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Ascena Q3 Earnings and Sales Miss, Retains FY15 Outlook - Analyst Blog

Ascena Retail Group Inc.ASNA reported third-quarter fiscal 2015 adjusted earnings from continuing operations of 18 cents per share. Earnings were a penny short of the Zacks Consensus Estimate and down about 33% from 27 cents earned in the prior-year quarter due to soft performance at the company's Justice and dressbarn brands. Results at dressbarn were mainly impacted by unfavorable weather and supply delays owing to port disruptions.

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 15 cents per share compared with 22 cents in the year-ago quarter.

Quarter in Detail

Ascena's net sales for the quarter were $1,150.3 million, up marginally from $1,145.1 million in the prior-year quarter but below the Zacks Consensus Estimate of $1,163 million. Top-line grew on the back of new store growth at maurices and positive comps at Lane Bryant, maurices and Catherines brands, almost fully offset by negative comps at Justice and dressbarn.

The company's total comps, including stores as well as eCommerce, were down 1% from the prior-year quarter owing to choppy performance of its physical stores, largely offset by double-digit growth in eCommerce. Comps at the company's stores were down 3%, while eCommerce comps grew 13%.

Brand-wise, total comps at the Justice stores declined 12% while dressbarn comps were down 4%. However, the company's Lane Bryant, maurices and Catherines stores posted comps growth of 4%, 6% and 4%, respectively.

Gross profit rose 2.6% to $675.1 million while gross margin expanded 130 basis points (bps) to 58.7% from the year-ago level. The improvement was driven by strong gross margin growth at Lane Bryant, maurices and dressbarn stores which were offset by decline in Justice brands' gross margin, mainly due to sell-down of Brothers merchandise.

During the quarter, buying, distribution and occupancy (BD&O) expenses rose 3.1% year over year to $214.2 million, while as a percentage of sales it increased 50 bps to 18.6%. The increase was due to elevated store occupancy expenses, coupled with higher merchandising and design capabilities at maurices and dressbarn, offset by a decline in distribution expense rate.

Selling, general and administrative (SG&A) expenses were at $365 million, up nearly 9% from the year-ago comparable quarter, while as a percentage of sales it expanded 240 bps to 31.7%. Higher SG&A expenses are attributable to increased store payroll, exclusive marketing campaigns for Lane Bryant and dressbarn, key IT initiatives and additional incentive compensation at Lane Bryant and maurices.

During the quarter, Ascena's adjusted operating income fell 35.8% year over year to $43.7 million. Moreover, operating margin contracted 210 bps to 3.8%.

Balance Sheet

Ascena ended the third quarter with cash and investments of $208.9 million and long-term debt of $155 million. Shareholders' equity at the end of the quarter was $1,838 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.

Stocks to Consider

Currently, Ascena carries a Zacks Rank #4 (Sell). Better-ranked stocks in the same industry include American Eagle Outfitters Inc. AEO , Express Inc. EXPR and Citi Trends Inc. CTRN . While American Eagle and Express sport a Zacks Rank #1 (Strong Buy), Citi Trends holds a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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