FBR Capital Downgrades Ascena Retail Group (ASNA) to Market Perform

September 20, 2016 7:09 AM EDT
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Price: $4.85 --0%

Rating Summary:
    8 Buy, 8 Hold, 0 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 6 | Down: 10 | New: 6
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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."

For an analyst ratings summary and ratings history on Ascena Retail Group click here. For more ratings news on Ascena Retail Group click here.

Shares of Ascena Retail Group closed at $8.12 yesterday.

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