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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, Dress Barn

Lisa Rhodes – Chief Merchandising Officer, Maurice's

Analysts

Christopher Kim – J.P. Morgan.

Janet Kloppenburg – JJK Research

Alex [Germond] - Raymond James

Scott Krasik – C.L. King & Associates

Gary Giblen – Quint Miller & Co.

Steve Kernkraut – Berman Capital

Robin Murchison – Sun Trust Robinson Humphrey

The Dress Barn, Inc. (DBRN) F4Q09 Earnings Call September 16, 2009 4:30 PM ET

Operator

Welcome to the Dress Barn Inc. fourth quarter fiscal 2009 financial results 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 Web cast and conference call is being recorded and will be available for replay later today. Information on how to access the replay is available in the sales and 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 about the company's results and plans. These are subject to risks and uncertainties that could cause the actual results and implementation of the company's plans vary materially. These risks are discussed in today's news release as well as in the company's SEC filings.

Thank you and now I will turn it over to Mr. David Jaffe, President and CEO.

David R. Jaffe

Thank you. Good afternoon everyone. Joining me on the call today are: Armand Correia, CFO; and Keith Fulsher and Lisa Rhodes, Chief Merchandising Officers for Dress Barn Stores and Maurice’s.

We were pleased that our cost sales for the fiscal fourth quarter were plus 1% following a plus 3% in the third quarter. By division, DB was plus 4% and Maurice's was minus 5%. This resulted in EPS of $0.41 and $0.39 on a non-GAAP basis versus last year's $0.34.

For the fiscal year comp sales were flat and EPS was $1.11 and $1.09 on a non-GAAP basis versus $1.15 last year. In the context of this economic environment we were gratified by these results. We reacted quickly to the rapid weakening of consumer spending by reducing inventory and cutting costs.

At the same time, we maintained a strong voice with consumers and held our marketing expenditures steady in order to communicate our fashion-at-a-value message. Our strategic position was validated and we were able to gain market share in both divisions throughout the spring.

We are very well situated with appropriate levels of inventory, early acceptance of new fashions and positive response to our direct marketing pieces going into what looks to be another challenging fall season. At this time, our promotions and markdowns are at a similar level and cadence to last year with significant upside opportunity as we begin to go against last year's disastrous calendar fourth quarter.

Armand is going to take you through the results in some more detail, but before he does, I would like to just quickly say that our transaction with Tween Brands continues to move ahead. A Hart Scott Rodino waiting period expired with no comment and we have filed the S4 registration statement. We continue to believe the closing of the transaction will occur in the fourth calendar quarter.

Armand will now review our financial performance.

Armand Correia

Before reviewing our fourth quarter and fiscal year end results, I would like to point out that there are a few unusual items, both positive and negative, that impacted our operating results. We believe that these items are not indicative of ongoing operating results for comparison purposes to the prior year's period. And I will comment on them during my prepared remarks. Accordingly, we have included a reconciliation of GAAP to non-GAAP measures in today's press release.

Net sales for our fiscal fourth quarter increased year-over-year 4.5% to $398.9 million. Driving this increase was a 1% increase in comp sales and a 3.5% increase in net store growth. By division, Dress Barn Stores' quarterly sales increased 6.5% to $253.7 million and the overall sales increase was driven by a comp sales increase of 4% and approximately 2% increase in net store growth.

Reviewing some of the key sales components, ADS increased 7% to $68.02 while AUR increased 10%, offset partially by a decrease of 3% in UPTs. Sales transactions decreased 1% overall. All geographic regions posted comp sales increases with the Midwest the strongest.

[Maurice's] division quarterly sales increased 1% to $145.2 million. The increased sales were driven by net store growth of 6.5% offset by a comp sales decrease of 5%. This quarterly comp sales decrease compares to a prior two-year combined quarterly increase of 17%.

Reviewing some key sales components. ADS increased 1% to $47.07, while AUR increased 3%, offset partially by a decrease of 2% in UPTs.

During the quarter, store traffic decreased 2%. This was, however, offset by a 2% improvement in the traffic conversion rate. On a regional basis, the Mid-Atlantic was the only region posting comp sales increases.

Total gross profit dollars increased 6.5% year-over-year to $160.9 million, outperforming the 4.5% sales increase. As a percentage of sales, gross profit grew by 80 basis points to 40.3% versus last year's 39.5%. The improvement was driven primarily by Dress Barn Stores' higher merchandise margin from a higher IMU, and primarily from lower mark-downs.

SG&A expense increased to $113.6 million to a rate of 28.5%. A few unusual items impacted our overall SG&A results. First, we booked $3.6 million from merger-related expenses included in Dress Barn Stores' results, and took a $2.0 million non-cash charge for the partial impairment of one of Maurice's trade names, totaling $5.6 million in pre-tax, or $3.8 million after tax.

Excluding these items, SG&A would have been $108.1 million, or 27.1% of sales, an increase of 50 basis points to last year's 26.6%. The 50 basis point increase was mainly due to deleverage from the 1% comp sales increase and an increased accrual for performance-based compensation as result of the improved second half financial results.

Depreciation expense was $12.5 million, comparable to last year's amount.

Moving on to operating income. On a reported basis, operating income was $34.8 million, or 8.7% of sales. Again, excluding the merger-related and partial impairment cost totaling $5.6 million that impacted the SG&A line, this year's quarterly operating income would have been $40.4 million, or 10.1% of sales, compared to last year's $36.7 million, or 9.6% of sales.

By division, Dress Barn Stores' quarterly operating income came in at $23.3 million, or 9.2% of sales. Again, excluding the merger-related cost of $3.6 million, Dress Barn Stores' operating income would have been $26.8 million, or 10.6% of sales. The increase was driven by improved comp sales, increases, as well as merchandise margins.

Maurice's stores operating income was $11.5 million, or 8% of sales. Again, with their situation of excluding the partial impairment of $2.0 million for one of Maurice's trade names, Maurice's operating income would have been $13.5 million, or 9.3% of sales, still a solid performance given the quarterly comp sales decrease.

Moving down the income statement, our quarterly interest income decreased to $900,000, approximately one-half of last year's $1.8 million. The decrease is due entirely to lower investment rates.

Interest expense came in at $1.2 million and is related to our $115.0 million convertible notes with a fixed rate of 2.5% and a 5.3% fixed-rate mortgage on our Suffern, New York, headquarters facility. The other income of $453,000 represents rental income from tenants.

Our tax rate for the quarter was 24.5%. Income taxes were favorably impacted by the booking of $5.0 million due to the closure of certain prior-year tax positions. This compares to a more normalized 39% rate.

Net earnings on a reported GAAP basis for the quarter were $26.4 million, or $0.41 per diluted share. On a non-GAAP reporting basis, excluding the unusual items, quarterly net income would have been $25.2 million, or $0.39 per diluted share. This compares to last year's net earnings of $22.1 million, or $0.34 per share.

For the full fiscal year, July ended 2009, net sales increased 3% to $1.494 billion. Comp sales were flat.

By division, net sales for Dress Barn Stores increased 2% to $906.2 million, with comp sales flat, while Maurice's stores net sales increased 5.5% to $588.0 million with comp sales down 1%.

Net earnings on a reported GAAP basis for the fiscal year, were $69.7 million, or $1.11 per diluted share, while on a non-GAAP basis, again excluding the unusual items, net earnings would have been $68.5 million, or $1.09 per diluted share.

These results exceeded our previously reported earnings per share guidance of the range of $1.00 to $1.05 and compared to net earnings of $74.1 million, or $1.15 per diluted share, last year.

Moving on to our year end balance sheet, both Dress Barn and Maurice's continue to generate strong cash flow that more than supports our working capital needs and planned capital expenditures. For the year, we generated cash flow from operations of approximately $173.0 million and $115.0 million in free cash flow. We ended the fiscal year with $385.0 million in cash and marketable securities compared to $278.0 million ending fiscal 2008.

Upon the completion of the pending Dress Barn-Tween Brands merger, it is worth noting that we anticipate still having well over $200.0 million in cash and marketable securities.

Turning to inventories, we are in good shape with clearance levels down between both brands down 10% on an average store basis versus last year. Total inventories ended the year at $194.0 million, compared to last year's $187.0 million. The increase to last year is all related to early receipt of new fall merchandise at both Dress Barn and Maurice's.

By division, Dress Barn inventories were $126.0 million compared to last year's $117.9 million. On an average store basis, inventories increased 5% while clearance levels were down 10% on an average store basis versus the prior year.

At Maurice's we ended the quarter with inventories down 2% at $67.9 million compared to $69.1 million last year, while on an average store basis, versus last year's, inventories were down 8% with clearance levels down a similar percentage.

Our inventories ending July were in good shape at both divisions in terms of level and mid, entering the new fiscal year. We believe this presents some increased merchandise margin opportunities, especially with less clearance levels.

Our debt remains unchanged, at $142.0 million, which includes $115.0 million in convertible notes and a $27.0 million mortgage on our Suffern, New York, headquarters facility.

Capex for the fiscal year was $58.0 million. Capex was primarily used for remodels and new stores, as well as new POS systems and distribution center enhancements at our Maurice's division, while at our Dress Barn Stores we were working on a new merchandise planning system.

For the new fiscal year sales are off to a good start with comp sales increasing for August and September month-to-date in the low single digits. For the current fiscal quarter we are up against a comp sales decrease last year of 1%.

I would like to thank you and now I will turn the call over to Keith Fulsher, Dress Barn Stores' Chief Merchandising Officer.

Keith Fulsher

We were pleased with the overall sales and margin performance of Dress Barn Stores for the quarter, driven by strong customer acceptance of our offerings, which is reflected in our key metrics. Our average unit retail increased an impressive 10%, driven by a number of factors.

First, our business mix has changed. The success of higher-priced items such as Suit Separates under the Jones Studio label, coupled with our focus on fashion merchandise in our core Dress Barn assortments instead of basics, was a key driving factor in this increase. In addition, the strong regular price selling of our summer product, especially dresses, helped drive the overall markdown rate. These two factors helped us achieve record AUR results.

Although our UPTs were off a bit, we attribute most of that to the reduced level of clearance activity. We are still very pleased with our 7% increase in ADS.

On the product side, dresses remain very strong. We were also very pleased with our fashion top business. Suit Separates trended well ahead of plan. Our roll out of petites to an additional 40 stores has met expectations. In accessories our shape wear business was very strong and the shoe business picked up nicely as the weather improved.

On the minus side, the bottoms business, both career and casual, underperformed for the quarter with weakness in all categories.

As Armand has said, inventories are in very good shape. Our clearance levels were down 9% on an average store basis. The increase in inventory at the end of the quarter was due to the early receipt of new fall merchandise and good acceptance of our fall assortments, which directly drove our sales results.

Looking forward, we continue to conservatively plan our inventory levels as we head into the fall season.

In conclusion, our fall business is off to a good start. We are encouraged by the early results of our annual sweater sale, which sets the tone for the fall season, as sweaters is our largest category going forward.

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

Lisa Rhodes

At Maurice's our fourth quarter was softer than we would have liked. A few factors contributed to this. First and foremost, there were merchandise content factors that held back our results. During the quarter, because of our cautionary stance, we planned our inventories conservatively and thus carried less spring/summer inventory than the customer was looking for. Additionally, both traffic and UPTs were off slightly in comparison to last year.

From a product perspective, we continue to see positive results from several top classifications. Woven shirtings, screen T's and layering pieces all performed above expectations in the quarter and are performing very well in the early fall season.

The categories the customer responded less favorably to either offered less versatility to her wardrobe, such as club wear and lounge apparel, or lacked compelling fashion newness, such as shoes and dress pants.

The plus size business continues to gain traction, satisfying new guests in our stores. For the quarter, the plus business contributed strongly to our comp results and is in line with our targets. Sales drivers for this shop have fashion knit tops, layering pieces, and fashion jeans.

Our inventories are well positioned heading into the new fiscal year with 8% less inventory on an average store basis than a year ago, along with comparable decrease in clearance.

Looking forward to the fall season, our sales will be driven by categories that focus on value and versatility, namely fashion tops, layering pieces, Maurice's brand denim, wear-to-work essentials, and accessories.

We look for the continued growth of the plus offering to provide positive comp growth for Maurice's. We will continue to plan our inventories conservatively, minimizing mark-down liability and preserving margin performance.

In conclusion, we are excited about our entrance into multi-channeled retailing with the launch of Maurice's.com toward the end of the month. We look forward to bringing the fashion and value of Maurice's direct to the consumer.

I would like to turn the call back to David Jaffe.

David R. Jaffe

I would like to note that our fourth quarter marketing at both brands was focused on two critical strategies, communicating our inherent fashion value and versatility message and acquiring new customers. At Dress Barn in the fourth quarter we continued to see value-conscious consumers discover our brand for the first time.

Our national print advertising campaign, econome, with the tag line, "Live within your means, dress beyond them," promoted guilt-free spending and was carried through all in-store promotions, collateral, and out-reach pieces. We had two anniversary direct mail pieces, maintaining our spending level.

We had strong response in the ROI for both these programs increased over last year. Given they are our most loyal customers, we are pleased that market share for the Dress Barn private label credit card is up 5% for the year, representing 25% of sales.

For our current quarter, our strategies remain focused on driving sales, customer acquisition retention, and enhancing the customer experience. We will anniversary two 2.0 million piece mailers, our fall preview and our fashion books for both Dress Barn and Dress Barn Woman customers. Additionally ,we are testing an incremental mailing to 750,000 of our best customers.

At Maurice's in the fourth quarter we anniversaried two company mailers, each sent to 1.8 million customers, our May mailer and our July back-to-school mailer. Both generated strong results and multiple transactions.

The market share firmed Maurice's private label card remains strong for the fourth quarter increasing to 30% of total sales and averaged 28% for the fiscal year, up over 3% to last year. Our first quarter program is focused on protecting market share look, continuing to communicate our fashion value and versatility message. We have one anniversary mailer in September that introduces a new bounce-back program.

Turning to real estate, for the year Dress Barn division opened 31 stores and closed 19, for a net square footage increase of 2%. Maurice's opened 49, relocated 17, and closed 5, for an increase of 7%.

Looking ahead for fiscal 2002, we project Dress Barn will be opening around 15 stores and closing around an equal number. Maurice's is expected to open 35 and close 10, for a net increase of 3.5%.

With this environment we are carefully evaluating our expansion opportunities, while also managing our existing fleet to optimize our rent expense and locations.

In conclusion, the last eight months have given us the strength of our convictions. Our positioning as a fashion retailer with value prices, good service, and convenience to our customers is resonating with consumers, especially in this new economic paradigm. Our results against most of our competition have been superior. Even so, we anticipate the fall environment will continue to be challenging for the retail apparel industry.

As a result, our plans at both divisions are conservative, calling for low single-digit increases in comp sales. Inventories have been bought accordingly and we have less clearance coming into the season the last year.

On the expense side, our controls are still in place from January and we have a tipping point for leverage on comp sales of 2%.

Finally, as previously discussed, our marketing efforts will continue to support our sales goal. For the fiscal 2010 year, we are projecting a comp sales increase in the low single digits, which translates into an EPS in the range of $1.10 to $1.20 for 53 weeks. This would result in approximately $175.0 million of cash flow from operations of which approximately $50.0 million would be used for capex.

This free cash flow generated would further strengthen our balance sheet, which had $385.0 million in cash and investments at fiscal year end. Recall that our $115.0 million convertible debt is not puttable or callable until December 2011.

Finally, as it relates to the Tween Brand merger, we anticipate issuing approximately 11.8 million shares of our stock and following the transaction, we would expect to have well over $200.0 million remaining in cash and investments. We also anticipate having in place a new $200.0 million 4-year revolving credit facility at the close of the merger. We are pleased to be in such a strong, competitive operational and strategic position.

Thank you for your continued interest and support and now I would now like to open it up for questions.

Question-and-Answer Session

Operator

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

Christopher Kim – J.P. Morgan.

Lisa, in terms of the negative comp, the last data point we got, I believe trends were kind of up, low- to mid-single digits in the May period. It seemed like there was a pretty steep decline, it feels like inventories were just too lean. Is there any sort of change in philosophy as you approach the back half of the year in terms of inventory?

And in terms of the early fall receipts, how did that impact the margins in the second quarter, because I guess you had to replace that lower level of clearance with something else.

Lisa Rhodes

I think I got the question there. Total inventories, I think the positioning of total inventories, we [inaudible] going into the quarter with the appropriate level. I think the balance of inventory and its composition of spring/summer to fall/winter is where the negative impact came from. So we needed a bit more spring/summer inventory than we had, but not more total inventory.

And as far as the fall/winter inventory in the season, the first few weeks it was slower than I liked, because I pulled it in earlier, and then two and a half weeks into the season of its receipt, it kicked in very nicely. So I'm comfortable with the inventory levels and the tighter inventories. It's just key balance of ownership.

Christopher Kim – J.P. Morgan.

So the composition of inventories, you're much more comfortable with, and barring any sort of big change in the cadence of the business, the margin results in the first quarter likely will have a much better showing it seems like?

Lisa Rhodes

I think that the margins and the sales will be conservative, as we stated, and I'm comfortable with the position that we're in.

Armand Correia

I think I can add to that. I made a comment that I really felt that given the reduction in clearance levels at both brands, there was a margin opportunity going forward. And we'll leave it at that.

Christopher Kim – J.P. Morgan.

Keith, I was wondering if you could comment on some of these product tests, whether it's Jones Studio. I think there are some Calvin Klein in certain stores.

Keith Fulsher

The Jones Studio isn't really a test at this point. It's rolled out pretty aggressively in the spring with 500 Dress Barn and 400 Dress Barn Stores. So it's a pretty robust program right now and we will be looking to grow that going forward. And that, at the retail price points, is a much higher average check than the core of Dress Barn assorteds. So we're very pleased with that.

And you did see some Calvin, and you know, we are growing in select stores. Some branded apparel if it makes sense, enhances our store and our brands. We're fine with that so you saw a little bit of that so there is a little going of in that, but it's not significant at this point. The Jones apparel is really where our emphasis is. Now and going forward as you head into spring 2010, also.

Christopher Kim – J.P. Morgan.

Armand, how should we be thinking about the share count, with the stock in the mid- to high-teens, at this point? With the convert, etc.

Armand Correia

Actually, there wasn't much of a change in the impact of the converts during the quarter versus the prior year. On the convert, we wound up for the quarter at dilution impact, as a result of the convert, obviously the stock price of 3.1 million shares compared to 2.8 million shares last year's average price.

So I would probably say that going forward, it's all about the price of the stock, as you guys know. As the stock goes up, there is more dilution relative to the convert and I think we've discuss that before, and I'll be happy to discuss more of the details because obviously there were different breaks on the dilution impact as the stock increases.

Christopher Kim – J.P. Morgan.

And obviously that's all going to change in the next month or two.

Operator

Your next question comes from Janet Kloppenburg – JJK Research.

Janet Kloppenburg – JJK Research

I wanted to focus on guidance for a second. I'm a little surprised at the low end of the range. I guess given how well you did, given how clean your inventories appear to be, and given the trend that you're talking about here for the first quarter, are you being cautious on the back half? I think the guidance does not include any effect from Tween Brands.

David R. Jaffe

That's correct.

Janet Kloppenburg – JJK Research

I was wondering if you could flush that out for us. Perhaps we reconcile the $1.10 versus the non-GAAP $1.09, particularly given what sounds like is a good trend in your business, and some easier comparisons in the second quarter and the third quarter.

David R. Jaffe

I think it really boils down to our projection, our sitting here today, of a 2% comp for DBI for the year. And I mentioned in my comments, that's really our tipping point. So if we get our comps above that, I think we've got significant upside opportunity, but at 2% it's going to be really tough. So that's why the $1.10 kind of looks like the $1.09.

As Armand said, we think there is opportunity but right now who knows. And I think calendar fourth quarter is anybody's guess. So as I mentioned, we are planning conservatively. We are going to be in a great position if it comes in stronger. We can certainly chase. But at this point, at the 2% comp, the $1.10, the $1.20 for the 53 weeks looks to be a solid number.

Janet Kloppenburg – JJK Research

Is the class reduction program that was announced during the holiday season, I think, should that have any bearing or any positive effect on the SG&A levels for fiscal 2010?

Armand Correia

Yes, as we acknowledged then, we had identified and we put together contingency plans, kind of in different phases. And I'm pleased to report that we obviously don't have to get into any of the additional phases as a result of the business climate. At least our business climate.

But at that time I think I said that we had identified approximately $6.0 million in SG&A opportunities and some of that, $3.0 million of which would be kind of the first half, and $3.0 million would be the second half. And I'm still trending along that line.

Janet Kloppenburg – JJK Research

For the year end?

Armand Correia

That's correct.

Janet Kloppenburg – JJK Research

For the new fiscal year?

Armand Correia

That's correct. You get the $3.0 million into the new fiscal year.

Janet Kloppenburg – JJK Research

Then I was also wondering if the benefit of the higher AURs at Dress Barn, I believe you're not comparing against the Suit Separates business from Jones and others until the second half of the year, so don't you have the benefit of that in the first half of this year which could also benefit the comps?

Keith Fulsher

You do. You don't have the massive roll out like we had in the spring, but we did have Suit Separates in our assortments last fall, so that will definitely give us a little bit of an edge going into the fall season. But it won't be as dramatic as what you saw happen in the summer selling period.

Janet Kloppenburg – JJK Research

I don't understand why. Could you help me with that, please?

Keith Fulsher

As I said before, a lot of the mix was due to Suit Separates but a lot of it was the core Dress Barn assortments. We had less reliance on basics in T-shirts and shorts, more capris and more fashion tops. And that dramatically swung the AUR for other departments other than Suit Separates. And that is not a trend that is going to continue into the fall season. In addition, the mark-downs played a part in it, as I said before, and it's unclear at this point if you are going to get that kind of mark-down improvement as you head into the fall season. So it's still too early to tell.

Janet Kloppenburg – JJK Research

And I also wanted to ask at Maurice's if you were comfortable with your inventory levels now and if you thought they were enough to help your comps stay up at the levels that David said that they were at this point.

Lisa Rhodes

Yes, I am comfortable with the inventory levels and the sales relationships.

Janet Kloppenburg – JJK Research

And the content is healthy?

Lisa Rhodes

Yes, the content is very healthy.

Janet Kloppenburg – JJK Research

Skewed away from the categories like club, etc. that had underperformed?

Lisa Rhodes

In general, they are skewed away but I wish as a merchant I had the crystal ball of the next category, but in general we have balanced our inventory to the areas that the customer is responding favorably to.

Janet Kloppenburg – JJK Research

And David, I think marketing spend might be up at Maurice's and flat at Dress Barn in the first half, but I'm not quite sure I'm right on that.

David R. Jaffe

For the first half, we're looking at keeping the spend fairly flat at both Dress Barn and Maurice's. We have one small incremental piece at Dress Barn but overall you will see the dollars to be pretty constituent to last year.

Janet Kloppenburg – JJK Research

And when will we be talking to you about Tween Brands? Will we have a conference call? How will we learn more about the effect of the P&L, etc., after this acquisition is complete?

David R. Jaffe

Once our merger is consummated, which we are still saying is going to be calendar fourth quarter, we will do a press release to let everybody know, and then we're trying to plan an analyst/investor day to bring together everybody that's interested, with executive teams from all three divisions.

Janet Kloppenburg – JJK Research

So it's not closing the end of October.

David R. Jaffe

At this point I don't think it's closing the end of October. I think it's going to be pushed into November. At least.

Operator

Your next question comes from Alex [Germond] - Raymond James.

Alex [Germond] - Raymond James

I wanted to take a look at your capex and store growth forecast for the next year. It looks like your store openings are going to be down pretty substantially in fiscal 2010 but not as much on the capex line. How should we be thinking about that? Is there some sort of home office or IT spend baked into that?

David R. Jaffe

Basically there is IT baked into it. So typically new stores is about 40% or so of our expense, and then we've got remodels and refurbishments of our existing fleet. And then on top of that we've got IT expenditures and any work we've done, like this year we did a significant enhancement at our Des Moines DC, so all that would be part of our capex.

Alex [Germond] - Raymond James

Armand, you were saying after the merger is completed and you pay off Tween Brands' debt, you anticipate having in the ballpark of $200.0 million cash balance. Is that correct?

Armand Correia

I said in excess of $200.0 million.

Alex [Germond] - Raymond James

And is that then a level that you feel comfortable with sustaining. I know you have been accumulating cash over the last couple of years, possibly with the intent of an acquisition and this was obviously a stock-for-stock deal, so do you envision that $200.0 million sort of being a comfortable level or are you going to continue to accumulate?

Armand Correia

I think it's a pretty good comfort blanket in today's world. Certainly it's more than I would like but I'm not too concerned. I would rather have more than less.

David R. Jaffe

And don't forget, we have the convert coming due in two years. That's $115.0 million so we want to make sure we have got the cash to pay that off.

Operator

Your next question comes from Scott Krasik – C.L. King & Associates.

Scott Krasik – C.L. King & Associates

David, can you break down your comments again regarding comps, quarter-to-date, by division?

David R. Jaffe

I think what I said is that we're trending in the positive low-single digits.

Scott Krasik – C.L. King & Associates

For both?

David R. Jaffe

For both.

Scott Krasik – C.L. King & Associates

I don't want to harp on guidance, it's obviously going to change in a few weeks, but to your point that the two comp, you can't get about $1.10, just looking at some of the gross margin comparisons, particularly the second quarter, where it was very difficult a year ago, you're initial markup should probably be going up as sourcing costs improve. Where is the offset?

David R. Jaffe

There are certainly a lot of one-time expenses that we incur every year so whether right now is we're rolling out POS, at Dress Barn we're adding a planning department, so we have some incremental one-time costs or go-forward costs that are offsetting our ability to drive that tipping point down below the 2%. So it is offsetting the margin opportunity that we've got.

So I would say that we feel that the 2% number, given everything that we've identified right now, is a good number to come in with $1.10, $1.20. But we are also feeling pretty good that if we're able to maintain the tenor of business that we're feeling now through the holidays, we should be able to do better. But remember, a year ago we were feeling pretty good about our business as well in the first quarter and then we got slammed in the fourth quarter. So I think we're just going to be very, very careful until January.

Operator

Your next question comes from Gary Giblen – Quint Miller & Co.

Gary Giblen – Quint Miller & Co.

I was wondering, in light of this acquisition with Tween Brands, significantly beat the Street estimates in their July end quarter reported in August, both on sales and earnings they beat. Is it possible that you would revise your guidance relative to the Tween Brands contribution when you close the merger and provide the guidance that you discussed previously.

David R. Jaffe

Certainly at this point we've got no comments on Tween Brands. And you've heard their call recently yourself, and so when we get together and we have this analyst day, we will take a fresh look at all the numbers, our own, the Tween Brands, Maurice's, the Dress Barn numbers, and give you a fresh and current estimate of what our outlook is at that time.

Gary Giblen – Quint Miller & Co.

I guess I'm trying to get a feel for how close are you to Tween Brands in this interim period, before the deal closes. In June when you put out the guidance did you have a sense of how their July quarter was coming in or was that not really made visible to you?

David R. Jaffe

Well, certainly Mike and I had been in touch and doing the appropriate level of keeping me posted on the tenor of their business, but they are running completely independently and we look forward to the closing so we can work together and try and develop a best practices and synergies between the divisions, just as we did with Dress Barn and Maurice's five years ago.

Gary Giblen – Quint Miller & Co.

So we'll get a refined update on that when you do the guidance call after the deal closes.

David R. Jaffe

Exactly.

Operator

Your next question comes from Steve Kernkraut – Berman Capital.

Steve Kernkraut – Berman Capital

Just a follow-up question on the guidance of this $1.10 to $1.20. I understand all the parameters you laid out but given that it's a 53-week year, does the 53rd week have a specific impact. Because some other companies, it adds $0.03, $0.04, $0.05 to their earnings for that year. So I just wanted to know what's really factored in to your numbers, from a comparable basis so when we look out to the 2011 year.

David R. Jaffe

Actually, in our case, we figure it's about $0.05.

Steve Kernkraut – Berman Capital

So effectively on a 52-to-52-week basis, the low end of your guidance is assuming a down year.

David R. Jaffe

I guess so. When we budget for the full year, but you're right.

Operator

Your next question comes from Robin Murchison – Sun Trust Robinson Humphrey.

Robin Murchison – Sun Trust Robinson Humphrey

The $1.10 to $1.20, is it at a 2% comp you figure you're at about $1.10?

David R. Jaffe

Yes.

Robin Murchison – Sun Trust Robinson Humphrey

So something higher than 2% gets you to $1.20.

David R. Jaffe

No. The 2% gets us in the range of $1.10 to $1.20 on the 53 weeks. If we can beat the 2% we will be able to bring in a higher number. And really, the wheel room around that $0.10 range is just based on various uncontrollable. It could be medical costs, it could be some mark-down we have to take.

Robin Murchison – Sun Trust Robinson Humphrey

I don't think you gave today gross margin by division for the fourth quarter. You gave out margin but did you give gross margins?

Armand Correia

I believe I did. I may have not. No, I didn't by division, but I certainly can give you that.

Robin Murchison – Sun Trust Robinson Humphrey

If you've got it, please.

Armand Correia

Gross profit at Dress Barn came in at 40.4% and Maurice's came it at 40.3%, again coming in at that 40.3% combined.

Robin Murchison – Sun Trust Robinson Humphrey

You don't have last year's readily available do you?

Armand Correia

Yes, I do. Dress Barn, 38.1% last year. Maurice's was 41.8%, and combined, DB Inc., 39.5%.

Robin Murchison – Sun Trust Robinson Humphrey

And also, we're certainly hearing some positive things about—and some of it may just be the calendar, certainly we're hitting September and then October and the height of the financial meltdown last year and so forth and so on—but we are certainly hearing about some improvement in consumer behavior. Just wanted to see if you cared to comment about any detectable change in consumer behavior. I understand obviously your same comps are not seen as positive right now, so presumably if we continue along the same pace, they could get a little bit better as we come in towards the close of the quarter.

David R. Jaffe

Right. And really the season. Because the big fall-off, at least for us, was in the holiday quarter, our second quarter. So we didn't have a horrible first quarter and while our business is doing okay now, as we've just mentioned, we see the real opportunity being the second quarter and that's when it really fell off the cliff, from both a comp sales as well as a margin perspective.

Robin Murchison – Sun Trust Robinson Humphrey

Keith, is there any sort of update you want to provide on Yvos?

Keith Fulsher

Yvos is doing well, it's meeting its plan. We are not growing it past the 400 Dress Barn it's currently in. So we are pleased with the progress we're making there, and as I said, we're trying new categories and trying new things so it's a work in progress. But overall, I would say we're pleased and it's hanging right around plan at this point.

Robin Murchison – Sun Trust Robinson Humphrey

In terms of merchandise category, certainly accessories and costume jewelry are enjoying pretty good sales trends. Anything you can comment on regarding that category. It is presumably a higher margin category.

Keith Fulsher

We are definitely seeing an uptick in our accessory and jewelry business, especially in the past few months. So we are kind of pleased with that trend. We're hopeful it holds for the balance of the season. So the answer to that question is definitely yes.

Lisa Rhodes

At Maurice's, yes you're right, the margin in jewelry is a very healthy margin. The key category for us has been necklaces within that category and in the accessory world, handbags and small goods accessories have been a nice growth opportunity.

Operator

Your final question is a follow-up from Scott Krasik – C.L. King & Associates.

Scott Krasik – C.L. King & Associates

David, could you give us an update on how many stores we'll see between Dress Barn and Maurice's, we'll see some form of lease action over fiscal 2010 or the next 12 months? And what sort of concessions are still available? Obviously landlords are trying to hold the line but how successful is that?

David R. Jaffe

I'm going to throw out a little bit of a guess here, but I would say it's probably about 25% of our portfolio at both Dress Barn and Maurice's is going to see some type of lease action. In many of those cases I'm sure we're going to get a reduction or a holding, rather than an increase of the rent. We quantify it on a quarterly basis and I would just tell you that as you would expect, we are running well ahead of last year, in terms of our occupancy savings.

And I think we take an approach, maybe a little different than some of the other retailers of not just focusing on a single store but trying to look at the portfolio of stores we have with a particular developer and trying to look at ways to make it a win-win rather than just go to the developer and say we want you to cut your rent by 50% here. Because they are not going to feel real happy about that so we try and find other opportunities where we've got strong stores or they've got strong incentives where we can actually extend our lease and make it a win-win.

Scott Krasik – C.L. King & Associates

In your bed or power centers are you finding it difficult to negotiate a reduction?

David R. Jaffe

In some cases, yes. It's tough to negotiate a reduction but in many of those cases you can hold the rent rather than absorbing an increase. And it really comes down to a case-by-case, both in terms of each store, each center, as well as each developer.

Scott Krasik – C.L. King & Associates

And any change you want to quantify or put some sort of average in terms of what your occupancy is down year-over-year? You mentioned it was down.

David R. Jaffe

I don't think so. It is down but it's not a double-digit number that would move the needle. Over cost control.

Operator

There are no further questions in the queue.

David R. Jaffe

Thank everyone for your interest in our year end quarterly conference call. We will be back in touch when the Tween Brands transaction closes with both that announcement as well as giving you a sense of the timing for an analyst day to talk about our combined outlook.

Operator

This concludes today’s conference call.

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Source: The Dress Barn, Inc. F4Q09 (Qtr End 07/25/09) Earnings Call Transcript
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