Why Ascena Retail Group Stock Jumped Today
What happened
Shares of Ascena Retail Group (NASDAQ: ASNA) were moving higher today as early figures showed the strongest holiday season for U.S. retailers in years. A number of retail stocks gained today, but Ascena caught a large tailwind because it is one of the cheapest retail stocks on the market and therefore stands to benefit more than most from better-than-expected holiday sales.
As a result, the stock was up 11.4% as of 3 p.m. EST on Wednesday.
So what
Ascena, which owns eight apparel brands including Ann Taylor, Justice, and Lane Bryant, is one of the biggest U.S. apparel retailers with nearly 5,000 stores. But the company has struggled in recent years and is worth just $540 million -- or a little more than $100,000 per store, even after today's surge.
According to Mastercard SpendingPulse, apparel sales in the U.S. jumped 7.9% between Thanksgiving and Christmas, an impressive surge for a category that has often lagged behind growth in the broader retail industry. SpendingPulse said overall retail sales were up 5.1% over the holiday season, and online sales jumped 19.1%.
It's unclear if Ascena benefited from this tailwind as the company is not as focused on holiday shoppers as some other retailers. But its performance improved over 2018, with comparable-store sales up 3% in its most recent quarter, a positive sign for holiday results.
Now what
Major retailers are expected to begin reporting holiday sales later in the week, and Ascena's comps figures for the holidays should come out next week, as last year it reported results on Jan. 8. If the company delivers impressive results, the stock should surge as Ascena offers considerable value, with a price-to-sales ratio of 0.08. Management needs to show that comps and profits are moving in the right direction.
The company has been slowly closing stores as its brick-and-mortar footprint is clearly excessive in today's e-commerce era, but its collection of brands is still valuable. If Ascena can take steps in the right direction, which should be easier with the strong consumer economy, the stock should bounce back. Expect it to swing one way or another on its holiday results, though earlier reports from department-store peers should also move the stock.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Mastercard. The Motley Fool has a disclosure policy.