Ascena Cuts FY Guidance; Stock Down 7%

(RTTNews) - Clothing retailer Ascena Retail Group Inc (ASNA) on Friday cut its earnings guidance for the fiscal year 2015, mainly to reflect a recent decision to accelerate its planned merchandise transition at Justice brand and to incorporate lower than expected top-line performance at Justice and dressbarn brands.

The company said that in the fourth quarter it expects to take a non-cash, pre-tax goodwill and intangible asset impairment charge in the range of $275 million to $325 million related to Lane Bryant brand, and a pre-tax charge of about $50 million to establish a reserve for the future settlement of the previously disclosed Justice class action litigation.

Ascena now expects full-year adjusted earnings of $0.57 to $0.60 per share, compared with prior guidance of $0.70 to $0.75 per share.

Analysts polled by Thomson Reuters currently expect Ascena to report earnings of $0.70 per share for the fiscal year 2015. Analysts' estimates typically exclude special items.

"While we expected a challenging quarter at Justice due to the sell-down of Spring/Summer merchandise coupled with a significant reduction in promotional activity, our revised fourth quarter expectation incorporates a more complete exit from the existing season's merchandise mix," said Ascena CEO David Jaffe.

"After careful consideration, we have determined that an even more aggressive sell-down of Spring/Summer goods at Justice is prudent, and will result in a cleaner selling floor and a well-communicated value proposition for the Fall season. We expect our actions will enable a better start to fiscal year 2016 performance at Justice," Jaffe said.

Jaffe also said the company does not see dressbarn sales rebound as expected coming out of the third quarter, and are disappointed with the performance of its tops assortment, specifically at higher price points.

"We are making adjustments to our Fall value pyramid to address this concern. In addition, we are increasing our marketing activity in the Fall season to mitigate ongoing traffic challenges we have observed," Jaffe said.