Ascena Retail Group on Monday reported that third quarter net sales edged down to $1.266 billion from $1.267 billion in the year-ago period, with comparable sales flat year over year, according to a company press release.
By brand in the quarter: Comps at the company's premium brands (Ann Taylor and Loft) rose 5% as net sales rose to $549.5 million from $532.7 million a year ago. At plus banners Lane Bryant and Catherines, comps fell 3% as net sales fell to $311.5 million from $312.8 million in the year-ago period. At kids' banner Justice comps fell 5% as net sales fell to $227.4 million from $233.8 million a year ago. At Dressbarn, which is to be folded, comps fell 4% as net sales fell to $177.3 million from $187.4 million last year.
Gross margin in the quarter declined to $722 million, or 57.1% of sales, compared to $753 million, or 59.5% of sales in the year-ago period, mostly due to higher promotions to address high inventory levels and soft pre-Easter selling at the premium and kids segments, plus clearance of under-performing tops at Lane Bryant. Net loss widened to $238 million from the year-ago quarter's $40 million net loss.
In a couple of dramatic moves in recent months, Ascena unloaded its worst-performing discount banners, selling off Maurices and shuttering Dressbarn, but the company remains challenged.
Speaking to analysts Monday, interim board chairperson Carrie Teffner said its work is ongoing, but wouldn't say if other banners might also be put up for sale or shut down.
"The process has been exhaustive and objective and it continues. Our focus has been and will be on creating value for our investors while at the same time being cognizant and respectful of the needs of our other stakeholders including our employees, suppliers, landlords and of course our customers," she said, according to a Seeking Alpha transcript, saying later, "our portfolio review is ongoing and as we have more to say on that, we will share that with you."
The group is embarking on a new try at a turnaround with a new chief at the helm, Gary Muto, who previously had served as president and chief executive officer of Ascena Brands, and he stressed that the company's Ann Taylor and Loft are iconic brands with more potential. But much of their work, aside from unloading the brands with the most struggles, is dedicated to trimming expenses. Selling, general, and administrative expenses for the third quarter rose 12% to $476 million, or 37.6% of sales, from $426 million, or 33.7% of sales in the year-ago period. The company said that the increase was primarily due to inflationary increases, marketing investments, higher professional fees and write-offs of store-related fixed assets at its plus and value segments. That work is complicated, yet aided, by Ascena's recently reduced platform, according to Teffner.
"[W]e are focused on addressing the company's overall cost structure. There has been significant work done with change for growth initiatives that began in 2016, but that initiative was executed against the backdrop of building a plug and play platform to support a portfolio of business that was intended to be much larger than Ascena is now," Teffner said. "Today, Ascena is a business with fewer stronger brands that has the potential to deliver better than industry level growth and profitability and it is through this radically different lens that we will drive additional cost rationalization efforts to right size the corporate overhead structure to support a stronger, focused, more profitable business."
The company on Monday said it expects fourth quarter net sales to land between $1.175 billion and $1.215 billion; comparable sales to drop between 3% to 5%; a gross margin rate of 55% to 55.5%; and operating income of between a loss of $15 million to a gain of $5 million.
"While Ascena's new cost reduction program is a positive, the company needs to address its continued product and inventory missteps in order to demonstrate the value of its core remaining business after the exit of the Value segment," Raya Sokolyanska, Moody's Investor Service vice president and senior analyst, said in comments emailed to Retail Dive. "In the meantime, the 4Q guidance points to another quarter of significant declines as Ascena addresses inventory build-up."