- An Ascena shareholder has filed a class action suit against the apparel retailer alleging that the company and top executives misled investors about troubles in its Ann Inc. unit after acquiring the brand in 2015. The company has not filed a response to the suit, and a spokesperson did not immediately reply to a request for comment.
- The complaint alleges that by September 16, 2015 — less than a month after the deal (which included the Ann Taylor and Loft brands) closed — the acquisition "was a complete disaster for the Company as Ann's operations were in far worse condition than represented to the public."
- The suit further alleges that the defendants, which include former CEO David Jaffe and CFO Robert Giammatteo, delayed until spring 2017 a $1 billion write-down of Ann's brand value "to mask the true condition of Ann." Prior to the charge, management had told investors the integration was going well, according to analyst calls and statements cited in the complaint.
Ascena's acquisition of Ann Taylor and Loft was seen by many analysts as adding to the retailer's troubles. In 2017, a Bloomberg columnist noted of the write-down on Ann that it made the company's entire market value look "puny" by comparison and indicated "complications have come in relatively short order" since the deal was finalized.
According to the lawsuit complaint, Ascena's stock fell 26% after initially announcing it would need to take a then-unspecified impairment charge on the write-down of Ann's value, and then another 35% during the next 22 days until after it released the full amount of the write-down.
It was a sign that Ascena's efforts to add a premium business to the discount Dressbarn and other brands acquired over time had hit the skids. The debt Ascena took on to acquire Ann Inc. and other brands hasn't helped the company, as it came just as consumers prepared for a major shift away from full-price brick-and-mortar apparel shopping.
Since the write-down on the Ann Taylor and Loft acquisition, Ascena has tried to turn them around, including by promoting merchandising execs at the brands to spearhead them in president roles last year. But even these measures looked too modest to some observers given the scope of the brands' challenges. Jane Hali, CEO of Jane Hali & Associates, told Retail Dive at the time, "They are both in-house people, not a well known designer etc. who would change the aesthetic."
And yet, despite the trouble at Ann Taylor and Loft, it's Dressbarn that Ascena has opted to wind down this year, given years of declining sales at the womenswear seller that helped start it all. In its most recent reporting period, Ann Taylor and Loft together provided a bright spot, with comps rising 5% amid drop-offs throughout the rest of Ascena's units. Although that rise represented a slowdown compared to the previous period's comps in the unit of 10% growth, as B. Riley FBR analyst Susan Anderson noted in a Tuesday client note.
Also troubling, Ascena's operating and net losses widened considerably during the quarter, sharpening the turnaround challenges facing the retailer.