The Future is Bright
Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
While most retailers are posting great results this quarter, making the investors go gaga over the sector and giving an impression that the retailers are unaffected by the economic headwinds, here is a women's apparel retailer which has managed to buck the trend. Ascena Retail Group (NASDAQ: ASNA) is a specialty retailer which posted its third quarter results recently, and missed the Street’s expectations.
Snapshot of the quarter
Though revenue jumped 8% to $783.3 million for the quarter, the top line growth didn’t percolate down to its net income which experienced a slight decrease of 4.6% reaching $0.31 per diluted share. The apparel retailer’s earnings took a hit mainly because of expenses related to its pending acquisition of another women apparel retailer, Charming Shoppes (NASDAQ: CHRS), which specializes in plus size apparels. These one-time charges took a toll of 3 cents per share on the earnings. However, instead of looking into the missed performance of the company we should consider the growth in revenue and the potential benefits of the acquisition.
Strong performance of the stores opened recently and the comparable store sales growth of 5% sent revenue north. But there’s more to it. Ascena’s e-commerce segment outperformed all other segments and helped the company’s top line to a great extent. The star performer segment shot up 55% to $36 million compared to the same period last year. Moreover, margins shrunk for the quarter mainly because of increased promotional spending and a small increase in stock based compensation expense.
When we take a closer look into segmental performance, we find that among the three brands, Dressbarn, Maurice and Justice, Maurice was the only segment which witnessed a decline in its revenue. Though the decline is of a minor 1%, this performance will easily be taken care of by the acquisition of Charming Shoppes. This acquisition will add over 1800 stores to Ascena’s kitty and will help the retailer in strengthening its position in the segment which caters to women in the age group of 17 and 55, the same segment which Maurice brand caters to. This will also expand its addressable market since the addition of Charming Shoppes will help add healthier women to Ascena’s list of customers. Moreover, the company wishes to expand in a big way in the long term by having 1100 Justice stores, 1100 Maurice stores and 1000 Dressbarn stores in future.
An Added Advantage
Apart from the expected benefits from Charming Shoppes and expanding its stores, the apparel retailer has an additional advantage coming its way. This benefit will be a result of the closure of 77kids brand of rival American Eagle Outfitters (NYSE: AEO). The 77kids brand will reduce competitive pressure with Ascena’s Justice Brand since both cater to children below 14. This is expected to give Justice additional sales and increased market presence.
Conclusive Thoughts
An investor might get carried away with the bottom line of the company this quarter. But to me, Ascena looks like a good one with bright prospects. The retailer’s presence has been growing and is expected to grow further with the expansion of its brands. Moreover, the acquisition is going to bring great potential to the company. Though this quarter was not as good as expected, the coming quarters should get better and Ascena is, undoubtedly, working towards those better days.
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