Battered by increased promotional and markdown activity along
with higher operating expenses,
Ascena Retail Group Inc
) adjusted earnings of 26 cents per share for third-quarter
fiscal2013 declined 23.5% from the comparable year-ago quarter
number of 34 cents. Moreover, quarterly earnings came below the
Zacks Consensus Estimate of 31 cents per share.
On a reported basis, including the effect of one-time items
and discontinued operations, the company's earnings were 19 cents
per share versus 31 cents in the year-ago same quarter.
Quarter in Detail
Benefiting from the acquisitions of Lane Bryant and Catherines
businesses, Ascena's net sales for the quarter grew approximately
46% year over year to $1,142.2 million. However, the figure fell
short of the Zacks Consensus Estimate of $1,173.0 million.
Comparable store sales (comps) dropped 1%, as positive comps
at the company's e-Commerce business (up 37%) was more than
offset by weakened comps at its stores (down 4%). Brand-wise,
comps at Justice, Lane Bryant, maurices and dressbarn declined by
4%, 6%, 3% and 7%, respectively, partially offset by an 8% growth
registered across its Catherines brand.
Gross profit increased 43.0% to $657.8 million from $459.9
million in the prior-year period. However, gross profit margin
contracted 110 basis points (bps) to 57.6% from the year-ago
level. The decline in gross margin was mainly due to increased
markdowns and promotional activity, especially at dressbarn.
During the quarter, a 60.4% increase in buying, distribution
and occupancy expenses (BD&O) and 51.6% rise in selling,
general and administrative expenses (SG&A) led to a
year-over-year decline of 22.9% in operating income of $65.8
million. Consequently, operating margin plummeted 510 bps to
5.8%. On an adjusted basis, Ascena's operating income came at
$72.7 million or 6.4% of sales.
Ascena ended the third quarter of fiscal 2013 with cash and
short-term investments of $206.1 million compared with $168.9
million at the end of the fiscal 2012. Total debt at quarter-end
was $155.6 million compared with $326.6 million at the end of
During the quarter, Ascena increased its revolving credit
facility to $500 million of which it used $279.3 million to repay
its outstanding principal balance of term loan.
Fiscal 2013 Outlook Revised
Disappointing quarterly performance compelled management to
lower its earnings guidance for fiscal 2013 to $1.10-$1.15 per
share from $1.20-$1.30 forecasted earlier. The company's earnings
guidance for fiscal 2013 excludes the one-time, financing and
acquisition related charges toward integration, restructuring and
purchase accounting of the Charming Shoppes Inc. acquisition.
Further, Ascena expects comps for the remaining period of
fourth-quarter fiscal 2013 to be in the range of flat to up
low-single-digits. Moreover, it projects to open net 50-60 new
stores during the spring season.
Other Stocks to Consider
Currently, Ascena carries a Zacks Rank #4 (Sell). Better
performing stocks among apparel/shoe retailers include
American Apparel, Inc
Stein Mart Inc
), all of which have a Zacks Rank #2 (Buy).
AMER APPAREL (APP): Free Stock Analysis
ASCENA RETAIL (ASNA): Free Stock Analysis
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STEIN MART INC (SMRT): Free Stock Analysis
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