Fourth Quarter GAAP EPS of $0.07; Non-GAAP
Adjusted EPS of $0.08
ascena retail group, inc. (NASDAQ - ASNA) (the “Company”)
today reported financial results for its fiscal fourth quarter and
full year ended July 30, 2016. Fiscal 2016 reflected a 53-week
fiscal year for the Company, and as a result, the Company's fourth
quarter GAAP results for Fiscal 2016 reflect a 14-week period,
while non-GAAP adjusted results reflect a 13-week period comparable
to the prior year 13-week period. Additionally, the Company's
non-GAAP adjusted financial results for its fiscal fourth quarter
ended July 30, 2016 exclude acquisition and integration expenses,
and non-cash expenses associated with the purchase accounting
adjustments of ANN's assets and liabilities to fair market
value. The Company’s non-GAAP adjusted financial results for its
fiscal fourth quarter ended July 25, 2015 exclude a $306 million
impairment of goodwill and an intangible asset related to Lane
Bryant, and an expense of $51 million related to Justice
pricing lawsuits.
For the fourth quarter of Fiscal 2016, the Company reported GAAP
earnings of $0.07 per diluted share compared to a loss of $1.98 per
diluted share in the same period of Fiscal 2015. The increase was
driven by the acquisition of ANN, which closed during the
first quarter of Fiscal 2016, along with prior year items including
the impairment of goodwill and an intangible asset
at Lane Bryant and the expense related to
the Justice pricing lawsuits. For the fourth
quarter of Fiscal 2016, the Company reported non-GAAP adjusted
earnings of $0.08 per diluted share which excludes the purchase
accounting expenses and acquisition and integration costs
associated with the acquisition of ANN, as well as the
estimated impact of the 53rd week.
For full year Fiscal 2016, the Company reported a GAAP loss of
$0.06 per diluted share as a result of acquisition and integration
costs, and the effect of non-cash purchase accounting adjustments,
all of which were related to the acquisition of ANN. The
Company reported a loss of $1.46 per diluted share in the same
period of Fiscal 2015 primarily due to the previously discussed
charges for the Lane Bryant impairments and Justice
pricing lawsuits. Non-GAAP adjusted earnings for the 52-week period
ending July 23, 2016 were $0.60 per diluted share, which excludes
the aforementioned ANN items and the estimated impact of the
53rd week.
David Jaffe, President and Chief Executive Officer of ascena
retail group, inc., commented, "Fiscal 2016 was a challenging year
for ascena, characterized by a highly competitive selling
environment and significant store traffic headwinds. While we are
seeing good customer demand during peak periods, off-peak demand
has been inconsistent, and fourth quarter financial performance
fell well below our expectations."
Jaffe concluded, "Aside from the challenging business trend
we’ve seen, I’d like to highlight progress in four key areas of our
business that I believe lay the foundation for stronger future
performance. First, we were pleased by the Justice
turnaround. The Justice team delivered full-year operating
margin in the middle of the guidance range we provided last
September. Second, our integration of ANN continues to
progress well, and we remain ahead of plan with our synergy and
cost savings workstreams. Third, the new ascena omni-channel
platform went live at Justice in the fourth quarter, and the
early reads on demand growth have significantly exceeded our
expectations. And finally, we continue to make progress with our
enterprise transformation work, and we are currently moving forward
to address identified opportunities."
Fiscal Fourth Quarter 2016
Results
Net Sales and Comparable Sales
On a GAAP basis, Net sales for the fourth quarter of Fiscal 2016
were $1.812 billion compared to $1.170 billion last year, with the
increase driven by the acquisition of ANN, which was not
included in the prior year. Fiscal 2016 also includes Net sales of
approximately $82 million associated with the 53rd week. Comparable
sales at the legacy ascena brands (excluding ANN) were down
4% for the quarter based on the comparable 13-week period. On a
non-GAAP adjusted basis, Net sales were $1.731 billion.
The Company’s comparable sales data for the fiscal fourth
quarter is summarized below:
Net Sales (millions)
Comparable
Sales (a)
Three Months Ended July 30, 2016 July 25,
2015 ANN (a) N/A $ 617.1 $ —
Justice (4)%
244.5 242.1
Lane Bryant 1% 317.9 292.0
maurices (9)%
257.6 254.0
dressbarn (7)% 282.8 289.3
Catherines
(5)% 92.4 92.4
Total Company (4)% $ 1,812.3 $
1,169.8 (a)
ANN was acquired in the first
quarter of Fiscal 2016. For comparative purposes, utilizing
unaudited internally generated ANN data from the
pre-acquisition period, ANN's comparable sales for the
fourth quarter of Fiscal 2016 were approximately (6)%. Given that
it reflects pre-acquisition data, ANN's sales were excluded
from the calculation of Total Company comparable sales. Including
the unaudited internally generated ANN data, Total Company
comparable sales were approximately (5)%.
Gross margin
On a GAAP basis, Gross margin increased to $1,041 million, or
57.5% of sales, for the fourth quarter of Fiscal 2016. This
compared to $638 million, or 54.5% of fourth quarter sales last
year with dollar growth driven primarily by the acquisition of
ANN which added $355 million in the fourth quarter of Fiscal
2016. Fiscal 2016 GAAP gross margin includes approximately $48
million associated with the 53rd week. The strong improvement in
gross margin rate was driven primarily by performance at
Justice related to the successful implementation of its new,
less promotional selling model, along with a generally reduced
level of promotional activity and disciplined inventory planning
and management across our brand portfolio. On a non-GAAP adjusted
basis, Gross margin was $994 million, or 57.4% of sales.
Buying, distribution, and occupancy expenses
On a GAAP basis, Buying, distribution, and occupancy
(“BD&O”) expenses for the fourth quarter of Fiscal 2016 were
$328 million, or 18.1% of sales, compared to $212 million, or 18.1%
of fourth quarter sales last year, with approximately $111 million
of the increase related to the acquisition of ANN and
approximately $3 million associated with the 53rd week. On a
non-GAAP adjusted basis, BD&O expenses were $324 million, or
18.7% of sales.
Selling, general, and administration expenses
On a GAAP basis, Selling, general, and administrative
(“SG&A”) expenses for the fourth quarter of Fiscal 2016 were
$540 million, or 29.8% of sales, compared to $400 million, or 34.2%
of fourth quarter sales last year with the growth mostly being
driven by the acquisition of ANN which added $164 million of
expense in the fourth quarter of Fiscal 2016. Also contributing to
the increase were expenses associated with the 53rd week of
approximately $18 million, primarily reflecting payroll costs.
These increases were partially offset by prior year expense of $51
million related to Justice pricing lawsuits.
On a non-GAAP adjusted basis, SG&A expenses were $521 million,
or 30.1% of sales.
Operating income
On a GAAP basis, the Company generated Operating income for the
fourth quarter of Fiscal 2016 of $65 million, or 3.6% of fourth
quarter sales compared to an Operating loss of $352 million, or
30.1% of fourth quarter sales last year. The increase in operating
results reflected the addition of $46 million for ANN (which
included $12 million of non-cash purchase accounting adjustments)
and approximately $27 million from the 53rd week, along with prior
year items including the $306 million impairment of goodwill and an
intangible asset at Lane Bryant and the $51
million expense related to Justice pricing
lawsuits.
Effective tax rate
On a GAAP basis, the effective tax rate increased to 63.0% for
the fourth quarter of Fiscal 2016 from 8.4% last year. The
effective tax rate for the quarter was higher than the statutory
tax rate primarily due to the effect of state and local tax rates
on the full year earnings, and certain expenses which are
non-deductible for tax purposes.
Net income and earnings per share
On a GAAP basis, the Company reported Net income of $14 million,
or $0.07 per diluted share, in the fourth quarter of Fiscal 2016,
compared to a Net loss of $323 million last year, or $1.98 per
diluted share. Net income for the fourth quarter of Fiscal 2016
includes the impact of approximately $15 million of income, or
$0.08 per diluted share from the 53rd week, and approximately $17
million of expense, or $0.09 per diluted share, related to
acquisition and integration costs as well as the impact of non-cash
purchase accounting adjustments related to the acquisition of
ANN.
Fiscal Fourth Quarter Balance Sheet
Highlights
Cash and cash equivalents
The Company ended the fourth quarter of Fiscal 2016 with Cash
and cash equivalents of $372 million. Of this amount, approximately
$199 million is held outside of the U.S.
Inventory
The Company ended the fourth quarter of Fiscal 2016 with
inventory of $649 million. On a non-GAAP adjusted basis, Inventory
(excluding ANN) was down 8% versus the year-ago period. Due
to the timing of the ANN acquisition in 2015, prior year
audited comparable data for ANN is not available.
Capital expenditures
In the fourth quarter of Fiscal 2016, capital expenditures
totaled $116 million. Full year Fiscal 2016 capital expenditures
totaled $367 million.
Capital allocation
The Company ended the fourth quarter of Fiscal 2016 with total
debt of $1.72 billion, which represents the remaining balance on
its $1.8 billion term loan used to acquire ANN. The Company
had no borrowings outstanding on its asset-based revolver at the
end of the quarter. During the fourth quarter of Fiscal 2016, the
Company made a $5 million scheduled principal payment on its $1.8
billion term loan. In addition, subsequent to year-end, on August
1, 2016, the Company repaid $100 million of the term loan such that
the Company's next mandatory quarterly repayment does not occur
until calendar 2018. The Company did not repurchase any additional
shares during the quarter under its existing stock repurchase
program and ended the quarter with a remaining availability of $181
million.
Fiscal Year 2017 Outlook
The Company is providing full year guidance for Fiscal 2017 that
reflects continued store traffic headwinds and a negative
quarter-to-date comparable sales trend as follows:
2017 Guidance
(GAAP basis) 2017 Guidance (Non-GAAP Adjusted basis)
ANN Purchase Accounting Impact (a) Total company
sales $6.9 to $7.0 billion Same N/A Total comparable sales N/A (1%)
to (2%) N/A Gross margin 59.0% to 59.3% Same N/A EBITDA N/A $635 to
$650 million $(13) million Depreciation and amortization ~ $387
million ~ $355 million $32 million Interest expense (b) $95 to $100
million Same N/A Effective tax rate ~38% Same N/A Diluted share
count 197 million Same N/A EPS $0.46 to $0.51 $0.60 to $0.65
$(0.14) Capital expenditures $295 to $325 million Same N/A Store
count Modest net store count decline Same N/A
(a)
Includes non-cash purchase accounting
adjustments associated with the write-up of ANN's tangible
and intangible assets to fair market value and primarily reflects
adjustments related to ANN's customer relationships,
property and equipment and lease-related assets and
liabilities.
(b)
Inclusive of non-cash interest of
approximately $12 million related to amortization of the original
issue discount and debt issue costs.
Given that Fiscal 2017 represents a normal 52-week period that
will have comparable results inclusive of ANN in both
current and prior year data as well as recently issued SEC
interpretative guidance relating to the use of non-GAAP financial
measures, the Company is transitioning back to its historical
practice of providing forward looking guidance on a GAAP basis. As
such, the Company will be providing GAAP guidance and highlighting
significant items impacting that guidance. To aid in the transition
from non-GAAP adjusted EPS guidance to GAAP EPS guidance, we are
providing the following comparison of Fiscal 2016 EPS guidance and
our full year Fiscal 2017 EPS guidance as follows:
Fiscal 2016 Actual Fiscal
2017 Guidance Non-GAAP adjusted EPS, excluding items listed
below (prior guidance basis) (a) $0.60 $0.60 to $0.65 Estimated
impact of the 53rd week (a) 0.08 —
ANN purchase accounting
impact - inventory (a) (0.40) —
ANN purchase accounting
impact - other than inventory (a) (0.12) (0.14) Impact of
ANN prior to August 21, 2015 (a) 0.02 — Acquisition and
integration expenses (a) (0.24) — GAAP EPS (go-forward
guidance baseline) $(0.06) $0.46 to $0.51 (a) Refer
to Note 3 to the unaudited condensed consolidated financial
information for more information.
The above guidance for fiscal year 2017 excludes any impact from
our enterprise transformation work and the continued integration of
ANN as the Company is unable to fully estimate the related
impacts at this time.
Real Estate
The Company's store information on a brand-by-brand basis for
the fourth quarter is as follows:
Quarter Ended July 30, 2016 Store Locations
Beginning of Q4 Store Locations Opened
Store Locations Closed Store Locations End of
Q4 Ann Taylor 340 2 (2) 340
LOFT 680 2 — 682
Justice 938 2 (3) 937
Lane
Bryant 763 13 (4) 772
maurices 979 17 (3) 993
dressbarn 822 1 (14) 809
Catherines 373 —
— 373
Total 4,895 37 (26)
4,906
Conference Call
Information
The Company will conduct a conference call today, September 19,
2016, at 4:30 PM Eastern Time to review its fourth quarter and full
year Fiscal 2016 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 76516611. 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
September 26, 2016 by dialing (855) 859-2056, the conference ID is
76516611, and until October 19, 2016 via the Company’s website at
www.ascenaretail.com.
Non-GAAP Financial
Results
The Company's financial results for its fiscal fourth quarters
ended July 30, 2016 and July 25, 2015 reflect acquisition and
integration expenses, non-cash expenses associated with the
purchase accounting adjustments of ANN's assets and
liabilities to fair market value, prior year impairment of goodwill
and an intangible asset related to Lane Bryant, a prior year
expense related to Justice pricing lawsuits, and other
income and expenses classified outside of operating income.
Additionally, our GAAP results for Fiscal 2016 reflect a 53-week
period whereas results for Fiscal 2015 reflect a 52-week period. As
a result of the 53rd week, the fourth quarter of Fiscal 2016
reflects results for a 14-week period. To enhance comparability
between the periods, GAAP results for the fourth quarter of Fiscal
2016 have been adjusted to reflect a 13-week period.
Non-GAAP adjusted results for Fiscal 2016 and Fiscal 2015, which
exclude the effect of these aforementioned items, have been
presented to supplement the reported results. Reference should be
made to Note 3 of the unaudited condensed consolidated financial
information included herein for a reconciliation of non-GAAP
adjusted financial measures to the most directly comparable GAAP
financial measures.
About ascena retail group,
inc.
ascena retail group, inc. (NASDAQ: ASNA) is a leading
national specialty retailer offering apparel, shoes, and
accessories for women under the Ann Taylor, LOFT, Lou & Grey,
Lane Bryant, maurices, dressbarn and Catherines brands, and for
tween girls under the Justice brand. ascena retail group, inc.
operates ecommerce websites and approximately 4,900 stores
throughout the United States, Canada and Puerto Rico.
For more information about ascena retail group, inc. visit:
ascenaretail.com, AnnTaylor.com, LOFT.com, louandgrey.com,
lanebryant.com, cacique.com, maurices.com, dressbarn.com,
Catherines.com, and shopjustice.com.
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 GAAP basis)
(millions, except per share
data)
Three Months Ended July 30, 2016
% of Net Sales July 25, 2015
% of Net Sales Net sales $ 1,812.3 100.0 % $ 1,169.8
100.0 % Cost of goods sold (771.0 ) (42.5 )% (532.2 ) (45.5 )%
Gross margin 1,041.3 57.5 % 637.6 54.5 %
Other costs and
expenses: Buying, distribution and occupancy expenses (328.3 )
(18.1 )% (211.9 ) (18.1 )% Selling, general and administrative
expenses (540.4 ) (29.8 )% (399.7 ) (34.2 )% Acquisition and
integration expenses (10.5 ) (0.6 )% (12.8 ) (1.1 )% Impairment of
goodwill — — % (261.7 ) (22.4 )% Impairment of intangible assets —
— % (44.7 ) (3.8 )% Depreciation and amortization expense (96.9 )
(5.3 )% (58.8 ) (5.0 )%
Operating income (loss) 65.2 3.6 %
(352.0 ) (30.1 )% Interest expense (27.6 ) (1.5 )% (1.2 ) (0.1 )%
Interest income and other (expense) income, net (0.3 ) — % 0.1
— %
Income (loss) before (provision) benefit for income
taxes 37.3 2.1 % (353.1 ) (30.2 )% (Provision) benefit for
income taxes (23.5 ) (1.3 )% 29.7 2.5 %
Net income
(loss) $ 13.8 0.8 % $ (323.4 ) (27.6 )%
Net
income (loss) per common share: Basic $ 0.07 $ (1.98 )
Diluted $ 0.07 $ (1.98 )
Weighted average common
shares outstanding: Basic 194.1 163.1 Diluted
195.1 163.1
See accompanying notes.
ascena retail group, inc.
Condensed Consolidated Statements of
Operations (Unaudited GAAP basis)
(millions, except per share
data)
Twelve Months Ended July 30,
2016 % of Net Sales July 25, 2015
% of Net Sales Net sales $ 6,995.4 100.0 % $
4,802.9 100.0 % Cost of goods sold (3,066.7 ) (43.8 )% (2,133.7 )
(44.4 )%
Gross margin 3,928.7 56.2 % 2,669.2 55.6 %
Other
costs and expenses: Buying, distribution and occupancy expenses
(1,286.5 ) (18.4 )% (856.9 ) (17.8 )% Selling, general and
administrative expenses (2,112.3 ) (30.2 )% (1,490.9 ) (31.0 )%
Acquisition and integration expenses (77.4 ) (1.1 )% (31.7 ) (0.7
)% Impairment of goodwill — — % (261.7 ) (5.4 )% Impairment of
intangible assets — — % (44.7 ) (0.9 )% Depreciation and
amortization expense (358.7 ) (5.1 )% (218.2 ) (4.5 )%
Operating
income (loss) 93.8 1.3 % (234.9 ) (4.9 )% Interest expense
(103.3 ) (1.5 )% (6.0 ) (0.1 )% Interest and other income, net 0.4
— % 0.3 — % Gain on extinguishment of debt 0.8 — % —
— %
Loss before (provision) benefit for income taxes (8.3 )
(0.1 )% (240.6 ) (5.0 )% (Provision) benefit for income taxes (3.6
) (0.1 )% 3.8 0.1 %
Net loss $ (11.9 ) (0.2 )% $
(236.8 ) (4.9 )%
Net loss per common share: Basic $
(0.06 ) $ (1.46 ) Diluted $ (0.06 ) $ (1.46 )
Weighted
average common shares outstanding: Basic 192.2 162.6
Diluted 192.2 162.6
See accompanying notes.
ascena retail group, inc.
Condensed Consolidated Balance Sheets
(Unaudited GAAP basis)
(millions)
July 30, 2016 July 25,
2015 ASSETS Current assets: Cash and cash
equivalents $ 371.8 $ 240.6 Inventories 649.3 489.3 Deferred tax
assets — 88.5 Prepaid expenses and other current assets 218.9
131.5
Total current assets 1,240.0 949.9 Property and
equipment, net 1,630.1 1,170.0 Goodwill 1,279.3 319.7 Other
intangible assets, net 1,268.7 388.3 Other assets 88.2 78.3
Total assets $ 5,506.3 $ 2,906.2
LIABILITIES AND EQUITY Current liabilities: Accounts
payable $ 429.4 $ 238.8 Accrued expenses and other current
liabilities 413.7 403.2 Deferred income 110.0 64.1 Income taxes
payable 6.6 11.6 Current portion of long term debt 54.0 —
Total current liabilities 1,013.7 717.7 Long-term debt, less
current portion 1,594.5 106.5 Lease-related liabilities 387.1 241.4
Deferred income taxes 442.2 181.8 Other non-current liabilities
205.5 140.7
Total liabilities 3,643.0 1,388.1
Equity 1,863.3 1,518.1
Total liabilities and
equity $ 5,506.3 $ 2,906.2
See accompanying notes.
ascena retail group, inc.
Segment Information (Unaudited)
(millions)
Three Months Ended Twelve Months
Ended July 30, 2016 (a) July 25,
2015 July 30, 2016 July 25, 2015 Net sales (GAAP
basis):
ANN (b) $ 617.1 $ — $ 2,330.9 $ —
Justice 244.5 242.1 1,106.3 1,276.8
Lane Bryant 317.9
292.0 1,130.3 1,095.9
maurices 257.6 254.0 1,101.3 1,060.6
dressbarn 282.8 289.3 993.3 1,023.6
Catherines 92.4
92.4 333.3 346.0 Total net sales $
1,812.3 $ 1,169.8 $ 6,995.4 $ 4,802.9
Three Months Ended Twelve Months Ended July
30, 2016 (a) July 25, 2015 July 30, 2016
July 25, 2015 Operating income (loss) (GAAP basis):
ANN (b) (c) $ 45.7 $ — $ 13.3 $ —
Justice
(15.6 ) (98.7 ) 29.0 (62.8 )
Lane Bryant 17.2 (296.3 ) 20.6
(308.0 )
maurices 4.8 22.4 105.6 125.9
dressbarn 17.6
24.1 (13.6 ) 10.7
Catherines 6.0 9.3 16.3 31.0 Unallocated
acquisition and integration expenses (10.5 ) (12.8 ) (77.4 ) (31.7
) Total operating income (loss) $ 65.2 $ (352.0 ) $ 93.8
$ (234.9 )
Three Months Ended Twelve Months
Ended July 30, 2016 July 25, 2015 July 30,
2016 July 25, 2015 Adjusted EBITDA (non-GAAP basis): (d)
ANN (b)(c) $ 83.1 $ — $ 275.7 $ —
Justice (7.2
) (27.6 ) 90.1 60.1
Lane Bryant 23.1 22.0 58.2 45.3
maurices 15.5 34.0 152.7 169.2
dressbarn 27.9 37.3
36.9 61.3
Catherines 6.8 11.1 23.8 38.2
Total Adjusted EBITDA $ 149.2 $ 76.8 $ 637.4
$ 374.1 (a)
Results for the ANN segment for the
fourth quarter of Fiscal 2016 reflect 13 weeks of operations
whereas results for the Company's other brands for the fourth
quarter of Fiscal 2016 reflect 14 weeks of operations. Reference is
made to Note 2 of the Unaudited Condensed Consolidated Financial
Information.
(b)
Fiscal 2016 includes the post-acquisition
results of ANN which was acquired on August 21, 2015.
ANN's first, second and third quarters of Fiscal 2016 ended
October 31, 2015, January 30, 2016 and April 30, 2016,
respectively, whereas the first, second and third quarters of
Fiscal 2016 for the Company's other segments ended October 24,
2015, January 23, 2016 and April 23, 2016, respectively. The effect
of these one-week reporting period differences are not material.
All segments of the Company are on the same fiscal calendar as of
the end of Fiscal 2016.
(c)
Information related to the ANN
segment for the three and twelve months ended July 30, 2016
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 July
30, 2016 these adjustments primarily consist of the write-up of
ANN's customer relationships and the write-up of
ANN's property and equipment. Additionally, information
related to the twelve months ended July 30, 2016 includes the
impact of non-cash inventory expense associated with the purchase
accounting adjustment of ANN's inventory to fair market
value.
(d) Represents earnings before interest, taxes, depreciation and
amortization, as adjusted ("Adjusted EBITDA") and excludes
non-operating related items. For a more detailed discussion on our
use of Adjusted EBITDA, reference is made to Note 3 of the
Unaudited Condensed Consolidated Financial Information.
ascena retail group, inc.Notes to Unaudited Condensed
Consolidated Financial Information
Note 1. Acquisition of ANN INC.
On August 21, 2015, the Company acquired 100% of the outstanding
common stock of ANN INC. ("ANN") for an aggregate
purchase price of approximately $2.1 billion (the "ANN
Acquisition"). The ANN segment utilizes a 52-53 week fiscal
year following the National Retail Federation calendar.
Accordingly, ANN's results have been included herein for the
post-acquisition period from August 22, 2015 to July 30, 2016.
Note 2. Basis of Presentation
Fiscal Year
The Company utilizes a 52-53 week fiscal year ending on the last
Saturday in July. As such, fiscal year 2016 ended on July 30, 2016
and reflected a 53-week period (“Fiscal 2016") and fiscal year 2015
ended on July 25, 2015 and reflected a 52-week period (“Fiscal
2015"). Results of the Company's ANN segment for the fourth
quarter of Fiscal 2016 reflect a 13-week period, whereas results
for the Company's other brands for the fourth quarter of Fiscal
2016 reflect a 14-week period. The effect of ANN's one-week
reporting period difference is not material to the condensed
consolidated financial statements for either the three or twelve
months ended July 30, 2016. As of the end of Fiscal 2016, all of
the Company's brands have the same fiscal period end.
Note 3. Use of Non-GAAP Financial Measures
To provide investors information to assist them in assessing the
Company’s ongoing operations on a comparable basis, the Company has
provided financial measures in this press release that exclude (i)
acquisition and integration expenses, (ii) non-cash charges
associated with the purchase accounting adjustments of ANN's
assets and liabilities to fair market value, primarily reflecting
inventory expense and depreciation and amortization expense, (iii)
impairment of goodwill and an intangible asset related to Lane
Bryant, (iv) an expense related to Justice pricing
lawsuits, and (v) other income and expenses classified outside of
operating income.
Further, our GAAP results for Fiscal 2016 reflect a 53-week
period whereas results for Fiscal 2015 reflect a 52-week period. As
a result of the 53rd week, the fourth quarter of Fiscal 2016
reflects results for a 14-week period. The Company performed an
analysis to determine which costs were fixed and not impacted by
the existence of a 53rd week and which costs would be considered
incremental to the 52-week period. Only costs deemed incremental
were included in the impacts disclosed below. In general, the
results for the 53rd week reflect the flow through of margin on the
related sales volume for the week less direct costs to fulfill the
orders and payroll costs incurred during the week. Specifically,
Net sales reflect sales generated for the period July 24, 2016
through July 30, 2016. Cost of revenues reflects the cost of
product and any freight and shipping costs incurred during that
week. BD&O expenses includes fulfillment expenses incurred by
the Company’s fulfillment centers during the 53rd week. BD&O
expenses do not include an allocation of rent or depreciation to
the 53rd week period, as such costs were not considered incremental
to the 52-week period. Finally, SG&A expenses primarily reflect
payroll costs incurred during the 53rd week.
Throughout this release, the term “reported” refers to
information prepared in accordance with accounting principles
generally accepted in the U.S. ("GAAP"), while the term “adjusted”
refers to non-GAAP financial information adjusted to exclude
certain non-recurring costs as well as the results of the 53rd
week.
ascena retail group, inc.Notes to Unaudited Condensed
Consolidated Financial Information - (continued)(millions,
except per share data)
Note 3. Use of Non-GAAP Financial Measures
(continued)
In addition, the following table presents the financial
performance measure of earnings before interest, taxes,
depreciation and amortization, as adjusted ("Adjusted EBITDA") to
exclude non-operating related items such as (i) acquisition and
integration expenses, (ii) non-cash charges associated with the
purchase accounting adjustments of ANN's assets and
liabilities to fair market value, primarily reflecting inventory
expense and depreciation and amortization expense, (iii) impairment
of goodwill and an intangible asset related to Lane Bryant,
(iv) an expense related to Justice pricing lawsuits, (v) the
impact of the 53rd week, and (vi) other income and expenses
classified outside of operating income. These measures may not be
directly comparable to similar measures used by other companies and
should not be considered a substitute for performance measures in
accordance with GAAP such as operating income and net income
reported herein. The table below reconciles Adjusted EBITDA to Net
income (loss) as reflected in our unaudited condensed consolidated
statements of operations.
Reconciliation of Adjusted EBITDA to Net income
(loss) Three Months Ended Twelve Months
Ended July 30, 2016 July 25,
2015 July 30, 2016 July 25,
2015 Adjusted EBITDA (a) $ 149.2 $ 76.8 $
637.4 $ 374.1 Depreciation and amortization expense (b) (96.9 )
(58.8 ) (358.7 ) (218.2 ) Estimated impact of 53rd week 26.9 — 26.9
— Acquisition and integration expenses (10.5 ) (12.8 ) (77.4 )
(31.7 ) Impact of the purchase accounting adjustments for leases
(2.4 ) — (4.3 ) — Impact of the purchase accounting adjustments for
deferred revenue (1.1 ) — (3.2 ) — Impairment of
Lane Bryant
goodwill and intangible assets — (306.4 ) — (306.4 ) Non-cash
inventory expense associated with the write-up of
ANN's
inventory to fair market value — — (126.9 ) —
Justice
pricing lawsuits — (50.8 ) — (50.8 ) Certain costs related to the
closure of
Brothers — — — (1.9 )
Operating income (loss) 65.2 (352.0 ) 93.8 (234.9 )
Interest expense (27.6 ) (1.2 ) (103.3 ) (6.0 ) Interest income and
other (expense) income, net (0.3 ) 0.1 0.4 0.3 Gain on
extinguishment of debt — — 0.8 —
Income (loss) before (provision) benefit for income taxes
37.3 (353.1 ) (8.3 ) (240.6 ) (Provision) benefit for income taxes
(23.5 ) 29.7 (3.6 ) 3.8
Net income (loss) $
13.8 $ (323.4 ) $ (11.9 ) $ (236.8 ) (a)
The operating results of ANN for
the post-acquisition period from May 1, 2016 to July 30, 2016 and
from August 22, 2015 to July 30, 2016 are included within the
Company's consolidated results of operations for the three and
twelve months ended July 30, 2016, respectively. No results for the
ANN segment are included herein for the three and twelve
months ended July 25, 2015.
(b)
Includes $8.9 and $30.8 million for the
three and twelve months ended July 30, 2016, respectively,
reflecting non-cash purchase accounting adjustments associated with
the write-up of ANN's property and equipment and customer
relationships to fair value.
ascena retail group, inc.Notes to Unaudited Condensed
Consolidated Financial Information - (continued)(millions,
except per share data)
Note 3. Use of Non-GAAP Financial Measures
(continued)
The following table presents a reconciliation of our reported
GAAP earnings per share for the three and twelve months ended July
30, 2016 to our non-GAAP adjusted earnings per share:
Three Months Ended Twelve Months
Ended July 30, 2016 July 30, 2016
Income (loss)
before
income
taxes
(Provision) benefit for income
taxes (e)
Net
income (loss)
Diluted net
income (loss) per
common
share (f)
(Loss)
income before
income
taxes
(Provision) benefit for income
taxes (e)
Net (loss) income Diluted net (loss) income
per
common
share (f)
Reported GAAP basis $ 37.3 $ (23.5 ) $ 13.8 $ 0.07 $ (8.3 ) $ (3.6
) $ (11.9 ) $ (0.06 ) Adjustments: Impact of non-cash purchase
accounting adjustments (a) 12.4 (3.4 ) 9.0 0.05 165.2 (63.4 ) 101.8
0.52 Impact of
ANN prior to August 21, 2015 (b) — — — — (5.6
) 2.2 (3.4 ) (0.02 ) Acquisition and integration expenses (c) 10.5
(2.5 ) 8.0 0.04 77.4 (29.6 ) 47.8 0.24 Estimated impact of 53rd
week (d) (25.2 ) 10.1 (15.1 ) (0.08 ) (25.2 ) 10.1
(15.1 ) (0.08 ) Non-GAAP basis $ 35.0 $ (19.3 ) $ 15.7
$ 0.08 $ 203.5 $ (84.3 ) $ 119.2 $ 0.60
(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 July 30, 2016, these adjustments include depreciation and
amortization of $8.9 million related to the write-up of
ANN's customer relationships and property and equipment and
$3.5 million of other purchase accounting adjustments which are
primarily lease-related. For the twelve months ended July 30, 2016,
these adjustments include $126.9 million related to the write-up of
ANN's inventory, depreciation and amortization of $30.8
million related to the write-up of ANN's customer
relationships and property and equipment and $7.5 million of other
purchase accounting adjustments which are primarily
lease-related.
(b)
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.
(c)
For the three months ended July 30, 2016,
primarily reflects pre-tax costs related to the ANN
Acquisition consisting of $3.8 million of severance and
retention-related expenses and $7.1 million of other integration
expenses. For the twelve months ended July 30, 2016, primarily
reflects pre-tax costs related to the ANN Acquisition
consisting of $37.5 million of severance and retention-related
expenses, $17.3 million of other integration expenses and $20.8
million of transactions costs.
(d) Our GAAP results for Fiscal 2016 reflect a 53-week period
whereas our normal results reflect a 52-week period. As a result of
the 53rd week, the fourth quarter of Fiscal 2016 reflects results
for a 14-week period. To enhance comparability between periods, we
have presented results that reflect both a 52-week and a 53-week
period. The adjustment included herein reflects the results of the
53rd week period as described above. (e) 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%. (f) Reflects the impact on EPS of using
195.1 million weighted average common shares for both GAAP net
income per diluted common share and adjusted net income per diluted
common share for the three months ended July 30, 2016. For the
twelve months ended July 30, 2016, reflects the impact on EPS of
using 196.0 million weighted average common shares for adjusted net
income per diluted common share compared to the 192.2 million used
to calculate EPS on a reported GAAP basis. The weighted average
number of diluted common shares on an adjusted basis reflects the
dilutive effect of stock options and other securities, which were
excluded from the reported GAAP amount due to the net loss reported
during the period.
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version on businesswire.com: http://www.businesswire.com/news/home/20160919006425/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.Catherine Fisher, 551-777-6725Senior Vice President,
Chief Communications Officercatherine.fisher@ascenaretail.com
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