FBR Capital Downgrades Ascena Retail Group (ASNA) to Market Perform
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FBR Capital downgraded Ascena Retail Group (NASDAQ: ASNA) from Outperform to Market Perform with a price target of $7.00 (from $15.00) following disappointing results and outlook.
Analyst Susan Anderson commented, "ASNA reported an adjusted F4Q16 EPS miss of $0.08 (versus FBR/consensus of $0.17/$0.16 and implied guidance of $0.15–$0.18), driven by worse SSS and expense de-leverage. Justice continued to inflect with a –4% SSS (versus –11% in F3Q16 and an EBITDA margin up +846 bps). However, deterioration at dressbarn and Maurices offset Justice's margin benefit. Our Outperform rating was based on ASNA's ability to achieve at least ~$800M in EBITDA by FY18, which now does not appear feasible. As a result, we lower our rating to Market Perform and our price target to $7.00, from $15.00. Due to continued negative traffic trends/sales, ASNA guided 1Q/FY17 adjusted EPS well below consensus, to $0.16–$0.21/$0.60–$0.65 (versus FBR/consensus of $0.37/$0.38, $0.76/$0.83, and $0.36 and $0.60 in FY16, respectively). We like ASNA for the significant low-hanging-fruit opportunity; but management's goal of $1B EBITDA by FY18 is based on better traffic/SSS trends, which now do not appear achievable. Additionally, we believe ASNA's heavy store base will continue to weigh on expense leverage. (It takes time to right-size.) It appears that turns at dressbarn and Maurices are quarters away, which will also offset any Justice/synergy benefits."
Shares of Ascena Retail Group closed at $8.12 yesterday.
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