Ascena Retail Group Inc Q4 Conference Call Highlights

Ascena Retail Group Inc ASNA reported its fourth quarter earnings on Tuesday. Shares of the company are down 16 percent.

Below are some key highlights and takeaways from the company's conference call.

Operational and Growth:

• During the quarter, we saw the challenging specialty retail environment continue with soft traffic across all our brands.
• While we achieved our planned profitability for the quarter, sales were below our expectations, down roughly 1% to last year with store comps down 4%, offset partially by continued positive e-commerce comps of 13%.
• Adjusted earnings per share were $0.13 for the fourth quarter down versus last year's $0.34 per share.
• Decrease primarily due to increased operating expenses related to unit growth and capabilities building;
• Inclusive of the charge, full-year 2014 EPS was $1, in line with the guidance we gave last quarter.
• Total adjusted comp sales were down 10% in the fourth quarter.
• We needed a high level of markdowns to clear inventory, which resulted in a drop in gross margin.
• Partially offsetting this challenging market environment was another strong quarter of e-commerce sales.
• We are continuing to explore customer response to new promotions, including flat rate and free shipping with purchase thresholds.
• From a merchandise assortment standpoint, we saw positive results in fashion apparel, licensed apparel, including Frozen movie wear and accessories.
• We're implementing a strategy to reduce the number of store-wide promotions, while increasing more targeted promotions to our best customers.
• On the marketing front, digital traffic remained strong with weekly growth of 15% to 20% over the year-ago period.
• Our Take 10 loyalty program continues to grow, and we've increased the size of our active customer database across all channels to 5.1 million, an 11% increase over last year.

Financial Highlights:

• Net sales of $1.2 billion for the fourth quarter were down roughly 1% to last year.
• Total company consolidated comp sales were down 2%. Total brick-and-mortar comp sales were down 4%.
• Moving down the income statement, gross margin was $647 million or 54.7% of sales compared to last year's $654 million or 54.6% of sales.
• Ascena average store inventory at cost was down low-single digits versus last year.

Recap:

• To recap the fourth quarter, our brands continue to make progress refining their respective merchandise strategies, and our key strategic project remain on track.
• Both our retail and e-commerce distribution facilities are operational.
• While traffic continues to be challenging, we continue to focus on controlling what we can control.
• We're finding our merchandising execution, maintaining focus on inventory levels and expense management, developing an integrated e-commerce platform for our customers and driving efficiency improvement through our strategic initiatives.
• We have taken a conservative outlook in fall and maintain appropriate inventory levels.

Guidance:

• Flat to modest positive total comp growth for the year with fall flat to down low-single digits and spring up low single-digit.
• Net new store increase of 30 to 40 units;
• Double-digit growth and depreciation with projected expense between $210 million and $215 million.
• Capital expenditures in the range of $350 million to $375 million.
• Effective tax rate of 37% versus 32% for fiscal 2014.
• Earnings per share down to last year in the first half, with growth in the second half
• Our prior outlook for combined overhead savings and synergies was $60 million over the combined 2015 and 2016 period.
• We remain on track to realize this level of anticipated performance with roughly $30 million in combined savings expected in both fiscal 2015 and fiscal 2016.
• The fiscal 2015 savings will be relatively balanced between fall and spring.