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Ascena Retail Group, Inc. Reports Third Quarter 2013 Results

  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 –

Business Wire

SUFFERN, N.Y. -- June 5, 2013

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   April 27,   April 28,
                              Store        2013       2012
                              Sales*
Justice                       (4%)         $298.0      $287.8
Lane Bryant*                  (6%)         267.2       --
maurices                      (3%)         235.7       223.9
dressbarn                     (7%)         257.3       271.6
Catherines*                   8%           84.0        --
Total Company                 (4%)         $1,142.2    $783.3
E-commerce comparable sales   37%
                                                       
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. (NASDAQ: 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,     % of        April 28,     % of
                            2013        Net       2012        Net    
                                           Sales                     Sales
Net sales                    $1,142.2      100.0  %    $783.3        100.0  %
Cost of goods sold           (484.4    )   (42.4  %)   (323.4    )   (41.3  %)
Gross margin                 657.8         57.6   %    459.9         58.7   %
Other costs and expenses:
Buying, distribution and     (208.1    )   (18.2  %)   (129.7    )   (16.6  %)
occupancy expenses
Selling, general and         (332.4    )   (29.1  %)   (219.3    )   (28.0  %)
administrative expenses
Acquisition-related,
integration and              (6.9      )   (0.6   %)   --            --
restructuring costs
Depreciation and             (44.6     )   (3.9   %)   (25.6     )   (3.3   %)
amortization expense
Operating income             65.8         5.8    %    85.3         10.9   %
Interest expense             (2.9      )   (0.3   %)   (0.2      )   --
Interest and other income,   0.1           --          0.8           0.1    %
net
Acquisition-related,         --            --          (6.8      )   (0.9   %)
transaction costs
Loss on extinguishment of    (7.9      )   (0.7   %)   --           --
debt
Income from continuing
operations before            55.1          4.8    %    79.1          10.1   %
income taxes
Provision for income taxes
from continuing              (22.2     )   (1.9   %)   (29.7     )   (3.8   %)
operations
Income from continuing       32.9          2.9    %    49.4          6.3    %
operations
Discontinued operations,     (1.7      )   (0.1   %)   --           --
net of taxes
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   $0.20                    $0.32     
common share
                                                                            
Net income per common
share - diluted:
Continuing operations        $0.20                    $0.31     
Discontinued operations      ($0.01    )               --        
Total net income per         $0.19                    $0.31     
diluted common share
                                                                            
Weighted average common
shares outstanding:
Basic                        158.0                    153.3     
Diluted                      163.3                    159.9     

See accompanying notes.

                                                                   
Ascena Retail Group, Inc.

Consolidated Statements of Operations (Unaudited)

(millions, except per share data)
                                                                   
                           Nine Months Ended
                             April 27,     % of        April 28,     % of
                            2013        Net       2012        Net    
                                           Sales                     Sales
Net sales                    $3,517.2      100.0  %    $2,413.6      100.0  %
Cost of goods sold           (1,540.7  )   (43.8  %)   (1,036.6  )   (42.9  %)
Gross margin                 1,976.5       56.2   %    1,377.0       57.1   %
Other costs and expenses:
Buying, distribution and     (613.0    )   (17.4  %)   (385.4    )   (16.0  %)
occupancy expenses
Selling, general and         (1,013.9  )   (28.8  %)   (654.6    )   (27.1  %)
administrative expenses
Acquisition-related,
integration and              (20.1     )   (0.6   %)   --            --
restructuring costs
Depreciation and             (122.5    )   (3.5   %)   (75.2     )   (3.1   %)
amortization expense
Operating income             207.0        5.9    %    261.8        10.8   %
Interest expense             (12.5     )   (0.4   %)   (0.7      )   --
Interest and other income,   0.6           --          2.7           0.1    %
net
Acquisition-related,         --            --          (6.8      )   (0.3   %)
transaction costs
Loss on extinguishment of    (9.3      )   (0.3   %)   --           --
debt
Income from continuing
operations before            185.8         5.3    %    257.0         10.6   %
income taxes
Provision for income taxes
from continuing              (68.9     )   (2.0   %)   (96.4     )   (4.0   %)
operations
Income from continuing       116.9         3.3    %    160.6         6.7    %
operations
Discontinued operations,     4.6          0.1    %    --           --
net of taxes
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   $0.77                    $1.05     
common share
                                                                            
Net income per common
share - diluted:
Continuing operations        $0.72                    $1.01     
Discontinued operations      $0.03                    --        
Total net income per         $0.75                    $1.01     
diluted common share
                                                                            
Weighted average common
shares outstanding:
Basic                        156.9                    153.3     
Diluted                      162.8                    159.1     

See accompanying notes.


Ascena Retail Group, Inc.

Consolidated Balance Sheets (Unaudited)

(millions)

                                            April 27,    July 28,
                                              2013            2012
ASSETS
Current assets:
Cash and cash equivalents                     $202.9          $164.3
Short-term investments                        3.2             1.4
Inventories                                   538.1           533.4
Assets related to discontinued operations     43.1            133.6
Deferred tax assets                           49.6            48.7
Prepaid expenses and other current assets     163.5           158.8
Total current assets                          1,000.4         1,040.2
Non-current investments                       --              3.2
Property and equipment, net                   730.2           674.2
Goodwill                                      576.2           593.2
Other intangible assets, net                  451.7           453.7
Other assets                                  37.0            42.6
TOTAL ASSETS                                  $2,795.5        $2,807.1
                                                              
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable                              $259.2          $252.8
Accrued expenses and other current            258.6           261.2
liabilities
Deferred income                               61.4            42.7
Liabilities related to discontinued           17.1            118.6
operations
Income taxes payable                          7.5             6.1
Current portion of long-term debt             --              4.2
Total current liabilities                     603.8           685.6
                                                              
Long-term debt                                155.6           322.4
Lease-related liabilities                     241.9           240.5
Deferred income taxes                         124.2           60.6
Other non-current liabilities                 154.6           157.1
Total liabilities                             1,280.1         1,466.2
Equity                                        1,515.4         1,340.9
TOTAL LIABILITIES AND EQUITY                  $2,795.5        $2,807.1

See accompanying notes.


Ascena Retail Group, Inc.

Segment Information (Unaudited)

(millions)

                             Third Quarter Ended     Nine Months Ended
                               April 27,   April 28,   April 27,   April 28,
                               2013         2012        2013         2012
Net sales:
Justice                        $298.0       $287.8      $1,098.2     $1,015.0
Lane Bryant                    267.2        --          756.4        --
maurices                       235.7        223.9       701.0        651.4
dressbarn                      257.3        271.6       730.7        747.2
Catherines                     84.0        --          230.9       --
Total net sales                $1,142.2    $783.3      $3,517.2    $2,413.6
                                                                     
                                                                     
                               Third Quarter Ended      Nine Months Ended
                               April 27,    April 28,   April 27,    April 28,
                               2013         2012        2013         2012
Operating income (loss):
Justice                        $20.8        $23.4       $168.1       $148.2
Lane Bryant                    4.8          --          (27.7    )   --
maurices                       35.0         37.9        92.3         88.0
dressbarn                      6.5          24.0        (9.7     )   25.6
Catherines                     5.6         --          4.1         --
Subtotal                       72.7         85.3        227.1        261.8
Less unallocated
acquisition-related,           (6.9     )   --          (20.1    )   --
integration and
restructuring costs
Total operating income         $65.8       $85.3       $207.0      $261.8

See accompanying notes.

Ascena Retail Group, Inc.

Notes to Consolidated Financial Information (Unaudited)

Note 1. Basis of Presentation

Discontinued Operations

In connection with the Charming Acquisition, certain acquired businesses have
been classified as a component of discontinued operations within the
consolidated financial statements.

In particular, the Company announced, contemporaneously with the closing of
the acquisition of Charming Shoppes, its intent to cease operating the
acquired Fashion Bug business. The Fashion Bug business, consisting of
approximately 600 retail stores, ceased operations at the end of the second
quarter of Fiscal 2013.

In addition, the Company also announced, contemporaneously with the closing of
the acquisition of Charming Shoppes, its intent to sell the acquired Figi’s
business. The Figi’s business, which markets food and specialty gift products,
is expected to be sold around the one-year anniversary date of the closing of
the acquisition of Charming Shoppes.

Those businesses have been classified as discontinued operations within the
unaudited consolidated financial statements. As such, assets and liabilities
relating to discontinued operations have been segregated and separately
disclosed in the balance sheet as of the end of each period. In turn,
operating results for those businesses have also been segregated and reported
separately in the statement of operations for Fiscal 2013.

Buying, Distribution and Occupancy Costs Reclassification

Historically, the Company included buying, distribution and occupancy costs
within cost of goods sold on the face of its statements of operations.
However, in the fourth quarter of Fiscal 2012, in connection with conforming
the financial presentation of Charming Shoppes, the Company decided to present
each of the aggregate of buying, distribution and occupancy costs and gross
margin separately on the face of its statements of operations. In addition,
certain costs, such as store utility costs, were reclassified from selling,
general and administrative expenses to buying, distribution and occupancy
costs. Financial information for all prior periods has been reclassified in
order to conform to the current period’s presentation. There have been no
changes in historical operating income or historical net income for any period
as a result of these changes.

Other Reclassifications

Certain other immaterial reclassifications also have been made to the prior
period’s financial information in order to conform to the current period’s
presentation.

Note 2. Use of Non-GAAP Financial Measures

To provide investors information to assist them in assessing the Company’s
ongoing operations on a comparable basis, the Company has provided Fiscal 2013
and Fiscal 2012 financial measures in this press release that exclude the
effects of certain acquisition-related, integration, restructuring and
transaction costs resulting from the Charming Acquisition, as well as certain
losses on the extinguishment of debt. Management believes that all of such
costs are not indicative of the Company’s underlying operating performance.
Throughout this release, the term “reported” refers to information prepared in
accordance with accounting principles generally accepted in the United States
(GAAP), while the term “adjusted” refers to non-GAAP financial information
adjusted to exclude such costs. All information below is presented for the
Company’s continuing operations.


(in millions, except per share amounts)  Third Quarter
                                          FY 2013
                                                                      Diluted
                                          Income                    net
                                          before                   income
                                          income    Income   Net      per
                                          taxes     taxes    income   common
                                                                      share
Reported basis – continuing operations    $55.1     $22.2    $32.9    $0.20
Adjustments:
Acquisition-related integration and       6.9       2.6      4.3      0.03
restructuring costs
Loss on extinguishment of debt            7.9       2.9      5.0      0.03
Adjusted basis – continuing operations    $69.9     $27.7    $42.2    $0.26
                                                                      
                                                                      
(in millions, except per share amounts)   Third Quarter
                                          FY 2012
                                                                      Diluted
                                          Income                    net
                                          before                      income
                                          income    Income   Net      per
                                          taxes     taxes    income   common
                                                                      share
Reported basis – continuing operations    $79.1     $29.7    $49.4    $0.31
Adjustments:
Acquisition-related transaction costs     6.8       2.5      4.3      0.03
Adjusted basis – continuing operations    $85.9     $32.2    $53.7    $0.34
                                                                      
Operating income:
(in millions)                             Third
                                          Quarter
                                          FY 2013
Reported basis                            $65.8
Adjustments:
Acquisition-related integration
and restructuring costs                   6.9
Adjusted basis                            $72.7
                                                                      

Contact:

Ascena Retail Group, Inc.
Investor Relations
(845) 369-4600
or
ICR, Inc.
James Palczynski
Senior Managing Director
(203) 682-8229
jp@icrinc.com
 
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