Is Ascena Retail Group’s Price Tag a Bargain?

Source: Thinkstock

Source: Thinkstock

Ascena Retail Group Inc. (NASDAQ:ASNA) is a leading specialty retailer offering clothing, shoes, and accessories for missy and plus-size women under the Lane Bryant, Cacique, Maurice’s, Dressbarn, and Catherine’s brands. It also has products for tween girls and boys under the Justice and Brothers brands. Ascena operates through its subsidiaries approximately 3,900 stores throughout the United States, Puerto Rico, and Canada. The stock has been a poor performer. Its sitting at a 52-week low right now of $16.15. But is the stock an opportunity at these levels? Based on its trading range it seems so, but what about its fundamentals?

Well, for the third-quarter of fiscal 2014, earnings from continuing operations of Ascena were $0.22 per diluted share. This compares to earnings from continuing operations of $0.20 per diluted share in the same period of fiscal 2013. Adjusted earnings from continuing operations in the third-quarter of fiscal 2014 were $0.27 per diluted share, compared to $0.26 per diluted share in the prior year’s gross margin for the third quarter of fiscal 2014 increased to $675.0 million, or 58.9 percent of sales, compared to $657.8 million, or 57.6 percent of third-quarter sales last year. The gross margin rate increase was primarily due to a lower level of markdown activity across most of the company’s brands.

It is important to note that buying, distribution, and occupancy costs for the third-quarter of fiscal 2014 were $219.6 million, or 19.2 percent of sales, compared to $208.1 million, or 18.2 percent of third quarter sales last year. The increase was primarily related to investments in merchandising and design functions, increased freight and fulfillment costs supporting strong e-commerce growth, and the impact of new store growth at Justice and Maurice’s. The company continues to anticipate the capture of certain integration-related efficiencies in its distribution structure over time as it implements its centralized logistics and distribution strategy. Selling, general, and administrative expenses for the third-quarter of fiscal 2014 were $340.4 million, or 29.7 percent of sales, compared to $332.4 million, or 29.1 percent of third-quarter sales last year. The growth in total expense to last year was due to increased marketing and headcount to support top line growth and synergy initiatives.

Operating income for the third-quarter of fiscal 2014 was $53.7 million, or 4.7 percent of sales, compared to $65.8 million, or 5.8 percent of sales last year. On an adjusted basis, operating income for the third-quarter of fiscal 2014 was $68.1 million, or 5.9 percent of sales compared to $72.7 million, or 6.4 percent of sales last year. The effective tax rate for the third-quarter of fiscal 2014 was 30.6 percent, which was lower than the company’s expectations. The effective tax rate was 40.3 percent in the third-quarter last year.