Second Quarter Comparable Sales Up 2%; GAAP
EPS Loss of $0.36; Adjusted EPS Loss of $0.26
ascena retail group, inc. (Nasdaq: ASNA) (“ascena” or the
“Company”) today reported financial results for its fiscal second
quarter ended February 2, 2019. For the second quarter of Fiscal
2019, the Company reported a GAAP loss of $0.36 per diluted share,
compared to a GAAP loss of $0.20 in the year-ago period, as an
increase in comparable sales was more than offset by the impact of
a lower gross margin rate and a lower benefit related to income
taxes. For the second quarter of Fiscal 2019, the Company reported
an adjusted loss of $0.26 per diluted share compared to an adjusted
loss of $0.12 per diluted share in the year-ago period.
David Jaffe, Chairman and Chief Executive Officer of ascena
retail group, inc., commented, “We delivered our third consecutive
quarter of enterprise-level comparable sales growth, with second
quarter comps up 2%. While we were pleased with continued traction
at the enterprise level, performance was again mixed across our
portfolio. Our Premium segment continues its momentum, with
double-digit comparable sales growth supported by key growth
initiatives. Our Value segment, while still operating at an
unacceptable level of profitability, delivered operating income
improvement versus the year-ago period for the first time since the
fourth quarter of fiscal 2015. Unfortunately, we took a step back
at our Plus and Kids segments this past quarter, and
we must deliver more consistent execution to get enterprise
financial results back to levels that we consider appropriate.”
Jaffe continued, “We remain on track with all cost takeout and
capability building components of our Change for Growth
transformation program. We expect to realize $300 million in run
rate savings by this coming July, and continue to aggressively roll
out capability enhancements in our marketing and merchandise
planning functions to drive top line and margin rate improvement.
The third, and most critical component of our transformation
program, is growth from our core. We have made progress here over
the past three quarters, but February performance was very
challenging, and as a result, we are well off our planned
trajectory for top-line growth."
Jaffe concluded, "While we believe the challenging selling
environment is the result of macro headwinds impacting our sector,
our third quarter outlook represents an unacceptable profit
shortfall to the expectations we shared at the beginning of our
fiscal year. As a result, we are working to accelerate plans that
were already in development to take much more fundamental action to
address our cost structure. We are committed to addressing
performance at our under-performing brands, and continue to explore
opportunities within our portfolio that can allow us to focus
capital and management attention on those brands that we believe
can deliver sustained growth and profitability by maintaining a
differentiated position in the marketplace."
Fiscal Second Quarter Results -
Consolidated
Overview
Current and prior year results include items that the Company
does not believe reflect the fundamental performance of its
business. 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 second quarter of Fiscal 2019 were $1,693
million compared to $1,719 million in the year-ago period, with a
2% increase in comparable sales more than offset by lower
non-comparable sales. The decrease in non-comparable sales was
caused by the unfavorable impact of the 53rd week in the prior
fiscal year, and fewer stores as a result of the Company's ongoing
fleet optimization program.
The Company's comparable and net sales data are summarized
below:
Net Sales (millions) Comparable
Sales
Three Months Ended February 2, 2019 January
27, 2018 Ann Taylor 10 % $ 202.4 $ 193.3 LOFT 10 % 436.5
416.3
Premium Fashion 10 % 638.9
609.6 maurices 1 % 257.8 262.6 dressbarn (1 )% 163.6
176.7
Value Fashion — % 421.4
439.3 Lane Bryant (8 )% 239.8 268.6 Catherines (4 )%
66.0 71.9
Plus Fashion (8 )%
305.8 340.5 Justice 2 % 326.7 329.6
Kids Fashion 2 % 326.7 329.6
Total Company 2 % $
1,692.8 $ 1,719.0
Gross margin
Gross margin decreased to $883 million, or 52.2% of sales, for
the second quarter of Fiscal 2019, compared to $929 million, or
54.0% of sales in the year-ago period. The decline in gross margin
dollars from the year-ago period was due to the decline in rate,
along with the impact of the extra week recorded during the second
quarter of Fiscal 2018 at our Premium Fashion segment. The
rate decrease from the year-ago period was caused primarily by
Justice, where an overly aggressive inventory buy required
significantly elevated clearance activity to achieve target
carryover inventory levels. The remainder of the rate decline was
caused by product acceptance challenges at Lane Bryant,
along with increased freight expense resulting from higher direct
channel penetration across all brands. These factors were partially
offset by improvement at dressbarn, which was up 270 basis
points from last year.
Buying, distribution, and occupancy expenses
Buying, distribution, and occupancy (“BD&O”) expenses for
the second quarter of Fiscal 2019 decreased to $318 million, which
represented 18.8% of sales, compared to $326 million, or 19.0% of
sales in the year-ago period. In terms of dollars, the reduction in
expenses was driven by lower occupancy expenses resulting primarily
from our fleet optimization program, partially offset by higher
variable distribution costs related to the increased penetration of
our direct business.
Selling, general, and administration expenses
Selling, general, and administrative (“SG&A”) expenses for
the second quarter of Fiscal 2019 decreased 1% to $519 million, or
30.7% of sales, compared to $526 million, or 30.6% of sales in the
year-ago period. The decrease in SG&A expenses was primarily
due to lower store expenses resulting from our fleet optimization
program, cost reduction initiatives, mainly reflecting headcount
and non-merchandise procurement savings, and the impact of the
extra week recorded during the second quarter of Fiscal 2018 at our
Premium Fashion segment. These declines were offset in part
by inflationary increases and higher marketing expenses in support
of key growth initiatives, including our Ann Taylor Factory
and LOFT outlet online channel launches.
Operating loss
Operating loss for the second quarter of Fiscal 2019 was $52
million compared to an operating loss of $36 million in the
year-ago period, as the positive impact of comparable sales growth,
lower operating expenses and lower depreciation expense were more
than offset by the lower non-comparable sales and lower gross
margin rate.
Benefit for income taxes
For the second quarter of Fiscal 2019, the Company recorded a
tax benefit of $6 million on pre-tax loss of $78 million. The
effective tax rate of 7.7% was lower than the statutory tax rate
primarily due to changes in tax regulations on foreign sourced
income, state and local taxes and non-deductible executive
compensation.
Net loss and Net loss per diluted share
The Company reported a Net loss of $72 million, or $0.36 per
diluted share in the second quarter of Fiscal 2019, compared to a
Net loss of $39 million, or $0.20 per diluted share, in the
year-ago period.
Fiscal Second Quarter Balance Sheet
Highlights
Cash and cash equivalents
The Company ended the second quarter of Fiscal 2019 with Cash
and cash equivalents of $215 million.
Inventories
The Company ended the second quarter of Fiscal 2019 with
inventory of $693 million, up 15% from the year-ago period.
Approximately half of the increase reflects a change in receipt
timing compared to the prior year and a gross-up related to
adoption of the new revenue recognition accounting standard. The
remainder of the increase primarily reflects increases to support
base business and strategic initiatives.
Capital expenditures
Capital expenditures totaled $30 million in the second quarter
of Fiscal 2019, primarily to support new capabilities and strategic
initiatives.
Debt
The Company ended the second quarter of Fiscal 2019 with total
debt of $1,372 million, 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 second
quarter of Fiscal 2019 and the Company had $381 million of
borrowing availability under its revolving credit facility. The
Company is not required to make its next quarterly term loan
payment of $22.5 million until November of calendar 2020.
Fiscal Year 2019 Third Quarter
Outlook
February performance was challenging, and the Company is
currently operating with reduced forward visibility on sales trends
due to what it believes are temporary, macro-related factors, and
is not issuing updated full year guidance at this time. Specific to
its third quarter, the Company currently expects a non-GAAP loss
per share of $(0.45) to $(0.35), supported by the following
assumptions:
- Net sales of $1.43 to $1.46 billion;-
Comparable sales of down 4% to down 2%;- Gross margin rate of 57.0%
to 58.0%;- Operating expense growth of approximately 4%;-
Depreciation and amortization of approximately $84 million;-
Operating loss of $(75) to $(50) million;- Interest expense of
approximately $27 million;- Income tax benefit of approximately $17
million reflecting a 21% federal tax rate and minimum taxes; and-
Diluted share count of 198 million.
Real Estate
The Company's store information on a brand-by-brand basis for
the second quarter is as follows:
Quarter Ended February 2, 2019
Store Locations Beginning of
Q2
Store Locations Opened
Store Locations Closed
Store Locations End of
Q2
Ann Taylor 303 — (7)
296
LOFT 672 — (3) 669
maurices 961 — (18) 943
dressbarn 723 — (49) 674
Lane Bryant 747 — (11) 736
Catherines 345 — (10) 335
Justice 845 —
(12) 833
Total 4,596
— (110) 4,486
Conference Call
Information
The Company will conduct a conference call today, March 14,
2019, at 4:30 PM Eastern Time to review its second quarter Fiscal
2019 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 6388493. 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 March 21, 2019
by dialing (855) 859-2056, the conference ID is 6388493, and until
April 14, 2019 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
INC.'s ("ANN") assets and liabilities, primarily
reflecting depreciation and amortization expense and lease-related
adjustments. Additionally, our GAAP results for the second quarter
of Fiscal 2018 reflect an extra week that was recorded by our
Premium Fashion segment, and certain other income tax
related charges. 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 third quarter of Fiscal Year 2019. 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,
Catherines and Cacique), and for tween girls under
the Kids Fashion segment (Justice). ascena retail
group, inc. operates ecommerce websites and approximately 4,500
stores throughout the United States, Canada and Puerto
Rico.
For more information about ascena retail group, inc. visit:
ascenaretail.com, AnnTaylor.com, factory.anntaylor.com, LOFT.com,
outlet.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 February 2, 2019
% of Net Sales January 27, 2018 % of
Net Sales Net sales $ 1,692.8 100.0 % $ 1,719.0 100.0 %
Cost of goods sold (810.0 ) (47.8 )% (790.4 ) (46.0 )%
Gross
margin 882.8 52.2 % 928.6 54.0 %
Other costs and
expenses: Buying, distribution and occupancy expenses (317.6 )
(18.8 )% (326.1 ) (19.0 )% Selling, general and administrative
expenses (519.4 ) (30.7 )% (526.2 ) (30.6 )% Acquisition and
integration expenses — — % (3.3 ) (0.2 )% Restructuring and other
related charges (14.3 ) (0.8 )% (18.8 ) (1.1 )% Depreciation and
amortization expense (83.3 ) (4.9 )% (89.8 ) (5.2 )%
Operating
loss (51.8 ) (3.1 )% (35.6 ) (2.1 )% Interest expense (26.9 )
(1.6 )% (27.2 ) (1.6 )% Interest income and other income, net 1.2
0.1 % 1.6 0.1 %
Loss before benefit for income
taxes (77.5 ) (4.6 )% (61.2 ) (3.6 )% Benefit for income taxes
6.0 0.4 % 21.9 1.3 %
Net loss $ (71.5 ) (4.2
)% $ (39.3 ) (2.3 )%
Net loss per common share: Basic
$ (0.36 ) $ (0.20 ) Diluted $ (0.36 ) $ (0.20 )
Weighted
average common shares outstanding: Basic 197.5 196.1
Diluted 197.5 196.1
See accompanying notes.
ascena retail group, inc.
Condensed Consolidated Statements of
Operations (Unaudited)
(millions, except per share
data)
Six Months Ended February 2, 2019 %
of Net Sales January 27, 2018 % of Net
Sales Net sales $ 3,284.6 100.0 % $ 3,308.7 100.0 % Cost
of goods sold (1,456.2 ) (44.3 )% (1,415.0 ) (42.8 )%
Gross
margin 1,828.4 55.7 % 1,893.7 57.2 %
Other costs and
expenses: Buying, distribution and occupancy expenses (632.3 )
(19.3 )% (644.2 ) (19.5 )% Selling, general and administrative
expenses (1,021.5 ) (31.1 )% (1,019.0 ) (30.8 )% Acquisition and
integration expenses — — % (5.4 ) (0.2 )% Restructuring and other
related charges (22.2 ) (0.7 )% (41.0 ) (1.2 )% Depreciation and
amortization expense (165.3 ) (5.0 )% (179.8 ) (5.4 )%
Operating
(loss) income (12.9 ) (0.4 )% 4.3 0.1 % Interest expense (52.9
) (1.6 )% (53.8 ) (1.6 )% Interest income and other income, net 2.0
0.1 % 1.8 0.1 %
Loss before (provision) benefit
for income taxes (63.8 ) (1.9 )% (47.7 ) (1.4 )% (Provision)
benefit for income taxes (1.8 ) (0.1 )% 15.0 0.5 %
Net
loss $ (65.6 ) (2.0 )% $ (32.7 ) (1.0 )%
Net loss per
common share: Basic $ (0.33 ) $ (0.17 ) Diluted $ (0.33 ) $
(0.17 )
Weighted average common shares outstanding:
Basic 197.1 195.8 Diluted 197.1 195.8
See accompanying notes.
ascena retail group, inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(millions)
February 2, 2019 August 4, 2018
January 27, 2018 ASSETS Current assets: Cash
and cash equivalents $ 214.6 $ 238.9 $ 413.5 Inventories 692.6
622.9 600.3 Prepaid expenses and other current assets 237.4
248.5 172.3
Total current assets 1,144.6 1,110.3
1,186.1 Property and equipment, net 1,104.6 1,205.3 1,319.0
Goodwill 683.0 683.0 683.0 Other intangible assets, net 509.2 516.0
524.2 Other assets 54.9 55.9 58.7
Total assets
$ 3,496.3 $ 3,570.5 $ 3,771.0
LIABILITIES
AND EQUITY Current liabilities: Accounts payable $ 425.5
$ 437.6 $ 380.3 Accrued expenses and other current liabilities
297.8 331.4 352.9 Deferred income 168.2 121.7 143.9 Current portion
of long-term debt — — 44.0
Total current
liabilities 891.5 890.7 921.1 Long-term debt, less current
portion 1,333.6 1,328.7 1,477.6 Lease-related liabilities 295.8
315.2 330.5 Deferred income taxes 24.9 29.6 52.5 Other non-current
liabilities 205.1 207.8 189.8
Total
liabilities 2,750.9 2,772.0 2,971.5
Equity 745.4
798.5 799.5
Total liabilities and equity $ 3,496.3
$ 3,570.5 $ 3,771.0
See accompanying notes.
ascena retail group, inc.
Segment Information (Unaudited)
(millions)
Three Months Ended Six Months Ended
February 2, 2019 January 27, 2018 February
2, 2019 January 27, 2018 Net sales:
Premium
Fashion $ 638.9 $ 609.6 $ 1,234.9 $ 1,164.7
Value
Fashion 421.4 439.3 865.8 910.6
Plus Fashion 305.8 340.5
591.2 644.7
Kids Fashion 326.7 329.6 592.7
588.7 Total net sales $ 1,692.8 $ 1,719.0
$ 3,284.6 $ 3,308.7
Three
Months Ended Six Months Ended February 2, 2019
January 27, 2018 February 2, 2019 January 27,
2018 Operating (loss) income: (a)
Premium Fashion (b)
(c) $ 13.0 $ 4.5 $ 67.6 $ 43.0
Value Fashion (32.7 )
(38.4 ) (38.9 ) (27.5 )
Plus Fashion (19.1 ) 1.0 (31.1 ) 0.1
Kids Fashion 1.3 19.4 11.7 35.1 Unallocated acquisition and
integration expenses — (3.3 ) — (5.4 ) Unallocated restructuring
and other related charges (14.3 ) (18.8 ) (22.2 ) (41.0 ) Total
operating (loss) income $ (51.8 ) $ (35.6 ) $ (12.9 ) $ 4.3
Three Months Ended Six Months Ended
February 2, 2019
January 27, 2018
February 2, 2019
January 27, 2018
Non-GAAP adjusted operating (loss) income:
Premium Fashion
(b) (c) $ 13.0 $ 6.5 $ 67.6 $ 49.7
Value Fashion
(32.7 ) (38.4 ) (38.9 ) (27.5 )
Plus Fashion (19.1 ) 1.0
(31.1 ) 0.1
Kids Fashion 1.3 19.4 11.7
35.1 Total non-GAAP adjusted operating (loss) income $ (37.5
) $ (11.5 ) $ 9.3 $ 57.4 (a) Current
year amounts reflect the impact of adopting the new revenue
recognition accounting standard in the first quarter of Fiscal
2019. Prior period amounts have not been restated and continue to
be reported under the accounting standards in effect for those
periods. (b)
Operating income for the three and six
months ended January 27, 2018 includes the impact of non-cash
expenses of $4.8 million and $9.5 million, respectively, associated
with the purchase accounting adjustments of ANN's assets and
liabilities to fair market value. The adjustments 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. This item has 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 income on a GAAP basis to
non-GAAP adjusted operating income.
(c) 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 six months ended January 27, 2018 reflect 14 and 27-weeks,
respectively. Operating income of $2.8 million from the extra week
has been excluded from non-GAAP adjusted operating income.
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.
ascena retail group, inc.
Notes to Unaudited Condensed
Consolidated Financial Information
(millions, except per share
data)
Note 1. Basis of Presentation
Fiscal year 2019 will end on August 3, 2019 and will be a
52-week period ("Fiscal 2019"). Fiscal year 2018 ended on August 4,
2018 and was a 53-week period (“Fiscal 2018”). The three and six
months ended February 2, 2019 were 13 and 26-week periods,
respectively, for all segments.
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 recognized the extra week in the fourth quarter of Fiscal
2018 due to reporting systems constraints.
As a result, the three and six months ended January 27, 2018
include the results of the Value Fashion, Plus
Fashion and Kids Fashion segments for 13 and 26-weeks,
respectively, while the results of the Premium Fashion
segment are included for 14 and 27-weeks, respectively.
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. Additionally,
our GAAP results for the second quarter of Fiscal 2018 reflect an
extra week that was recorded by our Premium Fashion segment,
and certain other income tax related charges.
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, Diluted net loss 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 Six Months
Ended February 2, 2019 January 27, 2018
February 2, 2019 January 27, 2018
Net sales - reported GAAP basis
$ 1,692.8 $ 1,719.0 $ 3,284.6 $ 3,308.7 Impact of non-cash purchase
accounting adjustments (a) — 0.1 — 0.2
Premium Fashion
additional week — (24.6 ) — (24.6 )
Non-GAAP Net sales
$ 1,692.8 $ 1,694.5 $ 3,284.6 $ 3,284.3
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 Six Months Ended
February 2, 2019 January 27, 2018
February 2, 2019 January 27, 2018 Gross
Margin - reported GAAP basis $ 882.8 $ 928.6 $ 1,828.4 $
1,893.7 Impact of non-cash purchase accounting adjustments (a) —
0.1 — 0.2
Premium Fashion additional week — (11.7 ) —
(11.7 )
Non-GAAP Gross Margin $ 882.8 $
917.0 $ 1,828.4 $ 1,882.2
Three Months Ended Six Months Ended February 2,
2019 January 27, 2018 February 2, 2019 January
27, 2018 Buying, distribution & occupancy expense -
reported GAAP basis $ (317.6 ) $ (326.1 ) $ (632.3 ) $ (644.2 )
Impact of non-cash purchase accounting adjustments (a) — — — 0.1
Premium Fashion additional week — 1.0 —
1.0
Non-GAAP Buying, distribution &
occupancy expense $ (317.6 ) $ (325.1 ) $ (632.3 ) $ (643.1 )
Three Months Ended Six Months Ended
February 2, 2019 January 27, 2018 February 2,
2019 January 27, 2018 Selling, general &
administrative expense - reported GAAP basis $ (519.4 ) $
(526.2 ) $ (1,021.5 ) $ (1,019.0 ) Impact of non-cash purchase
accounting adjustments (a) — 1.6 — 3.2
Premium Fashion
additional week — 7.9 — 7.9
Non-GAAP Selling, general & administrative expense $
(519.4 ) $ (516.7 ) $ (1,021.5 ) $ (1,007.9 )
Three Months Ended Six Months Ended February 2,
2019 January 27, 2018 February 2, 2019 January
27, 2018 Depreciation and amortization expense - reported
GAAP basis $ (83.3 ) $ (89.8 ) $ (165.3 ) $ (179.8 ) Impact of
non-cash purchase accounting adjustments (a) — 3.1 —
6.0
Non-GAAP Depreciation and amortization
expense $ (83.3 ) $ (86.7 ) $ (165.3 ) $ (173.8 )
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 Six Months Ended
February 2, 2019 January 27, 2018 February
2, 2019 January 27, 2018
Operating (loss) income - reported GAAP
basis
$ (51.8 ) $ (35.6 ) $ (12.9 ) $ 4.3 Impact of non-cash purchase
accounting adjustments (a) — 4.8 — 9.5 Acquisition and integration
expenses (b) — 3.3 — 5.4 Restructuring and other related charges
(c) 14.3 18.8 22.2 41.0
Premium Fashion additional week —
(2.8 ) — (2.8 )
Non-GAAP Operating (loss)
income
$ (37.5 ) $ (11.5 ) $ 9.3 $ 57.4
Three Months Ended Six Months Ended February 2,
2019 January 27, 2018 February 2, 2019 January
27, 2018
Income tax benefit (provision) -
reported GAAP basis
$ 6.0 $ 21.9 $ (1.8 ) $ 15.0 Income tax impact of non-GAAP
adjustments (d) (2.4 ) 2.5 (4.0 ) (12.1 ) Income tax impact of
state tax valuation allowance (e) — 23.3 — 23.3 Income tax impact
of 2017 Tax Reform Act (f) 7.7 (34.9 ) 7.7 (34.9 )
Non-GAAP income tax benefit
(provision)
$ 11.3 $ 12.8 $ 1.9 $ (8.7 )
Three Months Ended Six Months Ended February 2,
2019 January 27, 2018 February 2, 2019 January
27, 2018
Net loss - reported GAAP basis
$ (71.5 ) $ (39.3 ) $ (65.6 ) $ (32.7 ) Impact of non-cash purchase
accounting adjustments (a) — 4.8 — 9.5 Acquisition and integration
expenses (b) — 3.3 — 5.4 Restructuring and other related charges
(c) 14.3 18.8 22.2 41.0
Premium Fashion additional week —
(2.8 ) — (2.8 ) Income tax impact of non-GAAP adjustments (d) (2.4
) 2.5 (4.0 ) (12.1 ) Income tax impact of state tax valuation
allowance (e) — 23.3 — 23.3 Income tax impact of 2017 Tax Reform
Act (f) 7.7 (34.9 ) 7.7 (34.9 )
Non-GAAP Net loss
$ (51.9 ) $ (24.3 ) $ (39.7 ) $ (3.3 )
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 Six Months Ended
February 2, 2019 January 27, 2018 February
2, 2019 January 27, 2018
Diluted net loss per common share -
reported GAAP basis
$ (0.36 ) $ (0.20 ) $ (0.33 ) $ (0.17 ) Per share impact of
non-cash purchase accounting adjustments(a) — 0.02 — 0.05 Per share
impact of Acquisition and integration related expenses (b) — 0.02 —
0.03 Per share impact of Restructuring and other related charges
(c) 0.07 0.10 0.11 0.21 Per share impact of
Premium Fashion
additional week — (0.01 ) — (0.01 ) Per share income tax impact of
non-GAAP adjustments (d) (0.01 ) 0.01 (0.02 ) (0.07 ) Per share
income tax impact of state tax valuation allowance (e) — 0.12 —
0.12 Per share income tax impact of 2017 Tax Reform Act (f) 0.04
(0.18 ) 0.04 (0.18 )
Non-GAAP diluted net loss per common
share (g)
$ (0.26 ) $ (0.12 ) $ (0.20 ) $ (0.02 )
Three
Months Ended Six Months Ended February 2, 2019
January 27, 2018 February 2, 2019 January 27,
2018
Adjusted EBITDA
$ 45.8 $ 75.2 $ 174.6 $ 231.2 Impact of non-cash purchase
accounting adjustments (a) — (1.7 ) — (3.5 )
Premium Fashion
additional week — 2.8 — 2.8 Acquisition and integration expenses
(b) — (3.3 ) — (5.4 ) Restructuring and other related charges (c)
(14.3 ) (18.8 ) (22.2 ) (41.0 ) Depreciation and amortization
expense (83.3 ) (89.8 ) (165.3 ) (179.8 )
Operating (loss) income
(51.8 ) (35.6 ) (12.9 ) 4.3 Interest expense (26.9 ) (27.2 ) (52.9
) (53.8 ) Interest income and other income, net 1.2 1.6
2.0 1.8
Loss before benefit for income
taxes
(77.5 ) (61.2 ) (63.8 ) (47.7 ) Benefit (provision) for income
taxes 6.0 21.9 (1.8 ) 15.0
Net loss
$ (71.5 ) $ (39.3 ) $ (65.6 ) $ (32.7 )
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)
(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 of
Fiscal 2018. We will continue to present all prior year quarters as
previously adjusted as a supplement to our GAAP information.
Amounts recorded in the periods presented are as follows:
Three
Months Ended Six Months Ended February 2,
2019 January 27, 2018 February 2, 2019
January 27, 2018 Net sales $ — $ 0.1 $ — $ 0.2 Other
operating expenses — 1.6 — 3.3 Depreciation and amortization —
3.1 — 6.0 $ — $ 4.8 $ — $
9.5 (b)
Primarily reflects professional fees and
other costs related to the ANN acquisition to combine the
operations and infrastructure of the ANN business into the
Company's.
(c) 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 Six Months Ended February 2, 2019
January 27, 2018 February 2, 2019
January 27, 2018 Professional fees and other related charges
$ 13.2 $ 12.9 $ 21.6 $ 30.1 Severance and retention 1.1 2.7 0.6 6.6
Impairment of assets — 3.2 — 4.3 $ 14.3
$ 18.8 $ 22.2 $ 41.0 (d) Represents the
income tax impact applicable to each non-GAAP adjustment described
above. (e) 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. (f) Reflects adjustments made by the
Company in adopting the 2017 Tax Reform Act (the "2017 Act")
consistent with the relief provided by the SEC in Staff Accounting
Bulletin No. 118. Fiscal 2018 reflects the Company's initial
assessment of adopting the 2017 Act. The Company completed its
assessment during the second quarter of Fiscal 2019 and recorded
$2.5 million of additional federal and state transition tax and a
$5.2 million valuation allowance resulting from the impact of GILTI
on its U.S. federal net operating loss carryforward. (g)
Reflects the impact on EPS of using 197.5 and 197.1 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 six months ended February 2, 2019, respectively. Also
reflects the impact on EPS of using 196.1 and 195.8 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 six months ended January 27, 2018, respectively. The
number of weighted average basic and diluted common shares for all
periods presented are equal as the impact of potentially dilutive
stock options and restricted stock units was anti-dilutive under
the treasury stock method.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190314005835/en/
For investors:ICR, Inc.Jean FontanaManaging Director(646)
277-1214Jean.Fontana@icrinc.comJennifer DavisSenior Vice
President(646) 677-1813Jennifer.Davis@icrinc.comFor
media:ascena retail group, inc.Shawn BuchananCorporate
Communications(212) 541-3418shawn_buchanan@anninc.com
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