Ascena shares sink on weak quarter and forecast

Ascena Retail Group Inc.'s shares sank Thursday after the clothing company reported disappointing fiscal third-quarter results and lowered its full-year forecast.

THE SPARK: Ascena reported after the market closed Wednesday that the tough economy and poor weather hurt traffic in the company's stores. Results were also hurt by unpopular merchandise choices at Lane Bryant and dressbarn stores.

Its net income slipped to $31.2 million, or 19 cents per share, for the quarter that ended April 27. That compares to $49.4 million, or 31 cents per share, a year ago. After adjusting for acquisition costs and a charge tied to the extinguishment of debt, Ascena earned 26 cents per share.

Revenue increased nearly 46 percent to $1.14 billion, helped by the recent acquisitions of the Lane Bryant and Catherines chains. Sales in stores open at least a year — a key metric of a retailer's health — fell 1 percent during the quarter.

Analysts polled by FactSet, on average, were expecting earnings of 31 cents per share on revenue of $1.17 billion.

The company also said it now expects to earn $1.10 to $1.15 per share for the year on an adjusted basis. That's down from its prior forecast of $1.20 and $1.30 per share. Analysts forecast earnings of $1.26 per share for the year.

THE BIG PICTURE: Ascena, based in Suffern, N.Y., owns clothing chains such as Lane Bryant, Cacique and Catherines. It has 3,800 stores throughout North America.

The latest quarter contrasts with the preceding second quarter, when the company beat expectations despite soft holiday sales, a weak economy and the aftermath of Superstorm Sandy.

THE ANALYSIS: Citi Research analyst Oliver Chen said that it was an expected bump in the road for the company and reiterated his "Neutral" rating on Ascena's stock.

However, he said there are some bright spots in the report given that sales have improved thus far in the current quarter. Additionally, the analyst said that he likes that management has a plan to improve, such as lowering expenses and adjusting promotions to keep inventory at proper levels.

SHARE ACTION: Ascena shares fell nearly 9 percent to close at $18.13. Its stock is nearing the bottom end of its 52-week trading range of $15.95 to $22.18.