Ascena Retail Group, Inc.
Annual Report 2015

Plain-text annual report

GROWING TOGETHER O U R P A T H T O S U C C E S S 2015 Annual Report FISCAL YEAR 2015 was a year of transition and transformation at ascena. One that saw significant maturation of our shared services capability, the start of a turnaround at Justice, and the acquisition of ANN INC., which has transformed ascena into the third largest domestic specialty retailer, and the largest focused exclusively on the female consumer. FROM AN ENTERPRISE PROJECT standpoint, we achieved two key milestones during the year – we completed the transition of all five of our brands into our Greencastle ecommerce fulfillment center, and we successfully transitioned our merchandising, store systems, and financial systems at Lane Bryant and Catherines onto our enterprise platform. The completion of these projects marks the end of the remaining transformational activity related to the Charming acquisition, and prepares us well for integration activity related to our ANN INC. acquisition. Fiscal 2015 financial performance was mixed across our portfolio, with very strong performance at maurices and Catherines, and acceleration of the Lane Bryant business in the Spring season, offset by challenging conditions at dressbarn and a full reset at Justice. Traffic trends continue to be challenging with Fiscal 2015 representing the third consecutive year of negative traffic across our portfolio. For the full year, our total enterprise comparable sales were down 1%, with the decline caused by transitional conditions at Justice as we exited non-performing merchandise, and introduced our new selling model for back-to-school. Excluding Justice, combined comparable sales were up 2%. Significant non-recurring costs related to goodwill impairment at Lane Bryant, litigation at Justice, and integration expenses for the ANN INC. acquisition resulted in a loss from continuing operations for the year. Excluding these non-recurring costs, income from continuing operations was $98 million, down 40% to the prior year, with the decline caused primarily by conditions at our Justice brand, reflecting the impact of an inventory overhang and the transition to a new, less promotional selling model. Moving into Fiscal 2016, our operating model remains the same – to deliver value to our brands through a highly efficient shared services platform, and to allow our brand teams to concentrate on their respective customer segments to deliver unmatched levels of value and fashion. We feel good about the direction of each of our brands, and are very excited to have welcomed Ann Taylor, LOFT, and Lou & Grey to our portfolio. Our brands will continue to realize cost efficiencies from our Greencastle fulfillment center throughout the coming year, with all five brands operating in this center as of April of this past year. Our shared services group is aggressively working to capture the $150 million in identified synergies related to our acquisition of ANN INC., with expected full realization of this synergy run rate by the end of our 2018 fiscal year. We continue to expect the ANN INC. acquisition to be a highly accretive investment for our shareholders, and we look forward to sharing best practices from both organizations as we continue to work through integration planning. On the strategic front, we remain highly focused on development of our omni-channel platform. We expect our omni-channel rollout to begin later this fiscal year, and are excited about the opportunity to leverage in-house knowledge at our ANN brands, which have been operating on an omni- channel platform for several years. The bulk of our omni-channel project investment is behind us, and we believe we will see significant financial benefits over time as we are able to offer our customer a seamless shopping experience. Execution on fundamentals is essential for long-term success, as we expect challenging macro conditions to continue. Our brands remain highly focused on controllable factors – strong merchandising execution, effective customer engagement, and disciplined inventory and expense management. We continue to differentiate our operating model through ongoing development of our best-in-class shared services platform. We began Fiscal 2016 with all of our initial transformational projects behind us, and we are now focused on integration of the ANN INC. brands into our scalable back-end, and development of world-class omni- channel capabilities. ASCENA ANNUAL REPORT 2015 3 Justice Lane Bryant maurices For the year, Lane Bryant combined comp performance was up 2%. We saw business accelerate during the Spring season, where adjusted operating margin was up significantly over the prior year, reflecting better merchandising execution, as well as strategic pricing and promotional changes. The brand finished the year with a significant operating loss, caused by a non-cash, non-recurring goodwill impairment. Excluding this impairment, the brand operated at a breakeven level, and we are encouraged by performance coming out of the Spring season. maurices had a record year, with operating income performance up over 40% to last year. Our combined 5% comp performance for the year reflected strong merchandising execution, delivery of “on-trend” fashion and an integrated, omni- channel marketing experience. We continued to increase our design and sourcing capability, approaching 30% penetration heading into the Fall season. Returns on our 40 new stores exceeded expectations, our digital momentum continued exceeding 30% growth, and we successfully grew our customer database. Our Justice business is coming off its second straight difficult year, with operating income down significantly from Fiscal 2014. While we remain the market share leader amongst specialty retailers in the tween category, we needed to execute a complete turnaround, inclusive of a new management team, a refined merchandise aesthetic, and an all new marketing and promotion strategy. Total comp performance was down 10% for the year as we transitioned the customer off brand erosive, everyday total store promotions. We are pleased with the results we have seen during back-to-school selling, and believe the turnaround is progressing in line with our expectations. 4 AS CE NA ANNUA L REPORT 20 1 5 IN CLOSING, FISCAL 2015 WAS A BUILDING YEAR FOR ASCENA, which saw significant progress in development of capability supporting future growth. Our investments in our shared services platform have positioned us well for the integration of ANN INC., and we are looking to fully integrating Ann Taylor, LOFT, and Lou & Grey into our portfolio. As we move into Fiscal 2016, we are excited by the opportunities we have across all of our brands, and look forward to demonstrating the strength of our operating model. We thank our stockholders and suppliers for their continued support, as well as our talented team members and associates for their dedication and commitment. We remain confident that the unique and scalable model we are creating positions us well - to better serve our customers, enhance our business and deliver sustainable growth and increased profits to our stockholders. DAVID JAFFE President and Chief Executive Officer ELLIOT S. JAFFE Co-Founder and Non-Executive Chairman dressbarn Catherines dressbarn had a disappointing year, caused by merchandising execution challenges in the Spring season. Combined comp performance was down 1% for the year, but the business decelerated from Fall, where we saw the first positive comp performance since Fiscal 2013. Although the Spring season was a disappointment, we were encouraged by the launch of DRESSBAR, which enhanced our segment leadership in the dress category. Catherines continued to perform well, with operating income growth of almost 30% from Fiscal 2014. Combined comp performance was up 5% for the year. We have seen 17 straight quarters of combined comp growth as we continue to deliver newness and fashion to an underserved customer segment. WE’RE GROWING B Y A P P E A L I N G T O “ E V E RY G I R L , E V E RY DAY ” Building our assortments to address diverse Girl Profiles. Increasing versatility and wearability through a redefined Fashion Pyramid. Training associates to serve as Style Advisors, customizing the experience and the looks to make every girl feel great. Enhancing the store experience to appeal to a broader lifestyle and customer need. B Y R E S T O R I N G M O M ’ S VA LU E P E R C E P T I O N Lowering our ticket across all categories to position us more competitively. Offering compelling value across our assortment in the form of competitively priced, prominently-featured Style Buys. Respecting key category and occasion shopping periods through the targeted use of promotions. B Y P U T T I N G FA S H I O N F I R S T I N A L L W E D O Presenting trend-right styles interpreted for tween girls in our stores, in our catazine, and in our digital touchpoints. Showcasing our Justice outfits with how-to-wear-it displays and with related styles merchandised in distinct fashion shops. Shifting the message from price to fashion in all of our commerce and marketing channels. B Y F O C U S I N G O N M A R G I N I M P R OV E M E N T Tightening inventory levels and implementing a chase process to maximize unit selling in high- performing styles. Demonstrating restraint in our use of promotions, eliminating deep discounts and unproductive bounce-back programs. Aggressively managing product costs while maintaining high product quality. 7 WE'RE GROWING FA S H I O N L E A D E R S H I P I N A P PA R E L Through the continuation of designer collaborations, improved fashion trend stories, and the growth of important sub-brands like Livi Active and 6th & Lane. By leveraging loyalty- building, “Best At” categories pants and denim while driving incremental growth in knits, woven tops, ready-to-wear, and new ecommerce exclusive offerings. C AC I Q U E M A R K E T S H A R E G A I N S Through market-leading innovation in bras and increasing brand awareness and cross-shopping by apparel customers. C U S T O M E R AC Q U I S I T I O N A N D R E F I N E D P R O M O T I O NA L S T R AT E G Y Investments focused on new and inactive customers and through strong and interruptive brand campaigns like #ImNoAngel and #PlusIsEqual, using elevated creative content. Targeted reductions to promotional activity that restore the brand’s emphasis on fashion and contribute to significant margin expansion. R E P O S I T I O N I N G O F T H E S T O R E F L E E T With a new, modern store design and a market-based approach to optimally positioning stores while investing in new locations and renovations. 8 ASCENA ANNUAL REPORT 2015 9 10 ASCENA A NNUAL REPORT 20 1 5 WE'RE GROWING D O M I NA N T FA S H I O N P O S I T I O N I N G D R I V E N B Y S P E E D A N D I N N OVAT I O N Grow NYC Design and Trend Studio. Increase Plus penetration through expanded distribution and offering. M A R G I N G R OW T H Increase direct sourced penetration, leveraging ascena Global Sourcing. R O L L O U T 4 0 – 5 0 N E W S T O R E S E N H A N C E O M N I- C H A N N E L E X P E R I E N C E Launch new ATG platform. Launch new mobile site. Launch ship-from-store. C U S T O M E R DATA B A S E G R OW T H Launch new loyalty program. Launch brand campaign. 11 WE’RE GROWING O U R FA S H I O N R E L E VA N C Y T H R O U G H Elevating the look, fit, quality and value of our assortment. Broadening our exclusive offerings through proprietary design and sourcing. Expanding DRESSBAR, our celebration of the dress, with expanded Fall and Spring offerings. O U R B R A N D R E L E VA N C Y T H R O U G H Spreading the word through Fall and Spring brand campaigns targeting customer acquisition. Launching a new ecommerce platform and responsive mobile site in Spring to improve our on-line experience and continue building digital content and awareness. Leveraging data analytics to strengthen customer insights and refine our direct mail strategy. O U R E X P E R I E N C E T H R O U G H Expanding our omni- channel focus. Reaching new customers through our store outreach programs. Continuing to reposition the fleet, and testing a new smaller store prototype. Continuing to deliver a unique and special shopping experience. 12 ASCENA ANNUAL REPORT 2015 13 14 ASCENA ANN UAL REPORT 2 0 15 WE’RE GROWING P R O D U C T O F F E R I N G S Focusing on fit, comfort and fashion. Strengthening our casual sportswear and emerging businesses. Offering ecommerce exclusive product. C U S T O M E R AC Q U I S I T I O N Targeted offers. Digital acquisition. R E A L E S TAT E P R O D U C T I V I T Y Enhancing the customer experience with great product and service. 15 WE’RE GROWING By leveraging cost, capability, and speed, the ascena Shared Services Group provides our brands with efficient operating services that enable our strategic vision. T H E S H A R E D S E RV I C E S G R O U P H A S B E E N H I G H LY F O C U S E D O N : Developing world-class omni-channel capabilities that improve the customers’ experience. Maximizing our global hybrid sourcing network to provide high quality product. Optimizing our world-class distribution and logistics networks for speed and cost efficiency. Driving transformational retail infrastructure capabilities with leading talent and technology.  17 ACROSS ASCENA, we have a passion to make a meaningful difference in the lives of others. Our rich heritage has been one of giving without expectation. This difference is captured in our philanthropic mission: Empowering Women and Children to be their Best. We accomplish our mission by supporting programs focused on women and children’s empowerment in the areas of health/wellness, education, self-esteem and social issues. In addition to ascena Cares, each brand has developed a strong philanthropic emphasis which supports women and children’s empowerment issues that are important to their customers and associates. The brands within the ascena family have contributed over $4 million to various non-profit organizations such as the American Cancer Society, the St. Jude Thanks and Giving Campaign®, Dress for Success and The United Way. The signature programs offered through ascena Cares include: MATCHING GIFTS: Our associates make a difference every day. With their gift of time or money, they have the power to change a life. Our Matching Gifts program offers a dollar-for- dollar match for time or money donated and creates positive change, one associate at a time. CRISIS RELIEF: The impact that a disaster such as a flood, tornado, wildfire has on our communities can be extensive and far-reaching. We are committed to the communities we serve and when disasters happen, we partner with relief agencies to support needs. THE ASSOCIATE SCHOLARSHIP PROGRAM: We believe in the importance of education. Together, our brands, the Jaffe Family Foundation and the ascena Foundation offer an annual scholarship program that supports our associates and their dependents who are attending a post-secondary institute. Since the program was started, we have helped over 600 students attend school. DIMES FROM THE HEART: Dimes from the Heart is a short-term emergency assistance fund that allows our associates to apply for a grant when an unexpected need arises. During Fiscal 2015, we awarded over $200,000 in grants to over 200 associates. THE ROSLYN S. JAFFE AWARDS: 2015 is our second year of the Roslyn S. Jaffe Awards. Roslyn Jaffe, co-founder of dressbarn, has a motto: “when life gives you lemons, make lemonade.” This award celebrates that spirit by recognizing everyday heroes who are making the world a better place for women and children. Last year, three winners received grants in the amount of $150,000. These recipients have applied their grants to increase the scope and reach of their charitable organizations. In our second year, we received over 2000 applications and awarded grants to three deserving organizations, and their founders. The grant recipients were celebrated at a luncheon in NYC, hosted by Soledad O’Brien in October, 2015. We are looking forward to the awards again in 2016. FOR MORE INFORMATION ON THE PROGRAM AND WINNERS, VISIT WWW.JAFFEAWARDS.COM. ASCENA ANNUAL REPORT 201 5 19 2015 FINANCIAL HIGHLIGHTS (D OLLARS IN MIL LIONS EXCE P T P E R SHARE AMOUN TS) Operating Results 2015 2014 2013 Net Sales $4,802.9 $4,790.6 $4,714.9 Operating (Loss) Income Adjusted Operating Income (A) Net (Loss) Income (B) Adjusted Net Income (A) (B) Net (Loss) Income as a Percent of Net Sales (B) Adjusted Income as a Percent of Net Sales (A) (B) (234.9) 162.4 (236.8) 98.1 (4.9%) 2.0% Net (Loss) Income per Common Share-Diluted (B) ($1.46) Adjusted Income per Common Share-Diluted (A) (B) $0.59 210.8 253.4 138.2 164.8 2.9% 3.4% $0.84 $1.00 265.3 334.0 155.2 204.2 3.3% 4.3% $0.95 $1.25 Financial Position 2015 2014 2013 Working Capital Total Assets Total Equity Number of stores at end of fiscal period Total Gross Footage (in millions) $232.2 2,915.7 1,518.1 3,895 21.2 $291.7 3,123.8 1,737.7 3,896 21.2 $306.3 2,871.7 1,556.4 3,859 21.0 (A) Excludes certain expenses which Management believes are not indicative of the Company's underlying operating performance. Refer to our Annual Report on Form 10-K for the fiscal year ended July 25, 2015 and our Current Report on Form 8-K dated September 16, 2015 for a full reconciliation and discussion of these non-GAAP financial measures to the closest comparable GAAP measure. (B) Represents net income from continuing operations. 20 ASCENA A NNUAL REPORT 20 1 5 Net Sales Adjusted Operating Income (A) DOLLARS IN MILL IONS DOLLARS IN MILL IONS $4,802.9 $334.0 $4,790.6 $4,714.9 $253.4 $162.4 2015 2014 2013 2015 2014 2013 Adjusted Net Income (A)(B) DOLLARS IN MILL IONS Adjusted Earnings Per Share (A)(B) DILU TED $204.2 $1.25 $164.8 $98.1 $1.00 $0.59 2015 2014 2013 2015 2014 2013 ASCENA ANNUAL REPORT 2015 21 DIRECTORS, OFFICERS & KEY MANAGEMENT Directors E L L I O T S . JA F F E Co-Founder & Non-Executive Chairman DAV I D JA F F E President & Chief Executive Officer J O H N S U L L I VA N President & Chief Operating Officer, ascena Shared Services Group DAV I D L . J O H N S SVP, Chief Information Officer Lane Bryant Dressbarn L I N DA H E A S L E Y President & Chief Executive Officer J E F F G E R S T E L President & Chief Executive Officer L O U A N N B E T T EVP, Chief Merchandising Officer J U D I L A N G L E Y EVP, Chief Merchandising Officer R O S LY N S . JA F F E Co-Founder, Secretary & Director Emeritus for Life K AT E B U G G E L N (1,2) Governing Board, Business Council for Peace J O H N U S DA N (1,2,3) President, Midwood Management Corporation K L AU S E P P L E R (3) Pensioned Partner, Proskauer LLP R A N DY L . P E A R C E (1,2) Lead Independent Director (1) Member, Compensation and Stock Incentive Committee (2) Member, Audit Committee (3) Member, Nominating and Corporate Governance Committee ascena Retail Group, Inc. E L L I O T S . JA F F E Co-Founder & Non-Executive Chairman DAV I D JA F F E President & Chief Executive Officer J O H N P E R S H I N G EVP, Chief Human Resources Officer R O B B G I A M M AT T E O EVP, Chief Financial Officer E R N E S T L A P O R T E SVP, Chief Accounting Officer T O M C A L D E RW O O D SVP, Corporate Tax R O N N I E R O B I N S O N President, ascena Global Sourcing S T E V E DA L E Y SVP, Supply Chain B R I A N B E I T L E R EVP, Chief Marketing Officer M A R C Y S C H A F F I R SVP, Merchandising Manager T H E R E S A S U L L I VA N SVP, Human Resources S A N D R A T I L L E T SVP, Stores & Store Operations J E F F L I S S SVP, Operational Transformation & Digital Services J E F F R E Y PA R I S I A N SVP, Real Estate N Y L A B E N S O N SVP, Human Resources S C O T T G L A S E R SVP, Chief Financial Officer K I R K S I M M E SVP, Credit Justice B R I A N LY N C H President & Chief Executive Officer L E C E L O H R EVP, Chief Merchandising Officer B R I A N R O G E R S SVP, Human Resources C H R I S K A I G H N SVP, Stores & Store Operations A L A N H O C H M A N SVP, Real Estate & Store Planning C AT R I O NA VA N DYC K SVP, Planning & Allocation JA S O N J U D D VP, Chief Financial Officer L I S A W E G M A N N VP, Strategic Initiatives N I C K H A F F E R VP, Planning & Allocation S T E FA N VO N Z A S T R OW VP, New Business Development & Strategy Maurices G E O R G E G O L D FA R B President & Chief Executive Officer E R I N S T E R N EVP, Chief Merchandising Officer S U E R O S S EVP, Human Resources A L I W I N G EVP, Chief Marketing Officer & ECommerce M I K E H E R R I C K SVP, Planning & Allocation N E I L M C P H A I L SVP, Stores B R I A N T H U N SVP, Chief Financial Officer J E F F H O L M E S SVP, Real Estate & Store Planning L O R I WAG N E R Chief Marketing Officer & EVP, Digital Commerce C H E RY L S T E V E N S SVP, Human Resources G I L D E N N I S SVP, Stores R O B I N G R AY SVP, Planning & Allocation B E N M O O R E SVP, Store Development E L I S E JA F F E SVP, Real Estate R A A NA Z I A SVP, Chief Financial Officer Catherines B R E T T S C H N E I D E R President J OA N M U N N E L LY EVP, Chief Merchandising Officer S T E P H A N I E NA N Z VP, Planning & Allocation C H I P M A R D I S VP, Human Resources S U S A N R E I M A N VP, Stores B R A D O R L O F F VP, Marketing M A R K M U E L L E R VP, Real Estate J O E L O N G VP, Chief Financial Officer 22 ASCENA ANNUA L REPORT 2 0 1 5 CORPORATE INFORMATION The Annual Meeting The Annual Meeting of Stockholders of the Company will be held: Thursday, December 10, 2015, 3:30 p.m. Stage Street Café, dressbarn 933 MacArthur Boulevard Mahwah, NJ 07430 Form 10-K To view this annual report online, including our Annual Report on form 10-K, visit ascenaretail. com/investors.jsp. A copy of the Company’s Annual Report on Form 10-K for the fiscal year ended July 25, 2015, will be provided, without charge,to stockholders upon written request to: Investor Relations ascena Retail Group, Inc. 933 MacArthur Boulevard Mahwah, NJ 07430 Transfer Agent & Registrar (for registered stockholders) Communications concerning stockholder records, the transfer of shares, lost certificates or change of address should be directed to: American Stock Transfer & Trust Company, LLC 6201 15th Avenue Brooklyn, NY 11219 Beneficial Stockholders (shares held by your broker in the name of the brokerage house) should direct questions to their broker. Independent Counsel Proskauer Rose LLP Eleven Times Square New York, NY 10036 Independent Registered Public Accounting Firm Deloitte & Touche LLP 100 Kimball Drive Parsippany, NJ 07054 

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