Ascena Retail Group, owner of the Ann Taylor, Loft and Lane Bryant chains, has widened its net loss in the second quarter amid the completion of its Dressbarn wind down as it works to simplify the business.
For the three months ended 1 February, the company reported a net loss of US$97.4m, compared to net loss of $71.5m the year before. Operating loss was $140m, which Ascena said primarily reflects goodwill impairments and other intangible assets, offset in part by the benefit of cost reductions. Adjusted operating loss was $31m, excluding the non-cash impairment charges and restructuring costs.
Net sales, meanwhile, fell to $1.22bn from $1.27bn in the year-ago period. The drop reflects a comparable sales decrease of 2% for the quarter, a decline in other revenue and a decrease in non-comparable sales.
By brand, comparable sales were up 3% at Ann Taylor and by 10% at Lane Bryant but slipped 1% at Loft.
Gross margin rate expanded to 52.2% from 51.9% of sales in the year-ago period, primarily due to increased margins at the premium fashion and plus fashion segments, reflecting decreased promotional activity. Those increases were partially offset by higher promotional activity in kids fashion to clear excess inventory.
In 2016 Ascena began a restructuring under its ‘Change for Growth’ programme to focus on key customer segments, improve its time-to-market and reduce working capital, with the changes including a new brand services team to oversee supply chain, sourcing and logistics.
It completed the sale of its Maurices women’s clothing business for $300m in May last year, and last month completed the wind down of its Dressbarn business operations, closing over 650 stores and eliminating more than $300m of lease liability.
Speaking to analysts on the group’s second-quarter earnings call, CFO Dan Lamadrid said: “We are very pleased to have completed the wind down of Dressbarn. Our liquidation began on 1 November and proceeded as we expected, cumulative cost incurred as part of the wind-down of approximately $60m were offset by favourable performance since the announcement, as well as the sale of Dressbarn intellectual property assets.”
Meanwhile, in the group’s earnings release statement, interim executive chair Carrie Teffner said Ascena made “solid progress” during the second quarter on its commitment to simplify the business and focus on fewer and more meaningful initiatives.
She added: “With respect to our portfolio review, we have made great progress. As it pertains to our previously discussed brand review, we currently have no active conversations. As such, we are proceeding with a clear focus on our premium, plus and kids segments by driving brand strategies which ensure long-term relevance and differentiation, while streamlining our back-end functionality to improve efficiency and profitability. Our board and management team remain committed to taking proactive steps to position Ascena for long-term success and will continue to evaluate opportunities that create shareholder value.”
Meanwhile, CEO Gary Muto noted Ascena has exceeded its adjusted operating income expectations for the third consecutive quarter, resulting from better gross margin performance and continued cost reduction efforts.
“We continue to work toward delivering sustainable growth by leveraging our customer analytics and insights, placing the customer at the center of everything we do,” he said. “We are confident that the work we are doing now sets us up to provide consistent profitable performance and enhance shareholder value over the longer term.”
Looking ahead to the third quarter, Ascena is forecasting net sales of $1.05bn-$1.08bn for its premium fashion, plus fashion, and kids fashion segments. Comparable sales of negative low single digits are also expected, as is a gross margin rate of 57.8% to 58.3%.
The company also warned it expects an adjusted operating loss for the period of between $10m and $30m.