Earnings Preview: Ascena Retail

Zacks

Ascena Retail Group Inc. (ASNA) is scheduled to report its financial results for the fourth quarter and fiscal 2012 before the opening bell on September 19, 2012. The current Zacks Consensus Estimate for the quarter is 29 cents per share and revenue is expected to be $780 million.

For fiscal 2012, the Zacks Consensus Estimate for revenue and earnings stands at $3,193 million and $1.35 per share, respectively.

Third-quarter 2012 – A synopsis

On May 31, 2012 the company reported revenue of $783.3 million, roughly $61 million more than the year-ago period. The year-over-year growth in top line was primarily driven by a 5% increase in comparable store sales along with strong e-commerce sales. Moreover, adjusted earnings for the quarter also improved 2 cents to 34 cents per share compared with 32 cents earned in the year-ago period.

However, the company’s top and bottom line missed the Zacks Consensus Estimate of $786 million and 36 cents per share, respectively.

Fiscal 2012 guidance

Following the third-quarter financial results, Ascena reaffirmed its fiscal 2012 earnings guidance range of $1.37 to $1.40 per share. Moreover, the company is anticipating a mid-single-digit growth in comparable store sales.

Zacks Consensus

The analysts, following the stock, expect Ascena to post fourth-quarter earnings of 29 cents a share, higher than 24 cents delivered in the prior-year quarter. Currently, the Zacks Consensus Estimate ranges between 27 cents and 34 cents a share.

For fiscal 2012, the Zacks Consensus Estimate stands at $1.35 per share, higher than the year-ago fiscal earnings of $1.16. The current estimate ranges between $1.33 and $1.40 per share.

Earnings Estimate Revisions

Agreement

Of the 9 estimates, 4 moved downward over the last 30 days for the fourth quarter and fiscal 2012, respectively, while no upward movement was witnessed.

However, over the last 7 days, no  estimate revisions took place.

Magnitude

The magnitude of estimate revisions for Ascena depicts a pessimistic outlook for the fourth quarter and fiscal 2012. Over the last 30 days, estimates for the upcoming quarter and fiscal 2012 have been lowered by 2 cents and 3 cents to 29 cents and $1.35 per share, respectively.

Lowering of estimates depicts analysts’ concerns over the company’s Maurices brands performance due to droughts and low crop yields expectation, as the brand has significant exposure to farmbelt communities.

Surprise History

With respect to earnings surprises, Ascena has missed as well as topped the Zacks Consensus Estimate over the trailing four quarters in the range of negative 5.6% to positive 20.6%. The average surprise over the last four quarters remained at positive 3.7%.

Our Recommendation

We believe that the acquisition of Charming Shoppes will be accretive to the company’s top and bottom lines. Moreover, the combined sales of both the companies are expected to be around $4.4 billion.

Ascena Retail Group, Inc. operates as a specialty retailer of apparel for women and teen girls in the United States, Puerto Rico, and Canada. The company operates its stores under the Dressbarn, Maurices, and Justice brand names. Ascena operated approximately 2,600 stores in 48 states of United States, Puerto Rico and Canada.

Ascena, which competes with Aeropostale Inc. (ARO) and Kohl’s Corporation (KSS), has a Zacks #5 Rank, which implies a short-term Strong Sell rating. This short-term rating is supported by our long-term ‘Underperform’ recommendation on the stock.

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Read the Full Research Report on ASNA

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