Ascena’s stock shreds over 27 percent on poor profit and comps in Q4

Shares of Ascena Retail Group Inc. (NASDAQ:ASNA) were down 28.6 percent on September, 20 after presenting weak fourth-quarter results and a bleak outlook. The stock hit its lowest price in over seven years.

As highlighted by analysts, the main reason for such a dip were lower-than –expected profit and same-store sales for the period.

In a report to market focusing on the company, RBC Capital Markets analyst Brian Tunick downgraded the stock to ‘sector perform’, well behind its previous ‘outperform’ rating. Tunick’s based his downgrade on uncertain outlooks at Ascena branded stores, other than Justice, and reduced management credibility after earnings misses. Consequently, he reduced his stock price target by over a third, from 22 dollars to seven dollars apiece.

"When we upgraded [Ascena] last June, it was on the premise that [Ascena] could return to positive revisions as Ann was folded in and progress was made towards its 1 billion dollars EBITDA goal," Tunick wrote in a note to clients.

"Our call has been flat out wrong...as deleverage on negative [same-store sales] has more than offset gross margin gains and Ann-related savings," he further added.

The stock has already shredded 18 percent year to date.

Consolidated comparable sales at the Ann Taylor’s parent group declined 4 percent year over year, as a 1 percent comparable-sales increase at Lane Bryant was more than offset by declines of 4 percent at Justice, 9 percent at Maurices, 7 percent at Dressbarn, and 5 percent at Catherine's, reports ‘The Motley Fool’.

It´s worth recalling that ANN was acquired in the first quarter of fiscal 2016 last year, so it wasn't included in the reported consolidated figure. However, ANN's comps would have fallen 6 percent based on data from its pre-acquisition period, bringing consolidated comparable sales declines to 5 percent and therefore neither helping the company´s total loss.

"Fiscal 2016 was a challenging year for Ascena, characterized by a highly competitive selling environment and significant store traffic headwinds," explained Ascena Retail Group CEO David Jaffe. "While we are seeing good customer demand during peak periods, off-peak demand has been inconsistent, and fourth quarter financial performance fell well below our expectations."

On the upside, Jaffe highlighted that the ongoing turnaround plans for Justice brand are bearing fruit, with operating margin in the middle of the guidance range Ascena provided last quarter.