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Ascena Downgraded to Strong Sell

Zacks Equity Research

Zacks Investment Research downgraded Ascena Retail Group Inc. (ASNA) to a Zacks Rank #5 (Strong Sell) on Jan 16.

Why the Downgrade?

Ascena Retail Group has witnessed sharp downward estimate revisions after reporting disappointing holiday comparable store sales results and a lowered fiscal 2013 outlook. Shares of this women’s apparel retailer have been on a downtrend since Sep 21, 2012 and given its expected negative earnings growth rate in the upcoming quarter, it has more downside left.

On Jan 10, Ascena Retail Group reported comparable store sales results for the combined months of November and December, otherwise referred to as the holiday sales season.

Total comparable store sales of the company in the holiday period ended Dec 29, 2012, declined 2%, driven by lower-than-expected holiday sales. However, including e-Commerce comps growth of 30%, the company’s comps increased 1% for the two-month holiday period.

Driven by weak holiday sales results, the company lowered its earnings per share guidance for fiscal 2013 ending Jul 27, 2013, to $1.20 to $1.30, from its previous guidance of $1.45 to $1.55. However, the company projected comparable store sales to increase in the 3% – 5% range going into the spring season. E-commerce comps are expected to increase about 25% for the same period.

Such constrained comps trends together with lowered earnings guidance pulled down the Zacks Consensus Estimates for fiscal 2013 and fiscal 2014 in the last 30 days. The Zacks Consensus Estimate for fiscal 2013 decreased 18.2% to $1.26 per share. For fiscal 2014, most of the estimates were revised downward over the last 30 days, lowering the Zacks Consensus Estimate by 15.3% to $1.60 per share.

Other Stocks to Consider

Not all retailers are performing as poorly as Ascena Retail Group. The specialty retail stocks with a favorable Zacks Rank that are performing well and are worth considering include Abercrombie & Fitch Co. (ANF), Citi trends Inc. (CTRN) and DSW Inc. (DSW). These stocks carry a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on ANF

Read the Full Research Report on DSW

Read the Full Research Report on CTRN

Read the Full Research Report on ASNA

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