The Ascena Retail Group, impacted by its Ann Inc. acquisition last year and soft sales at the Dressbarn division, posted a net loss in its second quarter, but the company is experiencing positive spring selling trends.
The specialty retailer incurred a net loss for its second quarter ended Jan. 23, of $22.6 million compared to net income of $8.7 million last year. Yet on a comparable basis, inclusive of Ann Inc., adjusted net income for the second quarter was $1.7 million as compared to a net loss of $3 million last year. Including Ann, operating income for the second quarter was $29.1 million, compared to $23 million in the year-ago period.
On a diluted share basis, Ascena reported a net loss of 12 cents compared to net income of 5 cents a year ago. Adjusted earnings were 1 cent per diluted share compared to a loss of 2 cents in the year-ago period.
“The good news is that we actually came up a penny ahead. That’s not much, but originally we guided to a loss, so we came in stronger than we thought,” David Jaffe, president and chief executive officer, told WWD.
“Spring is off to a good start,” he added. “This warm February has helped get some traffic and brought some business. We got a really good read on what selling,” which will help Ascena chase trends that are selling.
He cited a “strengthening performance at Loft, margin rate favorability at Justice and good progress integrating Ann into Ascena. Maurices delivered another solid quarter, and we continue to see improvement at Lane Bryant,” Jaffe said.
Ascena’s shares fell 5.2 percent, or 46 cents, to $8.39 in after-hours trading on Tuesday, after the company said it expected to earn 10 to 14 cents in the current quarter, below Wall Street’s expectations of 19 cents.
Net sales for the second quarter were $1.84 billion compared to $1.29 billion last year, with the increase driven by the acquisition of Ann Inc.
On a comparable basis, including Ann, net sales for the second quarter were $1.84 billion versus $1.94 billion last year. Comparable sales were down 6 percent. With Ann, total comparable sales were down 5 percent and 1 percent when excluding the anticipated declines at Justice, which related to its new, less-promotional selling strategy.
Asked what’s selling well this season so far, Robb Giammatteo, executive vice president and chief financial officer, told WWD, “We believe we are in a woven cycle,” benefiting all of Ascena’s retail brands. Giammatteo also singled out strength in large sizes, and not just at Lane Bryant, which specializes in the category, but at Maurices as well, which has been expanding the its own plus-size offerings. Cacique, the lingerie label sold at Lane Bryant, is also performing well, he added.
Most of the impact of the Ann Inc. acquisition (primarily the write-off of inventory) is now behind the company, though there will be some lesser impact reported in quarters ahead, according to the executives.
Austyn Zung, creative director in charge of the design teams for Ann Taylor, Loft and Lou & Grey, is making changes that will be seen primarily in the third and fourth quarters. “It will be totally subtle, more of an evolution, not a revolution,” said Jaffe. “We are shifting a bit from some key items, especially in sweaters. We are not buying too deep in basics,” while novelty looks get pumped up.
Ascena has been turning around its Justice division and is anticipating steadily improving comp sales. “I wouldn’t say it’s game over, but we made the big changes last back-to-school season when we implemented a new merchandising and promotional strategy, which have been well received by customers,” he said.
Jaffe added that Justice’s fall performance exceeded plan, and that for Christmas and spring so far, results have been on or above plan.
Under the stewardship of Jaffe, Ascena has become aggressively acquisition-prone, having made four major deals over the last decade — Maurices in January 2005; Tween Brands in November 2009; Charming Shoppes in June 2012, and Ann Inc. in August.
The company, at about $7.4 billion in annual revenues, is the largest U.S. specialty apparel retailer focused exclusively on females through its eight retail brands — Ann Taylor, Loft, Catherines, Dressbarn, Justice, Lane Bryant, Maurices and Lou & Grey.
Through the Ann Inc. acquisition, Ascena expects to realize $150 million in savings in three years.