Why Ascena Retail Group Stock Just Jumped 22%

A billion-dollar-plus loss can't hold back this stock.

Rich Smith
Rich Smith
Jun 9, 2017 at 3:38PM
Consumer Goods

What happened

Shares of Ascena Retail Group (NASDAQ:ASNA) -- the company formerly known as "Dress Barn" and owner of that brand, as well as such brands as Justice, Lane Bryant, and ANN -- saw its shares shoot up as much as 21.8% by 3 p.m. EDT.

So what

Ascena reported its fiscal Q3 2017 earnings last night. GAAP losses were pretty massive -- $5.29 per diluted share. Management was quick to point out, however, that $5.22 of those losses were non-cash and came in the form of a $1.324 billion writedown due to a revaluation of the company's "goodwill and other intangible assets."

Back out an additional $0.02 worth of one-time items, and Ascena says it actually earned a $0.05 "non-GAAP" profit for the quarter. That's about what Wall Street was expecting Ascena to report, so investors seemed pleased with the result -- despite the hugely bad headline number.

Sales came in at $1.57 billion, or $10 million ahead of analyst estimates.

Investor rides bull market up.

Image source: Getty Images.

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Now what

Heading into its fourth and final quarter of its fiscal year, Ascena says investors should expect to see a loss of between $0.06 and $0.01 per share, bringing full-year profits to between $0.10 and $0.15 -- but again, these are non-GAAP numbers. Ascena declined to say what its earnings would really look like.

What we do know is this: Over the past 12 months, despite losing more than $1 billion under GAAP accounting standards, Ascena has succeeded in generating positive free cash flow of nearly $172 million. Weighed against the company's market capitalization of only $348 million pre-earnings, that made for an enterprise value to free cash flow ratio of only 2.0.

At that price, Ascena shares probably couldn't help but go up -- no matter what they reported yesterday.