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December 5, 2017

Ascena Retail shares tumble as Q1 profit falls 54.2%

Shares in Ascena Retail Group were down more than 19% in after-hours trading yesterday (4 December) as the US women's wear retailer posted a 54.2% drop in net income in its first-quarter.

By Beth Wright

Shares in Ascena Retail Group were down more than 19% in after-hours trading yesterday (4 December) as the US women’s wear retailer posted a 54.2% drop in net income in its first-quarter.

Earnings amounted to US$6.6m in the three months ended 28 October from $14.4m a year earlier, while non-GAAP adjusted earnings of $0.11 per diluted share compared to $0.18 in the year-ago period. Gross margin widened slightly to 60.7% from 60.4% last year.

Net sales, meanwhile, dropped to $1.59bn compared to $1.68bn last year reflecting the impact of a 5% comparable sales decline, which was caused primarily by mid-single-digit declines in average selling price, offset in part by double-digit transaction growth in the direct channel. The company said the three hurricanes that impacted the southern US and Puerto Rico during the first quarter negatively impacted sales by about $11m.

“Our first quarter adjusted earnings per share of 11 cents was in the middle of our guidance range, but represented a disappointing quarter,” said CEO David Jaffe. “We were unable to capitalise on the improving macro traffic environment due to fashion missteps that we cannot afford in today’s environment. We continue to deliver double-digit transaction growth in our direct channel, but must improve our overall level of merchandising execution.”

Jaffe added the company is “working aggressively” to fully transition to a new structure outlined earlier this year as part of a bid to strengthen product execution and comp sales performance.

Looking to the second quarter, the group expects net sales in the range of $1.62bn-$1.66bn and comparable sales to be down by between 4% and 6%.

Shares in the company had begun their uphill climb this morning and were up 5.67%. 

FBR & Co analyst Susan Anderson, notes: “We like Ascena for the significant low-hanging-fruit opportunity, but we remain on the sidelines until we see a consistent turn in same-store-sales and margins.”

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