Ascena Retail Group, Inc. Reports Second Quarter 2014 Results

  Ascena Retail Group, Inc. Reports Second Quarter 2014 Results

                    – GAAP EPS $0.19; Adjusted EPS $0.23 –
                       – Total Comparable Sales Flat –
             – Fiscal 2014 EPS Now Expected to Be $1.00 - $1.05 –

Business Wire

SUFFERN, N.Y. -- March 3, 2014

Ascena Retail Group, Inc. (NASDAQ – ASNA) (the “Company”) today reported
financial results for its fiscal second quarter ended January 25, 2014.

For the second quarter of Fiscal 2014, earnings from continuing operations
were $0.19 per diluted share. This compares to earnings from continuing
operations of $0.23 per diluted share in the same period of Fiscal 2013.
Adjusted earnings from continuing operations in the second quarter of Fiscal
2014 were $0.23 per diluted share, compared to $0.26 per diluted share in the
prior year’s second quarter. The decrease in diluted earnings per share was
primarily due to profit declines at Justice and increased operating expenses
from growth-related investments in new stores, merchandising/design resources
and e-commerce capability. Reference should be made to Note 2 in the
accompanying unaudited consolidated financial information for a discussion of
the use of “Non-GAAP Financial Measures.”

David Jaffe, President and Chief Executive Officer of Ascena Retail Group,
Inc., commented, “Second quarter net income was slightly above our revised
expectations, despite softer than expected sales in January driven primarily
by challenging weather that continued to negatively impact sales into early
March. However, in warmer regions sales have been in line with expectations.
We are implementing promotional strategies and receipt flow adjustments to
bring inventory balances back to targeted levels.”

Jaffe further commented, “We made very good progress on our longer range
strategic priorities during the quarter, including our synergy initiatives,
which will position the business for long term growth. We have completed
construction of our new national retail distribution center and are on track
to go live this spring at our new e-commerce fulfillment center.”

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 3,900 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.lanebryant.com, www.maurices.com, www.dressbarn.com,
www.catherines.com, www.cacique.com, www.shopjustice.com, and
www.shopbrothers.com.

Fiscal Second Quarter Results

Net sales for the second quarter of Fiscal 2014 increased 2% to $1.267
billion, compared to $1.238 billion in the second quarter of Fiscal 2013. This
growth was driven by new stores, with consolidated total comparable sales flat
vs. the second quarter last year. Consolidated comparable store sales were
down 3% for the period. Consolidated e-commerce sales increased by 28% to $149
million.

The Company’s comparable sales data for the fiscal second quarter is
summarized below:

ascena store comparable sales      (3%)                      
ascena e-commerce comparable        28%
sales
                                                   
                                    Total          Net Sales (millions)
                                    Comparable     January 25,     January 26,
                                    Sales          2014            2013
Justice                             (5%)           $434.0          $441.9
Lane Bryant                         8%             278.7           259.4
maurices                            (1%)           250.5           240.7
dressbarn                           Flat           224.8           221.4
Catherines                          10%            78.5            74.1
Total Company                       Flat           $1,266.5        $1,237.5
                                                                   

Gross margin for the second quarter of Fiscal 2014 increased to $688.3
million, or 54.3% of sales, compared to $662.1 million, or 53.5% of second
quarter sales last year. The gross margin rate increase was primarily due to
rate improvement across most brands and markdown timing, partially offset by
inventory-related markdown challenges at Justice.

Buying, distribution and occupancy (“BD&O”) costs for the second quarter of
Fiscal 2014 were $232.0 million, or 18.3% of sales, compared to $198.1
million, or 16.0% of second quarter sales last year. The increase is largely
related to store growth and investments in headcount to support future growth
and strategic initiatives. The Company continues to anticipate the capture of
certain integration-related efficiencies in its distribution structure over
time as it implements its centralized logistics and distribution strategy.

Selling, general and administrative (“SG&A”) expenses for the second quarter
of Fiscal 2014 were $354.6 million, or 28.0% of sales, compared to $348.6
million, or 28.2% of second quarter sales last year. The increase is largely
due to marketing and e-commerce spend, along with headcount increases to
support future growth.

Operating income for the second quarter of Fiscal 2014 was $49.0 million, or
3.9% of sales, compared to $68.3 million, or 5.5% of sales last year. On an
adjusted basis, operating income for the second quarter of Fiscal 2014 was
$59.0 million, or 4.7% of sales compared to $75.1 million, or 6.1% of sales
last year. Flow through on revenue growth and gross margin rate improvement
was offset by increased operating expenses and depreciation.

The effective tax rate for the second quarter of Fiscal 2014 was 30.9%, which
was lower than the Company’s expectations. Favorability was driven by our
revised full year earnings estimate, along with the impact of an increase in
permanent international investments. The effective tax rate was 39.3% in the
second quarter last year.

Income from continuing operations for the second quarter of Fiscal 2014 was
$32.4 million as compared to $37.8 million in the prior year’s second quarter.
On an adjusted basis, income from continuing operations for the second quarter
of Fiscal 2014 was $38.6 million, as compared to $42.9 million in the prior
year’s second quarter.

Fiscal Second Quarter Balance Sheet Highlights

The Company ended the second quarter of Fiscal 2014 with cash and investments
of $173.7 million and total debt of $131.6 million, compared to $189.4 million
of cash and investments and $135.6 million of debt at the end of Fiscal 2013.

Fiscal Year 2014 Earnings Guidance Revision

The Company is reducing its guidance for adjusted earnings per diluted share
from continuing operations for the fiscal year ending July 2014, and now sees
performance between $1.00 to $1.05. This guidance excludes any one-time,
acquisition-related integration and restructuring costs that may be incurred
during the fiscal year. The Company noted that its guidance is based upon the
following key assumptions:

  *Total comparable sales are expected to increase low single digits
  *The Company’s effective tax rate is expected to be 36%
  *Investment in capital expenditures in the range of $475 to $500 million
  *Net new store growth in the range of 50 to 70 units

Conference Call Information

The Company will conduct a conference call today, March 3, 2014, at 4:30 PM
Eastern Time to review its second quarter Fiscal 2014 results, followed by a
question and answer session. Parties interested in participating in this call
should dial in at (617) 399-5124 prior to the start time, the passcode is
60779538. 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 April 7, 2014 by dialing (617) 801-6888, the passcode
is 61852488.

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.

Non-GAAP Financial Results

Ascena’s financial results for its fiscal second quarter ended January 25,
2014 reflect certain acquisition-related integration and restructuring costs
in connection with the Charming Acquisition. Additionally, the Company also
incurred in Fiscal 2014 certain charges related to accelerated depreciation of
certain assets that will ultimately be displaced by the Company’s supply chain
and technology integration efforts. Management believes that all of such costs
are not indicative of the Company’s underlying operating performance. As such,
adjusted results for the second quarter of both Fiscal 2014 and Fiscal 2013,
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 of 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)
                            
                              Second Quarter Ended
                               January 25,  % of Net  January 26,  % of Net
                               2014          Sales      2013          Sales
Net sales                      $1,266.5      100.0 %    $1,237.5      100.0 %
Cost of goods sold             (578.2    )   (45.7 %)   (575.4    )   (46.5 %)
Gross margin                   688.3         54.3  %    662.1         53.5  %
Other costs and expenses:
Buying, distribution and       (232.0    )   (18.3 %)   (198.1    )   (16.0 %)
occupancy costs
Selling, general and           (354.6    )   (28.0 %)   (348.6    )   (28.2 %)
administrative expenses
Acquisition-related,
integration and                (6.9      )   (0.5  %)   (6.8      )   (0.5  %)
restructuring costs
Depreciation and               (45.8     )   (3.6  %)   (40.3     )   (3.3  %)
amortization expense
Operating income               49.0         3.9   %    68.3         5.5   %
Interest expense               (1.6      )   (0.1  %)   (4.8      )   (0.4  %)
Interest and other             (0.5      )   --         0.2           --
(expense) income, net
Loss on extinguishment of      --           --         (1.4      )   (0.1  %)
debt
Income from continuing
operations before provision    46.9          3.7   %    62.3          5.0   %
for income taxes
Provision for income taxes     (14.5     )   (1.1  %)   (24.5     )   (2.0  %)
from continuing operations
Income from continuing         32.4          2.6   %    37.8          3.1   %
operations
(Loss) income from
discontinued operations,       (0.5      )   --         9.4          0.8   %

net of taxes
Net income                     $31.9        2.5   %    $47.2        3.8   %
Net income per common share -
basic:
Continuing operations          $0.20                    $0.24
Discontinued operations        --                      $0.06     
Total net income per basic     $0.20                   $0.30     
common share
                                                                      
Net income per common share - diluted:
Continuing operations          $0.19                    $0.23
Discontinued operations        --                      $0.06     
Total net income per           $0.19                   $0.29     
diluted common share
                                                                      
Weighted average common shares
outstanding:
Basic                          160.9                   157.2     
Diluted                        164.9                   162.9     
                                                                      
See accompanying notes.
                                                                      

Ascena Retail Group, Inc.
Consolidated Statements of Operations (Unaudited)
(millions, except per share data)
                                                                   
                              Six Months Ended
                               January 25,  % of Net  January 26,   % of Net
                               2014          Sales      2013          Sales
Net sales                      $2,463.1      100.0 %    $2,375.0      100.0 %
Cost of goods sold             (1,064.8  )   (43.2 %)   (1,056.3  )   (44.5 %)
Gross margin                   1,398.3       56.8  %    1,318.7       55.5  %
Other costs and expenses:
Buying, distribution and       (451.3    )   (18.3 %)   (404.9    )   (17.0 %)
occupancy costs
Selling, general and           (707.8    )   (28.7 %)   (681.5    )   (28.7 %)
administrative expenses
Acquisition-related,
integration and                (12.2     )   (0.5  %)   (13.2     )   (0.6  %)
restructuring costs
Depreciation and               (92.4     )   (3.8  %)   (77.9     )   (3.3  %)
amortization expense
Operating income               134.6        5.5   %    141.2        5.9   %
Interest expense               (3.1      )   (0.1  %)   (9.6      )   (0.4  %)
Interest and other             (0.5      )   --         0.5           --
(expense) income, net
Loss on extinguishment of      --           --         (1.4      )   (0.1  %)
debt
Income from continuing
operations before provision    131.0         5.3   %    130.7         5.5   %
for income taxes
Provision for income taxes     (44.3     )   (1.8  %)   (46.7     )   (2.0  %)
from continuing operations
Income from continuing         86.7          3.5   %    84.0          3.5   %
operations
(Loss) income from
discontinued operations,       (2.2      )   (0.1  %)   6.3          0.3   %

net of taxes
Net income                     $84.5        3.4   %    $90.3        3.8   %
                                                                      
Net income per common share -
basic:
Continuing operations          $0.54                    $0.54
Discontinued operations        ($0.01    )              $0.04     
Total net income per basic     $0.53                   $0.58     
common share
                                                                      
Net income per common share - diluted:                  
Continuing operations          $0.52                    $0.52
Discontinued operations        ($0.01    )              $0.04     
Total net income per           $0.51                   $0.56     
diluted common share
                                                                      
Weighted average common shares
outstanding:
Basic                          160.0                   156.2     
Diluted                        164.9                   162.2     
                                                                      
See accompanying notes.
                                                                      

Ascena Retail Group, Inc.
Consolidated Balance Sheets (Unaudited)
(millions)
                                                             
                                                  January 25,     July 27,
                                                  2014            2013
ASSETS
                                                                  
Current assets:
Cash and cash equivalents                         $170.1          $186.4
Short-term investments                            3.6             3.0
Inventories                                       541.1           540.9
Assets related to discontinued operations         0.2             38.8
Deferred tax assets                               56.3            53.0
Prepaid expenses and other current assets         130.1           120.7
Total current assets                              901.4           942.8
Property and equipment, net                       975.7           824.8
Goodwill                                          581.4           581.4
Other intangible assets, net                      449.8           451.1
Other assets                                      74.9            71.6
Total assets                                      $2,983.2        $2,871.7
                                                                  
LIABILITIES AND EQUITY
                                                                  
Current liabilities:
Accounts payable                                  $228.4          $259.2
Accrued expenses and other current                317.6           301.4
liabilities
Deferred income                                   83.0            61.2
Liabilities related to discontinued               2.9             21.5
operations
Income taxes payable                              6.5             8.7
Current portion of long-term debt                 0.6             0.6
Total current liabilities                         639.0           652.6
Long-term debt                                    131.0           135.0
Lease-related liabilities                         242.5           242.9
Deferred income taxes                             141.8           131.7
Other non-current liabilities                     157.3           153.1
Total liabilities                                 1,311.6         1,315.3
Equity                                            1,671.6         1,556.4
Total liabilities and equity                      $2,983.2        $2,871.7
                                                                  
See accompanying notes.
                                                                  

Ascena Retail Group, Inc.
Segment Information (Unaudited)
(millions)
                                                 
                         Second Quarter Ended          Six Months Ended
                         January       January        January      January
                         25,            26,            25,            26,
                         2014           2013           2014           2013
Net sales:
Justice                  $434.0         $441.9         $806.5         $800.2
Lane Bryant              278.7          259.4          526.4          489.2
maurices                 250.5          240.7          492.6          465.3
dressbarn                224.8          221.4          482.0          473.4
Catherines               78.5          74.1          155.6         146.9    
Total net sales          $1,266.5      $1,237.5      $2,463.1      $2,375.0 
                                                       
                                                       
                         Second Quarter Ended          Six Months Ended
                         January        January        January        January
                         25,            26,            25,            26,
                         2014           2013           2014           2013
Operating income
(loss):
Justice                  $48.2          $91.0          $100.1         $147.3
Lane Bryant              (3.2     )     (15.5    )     (7.3     )     (32.5    )
maurices                 23.7           27.7           51.8           57.3
dressbarn                (14.3    )     (25.2    )     (5.2     )     (16.2    )
Catherines               1.5           (2.9     )     7.4           (1.5     )
Subtotal                 55.9           75.1           146.8          154.4
Less unallocated
acquisition-related,
integration and          (6.9     )     (6.8     )     (12.2    )     (13.2    )
restructuring costs
Total operating          $49.0         $68.3         $134.6        $141.2   
income
                                                                      
See accompanying notes.
                                                                      

Ascena Retail Group, Inc.
Notes to Consolidated Financial Information (Unaudited)

Note 1. Basis of Presentation

Discontinued Operations

Contemporaneously with the June 2012 acquisition of Charming Shoppes, Inc.
(the “Charming Acquisition”), the Company announced its intent to cease
operating the acquired Fashion Bug business and its intent to sell the
acquired Figi’s business. The Fashion Bug business ceased operations in
February 2013 and the Company closed on the sale of the net assets of the
Figi’s business in October 2013.

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 2014 and Fiscal 2013.

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 2014
and Fiscal 2013 financial measures in this press release that reflect certain
acquisition-related integration and restructuring costs in connection with the
Charming Acquisition. Additionally, the Company also incurred certain charges
for the accelerated depreciation of certain assets that will ultimately be
displaced by the Company’s supply chain and technology integration efforts.
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 certain costs.
All information below is presented for the Company’s continuing operations.

(in millions, except per       Second Quarter
share amounts)
                                 FY 2014
                                 Income                       Diluted
                                                                    net
                                 before                             income per
                                 income     Income       Net        common
                                 taxes    taxes      income   share
Reported basis – continuing      $46.9      $(14.5 )     $32.4      $0.19
operations
Adjustments:
Acquisition-related
integration and                  6.9        (2.6   )     4.3        0.03
restructuring costs
Accelerated depreciation         3.1      (1.2   )   1.9      0.01
related to integration
Adjusted basis – continuing      $56.9    $(18.3 )   $38.6    $0.23
operations
                                 
                                 
                                Second Quarter
                                 FY 2013
                                 Income                             Diluted
                                                                    net
                                 before                             income per
                                 income     Income       Net        common
                                 taxes    taxes      income   share
Reported basis – continuing      $62.3      $(24.5 )     $37.8      $0.23
operations
Adjustments:
Acquisition-related
integration and                  6.8        (2.6   )     4.2        0.03
restructuring costs
Loss on extinguishment of        1.4      (0.5   )   0.9      --
debt
Adjusted basis – continuing      $70.5    $27.6     $42.9    $0.26
operations
                                 
                                 
                                 Second Quarter
Operating Income:
(in millions)                    FY 2014              FY 2013
Reported basis – continuing      $49.0                   $68.3
operations
Adjustments:
Acquisition-related
integration and                  6.9                     6.8
restructuring costs
Accelerated depreciation         3.1                  --
related to integration
Adjusted basis – continuing      $59.0                $75.1
operations

Contact:

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