Why Ascena Shares Dropped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of women's apparel retailer Ascena Retail Group (NASDAQ: ASNA  ) were falling today by as much as 13%, after the company reported disappointing holiday sales.

So what: The holiday shopping season is the biggest time of year for retailers, sometimes bringing in as much as 40% of yearly revenue, and a number of industry stocks are off today on news of a Christmas slump. Earlier reports had said fears of the fiscal cliff kept some shoppers home. Ascena, the parent of Lane Bryant and other chains, cut its outlook for the fiscal year to an EPS of $1.30 to $1.40, from $1.45 to $1.55, as the company has had to mark down unsold merchandise. Same-store sales at company stores actually dropped 2% in November and December, though online sales grew 30% during that period.

Now what: It seems like the worst is probably over for Ascena. The company projected modest growth in comps this spring at 3%-5%, so it seems like the reason for lowering guidance was the poor holiday season. Now that tax cuts have been preserved for most Americans, perhaps retail shopping and consumer confidence will return to normal levels. I'd expect the stock to stabilize after today's drop.

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