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Executives

Felise Glantz Kissell – Vice President Investor Relations

Thomas J. Ward – Vice Chairman of the Board & Chief Executive Officer

Maurice S. Reznik – President

Dorvin Lively – Chief Financial Officer & Executive President

Analysts

Analyst for Omar Saad – Credit Suisse

Jody Kevin Kane – Sidoti & Company LLC

Eric Beder – Brean Murray, Carret & Co.

Ben [Macrovak] – Ravenna Capital

Gary Giblen – Goldsmith & Harris, Inc.

Maidenform Brands, Inc. (MFB) Q4 2007 Earnings Call March 5, 2008 8:30 AM ET

Operator

Ladies and gentlemen, good morning and welcome to the Maidenform Brand four quarter and full year 2007 earnings conference call and webcast. This conference call is being recorded. Following the conclusions of today’s discussion the Maidenform team will be taking your questions. I’d now like to turn the call over to Felise Glantz Kissell, Vice President of Investor Relations. Ms. Kissell, please go ahead.

Felise Glantz Kissell Glantz Kissell

Thank you and good morning everyone. For this morning’s fourth quarter and full year 2007 earnings conference call we have Maidenform’s CEO Tom Ward, our President Maurice Reznik and CFO Dorvin Lively. Tom will first discuss the Company’s key fourth quarter results as well as providing a strategic review of the business. Maurice will then our specific sales drivers from a top line perspective. Dorvin will then conclude by reviewing our financials and guidance before the team takes your questions.

Before that, I would like to read our Safe Harbor Statement. Statements made on this conference call and in the Company’s press release other than those concerning historical information should be considered forward looking statements and actual results may differ materially. For a detailed discussion of factors that could cause actual results to vary from those contained in the forward looking statement please refer to the risk factor section in Maidenform’s most recent annual report on Form 10K filed with the Securities & Exchange Commission. And now, I’d like to turn the call over to Tom Ward.

Thomas J. Ward

Good morning everyone. We are pleased that our fourth quarter performance exceed our original expectation provided during the company’s third quarter earnings call in November. Sales increased 12.7% with our wholesale division increasing 14.6% and international sales were very strong and our department stores and national chain stores segment had an 11% sales increase with the mass channel reporting a 32.5% increase. In a challenging environment our retail group also experienced a slight comp increase with overall net sales growth of 2.9%. Maidenform’s gross margins were 40.7% due to product and customer mix along with our ongoing strategic initiatives and sourcing including our FOB program. Operating income increased 63.6% and net income increased over 97% with our EPS more than doubling to $0.22 per share.

We are proud of the Maidenform team and their hard efforts in driving these results. For the conclusion of 2007 we have completed our second full year as a public company. To us, we view annual results as a key measure of success and 2007 represented another year of record financial performance. For 2007 net sales were up 1.3% with our wholesale branded business increasing 8.7%. To drive margin improvement our merchandising design and R&D teams continue to challenge themselves to develop innovative products that favorably contributed to gross margins. Our sourcing initiatives also provided positive results particularly from product reengineering and our FOB strategy. As a result, we had gross margins of 39.3% an increase of 170 basis points over 2006. All these factors contributed to our net income increase of 14.4% for 2007 with EPS growth of 15.7%. Additionally, our strategy to maximize the utilization of our cash flow led to both refinancing our credit facility with more favorable terms and voluntarily prepaying $20 million of our debt outstanding as well as repurchasing $12.5 million of our common stock.

Moving to 2008 we are all aware of the macroeconomic retail sales issues influencing the marketplace. With that we remain cautious but continue to focus on driving four key points in our strategic growth plan that provides the company an opportunity to reach new levels of success. First, product innovation; new products will continue to represent 25 to 30% of our annual business. Second, new consumes; our new Maidenform brand building initiatives will expand our image and bring new customers to Maidenform brands. Third, sourcing; as we will expand into new countries for production. And lastly, new brands and customers. In the second quarter we’ll launch a bridge line between moderate brands and luxury brands with a major department store group and ship a new mass customer a new branded collection. Maurice will elaborate on these opportunities in his discussion.

Based on these objectives for 2008 we expect another successful year and Dorvin will be further reviewing these performance expectations as a business. I also would like to thank Dorvin for his many contributions to Maidenform and wish him much success as he moves to the Midwest and begins a new career opportunity. We have begun a national search for Dorvin’s successor.

I’d now like to introduce Maurice Reznik, our president.

Maurice S. Reznik

Good morning. I will focus my discussion on three areas. Additional insight into our fourth quarter sales performance for the wholesale segment by brand and by channel, results for the retail segment and key upcoming sales on brand building initiatives for 2008.

As Tom mentioned our wholesale division had a solid fourth quarter. Total branded sales were up 21.2% of sales for the quarter and up 8.7% for the year. Sales from our department and chain store channel were up 11% to $50.6 million for the fourth quarter and up approximately 1% for the year with sales of $224.1 million. These results were favorably impacted by solid consumer response across our businesses. Lilyette, our full figure brand experienced continue momentum and has become an industry leading growth business with all of our customers. Maidenform bras benefited from successful new style introductions in our smooth and sleek collections both focusing on comfort and all around smoothing. In aggregate shapewear sales were solid as we introduced Flexees Shapewear Sheik, camisoles that are meant to be seen and provide sleek shaping or our new contemporary shapewear brand Control It. Additionally, consumers have responded well to our basics with a twist strategy across all of our brands. This strategy is to grow and extend our consumer base by adding easily understood on trend details for some of our key replenishment styles. This allows us to offer fresh, updated designs for the consumer while differentiating ourselves on the selling floor.

In the mass channels sales climbed 32.5% for the fourth quarter to $21.6 million and up 4.7% to $96.1 million for the total year. Performance for the quarter and 2007 was driven by vibrant sales in our branded business and expanded footprint with a major customer. As we had previously stated, we also had a [program] ship to a warehouse customer in the fourth quarter that occurred in the third quarter of 2006. The other channel was virtually unchanged increasing 1.1% to $9.3 million for the quarter and ended the year unchanged at $46 million. Increased sales from international distributors, licensing and off priced retailers offset a non-recurring private label program with a specialty retailer in this channel.

International sales grew 69.2% to $11 million for the fourth quarter and for 2007 increased 34.7% to $38.4 million. We experienced strong sales across all markets particularly in the UK, Mexico, Canada, Russia and Continental Europe. Sales were fueled by strong Flexees performance worldwide and further penetration of our mass brands in Europe.

In our direct to consumer segment sales increased 2.9% to $14.3 million for the fourth quarter with comp sales up 5/10 of 1%. For the year sales slightly decreased .4% to $56 million with comps down 1.5%. Performance for the quarter was aided by timely promotions and enhanced in store marketing, extended hours for Black Friday and strong Maidenform Lilyette and Control It sales. Additionally, our online sales grew at a double digit pace in the quarter and for the year.

I would now like to review with you our sales on branding building initiatives for 2008. While navigating through a challenging retail environment particularly in the first quarter, we’re encouraged by our overall business for the year. Our brands are well positioned domestically and internationally. In the first half, we’re currently launching new products to leverage our brands, are differentiated, are innovative but most importantly have broad based consumer appeal. These include in Maidenform the current role out of our Ultimate Gel Push-up. Early indications on retail sales are encouraging. The Breakthrough Backless bra as Maidenform sponsored Elaine Cato on her groundbreaking design on ABC’s American Inventor. This product is the ultimate solution for backless and low back dresses. In Lilyette, the Every Bit Invisible bra that leverages the latest fusing technology featuring an invisible transition from bra to skin. In shapewear we’re extending the reach of our Everyday category by expanding into other styles in our Flexees and Control It brands.

As stated on the third quarter call we are also entering new categories of business that leverage our expertise and extend our brand reach. At market week two weeks ago we presented Maidenform’s Global Body, a collection of eco friendly bamboo blend bras for our customer that has become increasingly environmentally conscious. Earlier we presented Softwear, lightly lined bras without the thickness of foam. Both collections have been well received by our customers. Additionally, we are very encouraged with the commitments from our customer for the full figure sports bra Lilyette In Motion. These high tech, high performance products will be distributed within our current account base but will be tested in other venues.

We will also be expanding our reach for the creation of new brands the first half of the year. The company will be launching a bridge brand between moderate and luxury with all our product segments domestically with a major department store and internationally in Russia. We are also introducing a new brand with a major mass market retailer that we currently do not do business with. Another initiative is to strategically build upon the value of Maidenform brand in the marketplace with its headline, “This feels right” we’re expanding our reach to a younger minded consumer. Maidenform’s new advertising campaign will launch in April with a four pronged approach as we strategically redeploy our marketing spend from mainly printer [inaudible] to a diversified strategy including magazines, out of home, online and grassroots events. For out of home we have developed spectacular impact units to create buzz and word-of-mouth in major markets. Online we will tap into the power of social networking with banner ads and, “This feels right” video to invoke the brand promise. Our grassroots event will be on college campuses and our own Facebook page. We are confident that these initiatives will serve to further contemporize Maidenform and tap into the lifestyle that connects with our current and target consumers.

In closing, we want to reiterate our continued long term commitment to innovations in our brands with a focus in our product through our top line growth and bottom line results. Thank you. I will now turn the call over to Dorvin Lively our CFO to review our financials.

Dorvin Lively

Good morning everyone Maurice just discussed some of our top line results for the quarter and I want to focus on the drivers of our gross margins and operating income. I will then conclude with some thoughts regarding our financial guidance for 2008.

Gross margins in the fourth quarter were 40.7% on a consolidated basis up from 37.4% in last year’s fourth quarter. Gross margins for the year were 39.3% up 170 basis points over 2006. The improvement in our gross margins both in the quarter as well as year-to-date is attributed to a favorable sales mix of products and customers and our continued supply chain initiatives including our product cost reengineering activities and an initiative to begin importing our finished goods inventories on an FOB basis. The combination of these factors improved our gross margins both in the quarter and on a fully year basis. Our SG&A expenses as a percentage of net sales decreased in the fourth quarter to 27.6% from 28.4% in the prior year quarter. On a full year basis and excluding the onetime pinch in curtailment gain in the first quarter of 2007 our SG&A expenses increased from 24.3% to 24.7% of net sales. This increase was driven by higher occupancy costs including our second distribution center that we added in the fall of 2007, increased corporate related occupancy expenses and increase in design and merchandising expenses and higher medical and worker’s compensation insurance.

Our operating margins improved in the fourth quarter to 13.2% compared to 9.1% for the prior year fourth quarter. On a full year basis excluding the onetime pinch in gain, our operating margins improved to 14.6% up 130 basis points over 2006 primarily as a result of the gross margin improvements discussed above. Our effective tax rate this year was 41.9% compared to 40.9% for 2006 driven higher primarily by foreign taxes and FIN 48 reserves. As a result of our tax NOLs, our cash taxes payable will be approximately 30% for 2007.

Let me make a couple of comments regarding our balance sheet. As a result of our FOB initiative our yearend inventories increased to $69 million an increase of $11.4 million since the third quarter and is compared to $46.9 million at the end of fiscal 2006. We now take title to our inventories in Asia as opposed to at our distribution centers. Additionally, we have new business categories since last year’s fourth quarter such as our Sweet Nothings Shapewear and our Control It brand which are also a contributing factor to higher inventories. On a comparison basis if we had been inventories on an FOB basis in 2006 our inventory levels would have been approximately flat year-over-year. Additionally, we’re comfortable with the overall quality of our yearend inventories.

Our cash flow from operations in 2007 increased to $40.4 million compared to $21.6 million for 2006. These higher operating cash flows were a result of higher net income in 2007 and the timing of accrued expenses and payables. During 2007 we reduced our total debt outstanding by $20 million, reducing our debt to EBITDA ratio to 1.33 to 1. In addition, we used an additional $12.5 million to purchase common stock.

Let me review our financial guidance for 2008. As stated in our press release we’re maintaining our guidance for 2008 that we provided November of last year. However, given the current challenges in the macro environment including retail we believe it is prudent to remain cautious regarding our outlook for 2008 and expect to be near the lower end of that range for net sales growth of 4 to 7% and EPS growth of 10 to 15%. Taking into account this retail climate and that in the first quarter of 2007 we had a $5 million private brand program with a specialty retailer that is non-recurring in 2008. We expect our top line to be down in the first quarter. However, we do expect net sales for the first half of 2008 to be relatively flat based on the sales drivers that Maurice discussed earlier. Sales momentum is expected to continue in the back half of 2008 driving mid single digit sales growth in the last half of the year. We anticipate that our gross margins for the year will be approximately 39% although slightly lower the first half and slightly higher the back half of the year. Total operating cash flow is expected to be approximately $35 million.

Before closing I want to say that it has been a pleasure working with the Maidenform team and all of you on the call. Although I have taken a new opportunity as CFO of Ace Hardware headquartered in Chicago, I strongly believe that Maidenform has great growth opportunities and a strong team in place that will allow the company to reach new levels of success. Thank you everyone. We’ll now open the call and answer any questions that you may have.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Omar Saad of Credit Suisse. Please proceed.

Analyst for Omar Saad – Credit Suisse

I was hoping you could provide some more color on your macro expectations for the coming year especially as they relate to consumer spending and markdown trends.

Thomas J. Ward

I think the important thing as we look at the macroeconomic situation, and I’ll just give you a sense of how we talk and what our people are looking at. Somebody’s going to buy bra, panties and shapewear. We feel we have an excellent strategic plan in place. As Maurice had said we’ve got great new innovation coming out. Our soured initiatives are I think doing well. Obviously, we have some pricing pressures based on $100 oil, some of the labor legislation in China but, I think we’re very cautious about what’s ahead of us but we think we have a plan in motion that will make us successful. I think from markdown expectations we’ve built in our markdowns into our blend on our products and we feel on our 39% margin that we’ve looked at for 2008 is achievable.

Analyst for Omar Saad – Credit Suisse

Great. And given that a good portion of the sales growth is expected in the back half, is that a function of your changing macro expectations or more of the product launches that will center in the back half?

Maurice S. Reznik

A large part of that growth is new customers, new brand initiatives that we’re launching and we’ll get the full benefit of it in the second half.

Operator

Your next question comes from the line of Jody Kane of Sidoti & Company. Please proceed.

Jody Kevin Kane – Sidoti & Company LLC

Can you talk about the international growth? How aggressive are you pursuing new markets and just how big can this portion of the business net?

Maurice S. Reznik

The international growth, our strategy international has been and is for this coming year is to focus in the markets that we’re in. We’re in over 40 markets and to get deeper penetration we’re starting to make inroads now in the mass markets which is relatively new business for us. And, our shapewear business internationally is very, very strong. Additionally, we’re looking at emerging markets that we’re not penetrated in. So, we’re working on some initiatives in markets like India and China that are not yet reflective of our volume for this coming year.

Jody Kevin Kane – Sidoti & Company LLC

There is still a number of new territories that you can still move into?

Maurice S. Reznik

Yes and China and India would be on the very top of that list.

Jody Kevin Kane – Sidoti & Company LLC

Okay. Then just in terms of competition, are you seeing more competition or less competition in say the last six months and for the next couple of quarters or years?

Maurice S. Reznik

Are you referring domestically? Internationally?

Jody Kevin Kane – Sidoti & Company LLC

Let’s start with domestically if you don’t mind.

Maurice S. Reznik

Well, there are new players, as I’m sure you’re aware in the specialty category that have come into the category. Many of them don’t have share yet. Within the channels that we’re in really it’s been – I mean the competition really has – some players have left the category, some players have come in so in aggregate we don’t see any major change.

Operator

Your next question comes from the line of Eric Beder from Brean Murray. Please proceed.

Eric Beder – Brean Murray, Carret & Co.

Could you talk a little bit about the new bridge line? Is this a new customer for you also in terms of this line? And, is it going to use the Maidenform name?

Maurice S. Reznik

It is not a new customer. You know, our practice though is not to divulge new businesses until it actually ships and then we give you more specifics. But, it is an existing customer.

Eric Beder – Brean Murray, Carret & Co.

Okay. Could you talk a little bit about your new marketing strategy in terms of you were talking about doing some Gorilla marketing taking it down to a younger customer. Would you go into a little more in depth into what that is going to entail?

Maurice S. Reznik

Yeah, it really is getting a younger thinking consumer, not necessarily a younger customer even though it can be. And, in the past, we had really focused our attention and its worked well for us to elevate the brand in print and to really give ourselves a different look at point of sale. What we’re doing now and you’ll start to see it beginning in the second quarter is really to reach to our – with our agency which would be more of a brand strategist to focus on where does our consumer go and how does our consumer – where does our consumer shop and how does our consumer reach for information. So, what you’ll be seeing though at point of sale which is often where the decision is made, an much more upbeat imagine for the brand and then also how we’re going to reach the consumer through events like, for example, we’re on the Today’s Show today with our Backless bra which I talked about during my script. So, really a much more integrated approach and a lot of PR and also as I mentioned college campuses, etcetera.

Operator

Your next question comes from the line of Ben [Macrovak] of Ravenna Capital. Please proceed.

Ben [Macrovak] – Ravenna Capital

Can you give us a little more clarity on the buyback program? How much is still left on that?

Dorvin Lively

$12.5 million. Back in August when the board increased the amount available, they increased it to $25 million at the time and then since August we’ve purchased about $12.5 so there’s $12.5 left under the approved plan by the board.

Ben [Macrovak] – Ravenna Capital

And for cap ex for 08, can we expect that to be about the same as 07?

Dorvin Lively

I think it will be a little bit higher in 08 primarily in the area of technology. We continue to look at how we can improve the way we do business given 100% of our sourcing is now in Asia. We have better information coming out of our contractors and particularly given we now take title of inventory in Asia. So, probably a little bit more in 08 than 07.

Ben [Macrovak] – Ravenna Capital

Then as far as the CFO search is concerned, do you guys have a timetable for getting that done?

Thomas J. Ward

Well, we have a national search going on right now and I don’t have – as quickly as possible, we’re certainly not going to rush on anything. We want to make sure we get the best qualified person that is able to enhance our strategic plan and make a real first class contribution to our success story.

Operator

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

Gary Giblen – Goldsmith & Harris, Inc.

The million dollar question is probably to what extent of the second half of 08 orders are fully committed versus cancelable if the economy softens further, etcetera?

Thomas J. Ward

Gary, I think from our standpoint, our new programs, the new innovation we’re putting out there, our expectations that those are the numbers that we’re going to hit. What we can’t control is what we can’t control. So, if the macroeconomics situation is more severe than expected it could have an impact but we think we have a good strategic plan in place to make the numbers happen.

Gary Giblen – Goldsmith & Harris, Inc.

Well, you’ve always been conservative in your past guidance so that sounds good. What is the best tax rate assumption for 08?

Dorvin Lively

It probably will remain relatively the same or at least in this range. As I said earlier the increase over last year is about 100 basis points and that was driven by an increase in foreign taxes as our international business increase and then additional FIN 48 reserves. But, it should be relatively the same as the way it is in 07.

Gary Giblen – Goldsmith & Harris, Inc.

Okay. Then finally, most consumer companies have experienced a market slowdown in the fourth quarter but here you came in better than your guidance and better than expectations. So, conceptually and broadly what came in better in the quarter that has lead you to outperform expectations.

Thomas J. Ward

Well, I think Gary we had forecast an 11% sales increase and we came in at 12.7 but that’s really only about $1.3 more than expected. So, I think we were slightly out of the expectation but not a major increase.

Operator

Your next question comes from the line of Jody Kane with Sidoti & Company. Please proceed.

Jody Kevin Kane – Sidoti & Company LLC

Can you just walk us through your decision relative to buying stock versus paying down debt? It looks like you bought a lot during the fourth quarter. Can you talk a little bit about why you chose to do it then? Then also, about debt going forward and buybacks going forward?

Thomas J. Ward

I think the board of directors continues to review each of the opportunities, whether to pay down debt, to buy back stock and as we see the best opportunity that’s the direction we pursue. Going forward I think we continue to look at all the alternatives of what to do with the cash flow. Obviously, in the past we’ve talked about the continued potential to invest in growth opportunities for the company. We haven’t been able to find that yet from an acquisition standpoint but those are the options that we review and the board will continue to review and finalize what our direction should be.

Operator

We appear to have no further questions. I will now turn the call bad over to Mr. Ward. Please proceed sir.

Thomas J. Ward

Thank you everyone for your time this morning. We’ll continue to update you on our progress and we thank you for your participation. Thank you.

Operator

Ladies and gentlemen this concludes the presentation. We thank you for your participation. You may now disconnect. Thank you and have a great day.

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