Right under everyone's nose, Ascena (ASNA) has created one of the largest and most diversified specialty apparel retailers in the United States. Before I get too excited about the stock, I have to listen to earnings call on Wednesday September 16.
Old timers remember Ascena was originally called Dress Barn until it merged with the bankrupt Charming Shoppes. The company closed down its Petite Sophisticate and Fashion Bug operations and carried on with Lane Bryant, Catherines, Justice and Maurices.
At the end of May, the company completed a merger with Ann Taylor. Today, Ascena is the third-largest specialty retailer after Gap (GPS) and L Brands (LB). The company operates 4,946 retail locations.
With the Ann Taylor merger, Ascena offers apparel to every female demographic imaginable. The company sells to tweens (girls 7-14 years old) with Justice, supplies plus-size clothing with its Lane Bryant stores, serves working women with Dress Barn, sells casual lifestyle apparel with Catherines and serves fashion forward women with Ann Taylor and Ann Taylor Loft.
The merged company will employ over 70,000 persons, of whom 98% are women. Talk about girl power.
But it's not all good news at Ascena. Back in July, the company updated its previous guidance and cut its forward forecast pretty substantially. Management laid the blame on its tween retail business, Justice. Weaker-than-expected performance at Justice and Dress Barn caused management to cut its full-year adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) to $365 million to $375 million.
Earnings per share fell from a range of $0.70 to $0.75 to $0.57 to $0.60. The company will take a non-cash impairment charge of $275 million to $325 million tied to Layne Bryant and Dress Barn.
Apparel stocks have taken a beating this year and Ascena is no different. The stock has fallen 32% since it hit a high of $17.59 at the beginning of the summer. Every time I get involved with a retailer, I lose money.
The women's apparel business is a tough business. Right now, the only things that are working are yoga apparel and discount retail, in neither of which Ascena has a strong presence. The stock trades as if women will never buy another outfit again, but I think investors are concerned about anemic top line growth and excess inventory. I am intrigued by the stock. It's one of the few pure plays on female apparel.
I am going to wait until the company reports on Wednesday before making any decisions.