store basis at Maurice’s were down 9%.

Going forward, we are planning spring inventory down mid single digits in line with our sales assumptions. Spring presents some opportunities with easier comp sales comparisons especially for Dress Barn’s stores, which are up against a decrease of 6% last spring. This coupled with cleaner inventories and a later Easter could favorably impact our results.

Thank you, I will now turn the call over to Keith Fulsher, Dress Barn stores Chief Merchandising Officer.

Keith Fulsher

As our sales began to drop below our expectations, we took the markdowns necessary to keep our inventories current. As a result, as we head into the spring season, our clearance inventories are well below last year and our overall inventory levels are in very good shape.

For the quarter, sales in many categories, including dressy apparel, sweaters and career and non-denim casual bottoms, showed softness. However, several areas continued to be strong including dresses, blazers and outerwear, all of which continue the positive trend from early fall.

Overall, we transitioned earlier than last year to forward spring merchandise in the quarter and we were please with the results. Even so, the financial impact of this good early spring merchandise performance was more than offset by the need to clear slower moving fall categories.

We believe strongly that success in these difficult times depends upon tightly controlled inventory levels. To further enhance our control, we have been buying closer to need, ensured ample liquidity in our plans to chase trending items in categories and have bought upfront imports as a percentage of the total buy. This strategy will make it easier for us to both avoid and absorb any bumps in the road that could surface due to the unpredictable business environment.

Within the confines of our conservative inventory position, we are continuing to aggressively pursue some key business initiatives. Suit separates under the Jones Studio label are now at 500 Dress Barn’s and 400 Dress Barn Woman’s stores and are nicely exceeding plan. Our revamped petite assortment, which focuses on updated product, is performing well in our stores and as is the newly added category of petite special occasion merchandise.

As a result, we are expanding petites to an additional 50 stores this spring. I would also like to touch on YVOS, our higher priced contemporary lifestyle collection. YVOS is in 400 Dress Barn stores and will be rolled out to our top 100 Dress Barn Women stores in March. This is a new business for us and we continue to make changes to the assortments as we learn more about this customer.

Overall, we are confident that our investment in these key business initiatives, along with other customer driven changes to our merchandise mix, should enable us to improve our gross margin during this spring season. I would also like to comment in February business where we are encouraged by our month-to-date trend as our new spring assortments had been well received by our customer.

While there are still some challenges for us, I’m pleased to note that dresses, our biggest category for the spring season, is off to a good start. Despite this pickup, we remain prudent and are continuing to plan our comps down in the mid single digits for the quarter.

I now would like to turn it over to Lisa Rhodes, Chief Merchandising Officer of Maurice's

Lisa Rhodes

As Armand mentioned for the quarter, Maurice’s posted a 2% comp decrease on last year’s 2% comp increase. While it’s difficult not to be disappointed in the negative comp, we reacted early to the shift in sales trends and maintained tight inventories, which helped minimize the margin erosion.

Consistent with our first quarter comments, we continue to see changes in the customer shopping behavior. While the customer has not pushed us to be more promotionally driven, she is clearly more discerning in her style selection. This necessitated earlier and deeper markdowns on some of the fall and holiday assortments.

Additionally, we are seeing reduced interest in some categories, primarily those that lack noticeable fashion drivers. Conversely, the areas in the store that performed best were those supported by our holiday strategy of identifying volume drivers within each concept shop featuring them in store, and pairing them with powerful marketing that stresses fashion in our everyday value message.

Our plus size division was a highlight in the quarter. The strong maturation of this business has continued and we regard it as an under serviced category in the marketplace. It presents an opportunity for Maurice’s to gain additional market share. In its second full year the plus size division is on pace to achieve fairly aggressive sales and margin targets for the year.

As I mentioned, inventory management is very important to us right now and they are very controlled and current heading into the third quarter. We carried 9% less inventories than last year on a square foot basis at beginning of February. More importantly, inventory levels of fall clearance were also 9% lower than a year ago.

As we look ahead to spring, we will continue to take a prudent stance with our inventory investments. In this challenging retail climate, Maurice’s strategy of developing product with shortly timed suppliers provides the flexibility to maximize sales opportunities while minimizing risk.

The early February floor set has been accepted very well. Fashion tops a key driver. With customers more cautious in their spending behavior, we remain focused on re-enforcing our fashion message, while providing the value prices, high service level our customers expect from Maurice’s. This true merchant mindset, along with good liquidity and flexibility, will be keys to delivering a strong spring/summer selling season as possible.

Thank you and I would like to turn the call over to David.

David R. Jaffe

Marketing at Dress Barn in the second quarter, we anniversaried three major direct mail pieces, while pre-Christmas sales were challenging, these direct mail pieces generated an increase in total sales of 16% versus last year. Additionally, based on the promotional tenor, we developed several contingency programs to ensure that we were poised to react, some we used, like an additional friend and family, and others we didn’t.

Our Dress Barn credit card, market share was up a bit through January representing 25% of total sales. Gift card sales were, on the other hand, very disappointing down almost 20%. At Maurice’s during the second quarter, we had two key direct male pieces, our holiday mailer and a post Christmas mailer to our best customers. Our Maurice’s market share through January is 27%, up slightly from last year, while gift card sales ended the holiday season off only 2%.

As we look to the third quarter, our focus at both brands is three-fold. First, we are reinforcing what we’re known for, fashion at a great value through new campaigns that will resonate with each brands customer demographic. Second, we are developing programs to gain and protect market share. Third, we are enhancing in-store, outreach and affinity programs to build customer loyalty.

At Dress Barn, based upon recent market research, we are introducing a new national print campaign headlined econome, with a me, promoting guiltless spending with a tagline, “Live within your means, dress beyond them, Dress Barn.” We have two anniversary direct mail pieces planned with slight shifts in timing due to the Easter shift, a fashion book and a spring sale mailer incorporating some new offers that have been previously tested.

At Maurice’s we’re focusing on communicating our fashion value message with the tagline, “Love what you wear, adorable, affordable.” For the third quarter, we have one new and one anniversary direct mail pieces, the first of which just dropped last week and is off to a good start.

Turning to real estate, for the fall season Dress Barn opened 20 stores and closed 12. We are in the process of 11 full remodels and will touch 175 stores more. For spring, we anticipate 13 openings and 10 closings for a net square foot increase of 1% for the fiscal year.

Maurice’s opened 20 stores this fall and closed none. There are 45 remodels or refurbishments complete or underway all in the new design. Thirty-five openings and five closings are planned for spring, a 7% increase in net square feet for the year.

The difficulties in the real estate market have led to some delays in new developments as would be expected. On the positive side, tenant problems have also created vacancies in attractive centers that we were previously locked out of. As well, landlords are more amenable to negotiations for stores in challenging situations.

In conclusion, we are reaffirming our current guidance of EPS in the range of $0.70 to $0.85. Nothing has happened in the six weeks since we last communicated this to change our outlook. Recall that this assumes comp sales will be down mid single digits for the spring season with merchandise margins similar to last year. While a very recent trend is encouraging, the numbers are too small and too short lived to be convincing. On the other hand, the poor economic news continues everyday.

While I don’t pretend to be an economist, we are more on the barrios side as we begin to plan our fall business. In this environment, we are greatly comforted by our strong balance sheet and ready access to capital and credit as previously discussed by Armand. Our CapEx budget has been reduced to approximately 60 million for the fiscal year and will be used to support new stores, remodels and our POS and merchandising initiatives.

All of these have an attractive ROI and we will continue to invest in similar projects in our ongoing efforts to grow and strengthen DB, Inc. Net of this investment spending we anticipate free cash flow of $50 million for this fiscal year. This position enables us to consider various strategic alternatives. Our board has never supported a dividend and we do not feel that this is the right time for significant stock repurchases.

We do have a very short list of companies that are of potential interest as a merger candidate but rest assured none of them would be a bet the company size transaction. Thank you for your continued interest in Dress Barn, Inc. and I will now open it up for questions.

Question-and-Answer Session

Operator

(Operator instructions) And your first question will come from Chris Kim – JP Morgan.

Christopher Kim – JP Morgan

I just wanted to get some clarification on the guidance. So I think you just mentioned that the outlook for negative mid single digit comps and that you’re expecting merchandise margins similar to LY.

David R. Jaffe

Correct.

Christopher Kim – JP Morgan

Okay. Not similar to the trend that we saw in the second quarter?

David R. Jaffe

No.

Christopher Kim – JP Morgan

And in terms of the SG&A dollar growth, do you think that’s something that is sustainable in the back half, just the one, I believe it’s 1.5% growth that we saw?

Armand Correia

Well, I feel it might even be more of an opportunity, again, because of the number of areas that we’ve already identified and, again, that $6 million on an annualized basis, $3 million of that should be reflective in the second half. So I would look at SG&A to be flat to up slightly.

Christopher Kim – JP Morgan

In terms of the share count, if the stock were to stay below the conversion price, we’d be looking at a share count that’s pretty similar to the second quarter right, I mean for the back half of the year?

Armand Correia

That’s fair to assume.

Christopher Kim – JP Morgan

And in terms of the marketing, I actually just saw the Dress Barn campaign and I think it looks really solid. I wasn’t sure who, I didn’t even know it was you guys, I thought it was an Ann Taylor or more of a premium place, so definitely the aspirational component is definitely coming out there. But in terms of the dollars spend, I think in prior quarters it sounded like you were looking to up the spending so is that…

David R. Jaffe

It’s really flat, Chris. What we’ve done is kind of reallocate it but the actual dollars for both Dress Barn and Maurice’s are pretty much flat. And although we referred to our kind of future phase contingency plans, we could cut it back in the future but as of now, we have no plans to cut it back.

Christopher Kim – JP Morgan

And just finally, you mentioned the new developments and the real estate opportunities. Is there anything that you can quantify in terms of the number of stores that are falling into co-tenancy violations or opportunities to go to percentage rent or kick outs or anything like that?

David R. Jaffe

It’s more anecdotal than a major shift. We’ve all seen the reports and everything and we’ve always looked at our portfolio on a regular basis so there are a few centers that are more subject to co-tenancy provisions but it’s not like 20% of the chain or anything that would move the needle.

Christopher Kim – JP Morgan

Just one more actually, with respect to the positive comps that you’re seeing right now, what is the driver behind that? Is traffic a component of that as well?

David R. Jaffe

Yes. I alluded to the weather last week, you got a lot of traffic out of that but basically we’re seeing spring really drive the business. The clearance is selling and we’ve been very aggressive in moving it out, but we think it’s the newness that is bringing the customer in and getting her to convert.

Operator

And your next question will come from Scott Krasik – CL King.

Scott Krasik – CL King

Just offer my kudos as well in a terrible environment. David, can you just talk about digging into those positive comps in Jan and Feb. Can you tell if those are new customers coming in or if those are your existing customers responding to mailings?

David R. Jaffe

Well, I can tell you it’s definitely our existing customers responding to mailings. The incremental business, I can’t tell you I don’t have the visibility to tell you whether we’re getting more new customers or more of our old customers coming in. But I can tell you that both at Dress Barn and Maurice’s our mailers have been successful but that’s just recent.

Remember, the number I gave you was for four weeks of Jan and three and a half weeks of Feb cumulative, and the mailer only impacted a few weeks of that. So we’re pleased with business, but again guys this is a very, very small number. January and February is not necessarily a good harbinger of what’s going to happen in March and April.

Scott Krasik – CL King

Sure. And then, Armand, maybe on the expense side on the three phase plan. Can you give any sort of idea how quickly if things aren’t coming in, let’s say by April or March or April, can you start to really hit that and effect the end of the year or would then any benefit you get not take place until fiscal 2010?

Armand Correia

To that question and to that point, the number of actions that are in these various phases, some of them can be readily put in place quickly, others take a little longer. So at this point, we’ve got the plan, we’ve got the actions, hopefully we won’t have to put them in place, but it really depends upon the action.

Scott Krasik – CL King

So even if we go through the rest of the year, it should give you some sort of confidence in the annual guidance range you’ve given us?

Keith Fulsher

Right now I think anybody that tries to give any comfort on future guidance, I don’t know what they’re reading, but it’s so difficult right now to get any visibility with any sense of accuracy on guidance. Even with these particular cost reductions, I still would feel very uncomfortable with any guidance going forward.

Scott Krasik – CL King

I understand. And then, Armand took a pretty big write-down on the ARS's this quarter? Maybe talk about what sort of prompted that and do you expect to recover these in full?

Armand Correia

Scott no, it wasn’t a write-down in the quarter. Actually, we had some redemptions during the quarter and we’re very pleased to see some activity beginning to happen in the auction-rate security sector. As a matter of fact we already have another $7 million that we’ve been notified that will be redeemed January of 2010, and hopefully there’ll be a little more activity going on. But we’re obviously bringing that balance down and hopefully it’ll continue to go down.

Operator

Your next question will come from Sam Panella – Raymond James.

Samantha Panella – Raymond James

Looking at new store productivity for Maurice’s division and understanding that when I plug in the numbers it’s tough to get a true read. But it looks like it’s kicked down some. Can you just comment on how the new stores are doing at Maurice’s?

David R. Jaffe

Well, Lisa I’ll start and feel free to jump in afterwards. The new stores at Maurice’s are kind of split into two camps. One are in existing markets and the other are in new markets. So you may recall that in the last year we’ve moved into new markets of Florida and California and expanded the nascent market of Texas for us.

So we have a lot of new things happening that we think long-term, as our name gets known, will grow to be very, very good stores. But many of those are not getting out of the blocks as strong as filler stores, the second category, that are ramping up a little more rapidly because they know us.

So in general, if you took it as a group, the new stores are performing close to our pro forma but not quite at it. If you broke it down, there’s going to be more of a disparity between the stores that are in our existing markets versus the ones that are out.

Samantha Panella – Raymond James

And then, Armand, if you could give us depreciation by division and also gross margin by division. I apologize if I missed that.

Armand Correia

I didn’t break it down by division, but I’ll be happy to call you after this call to break it down for you.

Samantha Panella – Raymond James

I guess just one other question. Earlier when you were talking about spring results and the easier same store sales comparison, I’m sorry, you mentioned a couple of things and how that could, cleaner inventories, later Easter, how that could favorably impact results. Do you mean by that getting to the higher end of your guidance or possibly being able to do better? Just trying to understand and get some clarification there.

David R. Jaffe

Well let’s just hope we hit our guidance.

Samantha Panella – Raymond James

Understandable. I just wanted to make sure I understood your comments.

David R. Jaffe

I think right now we see a little bit of a ray of sunlight and we’re very, very excited because we’ve had a tough run for a while, particularly the Dress Barn division. To see the business respond, to see Maurice’s continue to grow, particularly on the plus side. It’s very encouraging and so we’re kind of holding our breath for spring. The real numbers don’t start for another month or so and then it builds quickly for the next three or four months.

So if we continue to perform at this level, up low single digits with similar margins, we’ll be in very, very good shape, because as you recall, our guidance is based on being down mid single digits. So you don’t know how the leverage works with that kind of swing in confidence.

Armand Correia

Sam, I don’t mind calling you after this call, obviously. But let me give you the depreciation because I’ve got it here. For the quarter the split of the $12.1 breaks down by Dress Barn $6.9 million and Maurice’s $5.1 million.

Operator

Your next question will come from Robin Murchison – Sun Trust.

Robin Murchison – Sun Trust Robinson Humphrey

I guess some of the positive comps happening right now. Do you get a sense, or do your stores get a sense, are you getting any feedback from your regionals or districts just maybe an appetite, a little bit of pent up demand, just tired and ready to move on and spring. Generally spring looks pretty good, it’s colorful and there are a few trends out there. What are your stores telling you?

David R. Jaffe

Well the stores as well as the numbers, when we look at our merchandise reports, they’re telling us that they want newness, they want fashion and so when they come in, whether it’s pent up demand or bringing in gift cards or whatever, they’re certainly looking at the clearance and at the prices we’ve got clearanced. They are buying clearance aggressively, but they are also buying newness.

So, as I said earlier, we’re not doing any special promotions. Actually our promos are lower level this year than they were last year on spring. So we’re pretty optimistic that this bodes well, but keep, as I keep saying, it is early the stores are excited. We just had our Dress Barn GSM meeting and they’re very pumped up about what they’re seeing.

I think at Maurice’s where you see trends, where you see the new fashion selling, it gives you a lot of confidence that what the trends are now will continue for the spring. But it could also just be a blip because of the warm weather or gift cards or whatever, so let’s not get too ahead of ourselves and see what happens in March and April.

Robin Murchison – Sun Trust Robinson Humphrey

I agree and wouldn’t want to get ahead. We actually had conducive weather in November and December in terms of coolness and it did absolutely nothing for the group, so it is encouraging. But I agree not to get ahead. Product cost. What are you guys seeing in terms of merchandise cost? Of course we’re hearing that it’s down across the board. Just wonder how you’re seeing things?

David R. Jaffe

Keith, why don’t you start and then go to Lisa?

Keith Fulsher

Definitely business overseas is very difficult so, costs are down substantially. So we’re seeing that across the great majority of the categories that we do business in. The question is how much of that can we hold? It’s giving us also an opportunity to really put more into our garments and increase our quality perceived value and that’s really what we’re all about.

Robin Murchison – Sun Trust Robinson Humphrey

Keith, is it product that’s in the stores now or is there a little big of lag?

Keith Fulsher

There’s a little bit of a lag. So that’s really going forward.

Lisa Rhodes

And at Maurice’s very much the same from a direct import, as well as from domestic importers we’re seeing some favorable costs in key categories, but it’s not on the product that’s on the floor today. It’s on future buys that will be here within the next few months.

Robin Murchison – Sun Trust Robinson Humphrey

Lisa, also for you, I always like to ask you about what you’re seeing in terms of, I heard you call out the fashion tops. Anything going on with bottoms, maybe more specifically denim, and any trends that you’re seeing a favorable reaction to?

Lisa Rhodes

To date the bottoms business has been a bit more challenging. We’re seeing a plateau in denim. So boot and boot cut and straight leg continue to be boot cut and flare are the leg openings in denim that are most important, but in general bottoms are a bit softer. The category that’s just hitting the floor, and as David had said, is probably too early to read are skirts that look like they could drive some nice volume throughout the spring season.

Operator

Your next question will come from Margot Murtaugh – Snyder Capital.

Margot Murtaugh – Snyder Capital

I have just a couple of wrapping up questions. I wondered how much you’re spending on marketing and advertising and how much it’s up year-to-year. Can you give us a sense of that?

David R. Jaffe

Sure, go ahead Armand you’ve got it right in front of you. .

Armand Correia

Actually for the quarter, the total marketing spend was down, as David said, against LY because it’s basically a timing issue. On a cumulative basis for the six-month period, our marketing spend in total is at $13.3 million compared to $13.1 million last year. And as a percent of sales it remains in both years approximately 1.8% of sales.

Margot Murtaugh – Snyder Capital

So you’re going to spend a little bit more in the second half?

Armand Correia

No. I think we’ll be pretty much at that level in the second half.

Margot Murtaugh – Snyder Capital

How big is the plus size business at Maurice’s and what is the opportunity? Where did you cut back on CapEx exactly? And is you’re real free cash flow then after all CapEx and working capital, that’s what you can really add to your cash balances, your free cash flow of $50 million?

David R. Jaffe

Well I’m writing down quick as I can. Working backwards, yes it’s a real free cash flow number. Just so you know that’s what our bank accounts going to go up by. Our CapEx that we cut back on is primarily due to reduced number of new stores, remodels as well as some timing differences with our POS rollout.

And then for your first question on plus size, I’ll start and then turn it over to Lisa. This is a business that we think has the potential to be as strong, possibly even stronger, then our core business because it’s only in about 20% of the store. So it’s confined whereas in Dress Barn it’s in closer to about 40% of the square footage, and therefore can spread out a little bit more.

So the Maurice’s business has been growing very, very rapidly. It’s only a year and a half old. We’re seeing high double-digit comps and it actually continues to strengthen and grow faster as we learn more about the business and are able to affect deliveries. Do you want to add to that?

Lisa Rhodes

No. I think that says it all.

Operator

Your next question will come from Brian Ronnick – BLR Capital Partners.

Brian Ronnick – BLR Capital Partners

Maurice’s, I think you said the inventory was down nine per square foot, and where was Dress Barn?

David R. Jaffe

The number I gave was clearance, which was down 14%, but overall is down 4% because remember we did the transition to spring a little bit earlier, as mentioned.

Brian Ronnick – BLR Capital Partners

The let’s say up low single digits through January and February, kind of can you break that down by division?

David R. Jaffe

Break what down?

Brian Ronnick – BLR Capital Partners

The low single digit company.

David R. Jaffe

For comp increases? No we just give out quarterly numbers.

Brian Ronnick – BLR Capital Partners

Is it material by division? The reason I ask is because I think Maurice’s is up against a plus four comp for the next two quarters, and Dress Barn’s down about 5%, 6% depending on the quarter.

David R. Jaffe

Yes. Actually, Maurice’s had slightly better numbers but they’re both very close to each other.

Brian Ronnick – BLR Capital Partners

Armand, do you have the CapEx expected for Q3 and Q4 and the D&A also?

Armand Correia

I do. Actually, if we look at CapEx on a year-to-date basis, we’re at $27.5 million and so that would mean for that for the back half, if we come out to the $60 million that David and I have talked about, we’re talking about approximately $32 million a little above that $27, $28 million year-to-date number in the back half.

Brian Ronnick – BLR Capital Partners

So it’d be about $16 million per quarter, or it depends on how stores fall out?

Armand Correia

The full year, so we break out the $30 million it would be $15 million per quarter roughly.

Brian Ronnick – BLR Capital Partners

Okay. And D&A?

Armand Correia

Probably about the same trend that we’re looking at for the first two quarters.

Brian Ronnick – BLR Capital Partners

The comp increase that you guys are seeing, are you seeing like major differentials in the regions of the country where it’s coming from? Like your weakest regions from the previous quarter, are those picking up or?

David R. Jaffe

Well, it’s a little more focused then region. So if you look at the really bad spots, if you look where Obama is traveling to make his announcements like Phoenix, Southern Florida, Las Vegas, Southern California, all the places that are the hot spots for the subprime. That’s where we’re having the most difficult time.

In most of those areas it’s more of a Dress Barn issue because Dress Barns has a much stronger concentration of stores there, but generally we’re not seeing any dramatic shifts one way or the other outside of those weak areas.

Brian Ronnick – BLR Capital Partners

So if you’re, I don’t know, down hypothetically eight in those regions now it’s only down, let’s say, five or three. Everything has moved up incrementally by region?

David R. Jaffe

For the most part, I don’t have those specifics in front of me, Brian, but certainly in general you’re right. Armand can drill down and get back if you want more info.

Brian Ronnick – BLR Capital Partners

And the auction-rate securities, is that what Armand is it like the 42ish million?

Armand Correia

That’s correct. It’s called investment securities on the balance sheet. It’ll point to the balance sheet.

Operator

Your next question is a follow-up question from Robin Murchison – Sun Trust.

Robin Murchison – Sun Trust Robinson Humphrey

I wanted to ask about suits and I heard you talk about the suit separates, but just as a category suited dressing. It seems to be a casualty of a lot of retailers, so can you just talk to how it’s performing for you guys, and then what sort of safeguards you’ve built in, if any if needed, to keep the category from hurting you too much.

Armand Correia

We’ve cut back on investment in suits. We cut the number of stores. We feel really now we’re in our key suit stores that can support a continued flow of product and we have a strong customer base there. So we really cut our exposure to that business fairly dramatically and the suits separates business, which is you can buy pieces at different sizes to mix and match, is where we see some action happening.

And that with the trends towards really a little bit more dressed up looks happenings in Dress Barn is where we’re headed so. Again downplaying suits and being replaced suits are separates.

Operator

There are no further questions at this time. This concludes the question and answer session of the call.

David R. Jaffe

Thank you for all our participants. We look forward to speaking to you at our next quarter call.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect and have a great day.

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Source: The Dress Barn, Inc. F2Q09 (Qtr End 01/24/09) Earnings Call Transcript
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