Retailers with a strong stable of brands seem to have no limit to the heights they can achieve. A company like VF Corp., which owns North Face, Wrangler, and Timberland, can write its own stylish ticket. On the other hand, sometimes a bunch of lesser brands all end up in the same place. Ascena Retail Group (NASDAQ:ASNA) has become a dumping ground for "other" brands, the kind that seem like they used to be good.
Let's look at a quote from the company about its Justice brand. "Through our Justice brand, Tween Brands provides the hottest fashion merchandise and accessories for tween (age 7-14) girls." There are at least a couple of things wrong with that sentence -- like the fashion isn't really that hot, and "tween" as a word is unacceptable.
Ascena's brands fall flat
Apart from Justice, Ascena owns the self-explanatory Dressbarn, department store Maurices, plus-sized retailer Lane Bryant, and other plus-sized retailer Catherines. Last quarter, comparable-store sales across all brands fell 1%, including the positive impact of online sales -- in-store alone, sales fell 3%.
Readers who have been paying attention to retail apparel recently will not be surprised to learn that Justice has been one of the company's weakest performers. The teen market has been difficult for many brands over the past few years, as parents have held on tight to their purse strings.
Ascena has had even more trouble with Dressbarn, which also had a 4% drop in comparable sales last quarter. Unfortunately, Dressbarn has been falling for a while. In Ascena's recently reported third quarter, Dressbarn brought in $247 million in revenue, while in the third quarter of fiscal 2011 it generated $255 million.
A way to grow from the ashes
While Ascena is looking soft around the edges, it does have a plan to make things better. The company's goal is to generate $10 billion in annual sales. Last year, it made just $4.7 billion, giving it a decent bit of ground to cover. The backbone to the growth is its plan to expand its store base. For instance, Maurices, one of the company's best-performing brands, currently runs around 875 stores, but the company believes there is potential for over 1,200.
The brands are also going to rely on growth from their online channels, which have performed much better than its stores have. Sales online grew 19% last quarter, although they still only account for 10% of total sales.
The real work that Ascena needs to do is in revitalizing its brands. Dressbarn is not a brand that many people seek out, but it could be. Ascena should be looking to retailers like J.C. Penney for tips on turning a dying brand into -- well, let's be honest, just a barely living brand. The distinction between the two is huge, though.
J.C. Penney isn't killing it, but it's managed to stabilize its sales and increase its margins. Dressbarn has the opportunity to do the same thing by embracing the customers that it has while slightly widening its net. Store refreshes, new marketing, and an aggressive pricing strategy could really make a difference.
As it stands, Ascena is a company looking for a clear way to get out of its hole. There are certainly options, but the company's low valuation seems deserved, and it's not clear that even that price is fair. There's still a long way to go to turn this limping business into a strong runner.