- Ascena's net sales fell 3% year over year to about $1.3 billion in its first quarter, ending Nov. 2, according to a company release. Comparable sales were flat, but with Dressbarn's liquidation sales excluded comps fell 2%.
- By banner, comps were down 1% at Ann Taylor, down 2% at Loft, down 6% at Justice, down 5% at Catherines and up 2% at Lane Bryant. Going-out-of-business sales gave Dressbarn's comps a 10% lift.
- The apparel retailer posted strong improvement in profit, with operating income — at $40.2 million — nearly 33 times higher than in the year-ago period. Net income increased 437% to $31.7 million. Profits handily beat consensus estimates, giving Ascena's stock a 35% bump by Tuesday, according to Seeking Alpha.
Even as Ascena's gross margin fell by 30 basis points — due mainly to discounting in its premium and kids units — the retailer was able to slash enough costs from its business to build a major profit boost.
In another positive sign, Ascena pushed margins up in its plus-size banners Lane Bryan and Catherines, through lower markdowns, higher pricing and a higher mix of full-price sales.
Inventory was down 5% in the quarter, which can be a step along the path of reduced discounting. "Inventory content was fresh and more relevant heading into holiday," CEO Gary Muto told analysts on a conference call Monday, according to a Seeking Alpha transcript. "While we are seeing wins in our business, there is still much work to be done as we execute our strategic initiatives to drive improved performance across our business."
Along with assortment changes, Ascena is also shifting its marketing messaging to focus on brand stories and products rather than store promotions, Muto said. But he added that "we will continue to be responsive to the broader promotional environment to protect our market share."
Although the company made major progress in rebuilding its profits, it is still losing sales, including in brands such as Loft and Justice that have performed well historically and had previously insulated the retailer from deterioration elsewhere in its portfolio.
In a sign of market concern, S&P analysts in November downgraded Ascena's issuer rating to CCC as the retailer "continues to post weak results and faces increasingly intense industry difficulties." The credit analysts saw a relatively high likelihood that Ascena would enter into a distressed deal on its debt given the company's "unsustainable" capital structure.
As it tries to stabilize its finances, Ascena has wound down Dressbarn's operations and sold off its intellectual property, and sold its majority stake in discounter Maurices. The conglomerate has also reportedly considered the sale of its plus brands, Lane Bryant and Catherines.