Can Ascena Earnings Top Its Retail Rivals?

Ascena Retail Group (ASNA) will release its quarterly report on Tuesday, and investors have been nervous about the retailer of women's and girls' apparel, sending the stock toward two-year lows recently. With Ascena earnings projected to drop this quarter, the big question is whether the company can use its well-known chains to build a longer-term turnaround story and top its rivals.

Ascena is best known for its Lane Bryant and Dress Barn stores, as well as having other brands such as Justice and Catherines in its stable. While its success depends on shoppers of all demographics, Ascena is subject to the same competitive pressures and fickle fashion sense among customers that rivals Aeropostale (AROPQ) and Abercrombie & Fitch (ANF 5.74%) face. Can Ascena maintain an edge against the competition? Let's take an early look at what's been happening with Ascena over the past quarter and what we're likely to see in its report.

Stats on Ascena

Source: Yahoo! Finance.

Will Ascena earnings disappoint this quarter?
Analysts have been a bit pessimistic in their assessments of Ascena earnings in recent months. Although they've kept their estimates steady for the quarter that ended in July, they've cut $0.04 per share from their fiscal 2014 projections. The stock has also done poorly, falling another 4% since mid-June.

Ascena started the quarter on a bad note, with a highly disappoining earnings report for the quarter that ended in April. Same-store sales fell 4% as adjusted net income dropped 37%, missing expectations. Moreover, the company cut its projections for the full fiscal year by a dime per share, leading to a double-digit percentage decline in the shares. CEO David Jaffe also pointed to fashion miscues at Dress Barn and Lane Bryant as contributing to the poor quarter, although he said at the time that early results for the current quarter looked somewhat better.

The big challenge for Ascena has been incorporating Lane Bryant and Catherines into its mix after their acquisition last year. The plus-size category is one that retail peers Abercrombie and Aeropostale largely underserve, although Aeropostale's online store does have a somewhat wider selection of select offerings. After the resurfacing earlier this year of a 2006 interview in which Abercrombie CEO Mike Jeffries said his company's goal is to "go after the cool kids," Abercrombie got a lot of attention for its lack of plus-size women's clothing, opening the door for Lane Bryant, Catherines, and other retailers targeting that market to capitalize.

In order to succeed, though, Ascena must improve its operational execution and internal efficiency. American Eagle (AEO 6.32%) has made big strides in that direction lately, with improved inventory management designed to reduce the need for costly discounting in order to move unwanted merchandise out the door. American Eagle is sporting more than double its profit margin and nearly double its operating margin; Ascena could learn some lessons from its competitors' tack.

In the Ascena earnings report, watch to see if the company has attracted any interest from private-equity investors. With outside investors taking a stake in Aeropostale recently, relatively inexpensive valuations could draw more interest in the industry generally and in Ascena specifically.

Click here to add Ascena to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.