Ascena Retail Group stock dips on weak Q4 revenue forecast

Ascena Retail Group (NASDAQ: ASNA) reported a wider loss in the third quarter of 2019 hurt by non-cash impairment charges related to write-downs of goodwill, other intangible assets, and store-related fixed assets. The macro headwinds, which impacted the Apparel sector, have created a challenging selling environment for the company. The top line missed consensus estimates, and the women’s clothing retailer guided fourth-quarter revenue below the Street’s view.

Net loss was $238 million or $1.20 per share, wider than a loss of $40 million or $0.20 per share in the previous year quarter. The non-GAAP loss widened to $0.26 per share from $0.08 per share a year ago.

Net sales inched down by 0.1% year-over-year to $1.27 billion, with flat comparable sales for the quarter. The non-comparable sales were also flat, with the favorable timing impact resulting from the 53rd week in the prior fiscal year offset by fewer stores as a result of the company’s ongoing fleet optimization program.

Looking ahead into the fourth quarter, the company expects net sales in the range of $1.175 billion to $1.215 billion and comparable sales in the range of down 5% to down 3%. Gross margin is predicted to be 55% to 55.5%. Operating results are anticipated to be between a loss of $15 million and a profit of $5 million.

Due to volatility that the company expects in total consolidated results related to the ongoing wind-down of its dressbarn brand, Ascena provided net sales, gross margin and operating income guidance for the consolidated continuing operations of its Premium Fashion, Plus Fashion, and Kids Fashion segments.

With the successfully completed divestiture of maurices and the announced wind down of dressbarn brand, the company has essentially exited its Value Fashion segment, which has consistently underperformed expectations and generated substantial losses over the last two years. Ascena is focused on right-sizing its corporate overhead structure to support a business with fewer, stronger brands that can deliver growth and profitability levels above the industry average.

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Ascena continues to drive meaningful structural cost reduction despite working to accelerate top-line growth from a more focused brand portfolio. Beyond the $300 million savings from Change for Growth program, the company has identified an incremental $150 million opportunity. Ascena expects the majority of these incremental savings to be realized in fiscal 2020 and continues to seek further cost reduction opportunities on an ongoing basis.

For the third quarter, the gross margin fell to 57.1% from 59.5% in the prior-year quarter. The decline was primarily caused by the higher promotional activity to address elevated inventory levels and soft pre-Easter selling at its Premium Fashion and Kids Fashion segments, and clearance of the under-performing tops assortment at Lane Bryant.

At the end of third-quarter, the company had 3,519 store locations, down from 3,543 stores at the beginning of the quarter. This excludes store count related to maurices, which was sold early in the fourth quarter of fiscal 2019. The maurices segment ended the third quarter with 937 stores.

Shares of Ascena Retail Group ended Monday’s regular session down 2.80% at $1.04 on the Nasdaq. Following the earnings release, the stock inched down over 8% in the after-market session.

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