You could hear the groaning late last week when Ascena Group (Nasdaq: ASNA) reported its first-quarter results. The stock went down about 5% for the week, with earnings per share short of the $0.36 consensus.

Ascena, the parent of clothing chains Dress Barn and Justice, has had a good run, up 127% over the last year. Some investors took the earnings report as a sign to take the money and run before the coming acquisition of Charming Shoppes (Nasdaq: CHRS) messes things up. Fool Seth Jayson called the earnings a miss, rightly pointing out margins were down around 100 basis points across the board.

Let's not make excuses for that, but have a look at the bigger picture: Analyst consensus pegs a $25 price target on Ascena's stock , which is now trading at around $18 per share. If the macro trends hold, there's no reason it shouldn't get there once a few temporary issues clear up.

It's been a difficult environment for apparel going on two years now. Consumers continue their penny-pinching all over the place. Ascena has managed better than most; its stock is up over 125% over the last year. If the back-to-school season is stronger this year, as expected, and the mushy middle of apparel keeps getting stronger (as we've predicted), Ascena should close the deal with Charming Shoppes and come out stronger in the second half.  

CFO Armand Correia said in the analyst call that 60 basis points of the gross profit rate decline came from increased markdowns (which are expected to ease for back-to-school). Management said a lot of the margin pressure came from temporary operations expenses such as the move to a new headquarters. Meanwhile, comparable sales (for stores open at least a year) were up for the 13th consecutive quarter and online sales -- very important for future growth -- were up 55% over 2011.

Earnings got hit by the costs of the acquisition of Charming Shoppes, but that's another temporary thing. Ascena CEO David Jaffe said on the call that the impact on earnings was $0.03 per share and first-quarter EPS was only a penny lower than last year's. 

With regard to Charming Shoppes, Ascena is paying $7.35 a share, a healthy 25% premium for a company that was struggling with flat comparable sales last year. But Charming Shoppes has been taking steps to right itself, including plans to remodel Lane Bryant stores and improve online sales, an area where it had been lagging.

Fashion Bug is the problem here. The chain was struggling hard, with comparable sales down 4% last year, while comps went up at both Lane Bryant and Catherine's, Charming Shoppes' other plus-size chain. I wouldn't bet on Fashion Bug's future going forward. It overlaps with Dress Barn, Ascena's middle-of-the road chain. But as we've also noted here, Ascena has been putting more of its focus in its younger-skewing chains, Maurice and Justice.

The latest earnings reported only a day after Ascena's showed comparable sales were flat -- again, Fashion Bug's fault -- but up 1% at Lane Bryant and 5% Catherine's.

As we've said before, that mushy middle of apparel retail is ripe for recovery, with headwinds from increased discretionary spending among specialty-store shoppers and lower cotton prices. And thanks to the growing waistlines of American women, Lane Bryant and Catherine's have growth potential.

A betting Fool would go with a closure of Fashion Bug and the expansion of Justice and Lane Bryant to follow the right demographics. If that happens, barring a double-dip recession, Ascena will be set for a strong holiday season and better days ahead.

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