Sitting in her fourth-floor office in midtown Manhattan, Sally Frame Kasaks, Ann Taylor Stores Corp.'s chief executive, browses through her mail. She sets aside a stack that makes her smile. "You see these?" she beams, waving the pages in the air. "These are thank-you letters for bringing Ann Taylor back."
Under the make-over plan launched when she took over a year ago, Kasaks has repositioned Ann Taylor's merchandise, departing from the traditional career-woman look it embraced in the 1980s. The stores now feature a broader assortment of elegant, updated working and weekend wear. Kasaks' strategy has shown results: After posting a net loss of $15.8 million in 1991, largely because of early debt retirement, the company moved into the black last year, posting earnings of $5.9 million on sales of $468.4 million. Burnham Securities Inc. analyst Janet Mangano expects to see earnings of $18 million on sales of $533 million for fiscal 1993.
But while Kasaks is winning kudos for her efforts to get Ann Taylor on the right track, there is still some uncertainty about the company's new style. Profit margins remain slim, and Wall Street's skepticism that the turnaround is permanent shows in the stock price, which has hovered between 19 and 23 since Kasaks took over (charts). And Kasaks' mail also includes terse notes from disgruntled shoppers complaining about buttons that pop off, sales help that doesn't measure up, and fabric not worth the price tag. Says retail consultant Kurt Barnard: "Ann Taylor's image has been so badly tarnished that it may take quite a while for it to turn around
QUALITY CONTROL. The next step in Kasaks' make-over is meant to address all these problems. To reduce dependence on its outside suppliers, Ann Taylor has entered into a joint manufacturing venture with key supplier Cygne Designs for in-house product design and development. The do-it-yourself approach will help rein in costs and shore up profits. It will also put quality control under Kasaks' watchful eye. Ultimately, she thinks in-house design will help turn Ann Taylor into a national brand.
Getting there from here won't be a stroll down the runway. Kasaks inherited a mess when majority investor Merrill Lynch Capital Partners Inc. persuaded her to leave her position as CEO of The Limited Inc.'s Abercrombie & Fitch to replace Ann Taylor's Chairman and CEO Joseph E. Brooks. The company had been unraveling, its cluttered stores stocked with shoddy merchandise that mixed too many colors and styles. The past 10 years had seen the departure of five owners and five CEOs.
Kasaks also inherited a shareholder suit filed against the company, Merrill Lynch Capital Partners, Brooks, and his son, for allegedly misrepresenting facts in the Ann Taylor prospectus. The company took a hit in fourth-quarter 1992, when it agreed to pay $2.8 million in settlement of the suit--in which all parties settled and denied any wrongdoing.
For Kasaks, 48, taking center stage at Ann Taylor is a repeat performance. She spent six years with the company in the early 1980s, the last two as CEO. In 1985, Kasaks left to head Talbots Inc., another women's specialty retailer, and in 1989 she joined Abercrombie. She boosted sales for both retailers. When the opportunity to run Ann Taylor again came up, Kasaks admits her first thought was: "Do I want to do this?" But finally, she says, she couldn't resist the challenge.
WOOL AND SILK. Merrill Lynch stands firmly behind its investment and its choice of Kasaks. MLCP, which owns 54% of Ann Taylor, bought it for $430 million in a 1989 leveraged buyout before taking it public at $26 a share in May, 1991. "Clearly, Sally has put her imprint on the business," says MLCP partner Gerald S. Armstrong, "and we think her attention to the basics will bring the stock back."
The basics have included an overhaul of the Ann Taylor look. In the 1980s, the company was known for its tailored business suits and pants. As workplaces grew less formal and women wanted more choice, Ann Taylor needed to evolve. Now, a third of the merchandise consists of casual tops and dresses, separates, linen shirts, and accessories. As much as 20% of store volume in fall 1992 came from two key items: Ann Taylor denim jeans, costing only $30, and two-pocket silk blouses priced at $78. Lisa Marotta, 27, a dental hygienist from Westchester, N.Y., says she no longer has to fall into The Gap or trek to Banana Republic to shop for casual clothes. She calls Ann Taylor "a one-stop place where I can buy an outfit for a wedding or something for a picnic."
In addition to improving merchandising, Kasaks has slashed prices 10% to 20% in the past year. For instance, a wool-and-cashmere jacket that in 1991 sold for $198 now fetches $178. Linen jackets are down to $148, from $178 a year ago. That strategy has boosted volume: Despite the price cuts, Burnham Securities expects net sales for the first quarter, ended May 1, to be $120.5 million, up 5% from first-quarter 1992.
To conserve capital, Kasaks has put a lid on store expansion. While Brooks had called for Ann Taylor to grow from 177 stores in April, 1991, to 250 by 1993, Kasaks plans to add just nine stores in existing markets by yearend and to make profitable ones larger. The chain now has 219 stores in 38 states.
SHOE SALES. Finally, Kasaks has put her own people into key management positions. Most recently, when President Joseph J. Schumm resigned abruptly three weeks ago, Kasaks named Joseph Gromek, with whom she had worked at The Limited, senior vice-president and general merchandise manager.
Perhaps most important, Ann Taylor employees take seriously the challenge of winning back those disillusioned customers. This spring, while on vacation at a golf resort in North Miami, saleswoman Sharon Barbaris struck up a poolside conversation with another guest who admired her Ann Taylor shoes. The guest said she had seen the shoes in Ann Taylor stores but never got around to buying them. Barbaris extolled their comfort and fit--and offered to order a pair in her new friend's size right from the hotel lobby. The customer bought all three available colors, and the following day ordered another pair for her daughter.
Many industry-watchers believe the company is moving in the right direction. But others want to be sure Kasaks' changes will stick. Says Salomon Brothers Inc. retail analyst Brian Gingrich: "I'm waiting for the company to mature and grow." For a sign of how things are going, keep an eye on Kasaks' mail.Sunita Wadekar Bhargava in New York