Ann Taylor, maurices, and Justice owner Ascena Retail Group (ASNA 2.30, -0.12, -5.2%) trades modestly lower in reaction to a worse than expected Q2 loss and a tepid Q3 outlook.
In Q2, ASNA reported a worse than expected loss of $0.12 per share as revenues fell about 1.7% compared to last year to about $1.72 billion. The lone positive comparable sales result for ASNA came out of the Kids Fashion segment where Justice saw comps up 7% in Q2. Elsewhere, Ann Taylor, LOFT, dressbarn, Catherines and maurices saw comps dip 8%, 1%, 12%, 5%, and 5%, respectively.
Management noted an improvement in its top-line trend were offset by margin rate pressure primarily related to the final clearance of non-performing product categories at the company’s Value Fashion and Premium Fashion segments that carried over from the first quarter.
The company’s net sales decline was primarily attributable to a 2% comparable sales decline that resulted primarily from merchandise strategy challenges and store traffic declines at our Value Fashion segment, and assortment misses at its Premium Fashion segment, and partially offset by high single digit comparative sales growth at its Kids Fashion segment. Net sales for Q2 included about $25 million associated with an extra week.
Gross margins were down to $929 million, or 54.0% of sales, for Q2 compared to $946 million, or 54.1% of sales in the year-ago period. Gross margin rate was down 10 basis points as improved performance at both their Plus Fashion and Kids Fashion segments but was more than offset by declines at the Premium Fashion and Value Fashion segments.
In terms of the outlook, ASNA sees net sales in the range of $1.48-1.52 billion on comps of down 3% to down 5%. The company expects a non-GAAP loss per share between ($0.12)-($0.07) for Q3. Gross margin rate expectations for Q3 are 59.7-60.2% on operating income between $5-20 million.
All told, ASNA stated it remains on track to achieve $300 million in cost savings by July 2019, and the company is confident it will take this number higher. The company also noted it is beginning to see traction with top line performance at the brands which are farthest along with their customer and product work, specifically Justice and Lane Bryant.