Ascena Retail Group (ASNA) Warns for Q3, FY

In response to the rapidly evolving retail environment, ascena retail group, inc. (NASDAQ: ASNA) announced updated third quarter and fiscal year 2017 guidance, along with a significant increase to its Change for Growth transformation program savings target.

David Jaffe, President and CEO, commented, “Industry-wide traffic headwinds and a highly elevated promotional environment have persisted at levels significantly above our expectations, resulting in a miss to our third quarter sales and earnings outlook. We have adjusted our second-half outlook to reflect this environment and limited near term visibility, and no longer believe it appropriate to expect a stabilization of traffic and resulting normalization of comp sales against softer demand in the year-ago period.”

The Company’s revised third quarter and full year fiscal 2017 sales and earnings outlook is as follows:

Jaffe continued, “The specialty retail sector is in a period of unprecedented secular change that is disruptive to traditional business models, and we believe operating conditions in our sector are likely to remain challenging for the next 12 to 24 months. After several years of meaningful investment, ascena has developed a highly capable supply chain and distribution network designed to address the fundamental changes in our sector. We are confident that our comprehensive enterprise transformation, our financial strength, and our highly capable operational platform will enable us to navigate this period of adjustment, and emerge in a position to compete effectively on a sustained basis as a true omni-channel retailer, supported by our mix of relevant owned brands and deep customer relationships.”

Jaffe concluded, “Implementation of our Change for Growth enterprise transformation program is well underway, and we are aggressively accelerating and amplifying our transformation to ensure we emerge from this period of industry disruption as a stronger, more agile company. We are in process with implementation of technology platforms to support sales and margin, and have begun execution of our fleet optimization program. These initiatives, along with an expanded structural cost reduction scope, are now expected to deliver $250 to $300 million in cost savings as compared to our prior $150 million target. We plan to provide a timeline and additional context regarding this increased target on our third quarter earnings call, scheduled for June 5th.”

Goodwill and Intangible Asset Impairment

The impact of the challenging retail environment, the decline in the Company’s stock price, and the reduction in the Company’s forecasted earnings represent impairment indicators which required the Company to test its goodwill and indefinite lived intangible assets for impairment during the third quarter. The Company is in the process of completing that analysis and expects to record a material non-cash impairment charge of its goodwill and intangible assets during the third quarter; however, the amount of the charge is not able to be quantified at this time.

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