Ann Taylor Celebrations

By Martinne Geller

NEW YORK (Reuters) - Women's clothing retailer AnnTaylor Stores Corp reported a higher-than-expected quarterly profit and affirmed its full-year outlook, as tight control of inventories and costs helped offset falling sales.

The company, whose shares rose about 1 percent, said net income fell 7.7 percent to $29.3 million in the second quarter ended on August 2 from $31.7 million a year earlier.

Earnings per share rose to 51 cents from 50 cents as buybacks lowered the number of shares outstanding.

Excluding costs for closing underperforming stores, profit was 54 cents per share, handily beating the analysts' average forecast of 49 cents, according to Reuters Estimates.

Net sales fell nearly 4 percent to $592.3 million as high gas prices and the weak U.S. economy led many consumers to curb trips to malls and cut back on buying new clothes.

Companies that target mature women, including AnnTaylor, Talbots Inc and Chico's FAS Inc have been hit particularly hard, in part because their main customers often already have extensive wardrobes. But some analysts say investors were too pessimistic about AnnTaylor.

"AnnTaylor's bottom-line performance is impressive in light of the negative comp (same-store sales) and we view guidance as conservative," Thomas Weisel Partners analyst Liz Dunn wrote in a research note. "Given the slate of recent downgrades, we believe sentiment is quite negative for a retailer that is exceeding estimates."

NOT JUST THE ECONOMY

Sales at stores open at least a year, an important retail gauge, fell 10.8 percent. Same-store sales fell 14.3 percent at Ann Taylor and 8.6 percent at LOFT, where clothes are more casual and less expensive.

Ann Taylor "had a product assortment that was not as modern, stylish, or relevant as it should have been," said Chief Executive Kay Krill. "Our (same-store sales) decline of 14.3 percent for the quarter cannot be totally blamed on economic softness."

While the company expects the fall season to remain challenging, it should benefit from much tighter inventory, particularly in its fourth quarter, she added.

Excluding restructuring costs, the company expects earnings of 50 cents to 55 cents per share for the third quarter and 30 cents to 35 cents for the fourth quarter. Analysts had expected earnings of 65 cents per share for the third quarter and 21 cents per share for the fourth quarter.

The company stood by its full-year earnings outlook of $1.80 to $1.90 per share. Analysts on average expected $1.82.

AnnTaylor forecast sales to be flat to down slightly for the year, with same-store sales declining at a mid-single-digit percentage rate.

The company's shares were up 33 cents at $24.62 on the New York Stock Exchange after trading as high as $25.20. They are still down more than 30 percent from their 52-week high reached in October.

(Reporting by Martinne Geller; Editing by Jeffrey Benkoe and Lisa Von Ahn)