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Ascena Cuts FY15 View on Expectations of Weak Brand Sales - Analyst Blog

Zacks Equity Research
Updated

Following its decision to speed up product make over at the Justice brand coupled with lower-than-expected sales at both Justice and dressbarn brands, Ascena Retail Group Inc. ASNA slashed its earnings guidance for fiscal 2015.

Ascena now envisions fiscal 2015 earnings to range from 57–60 cents per share, as against 70-75 cents projected earlier.  Moreover, it expects adjusted EBITDA for fiscal 2015 to come in the range of $365–$375 million.

Additionally, this Zacks Rank #3 (Hold) company disclosed that it expects to incur a non-cash, pre-tax goodwill and intangible asset impairment charge of $275 million to $325 million in the fourth quarter, associated with its Lane Bryant brand. Moreover, a pre-tax charge of roughly $50 million is estimated to be incurred for the creation of a reserve meant to settle a previously announced judicial dispute for its Justice brand.

Ascena’s Justice brand has been delivering disappointing results for quite some time as evident from the weak top line performance at the brand. In third-quarter fiscal 2015, the company’s Justice stores reported comps decline of 12%. Though the troubles at Justice are expected to continue, management is in the process of reviving its business via better product, pricing, and marketing initiatives.

With these efforts on track, management expects to successfully turn around its Justice brand in fiscal 2016, resulting in a strong and sustained growth at its stores. Moreover, the company has been trying to improve the performance of its dressbarn brand by boosting marketing initiatives to counter the ongoing challenges faced by the brand.  

Although all the above mentioned strategies will take time to materialize, management remains confident that the company will achieve strong growth over the long-term and boost shareholder value.

Some better-ranked stocks in the retail space include Express Inc. EXPR, American Eagle Outfitters, Inc. AEO and Citi Trends Inc. CTRN. While Express Inc. sports a Zacks Rank #1 (Strong Buy), American Eagle and Citi Trends carry a Zacks Rank #2 (Buy).

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AMER EAGLE OUTF (AEO): Free Stock Analysis Report
 
CITI TRENDS INC (CTRN): Free Stock Analysis Report
 
EXPRESS INC (EXPR): Free Stock Analysis Report
 
ASCENA RETAIL (ASNA): Free Stock Analysis Report
 
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