Ascena Retail Group Earnings Call Nuggets: Priorities and Justice Leadership

Ascena Retail Group, Inc. (NASDAQ:ASNA) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Priorities

Anna Andreeva – Oppenheimer: I had a couple of questions. First, I was hoping you can talk about comps progression during the fourth quarter. I believe you guys guided for flat comps in June and July. How did that come in versus your expectations? The second question on Justice operating margins, I just wanted to double check, is there anything one-time in that roughly 400 basis points decline? I think you talked about four additional POS events during the quarter. So, just kind of trying to understand the magnitude of the decline and how should we think about Justice’s operating margins going forward? Then finally cash building on the balance sheet and the debt levels coming down, maybe talk about some of its priorities for cash as you guys paydown the debt?

David R. Jaffe – President and CEO: I’ll start with the last one and work my way back and then turn over to Dirk to add to it. First, I’d say, our first priority is to pay off our debt. As you heard, we’re down considerably since just over a year ago when we closed on the transaction, and we think that we’ll be able to make a big dent in it this year as well, even with the significant CapEx we’re doing. So that would be number one. I would also say though that we’ve always been opportunistic in our share repurchases, so that’s always a possibility, and at this level of debt with our revolver capacity, we would certainly always keep that an open commitment from the Board, so that’s always a possibility. Beyond that though, we’re not going to start a dividend. We’ve talked about that many times and I’ll just hopefully preempt some questions saying we are not looking at any acquisitions and have not intention to until we get these businesses operating on firmer keel and we have these major transformational projects complete and running smoothly. And so that could be two years or more, but that’s certainly, the acquisition is certainly not on a horizon. Turning to Justice, as we mentioned it was a tough back-to-school. The fourth quarter was a very beginning of it, and so operating margins were hit because of the incremental flash sale, as you may remember from earlier calls, the flash sales the incremental 20%, and so what we found is that the rate gets hurt, but what we are able to do is generate more dollars. So, a little bit of an impact on the margin. There were no significant one-time expenses, expect the typical clearance as we roll out of spring into back-to-school to me there is probably a little bit more activity in the clearance this year than in the last year, but not dramatic and I’m going to turn it over Dirk to talk about the comp progression.

Dirk Montgomery – EVP and CFO: Sure, to speak of the comp progression, as we mentioned I think publically on our last call, we were off to a strong start in May. May comps were at a higher end of low-single digits and then June and July actually were positive both in terms of brick and mortar and e-commerce. So, we had – certainly had a deceleration from May and to June and July, but we maintained positive comps through all three months. And at a general level, mall traffic, at least based on the information that we get on the mall traffic had a pretty similar pattern, mall traffic actually was much lower in June and July than in May.

Justice Leadership

Edward Yruma – KeyBanc Capital Markets: Just a quick follow-up on the previous question on Justice. I guess I’m just trying to drill in, obviously you were being reactive to a very promotional back-to-school environment, but as we think about the Justice now going forward 40% off, which has obviously been a main side of your promotional strategy, I guess could you give us an update or insight and some of the tests that you might be running, and whether Justice will have a more flexible promotional strategy going forward?

David R. Jaffe – President and CEO: I don’t want to steal any thunder from the Justice leadership team that’s going to be presenting in two weeks, so I’ll just say that they have been and will continue to test alternate programs including the flash sale, which has been successful, and to look for other tools and we’ll some discussion about the success of the flash sales and some of the other things that they are testing at the investor day, if I can differ until then.

Edward Yruma – KeyBanc Capital Markets: Just some quick questions about the guidance you provided – you pointed I believe gross margins up flat to 30 basis points, obviously you are lapping some easy comparisons, you had some sweater issues, how do we think about other potential drivers on a gross margin front, as well as you indicated that obviously promotions have been fairly heavy, at least early in the fiscal year, do you expect those promotions to abate as the year progresses?

Dirk Montgomery – EVP and CFO: We’ve seen as I think everyone probably knows that a pretty heavier promotional environment and back-to-school than we saw the year before, don’t know how promotional things are going to be at the balance of the year, I think your question gets to where do we see improvement in the gross margin rate, and I would say it’s one item that you mentioned, which is we’re up against fairly low margins at various points in 2013 because of the tough year that we had, both at holiday and then in some portions of spring. I think we also believe that the improvement in merchandising is going to help us reduce markdowns by higher initial sell-through as we improve our merchandising strategies.

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