Ascena Retail Group Inc., still in turnaround mode as it continues the wind down of its value fashion market segment, saw strength in its premium division, the only one that posted positive comparable store sales in the third quarter.
In a Nutshell: The company widened its net loss in the third quarter as it continues to assess its portfolio of brands. It completed the divestiture of Maurices and is in the middle of winding down its Dressbarn brand, both a part of its value fashion segment, which has consistently underperformed expectations and generated substantial losses over the past two years.
The good news for the quarter is its premium business, consisting of Ann Taylor and LOFT. On a less positive note, issues remain with its plus fashion division and kids component, both of which saw comp declines in the quarter.
“While we continue our portfolio assessment, we are focused on right sizing our corporate overhead structure to support a business with fewer, stronger brands that can deliver growth and profitability levels above the industry average,” Carrie Teffner, interim executive chair, said.
Also weighing in, Ascena CEO Gary Muto, said, “Third quarter results were better than anticipated, driven by stronger comps. With the elimination of our value fashion segment, we are already re-aligning our financial and human capital to support the areas of the business with the greatest growth potential.”
Net Sales: For the quarter ended May 4, net sales were essential flat at $1.26 billion, compared to $1.267 billion in the year-ago quarter.
Both Ann Taylor and LOFT saw a comps gain of 5 percent in the quarter. The plus fashion segment saw comps decline by 3 percent (down 2 percent at Lane Bryant and down 6 percent at Catherine’s). Comps were no better at its kids businesses, with both Justice and Kids Fashion down 5 percent. Dressbarn, the value fashion chain Ascena is in the process of closing, saw its comps decline 4 percent in the third quarter.
Gross margin in the quarter fell to 51.7 percent of sales, versus 59.5 percent a year ago. Ascena attributed the decrease to higher promotional activity designed to address elevated inventory levels and soft pre-Easter selling at its premium fashion and kids fashion segments, as well as clearance sales of under-performing tops at Lane Bryant.
Earnings: The net loss widened to $237.9 million, or $1.20 a diluted share, from a net loss of $40.2 million, or 20 cents, a year ago. On an adjusted basis, the loss would have been $51 million, or 26 cents a diluted share.
For the fourth quarter, the company guided net sales to between $1.18 to $1.22 billion, with comps down 3 percent to 5 percent. The projections are for consolidated continuing operations of its premium, plus and kids fashion segments.
Ascena ended the quarter with 3,519 stores still in operation, and closed 25 in the quarter.
CEO’s Take: “While we work to accelerate top-line growth from our more focused brand portfolio, we continue to drive meaningful structural cost reduction,” Muto added.
In addition to the $300 million savings from the firm’s Change for Growth program, Muto said the company has “identified an incremental $150 million opportunity. We expect the majority of these incremental savings to be realized in Fiscal 2020, and we continue to seek further cost reduction opportunities on an ongoing basis. We have a highly committed and engaged workforce that is focused on delivering the growth and profitability that we know we are capable of achieving.”