Dive Brief:
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Shares of Ascena Group, which runs Ann Taylor, Maurices, Dress Barn, Lane Bryant and other specialty apparel chains, tanked Thursday afternoon after the apparel retail company adjusted its outlook downward. The company warned that it expects same-store sales in the third quarter to fall 8% (down from its March guidance of a decline of between 4% and 5%) and in the full fiscal year to fall between 6% and 7% (after its March guidance of a 3% to 4% decline). Shares plunged 30% after the report was released.
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In a statement accompanying the update, Ascena CEO David Jaffe said that the specialty retail sector is “in a period of unprecedented secular change that is disruptive to traditional business models” and warned that operating conditions in the sector are “likely to remain challenging for the next 12 to 24 months.”
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The company managed to edge out expectations in March as it protected against losses somewhat in the second quarter. Ascena posted Q2 net sales of $1.75 billion, compared to $1.84 billion in the year-ago period. Same-store sales in the second quarter fell 4%.
Dive Insight:
Ascena is well aware of the challenges in the apparel sector and has devised plans for each of its brands to succeed. The company’s various segments target different income and style groups among women, and in January executives outlined efforts to streamline its supply chain, boost in-store experiences and compete on price without sacrificing margins. Despite these efforts, the company is clearly still struggling in a tough environment for apparel retailers.
Some Ascena segments are performing better than others: Loft has outpaced Ann Taylor in the women's apparel space, with a 2% decline in Q2 same-store sales and revenue of $401 million, compared to Ann Taylor’s 9% drop in same-store sales and $206 million in revenue. In the discount apparel segment, Dressbarn’s same-store sales fell 3% while Maurices plunged 8%.
On Wednesday, Jaffe again emphasized the impact of macro forces in the company’s revision.
“Industry-wide traffic headwinds and a highly elevated promotional environment have persisted at levels significantly above our expectations, resulting in a miss to our third quarter sales and earnings outlook,” he said. “We have adjusted our second-half outlook to reflect this environment and limited near-term visibility, and no longer believe it appropriate to expect a stabilization of traffic and resulting normalization of comp sales against softer demand in the year-ago period.”
Moody’s Investors Service Senior Analyst Raya Sokolyanska said that Ascena is ill-equipped to take on those forces in part because its strategies are coming too late.
“Ascena’s revised forecast implies accelerating same-store sales and EBITDA declines in the quarters ending in April and July,” Sokolyanska said in a statement emailed to Retail Dive. “This reflects the overall weak apparel environment, but also Ascena being relatively late to implement broad transformation and fleet rationalization efforts compared to some other large retailers. We expect transformation initiatives to significantly benefit earnings over time, but in the near term continued promotions and traffic declines will likely offset these efforts."
