Ascena Retail Group (ASNA) Q1 2018 Earnings Conference Call Transcript

Markets Motley Fool

Ascena Retail Group (NASDAQ: ASNA)
Q1 2018 Earnings Conference Call
Dec, 4, 2017 4:30 p.m. ET

Continue Reading Below

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Q1 2018 Ascena Retail Group, Inc. Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will follow at that time. If anyone should require assistance during the conference please press * then 0 on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Ms. Allison Cain of ICR. Ma'am, you may begin.

Continue Reading Below

Allison Cain -- Vice President, ICR (Investor Relations)

Thank you, operator. Good afternoon, and welcome to Ascena's First Quarter Fiscal 2018 Earnings Call and Webcast. Before we begin, I'd like to remind you that certain statements and information made available on today's call and webcast may be deemed to constitute forward-looking statements. These forward-looking statements reflect the company's current expectations as of today December 4, 2017, and are subject to a number of known and unknown risks and uncertainties that could cause actual results to differ materially.

The company undertakes no obligation to revise or update any forward-looking statements. Additionally, today's call and webcast may refer to non-GAAP financial measures. A reconciliation of GAAP measures to non-GAAP measures discussed today is included in our earnings release, a copy of which was filed at the U. S.

Securities and Exchange Commission and a current report on Form 8-K earlier today. Please refer to the For Investors section of ascenaretail.com for a replay of today's conference call. We would note that the company has posted a supplemental slide package to augment information provided on today's call on its IR site [inaudible], excuse me, and as an attachment to its 8-K released earlier today. Hosting today's call are David Jaffe, ascena's chief executive officer; Gary Muto, president and CEO of Ascena Brands; Brian Lynch, president and chief operating officer; and Robb Giammatteo, ascena's chief financial officer.

Thank you, and I'll now hand the call over to David. David?

David Jaffe -- Chief Executive Officer and Chairman

Thank you, Allison. Good afternoon, everyone, and thank you for joining us. We continue to make strong progress toward our committed transformation goals, and I'm confident the new capabilities we are building will yield significant benefits in the future, but we need to see more top-line momentum. We were unable to capitalize on the improving macro traffic trend due to fashion missteps that we cannot afford in today's environment.

We continue to deliver double-digit transaction growth in our direct channel but must improve our overall level of merchandising execution. Our first-quarter adjusted earnings per share of 0.11 cents was in the middle of our guidance range but represented a disappointing quarter. While remaining a headwind, store traffic was manageable, down low single digits for the quarter, a range in which we should be able to deliver flat or positive comp performance. Our move to create the Ascena Brands structure in August was made specifically to strengthen product execution and comp performance, and we are working aggressively to fully transition to this new structure.

Gary completed his initial assessment of the product and marketing strategy of each brand this quarter, and our teams are starting to become acclimated to operating under this new structure. However, as with change of this magnitude, we expect it will take some time before we see sustained benefits from this work, as Gary engages with his leadership team on brand and product strategies. Nonetheless, we believe we have created the right environment to drive meaningful improvement in selling performance over time. Regarding enterprise transformation, all cost takeout work streams remain on plan, and we are currently deploying the first phase of new merchandise planning capabilities.

We will continue to roll out advanced capabilities in merchandising planning and marketing over the next 12 to 18 months, and we expect these capabilities will provide meaningful support to both the top line and gross margin rate. In parallel, we are setting up a new analytics Center of Excellence that will improve our agility through development of data-driven, actionable insight at scale. We remain focused on simultaneously streamlining our cost structure while increasing customer-facing capabilities that will provide our brand teams with the analytic tools to deliver growth in a challenging environment. Our liquidity position remains strong, and we have the financial flexibility to complete the remaining components of our transformation program, which will see the company emerge as a much more agile, capable competitor.

And we continue to evaluate all options to create and sustain shareholder value, including new growth channels and portfolio opportunities. While we were not pleased with this quarter's performance on the top line, we believe the capabilities we are building and the expense efficiencies we are driving will support significant flow-through as we improve our overall merchandising execution. With that, I'll hand things over to Gary to discuss key developments across our brand portfolio. Gary?

Gary Muto -- President and Chief Executive Officer, Ascena Brands

Thanks, David. This past quarter was the first opportunity to directly engage brands and merchandising leaders across our portfolio. I'm working with the mandate to address a multitude of issues that serve three basic strategic goals in each of our brands: to maximize market positioning, to consistently deliver outstanding product execution, and to fulfill our promise to our customers to deliver a great experience. Our brands teams are working hard to address challenges from this past quarter and demonstrate progress toward the strategic goals I referenced a moment ago.

Each of our brands is in a different point in evolution. We have good traction in many areas of our portfolio along with a number of opportunities to make meaningful adjustments. At Justice, our casual apparel assortment has begun to stabilize, and we are increasing our inventory investment in this category for the first time in two years. Justice's specialty business comprised of girl care, lifestyle products, and intimates, delivered another quarter of double-digit growth.

The product and marketing research we've completed over the past year has helped improve the accuracy of our fashion bet. This has resulted in the second consecutive quarter of the year-on-year customer file growth and a third consecutive quarter of store traffic growth. Justice continues to drive strong customer engagement through key social channels and launched its loyalty program in October, with more than 1.4 million customers already enrolled. Improved product execution and continuous strong customer engagement is driving what we believe is an inflection point in Justice's return to growth.

At Maurices, we have corrected some fashion issues that hurt us last year, but we continue to see significant traffic headwinds at this brand. Fortunately, our digital business is strong, and we focus on leveraging our customer attribution capabilities to maximize cross-channel growth opportunity. We are also increasing local market reach from our brick-and-mortar locations, which is historically a critical differentiator and value driver in these core markets we serve. Cacique Intimates continues to perform very well, delivering its 19th straight quarter of top margin dollar growth.

Cacique's performance is continuously driven by strong seasonal fashion and technical innovation. Within Lane Bryant apparel, we are starting to realize the benefits of our new merchandising aesthetic. Our primary Q1 launch, super-stretch skinny denim, delivered significant growth, offsetting declines in lower-margin branded denim that we are discontinuing. Our merchandising talent can improve product performance through more compelling assortments, and with an enhanced focus on personalized service, together with our ability to wardrobe our customer from the inside out, I think Lane Bryant is very -- will be a very positive story going forward.

Performance at LOFT and Ann Taylor was very disappointing for the company and for me personally. We can't flip on fashion execution the way we clearly did. We will fix it, but it will take time. Our merchants know our customers well, and we have a strong track record, which drives my expectations for them to recover quickly.

There is particular opportunity beyond effective fashion and assortment fix. I believe it's customer experience, one-on-one engagement and to deliver a highly relevant offer that showcases value without promotion. We are testing clientelling as a way to engage our customer in a more meaningful manner, and the advanced marketing capabilities being developed as part of our transformation initiative will help us fundamentally refine our customer engagement strategies. At dressbarn, we have significant amount of work ahead of us to evolve our customer base, our assortment, and our marketing, all without sacrificing the existing customers we have while we work to acquire the new customers we need.

We would be better on product this spring, but work remains to improve the brand position, better understand our customer, and reestablish a shopping experience that will resonate, including significant improvement in our digital execution. To compete effectively in the value space, we need to get back to the core of the brand, delivering great product at a great price in a friendly physical environment. While we need time to return dressbarn to growth, first-quarter results were unacceptable, and the team is working aggressively to normalize performance for the spring season. Taking a step back, we're not in an environment where we can tolerate execution-related issues, and we had several this past quarter.

We have moved aggressively to make the necessary adjustments coming out of the first quarter and are focused on holiday execution. In addition, we are beginning to bring an advanced capability that would significantly improve our ability to engage with our customer. Finally, we've made some changes in key leadership areas and are working to fill remaining open positions, with a tough challenge to drive each of our brands forward. Despite this past quarter, I'm excited about the future across our portfolio.

With that, I'll hand it over to Brian for an update on our transformation program.

Brian Lynch -- Chief Operating Officer and President

Thanks, Gary, and good afternoon to everyone. We remain on track with the four transformation work streams related to operating expense takeout. We expect roughly $50 million in operating model savings in Fiscal 2018 and realized $19 million of such savings in the first quarter. These savings represent the wraparound benefit of headcount reductions made in Fiscal 2017.

Though we are continuing to assess our operating model, there is no additional work required to realize these committed savings. We expect roughly $40 million in procurement savings in Fiscal 2018 and realized $12 million of such savings in the first quarter. The new ascena enterprisewide procurement portal is now live across the legacy brands, and rollout will complete at the Premium Fashion segment in January. The portal automatically routes all spending to our procurement negotiations process and ensures we capture the savings targets we have established.

Our fleet optimization work is progressing well also. Annual run rate savings from completed real estate negotiations stand at $25 million, and we continue to track toward our $50 million commitment. Since the start of the program in January 2017, we have closed 145 stores, and we continue to build agility into our fleet, with the median life now at 1.8 years term. And with respect to IT efficiency, we have opened our global innovation center and have begun the transition from high-cost, third-party contract resources to in-house capabilities.

This transition support -- supports the $50 million savings target for this work stream and also offers us the ability to deliver increased technology support and speed to our organization through higher productivity and capabilities. We continue to look for incremental opportunities to streamline our cost structure. Over the past year, we've made substantial changes to our global merchandise sourcing network to drive both innovation and additional cost efficiency. We have realized our vendor base and developed deeper strategic partnerships, concentrating more volume into a smaller, more capable supply base.

This work has been completed by a new technology that enables upstream visibility into our supply chain cost, starting at the raw materials level. We realized $6 million in raw material cost savings in the first quarter and believe there is meaningful incremental opportunity in the merchandise sourcing area. From a sales and margins support standpoint, we are currently rolling out markdown and size pack optimization enterprisewide this quarter. Our brands will be tuning these systems over the coming months, and we expect to begin a realized meaningful gross margin benefit in Calendar 2018.

We have completed our advanced demand planning pilot with Accenture and expect to roll out this capability enterprisewide starting this coming spring. Advanced demand planning will help support full-ticket selling by increasing the effectiveness of inventory allocation across our fleet and channels of distribution. With regard to advanced retail technology, we continue to develop our customer experience management ecosystem, which will support delivery of highly personalized marketing content. We expect that we will begin to have this capability mid-Calendar 2018 and look forward to the opportunity to drive conversion and average dollar sale through a much more developed understanding of individual customer needs.

We're also in the process of setting up our advanced analytics practice, which should create significant benefit in areas such as pricing and customer insights. On the operating front, we launched a multichannel fulfillment in both our California and Ohio distribution facilities, and we'll have West Coast fulfillment capability across all brands post-holiday. Supporting these three-day quick-to-deliver capabilities outside of the peak Black Friday period, we believe this capability is top decile for competitors in our space and will help us provide a differentiated customer experience. We are pleased that our brands can leverage this capability -- this platform capability, and the investment-related implementation complexity are now behind us.

In summary, we continue to track to our committed platform savings target and are developing line of sight to incremental Change for Growth savings related to our sourcing capability. We have delivered the first of multiple advanced capabilities to support our merchandise planning and marketing functions, and we'll continue to build these sales and margin supporting capabilities in 2018. And we continue to enhance our quick-to-deliver capability to enhance the customer experience our brands can offer our customers. And with that, I'll hand things up to Robb to provide a financial update.

Robb Giammatteo -- Chief Financial Officer and Executive Vice President

Thank you, Brian, and good afternoon, everyone. Before I discuss our operational performance, I want to highlight that my comments on this call will reference non-GAAP results, which exclude items that affect year-on-year comparability, including restructuring expenses, noncash purchase accounting entries, and acquisition and integration expenses. Consistent with last quarter, we have posted a supplemental earnings package to our IR website and attached it to our 8-K to provide additional context on performance for the quarter. I will refer to this document in my prepared remarks and may reference it as well during Q&A.

As David referenced earlier, we delivered first-quarter adjusted earnings of $0.11 per share. Comp sales and gross margin rates came in just below the lower range of our guide but were offset by favorability in operating expense, resulting mostly from lower occupancy and reduced performance-based compensation. Negative comp performance for the quarter was caused primarily by a mid-single-digit decline in average selling price resulting from the issues that Gary touched on earlier. The three hurricane events in September unfavorably impacted comp performance by roughly 75 basis points for the quarter.

We continue to see strong transaction growth in our direct channel, with all segments up double digits. Direct penetration was approximately 21% for the quarter. Gross margin rate was up 30 basis points last year to a record 60.7% of sales. We delivered strong rate improvement across our value and kids segments.

Our value segment delivered a record gross margin rate of 59%, which was up almost 200 basis points to last year, reflecting lower product cost from internal sourcing and a contribution of our relaunched private label credit card program. Our kids segment delivered 140 basis point rate improvement, driven by a lower level of discounting as a result of better product acceptance. These rate increases were mostly offset by declines at our premium and plus segments. The rate decline at our premium segment was primarily due to higher levels of discounting as a result of soft product acceptance, while the decline at our plus segment was primarily related to markdown timing versus the year-ago period.

Operating expense was down $33 million or 4% versus the year-ago period, driven by our Change for Growth transformation program. SG&A expense rate leveraged 20 basis points for the quarter despite our mid-single-digit negative comp decline. We realized $52 million in platform savings for the first quarter, driven by headcount reductions, non-merchandise procurement savings, and fleet optimization. We expect to realize approximately $160 million for full-year Fiscal 2018 and continue to look for incremental opportunities.

More detail on both our transformation savings target and our ANN deal synergies and cost savings is provided on Slide 10 of our supplemental earnings package. Turning to our balance sheet. We ended the first quarter with $303 million in cash and cash equivalents. Of this amount, $240 million or approximately 80% is outside the U.S.

We ended the quarter with total debt of $1.602 billion, which represents the $1.574 billion remaining in our $1.8 billion term loan and $28 million on our asset-based revolver. Between revolver availability and cash, we had $844 million in liquidity at quarter-end. Our term loan is prepaid until August of next year and does not mature until August of 2022. We remain comfortable with our overall capital structure with net debt to trailing 12-month EBITDA of 2.5x and trailing 12-month EBITDA interest coverage of 5.8x.

Despite the strong liquidity position, we remain focused on maximizing our free cash flow and improving our overall financial flexibility. We ended the first quarter with inventory of $744 million, which was down approximately 8% from the year-ago period. Quarter-end inventory was down significantly across the legacy brand but was up low single digits at our premium segment, with the increased in premium related to receipt timing and elevated level of clearance inventory at LOFT related to the soft product acceptance that Gary referenced earlier. We expect to work through the LOFT clearance goods in our second quarter.

Capital expenditures for the first quarter were $45 million, and we continue to expect full-year Fiscal 2018 CapEx in the range of $190 million to $220 million. We are estimating a second-quarter Fiscal 2018 non-GAAP loss in the range of $0.07 to $0.12 per share based on the following assumptions: top line in the range of $1.62 billion to $1.66 billion; comp sales, down 4% to down 6%; gross margin rate in the range of 55% to 55.5%; depreciation and amortization in the range of $87 million to $90 million; operating income in the range of break-even to a loss of $15 million; and interest expense of approximately $26 million. Some color on the recent holiday peak. For the nine-day period from the Sunday preceding Black Friday through Cyber Monday, total ascena comp sales were down 1% to last year.

Performance was mixed across our portfolio, with high single-digit growth at our plus and kids segments and mid-single-digit growth at maurices, offset by continued challenges at dressbarn and our premium segment. Overall, November comp performance was several points better than our first-quarter trend, and our guide remains positioned on a longer-term 13-week trend preceding the Black Friday week. That concludes our prepared remarks, and we'll now open it up to questions.

Questions and Answers:

Operator

Thank you, sir. Ladies and gentlemen, at this time if you would like to ask a question over the phone, please press * then 1 on your telephone keypad. We ask everyone who's participating in today's question-and-answer session, please limit yourself to one question and a follow-up in the interest of time. If your question has been answered and you wish to remove yourself from the queue, please press the # key.

And our first question will come from Ed Yruma with KeyBank Capital Markets. Please proceed.

Ed Yruma -- KeyBanc -- Analyst

Hi, good evening, thanks for taking my questions. I guess, first, maybe in Quarter 2 you provided us an update on the program stores, and I think at the time, there was a double-digit performance delta. Any update on kind of program versus non-program stores and maybe where you are in that process of rationalizing the store fleet?

Brian Lynch -- Chief Operating Officer and President

Yes. Ed, we, first of all, put a very high hurdle on these stores, and we are constantly evaluating them. As I indicated earlier, we are managing our fleet to a very short and agile term of 1.8 years, so it gives us the ability to -- we look at all these properties fairly constantly. Our negotiations with landlords have been very straightforward against our high hurdle of both our EBITDA hurdle, our working capital hurdle, our transfer hurdle.

The landlords have been pretty straightforward, and they work with us to get to the right outcomes from these locations. So we're really positive of a better outcome.

Ed Yruma -- KeyBanc -- Analyst

Got it. And one follow-up, if I may. You certainly put through a lot of organizational change across the business over the past year. Obviously, much needed, but do you think that that caused maybe some of the fashion missteps or some of the operation difficulties that you encountered? And maybe how should we think about the time frame to rectify, particularly on the fashion side, some of the missteps?

Gary Muto -- President and Chief Executive Officer, Ascena Brands

Ed, I would say a lot of what was the fashion misses were from the team that was already in place. So we own that. I think, quite honestly, in some of the segments, we got a little ahead of ourselves, both from an inventory perspective and from a customer acceptance of fashion. We're working very quickly to correct that.

We will work through our issues in this quarter, and hopefully, by the middle of next quarter, we're in a better position. And it's not every brand. Each brand is in a different place.

Ed Yruma -- KeyBanc -- Analyst

Great. Thanks so much.

Operator

Thank you. And our next questions will come from the line of Susan Anderson with B. Riley FBR. Please proceed.

Susan Anderson -- FBR -- Analyst

Hi, good evening. Thanks for taking my question. And a quick question on the last comment on quarter-to-date trends that -- kind of like they're running a couple points ahead of the previous quarter. Is that across all formats? And then also, can you maybe just give some thoughts around the time frame that you think it will take to kind of get comp back in that low single-digit range, so kind of increasing the bad performers as well, kind of maintaining the performance of the other ones?

Robb Giammatteo -- Chief Financial Officer and Executive Vice President

Yes, Susan, it's Robb. I guess on the first one, in terms of the performance in November, we've seen a relatively consistent -- coming out of the first quarter, we were seeing a bit of momentum at Lane Bryant and at Justice, and I think that, again, those brands have continued that momentum into November. So consistent with the prepared remarks, those are the brands where we're seeing, I think, some improved performance from where we were in first quarter. Dressbarn and premium still consistent, about where they were in the first quarter.

And again, Gary and the team are working very hard to move on those as we get deeper into holidays.

Susan Anderson -- FBR -- Analyst

Great. That's helpful. And then another question on Justice, nice to see the improvement there. I guess maybe if you could talk a little bit about more -- just some color on what's driving that improvement.

Is it on the apparel side? Or is it on the non-apparel side? And do you feel good about where you're at with your cross-sell strategy? And then also on maurices, if you could talk about kind of the drivers of the improvement there, too.

Gary Muto -- President and Chief Executive Officer, Ascena Brands

Okay. So firstly, for Justice, I would say it's kind coming, really, from both categories. I did mention that the specialty business has delivered another strong quarter of comp growth. The exciting part is our apparel business is starting to find signs of comp growth.

The team has worked really diligently over the past year to really understand our girl and her needs and how mom shops for our girl, and I think they did a nice job. So I'm very, very pleased about the performance both in apparel and in specialty. And then the maurices comment, I think maurices' biggest challenge right now that we see has really been store traffic, and we're working very aggressively to really work on those declines there. The great news there is strong online growth, and we see continued performance there.

I do think we have an opportunity to capitalize on the -- being they're a local boutique and inviting customers in with outreach programs that really create a great shopping experience and an opportunity to kind of style our client in these smaller markets.

Brian Lynch -- Chief Operating Officer and President

And Susan, one more quick point on Justice apparel. While it was down this quarter, it significantly outperformed its inventory investments, so the team came in rather conservative because we had not seen stabilization of the casual business and the business significantly outperforming the inventory investment. As Gary mentioned, we are investing behind that as we get deeper into holiday. And again, we're hopeful to see that turn to positive comps.

Susan Anderson -- FBR -- Analyst

Great. That's good to hear. One last one if I could fit it in. Just on denim in general, I know you mentioned at Lane Bryant, skinny jeans are doing well.

Are you seeing denim outperform all of the other formats?

Gary Muto -- President and Chief Executive Officer, Ascena Brands

Yes, I'd say denim has -- we've been very pleased with denim performance across the entire ascena enterprise.

Susan Anderson -- FBR -- Analyst

Great. Thanks so much, guys. Good luck next quarter.

Brian Lynch -- Chief Operating Officer and President

Thanks, Susan.

Operator

Thank you. And our next questions will come from the line of Bob Drbul with Guggenheim. Please proceed.

Bob Drbul -- Guggenheim -- Analyst

Hi, guys. Good afternoon. Here's the two questions I have. The first one is the 23 store openings.

I was surprised by that number, and I was just wondering what the plan is for the remainder of this fiscal year in terms of store openings. And then the second question I have is I think you have your Amazon partnership in, I think, Lane Bryant, dressbarn, I think maurices as well. Just wondered if you could talk a little bit about how that's going and what you're seeing and some of the approaches to that piece of the business.

Robb Giammatteo -- Chief Financial Officer and Executive Vice President

Yes, Bob, it's Robb. I'll start and kick it over to David. So the store openings that you see are absolutely not a go-forward strategy. So as we mentioned, we started this initiative with fleet optimization in January.

These are longer-lived negotiations that were essentially committed before we got into this, and again, these stores were already highly productive stores that we were talking about. So in terms of the volume of stores, specifically at maurices, a lot of these were in process as we really tightened down the approval process for new stores. And the other area of growth is in LOFT, which, again, there will be selective investments going forward, and these are very high-return, sort of cash-on-cash in a year sort of thing. But you should definitely not expect that go-forward rate of store openings, and in fact, we track to that 4,600 to 4,650 guide we have for the full year at the end of the year.

So you will be seeing a substantial amount of store closures Q2 through Q4, with a much lower level of new store openings. I'll kick it over to David on Amazon.

David Jaffe -- Chief Executive Officer and Chairman

So Bob, on Amazon, we actually only have a very small relationship with maurices. Any of the other brands you may see there is being done through third-party resellers. We are testing maurices on a very limited scale. It's non-prime if you understand the difference there, so it's kind of something we're doing just to put our toe on the water.

We've been doing that for a bit over a year. At the same time, we are in discussions with Amazon about different ways we can partner. We're certainly pursuing that. And we're, as you can imagine, in discussions with several of the other platforms as well because we feel this is an interesting opportunity to extend the reach of our brands.

So as we have more to say about that, more updates, we'll pass that on.

Bob Drbul -- Guggenheim -- Analyst

Great. Thank you very much. Good luck.

Operator

Thank you. And as a reminder, ladies and gentlemen, if you would like to participate in today's question and answer session, please press * then 1 on your telephone keypad. And our next questions will come from the line of Brian Tunick with Royal Bank of Canada. Please proceed.

Kate Fitzsimons -- Royal Bank of Canada -- Analyst

Hi, yes, this is Kate Fitzsimons on for Brian. Thanks for taking our question. I guess just one on the fleet optimization program. I was just wondering if you could provide any update on what you're seeing in terms of transfer rates just as we're in the earlier part of that optimization here.

And then secondly, David, you were touching on it with Amazon, but last quarter or two, we were talking about some new sources of revenue or just different ways of looking at the portfolio. We saw in the quarter that Ann Taylor launched a subscription service. Just how are you viewing kind of the updated retail landscape and opportunities as we head into the next few quarters? Thank you

Brian Lynch -- Chief Operating Officer and President

Kate, I'll take the first question regarding transfer rate. We're doing some fairly heavy analytics as we speak now, and we expect to give you guys more guidance in second quarter on that.

David Jaffe -- Chief Executive Officer and Chairman

All right. Kate, we are looking at the new landscape and having a lot of conversations. We're beginning to test certain things, like you mentioned, the subscription service. We're trying to narrow it down to a couple of areas that we think we've got more potential and focusing on those.

So one of them is clearly platforms, whether it's Amazon or any of the others. Another one is looking at our ability to take our product into other markets, so whether there are other channels, like, I don't know, maybe wholesale through department stores, perhaps, or other countries, perhaps. And then we're also looking at a couple of our smaller brands, our internal brands to consider growing those dramatically. We've got a couple of ideas, and we're doing some work on that.

So we'll keep you posted, but we're working behind the scenes on a bunch of different areas, but we've been doing this for about six months now. So we keep refining it. We don't want to keep throwing spaghetti up on the wall. We want to try and find the areas where we can really get a bang for the buck.

Kate Fitzsimons -- Royal Bank of Canada -- Analyst

Great. And then just one last follow-up. There was some reference in the prepared commentary about some leadership changes on the product side. Could you just give us an update in terms of where there are holes in the organization or newer talent that's joining the organization? Thanks.

Gary Muto -- President and Chief Executive Officer, Ascena Brands

Yes. So it was primarily in the plus segment where we had some leadership changes. There's two openings that we're working actively to fill. The great news is we have talent across our portfolio which we're leveraging right now, so we feel very, very confident that we will fill those positions very quickly and we've stabilized any impact to the organization.

Kate Fitzsimons -- Royal Bank of Canada -- Analyst

Great. Best of luck for the holidays, guys.

Gary Muto -- President and Chief Executive Officer, Ascena Brands

Thank you

David Jaffe -- Chief Executive Officer and Chairman

Thank you.

Operator

Thank you. And our next question will come from the line of Paul Lejuez with Citigroup. Please proceed.

Paul Lejuez -- Citigroup -- Analyst

Hey, thanks, guys. You mentioned you see benefits and opportunities. I'm just wondering if you're thinking you might reinvest any of the savings into price to try to drive traffic, drive market share. That's first.

Also curious on the SG&A side, if you think that there's any place that you've cut where you feel like you might need to add back to the expense base. And then last, you mentioned, I think, Justice was impacted by 200 basis points on the 2015 the -- I forget what it was called. But you said there was a 200-basis-point impact to Justice. And I'm just curious how that flowed through the P&L, if that comes through without any cost associated with it.

And if you could, maybe just what the EPS impact was of that Justice comp adjustment that you mentioned in the release.

Robb Giammatteo -- Chief Financial Officer and Executive Vice President

OK. Paul, I'll take the second and the third, and I'll kick it back to Gary for the AUR reinvestment question. So in terms of adding back -- and please, anyone else jump in. In terms of adding back in SG&A, I think our teams are lean at this point.

I think they are stretched but appropriately so. We are shaking down, I think, some of the changes into Centers of Excellence. We still have more work to go there. But I don't believe any of this will be a large-scale reinvestment, and again, we will continue to evaluate organizational needs as it is.

David Jaffe -- Chief Executive Officer and Chairman

So let me just add to that, Paul. One of the things we are doing, as we've mentioned, we're cutting costs. We're taking out a lot of expenses. We use the expression "centralize and standardize" to the extent we can.

So we're getting these huge takeouts, and we are reinvesting some of that back into new capabilities. So forgetting the personnel issue that Robb mentioned, I want to make sure you're aware we're not just taking money out, but we're also putting money back into those areas specifically where we think we're going to get a good return on investments. So in the presentation, you heard us speak about merchandise planning allocation as one and then CEM as two. Those are the two primary areas where we're putting significant money back into the business.

So back to you, Robb.

Robb Giammatteo -- Chief Financial Officer and Executive Vice President

And again, Paul, your question on the Justice voucher. So the incremental sale that passed through the vouchers for the first quarter was about $5 million. The incremental gross margin, there's essentially no impact. So these are relatively deep discounts related to the legal settlement.

So zero impact on EPS gave us a couple points more of comp on the Justice business. One side benefit, which actually was a negative on this, is the product turned a bit faster than we expected. So as you might expect, deep deals on the best-selling fashion, some of that product went out the door at lower margin than we would like, which, I think, constrained sales a little bit from what we hoped. But essentially, long story short, no impact on EPS, no impact on gross margin dollars, about $5 million incremental on the top line for the quarter.

Gary Muto -- President and Chief Executive Officer, Ascena Brands

And Paul, to your original question on AUC, we believe we have opportunity to continue to drive down AUC, specifically in legacy brands, Ann has been on AUC reduction programs for the last couple of years. And I would say I think Justice is a great example where, you know what, we recognize that to be competitive in this marketplace, we have to make sure that we're offering some value. And if you're following Justice, you could see that they have repriced certain products to be a lot more competitive with the promotional landscape. And I think that really applies to all the brands, and I think it will go on an item-by-item basis.

Paul Lejuez -- Citigroup -- Analyst

And if I could, just one follow-up. November, I think, you said was a little bit better than what you guided to for the second quarter as a whole. Just wondering what your line of thinking is there.

Robb Giammatteo -- Chief Financial Officer and Executive Vice President

Yes. Paul, we've seen this before, where we've seen demand move around a lot. I mean, specifically to our own business, we saw quite a bit of business move ahead of Black Friday. We're cognitive -- cognizant to the point that we very well could have pulled ahead demand from the December weeks 1 and 2.

And candidly, we just haven't seen what that value looks like right now, so we're not going to get out in front of ourselves with anything. As of last quarter, we've been guiding on the run rate of the business, and we will continue to do so until we have more conviction with us in the merchandising changes and strategies that Gary is driving.

Paul Lejuez -- Citigroup -- Analyst

OK, thanks. Good luck, guys.

Gary Muto -- President and Chief Executive Officer, Ascena Brands

Thanks, Paul.

Operator

Thank you. Our next questions will come from the line of Janet Kloppenburg with JJK Research. Please proceed.

Janet Kloppenburg -- JJK Research -- Analyst

Hi, everybody. Gary, on the premium side of the business, I was wondering, is that -- the disappointing sales trends that you're seeing across ANN and LOFT, is that isolated to one part of the business, casual, with work, sweaters, whatever? And do you feel like you remedy that, or maybe in the spring season, things get a little bit better? Just maybe you could give us a barometer there. And then with respect to Justice, glad to hear that the business improved a bit. It sounds like the margins look pretty good as well.

And I'm just wondering, as you went through the Black Friday period, if you continue to be able to contain your promotional activity in that business. Thanks.

Gary Muto -- President and Chief Executive Officer, Ascena Brands

Sure, Janet. First question regarding premium, is it isolated? Yes, it's isolated. I think the [inaudible] from Ann to LOFT is slightly different. Ann recognized a strategy or recognized -- thought they had an opportunity to add premium price point into our assortment in Q1.

We introduced a couple of -- strategically, they did not work. We moved very quickly to remedy that, and we've made improvement as we went through the quarter. And I would say this. Some softness in tops, which is easily fixable.

We know exactly where it is, and the teams are working very quickly to course-correct that. And I would say the same thing in LOFT. LOFT, the challenge was really in two categories, wovens and dresses. And the great news is those are usually shorter-lead time categories, where we have a lot of capabilities.

So there, again, the team is working very, very quickly to rectify that. I think we also have an opportunity -- I think we got a little ahead of ourselves, quite honestly, from investing in fashion, and I think we have an opportunity to kind of reevaluate that and make sure we have the right product focus in place and that we don't get too ahead from an inventory perspective and from our clients' appetite for that. And then Justice's improvement, I feel that the team has done a really nice job. They're very strategic on how they go into the market, and I feel very, very confident that that will continue.

Janet Kloppenburg -- JJK Research -- Analyst

OK. Great. Good luck.

Gary Muto -- President and Chief Executive Officer, Ascena Brands

Thank you.

David Jaffe -- Chief Executive Officer and Chairman

Thanks, Janet.

Operator

There are no further questions in queue, so it's my pleasure to hand the conference back over to Mr. David Jaffe for closing comments and remarks. Sir?

David Jaffe -- Chief Executive Officer and Chairman

Thank you, and I thank everyone for your interest, and I wish everyone happy holidays. Signing off. Thank you.

Operator

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude the program, and you may all disconnect. Everybody, have a wonderful day.

Duration: 41 minutes

Call Participants:

Allison Cain -- Vice President, ICR (Investor Relations)

David Jaffe -- Chief Executive Officer and Chairman

Gary Muto -- President and Chief Executive Officer, Ascena Brands

Brian Lynch -- Chief Operating Officer and President

Robb Giammatteo -- Chief Financial Officer and Executive Vice President

Ed Yruma -- KeyBanc -- Analyst

Susan Anderson -- FBR -- Analyst

Bob Drbul -- Guggenheim -- Analyst

Kate Fitzsimons -- Royal Bank of Canada -- Analyst

Paul Lejuez -- Citigroup -- Analyst

Janet Kloppenburg -- JJK Research -- Analyst

More ASNA analysis

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

10 stocks we like better than Ascena Retail Group
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Ascena Retail Group wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of December 4, 2017

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.