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Executives

David R. Jaffe – President, Chief Executive Officer & Director

Armand Correia - Chief Financial Officer & Senior Vice President

Keith [Fulcher] – Chief Merchandising Officer, Dress Barn Stores and Maurices Stores

Lisa [Rhodes] – Chief Merchandising Officer, Dress Barn Stores and Maurices Stores

Analysts

Gary Giblen – Goldsmith & Harris

Janet Kloppenberg - JJK Research

Christopher Kim – J.P. Morgan Securities, Inc.

Mark Montagna - C.L. King & Associates

Shaun Smolarz - Sidoti &Company, LLC

Erin Moloney - Merriman Curhan Ford

Robin Murchison - Sun Trust Robinson Humphrey Capital Markets, Inc.

John Hawkin – Whitney

Marc Bettinger - Stanford Group Company

Brian Bronnick – BLR Capital Markets

The Dress Barn, Inc. (DBRN) F2Q08 Earnings Call February 27, 2008 4:30 PM ET

Operator

Good day, ladies and gentlemen and welcome to Dress Barn, Inc.’s second quarter fiscal 2008 earning conference call. At this time all participants are in a listen only mode. Later the company will conduct a question-and-answer session and instructions will follow at that time. As a reminder this conference call is being recorded. I would now like to turn the call over Mr. David Jaffe, President and CEO of Dress Barn, Inc. Please go ahead, Mr. Jaffe.

David R. Jaffe

Good afternoon, everyone. Thank you for joining us today for review and discussion of the company’s fiscal second quarter results. With me are Armand Correia, CFO; Keith Fulcher and Lisa Rhodes, CMO’s for Dress Barn Stores and Maurices Stores. Before our prepared remarks, Armand will make a few introductory comments.

Armand Correia

Our discussions during this call may include forward-looking statement within the meaning of the Private Securities Litigation Reform Act of 1995. Please note that actual financial results of the company for the period being discussed may differ materially from the financial results projected or implied in the forward-looking statement. Additional information concerning factors that could cause actual financial results to differ materially from the projected results is contained in the company’s annual report on Form 10-K and in other documents filed by the company with the Securities & Exchange Commission. The company disclaims any intent or obligation to update forward-looking statements. No recording or re-broadcast of this call is permitted without the company’s express written permission.

Today after the close of the market the company issued a press release outlining its financial and operating results for the fiscal second quarter ended January 26, 2008. Announcement of this call was previously issued across the newswire services and this presentation is being simulcast on the Dress Barn, Inc. website ww.DressBarn.com. A recording of this call will be made available shortly after its conclusion and until March 28th of 2008. Information on accessing the recording is available on today’s issued press release.

I’d like to now turn it back to David Jaffe.

David R. Jaffe

Dress Barn, Inc.’s business in the second quarter was largely as we had anticipated and continued the trend experience in our first fiscal quarter. DB, Inc.’s comp sales for the second quarter were down 4% with the Dress Barn division off 7% and Maurices up 2%. The Christmas season was particularly difficult as consumers held back on apparel spending. Our overall results for this period were off a disappointing 14% of sales with an even greater drop in merchandise margin. For February comp sales improved to positive low single digits with DB, Inc. with Dress Barn down low single digits and Maurices up high single digits. The Dress Barn customer has maintained her cautious approach to apparel spending savoring merchandise on promotion in particular. As a result we continue to take relatively deep but necessary markdowns to get inventories in shape for the spring season. We are maintaining our revised plan which we believe adequately reflects this difficult environment. The Maurices customer who represents a younger demographic meanwhile continues to shop and numerous merchandising and marketing initiatives have performed well. Inventories are in excellent shape and the outlook for spring is positive. Currently as you know the consumer continues to be hesitant in general. Our belief is that this will continue to impact our business throughout spring and into the fall. We believe we’re appropriately prepared for this and will maintain our plan while keeping inventories at the right level.

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

Armand Correia

Our overall financial results for our fiscal second quarter of 2008 were well short of our initial expectations but consistent with our previously announced view of how we are likely to do for the full year. We did continue to see mixed performance with Maurices remaining relatively strong during the second quarter and we were also up against very difficult comparisons with the year ago quarter posting record sales and earnings. Our second fiscal quarter is historically our seasonally softest quarter of the year from an earnings standpoint. Quarterly total net sales increased 2% to $345.6 million while comparable store sales decreased 4% compared to last year’s 5% increase for the same quarter. By brand Dress Barn’s stores net sales decreased overall 4% to $204.1 million compared to last year’s $213.1 million while comparable store sales decreased 7% compared to last year’s 5% increase. By region Texas and the Gulf states posted the better sales results while the Southeast including Florida and the West Coast had the weaker results. Regarding store sales metrics Dress Barn stores total sales transactions decreased 1% reflective of the weak consumer traffic. Average unit retail decreased 6.5% primarily due to higher markdowns during the quarter while units per transaction actually increased 2.5% which shows that markdowns were effective in reducing inventory levels. This netted to a 4% overall decrease in the average dollar sale for the Dress Barn stores.

Quarterly net sales for Maurices increased a strong 11% to $141.5 million compared to $127.2 million last year. The increase was primarily driven by new store growth and a comparable store sales increase of 2% on top of last year’s 4% increase. At Maurices comparable stores increased in all the regions with the Midwest leading the way. Some of the key Maurices quarterly sales metrics include average unit retail increasing 5.5% while units per transaction increased 2% netting a very strong 7.5% increase in average dollar sales. These improved metrics more than offset the 6.5% traffic decline. For the quarter total net earnings decreased to $7.4 million. Diluted earnings per share were $0.12. I should note that this includes the favorable impact of a $0.03 per share from certain onetime tax items. This compares to net earnings of $17 million or $0.24 in the year ago period. Excluding the $0.03 per share favorable impact from the tax item earnings per share would have been $0.09 exceeding the street mean estimate of $0.06 per share.

Quarterly operating income decreased to $8.5 million compared to last year’s $23 million and as a percent of sales came in at 2.5% compared to last year’s 6.8%. By brand Dress Barn stores posted an operating loss for the second quarter of $4.4 million compared to last year’s operating income of $10.6 million for 5% of sales. This operating income swing from last year to this year as a percent of sales, was 720 basis points and primarily due to a 510 basis point decline in gross profit resulting from increased markdowns in order to reduce our inventory levels. Within the gross profit of the 510 basis points decrease 190 basis points were due to de-leverage on buy in occupancy costs and the remaining 320 basis point decrease was in merchandise margin. The remaining operating margin variance was 210 basis points from the de-leverage impact of various SG&A expenses.

Maurices’ quarterly operating income on the other hand came in at a solid $13 million compared to $12.5 million last year and as a percent of sales was 9.2% slightly down versus the strong 9.8% posted last year. The decrease was due to the 2% comparable store sales increase during the quarter which was below our tipping point for SG&A leverage. Gross profit came in at a healthy 38.6% for Maurices increasing 80 basis points versus last year’s 37.8% and due primarily to higher initial markup. Quarterly total SG&A as a percent of sales increased 180 basis points coming in at 29.4% compared to 27.6% last year primarily reflective of de-leveraging from the 4% decrease in comparable store sales. By brand Dress Barn stores’ SG&A increased 210 basis points to 31.7% again primarily from the de-leverage of the 7% decrease in comparable store sales. Maurices’ SG&A as a percent of sales increased 170 basis points to 26% reflective of de-leverage from the 2% increase in comparable store sales. Of the 170 basis points increase 100 basis points were from the increased marketing costs as we continue to aggressively market the Maurice brand.

A quarterly effective tax rate decreased to 26% and is reflective of the favorable impact of $0.03 to earnings per share from certain one-time items. We believe a 39% rate is more appropriate for the remainder of fiscal 2008. Average shares outstanding for the quarter was 60.2 million shares. However for diluted earnings per share calculation 63.3 million shares were used. The difference includes 2.1 million shares for the convertible and conversion feature of our 2.5% senior note and 1 million shares from share-based compensation.

Reviewing some key financial highlights for the six month period, net sales increased to $709.3 million an increase of 2% over $698.8 million for the same period last year while comparable store sales decreased 3% during this period. Net earnings for the six month period were $27 million or $0.42 per diluted share compared to $44.4 million or $0.64 per diluted share last year for the same six month period. Operating margins as a percent of sales were 5.6% compared too 9.6% last year. By brand Dress Barn’s operating margin was 1.8% and Maurices’ was 11.6% for sales.

Now turning to our balance sheet, we ended the quarter with a strong balance sheet. Cash and marketable securities increased to $225 million or approximately $3.56 per share. Total inventories increased 2% to $161 million primarily due to Maurices’ store growth. The increase in the inventory was well below our store growth for both brands. By brand Dress Barn stores’ total inventory at cost was $107.7 million down 2.5% versus last years $110.3 million despite an increase of 2% in net store growth from last year. We made good progress reducing inventory levels during the quarter. By tightly managing inventories average store inventories at cost ending the quarter for Dress Barn stores was down 4% while inventory per square foot was also down 5.5% ending the quarter. On a seasonal basis inventories were very comparable to last year.

For Maurices total inventory at cost came in at $53.6 million an increase of 12.5% which is supported by the net store growth increase of 13.5% year-over-year. Average store inventories at cost were flat ending the quarter well below their recent sales trend and inventory per square foot was also flat. On a seasonal basis inventories were slightly more current than last year heading into the new spring season.

Capital expenditures for fiscal 2008 are estimated at approximately $73 million with approximately $40 million allocated for the Dress Barn brand and $33 million allocated for the Maurice brand. Our capital expenditures are primarily for new store growth, remodels and new systems.

Commenting on the current tone of business, as David said during February we have seen some encouraging signs of improved business for both brands with our Dress Barn stores comparable store sales coming in the low negative single digits while Maurices increasing in the high single digits. Looking ahead despite these encouraging signs we will continue to take a conservative approach to plan our business while maintaining a balance between the ongoing challenges of the consumer market and our long term growth opportunities. Our focus will remain on managing our inventories tightly and on controlling costs. Inventory levels for the new spring season are being planned for Dress Barn stores to decrease in the mid-single digits over the prior year and on an average store basis a similar decrease while at Maurices average store inventories are also being planned down in the mid to low-single digits compared to last year with comparable store sales estimated to increase in the mid-single digits. We believe that the lower inventories will not affect our ability to increase sales going forward. Comparable store sales comparisons for spring will be easier for Dress Barn stores up against a flat performance last year while at Maurices a bit more challenging as last year they had a strong 11% increase.

This year’s early Easter by two weeks occurring in March versus April last year could further help to increase earlier spring sales at our Dress Barn stores as it is traditionally one of the strongest selling periods of the year. However the key will be weather as we had good weather in March last year helping to produce strong sales results.

I would now like to introduce Keith Fulcher, Dress Barn stores’ Chief Merchandising Officer.

Keith Fulcher

As David and Armand have told you business was very difficult for Dress Barn stores during the second quarter. Most of our casual and career businesses fell significantly short of sales plan. This poor selling trend caused us to take deeper than planned markdowns to keep our seasonal inventories in line which dramatically impacted our margins. Although the bottom line results were well below our initial expectations we did achieve our goal of getting our inventories in line by the end of the quarter with inventory down 4% on an average store basis and currency of inventory comparable to last year.

Looking forward to spring 08 we are taking a conservative approach regarding anticipated sales and the inventory levels needed to achieve those sales. In order to accomplish this we are leaving ample open to buy through active business trends and we are buying closer to need by working with our manufacturers to achieve faster turnaround times. During this challenging business environment it is critical that we avoid carrying excess inventory.

On the product side I’m encouraged by some of our early spring selling trends. We are starting to sell more color in addition to black and white. Solid basics are selling well out of the box. We are getting good reads in new trapeze and baby doll shapes with fashion knits and sweaters performing well. The casual and career jacket business continues to be strong and we are pleased with the results of our annual spring suit event. Jewelry and accessories which usually perform well during a weak economy are relatively strong. However our biggest business for the spring season, dresses, is off to a slower start when compared to last year’s record performance. Although business has picked up in recent weeks we need to see our March sales and the all important Easter season unfold before we can get an accurate read of the balance of the season.

In summary I believe we have the strategies in place to weather a tough business environment, fashion right merchandise coupled with strong inventory control.

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

Lisa Rhodes

At Maurices we achieved a 2% comp increase for the second quarter. Although December did not meet expectations we rebounded nicely in January and have seen those trends continue with strong February comps. We maximized post-holiday gift card business by satisfying more guests. Our commitment to like sale concept shops along with our health ownership of spring product offered the customer variety and newness. This supported both conversion and higher average dollar sales at store level. Our positive second quarter results came from continued strength within well established knit top and denim categories as well as strong performance from the new developing wear at work and lounge businesses. The core casual collection was driven by hoodies, longer length tops, layering pieces and screen tees paired with the perfect five pocket jean in darker washes. Our dressy collections featured two and three color geometric patterns, breath of layering piece options and solid ribbed sweaters merchandised back to our strong dress pant offering. In addition we saw contributions from outerwear and dresses. Outerwear was driven by fashion silhouettes and pattern styles.

Disappointments during the quarter included jewelry, embellished holiday looks and heavy weight sweaters. The plus size business continues to develop and meet expectations. Sales drivers for this shop have been fashion knit tops, five pocket jeans and casual bottoms. Looking forward to the spring selling season our assortment will be driven by variety. The casual assortment will range from fun and flirty fashion tops with feminine touches tied back to denim to cool comfort in shades of brown, turq, red and yellow paired with eco friendly screens and plaid shorts. Our dressy collections will offer both rich, luxurious colors with touches of ruffle and lace as well as the simplicity of black and white patterns matched to black bottoms.

Finally the continued maceration of the new plus size offering should only to Maurices’ third quarter performance. As Armand mentioned earlier our inventory are well positioned heading into third quarter. Tight inventory management and strong sell downs throughout the second quarter have our fall inventories flat to last year. With inventories fully transitioned to spring and the customer reacting favorably to the initial spring assortment we are ready to take advantage of the earlier Easter timing. We believe the continued development of wear at work and plus size shops complement our traditionally spring casual business. We’re optimistic our trends will stay solid during the upcoming quarter and look forward to a successful spring season.

I’d now like to turn the call back to David Jaffe.

David R. Jaffe

Turning to marketing during the second quarter at Dress Barn we sent out three major direct mail pieces that anniversaried the same events last year generating strong response rates but lower ADS due to higher markdowns. Strategically this year however we did a number of things differently to help drive traffic and sales. First we reallocated money to substantially increase quantities mailed. Second we tested different formats for the holiday look plus a supplemental holiday postcard to incremental segments within our database. Finally we incorporated new, more aggressive offers. Separately gift cards were flat versus last year while the Dress Barn credit cards market share rose slightly to 24.5%. For the third quarter coupled with our national print image campaign our focus is to drive sales through two key direct mail pieces, our spring sale postcard and the spring fashion book with a supplemental postcard and gift with purchase. These will incorporate all of the variables that we tested in the second quarter, increased quantities, supplemental formats and multiple new offers.

At Maurices, the second quarter we had one primary mailer as well as a supplemental mailer to our best Maurices’ credit card customers and had implemented some new customer contact strategies like birthday cards and reactivation mailers. Second quarter market share for our Maurices’ credit card was flat at just over 28% and gift card sales redemption was strong up almost 25% over last year. For the third quarter have one primary mailer in March. Due to shifting Easter we were able to offset our February mailer with our BOGO event and we were excited about the opportunity to increase this March mailer by 80% based upon the shift in Easter and the growth of our database.

In real estate Dress Barn opened 20 stores in the fall season and closed 22. With 19 openings and 8 closings this spring we are on track to achieve a net square footage increase of 1% for the fiscal year. Maurices opened 31 stores and closed none in the first half of the fiscal year. This spring we are planning on another 39 less 3 closing for net square footage growth of 11%. These openings do not include approximately 20 relocations primarily out of malls and into strip centers.

Concluding as we’ve said prior to today’s call we have reduced sales expectations for the spring to flat overall for Dress Barn, Inc. This reflects a projected -3 comp for Dress Barn and a +5 for Maurices. We planned and bought into this lower sales estimate. As Armand mentioned we will remain focused on managing our inventories tightly while controlling costs. As a result we are still comfortable with our previously released guidance in the range of $1.05 to $1.10. We will also continue to invest in our future to support or growth initiatives. New store opportunities will be pursued in attractive new markets or to fill in existing ones. Major projects with compelling ROIs like our POS upgrade and the new merchandising system at Dress Barn will be implemented. We believe the downturn in the economy and women’s apparel specifically present an opportunity to take market share from our competition. As such our investment horizon is much longer than the length of the current economic cycle.

I would also note that we have alternatives available to us because of the strength of our balance sheet to drive value to shareholders. We are continuing to search for strategic acquisitions. We also have a Board approved $100 million stock buy back. No purchases have been made yet as we are building our cash for potential acquisitions. At each Board meeting we evaluate our stock price, acquisition opportunities and projected cash needs to determine the appropriate course of action. We think that regardless of which path we end up moving down that we have a significant opportunity to drive value and to develop our business.

Thank you for your continued interest in Dress Barn, Inc. and I will now open it up to questions.

Question-And-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Gary Giblen with Goldsmith & Harris. Please proceed.

Gary Giblen – Goldsmith & Harris

Are accessories and jewelry growing more or less as you’re aiming to or is that recession impacted?

David R. Jaffe

I think that during times when there’s a little bit of an economic downturn that those businesses are gaining importance and that’s basically the way we’re planning it for the spring season certainly if you look at our fall results those were two of our strongest categories, accessories and jewelry. So we’re focusing on growth in those categories for spring in Dress Barn stores.

Gary Giblen – Goldsmith & Harris

And those remain comfortably above the average apparel margin?

David R. Jaffe

Yes.

Gary Giblen – Goldsmith & Harris

Wow. And just my second question is, is competitive activity rational or are people panicking because of the consumer and doing any unusually crazy promotions?

David R. Jaffe

I think from a high level perspective I think we saw some craziness during the holidays but for good cause. It was really tough and a lot of us had too much inventory that we just had to clear out. What we’re seeing at this point going into spring with everyone having fresh inventories and kind of holding their breath and crossing their fingers seems to be much more rational, most of the retailers seem to have their inventory issues under control and with the early Easter and with hopefully a little good weather maybe the business will stabilize a little bit.

Gary Giblen – Goldsmith & Harris

And just finally, since you made it through the precipitous decline that happened across all of retail and certainly women’s apparel in the holidays, now you’ve fully adjusted your inventories and your buys and so forth, it would seem like you could actually be raising guidance in the sense that you beat the expectation on the toughest possible quarter and now you know what you’re facing. 3So is there the possibility for upgraded guidance later on?

David R. Jaffe

At this point, no. We’ve just reaffirmed based on our visibility out for the rest of the spring but certainly we’re going to hope to raise guidance at the next quarterly conference call. At this point I think it’s premature to do anything like that.

Operator

Your next question comes from the line of Janet Kloppenberg with JJK Research. Please proceed.

Janet Kloppenberg - JJK Research

Congratulations, you really pulled out a better than expected result and I’m happy about the current trend. I’m a little confused on a couple of things. For the second half, David, did you say that you expect comps to be flat at Dress Barn and up 5% at Maurices or was that a total number?

David R. Jaffe

The flat number is for DB, Inc. and we’re projecting down 3 for Dress Barn division and up 5 for Maurices for the entire spring season.

Janet Kloppenberg - JJK Research

But it sounds like both businesses are running at better levels than that right now, is that right?

David R. Jaffe

At this point the numbers don’t mean much, Janet, as you know.

Janet Kloppenberg - JJK Research

Well the question I had, David, is do you think that maybe sales are better here because the build to Easter is earlier than it was last year at this time?

David R. Jaffe

No.

Janet Kloppenberg - JJK Research

Why is that?

David R. Jaffe

Because I don’t think we’re seeing the build to Easter yet.

Janet Kloppenberg - JJK Research

You think it’s too early?

David R. Jaffe

Yeah, I think it’s way too early.

Janet Kloppenberg - JJK Research

That’s good to know. And, Keith, can you talk a little bit about your learnings this year other than the macro event being tough and maybe in hindsight what you how you would have configured your assortments versus how they came in? I’d love to just hear what the Monday morning [inaudible].

Keith Fulcher

Definitely what we would do is just re-strategize in the way we’re running our business and I address that up front and really buying closer in need and trying to work closer with our manufacturers and get product in a more timely basis so we don’t have to make commitments too far out so we can get better reads. And honestly running our inventories a little bit tighter gives us an opportunity to really see what’s happening and then jumping into the areas that are doing well. Certainly last fall our expectations starting the season were much higher than they ended up so as a result if you’re planning a business with a plus comp and you end up -7 is what’s happened to us. We had too much fall product in the pipeline that we had to start promoting and then it became a cycle that was very tough to get out of. So at this point by running the types of inventories and this strategy are just tightening up and running closer to need we feel that we’re in a much better position going forward to really bring out all the margin we can out of our inventory.

Janet Kloppenberg - JJK Research

And, Lisa, I think you have a really tough comparison coming up in March, I was just wondering if you had built in any new promotions or marketing events to maybe get you through that with a strong trend?

Lisa Rhodes

Yes, we are up against a strong March and as David had mentioned last year we ran two mailers, one in February and one in March. This year based on the Easter shift we did not run the February one, we’re anniversarying it with a BOGO which allows us to make the March mailer about 80% larger than it was a year ago. So we will have a mailer but to considerably more people. So we feel that will help us significantly drive footsteps in the store and coupled with that one of the initiative areas that we have been growing the past year is the wear at work initiative which also plays well into Easter selling and Easter dressing. So we think those two things combined will help us hurdle over the great March we had a year ago.

Janet Kloppenberg - JJK Research

And, David, are you seeing any more opportunities on the real estate comp than maybe you had as business has toughened up for a lot of your competitors? Are there any opportunities for rents to look more attractive or locations to be offered to you that you didn’t think you could previously attain?

David R. Jaffe

Not quite like that, but we are seeing opportunities in two ways. One is that there are a fair number of either closing a lot of stores or going bankrupt and liquidating and so we’re seeing that type of fire sale on locations that in some cases are of interest to us. And the other is when a center is being developed and the landlord lays it out and says, oh I’m sorry, there’s no room for you, and then comes back six months later and says, oh well a few people have pulled because they’re not opening as many stores or they stopped opening up stores, we’ve been able to get either better locations or locations that we didn’t think were going to be available to us. So in both cases I think we’ll see a few openings in the next couple of years as a result of that.

Janet Kloppenberg - JJK Research

And, David, you said that at the Board meetings I guess that you’re tossing around either an acquisition or looking at acquisitions as opposed to share repurchase. Could you elaborate on that and maybe give us an idea of your inclinations and where you think that might eventually be resolved, how it might be resolved?

David R. Jaffe

Well, at this point, Janet, there are a few companies out there that we think are good fits for us and we think that hopefully one or two of them might become available in the near future or might be open to discussions so we need to watch those carefully because if they happen it would be great and we need to make sure we conserve our cash so that we’re able to finance, especially in this environment, an acquisition of any size and if those don’t pan out and that could be next quarter, it could next year, who knows and we finally kind of threw up our hands and say, we don’t really see anything possible. We would certainly look to reinvigorate our buy back program.

Janet Kloppenberg - JJK Research

So that’s just we wait and see.

David R. Jaffe

Yep. The same way we are.

Janet Kloppenberg - JJK Research

Last question is for Armand, when you look at how your inventories are so clean right now, is there an opportunity for gross margins to lift at Dress Barn as we move through the rest of the season if the sell throughs continue where hey are right now?

Armand Correia

I would think there’s a very good opportunity for the margins to lift. I’m putting a little pressure on my colleagues over here, across from me [laughter]

Janet Kloppenberg - JJK Research

But you can’t leverage buy in occupancy at these levels?

Armand Correia

There you go.

Operator

Your next question comes from the line of Chris Kim with J.P. Morgan. Please proceed.

Christopher Kim – J.P. Morgan Securities, Inc.

David, could you talk a little bit more about the marketing spend just in terms of the dollars? It sounds like we are continuing to see that increase year-over-year but it sounds like its flattish on a percent of sales basis. Sorry if I messed up.

David R. Jaffe

If you look at it on a year-over-year basis it is up, it’s up dramatically more at Maurices than at Dress Barn. I think, Chris, you may remember when we were looking at it together we said we’re trying to keep it at a 6% of sales, so Dress Barn’s increase as a result of that because sales have been growing more slowly than Maurices is smaller than Maurices where we actually increased the percent of sales. So just to give you a sense as for the six months Maurices’ marketing spend is up 58% whereas for the six months Dress Barn’s only up 16%.

Christopher Kim – J.P. Morgan Securities, Inc.

We’ve been hearing some retailers talk about some costing pressures on their sourcing partners and whatnot, are you seeing any of that at all and what are your thoughts behind that?

Keith Fulcher

Yes, we’re definitely seeing some upward pressure in prices especially out of China and what our focus has really been to make sure that that product is special and there’s details on our merchandise that if there’s any kind of cost increases we can certainly absorb them. We are seeing slight increases, not across the board because business is tough out there so people are remaining competitive but for the first time in a while we’re seeing prices go up.

Lisa Rhodes

And the same at Maurices. I would say at Maurices across most major categories we are seeing some cost increases.

Christopher Kim – J.P. Morgan Securities, Inc.

Could you quantify at all perhaps?

Lisa Rhodes

It’s initial passes and we’re working very hard with manufacturers to hold them where the costs are and as Keith said working details into it so that the customer perceives value is there. What I would say is it just requires a bit more negotiation and a bit more diligence on how much and where you’re going to place goods. So it just requires more creativity, it doesn’t mean you accept the prices, it just creates an opportunity to be a little bit more discerning and find different ways to do things.

Christopher Kim – J.P. Morgan Securities, Inc.

And, Lisa, could you talk a little about the plus size segment and how that’s doing and if you could kind of break out that comp if you track it that way?

Lisa Rhodes

Actually we don’t really track it that way at this point in time. I can say that it has contributed anywhere from 25% to half the comps that we have increased and really from a business standpoint it’s developing and maturing as we anticipated it to. What we are finding is the unique product is definitely out performing the basics. So when it’s special, when it’s fun and when it’s young, that product is very, very strong.

Christopher Kim – J.P. Morgan Securities, Inc.

For the whole business as well as –

Lisa Rhodes

The whole plus size business.

Armand Correia

Chris, I just have one comment to that. If you look at the entire plus size business versus the entire men’s business last year we have a dramatic increase both in sales as well as gross margin dollars and we expect that gap to widen even more as we go into the spring season when we started winding down the men’s business last year.

Operator

Your next question comes from the line of Mark Montagna with C.L. King. Please proceed.

Mark Montagna - C.L. King & Associates

Just a question for David, in your introductory comments you mentioned you’re expecting a weak customer through spring and into fall, so I’m focused more on the fall. Can you talk about, just expand on that statement in terms of exactly what you mean by expecting weakness in the fall?

David R. Jaffe

Well, you know, Mark, I’ve got my crystal ball here so let me just warm it up. We’re just taking a cautious approach so I don’t want people to get the impression well okay you’ve taken the plan down for spring but are you going to jack it right up again for fall and I want everybody to understand that we are still at this time we’re cautious on fall because we don’t see anything changing between now and say the elections. Hopefully by the elections, new President, everybody will be all excited, we’ll get that traditional optimism we have with a new President to boost the economy a little bit and to also to look at the Christmas numbers we’re up against that we’ve got a chance to be a little bit of a hero after last year’s dote.

Mark Montagna - C.L. King & Associates

Then just a question towards Armand, I know you had talked about the operating margins for both Dress Barn and Maurices, did you say where you expected them to be for the full year for fiscal year 08?

Armand Correia

I did not, but given the guidance that David reaffirmed I’d like to say, and I’m pretty confident that Maurices still has the ability to get to that 12% operating margin. Last year I think they had a 12.5% operating margin. I still think that’s within striking distance and obviously because of the first half of Dress Barn stores I think a 5 to 6% is probably within that range. Certainly if we achieve our estimate for the spring season.

Operator

Your next question comes from the line of Shaun Smolarz with Sidoti Company. Please proceed.

Shaun Smolarz - Sidoti &Company, LLC

My first question is, I’m considering the challenge retail environment. What are some of the ways that you’re controlling costs?

David R. Jaffe

Well first and foremost, Shaun, the big variable cost we have is our store payroll. Unfortunately most of our 95% plus of our rents are fixed so once you get past your cost of goods sold, your occupancy expense, the next biggest expense you have is your payroll. So we try and really control selling costs and then beyond that it’s little things that we’re doing every day. We have this new campaign internally we call Faster Better Cheaper trying to come up with new ideas to cut costs. Armand, George and I, George Goldfarb, CFO at Maurices, could chair these cost savings committees and in an environment like this we get a little more aggressive at trying to go after costs and reviewing budgets on a regular basis to make sure that people aren’t stepping over their bounds.

Shaun Smolarz - Sidoti &Company, LLC

And what do you think has contributed to the business showing some recent improvement?

David R. Jaffe

I think part of is that we were able to transition well, we took our lumps back in December and January so as we came into February the inventories were very good so we were able to bring out spring merchandise and as Keith and Lisa said, the reads are pretty good. We’re pleased. It’s not perfect and we’re not going to change our guidance based on a few weeks in February but I think what’s happened is when the customers come in she hasn’t been able to get those great deals that she got in December and January so when we’ve offered her fresh fashion for spring she’s been willing to pay full price or work a combination with some of the mailers we’ve done, some of the promos we’ve done to entice her to make a purchase.

Shaun Smolarz - Sidoti &Company, LLC

And then does the current expansionary economic fiscal monetary policies give you any more optimism over the short term?

David R. Jaffe

Over the short term, no. Over the long term I think any kind of expansionary policy, even if you look at the rebates that they’re promising everybody later this spring, it takes a while for those to filter out and anything done on a national basis I think is going to get to our consumer very, very slowly and almost in an indiscernible amount.

Shaun Smolarz - Sidoti &Company, LLC

And then one last question, this one’s for Armand. Do you have the dollar amount for the one time tax gain this quarter?

Armand Correia

It’s approximately $1.9 million. And that would obviously be after tax because it affects the tax rate.

Operator

Your next question comes from the line of Erin Moloney with Merriman Curhan Ford. Please proceed.

Erin Moloney - Merriman Curhan Ford

Couple of questions, first just a clarification, David, I’m sorry I missed what you said where the planned open and closures for the Dress Barn chain for the spring.

David R. Jaffe

Dress Barn open and closures for spring are 19 openings and 8 closings.

Erin Moloney - Merriman Curhan Ford

I guess this is mostly for Lisa, just looking at the Maurices business over the quarter I’m just trying to get a little better understanding I guess where the business was disappointing in December and what you were able to do to help see the rebound in January and then into February.

Lisa Rhodes

The disappointing business in December really came from true holiday like products so it wasn’t the kind of products that would really move forward into the January and February selling cycle. We saw the categories like heavy sweaters and more embellished items slowing down so we did not have a lot, we were not over inventory in December but they didn’t meet our expectations but those would not be driving categories for January or February. What turned the business in January and February was really the percentage of spring ownership we owned and offering newness of color, newness of variety and a consistent receipt flow to the stores to satisfy people each time they came in with newness.

Erin Moloney - Merriman Curhan Ford

And then I was just curious if you guys had given any more thought to possibly launching e-commerce business for either of the chains?

David R. Jaffe

It is something we are looking into, Erin, but I can assure you that if we do it we don’t do it the way we did when we first tried it where we tried to do it internally. There’s some great tools out there now, there’s some great third party firms that we’ve been in contact with and it is something that we are looking into.

Operator

Your next question comes from the line of the Robin Murchison with Sun Trust Robinson Humphrey. Please proceed.

Robin Murchison - Sun Trust Robinson Humphrey Capital Markets, Inc.

Couple of things, one is you do indicate the spring comps -3, +5, spring I define as April so it’s not guidance on the fourth quarter per se, but –

David R. Jaffe

Yes, it is. When we say spring we’re saying the entire season which starts from the first day of our third quarter to the last day of our fourth quarter.

Robin Murchison - Sun Trust Robinson Humphrey Capital Markets, Inc.

For Keith, presumably the quarter that just ended was more macro effected than merchandise selection effected, the stores are cleaned up. Correct me if I’m wrong but the stores are cleaned up inventory wise and I’m just wondering with the rebound or with the pick up of business in February do you think it could be a matter of pick up demand and perhaps less competition amongst your peers given that everybody’s kind of gotten inventory in order presumably?

Keith Fulcher

I don’t think so, Robin. I think part of the reason our business has definitely picked up is our composition of the inventory in the stores change, we‘re not offering the levels of discounts that we had last year so the stores are cleaned up, we’re getting some nicer reads, certainly better than the reads we had going into the full seasonal product and we’ll see that how that all plays out through the course of the season. I think our composition internally is what’s leading to our improved sales at this point.

Robin Murchison - Sun Trust Robinson Humphrey Capital Markets, Inc.

The fact that the stores have less clearance, she’s able to see more of –

Keith Fulcher

Much less clearance, a nice assortment of new spring merchandise presented well in the stores and that’s where the customer because they’re not inundated with clearance at various prices we’re able to really give that merchandise room to breath and let the customer select that. So I think more than anything else by far that’s what’s causing the sales [inaudible].

Robin Murchison - Sun Trust Robinson Humphrey Capital Markets, Inc.

And just if I can, you called out trapeze and babydolls as being positive, and that trend I think is sort of one the wane, is that just indicative of your customer adopting that trend a little bit later?

Keith Fulcher

I think she takes it a little bit later but we’re pleased with the results we’re still getting in that types of silhouettes and looks. Certainly babydolls have been around, some of the more updated trapeze shapes are newer and they look good so I just think we have to wait to see what happens but we’re kind of pleased with some of the results we’ve seen in those categories.

Robin Murchison - Sun Trust Robinson Humphrey Capital Markets, Inc.

And just one last question, are there one or two colors that are callouts?

Keith Fulcher

Yeah, aqua is doing very well and I think it’s going to be another strong pink year from the indications we’ve seen and thanks to the Academy Awards I think red will be [inaudible 00]. As usual we’re selling black and white but we are pleased with our color indications to start the spring and you know last year I was a very neutral, black white and taupe season but this year hopefully color will help drive the business a little more.

David R. Jaffe

Lisa, did you want to add on to that?

Lisa Rhodes

I can.

David R. Jaffe

Because it’s a little different. Why don’t you give your take on the colors for the spring as well.

Lisa Rhodes

The colors for Maurices actually are some of the newer fashion colors. We’ve been very excited as to how they’ve come out of the box. Purples are very good across all categories at Maurices as are different shades of greens from bright, preppy greens to more acidy greens. So greens and purples have been very good as have neutrals continue to be very strong with browns. Brown being a very strong color surprising us to the degree how strong brown has been and then as Keith said turq is also a good color for us.

Robin Murchison - Sun Trust Robinson Humphrey Capital Markets, Inc.

Lisa, can I just ask you this, are you seeing any change in the bottoms business? Everything is so denim driven, right? Any change?

Lisa Rhodes

Actually for the spring season casual bottoms do begin to open up so denim is still key in casual bottoms as the long leg alternative or a long pant alternative and that’s still being driven by five pocket boot as well as flare leg openings and then at this time of year shorts begin to open up and shorts play much stronger in other casual fabrics. Patterned shorts, like plaid shorts are very good out of the box as are non-denim twill shorts. So the non-denim casual fabrics pick up very nicely for the spring season.

Robin Murchison - Sun Trust Robinson Humphrey Capital Markets, Inc.

So long pants still remain denim, there’s no movement towards twill or anything like that?

Lisa Rhodes

No.

Operator

Your next question comes from the line of John [Hawkin ]with [Whitney]. Please proceed.

John Hawkin – Whitney

David, a couple of these questions got hit on but just real quick, on the gross margin and I caught the numbers late but it sounds like last year it was about 320 basis point hit to an effect being over inventoried. Is that the right way to think about it?

David R. Jaffe

Yes, over inventoried and under demand is –

John Hawkin – Whitney

Right, so let’s say we get the inventories back in line for spring which it sounds like you guys have done, should we expect you to recoup that 320 or –

David R. Jaffe

No, no, no. What we hope to do is get back to LY levels. We just want to get ourselves back where we were last spring albeit at a lower sales. For Dress Barn I said we’re going to be down 3%. But if we can maintain the same margin that would be pretty good.

John Hawkin – Whitney

In terms of the acquisition front, two quick questions on that. Have seller expectations come into line yet? I mean a lot of what we’ve heard is that seller expectations were still too high.

David R. Jaffe

I can’t answer that because we haven’t gotten that far with anyone to have that discussion and from my knowledge nothing’s traded so we’ve got no benchmarks to go by.

John Hawkin – Whitney

And have you spent any time, you might not have, but understanding if there is any leverage out there in terms of the debt markets?

David R. Jaffe

There is some but not as much as there was six months ago. We have spoken to our bankers and they’re saying all the right things but I do think there is this caution that overhangs everything so there’s a big caveat before they even start talking. Well if this, if that, if that we could lend you this. We’re not taking anything for granted.

Operator

Your next question comes from the line of Marc Bettinger with Stanford Group. Please proceed.

Marc Bettinger - Stanford Group Company

Keith, Lisa, the idea of new and different merchandise, lack of excitement in the merchandise has been talked about an awful lot. Is there anything that you can discuss in the different brands of what really is different as opposed to last year’s spring that would be new and exciting and what percent of the inventory it would comprise?

Lisa Rhodes

I’ll give it a shot. I think we have to be careful in how each customer perceives what is new so new to each target customer is what’s paramount. The greatest way to get a read from a customer or the impression of a customer that it’s new is color. So at Maurices we are going to change our color more frequently and we’re therefore offering more variety of color each eight weeks. So I think that’s a big way to entice someone to buy, for it to look new for her. The other things are balancing the amount of pattern to solid and patterns can be very different. It can be retro florals which I think you’ve heard me mention in the past and it can be fun playful florals. It’s been a while that stripes have been in play and we’re starting to see a lot of excitement in stripes and that would be new for the customer. I’m not seeing as much newness in silhouette, I’m seeing a bit more in cleaning up of silhouettes and becoming a little bit more conservative in silhouette and going back to tried and true to Keith’s mention whether they’re Emma silhouettes or they’re basic vees or they’re scoop necks. So the silhouette doesn’t have to be exciting but the newness will come from how she layers it, how she puts it together and the color choices that we’ll offer it in.

Keith Fulcher

I agree with everything Lisa said, the only category I would add on is the whole casual career jacket business. There’s a lot of fashion going on there. It’s been a business that’s been growing for the past year, continues to look good and grow and that’s a category that there’s still room in the customer’s closet for that, so that’s still a growth opportunity for us.

Marc Bettinger - Stanford Group Company

And Armand, the $1.05, $1.10 that includes the $0.03 gain?

Armand Correia

No, it does not.

Operator

And your final question comes from the line of Brian [Bronnick] with [BLR] Capital Markets. Please proceed.

Brian Bronnick – BLR Capital Markets

Two quick questions, Armand you mentioned inventory at cost and per square foot, is that units and dollars?

Armand Correia

That’s correct.

Brian Bronnick – BLR Capital Markets

And, David because you guys are so strip center based relative to the I guess more favorable weather we’ve had this February with snow, could you kind of maybe put some sort of number or characterize if it’s impacted your business positively, negatively, neutral for the month of February?

David R. Jaffe

It’s a good question. I think it’s a tough one to quantify because we certainly have had a couple of snowstorms. We’ve also had some really cold weather, unseasonably cold weather, so I think it kind of all works out in the wash. Frankly around here we’re not too concerned about February, we’re doing the sun dance for March because of the early Easter.

Brian Bronnick – BLR Capital Markets

Understood, it’s like Christmas, I guess.

David R. Jaffe

For Dress Barn in particular it really is.

Operator

(Operator Instructions)

David R. Jaffe

Okay. Operator, no more questions?

Operator

No, sir. At this time we do not have any further questions. I’ll now turn it over to management for any closing remarks.

David R. Jaffe

Thank you very much everyone for your interest and we look forward to speaking to you at the end our third quarter.

Operator

This concludes today’s presentation. You may now disconnect. Everyone have a great day.

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Source: Dress Barn F2Q08 (Qtr End 01/26/08) Earnings Call Transcript
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