of retailer Ascena Retail Group (ASNA 3.52, +0.79, +28.9%)
recouped the entirety of Monday's losses, and then some, after last night’s
better than expected first quarter results. Ascena Retail Group is owner of
such brands as Ann Taylor, maurices, dressbarn, Lane Bryant, and Justice,
In the first quarter Ascena announced better than expected earnings and sales while comps came in well ahead of market views. Specifically, Ascena reported first quarter earnings per share (EPS) of $0.06, down from $0.11 a year ago. This was due in part to the unfavorable impact of a 53rd week and the company’s new revenue recognition standard.
Net sales for the quarter were mostly flat on a yr/yr basis at $1.59 bln. The company’s 3% increase in comparable sales was offset by lower non-comparable sales and the adoption of the company’s new revenue recognition accounting standard. The decrease in non-comparable sales was caused by the unfavorable impact of the 53rd week in the company's prior fiscal year and fewer stores as a result of the company's ongoing fleet optimization program.
Comps were best in Ascena’s Premium Fashion brands where Ann Taylor and LOFT saw Q1 comps of +7% and +9%, respectively. Value Fashion didn’t fare as well as maurices and dressbarn which turned in Q1 comps of -3% and -4%, respectively. Plus Fashion was equally soft as Lane Bryant and Catherines saw -2% and -3% comps, respectively. In Kids Fashion the company’s Justice brand saw a +12% comp on sales growth of about 2.7%.
Gross margins were down 130 basis points to 59.4%, caused mostly by higher shipping costs related to increased direct channel penetration, greater markdown requirements at the company’s Plus Fashion and Value Fashion segments, along with the unfavorable impact of the 53rd week shift and product mix on merchandise margin rate at Ascena’s Kids Fashion segment. These factors were partially offset by significant merchandise margin rate improvement at the company’s Premium Fashion segment resulting from strong product acceptance.
First quarter inventory was up 11% to $830 mln, supporting the company’s positive forward comp growth expectations, and reflecting a change in receipt timing compared to the prior year, along with a $14 mln gross-up related to adoption of the new revenue recognition accounting standard.
Earnings guidance came in below market expectations for the second quarter. Specifically, Ascena sees a second quarter loss per share of ($0.25)-($0.15). Net sales guidance was mostly in-line at $1.675-1.705 bln on comps of +2% to +4%. Gross margins for the quarter are expected between 54.2% and 54.8%. Looking forward management highlighted on the conference call that second quarter-to-date comp sales are tracking up 4%. Specific to the Black Friday, Cyber Monday peak, as measured over the 11-day period leading the Cyber Monday, enterprise comp sales and margin were both up 7%, driven by significant continuing strength in Ascena’s Premium segment.
The fiscal 2019 full year was unchanged from prior guidance. Ascena still sees non-GAAP EPS of $0.00 to $0.10, supported by low single digit comp growth, with underlying assumptions consistent with its previous guidance issued on September 24, 2018.
This morning the stock broke through resistance in the 200-day simple moving average (3.46), recovering from yesterday’s 9.3% losses. The better than expected Q1 performance overshadows the slightly worse than expected bottom-line guide for next quarter as investors appear to have confidence in management’s rhetoric that the second half will offset first half weakness.
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