Ascena Profits Drop 32% in Q2

The company saw softness across all of its brands, which includes the Dress Barn, Maurices, Catherines, Lane Bryant and Justice.

Ascena Retail Group Inc., which operates the Dressbarn, Maurices, Catherines, Lane Bryant and Justice brands, posted a 32 percent drop in net earnings for its second quarter ended Jan. 25 and saw softness across all of its brands.

This story first appeared in the March 4, 2014 issue of WWD.  Subscribe Today.

With the weather’s impact continuing right into early March, and particular weakness at the Justice tween chain, Ascena lowered its guidance for the second consecutive quarter and said it would be stepping up efforts to reduce inventories.

“We are implementing promotional strategies and receipt flow adjustments to bring inventory balances back to targeted levels,” said David Jaffe, president and chief executive officer.

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The company reduced its guidance for adjusted earnings per diluted share from continuing operations for the fiscal year ending in July, to between $1 to $1.05, compared with $1.25 to $1.30, based on total comparable sales expected to increase in the low single digits, an effective tax rate seen at 36 percent, capital expenditures in the range of $475 million to $500 million and net store growth in the range of 50 to 70 units.

Jaffe was candid about how tough business has been recently, and suggested some uncertainty ahead during a conference call. “Consistent with the overall retail environment, we experienced increasingly challenging conditions, as we closed out the holiday selling period and ended the second quarter.”

Jaffe said Justice has been losing some basics business to big boxes, like Wal-Mart Stores Inc. “Consumers migrated to them just based on price. That’s why we said the core product is struggling. There is significant price sensitivity out there. I would argue it’s not just the tween shopper. We’re seeing it throughout the whole teen segment.”

Differentiating the basics assortment is “a work in progress….By back-to-school, we hope to have addressed that.” The company is also planning additional sales days at Justice and looking to stage new types of promotions. “It’s unclear to me, as much as I would like to be bullish in the spring, whether we have truly come out of the weather funk and whether the economy has improved for consumer discretionary spending, or if we are still on a durable trend.”

On the more positive side, Jaffe said the company is making progress attaining synergies across the divisions to save money and by fall will have one new national retail distribution center serving all divisions. Ascena is also developing an existing facility for e-commerce, which will go live this spring. The later Easter should help spring business, and in warmer climates there has been some better response to seasonal offerings.

In other initiatives, Jaffe cited the partnership with Ruben and Isabel Toledo at Lane Bryant that began with a small holiday collection last year and progresses with a complete collection for spring with a fashion show planned, and added that the intention is to announce additional designer collaborations; that the fashion content at Lane Bryant is on the rise with investments in wear-to-work and activewear paying off, and that more targeted email campaigns are in the future. He also cited growing investments in e-commerce to develop an omnichannel experience.

Earnings were $31.9 million versus $47.2 million in the year-ago period, attributed to a profit decline at Justice, the harsh winter and investments in new stores, merchandising strategies, design strategies and e-commerce.

Consolidated e-commerce sales increased 28 percent in the last quarter to $149 million, while consolidated comparable store sales were down 3 percent. Comps at Justice were down 5 percent last quarter. Total sales rose to $1.27 billion from $1.24 billion.