ascena retail group, inc. (NASDAQ:ASNA) (“ascena” or the
“Company”) today reported financial results for its fiscal fourth
quarter and full year ended July 29, 2017. For the fourth quarter
of Fiscal 2017, the Company reported a GAAP loss of $0.08 per
diluted share compared to GAAP earnings of $0.07 per diluted share
in the year-ago period. The decrease was primarily driven by the
comparable sales decline of 4%, costs associated with the Company's
Change for Growth transformation program, and the 53rd week in the
year-ago period related to our reporting calendar. For the fourth
quarter of Fiscal 2017, the Company reported non-GAAP adjusted
earnings of $0.05 per diluted share compared to non-GAAP adjusted
earnings of $0.08 per diluted share in the year-ago period.
For full year Fiscal 2017, the Company reported a GAAP loss of
$5.48 per diluted share which included a non-cash pre-tax
impairment charge of $1.324 billion (after tax impact of $5.22 per
diluted share) recorded in the third quarter to write-down a
portion of the Company's goodwill and other intangible assets. Also
contributing to the loss was a comparable sales decline of 5%,
costs associated with the Company's Change for Growth
transformation program, and acquisition and integration costs
related to the acquisition of ANN INC. The Company reported a GAAP
loss of $0.06 per diluted share in the year-ago period. Non-GAAP
adjusted earnings for full year Fiscal 2017 were $0.22 per diluted
share compared to non-GAAP adjusted earnings of $0.60 per diluted
share in the year-ago period.
David Jaffe, Chief Executive Officer of ascena retail group,
inc., commented, “Our fourth quarter adjusted earnings per share of
five cents came in well above our guidance range, reflecting a
modest easing of store traffic headwinds. To be clear, conditions
remain challenging - store traffic was down mid-single digits for
the quarter, and we are planning for this trend to continue for the
foreseeable future. While comp sales performance was several points
better than our guide, we were not pleased with the results, and we
will not be satisfied until we deliver positive, sustained
enterprise-level comp sales.”
Jaffe continued, “Last month, we announced a major change to the
structure of our executive leadership team. This is an important
part of our efforts to reinvigorate top-line growth, enhance our
culture of performance and accountability, drive efficiencies and
cost savings, and create sustainable shareholder value. This change
has unified the leadership of all brands under Gary Muto, which
will allow our customer-facing team to leverage Gary's expertise in
fashion execution and customer experience to drive improved
performance going forward.”
Jaffe concluded, “I am encouraged by the major, decisive actions
our team has taken across all aspects of our business. As part of
our transformation efforts, we are investing in leading edge
planning and marketing capabilities to support top-line growth and
improved margin, and we remain on track to deliver cost savings of
$250 to $300 million. Transformation-related expense efficiencies
delivered to-date have provided a meaningful offset to the negative
top-line environment, and we will continue to look to identify
additional sources of cost savings as we aggressively transform
ascena into an agile competitor - one that can deliver sustainable
growth in an environment that we expect to remain intensely
competitive.”
Fiscal Fourth Quarter Results -
Consolidated
Overview
The current year period includes Restructuring and other related
charges incurred under the Company's Change for Growth
transformation program. Current and prior year fourth 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 21, 2015. A summary of year-over-year changes in these items
is presented in the notes to the unaudited condensed consolidated
financial information, which are included herein.
Net Sales and Comparable Sales
Net sales on a GAAP basis for the fourth quarter of Fiscal 2017
were $1.658 billion compared to $1.812 billion in the year-ago
period. The decrease in sales reflected the impact of a 4%
comparable sales decline, which was caused primarily by mid-single
digit declines in average selling price and store traffic, offset
in part by double-digit transaction growth in the direct channel.
In addition, the year-ago period included approximately $82 million
associated with the 53rd week in our reporting calendar. The
Company’s sales and comparable sales data for the fiscal fourth
quarter on a brand and segment basis is summarized below:
Net Sales
(millions)
ComparableSales
Three Months Ended
July 29,2017
July 30,2016
Ann Taylor (2)% $ 196.5 $
202.9
LOFT (3)% 402.9 414.2
Total Premium Fashion
(3)% 599.4 617.1 maurices (8)% 229.6
257.6 dressbarn (4)% 249.8 282.8
Total Value
Fashion (6)% 479.4 540.4 Lane
Bryant (6)% 276.8 317.9 Catherines 1% 83.5 92.4
Total Plus Fashion (4)% 360.3 410.3
Justice (4)% 219.0 244.5
Total Kids
Fashion (4)% 219.0 244.5
Total Company (4)% $ 1,658.1
$ 1,812.3
Gross margin
Gross margin on a GAAP basis decreased to $951 million, or 57.4%
of sales, for the fourth quarter of Fiscal 2017 compared to $1,041
million, or 57.5% of sales in the year-ago period. Gross margin
dollars decreased year-on-year primarily as a result of the decline
in comparable sales, along with the 53rd week included in the
year-ago period, which represented approximately $48 million. Gross
margin rate was essentially flat as product cost savings at our
Premium Fashion segment, tight inventory management at our
Plus Fashion segment, improved economics related to our
Value Fashion segment’s new credit card program, and
freight-related synergies were offset by lower average selling
price at our Value Fashion and Kids Fashion
segments.
Buying, distribution, and occupancy expenses
Buying, distribution, and occupancy (“BD&O”) expenses on a
GAAP basis for the fourth quarter of Fiscal 2017 declined 2% to
$320 million, or 19.3% of sales, compared to $328 million, or 18.1%
of sales in the year-ago period. The decrease in BD&O expenses
was primarily due to lower occupancy expenses resulting from
ongoing fleet optimization and the 53rd week included in the
year-ago period, which represented approximately $3 million.
BD&O expenses as a percentage of net sales increased primarily
due to the de-leveraging effect of lower comparable sales.
Selling, general, and administration expenses
Selling, general, and administrative (“SG&A”) expenses on a
GAAP basis for the fourth quarter of Fiscal 2017 declined 8% to
$500 million, or 30.1% of sales, compared to $540 million, or 29.8%
of sales in the year-ago period. The decrease in SG&A expenses
was primarily due to lower store expenses associated with ongoing
fleet optimization and lower sales volume, lower performance-based
compensation, and approximately $40 million in synergies and
transformation initiatives, primarily due to the elimination of
redundant leadership and non-merchandise procurement savings, along
with the 53rd week included in the year-ago period, which
represented approximately $18 million. SG&A expenses as a
percentage of net sales increased primarily due to the
de-leveraging effect of lower comparable sales.
Operating (loss) income
Operating loss on a GAAP basis for the fourth quarter of Fiscal
2017 was $9 million compared to operating income of $65 million in
the year-ago period. The decrease reflects the lower operating
results discussed above and costs associated with the Company's
Change for Growth transformation program, along with the 53rd week
included in the year-ago period, which represented approximately
$27 million.
Effective tax rate
For the three months ended July 29, 2017, the Company recorded a
tax benefit of $17 million on a pre-tax loss of $33 million. The
effective tax rate for the quarter was higher than the statutory
tax rate primarily due to the impact of permanent items and the
effect of state and local taxes.
Net (loss) income and net (loss) earnings per diluted
share
The Company reported a Net loss of $16 million, or $0.08 per
diluted share in the fourth quarter of Fiscal 2017, compared to Net
income of $14 million in the year-ago period, or $0.07 per diluted
share, which included the impact of approximately $15 million of
income, or $0.08 per diluted share from the 53rd week in our
reporting calendar.
Fiscal Fourth Quarter Balance Sheet
Highlights
Cash and cash equivalents
The Company ended the fourth quarter of Fiscal 2017 with Cash
and cash equivalents of $326 million. Of this amount, approximately
$224 million was held outside of the U.S.
Inventories
The Company ended the fourth quarter of Fiscal 2017 with
inventory of $639 million, down 2% from $649 million at the end of
the year-ago period.
Capital expenditures
Capital expenditures totaled $51 million in the fourth quarter
of Fiscal 2017.
Debt
The Company ended the fourth quarter of Fiscal 2017 with total
debt of $1.597 billion, which represents the remaining balance on
its $1.8 billion term loan used to acquire ANN. The Company
ended the fourth quarter with no borrowings outstanding under the
Company's revolving credit facility.
Fiscal Year 2018 First Quarter
Outlook
Fiscal year 2018 first quarter non-GAAP earnings per share are
estimated in the range of $0.08 to $0.13, supported by the
following assumptions:
- Net sales in the range of $1.58 to
$1.62 billion;
- Comparable sales in the range of down
4% to down 5%;
- Gross margin rate in the range of 60.8%
to 61.3%;
- Depreciation and amortization expense
of approximately $90 million;
- Operating income in the range of $55 to
$70 million;
- Interest expense of approximately $24
million;
- Effective tax rate of approximately
50%; and
- Diluted share count of 196
million.
At this point in time, the Company is not issuing full year
guidance for Fiscal 2018 earnings per share due to limited
visibility to macro trends impacting sales. The following
assumptions can be used for full year fiscal 2018:
- Gross margin rate in the range of 58.1%
to 58.6%, including approximately $30 million of gross margin
dollar improvement related to ANN deal synergies and cost
savings;
- Transformation and synergy-related
operating expense reductions of approximately $120 million, which
will be partially offset by inflationary pressure of 2.0% to 2.5%
on our operating expense base;
- Depreciation and amortization in the
range of $358 to $363 million;
- Interest expense in the range of $100
to $105 million;
- Capital expenditures in the range of
$190 to $220 million, with roughly two-thirds of planned spending
on technology investments;
- Diluted share count of 197 million;
and
- Store count in the range of 4,600 to
4,650 by the end of fiscal 2018.
Real Estate
The Company's store information on a brand-by-brand basis for
the fourth quarter is as follows:
Quarter Ended July 29,
2017
Store Locations
Store Locations
Store Locations
Store Locations
Beginning of Q4
Opened
Closed
End of Q4
Ann Taylor 325 1 (4) 322
LOFT 674 10 (6) 678
maurices 1,012 2 (9) 1,005
dressbarn 791 — (12) 779
Lane Bryant 767 — (3) 764
Catherines 363 — (4) 359
Justice 918 — (18) 900
Total
4,850 13 (56) 4,807
Conference Call
Information
The Company will conduct a conference call today, September 25,
2017, at 4:30 PM Eastern Time to review its fourth quarter and full
year 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 82349149. 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 October 2, 2017 by dialing
(855) 859-2056, the conference ID is 82349149, and until October
25, 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. The Company believes that non-GAAP financial
measures, when reviewed in conjunction with GAAP financial
measures, can provide more information to assist investors in
evaluating current period performance, trends and
period-over-period comparative results. Non-GAAP measures eliminate
amounts that do not reflect the fundamental performance of the
Company’s businesses. Such items include costs such as (i)
acquisition and integration expenses, (ii) restructuring, tangible
asset impairments and other related charges incurred under the
Company's Change for Growth initiative, (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, (iv) non-cash impairment charges of
goodwill and other intangible assets and (v) the impact of the 53rd
week included in the fourth quarter of the year-ago period.
Reference is made to Notes 1 and 2 of the unaudited condensed
consolidated financial information included herein for more
information.
Many investors also use non-GAAP measures 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 measures 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
transformation 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.
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 Premium Fashion segment
(Ann Taylor, LOFT, and Lou & Grey),
Value Fashion segment (maurices and
dressbarn), Plus Fashion segment (Lane
Bryant and Catherines), and for tween girls under
the Kids Fashion segment (Justice). ascena retail
group, inc. operates ecommerce websites and approximately 4,800
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,
maurices.com, dressbarn.com, lanebryant.com, Catherines.com, and
shopjustice.com.
ascena retail group, inc.
Condensed Consolidated Statements of
Operations (Unaudited)
(millions, except per share
data)
Three Months Ended
July 29,2017
% of NetSales
July 30,2016
% of NetSales
Net sales $ 1,658.1 100.0 % $ 1,812.3 100.0 % Cost of goods
sold (706.7 ) (42.6 )% (771.0 ) (42.5 )%
Gross margin 951.4
57.4 % 1,041.3 57.5 %
Other costs and expenses: Buying,
distribution and occupancy expenses (320.2 ) (19.3 )% (328.3 )
(18.1 )% Selling, general and administrative expenses (499.7 )
(30.1 )% (540.4 ) (29.8 )% Acquisition and integration expenses
(7.8 ) (0.5 )% (10.5 ) (0.6 )% Restructuring and other related
charges (33.9 ) (2.0 )% — — % Impairment of goodwill — — % — — %
Impairment of intangible assets — — % — — % Depreciation and
amortization expense (98.3 ) (5.9 )% (96.9 ) (5.3 )%
Operating
(loss) income (8.5 ) (0.5 )% 65.2 3.6 % Interest expense (26.1
) (1.6 )% (27.6 ) (1.5 )% Interest income and other income
(expense), net 1.7 0.1 % (0.3 ) — %
(Loss) income before
benefit (provision) for income taxes (32.9 ) (2.0 )% 37.3 2.1 %
Benefit (provision) for income taxes 17.1 1.0 % (23.5 ) (1.3
)%
Net (loss) income $ (15.8 ) (1.0 )% $ 13.8 0.8 %
Net (loss) income per common share: Basic $ (0.08 ) $
0.07 Diluted $ (0.08 ) $ 0.07
Weighted
average common shares outstanding: Basic 195.1 194.1
Diluted 195.1 195.1
See accompanying notes.
ascena retail group, inc.
Condensed Consolidated Statements of
Operations (Unaudited)
(millions, except per share
data)
Twelve Months Ended
July 29,2017
% of NetSales
July 30,2016
% of NetSales
Net sales $ 6,649.8 100.0 % $ 6,995.4 100.0 % Cost of goods
sold (2,790.2 ) (42.0 )% (3,066.7 ) (43.8 )%
Gross margin
3,859.6 58.0 % 3,928.7 56.2 %
Other costs and expenses:
Buying, distribution and occupancy expenses (1,274.3 ) (19.2 )%
(1,286.5 ) (18.4 )% Selling, general and administrative expenses
(2,068.5 ) (31.1 )% (2,112.3 ) (30.2 )% Acquisition and integration
expenses (39.4 ) (0.6 )% (77.4 ) (1.1 )% Restructuring and other
related charges (81.9 ) (1.2 )% — — % Impairment of goodwill (596.3
) (9.0 )% — — % Impairment of intangible assets (728.1 ) (10.9 )% —
— % Depreciation and amortization expense (384.9 ) (5.8 )% (358.7 )
(5.1 )%
Operating (loss) income (1,313.8 ) (19.8 )% 93.8 1.3
% Interest expense (102.2 ) (1.5 )% (103.3 ) (1.5 )% Interest
income and other income, net 1.8 — % 0.4 — % Gain on extinguishment
of debt — — % 0.8 — %
Loss before benefit
(provision) for income taxes (1,414.2 ) (21.3 )% (8.3 ) (0.1 )%
Benefit (provision) for income taxes 346.9 5.2 % (3.6 ) (0.1
)%
Net loss $ (1,067.3 ) (16.1 )% $ (11.9 ) (0.2 )%
Net loss per common share: Basic $ (5.48 ) $ (0.06 ) Diluted
$ (5.48 ) $ (0.06 )
Weighted average common shares
outstanding: Basic 194.8 192.2 Diluted 194.8
192.2
See accompanying notes.
ascena retail group, inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(millions)
July 29,2017
July 30,2016
ASSETS Current assets: Cash and cash equivalents $
325.6 $
371.8
Inventories 639.3 649.3 Prepaid expenses and other current assets
157.4 218.9
Total current assets 1,122.3
1,240.0 Property and equipment, net 1,437.6 1,630.1 Goodwill 683.0
1,279.3 Other intangible assets, net 532.4 1,268.7 Other assets
96.2 88.2
Total assets $ 3,871.5 $
5,506.3
LIABILITIES AND EQUITY Current
liabilities: Accounts payable $ 411.6 $ 429.4 Accrued expenses
and other current liabilities 352.9 413.7 Deferred income 121.5
110.0 Income taxes payable 7.1 6.6 Current portion of long-term
debt 44.0 54.0
Total current liabilities 937.1
1,013.7 Long-term debt 1,494.1 1,594.5 Lease-related liabilities
348.3 387.1 Deferred income taxes 79.3 442.2 Other non-current
liabilities 191.7 205.5
Total liabilities
3,050.5 3,643.0
Equity 821.0 1,863.3
Total liabilities and equity $ 3,871.5 $
5,506.3
See accompanying notes.
ascena retail group, inc.
Segment Information (Unaudited)
(millions)
Three Months Ended Twelve Months
Ended July 29, 2017 July 30, 2016 July
29, 2017 July 30, 2016 Net sales:
Premium
Fashion (a) $ 599.4 $ 617.1 $ 2,322.6 $ 2,330.9
Value
Fashion 479.4 540.4 1,950.2 2,094.6
Plus Fashion 360.3
410.3 1,353.9 1,463.6
Kids Fashion 219.0
244.5 1,023.1 1,106.3
Total net sales $ 1,658.1 $ 1,812.3 $ 6,649.8
$ 6,995.4
Three Months Ended Twelve Months
Ended July 29, 2017 July 30, 2016 July 29,
2017 July 30, 2016 Operating (loss) income:
Premium
Fashion (a)(b) $ 52.4 $ 45.7 $ 140.9 $ 13.3
Value
Fashion (3.2 ) 22.4 12.2 92.0
Plus Fashion 9.0 23.2 15.5
36.9
Kids Fashion (25.0 ) (15.6 ) (36.7 ) 29.0 Unallocated
acquisition and integration expenses (7.8 ) (10.5 ) (39.4 ) (77.4 )
Unallocated restructuring and other related charges (33.9 ) — (81.9
) — Unallocated impairment of goodwill
(c) — — (596.3 ) —
Unallocated impairment of intangible assets
(c) —
— (728.1 )
—
Total operating (loss) income $ (8.5 ) $ 65.2 $
(1,313.8 ) $ 93.8
Three Months Ended Twelve
Months Ended July 29, 2017 July 30, 2016 July
29, 2017 July 30, 2016 Non-GAAP adjusted operating
income:
Premium Fashion (b) (d) $ 63.0 $ 58.1
$ 184.8 $ 179.8
Value Fashion (a) (3.2 ) 13.6 12.2
83.2
Plus Fashion (a) 9.0 16.1 15.5 29.8
Kids
Fashion (a) (25.0 ) (26.6 ) (36.7 )
18.0 Total non-GAAP adjusted operating income $ 43.8
$ 61.2 $ 175.8 $ 310.8
(a)
Results for the twelve months ended July
30, 2016 include the post-acquisition results of ANN, which
was acquired on August 21, 2015. Accordingly, ANN's results
for Fiscal 2016 have been included herein for the post-acquisition
period from August 22, 2015 to July 30, 2016. Results for the
Premium Fashion 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. All segments of the Company are on
the same fiscal calendar as of the end of Fiscal 2016. Results for
the additional week are excluded from non-GAAP adjusted operating
income. Reference is made to Notes 1 and 2 of the Unaudited
Condensed Consolidated Financial Information.
(b)
Operating (loss) income 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 and twelve months ended July 29, 2017,
adjustments of $10.6 and $43.9, respectively, 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 and twelve months ended July 30, 2016,
adjustments of $12.4 and $165.2, respectively, 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. These items have been excluded from the
non-GAAP adjusted operating income. Reference is made to Note 2 of
the unaudited condensed consolidated financial information included
herein for a reconciliation of operating (loss) income on a GAAP
basis to non-GAAP adjusted operating income.
(c)
Includes the impact of non-cash
impairments of goodwill and other intangible assets by segment as
follows: $428.9 of goodwill and $566.3 of other intangible assets
at the Premium Fashion segment, $107.2 of goodwill at the
Value Fashion segment, and $60.2 of goodwill and $161.8 of
other intangible assets at the Plus Fashion segment. These
items have been excluded from the non-GAAP adjusted operating
income. Reference is made to Note 2 of the unaudited condensed
consolidated financial information included herein for a
reconciliation of operating (loss) income on a GAAP basis to
non-GAAP adjusted operating income.
(d)
Results for the twelve months ended July
30, 2016 include $1.3 reflecting ANN's operating income for
the three-week stub period from the end of their last fiscal
quarter prior to the acquisition date through the acquisition date.
Reference is made to Note 2 of the unaudited condensed consolidated
financial information included herein for a reconciliation of
operating (loss) income on a GAAP basis to non-GAAP adjusted
operating income.
ascena retail group, inc.Notes to Unaudited Condensed
Consolidated Financial Information(millions, except per
share data)
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
Fiscal 2016 have been included herein for the post-acquisition
period from August 22, 2015 to July 30, 2016.
Fiscal Year
The Company utilizes a 52-53 week fiscal year ending on the last
Saturday in July. As such, fiscal year 2017 ended on July 29, 2017
and reflected a 52-week period ("Fiscal 2017") and fiscal year 2016
ended on July 30, 2016 and reflected a 53-week period (“Fiscal
2016"). 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 2. Reconciliation of Non-GAAP Financial Measures
As noted above, the comparability of the Company's operational
results reported in accordance with U.S. generally accepted
accounting principles ("GAAP") for the periods presented herein has
been affected by certain transactions. The Company believes that
the non-GAAP financial measures presented below, when reviewed in
conjunction with GAAP financial measures, can provide more
information to assist investors in evaluating current period
performance, trends and period-over-period comparative results.
Non-GAAP measures eliminate amounts that do not reflect the
fundamental performance of the Company’s businesses. These items
include costs such as (i) acquisition and integration expenses,
(ii) restructuring, tangible asset impairments and other related
charges incurred under the Company's Change for Growth initiative,
(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, and (iv)
non-cash impairment charges of goodwill and other intangible
assets.
Many investors also use non-GAAP measures 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 GAAP and may not be comparable to similarly titled
measures of other companies due to differences in methods of
calculation and excluded items. Non-GAAP measures 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 GAAP.
The following tables reconcile non-GAAP financial measures to
the most directly comparable GAAP financial measures and include
Gross margin, BD&O expense, SG&A expense, Operating (loss)
income, Income tax benefit (provision), Net (loss) income, Diluted
net (loss) income per common share and earnings before interest,
taxes, depreciation and amortization, as adjusted ("Adjusted
EBITDA") to Net (loss) income for all periods presented.
Three Months Ended Twelve Months Ended
July 29,2017
July 30,2016
July 29,2017
July 30,2016
Net sales - reported GAAP basis $ 1,658.1 $ 1,812.3 $
6,649.8 $ 6,995.4 Impact of non-cash purchase accounting
adjustments (a) 0.7 1.1 2.7 3.2 Impact of
ANN prior to
August 21, 2015 (b) — — — 122.0 Estimated impact of the 53rd week
(c) — (82.4 ) — (82.4 )
Non-GAAP Net
sales $ 1,658.8 $ 1,731.0 $ 6,652.5 $
7,038.2
ascena retail group, inc.
Notes to Unaudited Condensed
Consolidated Financial Information - (continued)
(millions, except per share
data)
Note 2. Reconciliation of Non-GAAP
Financial Measures (continued)
Three Months Ended Twelve Months
Ended July 29, 2017 July 30, 2016 July
29, 2017 July 30, 2016 Cost of goods sold -
reported GAAP basis (706.7 ) $ (771.0 ) $ (2,790.2 ) $ (3,066.7
) Impact of non-cash purchase accounting adjustments (a) — — —
126.9 Impact of
ANN prior to August 21, 2015 (b) — — — (47.5
) Estimated impact of the 53rd week (c) — 34.1
— 34.1
Non-GAAP Cost
of goods sold $ (706.7 ) $ (736.9 ) $ (2,790.2 ) $ (2,953.2 )
Three Months Ended Twelve Months Ended July
29, 2017 July 30, 2016 July 29, 2017 July 30,
2016 Buying, distribution & occupancy expense - reported
GAAP basis $ (320.2 ) $ (328.3 ) $ (1,274.3 ) $ (1,286.5 )
Impact of non-cash purchase accounting adjustments (a) 0.4 0.8 2.8
(0.6 ) Impact of
ANN prior to August 21, 2015 (b) — — —
(27.4 ) Estimated impact of the 53rd week (c) —
3.2 — 3.2
Non-GAAP Buying, distribution & occupancy expense $
(319.8 ) $ (324.3 ) $ (1,271.5 ) $ (1,311.3 )
Three
Months Ended Twelve Months Ended July 29, 2017
July 30, 2016 July 29, 2017 July 30, 2016
Selling, general & administrative expense - reported GAAP
basis $ (499.7 ) $ (540.4 ) $ (2,068.5 ) $ (2,112.3 ) Impact of
non-cash purchase accounting adjustments (a) 1.7 1.6 6.3 4.9 Impact
of
ANN prior to August 21, 2015 (b) — — — (39.9 ) Estimated
impact of the 53rd week (c) — 18.2
— 18.2
Non-GAAP Selling,
general & administrative expense $ (498.0 ) $ (520.6 ) $
(2,062.2 ) $ (2,129.1 )
Three Months Ended Twelve
Months Ended July 29, 2017 July 30, 2016 July
29, 2017 July 30, 2016 Operating (loss) income -
reported GAAP basis $ (8.5 ) $ 65.2 $ (1,313.8 ) $ 93.8 Impact
of non-cash purchase accounting adjustments (a) 10.6 12.4 43.9
165.2 Impact of
ANN prior to August 21, 2015 (b) — — — 1.3
Estimated impact of the 53rd week (c) — (26.9 ) — (26.9 )
Impairment of goodwill and other intangible assets (d) — — 1,324.4
— Acquisition and integration expenses (e) 7.8 10.5 39.4 77.4
Restructuring and other related charges (f) 33.9
— 81.9 —
Non-GAAP Operating income $ 43.8 $ 61.2 $
175.8 $ 310.8
ascena retail group, inc.
Notes to Unaudited Condensed
Consolidated Financial Information - (continued)
(millions, except per share
data)
Note 2. Reconciliation of Non-GAAP
Financial Measures (continued)
Three Months Ended Twelve Months
Ended July 29, 2017 July 30, 2016 July
29, 2017 July 30, 2016 Income tax benefit
(provision) - reported GAAP basis $ 17.1 $ (23.5 ) $ 346.9 $
(3.6 ) Income tax impact of non-GAAP adjustments (g) (26.2 )
4.2 (380.1 ) (80.6 )
Non-GAAP
income tax provision $ (9.1 ) $ (19.3 ) $ (33.2 ) $ (84.2 )
Three Months Ended Twelve Months Ended July
29, 2017 July 30, 2016 July 29, 2017 July 30,
2016 Net (loss) income - reported GAAP basis $ (15.8 ) $
13.8 $ (1,067.3 ) $ (11.9 ) Impact of non-cash purchase accounting
adjustments (a) 10.6 12.4 43.9 165.2 Impact of
ANN prior to
August 21, 2015 (b) — — — (5.6 ) Estimated impact of the 53rd week
(c) —
(25.2
)
— (25.2 ) Impairment of goodwill and other intangible assets (d) —
— 1,324.4 — Acquisition and integration expenses (e) 7.8 10.5 39.4
77.4 Restructuring and other related charges (f) 33.9 — 81.9 — Gain
on extinguishment of debt — — — (0.8 ) Income tax impact of
non-GAAP adjustments (g) (26.2 ) 4.2
(380.1 ) (80.6 )
Non-GAAP Net income $ 10.3
$ 15.7 $ 42.2 $ 118.5
Three
Months Ended Twelve Months Ended
July 29, 2017 July 30, 2016 July 29, 2017
July 30, 2016 Diluted net (loss) income per common share
- reported GAAP basis $ (0.08 ) $ 0.07 $ (5.48 ) $ (0.06 )
Per share impact of non-cash purchase accounting adjustments
(a) 0.05 0.06 0.22 0.84 Per share impact of
ANN prior to
August 21, 2015 (b) — — — (0.03 ) Per share estimated impact of the
53rd week (c) — (0.12 ) — (0.12 ) Per share impact of impairment of
goodwill and other intangible assets (d) — — 6.80 — Per share
impact of acquisition and integration related expenses (e) 0.04
0.05 0.20 0.40 Per share impact of restructuring and other related
charges (f) 0.17 — 0.42 — Per share income tax impact of non-GAAP
adjustments (g) (0.13 ) 0.02 (1.94 ) (0.41 ) Per share impact of
ANN acquisition on EPS (h) — —
— (0.02 )
Non-GAAP diluted net
income per common share (h)(i) $ 0.05 $ 0.08 $
0.22 $ 0.60
ascena retail group, inc.
Notes to Unaudited Condensed
Consolidated Financial Information - (continued)
(millions, except per share
data)
Note 2. Reconciliation of Non-GAAP
Financial Measures (continued)
Three Months Ended Twelve Months
Ended
July 29, 2017
July 30, 2016
July 29, 2017
July 30, 2016
Adjusted EBITDA $ 134.3 $ 149.2 $ 528.6 $ 644.6 Impact of
non-cash purchase accounting adjustments (a) (2.8 ) (3.5 ) (11.8 )
(7.5 ) Non-cash expense associated with the write-up of
ANN's inventory to fair market value (a) — — — (126.9 )
Impact of
ANN prior to August 21, 2015 (b) — — — (7.2 )
Estimated impact of the 53rd week (c) — 26.9 — 26.9 Impact of
goodwill and intangible assets impairment (d) — — (1,324.4 ) —
Acquisition and other integration expenses (e) (7.8 ) (10.5 ) (39.4
) (77.4 ) Restructuring and other related charges (f) (33.9 ) —
(81.9 ) — Depreciation and amortization expense (98.3 ) (96.9 )
(384.9 ) (358.7 )
Operating (loss) income (8.5 ) 65.2
(1,313.8 ) 93.8 Interest expense (26.1 ) (27.6 ) (102.2 ) (103.3 )
Interest income and other income (expense), net 1.7 (0.3 ) 1.8 0.4
Gain on extinguishment of debt — — — 0.8
(Loss) income before benefit (provision) for income
taxes (32.9 ) 37.3 (1,414.2 ) (8.3 ) Benefit (provision) for
income taxes 17.1 (23.5 ) 346.9 (3.6 )
Net (loss)
income $ (15.8 ) $ 13.8 $ (1,067.3 ) $ (11.9 )
(a)
Includes the impact of non-cash expenses
associated with the purchase accounting adjustments of ANN's
assets and liabilities to fair market value such as adjustments to
Cost of goods sold related to the write-up of ANN's
inventory, depreciation and amortization related to the write-up of
ANN's customer relationships and property and equipment and
other purchase accounting adjustments, which are primarily
lease-related. Amounts recorded in each period presented are as
follows:
Three Months Ended
Twelve Months Ended
July 29,2017
July 30,2016
July 29,2017
July 30,2016
Net sales $ 0.7 $ 1.1 $ 2.7 $
3.2
Cost of goods sold — — — 126.9 Other operating expenses 2.1 2.4 9.1
4.3 Depreciation and amortization 7.8 8.9 32.1
30.8 $ 10.6 $ 12.4 $ 43.9 $ 165.2
(b)
Represents ANN's results for the
three-week stub period from the end of their 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 acquisition.
(c)
GAAP results for Fiscal 2016 reflect a
53-week period whereas our normal annual 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.
(d)
Represents the impact of non-cash
impairments of goodwill and other intangible assets by segment as
follows: $428.9 of goodwill and $566.3 of other intangible assets
at the Premium Fashion segment, $107.2 of goodwill at the
Value Fashion segment, and $60.2 of goodwill and $161.8 of
other intangible assets at the Plus Fashion segment.
ascena retail group, inc.Notes to Unaudited Condensed
Consolidated Financial Information - (continued)(millions,
except per share data)
Note 2. Reconciliation of Non-GAAP Financial Measures
(continued)
(e)
Primarily reflects costs related to the
ANN acquisition including severance and retention-related
expenses, settlement charges and professional fees related to a
pension plan acquired in the ANN acquisition which was
terminated in the second quarter of Fiscal 2017, legal, consulting
and investment-banking related transaction costs and other
integration costs to combine the operations and infrastructure of
the ANN business into the Company's. Amounts recorded in
each period presented are as follows:
Three Months Ended
Twelve Months Ended
July 29,2017
July 30,2016
July 29,2017
July 30,2016
Severance and retention $ 3.6 $ 3.8 $ 14.3 $
37.5
ANN pension settlement — — 8.0 — Transaction costs — (0.5 ) — 20.8
Other integration expenses 4.2 7.2 17.1 19.1
$ 7.8 $ 10.5 $ 39.4 $ 77.4 (f)
For the three and twelve months ended July 29, 2017
primarily reflects costs incurred under the Company's Change for
Growth transformation program. Expenses for the three months ended
July 29, 2017 include $13.2 of severance and related expenses,
$10.0 for asset impairments and lease termination payments related
to planned store closures and $10.7 for professional fees. For the
twelve months ended July 29, 2017 expenses include $33.2 of
severance and related expenses, $15.3 for asset impairments and
lease termination payments related to planned store closures and
$33.4 for professional fees. (g) Non-GAAP income tax benefit
(provision) is calculated based on the full year effective tax rate
for non-GAAP net income. (h) 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. (i) Reflects the impact on
EPS of using 196.3 and 195.7 million weighted average common shares
for the three and twelve months ended July 29, 2017, respectively,
for adjusted net income per diluted common share. 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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170925006359/en/
For investors:ICR, Inc.James
PalczynskiPartnerjp@icrinc.comorFor media:ascena retail
group, inc.Sue RossCorporate Affairssue.ross@ascenaretail.com
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