Ascena Retail Group, Inc. Reports Fourth Quarter and Fiscal Year 2012 Results

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Ascena Retail Group, Inc. Reports Fourth Quarter and Fiscal Year 2012 Results

- Consolidated Comparable Store Sales Increase 3% for the Quarter and 5% Full Year -

- Company Provides Fiscal 2013 Earnings Guidance -


SUFFERN, N.Y.--(BUSINESS WIRE)-- Ascena Retail Group, Inc. (NASDAQ - ASNA) today reported financial results for its fiscal fourth quarter and full year ended July 28, 2012.

Ascena's financial results for its fiscal fourth quarter and full year ended July 28, 2012 reflect its acquisition of Charming Shoppes, Inc. ("Charming") on June 14, 2012 (the "Charming Acquisition"). Accordingly, operating results for those periods are not comparable to the prior year. In order to enhance comparability, adjusted results that exclude the effect of the Charming Acquisition have been presented to supplement the reported results for all periods of Fiscal 2012. Fiscal 2011 is presented on a GAAP basis. Reference should be made to Note 2 to the consolidated financial statements included elsewhere in this release for a reconciliation of adjusted, non-GAAP financial measures to the most directly comparable GAAP financial measures.

Fiscal Fourth Quarter Results

On a reported basis, income from continuing operations for the fourth quarter of Fiscal 2012 was $11.2 million, representing a decrease to the year-ago quarter's income from continuing operations of $28.2 million. Earnings per share from continuing operations for the fourth quarter of Fiscal 2012 decreased to $0.07 per diluted share, compared to $0.18 of earnings per diluted share from continuing operations for the fourth quarter of Fiscal 2011. Including the discontinued operations of the newly acquired Fashion Bug and Figi's businesses, which are intended to be disposed of, net income for the fourth quarter of Fiscal 2012 was $1.6 million and earnings per diluted share was $0.01.

On an adjusted basis, income from continuing operations for the fourth quarter of Fiscal 2012 was $49.0 million, representing an increase to the year-ago quarter's net income of $28.2 million. Adjusted earnings per share from continuing operations for the fourth quarter of Fiscal 2012 increased to $0.31 per diluted share, compared to $0.18 of earnings per diluted share on a reported basis for the fourth quarter of Fiscal 2011.

Net sales for the fourth quarter of Fiscal 2012 increased 29% to $939.7 million, compared to $725.8 million for last year's fourth quarter on a reported basis. On an adjusted basis, net sales for the fourth quarter of Fiscal 2012 increased 8%. Such increase was largely driven by strong growth in sales from new stores and e-commerce, as well as an overall comparable store sales increase of 2%, led by Justice at5%. Consolidated comparable store sales include stores open for at least one year and do not include e-commerce sales results. The Company was pleased to note that e-commerce sales on an adjusted basis, which excludes Charming results, increased 49% to $39 million versus last year's comparable period. The Company's comparable store sales and net sales by brand for the fiscal fourth quarter were as follows:

Fourth Quarter Sales (Unaudited)
  Net Sales (millions)
ComparableJuly 28, July 30,
Store Sales20122011
Justice5%$291.7$262.5
Lane Bryant*3% 119.7 --
maurices1%201.5183.0
dressbarn1%290.4280.3
Catherines*11% 36.4 --
Total Company3%$939.7$725.8
*Comparable store sales and net sales for Lane Bryant and Catherines include sales from the acquisition date of June 14, 2012 through the end of the fiscal period for all stores that were open in both that period and the comparative period in the prior year.
 

Gross margin for the fourth quarter of Fiscal 2012 increased to $501.6 million, or 53.4% of sales, compared to $400.2 million, or 55.1% of sales last year on a reported basis. On an adjusted basis, gross margin for the fourth quarter of Fiscal 2012 was $433.7 million, or 55.4% of sales. Gross margin improvement of 30 basis points on an adjusted basis was primarily due to stronger margin performance at Justice and maurices, offset in part by lower margins at dressbarn.

Occupancy, distribution and buying costs ("B&O") expenses for the fourth quarter of Fiscal 2012, which are now presented separately in the consolidated financial statements, were $156.9 million, or 16.7% of sales, compared to $121.4 million, or 16.7% of sales last year on a reported basis. On an adjusted basis, B&O was $126.3 million, or 16.1% of sales. The 60 basis point improvement on an adjusted basis was primarily due to increased leverage on the higher sales volume.

Selling, general and administrative ("SG&A") expenses for the fourth quarter of Fiscal 2012 were $281.7 million, or 30.0% of sales, compared to $200.4 million, or 27.6% of sales last year on a reported basis. On an adjusted basis, SG&A increased 5% to $210.7 million, or 26.9% of sales.

Operating income for the fourth quarter of Fiscal 2012 decreased to $30.8 million, or 3.3% of sales, compared to $54.2 million, or 7.5% of sales last year on a reported basis. On an adjusted basis, operating income increased to $70.4 million, or 9.0% of sales. The increase in operating income as a percent of sales on an adjusted basis was due largely to the increase in gross margin.

Fiscal Full Year Results

On a reported basis, income from continuing operations for Fiscal 2012 was $171.8 million, representing an increase to last year's income from continuing operations of $170.5 million. Earnings per share from continuing operations for Fiscal 2012 increased to $1.08 per diluted share, compared to $1.05 of earnings per diluted share from continuing operations for Fiscal 2011. Including the discontinued operations of the newly acquired Fashion Bug and Figi's businesses, net income for Fiscal 2012 was $162.2 million and earnings per diluted share was $1.02.

On an adjusted basis, income from continuing operations for Fiscal 2012 was $213.8 million, representing an increase versus last year's amount of $170.5 million on a reported basis. Adjusted earnings per share from continuing operations for Fiscal 2012 increased to $1.34 per diluted share, compared to $1.05 of earnings per diluted share on a reported basis for Fiscal 2011.

Net sales for the full year Fiscal 2012 increased 15% to $3.4 billion, compared to $2.9 billion last year on a reported basis. On an adjusted basis, net sales for Fiscal 2012 increased 10%. Such increase was due to a 5% comparable store sales increase, led by Justice at 8%, and strong growth in sales from new stores and e-commerce. E-commerce sales on an adjusted basis increased 54% to $160 million versus last year. The Company's comparable store sales and net sales by brand for the full year were as follows:

Fiscal Year Sales (Unaudited)
  Net Sales (millions)
ComparableJuly 28, July 30,
Store Sales20122011
Justice8%$1,306.7$1,150.0
Lane Bryant*3%119.7--
maurices2%852.9776.5
dressbarn3%1,037.6987.5
Catherines*11%36.4--
Total Company5%$3,353.3$2,914.0
*Comparable store sales and net sales for Lane Bryant and Catherines include sales from the acquisition date of June 14, 2012 through the end of the fiscal period for all stores that were open in both that period and the comparative period in the prior year.
 

Gross margin for Fiscal 2012 increased to $1.9 billion, or 56.0% of sales, compared to $1.7 billion, or 56.7% of sales last year on a reported basis. On an adjusted basis, gross margin for Fiscal 2012 was $1.8 billion, or 56.6% of sales. Gross margin as a percent of sales on an adjusted basis declined slightly due largely to lower margins at dressbarn and maurices.

B&O expenses for Fiscal 2012 were $542.3 million, or 16.2% of sales, compared to $483.4 million, or 16.6% of sales last year on a reported basis. On an adjusted basis, B&O was $511.7 million, or 16.0% of sales. The 60 basis point improvement on an adjusted basis was primarily due to increased leverage on the higher sales volume.

SG&A expenses for Fiscal 2012 were $936.3 million, or 27.9% of sales, compared to $790.2 million, or 27.1% of sales last year on a reported basis. On an adjusted basis, SG&A increased 10% to $865.3 million, or 27.1% of sales. SG&A as a percent of sales on an adjusted basis was flat year-over-year as leverage on sales was offset by stock-based compensation expense.

Operating income for Fiscal 2012 increased slightly to $292.6 million, or 8.7% of sales, compared to $289.8 million, or 9.9% of sales last year on a reported basis. On an adjusted basis, operating income increased to $332.2 million, or 10.4% of sales. The improvement in operating margin on an adjusted basis was largely due to the increase in gross margin, as well as the improved combined leverage in B&O and SG&A expenses described above.

Fiscal Fourth Quarter Balance Sheet Highlights

The Company funded the purchase of the Charming Acquisition with approximately $600 million of available cash and investments, and approximately $325 million of new borrowings. As of the end of Fiscal 2012, the Company had cash and investments of $168.9 million and total debt of $326.6 million. This compares to $436.1 million of cash and investments and no debt at the end of Fiscal 2011.

The Company repurchased approximately 2.7 million shares at an aggregate cost of $37.2 million during Fiscal 2012.

Commentary

David Jaffe, President and Chief Executive Officer of Ascena Retail Group, Inc., commented, "We are pleased to have completed a landmark year in the history of our company. In addition to executing well at each of our businesses and maintaining a solid pace of quarterly results, we completed yet another transformative acquisition. We are developing detailed, thoughtful plans to fully integrate Lane Bryant and Catherines, eliminating redundancy and capturing meaningful cost savings. We are confident that these moves will drive significant accretion to our future results."

Fiscal July 2013 Earnings Guidance

The Company's guidance for adjusted earnings per diluted share from continuing operations for the fiscal year ending July 2013 is in the range of $1.45 to $1.55, excluding one-time, acquisition-related integration and restructuring costs that may be incurred related to the Charming Acquisition. This estimate is based upon various assumptions, including a mid-single digit increase in consolidated comparable store sales. The Company plans to open approximately 180 to 200 stores and close 100 to 120 stores, ending the fiscal year with approximately 3,900 Justice, Lane Bryant, maurices, dressbarn and Catherines stores in operation and achieving approximately $5 billion in net sales.

Conference Call Information

The Company will conduct a conference call today, September 19, 2012, at 9:00 AM Eastern Time to review its fourth quarter fiscal 2012 results followed by a question and answer session. Parties interested in participating in this call should dial in at (617) 847-8706 prior to the start time, the passcode is 38996220. The call will also be simultaneously broadcast at www.ascenaretail.com. A recording of the call will be available shortly after its conclusion and until October 20, 2012 by dialing (617) 801-6888, the passcode is 29318776.

About Ascena Retail Group, Inc.

Ascena Retail Group, Inc. (NAS: ASNA) is a leading specialty retailer offering clothing, shoes, and accessories for missy and plus-size women and tween girls, under the Justice, Lane Bryant, maurices, dressbarn and Catherines brands. Ascena Retail Group, Inc. operates through its subsidiaries approximately 3,800 stores throughout the United States, Puerto Rico and Canada.

For more information about Ascena Retail Group, Inc. and its brands, visit www.ascenaretail.com, www.charmingshoppes.com, www.shopjustice.com, www.lanebryant.com, www.maurices.com, www.dressbarn.com, www.catherines.com, www.cacique.com, www.figis.com and www.figisgallery.com.

Forward-Looking Statements

Certain statements made within this press release may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially. The Company does not undertake to publicly update or review its forward-looking statements even if experience or future changes make it clear that our projected results expressed or implied will not be achieved. Detailed information concerning a number of factors that could cause actual results to differ materially from the information contained herein is readily available in the Company's most recent Annual Report on Form 10-K for the year ended July 30, 2011 and in its last filed Quarterly Report on Form 10-Q for the quarter ended April 30, 2012.

 
Ascena Retail Group, Inc.
Consolidated Statements of Operations (Unaudited)
(millions, except per share data)
 
Fourth Quarter Ended
  % of Net  % of Net
July 28, 2012 Sales July 30, 2011 Sales
Net sales$939.7100.0%$725.8100.0%
Cost of goods sold(438.1)(46.6%)(325.6)(44.9%)
Gross margin501.653.4%400.255.1%
Other costs and expenses:
Occupancy, distribution and buying expenses(156.9)(16.7%)(121.4)(16.7%)
Selling, general and administrative expenses(281.7)(30.0%)(200.4)(27.6%)
Depreciation and amortization expense(32.2)(3.4%)(24.2)(3.3%)
Operating income30.8 3.3%54.2 7.5%
Interest expense(3.6)(0.4%)(0.6)--
Interest and other income, net2.00.2%(1.6)--
Acquisition-related costs(7.2)(0.8%)----
Loss on extinguishment of debt-- --(4.0)(0.1%)
Income from continuing operations before income taxes22.02.3%48.06.6%
Provision for income taxes from continuing operations(10.8)(1.1%)(19.8)(2.7%)
Income from continuing operations11.21.2%28.23.9%
Loss from discontinued operations, net of taxes(9.6)(1.0%)-- --
Net income (loss)$1.6 0.2%$28.2 3.9%
Net income (loss) per common share - basic:
Continuing operations$0.07 $0.18 
Discontinued operations($0.06)-- 
Total net income per basic common share$0.01 $0.18 
Net income (loss) per common share - diluted:
Continuing operations$0.07 $0.18 
Discontinued operations($0.06)-- 
Total net income per diluted common share$0.01 $0.18 
Weighted average common shares outstanding:
Basic154.0 155.0 
Diluted159.7 160.6 
 

See accompanying notes.

 
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Ascena Retail Group, Inc.
Consolidated Statements of Operations (Unaudited)
(millions, except per share data)
 
Fiscal Year Ended
  % of Net  % of Net
July 28, 2012 Sales July 30, 2011 Sales
Net sales$3,353.3100.0%$2,914.0100.0%
Cost of goods sold(1,474.7)(44.0%)(1,260.8)(43.3%)
Gross margin1,878.656.0%1,653.256.7%
Other costs and expenses:
Occupancy, distribution and buying expenses(542.3)(16.2%)(483.4)(16.6%)
Selling, general and administrative expenses(936.3)(27.9%)(790.2)(27.1%)
Depreciation and amortization expense(107.4)(3.2%)(89.8)(3.1%)
Operating income292.6 8.7%289.8 9.9%
Interest expense(4.3)(0.1%)(2.5)(0.1%)
Interest and other income, net4.70.1%1.1--
Acquisition-related costs(14.0)(0.4%)----
Loss on extinguishment of debt-- --(4.0)(0.1%)
Income from continuing operations before income taxes279.08.3%284.49.8%
Provision for income taxes from continuing operations(107.2)(3.2%)(113.9)(3.9%)
Income from continuing operations171.85.1%170.55.9%
Loss from discontinued operations, net of taxes(9.6)(0.3%)-- --
Net income (loss)$162.2 4.8%$170.5 5.9