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Executives

David Jaffe - President and CEO

Armand Correia - CFO

Keith Fulsher - Chief Merchandising Officer of dressbarn

Lisa Rhodes - Merchandising Officer of maurices

Analysts

Scott Krasik - C.L. King

Chris Kim - JPMorgan

Sam Panella - Raymond James

Janet Kloppenburg - JJK Research

Gary Giblen - Quint Miller

Brian Ronnick - BLR Capital Partners

Dress Barn Inc. (DBRN) F1Q10 (Qtr End 10/24/09) Earnings Call November 19, 2009 4:30 PM ET

Operator

Welcome to Dress Barn Inc.’s first quarter fiscal 2010 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; instructions will follow at that time. As a reminder, this webcast and conference call is being recorded and will be available for replay later today. Information on how to access this 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 this 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 to vary materially. These risks are referenced in today’s news release, as well as in the company’s SEC filings. Thank you.

Now, I will turn it over to Mr. David Jaffe, President and CEO.

David Jaffe

Thank you. Good afternoon, everyone and thanks for joining our conference call to review our earning’s results for our first fiscal quarter. Joining me on the call today are Armand Correia, CFO; Keith Fulsher and Lisa Rhodes, Chief Merchandising Officers for dressbarn and maurices stores.

We were pleased with our results for our first fiscal quarter, which were driven by a comp sales increase to 4%. By division, dressbarn was up 5% and maurices 4%. As a result, our EPS was $0.33 versus $0.30 last year. On a more indicative, non-GAAP basis, EPS was $0.38 versus $0.29 last year.

Our above plan performance for the quarter reflects a continuation of the trends we have seen since last January when the female apparel shopper recalibrated her shopping habits. Since that time, both of our brands have run positive comps as customers have been attracted to our fashion at a value positioning. We’ve gained market share and developed more confidence in our business models.

The 38% increase in our non-GAAP operating earnings is a result of both, leverage from our positive comps above the tipping point, as well as an improvement in our merchandize margins. Our cost control vigilance kept our tipping point low, while promotions at or below last year’s levels and tight inventory control helped our margins.

Heading into an uncertain holiday season, we are planning conservatively but we expect results to be substantially stronger than last year’s very difficult holiday. Our inventories are more current and lower than last year, and we do not anticipate the need for extraordinary promotions to drive sales as we did last December.

Now, I would like to turn it over to Armand who will review our financials.

Armand Correia

Thank you, David, and welcome everyone. Before reviewing our quarterly results, I would like to point out that they are certain items that we believe are not indicative of ongoing operations for comparison purposes to the prior year’s period. I will comment on these during my prepared remarks. Accordingly, we have included a reconciliation of GAAP to non-GAAP measures in today’s press release.

Our first quarter results exceeded our expectations, with solid sales gains leading to increase profitability at both dressbarn and maurices’ stores. Net sales for our fiscal first quarter increased 7% to $404 million. Driving this increase was a 4% increase in comp sales and a 3% net increase in store growth. This represents the third consecutive quarter of comp sales increases.

By division, dressbarn stores’ quarterly sales increased 6% to $248 million. The overall sales increase was driven by a comp sales increase of 5%, and approximately a 1% increase in net store growth. We ended the quarter with 846 stores in operation.

Reviewing some of the key sales drivers, ADS, average dollar sales increased 5% to $71.85. AUR, average unit retail increased 5% with UPTs flat. Sales transactions increased 1%, all geographic regions posted comp sales increases, with the mid-Atlantic region leading the way.

maurices stores quarterly sales increased 9% to a $156 million. The increased sales were driven by comp sales increase of 4% and net store growth of 6%. We ended the quarter with 734 stores in operations.

Among the key sales drivers in maurices were ADS; increased 3% to $51.95, AUR; increasing 5%, with UPTs down 2%. During the quarter store traffic decreased 2%, this was offset by an improvement of 3% in the traffic conversion rate.

On a regional basis, six of the seven regions posted comp sales increases with the Mid-Atlantic region also the stronger performer. Combined total gross profit dollars increased 11% year-over-year to $164 million, outperforming the 7% sales increase.

As a percentage of sales, gross profit grew by a 140 basis points to 40.5% versus last year’s 39.1%. The improvement was driven primarily by higher merchandise margins at both divisions, which accounted for a 110 basis points and the remaining 30 basis points increase was leveraged on buying and occupancy.

SG&A expenses for the first quarter were a $113.8 million or 28.2% of sales compared to a $102.7 million, or 27.3% of sales in last year’s comparable quarter. This year’s amount includes $4.5 million of certain items that are detailed in our press release as non-indicative of ongoing operations.

Last year’s SG&A on a non-GAAP basis included a benefit of $1.6 million. SG&A on a non-GAAP basis, taking the $4.5 million, as non-operating expenses into consideration with a $109.3 million or 27% of sales. This compares to a $104.3 million, or 27.7% of sales last year. The decrease of 70 basis points was primarily due to sales leverage and ongoing savings measures.

Moving down the income statement; operating income came in at $37.8 million, or 9.4% of sales. This compares to $32.3 million or 8.6% of sales last year. On a non-GAAP basis, this year’s quarterly operating income increased 38% to $42.3 million or 10.5% of sales compared to $30.7 million, or 8.2% of sales.

By division; operating income on a non-GAAP basis for dressbarn stores was $21.9 million, or 8.8% of sales compared to 7.1% last year. With maurices stores coming in at $20.4 million, or 13% of sales compared to 9.9% last year.

Quarterly interest income decreased to $700,000 due entirely to lower investment rates versus last year. Our quarterly effective tax rate was 40.7%. Net earnings on a GAAP basis were $21.7 million, or $0.33 per diluted share compared to last year’s earnings of $19.7 million, or $0.30 per diluted share.

Net earnings on a non-GAAP basis increased 34% to $25 million or $0.38 per diluted share. This compares to last year’s non-GAAP earnings of $18.7 million, or $0.29 per diluted share.

Quarterly earnings, in addition to being impacted by non-operating items also included the impact of adopting our accounting pronouncement dealing with our $115 million, 2.5% convertible debt, which has an equity conversion feature.

Under this pronouncement, we are required to record interest, as if there was no equity feature at a much higher interest rate. We estimate for fiscal 2010 additional imputed interest of $5.8 million and for fiscal 2009, $5.2 million. This pronouncement will not have an impact on our cash flow.

Moving on to our balance sheet. Both dressbarn and maurices continue to generate strong cash flows. We ended the fiscal quarter with $417 million in cash and marketable securities, compared to $298 million last year.

Total inventories ended the quarter at $181 million, a decrease of 3% compared to last year’s $187 billion. By division, dressbarn stores’ inventories were $115 million, compared to last year’s $117 million, and on average store basis, dressbarn store inventories decreased 2%.

maurices ended the quarter with inventories down 6% at $66 million, compared to $70 million last year. On an average store basis, versus last year, store inventories were down 11% at maurices. Our inventories at the end of the quarter were in good shape at both divisions in terms of level and mix. We believe this presents increased merchandise margin opportunities, especially given last year’s highly promotional second quarter.

For our fiscal second quarter, sales and margin performance are off to a good start with comp sales increases for November month to-date continuing our first quarter trend.

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

Keith Fulsher

Thanks, Armand. At dressbarn stores, we are very pleased with the strong sales and margin performance for the quarter. These results reflected an increase in our average unit retail of 5%, which was driven by two key factors. First, our business mix continues to shift towards higher price fashion items. The success of our proprietary Jones Studio suit separates business at higher retail prices is a great example of how we are driving up our AUR.

Second, our merchandize margins ran nicely above last year as our customer reacted positively to our fall fashion assortments, which in turn led to lower markdowns. On the product side, our largest four categories, sweaters exceeded our expectations. We saw strength in all categories, encompassing both, fine gauge and novelty yarns with cardigans in all shapes and sizes performing very well. The accessory business was equally strong with scarves and fashions jewelry trending very well.

Inner wear, sublimation tees and embellished looks drove the business. The career and casual bottoms business rebounded, showing strength across all classifications. Our key merchandize initiatives, suits separates and petites continued to gain traction. On the negative side, the woven top business was soft, mainly due to the strength of the sweater category.

I would like to touch on our new merchandizing systems’ initiative. Last quarter, we implemented our Oracle Merchandising Planning System and are now in the process of building our planning team.

Although most of the benefits of this system will not be realized until future seasons, we are already beginning to leverage selective information to impact our future purchases. Looking forward to the holiday quarter, our inventories are in excellent shape with both clearance and overall levels down to last year.

We are well positioned with the flow of new fashion product in key trending areas and expect to deliver both sales and margin improvements for the quarter when compared to our results last year. In these difficult times, our continued focus on fashion, value and customer service will serve us well.

I’d now like to turn it over to Lisa Rhodes, Chief Merchandising Officer of maurices.

Lisa Rhodes

Thank you, Keith. At maurices, we are pleased with our overall financial results, and saw our business strengthen each month of the quarter. Two key contributors to our strong quarter were increased AUR and improved conversion. Our 5% improvement in average unit retail was driven by a shift in the mix of sales and to new fashion basics, as well as by fewer promotional days in the quarter.

Our customer continues to invest where she can find the greatest value and versatility for her spend. While we have seen no price resistance to the right product, she is certainly more discriminating. She just expects more value. With this in mind, we were pleased to have delivered the right combination of fashion, quality and service to meet her needs. This customer priority led to strong resurgence in both casual apparel and accessories.

Within casual, we generated strong increases in woven, both [clads] and basic shirting, as well as cut and sew knit tops, primarily driven by sublimation tees and fashion layering pieces. Within accessories, solid sales of boots, new fragrances and add-on items such as fashion scarves and jewelry helped to maintain UPTs and drove mid single-digit comp increases.

Within the dressy concept shops, we saw a strong customer acceptance to suit separates, a new offering within our assortment. Those areas that offer less versatility such as occasion dressing and lounge apparel did not perform quite as well.

We continue to be pleased with the development of our plus size division as it continues to gain traction. Strong performing categories during the quarter were casual knit tops, sweaters and denim jeans.

We launched our direct-to-consumer e-commerce site in early October. The initial month has produced encouraging results and we look forward to the learning’s we will gain in our first holiday season online.

As we look ahead to the holiday selling season, we remained focused on offering products suitable for multiple wear occasions, a great shopping experience and the value our customer expects from maurices.

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

And now I would like to turn the call over to David Jaffe.

David Jaffe

Thanks, Lisa. In marketing at both dressbarn and maurices, we’re focused on driving store traffic and building customer loyalty, primarily through high ROI direct mail campaigns. At dressbarn in the first quarter, we had three direct mail pieces, our anniversaried fall mailer and fall fashion books totaled 4.3 million pieces.

Additionally, we mailed an incremental post card to our top 750,000 customers in order to drive traffic which we believe generated an incremental $1 million in sales. In total for the first quarter we mailed 20% more pieces. We are pleased to see strength in the utilization of our dressbarn credit card, with those sales up 7% and almost 28% total sales penetration.

For the second quarter, we’ll have three anniversary direct mail pieces. Our holiday fashion Books are in progress right now. We’ll also be anniversarying our holiday scratch off post card in December in our private sale in January.

Second quarter direct mail pieces were increased in quantity by 11% over last year.

At maurices, we continued focus on driving fashion with high perceived value and we are capturing new customers. In the first quarter, we anniversaried our direct mailer to 1.8 million customers with strong results.

In addition to the 20% of entire purchase, we introduced a new promotional handle that drove conversion in sales during that period and then again during our service redemptions.

Sales utilizing our maurices credit card increased to 30% of total in the first quarter, up 5% versus last year. During the second quarter, in addition to our strong holiday fashion and new promotional window messages, our November mailer anniversaried [ph] last year. Additionally we have scheduled another bounce back in November and a final event in late December leading into our end of the season sale.

Now turning to real estate, in the first quarter, dressbarn opened eight new stores and maurices 13. Overall, this group of stores is performing above plans. In this environment, we’re being very selective, but still feel comfortable with our new store guidance for the fiscal year. As a reminder on the last call, we expected flat net square footage growth at dressbarn and plus 3.5% at maurices. We are also using this quieter time in the real estate market to carefully review our fleets of stores looking for relocations, expansion remodel opportunities in addition to closings and rent adjustments.

In conclusion, as we discussed on our last call, our strategic positioning with the fashion driven, value-oriented assortment is resonating with consumers, throughout the fall season we made the most of this opportunity with effective inventory and cost controls. This merchandize position along with our high levels of customer service and a convenient shopping experience have struck a positive cord with customers in this new retailing paradigm.

We’re building on our success and we remain optimistic about our outlook for the holiday season as well as for spring. As such we are comfortable raising our guidance to $1.20 to $1.30 for the fiscal year which includes a 53rd week. This guidance does not include any impact of the pending merger with Tween Brands.

Before I close, I would like to briefly comment on our merger with Tween Brands. We anticipate it closing next Wednesday. The proxy was distributed to stockholders several weeks ago and the vote will be held next week as well. Upon closing, we will issue approximately 11.8 million shares of our stock and expect to have over $300 million in cash in investments after repaying Tween Brands debt.

This will leave us with a better balance sheet post transaction than we had originally expected. Also next week we anticipate a simultaneous closing on a new $200 million four-year revolving credit facility with no direct borrowings planned. We look forward to our merger with Tween Brands with great anticipation. Assuming the transaction closes next Wednesday as expected, we will be hosting an Investor Day on December 16th in New York city, which will be simulcast on our website.

At this meeting, we will be discussing the merger, synergies and growth opportunities as well as updating our financial projection to include Tween Brands for fiscal 2010. We will be sending our invitations soon or please call Armand for more information.

Thank you for your interest and before taking questions, let me remind you due to the pending vote by the Tween Brands’ shareholders on the merger, we will not become commenting on the Tween Brand business.

Operator, will now open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions). You have a question from the line of Scott Krasik, C.L. King. Please proceed.

Scott Krasik - C.L. King

Hi guys. Good job. David, you mentioned your inventories are obviously in much better position going into the holiday quarter. Just wandering what impact do you assume that’s going to have on gross margins? In fiscal year ‘08, you did a over 35% gross margin, but in fiscal year ‘07 you did almost of 38% gross margin. What’s possible in the second quarter assuming the comps stay at the current level?

David Jaffe

Armand’s waving that he wants to take it. I’ll turn to him in a second, but let me just say that we are expecting much better margins at both dressbarn and maurices. At this point, the wind is at our back but obviously anything can happen from Black Friday forward. So, we are hedging ourselves with conservative functions. Armand do you want to give a bit more color?

Armand Correia

Keep in mind that last year’s second fiscal quarter ended January; the gross profit line deteriorated by approximately 240 basis points to the prior year, and quite frankly, the prior year wasn’t a great quarter to begin with as well. So, again, to the point that David made, certainly we have some wind to our back, I think inventories are in great shape. I haven’t seen them from this standpoint, both level and seasonality of them. Again, in my opinion, some opportunity going into this next quarter particularly the months of November and December.

Scott Krasik - C.L. King

I don’t want to put words in your mouth but to your point then even at [35.2] I think that you did in fiscal year ‘08. That’s not really a goal of yours. You should do better than that if things are going well.

Armand Correia

Well, certainly, reading between the lines I think you could probably anticipate that.

Scott Krasik - C.L. King

Then in terms of this, did you figure out how you are going to handle this interest expenses of non-cash, whether you should exclude it from your non-GAAP guidance?

Armand Correia

No. I think what we could like to do is, and it’s approximate to handle it this way. The interest expense is a GAAP issue, and again, we did not call it out on our reconciliation if you noted. We did re-cast last year’s for that particular amount during the quarter, but again, we will not be calling that out as a non-GAAP item because it is not a non-GAAP item. It is a required accounting pronouncement that we adopted during the quarter.

David Jaffe

It’s comparable to ROI [ph] now. So it doesn’t really matter.

Scott Krasik - C.L. King

Then in terms of the cash, David, just remind us when can you call in the convert?

David Jaffe

The first call is December 11.

Scott Krasik - C.L. King

Okay. Not until then. Okay, so you’re going to be in a significant cash position though because as you pointed out Tween is in a better cash place then you thought originally?

David Jaffe

I think I said that we are in a better cash position but it doesn’t matter. I think you’ve seen their release and that’s what led to my comment earlier stating that we are going to end up in a better cash position for both.

Operator

We have a question from the line of Chris Kim, JPMorgan. Please proceed.

Chris Kim - JPMorgan

Just going back to guidance for a second, it seems like there is a pretty tremendous second quarter opportunity, but does your guidance contemplate, I guess, earnings growth in the back half of your fiscal year? I’m assuming that it would?

David Jaffe

Yeah. It does, Chris. It also contemplates and improves second quarter versus last year. So, if you can assume then if we are able to maintain the momentum that we had in the first quarter throughout the year, we should be able to improve beyond the $1.20, $1.30 that we’ve given as guidance but we are going to be conservative and say that we think that we are going to take a lower number.

Chris Kim - JPMorgan

For Keith and Lisa, I was wondering if you guys could talk about anything different that you have planned this year from a gifting opportunity to capitalize on that.

Keith Fulsher

I can go first. In dressbarn stores we have a big opportunity in the accessory business, jewelry and accessories. So, we’ve put some inventory there, put a lot of investment in those categories. We’re getting very good results right now and we think that that’s going to carry us forward. Also the sweater business being strong, we anticipate carrying right through the holiday season and as you know, that’s a great gift category. So, we feel really well positioned in a couple of these businesses to really take advantage of the holiday traffic.

Lisa Rhodes

At maurices, as Keith said, the accessory business is very strong. For maurices, we have launched a new fragrance just recently and that’s taken out very strong. So that should be great as well as the jewelry business, and then the layering pieces at maurices, which is great add-on item to any gift has been tremendous and we have a great investment there. Additionally, we will be in a better position this year during gift card redemption with new core denim to convert those cards into jeans.

Chris Kim - JPMorgan

Finally just for David, you talked about the square footage growth for this year kind of sticking to that with some wiggle room so that net, what is it, 3% square footage growth at maurices, does that translate to about 25 stores? Am I calculating that correctly?

David Jaffe

We maybe depending on closing assumption and all that, it’s probably going to be a little bit more than that. I do think while it’s premature to put anything out there officially, I do think that we’re seeing a little bit of the real estate market logjam start to break a little bit for people like us, that have concepts, that are being well received, we are getting a little bit more interest out there from some of the bigger mall players in particular, that have a lot of real estate available and are open to making appropriate deals with us.

Operator

We have a question from the line of Sam Panella, Raymond James.

Sam Panella - Raymond James

Going back to gross margins, so in the first quarter, I believe you said total merchandized margin was up 110 basis points. How does this compare by division?

Armand Correia

By division gross profit for the dressbarn was actually up 60 basis points and maurices was actually up 280 basis points.

Sam Panella - Raymond James

As we are thinking about the second quarter, given that dressbarn had more deterioration over the past two years, I would think that the upside would be probably likely fit more in that division, would that be the correct way to think about it?

Armand Correia

I think that would be correct.

Sam Panella - Raymond James

You say that maurices sales trend strengthened throughout the quarter, was that the same case for dressbarn as well?

Armand Correia

Yes, I can pick that up. Same case as well for dressbarn, dressbarn showed constant strength every month during the quarter.

Sam Panella - Raymond James

In terms of the plus size offering at maurices, how much of the mix is that, and how did that change versus last year?

Lisa Rhodes

It hasn’t changed. As the business has grown totally, so has the plus size business, so as far as percent to total is remaining, it’s growing a little bit but not significantly.

Operator

We have a question from the line of Steve (inaudible), Burton Capital [ph].

Unidentified Analyst

Is outerwear going to be a major piece of the second quarter, or is it really the sweaters and the dresses that’s driving it.

Secondly, could just talk about your Black Friday plans. Historically you are not a big player in that, you don’t waste your marketing money because you have the Kohl’s and the Penneys in all the department stores cluttering the [airways], but I just wanted to know what your thoughts are there and where are you going to be spending the marketing dollars this quarter?

David Jaffe

Let me start off and Keith and Lisa, feel free to jump in. See, we are not a big outerwear business at either dressbarn or maurices, and so yes we do have a smattering of outerwear and it’s fortunately doing well, but sweaters is really what’s driving the train at this time.

In terms of Black Friday, we are really focused on maintaining control of our business and not kind of dropping our pants for one day or one weekend, letting the big guys duke it out, still offering value for our customers, because remember, Steve most of the customers at this time are still, our customers are shopping for themselves. Therefore they need an outfit for thanksgiving or for a holiday partywear, where they will come in and will get a great value, but we are not going to give away a free toaster oven with every purchase.

Lisa Rhodes

The only difference that maurices is, is where sweaters is the driver at dressbarn, at maurices, hoodies and knit tops are our drivers at that time period.

Operator

We have a question from the line of Janet Kloppenburg from JJK Research.

Janet Kloppenburg - JJK Research

David, could you talk a little bit about the success of the direct mail program and maybe if you are considering making that a bigger effort or what the implications are for that going forward and also the relationship that you have with Jones seems to be working well and I’m just wondering about other vendor partnerships you might be thinking about as we move forward.

David Jaffe

First, on direct mail, we are selectively adding mailers where we think we can get value. You may have heard, we added a reminder mailer postcard, that was very effective in the fall. We are looking possibly at adding another mailer this spring, which we will talking about probably on the next call, and so we make the final determination, and those are both the dressbarn, and as I mentioned earlier, we increased the quantity of our mailings at dressbarn.

At maurices, we are looking carefully, both at the number, the quantity of mailers per mailer, as well as the number of mailers or maybe being a little more careful or thoughtful in that regard, as we don’t want to overdo it and train our customer just to wait for the mailers. So, we think we are in a good place, but we are going continue to test and see if it pays to increase our mailers or deduct our mailers as the same as I mentioned we’re doing at dressbarn.

Janet Kloppenburg - JJK Research

Is your marketing expense going up?

David Jaffe

As a percent of sales it should not be going up. So, for the incremental marking that we are spending for example on the number of mailers, the added mailer at dressbarn or the depth of mailings, we’re getting paid for that. We are getting good return on those investments. So, as a percent of sales we’ve got good control on our marketing cost.

Turning to your other question, Jones is doing great, and we are looking for other labels. Keith and the merchants are scouting the markets. We’ve got a few things that I am going to ask you to talk about in a second. However, we are not going to become a branded store.

We’re simply going to look for the appropriate label on a particular segment that resonates with our customer, and the same at maurices, where we’ve got Silver Denim which is important to our customers. If we found another label that we thought was just as important, we would certainly consider carrying it, but by and large we are a private label business. Keith, maybe you can talk about few other things we are testing like in accessories?

Keith Fulsher

A couple of other categories that we are looking into; specially in jewelry we think we have an upside potential in some better products. So we are looking into testing really semiprecious jewelry. So retails now will go from $29.99 up to $79.99. We’re just delivering it in selected test stores right. So, we think that will be a pretty good opportunity for us, the Gem label, which is our private label. So we’re looking forward to that.

Also, we have Swarovski Crystal in our assortments in jewelry. So, big emphasis and we’ve put a lot of dollars behind that performing very well right now. So on that front we have a couple of other things that we’re testing out there look pretty good, but just to back what David said about Jones, we feel we have ways to go to really still build relationship with Jones Apparel Group and we’re very pleased with the results and we’ll be looking to extend that both in dressbarn, dressbarn Woman and the boutique division going forward to spring.

David Jaffe

Lisa, anything you want to add to that?

Lisa Rhodes

Nothing to add.

Operator

We have a question from the line of [Brian Ronnick], BLR Capital Partners. Please proceed.

Brian Ronnick - BLR Capital Partners

Just a couple of quick questions. David, did you say 11.8 million shares will be issued for the merger assuming it’s all completed?

David Jaffe

Correct.

Brian Ronnick - BLR Capital Partners

Armand, can you just refresh me on the long-term effect of the share count relative to the stock price?

Armand Correia

Are we talking about dilution from the convert, is that what you asked?

Brian Ronnick - BLR Capital Partners

Correct.

Armand Correia

Yes. During this particular quarter, as a result again, most of you that have tuned in before, as the stock price moves up, the dilution become greater from the convert. During the quarter we had a dilution impact as a result of 4.2 million shares compared to last year’s 3.0 million shares. So for the quarter, if you just simply take the 4.2 divided by basically your [6.0], so you had a dilution impact during the quarter from the 2.5% convert of about 6.5%.

Brian Ronnick - BLR Capital Partners

Got you, okay. David, you had mentioned $300 million in cash, I think after the merger would be completed, is that correct?

David Jaffe

That’s correct.

Brian Ronnick - BLR Capital Partners

That assumes that you paid off Tween Brand’s debt, is that correct?

David Jaffe

It’s correct also.

Brian Ronnick - BLR Capital Partners

Okay, great. I appreciate that and good luck

Operator

(Operator Instructions). We have a question from the line of Scott Krasik from C.L. King. Please proceed.

Scott Krasik - C.L. King

Yeah just couple of quick follow-up, Armand what was the dressbarn store operating income and margin? I missed those numbers?

Armand Correia

On a non-GAAP basis dressbarn’s operating margin was 8.8% of sales compared to 7.1% last year and maurices’ was 13% of sales compared to 9.9% last year.

Scott Krasik - C.L. King

Okay. Then in terms of the dilution, when does the step-up towards 67 million or is 66 million, 66.5 million a good number to use for the next two quarters?

Armand Correia

Scott, you know how the thing works. It so difficult. It really depends on how the stock performs. The other thing is after anticipating the merger will be closed, there’s going to be another 11.8 million shares added to that diluted number going forward. So, I think right now it’s kind of an up in the air number.

Scott Krasik - C.L. King

A better way to ask is that your 120 to 130, what share count is that based on.

Armand Correia

That would be based on diluted share account of approximately 67 million shares.

Operator

You have a question from the line of (inaudible); Goldman & Co. Please proceed.

Unidentified Analyst

Hey, guys very nice quarter. Just a question on your capital allocation philosophy, and I guess now that Tween Brand seems to be back to historical margins around 10%, and I guess it could be a viable growth concept. Can you just talk at a high level about your capital decision making process for allocating capital between the three businesses and also potentially buying your own stocks?

David Jaffe

Well first and foremost we look at ROI. So, fortunately we are not in position where we are constrained by capital limitations and so what we do is, within each division we have an ROI review process, whether it is new stores or new computers or applications, we put it through rigorous ROI and then after we’ve spent whatever we feel we need to spend, the excess free cash flow then is available for investing and then if we see an opportunity to buy our stock back or possibly to look at our convert, because that’s obliviously got an equity feature in it, if we believe in our stock long term, it makes sense to think about what we can do with our convert. Finally, as you can see with the Tween Brands merger, having that the cash available enabled us to move opportunistically to a merger because of the strength of our balance sheet

Operator

You have a question from the line of Gary Giblen, Quint Miller.

Gary Giblen - Quint Miller

A couple of housekeeping questions, what would you estimate roughly the merger related expenses are going to be in the fiscal second quarter?

Armand Correia

I’d say somewhere in the range of $7 million to $8 million.

Gary Giblen - Quint Miller

Okay, and is that the end?

Armand Correia

I would hope that it’s the end of any merger related costs, Gary.

Gary Giblen - Quint Miller

Could elaborate on what was the impairment of the brand, the $2 million item?

Armand Correia

I’s a maurices private label called Studio Y and what we have done obviously we’ve performed the analysis and their sales during the quarter deteriorated a bit and as a result we felt it appropriate to take that $2 million impairment. We do not anticipate any further impairment going forward on this particular label.

Gary Giblen - Quint Miller

Okay but the label continues its carrying value?

Armand Correia

Absolutely. It’s a very viable label, yes.

Operator

You have a follow up question from the line of Brian Ronnick, BLR Capital Partners [ph].

Brian Ronnick - BLR Capital Partners

Armand, assuming that the new FASB pronouncement is enacted or that you have enacted it. The fact that it is included in the $120 and $130 a share, if you exclude the 53rd week, would that mean $15 to a $25?

Armand Correia

That’s correct.

Operator

And this concludes the question-and-answer session of today’s conference call, I would like to turn the call back to management for closing remarks.

David Jaffe

Thank you, everyone, for your interest and we hope to see you at our investor conference on December 16.

Operator

Ladies and gentlemen, this does conclude today’s conference, thank you for your participation. You may now disconnect and have a great day.

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Source: Dress Barn Inc. F1Q10 (Qtr End 10/24/09) Earnings Call Transcript
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