Despite Markdown Pressure, Ascena Reports Better-Than-Expected Q2

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Ascena's Lane Bryant re-opened a Manhattan flagship on West 34th Street last Friday.

Ascena’s Lane Bryant re-opened a Manhattan flagship on West 34th Street last Friday.

Suffern, NY—Ascena Retail Group, parent to dressbarn, Lane Bryant, Catherines and other specialty stores, reported Monday that its second quarter profit was lower due to increased promotions and markdowns during holiday even though sales were up thanks to it recent acquisitions.

For the quarter ended Jan. 20, Ascena posted net income of $47.2 million or 29 cents a share, compared to $63.7 million or 40 cents a share, in the year-ago quarter.

Excluding items, adjusted income from continuing operations was $42.9 million or 26 cents a share.

Net sales increased 44% to $1.238 billion, compared to $862 million for last year’s second quarter, largely driven by the inclusion of sales from the recently acquired Lane Bryant and Catherines chains, along with a 5% increase in sales from the company’s legacy family of brands.

The earnings came in ahead of analysts’ average estimate for 23 cents a share and were in line with their sales estimate for $1.23 billion.

“Our second quarter performance reflects a difficult holiday season during which we utilized promotion and markdown strategies to manage inventory for an effective transition to Spring assortments,” said David Jaffe, president/ceo. “We expect the challenging environment to continue and have adjusted our sales, promotion, and inventory plans accordingly. These actions, combined with strong expense controls and our acceleration of productivity programs, give us confidence in our ability to achieve our full-year 2013 earnings expectations despite the market condition.”

Sales in Northeast ‘Negatively Impacted by Hurricane Sandy’

A peek inside Lane Bryant's new flagship in Manhattan.

A peek inside Lane Bryant’s new flagship in Manhattan.

The company’s fiscal 2013 forecast was for adjusted earnings between $1.20 and $1.30 a share, with comparable store sales increasing in the 0% to 3% range and e-commerce sales increases of about 25%. Analysts’ consensus expects earnings of $1.24 a share.

Total comparable store sales, including online, increased 2% during the quarter. Comp sales at Justice were up 4% and up 6% at Catherines. E-commerce sales increased by 123% to $115 million and were up 27% on a comparable basis.

“Soft holiday sales and a challenging external environment drove negative comparable store sales at Lane Bryant, maurices and dressbarn,” the company said. “Second quarter sales also were negatively impacted by Hurricane Sandy in the Northeast and the company believes that middle income consumers were impacted by a weak economic outlook driven, in part, by tax increases.”

Nonetheless, shares of Ascena rose in early trading today since its second quarter report met Wall Street’s expectations. Oliver Chen, analyst at Citi Investment Research, said Ascena managed its inventory well by using promotions to get rid of fall merchandise.

“We made solid progress positioning the business for long term growth during the first half of the year by continuing to build our talent base and investing in infrastructure to drive ongoing margin improvement and new store growth,” Jaffe added. “We continue to be excited by the growth and efficiency opportunities created by the integration of our acquisition and strategies to fully leverage our portfolio.”