The Ascena Retail Group Inc. moved deeper into the red last quarter, but saw progress in margin performance, cost reductions and simplifying the business.
The specialty retailer, operator of Ann Taylor, Loft, Lane Bryant, Catherines, Cacique, Justice and Lou & Grey, reported a net loss from continuing operations of $132 million, or $13.22 per diluted share in its second fiscal quarter ended Feb. 1, compared with a net loss from continuing operations of $81 million, or $8.20 per diluted share, in the year-ago period.
Net sales dropped 2 percent to $1.22 billion compared with $1.27 billion in 2018. Comparable sales declined 2 percent.
The operating loss was $140 million, which primarily reflects non-cash impairment charges of goodwill and other intangible assets, offset in part by the benefit of cost reductions, compared to a loss of $64 million in the year-ago period. The adjusted operating loss was $31 million, excluding the non-cash impairment charges and restructuring costs.
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The company is currently not in any active discussions to sell off any brands, in the aftermath of selling off a majority stake in Maurices and winding down Dressbarn including closing all Dressbarn stores. Officials said they continue to evaluate ways to create shareholder value.
On the positive side, inventories were down 5 percent; $80 million of term loan debt was purchased in open market transactions for $49 million, and the company is liquid enough with more than $600 million available through cash and its revolver. The company has $1.3 billion in long-term debt and operates 2,764 stores.
Within Ascena’s premium segment, which is the largest volume segment in the portfolio, Ann Taylor has made good progress in its turnaround, with particular success in work apparel that’s versatile, taking women from day into evening, and in pants. Loft, the more casual counterpart to Ann Taylor, is “making progress on evolving assortments though there’s still work to do,” chief executive officer Gary Muto said.
The company performed best with its plus segment, which saw a 7 percent comp sales gain and a 90-basis point margin expansion. The plus segment includes Lane Bryant, Catherines and Cacique.
The worst-performing segment was Justice, the kids business, which posted a 15 percent decline in comps. It continues to experience “significant traffic headwinds and is rebalancing its assortments and leveraging data to try to improve merchandise strategies,“ Muto said.
Commenting on the quarter overall, Muto said, “We are pleased to have exceeded our adjusted operating income expectations for the third consecutive quarter, resulting from better gross margin performance and continued cost-reduction efforts. We continue to work toward delivering sustainable growth by leveraging our customer analytics and insights, placing the customer at the center of everything we do. We are confident that the work we are doing now sets us up to provide consistent profitable performance and enhance shareholder value over the longer term.”
Carrie Teffner, interim executive chair, added, “During the second quarter we made solid progress on our commitment to simplify the business and focus on fewer and more meaningful initiatives. With respect to our portfolio review, we have made great progress. In addition to the sale of our majority interest in Maurices, we successfully completed the wind-down of the Dressbarn business in February. As it pertains to our previously discussed brand review, we currently have no active conversations. As such, we are proceeding with a clear focus on our premium, plus and kids’ segments by driving brand strategies which ensure long-term relevance and differentiation, while streamlining our back-end functionality to improve efficiency and profitability. Our board and management team remain committed to taking proactive steps to position Ascena for long-term success and will continue to evaluate opportunities that create shareholder value.”
Commenting on the coronavirus, Muto said Ascena continues to actively monitor the situation and that all factories supplying product to the company “have reopened at various levels of productivity, but a portion of our receipts for fourth quarter are expected to be impacted.” The coronavirus could adversely impact financial performance, but is not reflected in the company’s guidance due to the uncertainties of the virus and its spread.
For its third quarter of fiscal 2020, the company forecasts net sales of $1.05 billion to $1.08 billion; comparable sales of negative low single digits; gross margin rate of 57.8 to 58.3 percent, and an adjusted operating loss of $10 million to $30 million.