March 16 (Bloomberg) -- AnnTaylor Stores Corp. said fourth-quarter profit fell less than analysts estimated and that annual earnings may top projections, sending the retailer's shares to their biggest gain in more than a year.

The company, which sells to women ages 25 to 55, also said sales at Loft stores have exceeded its expectations this month. Loft cut prices to clear out slow-selling fashions, resulting in a 21 percent drop in AnnTaylor's quarterly profit.

AnnTaylor, based in New York, plans to add more colorful apparel to boost sales at Loft, its biggest chain. Chief Executive Officer Kay Krill said on a conference call that she expects that sales will improve in the second half of the year.

``The investment was too high in fashion,'' Krill said on the call. ``We were too dark last fall. I'm clearly on top of this and this business will be fixed.''

Net income for the fourth quarter ended Feb. 3 fell to $21.5 million, or 31 cents a share, from $27.4 million, or 38 cents, a year earlier. Sales increased 6.3 percent to $610.5 million, New York-based AnnTaylor said in a statement.

Eight analysts surveyed by Bloomberg estimated profit of 30 cents a share, on average. AnnTaylor said its board authorized a plan to repurchase $300 million of company stock.

Company Forecast

Profit this year will rise to $2.15 to $2.25 a share with sales at stores open at least a year increasing in the ``low- single-digit range,'' AnnTaylor said, without being more specific. Analysts surveyed by Bloomberg estimated $2.17.

``Things are progressing better than expected at Loft,'' said Samantha Panella, a New York-based analyst at Raymond James. ``They seemed very confident they are turning their products around. We are starting to hear more positive commentary.'' Panella has an ``outperform'' rating on AnnTaylor and doesn't own the shares.

Shares of AnnTaylor gained $2.93, or 8.2 percent, to $38.60 at 4:02 p.m. in New York Stock Exchange composite trading for the biggest advance since February 2006. They declined 4.9 percent last year.

Krill took over Loft in January on an interim basis after Donna Noce, president of the unit, left for personal reasons.

Beauty Products

Krill plans to expand the upscale Celebrations line, add a beauty collection at Ann Taylor and a maternity line at Loft. She said the company has partnered with Venustas International to help develop the collection of fragrance and bath and body care products.

She'll double the number of shops that carries the upscale Celebrations line that includes bridal gowns and flower girls' dresses, and plans to introduce a Loft outlet. She will unveil a new shop concept next year that she said will add ``significant'' growth.

The company will reap benefits as software upgrades result in ``cost-saving opportunities,'' said Chief Financial Officer James Smith on the call. Selling, general and administrative expenses as a percentage of sales may decline by as much as 2 percentage points, he added.

``The company is focusing on tightening their expenses and controlling their inventory,'' said Panella.

The company, which has 869 shops, plans to open as many as 85 stores, mostly Loft locations, while closing about 10 stores this year.

Same-Store Sales Drop

Same-store sales at the Loft chain tumbled 8.9 percent in the fourth quarter, the company said. At Ann Taylor, they dropped 5.9 percent even though the company increased more sales at full price, helping profit at that unit.

Analysts have said the chain featured skinny pants and longer-length sweaters and other tops that its shoppers may not be used to.

Among 19 analysts tracked by Bloomberg in the past year, six rate it a ``buy,'' 11 rate it a ``hold'' and two say ``sell.''

To contact the reporter on this story: Andria Cheng in New York at lcheng@bloomberg.net

Last Updated: March 16, 2007 16:09 EDT