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Why Ascena Retail Shares Ascended

By Brian D. Pacampara, CFA - Sep 25, 2013 at 11:25AM

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Is this meaningful? Or just another movement?

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 clothing-store operator Ascena Retail Group (ASNA) surged 16% today after its quarterly results easily topped Wall Street expectations.

So what: The stock has slumped over the past year on a string of disappointing quarters, but today's fourth-quarter results -- adjusted EPS of $0.34 versus the consensus of just $0.20 -- suggests that things are starting to turn. While revenue of $1.2 billion was pretty much in line with analyst estimates, a 270-basis-point increase in gross margins, coupled with a 4% bump in same-store sales, is reigning optimism over Ascena's ability to grow profitably.

Now what: Management now sees full-year adjusted EPS of $1.25 to $1.30 and expects same-store sales growth in the low single digits. "As we head into fiscal 2014, we expect macroeconomic factors to continue to pressure the apparel industry," said President and CEO David Jaffe. "Our teams are focused on driving profitable growth in 2014 and we feel that our brands are well positioned for this challenging environment." More important, with the stock still off a bit from its 52-week highs and trading at a forward P/E of 14, there might be some upside left to profit from that bullishness. 

Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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