Narrowing margins hamper progress at Ascena

American womenswear retailer Ascena Retail Group, Inc. announced widening losses in the second quarter of 2019 on Thursday, as a moderate improvement in the company’s comparable sales was undermined by tightening margins.


Ascena's progress with comparable sales was driven by growth in the retailer's premium segment, which includes the Ann Taylor and Loft brands - Instagram: @anntaylor
 
The Mahwah, New Jersey-based company announced net sales of $1.69 billion in the second quarter ended February 2, 2019, down from $1.72 billion in the prior-year period, a decline reflecting the unfavorable impact of the loss of the previous fiscal year’s extra 53rd week, as well as Ascena’s reduced store count, which has been systematically pared down as part of the retailer’s ongoing fleet optimization program.
 
 The company did, however, report a 2% increase in comparable sales, thanks to uneven progress across its brand portfolio.
 
Ascena’s premium segment, which includes its Ann Taylor and Loft banners, saw comps growth of 10%, while the kids fashion segment (home to the Justice brand) reported growth of 2% in its comparable sales.
 
Comps in the retailer’s value segment were flat, as a 1% increase at Maurices was canceled out by a 1% decrease at Dressbarn, while the company’s plus fashion segment suffered a comparable sales decline of 8%, as both the Lane Bryant and Catherines brands underperformed.
 
Any progress in comparable sales, however, was more than offset by decreases in Ascena’s gross margin which slipped to $883 million, or 52.2% of sales, in the second quarter of 2019, compared to $929 million, or 54.0% of sales, in the equivalent period in the previous year.
 
The company’s operating loss therefore increased to $52 million, compared to $36 million, while net loss came to $72 million, or $0.36 per diluted share, widening from the loss of $39 million, or $0.20 per diluted share, reported by Ascena in Q2 2018.
 
“While we believe the challenging selling environment is the result of macro headwinds impacting our sector, our third quarter outlook represents an unacceptable profit shortfall to the expectations we shared at the beginning of our fiscal year,” commented Ascena Chairman and CEO David Jaffe in a press release. “As a result, we are working to accelerate plans that were already in development to take much more fundamental action to address our cost structure.”

As part of its efforts to cut costs and turn its business around, Ascena conducted 110 store closures in the second quarter of 2019, 49 of which were Dressbarn locations. Following these closures, the company now operates 4,486 stores around the US, Canada and Puerto Rico, as well as a number of brand-specific e-commerce platforms.

Looking forward to the third quarter, Ascena expects net sales to be between $1.43 billion and $1.46 billion, with comparable sales decreasing in the range of 4% to 2%. Operating loss is predicted to be between $75 million and $50 million.

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