Dive Brief:
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Ascena Retail Group's shares rallied late Monday after the retail company, which runs Ann Taylor, LOFT, Dress Barn and other store brands, reported an unanticipated fourth quarter profit and better-than-expected sales. The Company reported a GAAP loss of 8 cents per diluted share compared to GAAP earnings of 7 cents per diluted share in the year-ago period, primarily driven by a same-store sales decline of 4%, costs associated with its turnaround efforts, and the extra week in the year-ago period, according to a company press release. Non-GAAP adjusted earnings were 5 cents per diluted share compared to 8 cents per diluted share in the year-ago period, the company said.
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Q4 net sales were $1.658 billion compared to $1.812 billion in the year-ago period, and the same-store sales decline was partially offset by "double-digit transaction growth" in the direct channel, the company said. FactSet analysts cited by MarketWatch had expected an adjusted loss of 3 cents per share on sales of $1.57 billion and a decline of more than 8% for same-store sales.
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For the full fiscal 2017 year, the company reported a GAAP loss of $5.48 per diluted share, (compared to 6 cents last year) which included a non-cash pre-tax impairment charge of $1.324 billion (after tax impact of $5.22 per diluted share) recorded in the third quarter, to write-down a portion of its goodwill and other intangible assets. Also contributing to the loss was a same-store sales decline of 5%, costs associated with its turnaround effort, and ongoing acquisition and integration costs related to 2015's acquisition of Ann Inc. Non-GAAP adjusted earnings for the year were 22 cents per diluted share compared to non-GAAP adjusted earnings of 60 cents per diluted share last year.
Dive Insight:
Ascena's fourth quarter performance bested not just analysts’ expectations, but also its own.
"Our fourth quarter adjusted earnings per share of five cents came in well above our guidance range, reflecting a modest easing of store traffic headwinds," CEO David Jaffe said in a statement, although he also warned that conditions "remain challenging" and that the company isn’t satisfied with its same-store sales despite the improvement. "[S]tore traffic was down mid-single digits for the quarter and we are planning for this trend to continue for the foreseeable future," he said. "We will not be satisfied until we deliver positive, sustained enterprise-level comp sales."
Jaffe attributed the improved results in part to changes in leadership, including consolidating teams under Gary Muto, who joined the company last month as president and CEO of Ascena Brands, a newly created position. The company is also investing in planning, marketing and cost-cutting, which Jaffe said is paying off.
Ascena is trying to become leaner and more focused. The restructuring initiative it launched last year, dubbed "Change for Growth," looks to focus company resources on key customer segments, improve its time to market, reduce working capital and boost the company’s omnichannel capabilities. The efforts came amid sales declines across many of its brands and warnings that traffic at its stores could continue to slow.
To try to boost growth, Ascena has stepped up its efforts online and in omnichannel — a particular challenge for apparel retailers, which are more dependent on the "touch and feel" experience for shoppers, but an effort that Jaffe has said is necessary considering the obvious influence of e-commerce. Amid weak sales, the company is also tackling its bottom line through the restructuring effort. That includes a 25% reduction in its store footprint that Ascena announced in January, as well as reductions in merchandising procurement spending and attempts to fix front and backlog dysfunctions. Part of that also included layoffs this summer of around 200 employees.
