ascena retail group, inc. (Nasdaq - ASNA) (“ascena” or
the “Company”) today reported financial results for its fiscal
third quarter ended May 4, 2019. For the third quarter of Fiscal
2019, the Company reported a GAAP loss of $1.20 per diluted share,
compared to a GAAP loss of $0.20 in the year-ago period. The
current year loss reflects non-cash impairment charges of $174
million, consisting of write-downs of goodwill, other intangible
assets and store-related fixed assets. For the third quarter of
Fiscal 2019, the Company reported an adjusted loss of $0.26 per
diluted share compared to an adjusted loss of $0.08 per diluted
share in the year-ago period.
Carrie Teffner, Interim Executive Chair of ascena retail group,
inc., commented, “The Board and Management have been working
together to transform the Company and return ascena to profitable
and sustainable top-line growth. Our focus has been, and will be,
on creating value for our investors.”
Teffner continued, “As we work to transform and simplify the
business, we have made meaningful progress on our comprehensive
assessment of ascena’s portfolio of brands. With the successfully
completed divestiture of maurices and the announced wind
down of our dressbarn brand, we have essentially exited our
Value Fashion segment, which has consistently underperformed
expectations and generated substantial losses over the last two
years. While we continue our portfolio assessment, we are focused
on right sizing our corporate overhead structure to support a
business with fewer, stronger brands that can deliver growth and
profitability levels above the industry average."
Gary Muto, Chief Executive Officer of ascena retail group, inc.
commented, "Third quarter results were better than anticipated,
driven by stronger comps. With the elimination of our Value
Fashion segment, we are already re-aligning our financial and
human capital to support the areas of the business with the
greatest growth potential. We have some of the most iconic brands
in retail, and are well-positioned in our customers’ minds to
capitalize on the equity built into these brands."
Muto continued, "While we work to accelerate top-line growth
from our more focused brand portfolio, we continue to drive
meaningful structural cost reduction. Beyond the $300 million
savings from our Change for Growth program, we have identified an
incremental $150 million opportunity. We expect the majority of
these incremental savings to be realized in Fiscal 2020, and we
continue to seek further cost reduction opportunities on an ongoing
basis. We have a highly committed and engaged workforce that is
focused on delivering the growth and profitability that we know we
are capable of achieving."
Fiscal Third Quarter Results -
Consolidated
Overview
Current and prior year results include items that the Company
does not believe reflect the fundamental performance of its
business. The following commentary reflects results from the
Company's continuing operations that exclude its maurices
brand, which has been classified as a discontinued operation. More
information is provided in the Notes to the unaudited condensed
consolidated financial information, which is included herein on
pages 11 through 16.
Net sales and comparable sales
Net sales for the third quarter of Fiscal 2019 were $1,266
million compared to $1,267 million in the year-ago period.
Comparable sales were flat for the quarter. Non-comparable sales
were also flat, with the favorable timing impact resulting from the
53rd week in the prior fiscal year offset by 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)
ComparableSales
Three Months Ended
May 4,2019
April 28,2018
Ann Taylor 5% $ 169.4 $ 167.2 LOFT 5% 380.1 365.5
Premium
Fashion 5% 549.5 532.7 Lane Bryant
(2)% 243.3 242.4 Catherines (6)% 68.2 70.4
Plus
Fashion (3)% 311.5 312.8 Justice
(5)% 227.4 233.8
Kids Fashion (5)%
227.4 233.8 dressbarn (4)% 177.3 187.4
Value Fashion (4)% 177.3 187.4
Total Company —% $ 1,265.7
$ 1,266.7
Gross margin
Gross margin decreased to $722 million, or 57.1% of sales, for
the third quarter of Fiscal 2019, compared to $753 million, or
59.5% of sales in the year-ago period. The decline in gross margin
rate from the year-ago period was primarily caused by higher
promotional activity to address elevated inventory levels and soft
pre-Easter selling at our Premium Fashion and Kids
Fashion segments, and clearance of the under-performing tops
assortment at Lane Bryant.
Buying, distribution, and occupancy expenses
Buying, distribution, and occupancy (“BD&O”) expenses for
the third quarter of Fiscal 2019 decreased to $276 million, which
represented 21.8% of sales, compared to $280 million, or 22.1% 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 third quarter of Fiscal 2019 increased 12% to $476 million, or
37.6% of sales, compared to $426 million, or 33.7% of sales in the
year-ago period. The increase in SG&A expenses was primarily
due to inflationary increases, increased marketing investments,
higher professional fees and write-offs of store-related fixed
assets at the Plus Fashion and Value Fashion
segments. These increases were partially offset by lower store
expenses resulting from our fleet optimization program and
approximately $15 million in cost reduction initiatives, mainly
reflecting headcount and non-merchandise procurement savings.
Operating loss
Operating loss for the third quarter of Fiscal 2019 was $249
million compared to an operating loss of $49 million in the
year-ago period, and primarily reflects the non-cash impairments of
goodwill and intangible assets, the lower gross margin rate, and
the increase in SG&A expenses. Excluding the non-cash
impairment charges and other items as detailed in Note 2, operating
loss for the quarter would have been $68 million.
Benefit for income taxes from continuing operations
For the third quarter of Fiscal 2019, the Company recorded a tax
benefit of $32 million on pre-tax loss of $276 million. The
effective tax rate of 11.6% was lower than the statutory tax rate
primarily due to non-deductible impairments of goodwill, a partial
federal valuation allowance, and GILTI.
Net loss and Loss per diluted share
The Company reported a Net loss of $238 million, or $1.20 per
diluted share in the third quarter of Fiscal 2019, compared to a
Net loss of $40 million, or $0.20 per diluted share, in the
year-ago period. Excluding the non-cash impairment charges and
other items as detailed in Note 2, the net loss for the quarter
would have been $51 million, or $0.26 per share.
Fiscal Third Quarter Balance Sheet
Highlights
Cash and cash equivalents
The Company ended the third quarter of Fiscal 2019 with Cash and
cash equivalents of $101 million. Subsequent to quarter end, on May
6, 2019, the Company received approximately $210 million in cash
related to the closing of its maurices transaction.
Inventories
The Company ended the third quarter of Fiscal 2019 with
inventory of $654 million, up 16% from the year-ago period.
Approximately one-third of the increase was related to early
receipts and the new revenue recognition standard, with the
remainder caused by a mid-to high single digit decline in comp
sales trends at the Premium Fashion and Kids Fashion
segments compared to the time at which inventory was bought.
Capital expenditures
Capital expenditures totaled $35 million in the third quarter of
Fiscal 2019, primarily to support new capabilities and strategic
initiatives.
Debt
The Company ended the third 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 third quarter
of Fiscal 2019 and the Company had $474 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 Fourth Quarter
Outlook
Due to volatility that we expect in total consolidated results
related to the ongoing wind-down of our dressbarn brand, we
are providing net sales, gross margin and operating income guidance
for the consolidated continuing operations of our Premium
Fashion, Plus Fashion, and Kids Fashion segments
as follows:
- Net sales of $1.175 to $1.215 billion;
- Comparable sales of down 5% to down 3%;
- Gross margin rate of 55.0% to 55.5%;
- Depreciation and amortization of
approximately $64 million; and
- Operating loss of $(15) million to
operating income of $5 million
.
Real Estate
The Company's store information on a brand-by-brand basis for
the third quarter is as follows:
Quarter Ended May 4, 2019
Store LocationsBeginning of
Q3
Store LocationsOpened
Store LocationsClosed
Store LocationsEnd of Q3
Justice 833 — (2)
831
Lane Bryant 736 — (5) 731
LOFT 669 1 — 670
dressbarn 674 — (13) 661
Catherines 335 — (3) 332
Ann Taylor 296 — (2)
294
Total 3,543 1 (25)
3,519
The above table excludes store count related to maurices,
which was sold early in the fourth quarter of Fiscal 2019.
maurices ended the third quarter with 937 stores.
Conference Call
Information
The Company will conduct a conference call today, June 10, 2019,
at 4:30 PM Eastern Time to review its third 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 9382027. 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 17, 2019
by dialing (855) 859-2056, the conference ID is 9382027, and until
July 10, 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, (iii) impairments of goodwill and other intangible
assets, and (iv) 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 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,
without limitation, the Company’s outlook for the fourth quarter of
Fiscal Year 2019, and risks associated with the ability to achieve
a successful outcome for its portfolio brands and to otherwise
achieve its business strategies. 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 and the most recent Quarterly Report on Form 10-Q.
About ascena retail group,
inc.
ascena retail group, inc. (Nasdaq: ASNA) is a national
specialty retailer offering apparel, shoes, and accessories for
women under the Premium Fashion (Ann Taylor,
LOFT, and Lou & Grey), Plus Fashion
(Lane Bryant, Catherines and Cacique), and
Value Fashion (dressbarn) segments, and for tween
girls under the Kids Fashion segment (Justice).
ascena retail group, inc. through its retail brands operates
ecommerce websites and approximately 3,500 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, lanebryant.com, Catherines.com,
dressbarn.com, and shopjustice.com.
ascena retail group, inc.
Condensed Consolidated Statements of
Operations (Unaudited)
(millions, except per share
data)
Three Months Ended
May 4,2019
% of NetSales
April 28,2018
% of NetSales
Net sales $ 1,265.7 100.0 % $ 1,266.7 100.0 % Cost of goods
sold (543.4 ) (42.9 )% (513.5 ) (40.5 )%
Gross margin 722.3
57.1 % 753.2 59.5 %
Other costs and expenses: Buying,
distribution and occupancy expenses (276.3 ) (21.8 )% (280.0 )
(22.1 )% Selling, general and administrative expenses (476.2 )
(37.6 )% (426.4 ) (33.7 )% Restructuring and other related charges
(7.1 ) (0.6 )% (18.1 ) (1.4 )% Impairment of goodwill (115.1 ) (9.1
)% — — % Impairment of other intangible assets (25.0 ) (2.0 )% — —
% Depreciation and amortization expense (71.6 ) (5.7 )% (77.2 )
(6.1 )%
Operating loss (249.0 ) (19.7 )% (48.5 ) (3.8 )%
Interest expense (27.2 ) (2.1 )% (28.4 ) (2.2 )% Interest income
and other income (expense), net 0.1 — % (0.1 ) — %
Loss
from continuing operations before benefit for income taxes
(276.1 ) (21.8 )% (77.0 ) (6.1 )% Benefit for income taxes from
continuing operations 31.9 2.5 % 17.9 1.4 % Loss from
continuing operations (244.2 ) (19.3 )% (59.1 ) (4.7 )% Income from
discontinued operations 6.3 0.5 % 18.9 1.5 %
Net
loss $ (237.9 ) (18.8 )% $ (40.2 ) (3.2 )%
Net (loss)
income per common share - basic: Continuing operations $ (1.24
) $ (0.30 ) Discontinued operations 0.04 0.10
Total net loss per basic common share $ (1.20 ) $ (0.20 )
Net (loss) income per common share - diluted:
Continuing operations $ (1.24 ) $ (0.30 ) Discontinued operations
0.04 0.10
Total net loss per diluted common
share $ (1.20 ) $ (0.20 )
Weighted average common
shares outstanding: Basic 197.6 196.2 Diluted
197.6 196.2
See accompanying notes.
ascena retail group, inc.
Condensed Consolidated Statements of
Operations (Unaudited)
(millions, except per share
data)
Nine Months Ended May 4, 2019
% of Net Sales April 28, 2018
% of Net Sales Net sales $ 4,039.2
100.0 % $ 4,046.9 100.0 % Cost of goods sold (1,767.1 ) (43.7 )%
(1,696.9 ) (41.9 )%
Gross margin 2,272.1 56.3 % 2,350.0 58.1
%
Other costs and expenses: Buying, distribution and
occupancy expenses (845.1 ) (20.9 )% (858.1 ) (21.2 )% Selling,
general and administrative expenses (1,363.2 ) (33.7 )% (1,307.6 )
(32.3 )% Acquisition and integration expenses — — % (5.4 ) (0.1 )%
Restructuring and other related charges (29.1 ) (0.7 )% (58.9 )
(1.5 )% Impairment of goodwill (115.1 ) (2.8 )% — — % Impairment of
other intangible assets (25.0 ) (0.6 )% — — % Depreciation and
amortization expense (221.5 ) (5.5 )% (240.1 ) (5.9 )%
Operating
loss (326.9 ) (8.1 )% (120.1 ) (3.0 )% Interest expense (80.1 )
(2.0 )% (82.2 ) (2.0 )% Interest income and other income (expense),
net 1.9 — % 1.3 — %
Loss from continuing
operations before benefit for income taxes (405.1 ) (10.0 )%
(201.0 ) (5.0 )% Benefit for income taxes from continuing
operations 43.7 1.1 % 42.8 1.1 %
Loss from
continuing operations (361.4 ) (8.9 )% (158.2 ) (3.9 )% Income
from discontinued operations 57.9 1.4 % 85.3 2.1 %
Net loss $ (303.5 ) (7.5 )% $ (72.9 ) (1.8 )%
Net
(loss) income per common share - basic: Continuing operations $
(1.83 ) $ (0.81 ) Discontinued operations 0.29 0.44
Total net loss per basic common share $ (1.54 ) $ (0.37 )
Net (loss) income per common share - diluted:
Continuing operations $ (1.83 ) $ (0.81 ) Discontinued operations
0.29 0.44
Total net loss per diluted common
share $ (1.54 ) $ (0.37 )
Weighted average common
shares outstanding: Basic 197.3 195.9 Diluted
197.3 195.9
See accompanying notes.
ascena retail group, inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(millions)
May 4,2019
August 4,2018
April 28,2018
ASSETS Current assets: Cash and cash equivalents $
100.8 $ 231.0 $ 344.5 Inventories 654.0 535.1 566.0 Prepaid
expenses and other current assets 213.7 229.4 174.2 Assets related
to discontinued operations 388.4 401.3 420.9
Total
current assets 1,356.9 1,396.8 1,505.6 Property and equipment,
net 956.9 1,106.8 1,147.0 Goodwill 474.4 589.5 589.5 Other
intangible assets, net 391.9 427.0 431.1 Other assets 58.7
50.4 52.8
Total assets $ 3,238.8 $ 3,570.5
$ 3,726.0
LIABILITIES AND EQUITY Current
liabilities: Accounts payable $ 366.5 $ 394.7 $ 348.1 Accrued
expenses and other current liabilities 315.1 304.0 327.6 Deferred
income 140.9 108.4 117.3 Current portion of long-term debt — — 66.5
Liabilities related to discontinued operations 157.8 166.2
175.8
Total current liabilities
980.3 973.3 1,035.3 Long-term debt, less current portion 1,336.1
1,328.7 1,456.8 Lease-related liabilities 239.9 260.8 265.8
Deferred income taxes 0.4 2.6 19.7 Other non-current liabilities
172.8 206.6 187.4
Total liabilities 2,729.5
2,772.0 2,965.0
Equity 509.3 798.5 761.0
Total liabilities and equity $ 3,238.8 $ 3,570.5
$ 3,726.0
See accompanying notes.
ascena retail group, inc.
Segment Information (Unaudited)
(millions)
Three Months Ended Nine
Months Ended
May 4,2019
April 28,2018
May 4,2019
April 28,2018
Net sales (a):
Premium Fashion (b) $ 549.5 $ 532.7 $
1,784.4 $ 1,697.4
Plus Fashion 311.5 312.8 902.7 957.5
Kids Fashion 227.4 233.8 820.1 822.5
Value Fashion
177.3 187.4 532.0
569.5 Total net sales $ 1,265.7 $ 1,266.7 $
4,039.2 $ 4,046.9
Three Months Ended
Nine Months Ended
May 4,2019
April 28,2018
May 4,2019
April 28,2018
Operating loss (a):
Premium Fashion (b) (c) $ (5.6 )
$ 22.5 $ 44.8 $ 50.0
Plus Fashion (d) (27.7 ) 7.2
(72.8 ) (5.1 )
Kids Fashion (25.4 ) (5.1 ) (25.9 ) 20.4
Value Fashion (e) (43.1 ) (55.0 ) (103.8 ) (121.1 )
Unallocated restructuring and other related charges (7.1 ) (18.1 )
(29.1 ) (58.9 ) Impairment of goodwill (f) (115.1 ) — (115.1 ) —
Impairment of other intangible assets (f) (25.0 ) — (25.0 ) —
Unallocated acquisition and integration expenses —
— — (5.4 ) Total operating loss
$ (249.0 ) $ (48.5 ) $ (326.9 ) $ (120.1 )
Three Months
Ended Nine Months Ended
May 4,2019
April 28,2018
May 4,2019
April 28,2018
Non-GAAP adjusted operating (loss) income:
Premium Fashion
(b) (c) $ (5.6 ) $ 22.5 $ 44.8 $ 56.7
Plus Fashion
(d) (11.4 ) 7.2 (56.5 ) (5.1 )
Kids Fashion (25.4 )
(5.1 ) (25.9 ) 20.4
Value Fashion (e) (25.7 )
(37.9 ) (86.4 ) (104.0 ) Total non-GAAP
adjusted operating loss $ (68.1 ) $ (13.3 ) $ (124.0 ) $ (32.0 )
See accompanying footnotes on the following page.
ascena retail group, inc.
Segment Information (Unaudited)
(millions)
Footnotes to segment tables:
(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 loss for the nine months ended April 28, 2018
includes the impact of non-cash expenses of $9.5 million associated
with the purchase accounting adjustments of ANN's assets and
liabilities to fair market value. Reference is made to Note 2 of
the unaudited condensed consolidated financial information included
herein for a reconciliation of operating loss on a GAAP basis to
non-GAAP adjusted operating (loss) 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 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
operating loss on a GAAP basis to a non-GAAP adjusted operating
loss.
(d) Operating loss includes the impact of non-cash impairment
charge of approximately $16.3 million in the third quarter of
Fiscal 2019 to write-down store-related assets at the Plus
Fashion segment. Reference is made to Note 2 of the unaudited
condensed consolidated financial information included herein for
more information and a reconciliation of operating loss on a GAAP
basis to Non-GAAP adjusted operating loss.
(e) Operating loss includes the impact of non-cash impairment
charge of approximately $17.4 million in the third quarter of
Fiscal 2019 and $17.1 million in the third quarter of Fiscal 2018,
primarily to write-down store-related assets at dressbarn.
Reference is made to Note 2 of the unaudited condensed consolidated
financial information included herein for more information and a
reconciliation of operating loss on a GAAP basis to Non-GAAP
adjusted operating loss.
(f) Includes the impact of non-cash impairments of goodwill and
other intangible assets at the Plus Fashion segment which
included $115.1 million of Goodwill and $25 million of other
intangible assets. 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 on a GAAP basis to
non-GAAP adjusted operating loss.
ascena retail group, inc.
Notes to Unaudited Condensed
Consolidated Financial Information
(millions, except per share
data)
Note 1. Basis of Presentation
Fiscal Period
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 nine
months ended May 4, 2019 were 13 and 39-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 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.
Discontinued Operations
Subsequent to the end of the third quarter, on May 6, 2019, the
Company sold a majority interest in its maurices business.
The company will record the disposition and any related gain or
loss on the sale of maurices during the fourth quarter of
Fiscal 2019. As a result of the transaction, the Company's
maurices business has been classified as a component of
discontinued operations within the consolidated financial
statements. As such, assets and liabilities related to discontinued
operations have been segregated and separately disclosed in the
balance sheets as of May 4, 2019 and August 4, 2018. In turn,
operating results for maurices have also been segregated and
reported as discontinued operations separately in the condensed
consolidated financial statements.
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, (iii) non-cash impairment charges of goodwill and other
intangible assets, and (iv) 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 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.
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
May 4,2019
April 28,2018
May 4,2019
April 28,2018
Net sales - reported GAAP basis $ 1,265.7 $ 1,266.7 $
4,039.2 $ 4,046.9 Impact of non-cash purchase accounting
adjustments (a) — — — 0.2
Premium Fashion additional week —
— — (24.6 )
Non-GAAP Net sales $
1,265.7 $ 1,266.7 $ 4,039.2 $ 4,022.5
Three Months Ended Nine Months
Ended
May 4,2019
April 28,2018
May 4,2019
April 28,2018
Gross Margin - reported GAAP basis $ 722.3 $ 753.2 $ 2,272.1
$ 2,350.0 Impact of non-cash purchase accounting adjustments (a) —
— — 0.2
Premium Fashion additional week — — —
(11.7 )
Non-GAAP Gross Margin $ 722.3 $
753.2 $ 2,272.1 $ 2,338.5
Three Months Ended Nine Months Ended
May 4,2019
April 28,2018
May 4,2019
April 28,2018
Buying, distribution & occupancy expense - reported GAAP
basis $ (276.3 ) $ (280.0 ) $ (845.1 ) $ (858.1 ) Impact of
non-cash purchase accounting adjustments (a) — — — 0.1
Premium
Fashion additional week — — — 1.0
Non-GAAP Buying, distribution & occupancy expense
$ (276.3 ) $ (280.0 ) $ (845.1 ) $ (857.0 )
Three
Months Ended Nine Months Ended
May 4,2019
April 28,2018
May 4,2019
April 28,2018
Selling, general & administrative expense - reported GAAP
basis $ (476.2 ) $ (426.4 ) $ (1,363.2 ) $ (1,307.6 ) Impact of
non-cash purchase accounting adjustments (a) — — — 3.2
Premium
Fashion additional week — — — 7.9
dressbarn
store-related impairment (b) — 17.1 — 17.1 Charges related to
dressbarn wind down (c) 17.4 — 17.4 — Charges related to
Plus Fashion impairments (d) 16.3 — 16.3
—
Non-GAAP Selling, general &
administrative expense $ (442.5 ) $ (409.3 ) $ (1,329.5 ) $
(1,279.4 )
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
May 4,2019
April 28,2018
May 4,2019
April 28,2018
Depreciation and amortization expense - reported GAAP basis
$ (71.6 ) $ (77.2 ) $ (221.5 ) $ (240.1 ) Impact of non-cash
purchase accounting adjustments (a) — — — 6.0
Non-GAAP Depreciation and amortization expense
$ (71.6 ) $ (77.2 ) $ (221.5 ) $ (234.1 )
Three
Months Ended Nine Months Ended May 4, 2019
April 28, 2018 May 4, 2019 April 28, 2018
Operating loss - reported GAAP basis $ (249.0 ) $ (48.5 ) $
(326.9 ) $ (120.1 ) Impact of non-cash purchase accounting
adjustments (a) — — — 9.5
dressbarn store-related impairment
(b) — 17.1 — 17.1 Charges related to
dressbarn wind down (c)
17.4 — 17.4 — Charges related to
Plus Fashion impairments
(d) 156.4 — 156.4 — Acquisition and integration expenses (e) — — —
5.4 Restructuring and other related charges (f) 7.1 18.1 29.1 58.9
Premium Fashion additional week — — —
(2.8 )
Non-GAAP Operating loss $ (68.1 ) $ (13.3 ) $
(124.0 ) $ (32.0 )
Three Months Ended Nine
Months Ended
May 4,2019
April 28,2018
May 4,2019
April 28,2018
Benefit for income taxes from continuing operations - reported
GAAP basis $ 31.9 $ 17.9 $ 43.7 $ 42.8 Income tax impact of
non-GAAP adjustments (g) (19.2 ) (14.6 ) (23.2 ) (26.7 ) Income tax
impact of federal and state tax valuation allowance (h) 6.4 — 6.4
23.3 Income tax impact of 2017 Tax Reform Act (i) — 3.9
7.7 (31.0 )
Non-GAAP income tax benefit
from continuing operations $ 19.1 $ 7.2 $ 34.6
$ 8.4
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
May 4,2019
April 28,2018
May 4,2019
April 28,2018
Loss from continuing operations - reported GAAP basis $
(244.2 ) $ (59.1 ) $ (361.4 ) (158.2 ) Impact of non-cash purchase
accounting adjustments (a) — — — 9.5
dressbarn store-related
asset impairments (b) — 17.1 — 17.1 Charges related to
dressbarn wind down (c) 17.4 — 17.4 — Charges related to
Plus Fashion impairments (d) 156.4 — 156.4 — Acquisition and
integration expenses (e) — — — 5.4 Restructuring and other related
charges (f) 7.1 18.1 29.1 58.9
Premium Fashion additional
week — — — (2.8 ) Income tax impact of non-GAAP adjustments (g)
(19.2 ) (14.6 ) (23.2 ) (26.7 ) Income tax impact of federal and
state tax valuation allowance (h) 6.4 — 6.4 23.3 Income tax impact
of 2017 Tax Reform Act (i) 3.9 7.7 (31.0 ) Non-GAAP net income from
maurices (j) 24.7 18.9
76.5 85.5
Non-GAAP net loss $
(51.4 ) $ (15.7 ) $ (91.1 ) $ (19.0 )
Three Months
Ended Nine Months Ended
May 4,2019
April 28,2018
May 4,2019
April 28,2018
Diluted net loss per common share from continuing operations -
reported GAAP basis $ (1.24 ) $ (0.30 ) $ (1.83 ) $ (0.81 ) Per
share impact of non-cash purchase accounting adjustments(a) — — —
0.05 Per share impact of
dressbarn store-related impairment
(b) — 0.08 — 0.08 Per share impact of charges related to
dressbarn wind down (c) 0.09 — 0.09 — Per share impact of
charges related to
Plus Fashion impairments (d) 0.79 — 0.79
— Per share impact of Acquisition and integration related expenses
(e) — — — 0.03 Per share impact of Restructuring and other related
charges (f) 0.04 0.09 0.15 0.30 Per share impact of
Premium
Fashion additional week — — — (0.01 ) Per share income tax
impact of non-GAAP adjustments (g) (0.10 ) (0.07 ) (0.12 ) (0.14 )
Per share income tax impact of federal and state tax valuation
allowance (h) 0.03 — 0.03 0.12 Per share income tax impact of 2017
Tax Reform Act (i) — 0.02 0.04 (0.16 ) Per share non-GAAP net
income from
maurices (j) 0.13 0.10
0.39 0.44
Non-GAAP
diluted net loss per common share (k) $ (0.26 ) $ (0.08 ) $
(0.46 ) $ (0.10 )
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
May 4,2019
April 28,2018
May 4,2019
April 28,2018
Adjusted EBITDA, including maurices $ 42.1 $ 97.0 $ 216.6 $
328.2 Impact of non-cash purchase accounting adjustments (a) — — —
(3.5 )
Premium Fashion additional week — — — 2.8
dressbarn store-related asset impairments (b) — (17.1 ) —
(17.1 ) Charges related to
dressbarn wind down (c) (17.4 ) —
(17.4 ) — Charges related to
Plus Fashion impairments (d)
(156.4 ) — (156.4 ) — EBITDA related to discontinued operations (j)
(38.6 ) (33.1 ) (119.1 ) (126.1 ) Acquisition and integration
expenses (e) — — — (5.4 ) Restructuring and other related charges
(f) (7.1 ) (18.1 ) (29.1 ) (58.9 ) Depreciation and amortization
expense (71.6 ) (77.2 ) (221.5 ) (240.1 )
Operating loss
(249.0 ) (48.5 ) (326.9 ) (120.1 ) Interest expense (27.2 ) (28.4 )
(80.1 ) (82.2 ) Interest income and other income, net 0.1
(0.1 ) 1.9 1.3
Loss from continuing operations
before benefit for income taxes (276.1 ) (77.0 ) (405.1 )
(201.0 ) Benefit for income taxes from continuing operations 31.9
17.9 43.7 42.8
Loss from continuing
operations (244.2 ) (59.1 ) (361.4 ) (158.2 ) Income from
discontinued operations, net of taxes 6.3 18.9 57.9
85.3
Net loss $ (237.9 ) $ (40.2 ) $ (303.5 )
$ (72.9 )
(a) Includes the impact of non-cash expenses associated with the
purchase accounting adjustments of ANN's assets and liabilities to
fair market value, 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 Nine Months
Ended May 4, 2019 April 28, 2018 May 4,
2019 April 28, 2018 Net sales $ — $ — $ — $ 0.2
Other operating expenses — — — 3.3 Depreciation and amortization —
— — 6.0 $ — $ — $ — $ 9.5
(b) Operating loss 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.
(c) Operating loss includes costs associated with the wind down
of dressbarn's operations and primarily includes a
write-down of store-related assets to fair value and professional
fees incurred in connection with the wind down.
(d) Operating loss includes the impact of non-cash impairment
charges reflecting a write-down of goodwill and other intangible
assets to fair value based on the results of an interim test during
the third quarter of Fiscal 2019, as well as non-cash impairment
charges to write-down store-related assets to fair value.
(e) Primarily reflects professional fees and other costs related
to the acquisition of ANN INC.
(f) 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
May 4, 2019
April 28, 2018 May 4, 2019 April 28,
2018 Professional fees and other related charges $ 7.1 $ 13.1 $
28.7 $ 43.2 Severance and retention — (0.6 ) 0.4 6.4 Impairment of
assets — 5.6 — 9.3 $ 7.1 $ 18.1
$ 29.1 $ 58.9
(g) Represents the income tax impact applicable to each non-GAAP
adjustment described above.
(h) Due to the limitations placed on the use of federal and
state income tax net operating losses, we established a partial
valuation allowance for our federal net operating losses in the
third quarter of Fiscal 2019 and for our state net operating losses
in the second quarter of Fiscal 2018. Because this expense is
non-cash in nature, we have excluded the expense attributable to
the valuation allowance from our non-GAAP results.
(i) 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.
(j) Reflects the results of our maurices business which
is classified in discontinued operations. The amounts reflected
herein exclude approximately $18 million of deferred tax
liabilities recorded in the third quarter of Fiscal 2019 resulting
from the sale of maurices, which closed on May 6, 2019.
(k) Reflects the impact on EPS of using 197.6 and 197.3 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 May 4, 2019, respectively. Also
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. 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.
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version on businesswire.com: https://www.businesswire.com/news/home/20190610005730/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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