Ascena Reiterates Forecast for Full Year

Retail group was pulled down in second quarter by acquisition costs, some debt extinguishment, Hurricane Sandy and a challenging holiday season.

Ascena Retail Group Inc., despite reporting a tough Christmas quarter on Monday and expressing concerns about consumers under pressure this spring, stuck to its earnings forecast for its fiscal year ending in July, pushing the stock up 13.6 percent.

This story first appeared in the March 5, 2013 issue of WWD.  Subscribe Today.

The stock rose $2.25 to $18.78 in after-hours trading after Ascena reiterated that it expects adjusted earnings per diluted share from continuing operations of $1.20 to $1.30, excluding onetime costs from the Charming Shoppes acquisition. The forecast is based on the spring season comp-store sales ranging from flat to up 3 percent and e-commerce up 25 percent.

Ascena’s second-quarter net income fell 30 percent to $47.2 million from $63.7 million. Acquisition costs, some debt extinguishment, Hurricane Sandy and a challenging holiday season pulled down the results. For the quarter ended Jan. 26, earnings per diluted share from continuing operations decreased to 23 cents a share, compared with 40 cents a share in fiscal 2012.

Last year Ascena acquired Lane Bryant, Catherines and Fashion Bug through its purchase of Charming Shoppes. Ascena has since shut down Fashion Bug while continuing with Lane Bryant and Catherines. Ascena also operates Justice, Maurices and Dress Barn.

Total comparable-store sales increased 2 percent in the quarter versus the prior year, with store comps down 1 percent and e-commerce comps ahead 27 percent. Net sales for the quarter increased 44 percent to $1.24 billion, compared with $862 million in the prior year’s second quarter, due to the acquisition.

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“Our second-quarter performance reflects a difficult holiday season during which we utilized promotion and markdown strategies to manage inventory for an effective transition to spring assortments,” said David Jaffe, president and chief executive officer. “We expect the challenging environment to continue and have adjusted our sales, promotion and inventory plans accordingly. These actions, combined with strong expense controls and our acceleration of productivity programs, give us confidence in our ability to achieve our full-year 2013 earnings expectations despite the market.”

Dress Barn was the most challenged division last quarter, down 6 percent, and was heavily impacted by Hurricane Sandy due to its East Coast concentration. Jaffe expects a more normal spring for Dress Barn. “Looking at the tea leaves of early selling, I don’t see any warning signs,” he said. Easter selling is big at Dress Barn, particularly with dresses. Lane Bryant was the second-weakest division, down 5 percent.

For the quarter to date, the company overall is running slightly ahead, with January better than expected with clearances, Jaffe said. “We know we have opportunities to improve merchandising and marketing to improve the top line,” Jaffe added. “We did transition well to spring assortments.” He also cited tightened expense management, accelerating productivity programs and three “major” strategies that will get the company to eventually achieve an operating income rate of 12 percent — overhead reductions from the Charming acquisition, synergies across the brands and creation of a global sourcing operation for all brands.

Jaffe also cited a strengthened leadership team, including recently naming Linda Heasley president of Lane Bryant, Dirk Montgomery executive vice president and chief financial officer, Ronnie Robinson president of Ascena Global Sourcing and David Johns senior vice president and chief information officer, as well as a new vice president of accessories at Maurices, though Maurices has an interim chief merchandising officer and needs a permanent one.