Ascena Retail Group (ASNA) Apparel Traffic Malaise Unavoidable - Cowen

Cowen analyst, Oliver Chen, noted that unfavorable weather, poor execution at several brands & ongoing apparel traffic weakness are plaguing Ascena Retail Group (NASDAQ: ASNA), which led to the FY16 guidance reduction. F3Q comps were -4% vs. Street -0.7%. Inventory execution remain stellar & ANN integration progressing to plan, but stabilization in comps & conviction in achieving $1B EBITDA by FY18 is likely necessary for the stock to work.

F3Q comps declined -4% y/y, below the Street's & our -0.7% estimate, as all legacy ASNA brands and Ann Taylor brand missed expectations, partially offset by continuing strength at LOFT (comps +2%). Weather was the biggest factor that drove the miss, but each brand is also facing specific concerns that will take time to fix.

ASNA announced that it retained Accenture earlier this month to proactively engage in an enterprise-wide transformation project to drive enhanced profitability. The process is just underway so it's too early to share details, but it will be a holistic approach to assess which areas of the business are generating a good ROI and which are no longer worth the investment. We anticipate the company's brand portfolio, store fleet, cost structure, supply chain, & e-com platform are all topics that could be addressed.

No change to Market Perform rating, while the price target goes down to $8 from $10.

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 $7.22 yesterday.

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