What Went Wrong With Ascena Retail Earnings

When Ascena Retail Group Inc. (NASDAQ: ASNA) reported fiscal third-quarter 2018 results after markets closed Monday, the specialty retailer posted an adjusted diluted loss per share of $0.08 on revenues of $1.5 billion. The consensus estimates had called for a loss of $0.09 on revenues of $1.47 billion. But in the same quarter a year ago, Ascena said it had adjusted earnings per share of $0.05 on revenues of $1.57 billion.

Shares in the operator of Ann Taylor, dressbarn and Lane Bryant, among other specialty retail stores for women, were getting killed Tuesday morning, though, because the company’s fourth-quarter outlook was weaker than analysts expected.

On a GAAP basis, Ascena lost $0.20 per share, far less than the $5.29 loss posted in the prior year’s third quarter. Last year’s loss included a “significant non-cash impairment charge” as Ascena wrote-off goodwill and other intangible assets.

In the quarter, same-store sales declined 3% year over year. The only brand that did not post a same-store sales drop was Justice, the company’s children’s store. Ann Taylor sales were down 7% and Lane Bryant sales were down 1%.

CEO David Jaffe said:

Looking forward, we will continue to drive our enterprise transformation to realize the full value of our brand portfolio, and we are working to quickly stabilize performance at our Value segment. Our brands are focused on delivering compelling fashion offerings and a differentiated experience to our customers, and we expect to leverage our leaner cost structure and our growing competitive capabilities to support sustained, profitable comp growth. In parallel, we continue to evaluate opportunities across our brand portfolio to create shareholder value.

For the fourth quarter, the company forecasts adjusted earnings ranging from a loss of $0.05 a share to a profit of $0.05 per share, as well as sales of $1.62 billion to $1.66 billion. Analysts were expecting $0.04 per share earnings and sales of $1.58 billion.

Ascena forecasts same-store sales at flat to up 2% and gross margins of 56.5% to 57%, down from 58.7% in the third-quarter and down from nearly 61% in the year-ago third quarter.

Ascena shares jumped more than 10% Monday but most of that was given back Tuesday morning. Shares traded down about 8.5% in Tuesday’s premarket to $3.35, after closing at $3.66 on Monday. The stock’s 52-week trading range is $1.69 to $3.73, and the high was posted yesterday. The consensus 12-month price target on the stock is $2.38.

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