Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Why Ascena Retail Group Inc. Stock Plunged Today

By Steve Symington - Jul 13, 2015 at 11:16AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Is Ascena's drop meaningful? Or just another movement?

What: Shares of Ascena Retail Group ( ASNA ) were down 14.4% as of 10:30 a.m. Monday after the company updated its fiscal 2015 outlook.

So what: Specifically, Ascena now expects full-year adjusted earnings before interest, taxes, depreciation and amortization of $365 million to $375 million, and full-year adjusted earnings per diluted share from continuing operations of $0.57 to $0.60. Previously, Ascena Retail's guidance called for adjusted earnings per diluted share of $0.70 to $0.75. To blame, Ascena says, is its recent decision to accelerate its planned merchandise transition at Justice and to incorporate weaker-than-expected revenue performance at Justice and dressbarn.

Analysts, on average, were anticipating full-fiscal-year adjusted earnings of $0.70 per share.

In addition, Ascena anticipates during the current quarter it will take a non-cash, pre-tax goodwill and intangible asset impairment charge of $275 million to $325 million tied to Lane Bryant, as well $50 million for future settlement of a previously disclosed Justice class action lawsuit. These charges are not included in Ascena's freshly lowered guidance ranges.

Now what: "While we expected a challenging quarter at Justice due to the sell down of Spring/Summer merchandise coupled with a significant reduction in promotional activity," added Ascena CEO David Jaffe, "our revised fourth quarter expectation incorporates a more complete exit from the existing season's merchandise mix."

To Ascena's credit, Jaffe elaborated the move should result in a "cleaner selling floor and a well-communicated value proposition for the Fall season," and nicely position the company for a strong start to fiscal 2016.

Even so, considering dressbarn also didn't rebound as expected as well as the significant supplemental one-time charges above, I think the risk of continued weakness and market pessimism is too great for my investing taste. Until the company shows true signs of progress in turning around its weak businesses, I'm content watching Ascena Retail stock from the sidelines.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Ascena Retail Group, Inc. Stock Quote
Ascena Retail Group, Inc.

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/07/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.