Ascena Retail Group's earnings drop 27%

Cost increases ate into third-quarter earnings at the Ascena Retail Group, the parent of Lane Bryant and dressbarn, which will become one of the nation's largest apparel retailers when it acquires Ann Inc. later this year.

For the quarter that ended on April 25, the retailer's year-over-year profits dropped 27 percent to $24.4 million, weighed down by a rise in buying, distribution and occupancy (BD&O) expenses related to the growth of its teen Justice chain and Maurices stores—which sell casual apparel and workwear—and investments in merchandising and design at Maurices and dressbarn.

Comparative net sales inched up 0.5 percent to $1.15 billion, fueled by new store growth at Maurices and positive combined comp store sales at plus-size chains Lane Bryant and Catherines. These gains were offset by negative combined comp store sales at teen retailer Justice and dressbarn.

"Looking back on the third quarter, we saw strong performance at Lane Bryant, Maurices and Catherines, and are excited about the major marketing initiatives that were launched this quarter at Lane Bryant and dressbarn," said David Jaffe, president and CEO of Ascena Retail Group, in a statement.

"While dressbarn's performance was softer than expected in the third quarter, weather and receipt flow from the ports were major factors, and we remain confident in the momentum being built. Finally, at Justice, Brian Lynch and the executive leadership team are actively developing new marketing and pricing strategies for fall, which we look forward to introducing during July, in time for back-to-school."

Jaffe was bullish on the acquisition of Ann Inc., parent of retailers Ann Taylor and Loft. Combined, the Ascena Retail Group and Ann Inc. will form a women's apparel retailer with an estimated $7.3 billion in annual sales and nearly 5,000 stores.

 "The synergies we expect to unlock as a result of the deal will allow us to leverage the power of our shared services platform and will deliver significant accretion to our shareholders," Jaffe said.

But those synergies won't be realized anytime soon, said Dana Telsey, CEO of Telsey Advisory Group, in a research note. "It is our view that the transaction adds an extra layer of complexity to the ASNA (Ascena Retail Group) story that will take around three years to achieve the targeted synergies, and as Ann Inc. continues to work to find better traction in a highly competitive space. Additionally, as evidenced by ASNA's past acquisitions, there is always the potential for challenges and delays to reach the cost savings target over the expected time frame."

For more:
-See this Wall Street Journal story

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