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Dress Barn Profits Grow on Justice Buy

E-commerce site debuts following 7% rise in same-store sales.

Boosted by its acquisition of the Justice tween operation, Dress Barn Inc. Wednesday reported substantial gains in sales and profits for the fourth quarter and full year.

For the three months ended July 31, net income rose 64 percent to $42 million, or 52 cents a diluted share, from $25.6 million, or 40 cents, a year ago. Sales jumped 78.2 percent to $710.9 million from $398.9 million. Justice contributed $245.7 million in sales in the quarter. Dress Barn completed its merger with Tween Brands, which operated the Justice nameplate, in November.

Comparable-store sales in the quarter rose 7 percent. By division, sales at the Dress Barn nameplate rose 11 percent to $282.3 million as comps gained 5 percent. Maurices saw sales rise 26 percent to $183 million as comps increased 8 percent. Comps at Justice rose 10 percent. Separately on Wednesday, the company launched dressbarn.com as an e-commerce site, offering petite, misses’ and women’s collections as well as shoes and accessories. The company is offering free shipping for all purchases made on the site over $50 until Oct. 31.

David Jaffe, president and chief executive officer, said, “Our financial results demonstrate that we have built a powerful platform of diversified retail concepts whose value-oriented merchandise assortments are resonating with today’s demanding consumers.”

Jaffe emphasized that the company’s balance sheet remains strong, as is its ability to generate cash flow. “We are confident that we can pursue a wide range of strategies to reinforce our growth and leadership position in the retail industry,” he noted.

In a recent research note, Mark Montagna, senior analyst at Avondale Partners LLC, which just initiated coverage of DBI, said the company plans to consolidate its data centers to two from their current five, and that certain payroll and human resource functions will be outsourced. The distribution center used for Dress Barn in its headquarter city of Suffern, N.Y., will be closed and its operations moved to the more modern Justice facility in Columbus, Ohio. Montagna in a research report rated the retailer’s stock as “market outperform” with a $29 price target, as compared with Wednesday’s closing price of $24.44.

“Dress Barn deserves to trade at a valuation in line with best-in-class retailers rather than the 20 percent discount it trades currently,” Montagna wrote. He said he expects 15 percent growth in earnings per share in the current fiscal year, 2011, and in 2012. The consolidations are expected to lead to margin growth mostly in 2012, he wrote.

Dress Barn, which is scheduled to hold its annual meeting Dec. 8, is seeking shareholder approval to become a holding company based in Delaware and change the firm’s name to Ascena Retail Group.

For the year, income more than doubled to $133.4 million, or $1.73 a diluted share, from $66.6 million, or $1.06, a year ago. Sales climbed 58.9 percent to $2.37 billion from $1.49 billion.