Ascena Retail Group Inc. ASNA reported second-quarter fiscal 2015 adjusted earnings from continuing operations of 7 cents per share, a penny short of the Zacks Consensus Estimate and down about 70% from the prior-year earnings of 23 cents due to troubles at its Justice brand, soft comparable-store sales (comps) and increased costs, related to store expansion, capability building initiatives and strategic investments.
Ascena Retail Group Inc. - Earnings Surprise | FindTheCompany
On a reported basis, including the effect of one-time items and discontinued operations, the company’s earnings were at 5 cents per share compared with 19 cents in the prior-year quarter.
Quarter in Detail
Ascena’s net sales for the quarter were $1,288.6 million, up 1.7% from $1,266.5 million in the prior-year quarter but below the Zacks Consensus Estimate of $1,298 million. Top-line grew on the back of new store growth at Justice and maurices and positive comps at Lane Bryant, maurices, dressbarn and Catherines brands, offset by negative comps at Justice.
The company’s total comps, including stores as well as eCommerce, inched up 1% from the prior-year quarter owing to choppy performance of its physical stores, largely offset by double-digit eCommerce growth. Comps at the company’s stores were down 2%, while eCommerce comps grew 19%.
Brand-wise, total comps at the Justice stores declined 6%, reflecting a fall in transactions and increased promotions to clear season merchandise. However, the company’s Lane Bryant, maurices, dressbarn and Catherines stores posted comps growth of 1%, 8%, 2% and 9%, respectively. Comps at these brands gained from positive customer response to on-trend merchandise as well as strong performance of the direct channel.
Gross profit remained flat with the prior-year period at $662 million, while gross margin fell 90 basis points (bps) to 52.3% from the year-ago level. The fall in gross margin is mainly due to significantly higher markdowns at Justice.
During the quarter, buying, distribution and occupancy (BD&O) expenses rose 2.8% year over year to $216.4 million, while as a percentage of sales it increased 20 bps to 16.8%. The surge in BD&O expenses was due to costs associated with the growth of Justice and maurices stores, coupled with investments in designing and merchandising capabilities at maurices and dressbarn to sustain product development.
Selling, general and administrative (SG&A) expenses were at $371.7 million, up 6.3% from the year-ago comparable quarter, while as a percentage of sales it expanded 120 bps to 28.8%. SG&A expenses rose due to wage hikes, increase in store payroll expenses on a higher unit base, elevated marketing and direct channel support costs, and higher store asset impairment charges related to the lower-than-expected operating performance of select retail stores, mainly at Justice.
During the quarter, Ascena’s adjusted operating income fell 62.7% year over year to $22 million. Moreover, operating margin contracted 300 bps to 1.7%.
Balance Sheet
Ascena ended the second quarter with cash and investments of $202.1 million and long-term debt of $127 million. Shareholders’ equity at the end of the fiscal was $1,805.5 million.
Fiscal 2015 Outlook Intact
Ascena retained its forecasts for fiscal 2015. The company projected earnings in the range of 70 cents to 75 cents per share. This excludes any one-time, financing and acquisition-related, integration and restructuring charges incurred during the year. Further, Ascena expects comps to remain flat or decline modestly in fiscal 2015.
The company intends to incur capital expenditure in the range of $325–$350 million, focused on aggressively managing capital project activity.
Other Stocks to Consider
Currently, Ascena carries a Zacks Rank #4 (Sell). Better-ranked stocks in the same industry include Aeropostale Inc. ARO, DSW Inc. DSW and The Men’sWearhouse Inc. MW, all carrying a Zacks Rank #2 (Buy).
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