ascena retail group, inc. (NASDAQ - ASNA) (“ascena” or
the “Company”) today reported financial results for its fiscal
third quarter ended April 28, 2018. For the third quarter of Fiscal
2018, the Company reported a GAAP loss of $0.20 per diluted share
compared to a GAAP loss of $5.29 per diluted share in the year-ago
period, which included a significant non-cash impairment charge to
write-down a portion of the Company's goodwill and other intangible
assets. For the third quarter of Fiscal 2018, the Company reported
a non-GAAP adjusted loss of $0.08 per diluted share compared to
non-GAAP adjusted income of $0.05 per diluted share in the year-ago
period.
David Jaffe, Chief Executive Officer of ascena retail group,
inc., commented, “Our third quarter results reflected a soft start
in February, with sequential improvement over the combined March /
April period. Another strong quarter at Justice was offset
by continued challenges at our Value segment, particularly
at dressbarn. We realized an 8 cent loss per share on an
adjusted basis for the quarter, which is certainly not at a level
that we consider acceptable, or representative of the Company’s
earnings potential. Our transformation program delivered
significant expense reductions, and we were pleased to see improved
comp sales performance exiting the third quarter. This momentum has
continued into our fourth quarter with quarter-to-date comp sales
up mid-single digits.”
Jaffe concluded, “Looking forward, we will continue to drive our
enterprise transformation to realize the full value of our brand
portfolio, and we are working to quickly stabilize performance at
our Value segment. Our brands are focused on delivering
compelling fashion offerings and a differentiated experience to our
customers, and we expect to leverage our leaner cost structure and
our growing competitive capabilities to support sustained,
profitable comp growth. In parallel, we continue to evaluate
opportunities across our brand portfolio to create shareholder
value.”
Fiscal Third Quarter Results -
Consolidated
Overview
The current and prior year results include items that the
Company does not believe reflect the fundamental performance of the
Company's businesses. A summary of the items impacting both periods
is presented in Note 2 to the unaudited condensed consolidated
financial information, which is included herein.
Net Sales and Comparable Sales
Net sales for the third quarter of Fiscal 2018 were $1,503.3
million compared to $1,565.1 million in the year-ago period, with
the decline caused primarily by a 3% decline in comparable sales as
summarized below:
Net Sales (millions)
ComparableSales
Three Months Ended
April 28,2018
April 29,2017
Ann Taylor (7 )% $ 167.2 $ 176.1 LOFT (1 )% 365.5 359.7
Premium Fashion (3 )% 532.7
535.8 maurices (5 )% 236.6 256.1 dressbarn (14 )%
187.4 229.0
Value Fashion (9 )%
424.0 485.1 Lane Bryant (1 )% 242.4 249.4
Catherines (9 )% 70.4 79.2
Plus Fashion (3
)% 312.8 328.6 Justice (a) 10 % 233.8
215.6
Kids Fashion 10 % 233.8
215.6 Total Company (a)
(3 )% $ 1,503.3 $
1,565.1 (a) Redemption of vouchers distributed
in connection with the 2015 Justice pricing litigation settlement
increased Justice third quarter comp sales by approximately 60bp
and had an insignificant impact on Total Company comp sales.
Gross margin
Gross margin declined to $883 million, or 58.7% of sales, for
the third quarter of Fiscal 2018 compared to $948 million, or 60.6%
of sales in the year-ago period. Gross margin dollars declined
year-on-year primarily as a result of the decline in comparable
sales. Gross margin rate declined 190 basis points due primarily to
performance at our Value Fashion segment, where both
maurices and dressbarn experienced significant
declines.
Buying, distribution, and occupancy expenses
Buying, distribution, and occupancy (“BD&O”) expenses for
the third quarter of Fiscal 2018 were essentially flat at $313
million, which represented 20.8% of sales, compared to 20.0% of
sales in the year-ago period. Lower occupancy expenses resulting
from our fleet optimization program were offset by higher variable
distribution costs related to the increased penetration of our
direct business. BD&O expenses as a percentage of net sales
increased by 80 basis points primarily due to the de-leveraging
effect of lower comparable sales.
Selling, general, and administration expenses
Selling, general, and administrative (“SG&A”) expenses for
the third quarter of Fiscal 2018 declined 3% to $491 million, or
32.6% of sales, compared to $506 million, or 32.3% of sales in the
year-ago period. The decline in SG&A expenses was primarily due
to approximately $30 million in synergies and cost reduction
initiatives, mainly reflecting headcount and non-merchandise
procurement savings, lower store expenses resulting from our fleet
optimization program, and lower performance-based compensation.
These items were offset in part by inflationary increases and
higher write-downs of store-related fixed assets, primarily at the
Value Fashion segment. On a non-GAAP adjusted basis,
SG&A expenses for the third quarter declined 6% to $474 million
compared to $505 million in the year-ago period and leveraged 75
basis points as a percentage of net sales primarily due to cost
reductions from our enterprise transformation.
Operating loss
Operating loss for the third quarter of Fiscal 2018 was $23
million compared to $1,311.8 million in the year-ago period. The
loss in the current year primarily reflects the impact of the
comparable sales decline, while the loss in the year-ago period
primarily reflects non-cash impairments of goodwill and other
intangible assets. On a non-GAAP adjusted basis, we realized
operating income of $12 million compared to $43 million of
operating income in the year ago period, with the decline caused
primarily by the impact of negative comparable sales, partially
offset by operating expense reductions discussed above.
Effective tax rate
For the three months ended April 28, 2018, the Company recorded
a tax benefit of $11 million on pre-tax loss of $52 million. The
effective tax rate for the quarter of 21.9% primarily reflects the
federal and state statutory rate as well as the impact of permanent
and discrete items, including the impact of the 2017 Act.
Net loss and net loss per diluted share
The Company reported a Net loss of $40 million, or $0.20 per
diluted share in the third quarter of Fiscal 2018, compared to
$1,030.7 million, or $5.29 per diluted share, in the year-ago
period.
Fiscal Third Quarter Balance Sheet
Highlights
Cash and cash equivalents
The Company ended the third quarter of Fiscal 2018 with Cash and
cash equivalents of $363 million. Of this amount, approximately
$279 million was held outside of the U.S. Subsequent to the end of
the third quarter of Fiscal 2018, the Company repatriated
approximately $225 million of its foreign cash back to the U.S., of
which $112.5 million was used to prepay required term loan payments
through October of 2019.
Inventories
The Company ended the third quarter of Fiscal 2018 with
inventory of $668 million, down 6% from $714 million at the end of
the year-ago period.
Capital expenditures
Capital expenditures totaled $41 million in the third quarter of
Fiscal 2018, primarily to support new capabilities and strategic
initiatives. The Company continues to expect full year capital
expenditures in the range of $190 million to $220 million.
Debt
The Company ended the third quarter of Fiscal 2018 with total
debt of $1.574 billion, which represents the balance remaining on
the term loan. There were no borrowings outstanding under the
Company's revolving credit facility at the end of the third quarter
of Fiscal 2018. In addition, the Company had $471 million of
borrowing availability under its revolving credit facility. As
noted above, the Company repaid $112.5 million of its term loan
subsequent to the end of the third quarter of Fiscal 2018.
Fiscal Year 2018 Fourth Quarter
Outlook
Fiscal year 2018 fourth quarter non-GAAP earnings per share is
estimated in the range of $(0.05) to $0.05, supported by the
following assumptions:
- Net sales in the range of $1.62 to $1.66
billion;
- Comparable sales in the range of flat to up
2%;
- Gross margin rate in the range of 56.5% to
57.0%;
- Depreciation and amortization expense of
approximately $90 million;
- Operating income in the range of $22 to $42
million;
- Interest expense of approximately $29
million;
- Minimum taxes of approximately $3 million;
and
- Diluted share count of 196 million.
Real Estate
The Company's store information on a brand-by-brand basis for
the third quarter is as follows:
Quarter Ended April 28, 2018
Store LocationsBeginning of
Q3
Store LocationsOpened
Store LocationsClosed
Store LocationsEnd of Q3
Ann Taylor 309 — (3) 306
LOFT
679 — (5) 674
maurices 993 — (7) 986
dressbarn 741 —
(2) 739
Lane Bryant 754 — (2) 752
Catherines 352 —
(1) 351
Justice 862 — (7) 855
Total 4,690 — (27) 4,663
As part of its continuing fleet optimization program, the
Company has closed 261 stores from January 2017 through April 28,
2018, and realized approximately $40 million in annualized rent
reductions through landlord negotiations. The Company continues to
expect to end Fiscal 2018 with a store count between 4,600 and
4,650 stores.
Conference Call
Information
The Company will conduct a conference call today, June 4, 2018,
at 4:30 PM Eastern Time to review its third quarter Fiscal 2018
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 4693537. 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 June 11, 2018
by dialing (855) 859-2056, the conference ID is 4693537, and until
July 4, 2018 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 including, but not
limited to, charges incurred under the Company's Change for Growth
initiative, and (iii) non-cash charges associated with purchase
accounting adjustments related to the acquisition of ANN's
assets and liabilities, primarily reflecting depreciation and
amortization expense and lease-related adjustments and (iv)
non-cash impairment charges of goodwill and other intangible
assets. Additionally, our GAAP results for Fiscal 2018 reflect an
extra week that was recorded by our Premium Fashion segment
during the second quarter, and certain other income tax related
charges recorded in the second and third quarters. 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 and Net income
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, non-cash
purchase accounting adjustments, 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 such 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. Forward-looking
statements are statements related to future, not past, events, and
often contain words such as “expect,” "anticipate," "intend,"
"plan," "believe," "seek," "see," "will," "would," “estimate,”
“forecast,” "target," “preliminary,” or “range,” and include the
Company’s outlook for the fourth quarter and full year of Fiscal
Year 2018. 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 4,700
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
April 28,2018
% of NetSales
April 29,2017
% of NetSales
Net sales $ 1,503.3 100.0 % $ 1,565.1 100.0 % Cost of goods
sold (620.3 ) (41.3 )% (616.7 ) (39.4 )%
Gross margin 883.0
58.7 % 948.4 60.6 %
Other costs and expenses: Buying,
distribution and occupancy expenses (312.5 ) (20.8 )% (313.4 )
(20.0 )% Selling, general and administrative expenses (490.6 )
(32.6 )% (506.3 ) (32.3 )% Acquisition and integration expenses — —
% (3.8 ) (0.2 )% Restructuring and other related charges (18.1 )
(1.2 )% (15.9 ) (1.0 )% Impairment of goodwill — — % (596.3 ) (38.1
)% Impairment of other intangible assets — — % (728.1 ) (46.5 )%
Depreciation and amortization expense (84.9 ) (5.6 )% (96.4 ) (6.2
)%
Operating loss (23.1 ) (1.5 )% (1,311.8 ) (83.8 )%
Interest expense (28.4 ) (1.9 )% (25.8 ) (1.6 )% Interest income
and other expense, net — — % (0.2 ) — %
Loss before
benefit for income taxes (51.5 ) (3.4 )% (1,337.8 ) (85.5 )%
Benefit for income taxes 11.3 0.8 % 307.1 19.6 %
Net loss $ (40.2 ) (2.7 )% $ (1,030.7 ) (65.9 )%
Net loss per common share: Basic $ (0.20 ) $ (5.29 ) Diluted
$ (0.20 ) $ (5.29 )
Weighted average common shares
outstanding: Basic 196.2 195.0 Diluted 196.2
195.0
See accompanying notes.
ascena retail group, inc. Condensed Consolidated
Statements of Operations (Unaudited) (millions, except per
share data) Nine Months Ended
April 28,2018
% of NetSales
April 29,2017
% of NetSales
Net sales $ 4,812.0 100.0 % $ 4,991.7 100.0 % Cost of goods
sold (2,035.3 ) (42.3 )% (2,083.5 ) (41.7 )%
Gross margin
2,776.7 57.7 % 2,908.2 58.3 %
Other costs and expenses:
Buying, distribution and occupancy expenses (956.7 ) (19.9 )%
(954.1 ) (19.1 )% Selling, general and administrative expenses
(1,509.6 ) (31.4 )% (1,568.8 ) (31.4 )% Acquisition and integration
expenses (5.4 ) (0.1 )% (31.6 ) (0.6 )% Restructuring and other
related charges (59.1 ) (1.2 )% (48.0 ) (1.0 )% Impairment of
goodwill — — % (596.3 ) (11.9 )% Impairment of other intangible
assets — — % (728.1 ) (14.6 )% Depreciation and amortization
expense (264.7 ) (5.5 )% (286.6 ) (5.7 )%
Operating loss
(18.8 ) (0.4 )% (1,305.3 ) (26.1 )% Interest expense (82.2 ) (1.7
)% (76.1 ) (1.5 )% Interest income and other income, net 1.8
— % 0.1 — %
Loss before benefit for income taxes
(99.2 ) (2.1 )% (1,381.3 ) (27.7 )% Benefit for income taxes 26.3
0.5 % 329.8 6.6 %
Net loss $ (72.9 ) (1.5 )% $
(1,051.5 ) (21.1 )%
Net loss per common share: Basic
$ (0.37 ) $ (5.40 ) Diluted $ (0.37 ) $ (5.40 )
Weighted
average common shares outstanding: Basic 195.9 194.7
Diluted 195.9 194.7
See accompanying notes.
ascena retail group, inc. Condensed Consolidated
Balance Sheets (Unaudited) (millions)
April 28,2018
July 29,2017
ASSETS Current assets: Cash and cash equivalents $
362.8 $ 325.6 Inventories 667.7 639.3 Prepaid expenses and other
current assets 182.9 157.4
Total current assets
1,213.4 1,122.3 Property and equipment, net 1,251.6 1,437.6
Goodwill 683.0 683.0 Other intangible assets, net 520.1 532.4 Other
assets 57.9 96.2
Total assets $ 3,726.0 $
3,871.5
LIABILITIES AND EQUITY Current
liabilities: Accounts payable $ 394.1 $ 411.6 Accrued expenses
and other current liabilities 356.1 360.0 Deferred income 133.7
121.5 Current portion of long-term debt 66.5 44.0
Total
current liabilities 950.4 937.1 Long-term debt, less current
portion 1,456.8 1,494.1 Lease-related liabilities 322.8 348.3
Deferred income taxes 46.3 79.3 Other non-current liabilities 188.7
191.7
Total Liabilities 2,965.0 3,050.5
Equity
761.0 821.0
Total liabilities and equity $ 3,726.0
$ 3,871.5
See accompanying notes.
ascena retail group, inc. Segment Information
(Unaudited) (millions) Three Months
Ended Nine Months Ended
April 28,2018
April 29,2017
April 28,2018
April 29,2017
Net sales:
Premium Fashion (a) $ 532.7 $ 535.8 $
1,697.4 $ 1,723.2
Value Fashion 424.0 485.1 1,334.6 1,470.8
Plus Fashion 312.8 328.6 957.5 993.6
Kids Fashion
233.8 215.6 822.5 804.1 Total net sales
$ 1,503.3 $ 1,565.1 $ 4,812.0 $ 4,991.7
Three Months Ended Nine Months Ended
April 28,2018
April 29,2017
April 28,2018
April 29,2017
Operating loss:
Premium Fashion (a)(b) $ 30.1 $ 22.2
$ 73.1 $ 88.5
Value Fashion (c) (48.1 ) 23.1 (75.6 )
15.4
Plus Fashion 13.4 10.3 13.5 6.5
Kids Fashion
(0.4 ) (23.3 ) 34.7 (11.7 ) Unallocated acquisition and integration
expenses — (3.8 ) (5.4 ) (31.6 ) Unallocated restructuring and
other related charges (18.1 ) (15.9 ) (59.1 ) (48.0 ) Unallocated
impairment of goodwill — (596.3 ) — (596.3 ) Unallocated impairment
of other intangible assets — (728.1 ) — (728.1 )
Total operating loss $ (23.1 ) $ (1,311.8 ) $ (18.8 ) $ (1,305.3 )
Three Months Ended Nine Months Ended
April 28,2018
April 29,2017
April 28,2018
April 29,2017
Non-GAAP adjusted operating income:
Premium Fashion
(a)(b) $ 30.1 $ 33.0 $ 79.8 $ 121.8
Value Fashion
(c) (31.0 ) 23.1 (58.5 ) 15.4
Plus Fashion 13.4 10.3
13.5 6.5
Kids Fashion (0.4 ) (23.3 ) 34.7 (11.7 )
Total non-GAAP adjusted operating income $ 12.1 $ 43.1
$ 69.5 $ 132.0 (a) The Company's
Premium Fashion segment, which historically has followed the
National Retail Federation calendar, recognized an extra week
during the second quarter of Fiscal 2018. Therefore, results for
the Premium Fashion segment for the three and nine months ended
April 28, 2018 reflect 13 and 40-weeks, respectively. Operating
income of $2.8 million from the extra week has been excluded from
non-GAAP adjusted operating income for the nine months ended April
28, 2018. Reference is made to Notes 1 and 2 of the unaudited
condensed consolidated financial information included herein for
more information and a reconciliation of results on a GAAP basis to
a non-GAAP adjusted basis. (b)
Operating 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 nine months ended April 28, 2018, such adjustments
were $9.5 million, while for the three and nine months ended April
29, 2017, adjustments were $10.8 million and $33.3 million,
respectively. Adjustments in all periods 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. These items have been excluded from the non-GAAP
adjusted operating income. Beginning with the third quarter of
Fiscal 2018, the Company no longer is adjusting for these items.
Reference is made to Note 2 of the unaudited condensed consolidated
financial information included herein for more information and a
reconciliation of operating income on a GAAP basis to non-GAAP
adjusted operating income.
(c)
Operating income includes the impact of a
non-cash impairment charge of approximately $17.1 million to
write-down store-related assets at dressbarn in the third
quarter of Fiscal 2018. Reference is made to Note 2 of the
unaudited condensed consolidated financial information included
herein for more information and a reconciliation of operating
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
Fiscal year 2018 will end on August 4, 2018 and will be a
53-week period ("Fiscal 2018") as the Company conforms its fiscal
periods to the National Retail Federation calendar. Fiscal year
2017 ended on July 29, 2017 and was a 52-week period (“Fiscal
2017”).
The Company's Premium Fashion segment, which historically
has followed the National Retail Federation calendar, recognized an
extra week during the second quarter of Fiscal 2018, consistent
with other retail companies already on that calendar. The Company's
Value Fashion, Plus Fashion, and Kids Fashion
segments will recognize the extra week in the fourth quarter of
Fiscal 2018 due to reporting systems constraints.
As a result, the three and nine months ended April 28, 2018
include the results of the Value Fashion, Plus
Fashion and Kids Fashion segments for 13 and 39-weeks,
respectively, while the results of the Premium Fashion
segment are included for 13 and 40-weeks, respectively. The three
and nine months ended April 29, 2017 were 13 and 39-week
periods, respectively, for all segments.
Note 2. Reconciliation of Non-GAAP Financial Measures
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 including, but not
limited to, charges incurred under the Company's Change for Growth
initiative, and (iii) non-cash charges associated with purchase
accounting adjustments related to the acquisition of ANN's
assets and liabilities, primarily reflecting depreciation and
amortization expense and lease-related adjustments and (iv)
non-cash impairment charges of goodwill and other intangible
assets. Additionally, as described in Note 1, our GAAP results for
the second quarter of Fiscal 2018 reflect an extra week that was
recorded by our Premium Fashion segment.
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 and Net income 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
Net sales, Gross margin, BD&O expense, SG&A expense,
Depreciation and amortization 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 for all periods presented.
Three Months Ended Nine
Months Ended
April 28,2018
April 29,2017
April 28,2018
April 29,2017
Net sales - reported GAAP basis $ 1,503.3 $ 1,565.1 $
4,812.0 $ 4,991.7 Impact of non-cash purchase accounting
adjustments (a) — 0.6 0.2 2.0
Premium Fashion additional
week — — (24.6 ) —
Non-GAAP Net sales $
1,503.3 $ 1,565.7 $ 4,787.6 $ 4,993.7
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 Nine
Months Ended
April 28,2018
April 29,2017
April 28,2018
April 29,2017
Gross Margin - reported GAAP basis $ 883.0 $ 948.4 $ 2,776.7
$ 2,908.2 Impact of non-cash purchase accounting adjustments (a) —
0.6 0.2 2.0
Premium Fashion additional week — —
(11.7 ) —
Non-GAAP Gross Margin $ 883.0
$ 949.0 $ 2,765.2 $ 2,910.2
Three Months Ended Nine Months Ended
April 28,2018
April 29,2017
April 28,2018
April 29,2017
Buying, distribution & occupancy expense - reported GAAP
basis $ (312.5 ) $ (313.4 ) $ (956.7 ) $ (954.1 ) Impact of
non-cash purchase accounting adjustments (a) — 1.1 0.1 2.4
Premium Fashion additional week — — 1.0
—
Non-GAAP Buying, distribution & occupancy
expense $ (312.5 ) $ (312.3 ) $ (955.6 ) $ (951.7 )
Three Months Ended Nine Months Ended
April 28,2018
April 29,2017
April 28,2018
April 29,2017
Selling, general & administrative expense - reported GAAP
basis $ (490.6 ) $ (506.3 ) $ (1,509.6 ) $ (1,568.8 ) Impact of
non-cash purchase accounting adjustments (a) — 1.4 3.2 4.6
Premium Fashion additional week — — 7.9 —
dressbarn
store-related impairment (b) 17.1 — 17.1 —
Non-GAAP Selling, general & administrative
expense $ (473.5 ) $ (504.9 ) $ (1,481.4 ) $ (1,564.2 )
Three Months Ended Nine Months Ended
April 28,2018
April 29,2017
April 28,2018
April 29,2017
Depreciation and amortization expense - reported GAAP basis
$ (84.9 ) $ (96.4 ) $ (264.7 ) $ (286.6 ) Impact of non-cash
purchase accounting adjustments (a) — 7.7 6.0
24.3
Non-GAAP Depreciation and amortization
expense $ (84.9 ) $ (88.7 ) $ (258.7 ) $ (262.3 )
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 Nine Months Ended
April 28,2018
April 29,2017
April 28,2018
April 29,2017
Operating loss - reported GAAP basis $ (23.1 ) $ (1,311.8 )
$ (18.8 ) $ (1,305.3 ) Impact of non-cash purchase accounting
adjustments (a) — 10.8 9.5 33.3
dressbarn store-related
impairment (b) 17.1 — 17.1 — Acquisition and integration expenses
(c) — 3.8 5.4 31.6 Restructuring and other related charges (d) 18.1
15.9 59.1 48.0
Premium Fashion additional week — — (2.8 ) —
Impairment of goodwill and other intangible assets — 1,324.4
— 1,324.4
Non-GAAP Operating
income $ 12.1 $ 43.1 $ 69.5 $ 132.0
Three Months Ended Nine Months Ended
April 28,2018
April 29,2017
April 28,2018
April 29,2017
Income tax benefit - reported GAAP basis $ 11.3 $ 307.1 $
26.3 $ 329.8 Income tax impact of non-GAAP adjustments (e) (14.6 )
(314.6 ) (26.7 ) (353.9 ) Income tax impact of state tax valuation
allowance (f) — — 23.3 — Income tax impact of 2017 Tax Reform Act
(g) 3.9 — (31.0 ) —
Non-GAAP income
tax benefit (provision) $ 0.6 $ (7.5 ) $ (8.1 ) $ (24.1
)
Three Months Ended Nine Months Ended
April 28,2018
April 29,2017
April 28,2018
April 29,2017
Net loss - reported GAAP basis $ (40.2 ) $ (1,030.7 ) $
(72.9 ) $ (1,051.5 ) Impact of non-cash purchase accounting
adjustments (a) — 10.8 9.5 33.3
dressbarn store-related
impairment (b) 17.1 — 17.1 — Acquisition and integration expenses
(c) — 3.8 5.4 31.6 Restructuring and other related charges (d) 18.1
15.9 59.1 48.0
Premium Fashion additional week — — (2.8 ) —
Impairment of goodwill and other intangible assets — 1,324.4 —
1,324.4 Income tax impact of non-GAAP adjustments (e) (14.6 )
(314.6 ) (26.7 ) (353.9 ) Income tax impact of state tax valuation
allowance (f) — — 23.3 — Income tax impact of 2017 Tax Reform Act
(g) 3.9 — (31.0 ) —
Non-GAAP Net
(loss) income $ (15.7 ) $ 9.6 $ (19.0 ) $ 31.9
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
Nine Months Ended
April 28,2018
April 29,2017
April 28,2018
April 29,2017
Diluted net loss per common share - reported GAAP basis $
(0.20 ) $ (5.29 ) $ (0.37 ) $ (5.40 ) Per share impact of non-cash
purchase accounting adjustments (a) — 0.06 0.05 0.17 Per share
impact of
dressbarn store-related impairment (b) 0.08 — 0.08
— Per share impact of Acquisition and integration related expenses
(c) — 0.02 0.03 0.16 Per share impact of Restructuring and other
related charges (d) 0.09 0.08 0.30 0.25 Per share impact of
Premium Fashion additional week — — (0.01 ) — Per share
impact of Impairment of goodwill and other intangible assets — 6.79
— 6.80 Per share income tax impact of non-GAAP adjustments (e)
(0.07 ) (1.61 ) (0.14 ) (1.82 ) Per share income tax impact of
state tax valuation allowance (f) — — 0.12 — Per share income tax
impact of 2017 Tax Reform Act (g) 0.02 — (0.16 ) —
Non-GAAP diluted net (loss) income per common
share (h) $ (0.08 ) $ 0.05 $ (0.10 ) $ 0.16
Three Months Ended
Nine Months Ended
April 28,2018
April 29,2017
April 28,2018
April 29,2017
Adjusted EBITDA $ 97.0 $ 131.8 $ 328.2 $ 394.3 Impact of
non-cash purchase accounting adjustments (a) — (3.1 ) (3.5 ) (9.0 )
Premium Fashion additional week — — 2.8 —
dressbarn
store-related impairment (b) (17.1 ) — (17.1 ) — Acquisition and
other integration expenses (c) — (3.8 ) (5.4 ) (31.6 )
Restructuring and other related charges (d) (18.1 ) (15.9 ) (59.1 )
(48.0 ) Impact of goodwill and other intangible assets impairment —
(1,324.4 ) — (1,324.4 ) Depreciation and amortization expense (84.9
) (96.4 ) (264.7 ) (286.6 )
Operating loss (23.1 ) (1,311.8
) (18.8 ) (1,305.3 ) Interest expense (28.4 ) (25.8 ) (82.2 ) (76.1
) Interest income and other income, net — (0.2 ) 1.8
0.1
Loss before benefit for income taxes (51.5 )
(1,337.8 ) (99.2 ) (1,381.3 ) Benefit for income taxes 11.3
307.1 26.3 329.8
Net loss $ (40.2 ) $
(1,030.7 ) $ (72.9 ) $ (1,051.5 )
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)
(a)
Includes the impact of non-cash expenses
associated with the purchase accounting adjustments of ANN's
assets and liabilities to fair market value calculated in
accordance with Accounting Standards Codification 805 - Business
Combinations, such as adjustments to 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. Such costs are unique to each
transaction and the nature and amount of such costs vary
significantly based on the size and timing of the acquisitions and
the maturities of the businesses being acquired. Previous to the
third quarter of Fiscal 2018, we had excluded these costs because
we believed that the costs were material to investors and that
these non-cash adjustments are inconsistent in amount and frequency
and are significantly impacted by the timing and/or size of
acquisition. During the third quarter of Fiscal 2018, we concluded
that such costs were no longer material and, accordingly we are no
longer adjusting for these costs beginning with the third quarter.
We will continue to present all prior year quarters as previously
adjusted and the current year amounts previously reported through
the second quarter of Fiscal 2018 as a supplement to our GAAP
information. Amounts recorded in each period presented are as
follows:
Three Months Ended Nine
Months Ended
April 28,2018
April 29,2017
April 28,2018
April 29,2017
Net sales $ — $ 0.6 $ 0.2 $ 2.0 Other operating expenses — 2.5 3.3
7.0 Depreciation and amortization — 7.7 6.0
24.3 $ — $ 10.8 $ 9.5 $ 33.3 (b)
During the third quarter of Fiscal 2018,
new leadership at the Company's Value Fashion segment,
particularly at its dressbarn brand, began a comprehensive
review of the dressbarn operations with the goal of turning
around its recent performance. As a result, when the Company
performed its third quarter long-lived asset impairment testing for
dressbarn, certain near-term cash flow assumptions for that
brand were revised, which resulted in lower overall anticipated
future cash flows and the Company recorded a non-cash impairment
charge of approximately $17.1 million for certain under-performing
retail stores. Given the comprehensive review performed by a new
management team, the Company believes that such costs represent a
significant, non-recurring item that is non-cash in nature and
doesn't impact the Company's liquidity, and has therefore excluded
the charge from our non-GAAP results.
(c)
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, 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 Nine
Months Ended
April 28,2018
April 29,2017
April 28,2018
April 29,2017
Other integration expenses $ — $ 3.6 $ 5.4 $ 12.9 Severance and
retention — 0.2 — 10.7
ANN pension settlement
— — — 8.0 $ — $ 3.8 $ 5.4
$ 31.6 (d) Reflects costs incurred under the
Company's Change for Growth program including professional fees and
other related charges incurred in connection with the
identification and implementation of the transformation initiatives
associated with the program, severance and retention-related
charges incurred under the program and charges related to the
write-down of assets resulting from program activities or the fleet
optimization program. Amounts recorded in each period presented are
as follows:
Three Months Ended
Nine Months Ended
April 28,2018
April 29,2017
April 28,2018
April 29,2017
Professional fees and other related charges $ 13.1 $ 10.9 $ 43.2 $
22.7 Severance and retention (0.6 ) (0.3 ) 6.0 20.0 Impairment of
assets 5.6 5.3 9.9 5.3 $ 18.1 $ 15.9
$ 59.1 $ 48.0
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) Represents the income tax impact applicable to each
non-GAAP adjustment described above. (f) Due to the
limitations placed on the use of state income tax net operating
losses, we established a valuation allowance in the second quarter
of Fiscal 2018. Because this expense is non-cash in nature and
non-recurring, we have excluded the expense attributable to the
valuation allowance from our non-GAAP results. (g) Reflects
the Company’s current estimate of the impact of the 2017 Tax Reform
Act, consistent with the relief provided by the SEC in Staff
Accounting Bulletin No. 118. Further analysis and regulatory
guidance is required before this amount can be finalized, which is
expected to occur in the fourth quarter of Fiscal 2018. The
measurement period allowed by the SEC requires that companies must
complete their analysis no later than December 2018. (h)
Reflects the impact on EPS of using 196.2 and 195.9 million
weighted average common shares for both GAAP net loss per diluted
common share and adjusted net loss per diluted common share for the
three and nine months ended April 28, 2018, respectively, as the
impact of potentially dilutive stock options and restricted stock
units was anti-dilutive under the treasury stock method. Also
reflects the impact on EPS of using 195.0 and 194.7 million
weighted average common shares for adjusted net income per diluted
common share for the three and nine months ended April 29, 2017,
respectively.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180604006363/en/
For investors:ICR, Inc.Jean FontanaManaging Director(646)
277-1214Jean.Fontana@icrinc.comorFor media:ascena retail
group, inc.Sue RossCorporate Affairs(218)
491-2110sue.ross@ascenaretail.com
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