Why Shares of Ascena Retail Group Fell on Monday

What happened

Shares of women's fashion retailer Ascena Retail Group (NASDAQ: ASNA) plunged more than 9% right at market close Monday, minutes before the parent of Ann Taylor and other brands announced the winddown of its Dressbarn brand. Given that there was some hope Ascena might be able to find a buyer for Dressbarn, the closure was likely viewed as a disappointment.

So what

Ascena has been a volatile stock in 2019, as its shares have been under pressure due to weak earnings. The company is working through a plan announced in 2016 designed to extract about $300 million in annual costs by midyear via improved marketing and merchandise planning systems, and has identified upwards of $150 million in additional opportunities to cut costs.

In March, the company found a buyer for its Maurices Inc. chain and had been exploring options for other assets.

Ascena said late Monday it would wind down the Dressbarn brand, closing about 650 stores. The company said that the decision has no impact on its other brands, which include Ann Taylor, Lane Bryant, and the parent of tween retailer Justice.

Now what

Ascena, in a press release announcing the decision, said the closure "is in line with the company's commitment to comprehensively assess and optimize its portfolio by focusing resources on its most profitable brands to position the business for long-term growth and enhance shareholder value." Indeed, in recent quarters the premium brands in the portfolio have held up well, while value-oriented brands including Dressbarn have underperformed.

Shares of Ascena have lost more than 80% of their value over the past three years as the company attempts to navigate a difficult retail environment. Closing Dressbarn is not going to solve all of the company's woes overnight, but it appears to be a step in the right direction.

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