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Why Ascena Retail Group (ASNA) Is Down Today

Tickers in this article: ASNA

NEW YORK (TheStreet) -- Ascena Retail Group  was falling 7.25% to $20.35 on Monday morning after the company announced that it lowered its earnings per share guidance for the fiscal year 2014 after lower-than-expected holiday sales.

The Suffern, N.Y.-based owner of Lane Bryant and Dress Barn announced just a 1% increase in consolidated combined comparable store and e-commerce sales for the holiday period in November and December that ended on Dec. 28, 2013. Due to this, Ascena lowered its EPS guidance for its current fiscal year that ends on July 26, 2014 to a range of $1.10 to $1.15 from a range of $1.25 to $1.30.

"A challenging Holiday selling season resulted in increased promotional activity. We successfully cleared excess inventory and have taken the necessary markdowns in the second quarter to transition cleanly into the spring season," said Ascena president and CEO David Jaffe in the company's report. 

TheStreet Ratings team rates ASCENA RETAIL GROUP INC as a Buy with a ratings score of B+. The team has this to say about its recommendation:

"This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, good cash flow from operations, increase in stock price during the past year and growth in earnings per share. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Despite its growing revenue, the company underperformed as compared with the industry average of 7.6%. Since the same quarter one year prior, revenues slightly increased by 5.2%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • ASNA's debt-to-equity ratio is very low at 0.12 and is currently below that of the industry average, implying that there has been very successful management of debt levels.
  • Net operating cash flow has increased to $41.00 million or 30.99% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 3.63%.
  • The stock price has risen over the past year, but, despite its earnings growth and some other positive factors, it has underperformed the S&P 500 so far. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • ASCENA RETAIL GROUP INC has improved earnings per share by 13.8% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ASCENA RETAIL GROUP INC reported lower earnings of $0.95 versus $1.09 in the prior year. This year, the market expects an improvement in earnings ($1.30 versus $0.95).
  • You can view the full analysis from the report here: ASNA Ratings Report