Ascena reports sales loss in Q3, plans to close up to 650 stores

By

Obi Anyanwu

Published
Jun 12, 2017

“Unexpected headwinds” is a key phrase for Ascena Retail Group. The company in May reduced its third quarter sales and earnings guidance ranges due to headwinds, which had an impact on the quarter.
 

Ascena reported on Thursday non-GAAP EPS of $0.05 that met the reduced third quarter EPS guidance range of $0.04 to $0.06, but the company also reported a net loss of $1.031 billion, or $5.29 per diluted share, compared to a net income of $15 million, or $0.08 per diluted share, in the prior year. The loss in the current quarter included a non-cash pre-tax impairment charge of $1.324 billion to write-down a portion of the Company's goodwill and other intangible assets.
 
The company also in the third quarter increased the cost takeout target of the Change For Growth transformation program to a range of $250 million to $300 million by fiscal 2019 from the initial target of $150 million. The initiative is intended to make the company’s supply chain and distribution network more agile and cost effective.

“In addition to a highly efficient cost structure, today’s hyper-competitive environment requires meaningful differentiation and deep customer connectivity, and we must improve execution across our portfolio,” said President and CEO David Jaffe.
 
“We are focused on delivering unique, compelling fashion, maintaining highly relevant brands, and providing an outstanding experience for our customers. At the brand level, our teams are driving initiatives to increase customer engagement, including clienteling programs and unique in-store events. At the enterprise level, we are working aggressively to accelerate our product development cycle and to elevate our digital capabilities through implementation of new customer experience management tools.”
 
The headwinds impacted net sales, which decreased to $1.565 billion from $1.669 billion, and comparable sales fell 8%. The Premium Fashion, Value Fashion and Plus Fashion segments all decreased by 7%, 10% and 10%, respectively, with Ann Taylor, Loft and Lane Bryant decreasing between $16 million and $25 million. In an investor conference call, Jaffe announced that the group would thus be closing at least 250 stores and up to 650, but did not specify the number of stores by brand. The decision is a result of the ongoing sales slump due to low footfall, which Jaffe expects to remain an issue for the group in the future.
 
Gross margin on a GAAP basis fell to $948 million, or $60.6% of sales, compared to $1,017 million, or 60.9% of sales, in the prior year due to the decline in comparable sales, SG&A expenses declined 5% to $506 million, or 32.3% of sales, compared to $536 million, or 32.1% of sales in the prior year due to lower store expenses, and operating loss on a GAAP basis was $1.312 billion versus operating income of $57 million in the previous year.
 
Ascena also reaffirmed its full year non-GAAP EPS guidance of $0.10 to $0.15.