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Ascena Retail Group Inc. (NASDAQ:ASNA)

Q3 2016 Results Earnings Conference Call

May 31, 2016, 4:30 PM ET

Executives

Stacy Turnof - VP, IR

David Jaffe - President and CEO

Robb Giammatteo - EVP and CFO

Analysts

Neely Tamminga - Piper Jaffray

Rick Patel - Stephens

Pam Quintiliano - SunTrust

Taposh Bari - Goldman Sachs

Susan Anderson - FBR

Steve Marotta - CL King & Associates

Marni Shapiro - Retail Tracker

Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter 2016 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded.

I’d like to introduce your host for today’s conference, Ms. Stacy Turnof, Vice President, Investor Relations of Ascena Retail Group. Ma’am you may begin.

Stacy Turnof

Thank you. Good afternoon and welcome to Ascena’s third quarter 2016 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 May 31, 2016 and are subject to a number of known and unknown risks and uncertainties that could actual results to differ materially. These are included in our earnings release, a copy which has been filed with the U.S. Securities and Exchange Commission and a current report on Form 8-K and a quarterly report Form 10-Q for the fiscal quarter ended April 23, 2016 which will be filed with the U.S. Securities and Exchange Commission later today.

Please refer to the investor section of ascenaretail.com for a replay of today’s conference call. Joining me today are David Jaffe, Ascena’s President and CEO and Robb Giammatteo, our CFO. And with that I’ll hand the call over to David.

David Jaffe

Thanks Stacy. Good afternoon and thank you for joining us. Before we begin I’d like to welcome Stacy to the call and formally introduce her as our new VP of Investor Relations and please note that she has been a colleague to many of you in institutional investment community over the course of her career and we’re very pleased now to have her as a member of our team.

We continue to make progress in the third quarter with key catalysts in our business. The turnaround at Justice is progressing as planned with third quarter performance exceeding last year driven by continued strength in gross margin rate. Our integration of ANN is progressing well, and we remain confident in our $235 million target for deal synergies and cost savings by the end of Fiscal 2018. I am especially pleased with the product-driven strength we have seen at LOFT, which was a bright spot in the quarter.

At the same time, the environment this spring has been challenging. After the disruption of a warm holiday season, we’ve had to manage through an unseasonably cold spring and resulting elevated traffic headwinds. Key seasonal businesses were impacted including dresses, shorts, crofts and tops. While I think we have managed the business well, particularly with respect to inventory levels, we were not able to fully offset the store traffic challenges.

I’ll provide a brief summary of brand specific performance. LOFT delivered a plus 2% comp driven by strong product acceptance in the full price business. Average selling price was up 8% due to fashion newness accompanied by a significant reduction in frequency and depth of promotional offers. Ann Taylor comps were down 5% with declines in both the full price and factory businesses. Growth in average selling price of 2% was more than offset by store traffic headwinds which accelerated in the second half of the quarter.

Justice comps were slightly below our expectations due to the challenging conditions in April. Comps were down 11% for the quarter reflecting the difficult comparison against the last full quarter of public all store promotional events last year. Gross margin dollars were in-line with last driven by a 5% increase in average selling price and an 820 basis point increase in gross margin rates.

Lane Bryant comps were down 1% with positive traffic offset by a 4% decline in average selling price caused by a higher customer coupon usage and higher response to promotional events. Maurices’ comps were down 6% caused primarily by a 10% decline in store traffic that was only partially offset by increases in conversion and average dollar sale. Traffic headwinds were pronounced in Maurices’ core mid west markets.

Dressbarn comps were down 2% caused by significant mid quarter traffic deceleration that slowed the key seasonal dress business. And finally, Catherines comps were down 8% caused primarily by a 9% decline in store traffic.

Our earnings exceeded the upper end of our guidance range for the third quarter, but I’ll note that performance benefit is from some favorable expense timing that offset softer than expected top line performance. Based on the soft traffic we’ve seen continue through May, we’ve adjusted our earnings outlook downward.

We continue to focus on delivering outstanding customer experiences in our stores and online to maximize our traffic opportunity, maintaining tight inventory and cost discipline, continuing the successful integration of ANN, and driving forward our strategic initiatives. We hit an important milestone in the quarter with our strategic omnichannel project. We brought Maurices and Justice up on our new internal web platform and Justice is currently testing buy online ship from store capability which we expect to be fully enabled before back to school. We’ll continue to roll out ship from store functionality across the legacy Ascena brands and are very excited about the new capability this will offer us to provide an outstanding omnichannel customer experience.

We know value is the key dynamic resonated in the marketplace and we’re working across our brands to strengthen our opening price point assortment to increase the value we’re offering our customer. The Justice style by model has shown we can increase accessibility to our brands by offering very sharp price points for core basics while building the ticket with strong fashion execution. We’ve made some key management changes at Lane Bryant and Dressbarn. At Lane Bryant we’ve been very pleased with performance of the Cacique intimates business and are working to drive performance of the apparel business. We’re conducting a search for a new head of apparel merchandising, and we’re confident that stronger product execution in apparel will unlock Lane Bryant’s profitability and the growing plus segments.

We’ve also made some changes to the management team at Dressbarn in three areas, design, plan allocation and store operations. All three roles are key to the brand’s continued evolution of merchandising and customer experience. Two of the three roles have already been filled with top talent and we’re actively searching for the new head of design.

Finally, as we continue to navigate the changing dynamics of our sector, we’re assessing our operating model to maximize the earnings potential of our diversified brand portfolio and shared service platform and to build upon our ongoing synergy and growth initiatives.

Earlier this month, we retained Accenture, a leading global professional service company with expertise in supporting business transformation to proactively engage with us in an enterprise wide transformation project. We are excited about the opportunity that this project represents for enhanced profitability and we will share more detail in this project later in the year after this [is fully scoped] [ph]. Now Rob will provide a summary of third quarter financials.

Robb Giammatteo

Thank you, David, and good afternoon everyone. Before reviewing our third quarter results, I’ll note that our reported GAAP results include discrete acquisition and integration expenses as well as a number of purchase price accounting adjustments related to our acquisition of ANN.

We do not view these items as indicative of ongoing operations or informative for period-to-period comparisons. The results discussed on this call have been adjusted to exclude these items, which are described more fully in our press release. Results have also been adjusted to include ANN performance of both the current and prior year periods.

Net sales of 1.67 billion for the third quarter were down 4% to last year in-line with comp sales. Excluding the plan decline of Justice, Ascena comp sales were down 2%. Selling trends turned negative due to the unseasonably cold weather that emerged to mid quarter with total company comp performance up 2% for the first eight weeks of the quarter and down 10% for the last five weeks of the quarter. The change in comp trends was caused primarily by store traffic which slowed significantly mid quarter. For the quarter store traffic was down 9%.

Moving down the P&L, gross margin for the quarter was 1.02 billion or 60.9% of sales compared to last year's 1.01 billion or 57.7% of sales. The strong improvement in rate was driven by a disciplined inventory management across all of our brands, successful implementation of the new Justice selling model, and better full price sale through and reduced product cost at ANN.

Buying, distribution and occupancy expenses decreased modestly to 324 million for the quarter or 19.4% of sales compared to last year's 325 million or 18.6% of sales. The expense decline was driven primarily by lower distribution expense which improved from 1.3% of sales in the year ago period to 1.1% of sales reflecting continued realization of legacy Ascena supply chain synergies. The overall BD&O increase as a percent of sales was caused by deleverage of occupancy expense on the comp sales decline.

Selling, general and administrative expenses were 534 million for the quarter or 32% of sales compared to last year's 529 million or 30.2% of sales. Expenses were up 1% to last year with the increased cost primarily by higher marketing and general administrative expense partially offset by lower storage expense at Justice, SG&A optimization savings at ANN, and realized synergies from the ANN acquisition.

Third quarter EBITDA was 160 million or 9.6% of sales compared to last year's 154 million or 8.8% of sales. Operating income for the quarter was 78 million or 4.7% of sales compared to last year's 73 million or 4.2% of sales. Adjusted earnings per share were $0.15 although favorable expense shift into the fourth quarter versus our guidance contributed roughly $0.05 to the quarter. This expense shift was primarily related to markdown timing and marketing program execution.

Turning to the balance sheet, we ended the quarter with 246 million in cash and cash equivalence. Of this amount 184 million is outside the US. We ended the quarter with total debt of 1.78 billion which represents the remaining 1.73 billion balance on our 1.8 billion term loan and roughly 50 million of borrowings outstanding on our asset back revolver at the end of the quarter. The fourth quarter is traditionally cash generation period for Ascena and we plan to use available domestic cash flow in the quarter to continue to de-lever.

Our brands did an excellent job maintaining inventory discipline during the quarter. Total inventory cost was 739 million at the close of the third quarter down 9% to last year. The biggest decreases were at Justice and ANN which were down 33% and 14% respectively supporting significant gross margin rate improvement from the prior year. Carry over inventory which represents markdown exposure on fall and winter seasonal goods was down to last year across every brand. The discipline in each of our brands allowed us to deliver strong gross margin rate performance in the quarter despite the challenging top line environment.

Inventory levels remain very well managed into the fourth quarter and we expect to end the fiscal year in good shape heading into fiscal 2017. Capital expenditures for the quarter were 96 million which included investments in our multi-year omnichannel project and activity to support ANN integration. Our outlook for full year capital expenditures remained in-line with guidance of 375 million to 400 million. Fiscal 2016 represents the final year of what has been a heavy CapEx cycle to develop our share services platform and most recently to integrate ANN. In terms of unit development we opened 21 stores and closed 44 in the third quarter. For more store detail by division please reference our press release.

I will conclude with some context with regard to our forward outlook. We continue to expect strong product led performance of LOFT and remain confident that Justice will meet its full year low single digit operating margin target. At Lane Bryant we are looking to capitalize on the strength of the Cacique intimates business as well as continue traffic resilience to drive top line improvement. While we believe challenging traffic will continue in its core mid west markets. We expect Maurices will deliver a double digit operating margin for the full year reflecting the brands strong foundation.

After a very challenging month of May, we expect the Dressbarn trying to improve post Memorial Day as warmer weather should take pressure off the seasonal dress business. We are continuing to refine the new aligned omnichannel promotional cadence at Catherines and aggressively working to refine the assortment at ANN Taylor to reflect a more modern aesthetic to position the brand for the future.

As David referenced earlier softer than expected traffic and the ongoing impact on comparable sales through the end of May has tempered our forward outlook. We now expect full year of fiscal 2016 revenue of approximately 7.1 billion with total fourth quarter comp performance down 2% to 3%. We have increased our outlook for full year gross margin rate to 57.5% to 58% reflecting continued strength in the third quarter. Full year earnings per share are now expected in the range of $0.67 to $0.70. Please refer to our press release for additional line item guidance detail.

That concludes our prepared remarks and we will now open it up to questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Neely Tamminga from Piper Jaffray, your question please.

Neely Tamminga

Thank you. So Robb and David, could you talk a little bit about the current trend environment, I hear your comment here around traffic and I think it's kind of no surprise given some of the other commentary we’ve heard throughout the month, but where are you guys tracking and/or where are you implying the guidance for the comp for the fourth quarter?

Robb Giammatteo

Well, as I shared Neely, we expect the comps to be down 2% to 3% for the fourth quarter. In May we saw continued a bit of malaise from April and we did see performance where we needed it to be over the Memorial Day period. Memorial Day was generally flat on a shifted basis versus the prior year so we have seen what we needed to see, but certainly May was a challenging month more in-line with April. But again, we are expecting the total comps to be down to 2% to 3% for the fourth quarter.

Neely Tamminga

Okay. And then, specifically on Justice could we get a sense as to how they performed over Memorial Day, I think their whole pricing strategy has been a little bit choppier between holidays, but at holiday they might be performing a little better, so can you give us a little insight as to how they performed over the holiday weekend?

Robb Giammatteo

Yes, Justice as you know is a peaky business around the key holidays, they performed in-line with our expectations. Again, we feel very good about where Justice has positioned for the year with that low single digit operating margin for the full year again tracking in-line with our expectations. The third quarter Neely, was a bit lower on the sales side and the comp side and a bit higher on the gross margin rate versus the guide. We have always talked about there’ll be some play between the sales and the gross margin rate, but we are very pleased with where the business is performing and expected to end the year in-line with how we have guided the full year.

Neely Tamminga

Great, thank you. Best of luck.

Operator

Thank you. Our next question comes from the line of Rick Patel from Stephens, your question please.

Rick Patel

Thank you, good afternoon everyone. Can you just dig into the performance at Maurices, it's the first time we have seen a negative comp since I think early fiscal ’14 and obviously there is implications from margins as well. What are you doing to turn things around there, and secondly as the industry moves more towards online shopping what’s your level of confidence that Maurices customers are loyal enough to keep on visiting stores?

David Jaffe

Well, let me start off first on the second question. We are very pleased with the Maurices' e-commerce progress. They continue to grow in a double digit clip as you heard earlier, we just put them on our internal website and will be rolling out very soon. So lot of good things going on and we see the customer responding. So, I am not really concerned in that regard. I think the customer is appreciative of having online and loyal to Maurices as any other customer.

Going back to your first question, I think the challenge at Maurices is a little bit unique in that a lot of its core markets are heavily influenced by either energy or commodities and when we look at those markets versus the rest of the chain, we saw about a 5 point differential in comps and that's due solely to greater decreases in traffic in those markets. So with the recent strengthening in the energy markets, I think we will see some of that begin to mitigate so we will look forward to seeing that business come back as the economy improves.

Robb Giammatteo

And Rick, we will start to lap some of these things, so as we looked at the major energy markets, North Dakota we saw that start to hit in August last year. We saw Texas, Oklahoma start to lead a little bit deeper into the second quarter so to David’s point we’ll come around the horn with this stuff at this point. But again, we feel very good where that brand is positioned for the longer term just a little bit of some near term challenges here.

Operator

Did that answer your question?

Rick Patel

Yes. Thank you very much. Sorry. And can you also dig in to the puts and takes of expense timing just some clarity around the time, the mark down timing and the marketing perhaps which concepts that apply to and are there any timing elements we need to keep in mind for the July quarter versus the October quarter?

Robb Giammatteo

Yes, there is a bit of timing, so if you think about how March, and April shook out, April turned out to be very, very challenging from a traffic standpoint and instead of applying markdowns into low traffic periods which is generally not productive, some of the brands held markdowns for Memorial Day and loaded up more heavily. So brands like Justice, Lane Bryant specifically did not execute some planned markdowns in the end of the third quarter to hold for Memorial Day, generally happy with how Memorial Day shook out, so again the malaise that appeared to be in the market from April into May, we feel like we had decent performance at Memorial Day and we are generally pleased with how things are tracking there.

Rick Patel

Thank you very much and all the best this summer.

David Jaffe

Thank you.

Operator

Thank you. Our next question comes from the line of Pam Quintiliano from SunTrust, your question please.

Pam Quintiliano

Great, thanks so much for taking my questions guys. First off, you mentioned Maurices and the regional performance there, can you talk about the other divisions and whether you saw a dramatic - weather was dramatically different in the regions that were significantly cooler than normal?

David Jaffe

Yes, it was a bit of a noisy quarter, Pam, it's a great question. If you think about the Northeast outperformed in the early part of the quarter and then underperformed in the back half of the quarter as the weather changed. We almost had opposite in the western part of the country which underperformed early and outperformed later. So it's really been pretty noisy throughout, but again it has things in March, late March is where we saw things decline from an overall traffic standpoint that continued into April and to a large part through May. And again, we saw that turn a little bit with the most recent performance with Memorial Day.

Pam Quintiliano

Okay, and then sort of quick question regarding traffic still continuing to be challenged, when you first noticed that shift in traffic what changes did you start making proactively if any either to the promotional cadence for this quarter and as you look out through the remainder of the calendar year, marketing what inventories were you able to cut more by division where did you have more flexibility just anything there would be helpful?

David Jaffe

Well, Pam, first thing we would do of course is take a look at our inventory and as we mentioned a couple times in the call the teams did just a terrific job of controlling inventory. So, we are in really good shape on that. Second is trying to understand why we have got a reduction in traffic and what we could do about it. So as an example if traffic is down, let's just say it's weather. We think it’s weather and that's why it's down. So if you do a big promotion all you are doing is giving away margin. So all the brands have those conversations and said, okay, what is the right strategy and you heard Robb a second ago talk about some of the brands held off on taking markdowns because there is no point because there just wasn't traffic.

Memorial Day, we were more aggressive and for the most part we are able to generate the kind of unit velocity that we were looking for. So, the question really now is not so much what happens, we reacted I think, very well considering but it's now what will happen. We have got a couple of months left in our quarter and over these next two months do we return to kind of the good days of spring or the bad days of spring. As you know is a really up and down spring season thus far for the industry and while we are pleased that Memorial Day weekend was solid, unclear obviously what’s going to happen over the next few months. So that's where we are still keeping our power dry and our inventories very, very tight.

Pam Quintiliano

So, just to clarify there is no change. You were already planning the inventories very tightly controlled, you continue to do that the promotional cadence wait to see what’s happening in marketing. Was there any change there or you becoming more aggressive with communicating just online to your consumer just to generate traffic in the challenging environment?

Robb Giammatteo

No, what I say is the conservative inventor position that we have held all year long frankly has allowed us to accommodate this sort of our reduction in traffic that we have seen. Certainly some of our brands have been bit more aggressive with promotional marks earlier in the season, but it held up on the hard marks that are typically the larger issues until they get traffic for us. So in the past where we might have hit hard marks in April, the traffic just wasn't there to do and it didn't make sense. So we held those off and hit them during the Memorial Day which is more productive. So, I don't think there is any significant change. I think our conservative inventory position which we have been pretty much all in all fiscal year has allowed us to maintain true to the strategy and then execute the markdowns where it makes the most sense which obviously the high traffic period of Memorial Day.

Pam Quintiliano

Okay, thank you very much.

David Jaffe

Thanks.

Operator

Thank you. Our next question comes from the line of Taposh Bari from Goldman Sachs, your question please.

Taposh Bari

Hi guys good afternoon. David I wanted to get your perspective, you have lot of visibility to the portfolio across multiple brand and channels what you think is going on, what you think is driving the decline since March because it seems like business is fine, I am sure weather obviously helped in February and early March. So lot to talk about whether online Amazon what you think is going on and then as the second question on the lines of the business transformation that you are evaluating with Accenture what does that exactly mean? Does that positively entertaining the idea of entering the wholesale channel perhaps? Thanks.

David Jaffe

Sure. So the Accenture project is really trying to understand where we can invest and try and create opportunities to serve our customer better. So it might mean anything from reexamining our sourcing, our PLC, it could be going into our website, we have just stood up our internal platform or bring brands, we’re developing down capability. So what’s next? How we become more agile and develop a website that's much more flexible and responsive to the type of things that our customers looking for. Could wholesale be on it? It's possible. When we say transformation there is no secrete counts, we are going to be looking at everything and I think that with the strength of our brands and the depth of our customer loyalty and number of customers we have in our databases, we have lots of opportunities. So, we really want to take a holistic approach and make sure we understand what is working well for us, what we are getting good return on and maybe other areas where we could improve our spend, so we could optimize to the areas where we are going to get the best return and de-emphasize there where we are not. So it's just underway we want to share that with everyone and certainly by the fall we will have much better sense of what that looks like. And we will certainly communicate that.

To go back to your first question, I am not sure I can give you any additional color to what’s been said, I think the comments you mentioned are all true, they are all factors but I don't know that there is one huge factor that says this is this. There’s always little factors that are contributing to the weak spring season that we have seen. And yet we have had some good periods where the weather was pretty good, business was pretty good. The minute you want to say oh it's weather and certainly weather is a piece of it, but it's not the whole thing we have seen strength in guys like TJs and the value guys, we have seen continued growth of Amazon. So I think we have to be very thoughtful in looking at all the things that are impacting our business and try and figure out how many of them are secular and how many of them are cyclical. And that's part of it this process where we are going through with Accenture is really trying to deconstruct all the influences on our business and the industry and see how we should change our model again to serve our customers and client the way she wants to be served.

Taposh Bari

Thanks and just a quick follow up for Robb on the Justice comp progression, I know that the last call or one of the last calls you had signaled that Justice comp should kind of get less bad as we transition through the year is that still the expectation and at what point do you expect comps to turn positive at Justice?

Robb Giammatteo

Yes, you are spot on, we are we are expecting it to point to get less bad keep in mind the third quarter was heavily promotional last year with all store 40 off and 40 plus 20 off events. We’ve essentially cycled through that at this point, so this is where we talked about the June and July we are obviously entering that now, are truly comparable through the standpoint of we had the no all store deals were in place last year and all store deals are placed this year. Product is better this is where we are getting into what I would consider organic performance and well I’m not going to give you specific answer on when it turns positive. I think we have a lot of exciting things planned for the fall season that should help drive organic performance, but you are absolutely right that we are coming out of the period where we had those significantly challenging compares last year with the 40 off and 40 plus 20.

Taposh Bari

Okay thanks and all the best.

David Jaffe

Thank you.

Operator

Thank you. Our next question comes from the line of Susan Anderson from FBR, your question please.

Susan Anderson

Hi, good evening. Thanks for taking my question. Just to clarify really quick on the guidance and I think some of the reasoning behind it, most of the lower guide due to the fact that you now have to clear this left over spring merchandise from third quarter is it also your expectation that this environment continues going forward? And then, I was wondering if you can give us an update just on your thoughts on your longer term goal to get to a billion and EBITDA I think fiscal ’18 on the cart? Thanks.

David Jaffe

Sure. So Susan, in terms of the performance you asked about how we are looking at the forward year. April and May sort of looked a lot like each other. So in terms of like how we are looking at the full year, we saw a very deep trough, April they continue into May until we got to Memorial Day and again things have kind of come back in-line with expectations. So, really we are expecting again return to what we have seen before where traffic is kind of in that negative low to mid single digit period for the fourth quarter where our brands frankly can navigate that with improved conversion and improved average dollar sale.

From longer term basis we still believe in that $1 billion figure in fiscal ’18 that we talked about certainly this spring has been a bit challenge but again you get two thirds of that path to the billion dollars things that are fully under our control. So things like that we talked about before in terms of the synergies that remain in track, I am sure will probably get some discussion on that on this call, big component there and we still feel good about that outlook. So certainly some headwinds here but longer term again two thirds of that path to the billion dollars are things that are within our control and again we need to see the comps bit stronger than we have here, but certainly we still think that billion dollar is in play.

Susan Anderson

Got it and then just one quick follow-up on Justice, how should we think about the profit improvement now as we are cycling the low promo as last year and things in the fourth quarter but last year you did have the clearing event which helped the margin as we kind of cycle the new promos that seems like now that you are doing a little more targeted promos that maybe a little bit promotional year-over-year?

David Jaffe

We certainly, as you know we are not promotional last year in June and July and we had product that people hated. So, as we are going up against that we certainly expect strong gross margin rate improvement in the fourth quarter we have guided at the Justice event that we expected 1000 basis points of gross margin improvement in the fourth quarter versus the prior year. We still believe that to be the case and again what we are in a very good position from an inventory standpoint, we talked earlier about inventory costs down in the 30%, units are down mid teens so we are in a very, very good position as we approach the first quarter and that's when we will start to get into organic performance and some of the exciting things at the brand is talking about in terms of including some of the things we talked about at the Justice event, the live Justice activity, the exciting work with the outlets things that the brand is doing to drive organic growth performance. We are excited for the future there.

Susan Anderson

Got it, that's helpful. Thanks and good luck for the next quarter.

Operator

Thank you. Our next question comes from the line of Anna Andreeva from Oppenheimer, your question please.

Anna Andreeva

Great, thanks so much good afternoon guys. A follow-up on the improvement over Memorial Day weekend did you see that across all brands and should we think that you currently running in-line with that down 2% to3% comp guidance or do you need any improvement in the trend to get there? And quickly on the balance sheet, I don't think you bought back any stock during the quarter, how do you prioritize between share buyback and the debt reduction as we think about fiscal ’17, should CapEx be starting with $200 million level? Thanks.

David Jaffe

In terms of, let me start with your first question. So, your question was in May what was the trend like and how we are looking at it going forward. So, as I said May was generally in-line with how April was so with the same delays we saw in April generally existed into May and Memorial Day matching this year, last year was the first period where we have seen things kind of snap back to where we expected them to be which was generally flat year-on-year during the Memorial Day period on a shifted basis. So again, we had a challenging month of May that was generally in-line with April. We expect June and July to generally be in the line of negative low single digits that would blend ourselves to that negative 2 to negative 3 for the full quarter.

In terms of buybacks and shares as you know we are very focused on deleveraging at this point. We said before that if the shares drop to a point that's inconsistent with what’s happening in the market we will certainly defend them as appropriate, but we are very focused on deleveraging and we should expect to remain consistent on that front. CapEx as we said, we want to get down into that $300 million target number as quickly as we can. We are 375 to 400 this year. So I’m not going to give you guidance this year right now, we are going to get to that 300 level just as quickly as we can, whether what happen to in front of it, I wouldn't give you that call right now but certainly we are trying to get down to that 300 just as quickly as we can.

Operator

Thank you. Our next question comes from the line of Howard Tubin from Guggenheim, your question please.

Unidentified Analyst

Hi, yes this is actually Paula, calling in for Howard. As the plus size market continues to outpace that of the total apparel market, do you see further opportunity to increase the plus size penetration of your business? And also can you give a little bit of color as to how the newly ruled out plus sizes sort of have been performed at Maurices this quarter? Thank you.

David Jaffe

So we have some opportunities to increase penetration at the brands like Maurices and Dressbarn that have both, otherwise I think what you might be referring to is that at say Lane Bryant and Catherine trying to increase our market share and certainly we are always trying to do that and so in the marketing we have done over the last year and a half at Lane Bryant and various in the driving traffic. We’ve had a little more challenge on the apparel side converting that traffic, but we do think the brand really resonates with the plus size consumer. So, we are kind of working at all fronts. We are trying to build Lane Bryant and Catherines market share and with respect to Dressbarn and Maurices, particularly Maurices as we have mentioned in the past we are allocating more inventory dollar, more square footage to plus and we are seeing good response to that product and see that business continuing to grow and gain share both within the store as well within the marketplace.

Unidentified Analyst

Okay, great, thank you.

David Jaffe

Thank you.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Steve Marotta from CL King & Associates, your question please.

Steve Marotta

Good evening David and Robb. First, as David you mentioned that you are going to be introducing opening price point merchandise, could you talk specifically about [indiscernible] that you think would be more heavy on that and how far below current opening price points, how aggressive would you get on a program like that?

David Jaffe

I think it vary Steve, brand by brand, what we do is we look at the kind of the entry level price point for our competitor set, we look at what is the out-the-door price for lot of these products and see how we can become competitive and that's basically what Justice did when they developed style buys and versus all of our brands are taking a look at this approach and seeing how it might apply to them on a perhaps smaller scale, but still have those compelling price points to get to the customer kind of as a gateway products into the store, liking the quality, liking the fashion touches, but then really using that as way to get her build her basket to include other more fashion oriented items.

Steve Marotta

Okay. And as difficult as this environment is, when you think about inventory planning into fiscal ’17 and of course without giving specific guidance. Do you plan for flattish comps or slightly positive comps, can you talk a little bit about how you inventory plan for the next 12 to 18 months given how volatile the environment is?

David Jaffe

Again Steve, it's going to be a case by case by brand, but what I would tell you overall is that we are always going to plan on the more lean side because we feel it's much easier to chase, if you ever play baseball my coach always told me to run back when you heard the crack because it's always easy to run in for a fly ball than to run back for it. And that's how we view our inventory management.

Robb Giammatteo

And Steve, we are likely to take some bets where we know where we were lean last year right, so we know that during back to school we were light at Justice, we broke, inventory broke we had to chase, we couldn't get back in fast enough. So there will be selective areas where we are going to take bets back to school if you want the Justice, you also know from recent call that we said that we were little light on inventory going into the holiday with Justice. So there are selected periods where we will take bets, but there are very informed bets based on areas we knew we were out of stock and didn't have enough to do businesses this past year. But otherwise, we should expect it to remain conservative on the inventory front.

Steve Marotta

That's helpful. Thank you.

Operator

Thank you. Our next question comes from the line of Marni Shapiro from Retail Tracker, your question please.

Marni Shapiro

Hi everybody. I want to focus on the traffic a little bit not to be the dead horse here. But I guess, your use of social media if you wouldn't mind focusing a little bit on that specifically as it relates to Justice. I have seen as for your Instagram and so see what’s going on there, and it’s lightly if not heavily followed, you’ve a YouTube channel I noticed you had some beauty stuff on there, but that seems to go dormant every couple of months. I don't see on snap chat though I might have missed it. So I know this is a big way of driving traffics for this girl and engagement for this girl and that generation in particular this is incredibly important. So if you could specifically talk about it with regards to Justice, but then if you can also talk about these social media that drive traffic at some of the other key brands?

David Jaffe

Sure. Justice is going through transition as you may recall Marni, if you were on the last call we got a terrific new women [inaudible] at Justice and she is gearing up a terrific plan for back-to-school which is as you know a critical season for us and it will be very heavy in social media. We are not ready to reveal it yet, but it's one of these stay tuned you will see a lot of things that I think you will be impressed with. So that's going to be a big push at Justice and once we make that that will be something we do on a more ongoing basis which kind of reinventing our marketing at Justice under Sarah’s leadership and as she has built her team and is developing a lot of these new programs we are really doing a kind of a big bang reveal to back to school.

In terms of the other brands, I will tell I that our social media can always get better, but I would suggest that it is pretty well developed across all of our brands and again depending on which brand we have different programs underway, but we have seen a shift in dollars and attention from more traditional advertising to social media because we have seen as we have got better in doing it we have seen improve results and that will continue.

Marni Shapiro

Have you been able to social media to drive traffic at all?

David Jaffe

Well, it's a little harder to tell. Certainly online you can tell or these are - click through but it's a little hard to tell if someone comes to the store what drove them into the store.

Marni Shapiro

Yes, fair enough and can I just have one follow-up on Ann Taylor, I think you mentioned and I talk really fast, but you whizzed through some of that stuff. If you could just, you touched on some changes at Ann Taylor, I think you said more modern look if you could just, any details around that will be fantastic?

David Jaffe

I am going back through my notes here trying to understand what you are referring to.

Robb Giammatteo

I just think that more along the lines of the more modern aesthetic that Ann as I think in the past there has been some more traditional fit and they are evolving it to be a bit more of a modern aesthetic.

Marni Shapiro

The style or the fit because Ann recently changed their fit?

David Jaffe

They have been evolving their fit and yes it is a better fit than it was a couple of years ago, so yes we are looking for more modern aesthetic, I didn't mention that today so maybe you are referring it something else Marni.

Marni Shapiro

It's okay we can take it offline I will talk to you guys afterwards. Best of luck for the summer.

David Jaffe

Okay. Well thanks Marni, I appreciate your call, your question.

Operator

Thank you. Our next question comes from the line of Oliver Chen from Cowen and Company, your question please.

Unidentified Analyst

Yes, good afternoon this is Steven calling on for Oliver. Thanks for taking our questions. Most of our questions have been asked already. But, we look curious it's been a year since you have announced the ANN acquisition, I wanted to get your take what’s really out-performed that expectation thus far, what’s kind of performed to plan and then where do see the most opportunity for improvement presuming it's the Ann Taylor division just curious for your take there? Thanks very much.

David Jaffe

Well, certainly as we mentioned earlier calls Steven that LOFT has really had a very, very strong season, very pleased with what they are doing. So I would say they are above our expectation and ANN is pretty much in-line with our expectation as is the ability to generate the synergies and the cost savings that we have been talking about for the about a year now that's coming in as Robb said pretty much right on plan. And so, I guess I’d agree with your comment that ANN is the area that we see the most upside for.

Operator

Does that answer your question?

Unidentified Analyst

We are all set. Thank you.

Operator

Thank you. This does conclude the question-and-answer session at today's program. I would like to hand the program back to management for any further remarks.

Stacy Turnof

Thank you very much for taking the time to listen to our call today. Thank you.

Operator

Thank you. Ladies and gentlemen, thank you for participation in today's conference, this does conclude the program you may now disconnect. Good day.

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Source : https://seekingalpha.com/article/3978938-ascena-retail-groups-asna-ceo-david-jaffe-q3-2016-results-earnings-call-transcript

Ascena Retail Group's (ASNA) CEO David Jaffe on Q3 2016 Results - Earnings Call Transcript
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