First Quarter GAAP EPS of $0.07, Comparable
Sales Down 5%
First Quarter Non-GAAP EPS of $0.18
ascena retail group, inc. (NASDAQ - ASNA) (the “Company”)
today reported GAAP earnings for its fiscal first quarter ended
October 29, 2016 of $0.07 per diluted share compared to a net loss
of $0.10 per diluted share in the year-ago period.
Current and prior year first quarter results include certain
acquisition and integration costs, as well as non-cash purchase
accounting adjustments associated with the acquisition of ANN INC.
("ANN"), which was completed on August 22, 2015. In
addition, the first quarter of Fiscal 2017 includes restructuring
charges incurred under the Company's Change for Growth program. A
summary of year-over-year changes in restructuring and acquisition
and integration expenses is presented in the notes to the unaudited
condensed consolidated financial information, included herein.
Finally, the prior year quarter includes the results of ANN,
which comprises the Company's Premium Fashion segment, only
for the post-acquisition period from August 22, 2015 to October 31,
2015.
David Jaffe, President and Chief Executive Officer of ascena
retail group, inc., commented, "I’m pleased that our efforts
delivered first quarter non-GAAP earnings in the middle of our
guidance range. We reacted decisively to unfavorable selling trends
in September through more aggressive, but targeted and effective
promotional activity. We also reduced operating costs and planned
capital expenditures that will benefit full year earnings and free
cash flow."
Regarding second quarter performance, Jaffe commented, “Selling
has picked up a bit following a very difficult period leading to
Election Day. Total comp sales were up 2% for the nine day period
from the weekend preceding Thanksgiving through Cyber Monday.
Double-digit ecommerce growth over this period more than offset
negative brick and mortar performance, which was caused by
continued traffic headwinds."
Jaffe concluded, "Market conditions are challenging, and at this
time, we believe it is prudent to assume that they will remain so.
We are focused on the areas of the business that we can control. We
expect to drive down inventory levels, execute cost controls, and
build a more flexible and responsive organization in general. While
these actions will support our near-term performance, we will also
continue to aggressively work on our enterprise transformation to
create sustainable performance for the longer term through enhanced
customer facing capabilities. The tough environment certainly
highlights the necessity of the transformation we are executing,
and we are working to ensure that ascena emerges as a strong
competitor that can simultaneously drive value to a demanding
customer and produce the returns expected by our shareholders."
Fiscal First Quarter
Results
Net Sales and Comparable Sales
Net sales for the first quarter of Fiscal 2017 were $1.678
billion compared to $1.672 billion in the year-ago period, which
excluded roughly $122 million of ANN sales in the stub
period that preceded the ANN acquisition date. The increase
in sales from the inclusion of ANN for the full quarter was
offset by the impact of the 5% comparable sales decline.
In connection with its Change for Growth program, the Company
reorganized its businesses into four operating segments: Premium
Fashion, Value Fashion, Plus Fashion and Kids
Fashion. The Company’s sales and comparable sales data for the
fiscal first quarter on a brand-by-brand basis in the new segment
format is summarized below:
Net Sales (millions) Comparable
Sales
Three Months Ended
October 29, 2016
October 24, 2015
(a)
Ann Taylor (11)% $ 188.5 $ 177.1
LOFT (3)% 390.7
324.1
Total Premium Fashion (6)% 579.2 501.2
maurices (6)% 272.2 282.7
dressbarn (5)% 231.9
247.4
Total Value Fashion (6)% 504.1 530.1
Lane
Bryant (4)% 245.1 256.2
Catherines (10)% 72.6
79.1
Total Plus Fashion (5)% 317.7 335.3
Justice (1)% 277.4 305.4
Total Kids Fashion
(1)% 277.4 305.4
Total Company (5)% $ 1,678.4
$ 1,672.0 (a)
Results for the Premium Fashion
segment for the three months ended October 24, 2015 include the
10-week post-acquisition results of ANN which was acquired
on August 21, 2015.
Gross margin
Gross margin increased to $1,014 million, or 60.4% of sales, for
the first quarter of Fiscal 2017 compared to $903 million, or 54.0%
of sales in the year-ago period, which excluded roughly $75 million
of ANN gross margin dollars in the stub period that preceded
the ANN acquisition date. Prior year gross margin included
an unfavorable, non-cash purchase accounting adjustment of
approximately $104 million associated with the write-up of
inventory to fair market value, which negatively impacted gross
margin rate by 620 basis points. Current year gross margin
performance reflects margin rate improvement at the Premium
Fashion and Plus Fashion segments resulting from
continued inventory discipline, refinement of promotional
strategies, as well as the realization of synergies and the cost of
goods savings initiative at our Premium Fashion
segment. These improvements were offset by margin rate
declines versus record highs in the year-ago period at the Value
Fashion and Kids Fashion segments, resulting from higher
required promotional selling needed to achieve quarter-end
inventory targets in the face of softer than expected customer
demand.
Buying, distribution, and occupancy expenses
Buying, distribution, and occupancy (“BD&O”) expenses for
the first quarter of Fiscal 2017 were $321 million, or 19.1% of
sales, compared to $303 million, or 18.1% of sales in the year-ago
period, which excluded roughly $27 million of ANN expenses
in the stub period that preceded the ANN acquisition
date. BD&O expenses as a percent of net sales de-levered
as occupancy cost reductions from the lower store count and synergy
savings achieved in the quarter were more than offset by the impact
of declining comparable sales volume.
Selling, general, and administration expenses
Selling, general, and administrative (“SG&A”) expenses for
the first quarter of Fiscal 2017 were $525 million, or 31.2% of
sales, compared to $487 million, or 29.1% of sales in the year-ago
period, which excluded roughly $40 million of ANN expenses
in the stub period that preceded the ANN acquisition date.
SG&A expenses as a percent of net sales increased as
contingency cost reductions, lower performance-based compensation
and synergy savings related to the integration of ANN were
offset by the impact of declining comparable sales volume.
Operating income
The Company generated Operating income for the first quarter of
Fiscal 2017 of $51 million, or 3.1% of first quarter sales compared
to an Operating loss of $12 million, or (0.7)% of first quarter
sales last year. The increase in current year Operating income
reflects the lower level of non-cash purchase accounting
adjustments and lower expenses related to the acquisition of
ANN, offset in part by the impact of negative comparable
sales, increases in operating expenses discussed above, along with
expenses incurred under the Company’s Change for Growth initiative.
Refer to Note 2 of the unaudited condensed consolidated financial
information for more information on the items affecting
comparability between the periods.
Effective tax rate
The effective tax rate was 44.2% for the three months ended
October 29, 2016 versus 43.3% in the year-ago period. The
effective tax rates were higher than the statutory tax rate
primarily due to the effect of state and local taxes.
Net income and earnings per share
The Company reported Net income of $14 million, or $0.07 per
diluted share, in the first quarter of Fiscal 2017, compared to a
Net loss of $18 million last year, or $0.10 per diluted share. Net
income for the first quarter of Fiscal 2017 reflects lower purchase
accounting adjustments and acquisition and integration costs, which
were offset in part by the lower comparable sales performance.
Fiscal First Quarter Balance Sheet
Highlights
Cash and cash equivalents
The Company ended the first quarter of Fiscal 2017 with Cash and
cash equivalents of $271 million. Of this amount, approximately
$207 million was held outside of the U.S.
Inventory
The Company ended the first quarter of Fiscal 2017 with
inventory of $808 million, down 9% from the $889 million at the end
of the first quarter of Fiscal 2016. The inventory balance as of
the first quarter of Fiscal 2016 included approximately $23 million
of unamortized inventory step-up related to the ANN
acquisition.
Capital expenditures
In the first quarter of Fiscal 2017, capital expenditures
totaled $107 million. The first quarter amount includes payments of
approximately $62 million for Fiscal 2016 capital purchases that
were accrued as of the end of Fiscal 2016.
Capital allocation
The Company ended the first quarter of Fiscal 2017 with total
debt of $1.67 billion, which represents the remaining balance on
its $1.8 billion term loan used to acquire ANN, along with
$49 million of borrowings outstanding under the Company's revolving
credit facility. The Company did not repurchase any additional
shares during the quarter under its existing stock repurchase
program, and ended the quarter with availability of $181 million
under its outstanding authorization.
Second Quarter and Fiscal Year 2017
Outlook
Excluding restructuring, acquisition and integration related
expenses, and non-cash ANN purchase accounting adjustments,
the Company expects non-GAAP EPS of $(0.05) to $0.00 during the
second quarter of Fiscal 2017 and continues to expect full year
Fiscal 2017 non-GAAP EPS in the range of $0.60 to $0.65.
Real Estate
The Company's store information on a brand-by-brand basis for
the first quarter is as follows:
Quarter
Ended October 29, 2016
Store Locations Beginning of
Q1
Store Locations Opened
Store Locations Closed
Store Locations End of
Q1
Ann Taylor 340 2 (2) 340
LOFT
682 3 (2) 683
maurices 993 15 (2) 1,006
dressbarn 809
3 (3) 809
Lane Bryant 772 4 — 776
Catherines 373 1
(4) 370
Justice 937 1 (2) 936
Total 4,906 29 (15) 4,920
Conference Call
Information
The Company will conduct a conference call today, December 1,
2016, at 4:30 PM Eastern Time to review its first quarter Fiscal
2017 results, followed by a question and answer session. Parties
interested in participating in this call should dial in at (877)
930-8316 prior to the start time, the conference ID is 16154932.
The call will also be simultaneously broadcast at www.ascenaretail.com. A recording of the call will
be available shortly after its conclusion and until December 8,
2016 by dialing (855) 859-2056, the conference ID is 16154932, and
until January 1, 2017 via the Company’s website at www.ascenaretail.com.
Non-GAAP Financial
Results
As noted above, the comparability of the Company's operational
results for the periods presented herein has been affected by
certain transactions. To provide investors information to assist
them in assessing the Company’s ongoing operations on a comparable
basis, the Company has provided a reconciliation of EPS on a GAAP
basis to EPS on a non-GAAP basis. Non-GAAP EPS excludes costs that
Management believes are not indicative of the Company’s underlying
operating performance such as (i) acquisition and integration
expenses, (ii) restructuring and other related charges incurred
under the Company's Change for Growth initiative, and (iii)
non-cash charges associated with the purchase accounting
adjustments of ANN's assets and liabilities to fair market
value, primarily reflecting inventory expense, depreciation and
amortization expense, and lease-related adjustments. Reference is
made to Note 2 of the unaudited condensed consolidated financial
information included herein for more information.
Non-GAAP EPS is considered an important indicator of the
operational strength of the Company’s businesses as this measure
eliminates amounts that do not reflect the fundamental performance
of the Company’s businesses. Many investors also use a non-GAAP EPS
measure as a common basis for comparing the performance of
different companies. A general limitation of non-GAAP measures is
that they are not prepared in accordance with U.S. generally
accepted accounting principles and may not be comparable to
similarly titled measures of other companies due to differences in
methods of calculation and excluded items. Non-GAAP EPS should be
considered in addition to, not as a substitute for, the Company’s
Operating income (loss) and Net income (loss) per common share, as
well as other measures of financial performance and liquidity
reported in accordance with U.S. generally accepted accounting
principles.
Additionally, a reconciliation of the projected non-GAAP EPS,
which are forward-looking non-GAAP financial measures, to the most
directly comparable GAAP financial measures, is not provided
because the Company is unable to provide such reconciliation
without unreasonable effort. The inability to provide a
reconciliation is due to the uncertainty and inherent difficulty
predicting the occurrence, the financial impact and the periods in
which the non-GAAP adjustments may be recognized. These GAAP
measures may include the impact of such items as restructuring
charges, acquisition and integration related expenses, asset
impairments and the tax effect of all such items. As previously
stated, the Company has historically excluded these items from
non-GAAP financial measures. The Company currently expects to
continue to exclude these items in future disclosures of non-GAAP
financial measures and may also exclude other items that may arise
(collectively, “non-GAAP adjustments”). The decisions and events
that typically lead to the recognition of non-GAAP adjustments,
such as actions under the Company's Change for Growth program, or
acquisition and integration expenses, are inherently unpredictable
as to if or when they may occur. For the same reasons, the Company
is unable to address the probable significance of the unavailable
information, which could be material to future results.
Forward-Looking
Statements
Certain statements made within this press release may constitute
“forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking
statements are subject to certain risks and uncertainties that
could cause actual results to differ materially. The Company does
not undertake to publicly update or review its forward-looking
statements even if experience or future changes make it clear that
our projected results expressed or implied will not be achieved.
Detailed information concerning a number of factors that could
cause actual results to differ materially from the information
contained herein is readily available in the Company’s most recent
Annual Report on Form 10-K.
ascena retail group, inc. Condensed Consolidated
Statements of Operations (Unaudited) (millions, except per
share data) Three Months Ended October 29,
% of Net October 24, % of
Net 2016 Sales 2015 Sales Net
sales $ 1,678.4 100.0 % $ 1,672.0 100.0 % Cost of goods sold
(664.4 ) (39.6 )% (769.3 ) (46.0 )%
Gross margin 1,014.0
60.4 % 902.7 54.0 %
Other costs and expenses: Buying,
distribution and occupancy expenses (320.6 ) (19.1 )% (303.0 )
(18.1 )% Selling, general and administrative expenses (524.4 )
(31.2 )% (486.7 ) (29.1 )% Acquisition and integration expenses
(12.0 ) (0.7 )% (42.5 ) (2.5 )% Restructuring and other related
charges (11.9 ) (0.7 )% — — % Depreciation and amortization expense
(93.9 ) (5.6 )% (82.5 ) (4.9 )%
Operating income (loss) 51.2
3.1 % (12.0 ) (0.7 )% Interest expense (25.3 ) (1.5 )% (20.5 ) (1.2
)% Interest income and other (expense) income, net (0.1 ) — % 0.6
— %
Income (loss) before (provision) benefit for income
taxes 25.8 1.5 % (31.9 ) (1.9 )% (Provision) benefit for income
taxes (11.4 ) (0.7 )% 13.8 0.8 %
Net income (loss) $
14.4 0.9 % $ (18.1 ) (1.1 )%
Net income (loss) per
common share: Basic $ 0.07 $ (0.10 ) Diluted $ 0.07
$ (0.10 )
Weighted average common shares
outstanding: Basic 194.4 184.8 Diluted 195.3
184.8
See accompanying notes.
ascena retail group, inc.
Condensed Consolidated Balance Sheets (Unaudited)
(millions)
October 29, 2016
July 30, 2016
ASSETS Current assets: Cash and cash equivalents $
270.7 $ 371.8 Inventories 807.8 649.3 Prepaid expenses and other
current assets 172.1 218.9
Total current assets 1,250.6
1,240.0 Property and equipment, net 1,608.5 1,630.1 Goodwill
1,279.3 1,279.3 Other intangible assets, net 1,263.7 1,268.7 Other
assets 86.8 88.2
Total assets $ 5,488.9 $ 5,506.3
LIABILITIES AND EQUITY Current liabilities: Accounts
payable $ 511.8 $ 429.4 Accrued expenses and other current
liabilities 371.8 420.3 Deferred income 108.8 110.0 Current portion
of long term debt — 54.0
Total current liabilities 992.4
1,013.7 Long-term debt, less current portion 1,601.0 1,594.5
Lease-related liabilities 380.7 387.1 Deferred income taxes 440.2
442.2 Other non-current liabilities 191.0 205.5
Total
liabilities 3,605.3 3,643.0
Equity 1,883.6 1,863.3
Total liabilities and equity $ 5,488.9 $ 5,506.3
See accompanying notes.
ascena retail group, inc. Segment Information
(Unaudited) (millions) Three Months Ended
October 29, 2016 October 24,
2015 Net sales:
Premium Fashion (a) $ 579.2 $
501.2
Value Fashion 504.1 530.1
Plus Fashion 317.7
335.3
Kids Fashion 277.4 305.4 Total net sales
$ 1,678.4 $ 1,672.0
Three Months Ended
October 29, 2016 October 24, 2015
Operating income (loss):
Premium Fashion (a)(b) $
43.6 $ (48.1 )
Value Fashion 12.1 35.0
Plus Fashion
6.2 3.4
Kids Fashion 13.2 40.2 Unallocated acquisition and
integration expenses (12.0 ) (42.5 ) Unallocated restructuring and
other charges (11.9 ) — Total operating income (loss) $ 51.2
$ (12.0 ) (a)
Results for the three months ended October
24, 2015 include the 10-week post-acquisition results of
ANN, which was acquired on August 21, 2015. ANN's
quarter ended October 31, 2015 whereas the first quarter of Fiscal
2016 for the Company's other businesses ended October 24, 2015. The
effect of this one-week reporting period is not material. All
segments of the Company are on the same fiscal calendar as of the
end of Fiscal 2016.
(b)
Information related to the Premium
Fashion segment for the three months ended October 29, 2016 and
October 24, 2015 include the impact of non-cash expenses associated
with the purchase accounting adjustments of ANN's assets and
liabilities to fair market value. For the three months ended
October 29, 2016, adjustments of $11.0 million primarily consist of
depreciation and amortization associated with the write-up of
ANN's customer relationships and property and equipment and
other purchase accounting adjustments, which are primarily
lease-related. For the three months ended October 24, 2015,
adjustments of $110.7 million primarily consist of the impact of
non-cash inventory expense associated with the purchase accounting
adjustment of ANN's inventory to fair market value, and
depreciation and amortization expense associated with the write-up
of ANN's customer relationships and property and
equipment.
ascena retail group, inc.Notes to Unaudited Condensed
Consolidated Financial Information
Note 1. Basis of Presentation
On August 21, 2015, the Company acquired 100% of the outstanding
common stock of ANN INC. ("ANN"). ANN, which
comprises the operations of the Company's Premium Fashion
segment, utilizes a 52-53 week fiscal year following the National
Retail Federation calendar. Accordingly, ANN's results for
the first quarter of Fiscal 2016 have been included herein for the
post-acquisition period from August 22, 2015 to October 31, 2015.
The remainder of the Company's businesses ended the first quarter
of Fiscal 2016 on October 24, 2015. The effect of ANN's
one-week reporting period difference is not material to the
condensed consolidated financial statements for the three months
ended October 24, 2015. All segments of the Company are on the same
fiscal calendar as of the end of Fiscal 2016.
Note 2. Use of Non-GAAP Earnings Per Share
As noted above, the comparability of the Company's operational
results for the periods presented herein has been affected by
certain transactions. To provide investors information to assist
them in assessing the Company’s ongoing operations on a comparable
basis, the Company has provided the table below which reconciles
EPS on a GAAP basis to EPS on a non-GAAP Basis. Non-GAAP EPS
excludes costs such as (i) acquisition and integration expenses,
(ii) restructuring and other related charges incurred under the
Company's Change for Growth initiative, and (iii) non-cash charges
associated with the purchase accounting adjustments of ANN's
assets and liabilities to fair market value, primarily reflecting
inventory expense, depreciation and amortization expense, and
lease-related adjustments.
Non-GAAP EPS is considered an important indicator of the
operational strength of the Company’s businesses as this measure
eliminates amounts that do not reflect the fundamental performance
of the Company’s businesses. Many investors also use a non-GAAP EPS
measure as a common basis for comparing the performance of
different companies. A general limitation of non-GAAP measures is
that they are not prepared in accordance with U.S. generally
accepted accounting principles and may not be comparable to
similarly titled measures of other companies due to differences in
methods of calculation and excluded items. Non-GAAP EPS should be
considered in addition to, not as a substitute for, the Company’s
Operating income (loss) and Net income (loss) per common share, as
well as other measures of financial performance and liquidity
reported in accordance with U.S. generally accepted accounting
principles.
ascena retail group, inc. Notes to Unaudited
Condensed Consolidated Financial Information - (continued)
(millions, except per share data) Note 2. Use of
Non-GAAP Earnings Per Share (continued)
Reconciliation of Reported GAAP Basis to Non-GAAP Basis
Three Months Ended Three Months Ended
October 29, 2016 October 24, 2015
Diluted Diluted
net
net (Loss) (loss) Income
income income Benefit income
before
Provision
per before (provision) Net per
income
for income
Net common income for income
(loss) common taxes
taxes ((f))
income share taxes taxes ((f))
income share Reported GAAP basis $ 25.8 $ (11.4 ) $
14.4 $ 0.07 $ (31.9 ) $ 13.8 $ (18.1 ) $ (0.10 ) Adjustments:
Impact of non-cash purchase accounting adjustments (a) 11.0 (4.3 )
6.7 0.03 110.7 (43.7 ) 67.0 0.36 Restructuring and other related
charges (b) 11.9 (4.5 ) 7.4 0.04 — — — — Acquisition and
integration expenses (c) 12.0 (4.5 ) 7.5 0.04 42.5 (16.9 ) 25.6
0.14 Impact of
ANN prior to August 21, 2015 (d) — — — — (5.5
) 2.2 (3.3 ) (0.02 ) Impact of
ANN acquisition on EPS (e) —
— — — — — — (0.02
) Non-GAAP basis $ 60.7 $ (24.7 ) $ 36.0 $ 0.18
$ 115.8 $ (44.6 ) $ 71.2 $ 0.36
(a)
Includes the impact of non-cash expenses
associated with the purchase accounting adjustments of ANN's
assets and liabilities to fair market value. For the three months
ended October 29, 2016, these adjustments primarily include
depreciation and amortization of $7.8 million related to the
write-up of ANN's customer relationships and property and
equipment and $3.2 million of other purchase accounting adjustments
which are primarily lease-related. For the three months ended
October 24, 2015, these adjustments include $104.2 million recorded
to Cost of goods sold related to the write-up of ANN's
inventory and $6.5 million of depreciation and amortization.
(b) For the three months ended October 29, 2016, primarily
reflects costs incurred under the Company's Change for Growth
program and includes $8.1 million of severance and other related
expenses and $3.8 million for professional fees. (c)
For the three months ended October 29,
2016, primarily reflects $3.9 million of settlement charges and
professional fees related to a pension plan acquired in the
ANN acquisition, $2.3 million of severance and retention
costs and $5.8 million of other costs associated with the
post-acquisition integration of ANN's operations. For the
three months ended October 24, 2015, primarily represents costs
related to the ANN acquisition consisting of $20.5 million
of legal, consulting and investment-banking related transaction
costs, $19.8 million of severance and retention-related expenses
and $1.3 million of integration costs to combine the operations and
infrastructure of the ANN business into the Company's.
(d)
Primarily represents the incremental
interest expense for the stub period prior to the acquisition date
on the $1.8 billion term loan used to fund the cash portion of the
purchase price of the ANN acquisition at an interest rate of
5.25% as well as the impact of the related deferred financing fees.
Also includes ANN's results for the three-week stub period
from the end of its last fiscal quarter prior to the acquisition
date through the acquisition date and has been adjusted to exclude
transaction-related expenses incurred by ANN resulting from
the ANN acquisition. This impact, which is not included in
the reported GAAP results, assumes that the ANN acquisition
had occurred as of the beginning of Fiscal 2016 and the related
debt incurred was outstanding as of the beginning of Fiscal
2016.
(e)
For the three months ended October 24,
2015, reflects the impact on EPS of using 196.0 million weighted
average common shares for diluted net income per common share on a
non-GAAP basis compared to the amount used to calculate EPS on an
as-reported basis in order to reflect the impact of the additional
shares issued in the ANN acquisition as outstanding for the
entire period as if the acquisition had occurred as of the
beginning of the period presented as well as the dilutive effect of
stock options and other securities.
(f) The (Provision) benefit for income taxes reflects the
application of taxes to income before income taxes, after adjusting
for certain non-deductible expenses and quarterly earnings
fluctuations, at an estimated annual effective tax rate of 41% for
the three months ended October 29, 2016 and 39% for the three
months ended October 24, 2015.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161201006374/en/
For investors:ascena retail group, inc.Stacy Turnof,
551-777-6928Vice President of Investor
Relationsstacy.turnof@ascenaretail.comorICR, Inc.James Palczynski,
203-682-8229Partnerjp@icrinc.comorFor media:ascena retail
group, inc.Sue Ross, 218-491-2110Executive Vice President, ascena
Corporate Affairs Communications
Officersue.ross@ascenaretail.com
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