Rebecca Matthias, President and Chief Operating Officer of Mothers Work, noted, "Our sales for the month of January were in line with our revised expectations for the month that we provided in our January 24, 2007 press release, with an actual comparable store sales decrease of 6.0% for the month compared to our revised expectations of a comparable store sales decrease of between 5% and 9%. Our sales for January were weaker than originally planned, as we experienced significantly colder weather throughout the United States in January 2007 compared to January 2006. We believe our weak sales this January is attributable to going up against particularly strong early sales of Spring merchandise in January 2006, which benefited from much warmer than normal weather during January 2006. This much warmer than normal weather in January 2006 gave an early boost to sales of Spring merchandise in January 2006 at the expense of February 2006. Sales of Spring merchandise represent a significantly larger percentage of our total sales for January than do sales of Fall merchandise. Our comparable store sales for January 2006 increased by 3.9% (and increased by approximately 5% when adjusting for the fact that there were only four Saturdays in January 2006 compared to five Saturdays in January 2005), with our comparable store sales decreasing by 2.2% in February 2006. In addition, although we do not see a material change versus a year ago in the overall quality or quantity of maternity apparel carried by our competition as a whole, it does seem that certain competitors brought Spring merchandise into their stores earlier than last year, which could also have adversely affected our sales in January. We were well positioned with Spring inventory both in January 2007 and January 2006. It is very important to note that during January we continued to experience strong improvement in gross margin versus last year, driven by decreased price promotional activity compared to last year, as well as a continued reduction in our product costs. Also, our inventory levels are well positioned, with overall inventory modestly lower than a year ago, driven by lower Fall inventory compared to a year ago, as we continue to tightly plan our inventory levels relative to sales.
"Looking forward, we are optimistic about building on our strong fiscal 2006 results and delivering even stronger financial results for fiscal 2007 and beyond and continuing our strategic transition, as we expect to see sales and gross margin increases and expect to realize increased earnings contribution from our strategic initiatives, including increased contribution from our marketing partnerships, our leased department and licensed relationships, and the continued rollout of our multi-brand stores.
"Also, as we indicated previously, we are currently exploring ways to refinance the remaining $90 million principal amount of our 111/4% Senior Notes with lower cost debt. We expect that any refinancing of our Senior Notes would result in a one-time charge to earnings from the early retirement of the Senior Notes, but would result in decreased interest expense on an ongoing basis."
Mothers Work is the world's largest designer and retailer of maternity apparel, using its custom TrendTrack(TM) merchandise analysis and planning system as well as its quick response replenishment process to "give the customer what she wants, when she wants it." As of January 31, 2007, Mothers Work operates 1,582 maternity locations, including 798 stores, predominantly under the tradenames Motherhood Maternity(R), A Pea in the Pod(R), Mimi Maternity(R), and Destination Maternity(TM), and sells on the web through its DestinationMaternity.com and brand-specific websites. In addition, Mothers Work distributes its Oh Baby! by Motherhood(TM) collection through a licensed arrangement at Kohl's(R) stores throughout the United States and on Kohls.com.
The Company cautions that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this press release or made from time to time by management of the Company, including those regarding expected results of operations, liquidity and financial condition and new business initiatives, involve risks and uncertainties, and are subject to change based on various important factors. The following factors, among others, in some cases have affected and in the future could affect the Company's financial performance and actual results and could cause actual results to differ materially from those expressed or implied in any such forward-looking statements: our ability to successfully manage our new initiatives, future sales trends in our existing store base, changes in consumer spending patterns, raw material price increases, consumer preferences and overall economic conditions, the impact of competition and pricing, availability of suitable store locations, continued availability of capital and financing, ability to hire and develop senior management and sales associates, ability to develop and source merchandise, ability to receive production from foreign sources on a timely basis, potential stock repurchases, potential debt repurchases or refinancing, war or acts of terrorism, and other factors set forth in the Company's periodic filings with the Securities and Exchange Commission, or in materials incorporated therein by reference.
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