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NEW YORK CITY-Women’s clothing retailer Ann Taylor’s profits dropped to $7.1 million, or 10 cents per share, in the second quarter of 2005, declining by $23 million from the same period last year even as sales rose 7.6% from a year ago to $508.7 million.

The company, which sells classic upscale clothing at 782 stores in 46 states, the District of Columbia and Puerto Rico, said a $9.5 million lease charge combined with discounts on merchandise accounted for the decline for the period ending July 30. The New York-based retailer’s profits were $30.1 million, or 41 cents a share, during the second quarter of 2004. Excluding the charge for lease costs associated with relocating corporate offices, the company earned 18 cents per share, just one cent better than the average forecast by analysts.

The retailer, which operates the Ann Taylor and Ann Taylor Loft chains, has been battling weak sales and a lack of demand for its merchandise for more than a year which forced it to take deep discounts at the register, slicing into profits. Full-price sales at the company’s Ann Taylor division have been improving since May, a trend that has continued into August, the company said.

But Ann Taylor president Kay Krill said tightened inventories and a renewed focus on the firm’s core customers should help improve the bottom line even further.

“Our first and foremost objective had been to restore financial performance to the Ann Taylor division,” Krill told investors and analysts during a conference call Friday. “We have made tremendous progress.”

Krill said AnnTaylor plans to “rebalance” its assortment of merchandise, reduce its inventory and focus on its key business goals to improve earnings. The firm also plans to lower its price points on some items at its Ann Taylor division to move the business away from continual promotions, Krill said.

The company stood by its earnings forecast of $1.17 per share for the fiscal year and said it expects gross margins to rise in the next two quarters as it closely monitors inventory levels in order to increase full-price sales of its merchandise.

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