Justice gives Ascena a ray of hope

Dive Brief:

Ascena said Monday that third quarter net sales fell to $1.50 billion from $1.56 billion in the year-ago period, as comparable sales slid 3%, according to a company press release.
By banner, comp sales declined 7% at Ann Taylor, 1% at Loft , 5% at Maurices, 14% at Dressbarn, 1% at Lane Bryant and 9% at Catherines. Comp sales at the company’s Justice tween fashion stores, however, surged 10%.
The company narrowed its net loss in the quarter to $40 million or 20 cents per diluted share from $1.03 billion or $5.29 per diluted share in the year-ago period. Comparable sales declines drove gross margin down to $883 million or 58.7% of sales, down from $948 million or 60.6% of sales a year ago. The discount segment's decline also siphoned 190 basis points from the gross margin rate, the company said.

Dive Insight:

Ascena’s struggles continued into its third quarter, with its tween brand the lone standout of its many banners. Whatever it’s doing there may provide a blueprint for the others, and that’s what CEO David Jaffe suggested is the plan. "The customer intimacy and product research processes implemented at Justice have resulted in significant growth, and we are working to replicate these processes across our remaining brands," he said on a conference call with analysts Monday, according to a transcript from Seeking Alpha.

But Ascena brands president and CEO Gary Muto said despite the falling numbers, Justice wasn’t the only bright spot in the period. The company’s premium Loft brand improved sequentially through the quarter with a better balance of key fashion items and would likely return to growth in the current quarter, and its new plus fashion initiatives are also outpacing expectations, he said.

Muto on Monday addressed the particularly deep problems in the discount segment, and said that Dressbarn "went too young" and thereby neglected its 50-ish core customer. That banner is now "rapidly" undergoing a reset, including reintroducing third-party brands like Calvin Klein and Jones and giving them prominence on the sales floor, he said.

But Dressbarn may be also moving too far upscale, according to GlobalData Retail Managing Director Neil Saunders. "Most of Dressbarn's problems stem from Ascena trying to move the brand away from a value player to one with a higher priced, more fashionable mix. This, as the numbers suggest, was a big mistake," he said in comments emailed to Retail Dive.

The company pulled up its losses in the quarter, but things aren’t quite as good as they seem there, either, Saunders warned. "It is true that the company managed to turn an astonishing $1.3 billion operating loss last year into a $23.1 million loss this time around, but this is only because last year's impairment charges were not repeated,” he said. Without those, Ascena’s loss was $12.6 million last year, demonstrating that "its underlying profitability has actually deteriorated year-over-year," he said.