Ascena Retail Shares Get an Ugly Haircut

By Markets

In this segment of the Sept. 22 MarketFoolery podcast, Chris Hill and Bill Barker of Motley Fool Funds discuss whether the market is being too negative about the parent of chains Ann Taylor, Justice, Dress Barn, and Lane Bryant, among others. The whole industry is suffering from macro headwinds, but where do they go from here?

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A full transcript follows the video.

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This podcast was recorded on Sept. 22, 2016.

Chris Hill: Ascena Retail is having a bad week, shares down around 30 percent. This is the parent company of Lane Bryant, Dress Barn, Justice, Catherines, and Maurices. With the exception of Lane Bryant, I believe that all of those retail outlets are showing declining sales, and yet, 30 percent? That seems like a hell of a haircut for this stock.

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Bill Barker: Yeah. This stock has seen a lot of trouble over the years. It's really not delivered much to shareholders. I guess prior to coming into that -- look retail has been challenging, clothing retail has been challenging. This store has never really delivered to shareholders and so more people found the exit again because of it.

The declines were 4 percent at Justice -- this is the same-store sales declines for the quarter -- 4 percent at Justice, 9 percent at Maurice's, 7 percent at Dress Barn, 5 percent at Catherine's. Ann Taylor was going to be around 5 percent, 6 percent. That's pretty thorough, that's pretty across the board. You can say that there are macroeconomic factors, you can say the company is obviously not getting it right when there are declines everywhere to that degree. I would say that- So Maurice's was down the most, 9 percent. That's really not too much of a surprise because it's a sort of a small-town-oriented, Midwest, middle-of-the-country brand. That is where more of the economic problems in the country are right now.

Chris: If you're Ascena, do you need to think about, I don't know, getting rid of one of these brands? I don't know. Maybe that's too simplistic, but it seems like they've got a bunch ... We've seen this with other businesses. We've seen this with large conglomerates like Procter & Gamble, Colgate, Palmolive. In those cases you're talking about a business that has 75 to 100 different brands and business lines underneath it and they look to shed some here and there.

We've also seen it with a company like Darden Restaurants, which owns Olive Garden and The Capital Grille and that sort of thing, and then got rid of Red Lobster because they just thought, you know what we got to focus here. I'm wondering if at least part of the solution for Ascena Retail Group is to take one or possibly more of these brands and say, you know what, we're going to be a better operator if we're more focused on fewer brands.

Bill: I think they probably should consider that. I'm not going to answer as to whether that would definitely be the right thing to do because I don't know. Frankly when you and I discuss women's retail, we're definitionally way over our heads.

Chris: Yes.

Bill: For us to tackle men's fashion is probably not a fair fight there. Women's is just ...

Chris: Right.

Bill: Who are these clowns?

Chris: Exactly.

Bill: That said, they're going the opposite way of what you suggest might be something to think about. They just acquired Ann Taylor. The Ann Taylor numbers, because it hasn't been part of the company for a full year yet, aren't baked into that full company comp decline. They're acquiring, that's what this company historically has done. They have grown by getting more brands, they haven't grown shareholder rewards so maybe it is time to look at hey if you're empire building, great for you. If you're CEO and now your compensation is based on more sales, more employees, whatever, maybe that's only working out for you. Maybe that's not how the CEO's compensation works out, I don't know, but the shareholders are entitled to look at the business plan and say, maybe you're not executing on our behalf.

Bill Barker has no position in any stocks mentioned. Chris Hill has no position in any stocks mentioned. The Motley Fool recommends Procter and Gamble. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.