• Swings to Q4 net income of $13.8m, from a net loss of $323.4m
  • Net sales jumped 54.7% to $1.81bn from $1.17bn
  • Inconsistent off-peak demand from customers
The acquisition of Ann Inc, parent of the Ann Taylor chain, helped lift sales at Ascena Retail

The acquisition of Ann Inc, parent of the Ann Taylor chain, helped lift sales at Ascena Retail

US women's wear retailer Ascena Retail Group has offered disappointing guidance for its new fiscal year, after posting a fourth quarter performance that was "well below expectations."

For the three-months to 30 July, the retailer, which operates the Ann Taylor, Loft, Lou & Grey, Lane Bryant, Maurices and Dressbarn nameplates, swung to a net income of $13.8m, from a net loss of $323.4m a year earlier.

Ascena, which sells clothing, shoes and accessories for missy and plus-size women, reported net sales in the period jumped 54.7% to $1.81bn from $1.17bn a year ago, thanks to its acquisition of Ann Inc, owner of the Ann Taylor and Loft chains, last August. The deal makes it one of North America's largest apparel retailers.

Ascena completes Ann Inc takeover

Comparable sales at the legacy Ascena brands – which exclude Ann – were down 4% for the quarter. The biggest declines were seen at Dressbarn and Maurices.

And gross margin increased to 57.5% from 54.5%, driven by improved performance at the Justice chain and a reduced level of promotional activity and disciplined inventory planning and management across the business.

"Fiscal 2016 was a challenging year for Ascena, characterised by a highly competitive selling environment and significant store traffic headwinds," noted David Jaffe, president and chief executive officer.

"While we are seeing good customer demand during peak periods, off-peak demand has been inconsistent, and fourth quarter financial performance fell well below our expectations."

For the full year, the company narrowed its net loss to $11.9m from $236.8m, while the Ann Inc acquisition in the first quarter helped lift net sales 46% to $6.995bn from $4.80bn.

For the new financial year ending in July 2017, Ascena forecast adjusted earnings of 60 cents to 65 cents per share and net sales of $6.9bn to $7bn.

Speaking on a call with analysts yesterday (19 September), Jaffe said of the current quarter: "Our customer remains inconsistent. She is out shopping during periods of need, but is increasingly difficult to convert during non-peak periods, without a significant pricing message. Prices become an increasingly important dimension on the value equation, and our brands are evaluating opening price point strategies, to mitigate traffic headwinds, while maintaining pricing integrity with our customer.

"Our fall assortment is checking most areas, and we do not believe we have any major fashion gap. That said, our comp performance remains negative, and we are managing business on a conservative footing from an inventory standpoint, until we see signs of conviction from our customer."

Analyst Susan Anderson at FBR Capital Markets notes: "We believe turnarounds are likely quarters away for Maurices and Dressbarn, and underperformance will likely offset Justice improvement/synergies."

She adds: "We believe it will take time to get ASNA's ~5,000 store base right-sized for today's shopping preferences."