Benefiting from improved gross margin and lower-than-anticipated
Ascena Retail Group Inc
) adjusted earnings from continuing operations advanced 3.8% year
over year to 27 cents per share in the third quarter of fiscal
2014. Quarterly earnings also cruised ahead of the Zacks Consensus
Estimate of 19 cents per share.
However, Ascena's selling, general and administrative (SG&A)
expenses and its buying, distribution and occupancy (BD&O)
costs increased on a year-over-year basis, impacting earnings to
On a reported basis, including the effect of one-time items and
discontinued operations, the company's earnings were 22 cents per
share, up from 20 cents in the comparable quarter last fiscal.
Quarter in Detail
Ascena's net sales for the quarter inched up 0.3% year over year to
$1,145.1 million, yet missed the Zacks Consensus Estimate of
Sales were primarily augmented by greater comparable-store sales
(comps) at the company's Catherines, Lane Bryant and maurices
brands, and store enhancements at its Justice and maurices brands.
However, the effect was mostly negated by a fall in comps at the
company's Justice and dressbarn brands and slow traffic across all
were down 4% each, while
registered year-over-year comps growth of 1%, 2% and 4%,
Ascena's company wide comps, including e-commerce comps slipped 1%
year over year, as a result of a 3% dip in store comps, partly
compensated by 19% growth in e-commerce comps. E-commerce comps
were boosted by new Web innovations, exclusive online offers and
Gross profit climbed approximately 2.6% to $675.0 million from
$657.8 million in the prior-year period, while as a percentage of
sales, it expanded 130 basis points (bps) to 58.9% from the
year-ago level. The year-over-year rise in gross profit mainly
benefited from a fall in markdown operations across all its brands.
During the quarter, BD&O expenses rose 5.5% year over year to
$219.6 million, while as a percentage of sales, it increased 100
bps to 19.2%. The surge in BD&O expenses was attributable to
investments in designing and merchandising, costs associated with
store growth and a hike in freight and fulfillment expenses.
SG&A expenses were $340.4 million, up 2.4% from the year-ago
comparable quarter, while as a percentage of sales, it expanded 60
bps to 29.7%. SG&A expenses rose due to soaring marketing
expenses, increased headcount and initiatives undertaken to achieve
During the quarter, Ascena's operating income on an adjusted basis
fell 6.3% year over year to $68.1 million. Moreover, operating
margin contracted 50 bps to 5.9% since improvements in the top line
and gross margin were more than offset by increased operating
Ascena ended the quarter with cash and investments of $216.8
million and total debt of $225.0 million. Shareholder equity at the
end of the quarter was $1,713.9 million.
Fiscal 2014 Outlook
Despite healthy quarterly results, the company indicated that
challenging macroeconomic trends might spill over into the next
quarter. This caused the market to react negatively with shares
falling 4.6% during afterhours trading session yesterday.
Ascena reiterated its earnings per share forecast for fiscal 2014.
It continues to envision earnings in the range of $1.00 and $1.05.
This excludes the one-time, financing and acquisition-related
charges toward integration and restructuring. The Zacks Consensus
Estimate for the same period is currently pegged at $1.04 per
Further, Ascena continues to expect fiscal 2014 comps to increase
marginally. Effective tax rate is now anticipated to be 35% instead
of the 36% projected earlier. The company intends to incur capital
expenditure in the range of $475-$500 million, as planned earlier.
Moreover, it expects to open 40-60 net new stores during fiscal
Ascena remains focused on undertaking its long-term strategic
plans. Most of the brands are already operational in the company's
Ohio distribution center, and it expects all its brands to be fully
operational by Fall 2014. Also, the company introduced its
e-commerce fulfillment center during the reported quarter and its
efforts of taking all its brands there by Spring 2015 are underway.
Other Stocks to Consider
Currently, Ascena carries a Zacks Rank #3 (Hold). Some
better-ranked stocks in the same industry include
Citi Trends, Inc.
American Apparel, Inc.
Foot Locker, Inc.
). While Citi Trends carries a Zacks Rank #1 (Strong Buy), both
American Apparel and Foot Locker carry a Zacks Rank #2 (Buy) each.
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