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Why Ascena Retail Stock Dropped 9% Today, but Could Win It All Back Tomorrow

By Rich Smith – Updated Dec 10, 2018 at 5:32PM

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Investors may have been worried about earnings. They needn't have.

What happened

Shares of Ascena Retail Group (ASNA), parent company of women's clothiers like Ann Taylor, Dress Barn, and Justice, fell 9.3% during regular trading on Monday. In after-hours trading, however, the stock quickly turned around, and as of 4:45 p.m. EST, it was up 9.2% from its close, recovering almost all of its losses earlier in the day.

So what

Trading in stocks after the market closes is notoriously volatile because there are fewer people buying and selling, and less liquidity (fewer shares available to trade), which can make for wider swings in price. That being said, there is some reason to hope that Monday's after-hours gains will continue into the trading day Tuesday.

In today's report, which came out after the close, Ascena reported that it made $1.59 billion in sales in fiscal Q1 2019, basically flat against one year ago, but ahead of analyst estimates for $1.56 billion. Same-store sales increased 3% -- thus, a sales beat.

Gross margins earned on these sales declined 130 basis points to 59.4% because of higher shipping costs and greater markdown requirements, management said. As a result, both operating and net profits declined by $1 million for Ascena. Regardless, on the bottom line the company still managed to hold firm at $0.03 per share net profit, level with last year's Q1.

Teens shopping for clothes

Image source: Getty Images.

Now what

The biggest reason Ascena might see its stock react positively on Tuesday is the fact that the company's guidance, while not great, was not terrible, either. Management is forecasting 2% to 4% gains in comps in Q2 and continued low single-digit comp growth all year long. That compares favorably with Wall Street forecasts for a 1.6% decline in sales for the year. Q2 sales, expected to range from $1.675 billion to $1.705 billion, are broadly in line with Wall Street estimates for $1.7 billion in revenue.

In short, the news could have been better -- but at least it wasn't worse.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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