And for the full year, Ann Taylor now says it will earn between $0.89 and $0.93 per share, compared to the earlier projection of $1.04 to $1.08.

"For the Ann Taylor division, the fourth quarter was challenging with a 7.2% comparable store sales decline compared to a 14.4% increase in the prior year," says Eileen O'Connor, vice president of investor relations. "Fall merchandise was not well received at the Ann Taylor division from the start, and as we entered the holiday season, it remained heavily promotional. Additionally, our holiday merchandise was not well received as we had expected, and our promotional cadence was accelerated throughout the quarter."

The performance has apparently caused at least one top exec his job. Jerome Jessup, senior EVP of merchandising and design for the Ann Taylor division, resigned last month "to pursue other interests," in the words of company chairman J. Patrick Spainhour. For now, his responsibilities are being overseen by Kay Krill, who had been promoted to president of Ann Taylor Stores Corp. early this past fall, until a permanent replacement is found. Company officials hope to generate savings of $3 million because of these and other unspecified "organizational changes," but will take a $3 million severance charge in Q4.

The news is somewhat better for Ann Taylor Loft, which "delivered comparable store sales growth of 3.2% in the fourth quarter on top of a very strong 20% positive increase the prior year," according to O'Connor, speaking in a conference call. "Loft's casual business was well received, and early reads on spring product are positive."

As part of the overall fiscal picture, company officials have also taken a look at their lease accounting practices and decided to record rent expense in 2004 with respect to the company's corporate office space in Times Square Tower. "The resulting pre-tax charge, which was not contemplated in previous guidance, is approximately $7 million, or $0.06 per share, and will be recorded in the fourth quarter," according to O'Connor.

Company officials declined to respond to questions about the takeover rumors and, in fact, on Friday announced expansion plans for 2005. "For fiscal 2005, capital expenditures are planned at approximately $160 million to $170 million," according to O'Connor, who adds that 85-100 new stores are planned this year. Of those, 70-75 would be Lofts, 10-15 Ann Taylor Factory stores and 8-10 Ann Taylor stores. O'Connor also says that the company will start the year with inventories up 10% on a per-sf basis compared to a year ago.

"Based on these financial assumptions and planned store growth, we project earnings per share on a diluted basis for the first quarter in the range of $0.27 to $0.30," Spainhour says. "We have and will continue to implement the processes and disciplines that we have identified as necessary to reinvigorate the Ann Taylor Stores brand.

"We are making good progress toward restoring the Ann Taylor heritage and accomplishing our goal of providing the updated classic product that our client expects," Spainhour concludes.