Ascena Q3 Profit Falls 37% Despite Sales Boost by Acquisitions

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dressbarnSuffern, NY—Pointing to economic challenges its customers are suffering under as well as cooler weather and merchandise misses at its Lane Bryant and dressbarn stores, Ascena Retail Group reported Wednesday that its third quarter profit fell some 37%.

For the quarter ended April 27, the company posted net income of $31.2 million, or 19 cents a share, compared to $49.4 million, or 31 cents a share, a year ago. Excluding acquisition costs and a charge related to the extinguishment of debt, Ascena’s adjusted earnings were 26 cents a share.

Net revenue increased nearly 46% to $1.14 billion, helped by its acquisitions of Lane Bryant and Catherines.

Analysts’ average estimate expected Ascena to earn 31 cents a share on sales of $1.72 billion.

Ascena’s total comparable store sales fell 4%. Online sales, however, grew 37%.

“Our soft third quarter top line performance reflects lower than expected traffic driven by continued economic challenges for our customers and unseasonably cold weather as well as merchandising misses at Lane Bryant and dressbarn,” said David Jaffe, president/ceo.

CEO: Q4 Sales Are Improving

However, Jaffe said that sales have improved in all its stores in the current quarter, and, “we are adjusting our promotional plans to ensure that spring inventory balances are at appropriate levels by the end of our Fiscal 2013 fourth quarter.”

Comp store sales by division were a 4% decline at Justice, a 6% decline at Lane Bryant, a 3% decline at maurices and a 7% decline at dressbarn, partially offset by 8% increase at Catherines.

Gross profit increased 43% to $657.8 million. However, gross profit margin narrowed 110 basis points to 57.6% from a  year ago mainly due to increased markdowns and promotional activity, especially at dressbarn.

Ascena lowered its full fiscal year forecast to $1.10 to $1.15 a share compared to its previous forecast for $1.20 to $1.30 a share. Analysts’ consensus expects $1.26 a share.