Ascena Retail Group, Inc. Reports Third Quarter 2013 Results

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Ascena Retail Group, Inc. Reports Third Quarter 2013 Results

- Adjusted EPS of $0.26 -

- GAAP EPS from Continuing Operations of $0.20 -


- Total Comparable Sales Decreased 1% -

- Revises Fiscal 2013 Guidance to $1.10 to $1.15 Per Share -

SUFFERN, N.Y.--(BUSINESS WIRE)-- Ascena Retail Group, Inc. (NASDAQ - ASNA) ("the Company") today reported financial results for its fiscal third quarter and nine months ended April 27, 2013.

For the third quarter of Fiscal 2013, earnings from continuing operations were $0.20 per diluted share, while losses from discontinued operations were $0.01 per diluted share. This compares to earnings from continuing operations of $0.31 per diluted share in the same period of Fiscal 2012. Adjusted earnings from continuing operations in the third quarter of Fiscal 2013 were $0.26 per diluted share, compared to $0.34 per diluted share in the prior year's third quarter.

In both periods, the Company incurred certain acquisition-related integration, restructuring and transaction costs in connection with its acquisition of Charming Shoppes, Inc. ("Charming" and the "Charming Acquisition"). Additionally, in the third quarter of 2013, the Company also incurred a charge on the extinguishment of debt. Management believes that such costs are not indicative of the Company's underlying operating performance and has, therefore, reported adjusted results to exclude their effect (see "Non-GAAP Financial Results" section of this release for a reconciliation of these adjustments).

Net sales for the third quarter of Fiscal 2013 increased 46% to $1.142 billion, compared to $783 million in the prior year's third quarter. This growth was driven by the inclusion of the recently acquired Lane Bryant and Catherines businesses, slightly offset by a total comparable sales decrease of 1% for the quarter versus the prior year. Store comp sales for the quarter declined 4% and e-commerce comp sales increased 37%.

David Jaffe, President and Chief Executive Officer of Ascena Retail Group, Inc., commented, "Our soft third quarter top line performance reflects lower than expected traffic driven by continued economic challenges for our customers and unseasonably cold weather as well as merchandising misses at Lane Bryant and dressbarn. Sales trends improved somewhat across all brands in Q4 to date compared to Q3, and we are adjusting our promotional plans to ensure that spring inventory balances are at appropriate levels by the end of our Fiscal 2013 fourth quarter."

Mr. Jaffe concluded: "As we look toward 2014, we continue to make solid progress positioning the business for long term growth by building talent and infrastructure, implementing long range synergy initiatives and improving our merchandising strategies to better match our customer's needs."

Fiscal Third Quarter Results

Consolidated comparable store sales (excluding e-commerce) decreased by 4% for the period. E-commerce sales increased by 171% to $98 million on a consolidated basis, and 37% on a comparable basis. Combined, comparable store and e-commerce sales decreased by 1%.

Unseasonably cold weather and economic pressure on middle-income consumers drove decreased traffic and spending, which contributed to negative comparable store sales at Justice, Lane Bryant, maurices and dressbarn, whereas Catherines realized an 8% increase in comparable store sales.

Net sales for the third quarter of Fiscal 2013 increased 46% to $1.142 billion, compared to $783 million for last year's third quarter, largely driven by the inclusion of sales from the newly acquired Lane Bryant and Catherines businesses, along with a 1% increase in sales from the Company's legacy family of brands.

The Company's comparable store and e-commerce sales data for the third fiscal quarter is summarized below:

 
Third Quarter Sales (Unaudited)
  Net Sales (millions)

Comparable
Store
Sales*

April 27,
2013

 

April 28,
2012

Justice(4%)$298.0$287.8
Lane Bryant*(6%)267.2--
maurices(3%)235.7223.9
dressbarn(7%)257.3271.6
Catherines*8%84.0--
Total Company(4%)$1,142.2$783.3
E-commerce comparable sales37%
 

Total comparable sales

(1%)

 

*Comparable store sales include stores open for at least one year. Comparable store sales for Lane Bryant and Catherines include sales for all stores that were open in both that period and the comparative period in the prior year.

Gross margin for the third quarter of Fiscal 2013 increased to $657.8 million, or 57.6% of sales, compared to $459.9 million, or 58.7% of third quarter sales last year. The gross margin rate decline of 110 basis points was primarily due to lower margins associated with increased markdowns and promotional activity, particularly at dressbarn.

Buying, distribution and occupancy ("BD&O") costs for the third quarter of Fiscal 2013 were $208.1 million, or 18.2% of sales, compared to $129.7 million, or 16.6% of third quarter sales last year. The 160 basis point increase was primarily due to the inclusion of Lane Bryant and Catherines, which have a higher BD&O expense as a percent of sales compared to the ascena legacy brands, as well as deleveraging relating to lower comparable store sales. The Company continues to anticipate the capture of certain integration-related efficiencies in its distribution structure over time.

Selling, general and administrative ("SG&A") expenses for the third quarter of Fiscal 2013 were $332.4 million, or 29.1% of sales, compared to $219.3 million, or 28.0% of third quarter sales last year. The 110 basis point increase is largely due to a duplicative overhead structure relating to the Charming Acquisition, which is also expected to be improved as integration work progresses.

Operating income for the third quarter of Fiscal 2013 was $65.8 million, or 5.8% of sales, compared to $85.3 million, or 10.9% of sales last year. On an adjusted basis, operating income for Fiscal 2013 was $72.7 million, or 6.4% of sales. The decrease in adjusted operating income as a percent of sales was primarily due, as described above, to increased promotion and markdown activity, increased BD&O expenses and duplicative overhead expenses from the Charming Acquisition.

Income from continuing operations for the third quarter of Fiscal 2013 was $32.9 million as compared to $49.4 million in the prior year's third quarter. Adjusted income from continuing operations for the third quarter of Fiscal 2013 was $42.2 million, as compared to $53.7 million in the prior year's third quarter.

Earnings from continuing operations for the third quarter of Fiscal 2013 were $0.20 per diluted share, compared to $0.31 in the third quarter of Fiscal 2012. Adjusted earnings per share from continuing operations for the third quarter of Fiscal 2013 was $0.26 per diluted share, compared to $0.34 in the third quarter of Fiscal 2012.

Fiscal Third Quarter Balance Sheet Highlights

The Company ended the third quarter of Fiscal 2013 with cash and investments of $206.1 million and total debt of $155.6 million, compared to $168.9 million of cash and investments and $326.6 million of debt at the end of Fiscal 2012. During the quarter, the Company expanded availability under its revolving credit facility to $500 million and used borrowings thereunder and available cash to prepay the remaining $279.3 million of the outstanding principal balance of its term loan.

Revised Fiscal Year 2013 Earnings Guidance

The Company has revised its guidance for adjusted earnings per diluted share from continuing operations for the fiscal year ending July 2013 to a range of $1.10 to $1.15. This guidance excludes any one-time, finance-related and acquisition-related integration, restructuring and purchase accounting costs that have been, and may continue to be, incurred during the fiscal year. The Company noted that its guidance is based upon various assumptions, including flat to up low single digits total comparable sales for the remainder of its Fiscal 2013 fourth quarter, and between 50 and 60 net new store openings during the Spring Season.

Conference Call Information

The Company will conduct a conference call today, June 5, 2013, at 4:30 PM Eastern Time to review its third quarter of Fiscal 2013 results, followed by a question and answer session. Parties interested in participating in this call should dial in at (617) 213-8052 prior to the start time, the passcode is 63258572. 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 July 5, 2013 by dialing (617) 801-6888, the passcode is 99693481.

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, under the Lane Bryant, Cacique, maurices, dressbarn and Catherines brands; and for tween girls and boys, under the Justice and Brothers 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.shopbrothers.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 28, 2012 and in its last filed Quarterly Report on Form 10-Q for the quarter ended January 26, 2013.

Non-GAAP Financial Results

Ascena's financial results for its fiscal third quarter and nine months ended April 27, 2013 reflect the Charming Acquisition. In connection with the Charming Acquisition, the Company has incurred certain acquisition-related, integration, restructuring and transaction costs, as well as certain losses on the extinguishment of debt, during Fiscal 2013 and Fiscal 2012. Management believes that all of such costs are not indicative of the Company's underlying operating performance. As such, adjusted results for the third quarter of Fiscal 2013 and Fiscal 2012, which exclude the effect of such costs, have been presented to supplement the reported results for each period. Reference should be made to Note 2 to the unaudited consolidated financial information included elsewhere in this release for a reconciliation of adjusted, non-GAAP financial measures to the most directly comparable GAAP financial measures.

 

Ascena Retail Group, Inc.

Consolidated Statements of Operations (Unaudited)

(millions, except per share data)

 
Third Quarter Ended
 

April 27,
2013

  

% of Net
Sales

  

April 28,
2012

  

% of Net
Sales

 
Net sales$1,142.2100.0%$783.3100.0%
Cost of goods sold(484.4)(42.4%)(323.4)(41.3%)
Gross margin657.857.6%459.958.7%
Other costs and expenses:
Buying, distribution and occupancy expenses(208.1)(18.2%)(129.7)(16.6%)
Selling, general and administrative expenses(332.4)(29.1%)(219.3)(28.0%)

Acquisition-related, integration and
restructuring costs

(6.9)(0.6%)----
Depreciation and amortization expense(44.6)(3.9%)(25.6)(3.3%)
Operating income65.8 5.8%85.3 10.9%
Interest expense(2.9)(0.3%)(0.2)--
Interest and other income, net0.1--0.80.1%
Acquisition-related, transaction costs----(6.8)(0.9%)
Loss on extinguishment of debt(7.9)(0.7%)-- --

Income from continuing operations before
income taxes

55.14.8%79.110.1%

Provision for income taxes from continuing
operations

(22.2)(1.9%)(29.7)(3.8%)
Income from continuing operations32.92.9%49.46.3%
Discontinued operations, net of taxes(1.7)(0.1%)-- --
Net income$31.2 2.7%$49.4 6.3%
 
Net income per common share - basic:
Continuing operations$0.21 $0.32 
Discontinued operations($0.01)-- 
Total net income per basic common share$0.20 $0.32 
 
Net income per common share - diluted:
Continuing operations$0.20 $0.31 
Discontinued operations($0.01)-- 
Total net income per diluted common share$0.19 $0.31 
 
Weighted average common shares outstanding:
Basic158.0 153.3 
Diluted163.3 159.9 

See accompanying notes.

 

Ascena Retail Group, Inc.

Consolidated Statements of Operations (Unaudited)

(millions, except per share data)

 
Nine Months Ended
 

April 27,
2013

  

% of Net
Sales

  

April 28,
2012

  

% of Net
Sales

 
Net sales$3,517.2100.0%$2,413.6100.0%
Cost of goods sold(1,540.7)(43.8%)(1,036.6)(42.9%)
Gross margin1,976.556.2%1,377.057.1%
Other costs and expenses:
Buying, distribution and occupancy expenses(613.0)(17.4%)(385.4)(16.0%)
Selling, general and administrative expenses(1,013.9)(28.8%)(654.6)(27.1%)

Acquisition-related, integration and
restructuring costs

(20.1)(0.6%)----
Depreciation and amortization expense(122.5)(3.5%)(75.2)(3.1%)
Operating income207.0 5.9%261.8 10.8%
Interest expense(12.5)(0.4%)(0.7)--
Interest and other income, net0.6--2.70.1%
Acquisition-related, transaction costs----(6.8)(0.3%)
Loss on extinguishment of debt(9.3)(0.3%)-- --

Income from continuing operations before
income taxes

185.85.3%257.010.6%

Provision for income taxes from continuing
operations

(68.9)(2.0%)(96.4)(4.0%)
Income from continuing operations116.93.3%160.66.7%
Discontinued operations, net of taxes4.6 0.1%-- --
Net income$121.5 3.5%$160.6 6.7%
 
Net income per common share - basic:
Continuing operations$0.74 $1.05 
Discontinued operations$0.03 -- 
Total net income per basic common share$0.77 $1.05 
 
Net income per common share - diluted:
Continuing operations$0.72 $1.01 
Discontinued operations$0.03 -- 
Total net income per diluted common share$0.75 $1.01 
 
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