UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended August 3, 2019
or
Commission file number 0-11736
ASCENA RETAIL GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
30-0641353
(I.R.S. Employer Identification No.)
933 MacArthur Boulevard, Mahwah, New Jersey
(Address of principal executive offices)
07430
(Zip Code)
(551) 777-6700
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.01 per share
Trading Symbol(s)
ASNA
Name of each exchange on which registered
The Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an
emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in
Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $400 million as of February 2, 2019, based on
the last reported sales price on the Nasdaq Global Select Market on that date. As of October 8, 2019, 199,247,000 shares of voting common shares were
outstanding.
Portions of the registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on December 10, 2019 are incorporated by reference into
Part III of this Form 10-K.
ASCENA RETAIL GROUP, INC.
FORM 10-K
FISCAL YEAR ENDED AUGUST 3, 2019
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
PART II
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Exhibits, Financial Statement Schedules
Page
3
10
26
26
27
27
29
30
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54
54
55
55
55
2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, including the section labeled Management’s Discussion and Analysis of Financial Condition
and Results of Operations, contains forward-looking statements that should be read in conjunction with the consolidated financial
statements, notes to the consolidated financial statements and the risk factors that we have included elsewhere in this report. These
forward-looking statements are based on our current expectations, assumptions, estimates and projections about our business and
our industry, and involve known and unknown risks, uncertainties and other factors that may cause our results, level of activity,
performance or achievements to be materially different from any future results, level of activity, performance or achievements
expressed or implied in, or contemplated by, the forward-looking statements. We generally identify these statements by words or
phrases such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “may,” “should,” “estimate,” “predict,” “project,”
“potential,” “continue,” “remains optimistic,” or the negative of such terms or other similar expressions.
Our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause
such a difference include those discussed below under Item 1A. Risk Factors, and other factors discussed in this Annual Report
on Form 10-K and other reports we file with the Securities and Exchange Commission. We disclaim any intent or obligation to
update or revise any forward-looking statements as a result of developments occurring after the period covered by this report.
WEBSITE ACCESS TO COMPANY REPORTS
We maintain our corporate Internet website at www.ascenaretail.com. The information on our Internet website is not incorporated
by reference into this report. We make available, free of charge through publication on our Internet website, a copy of our Annual
Reports on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K, including any amendments to
those reports, as filed with or furnished to the Securities and Exchange Commission (“SEC”) pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after they have been so filed or furnished.
Information relating to corporate governance at Ascena Retail Group, Inc., including our Code of Ethics for the Chief Executive
Officer and Senior Financial Officers, information concerning our directors, committees of the Board of Directors, including
committee charters, and SEC filings reporting transactions in Ascena Retail Group, Inc. securities by directors and executive
officers, is also available at our website.
In this Annual Report on Form 10-K, references to “ascena,” “ourselves,” “we,” “us,” “our” or “Company” or other similar
terms refer to Ascena Retail Group, Inc. and its subsidiaries, unless the context indicates otherwise. Fiscal year 2019 ended on
August 3, 2019 and reflected a 52-week period (“Fiscal 2019”); fiscal year 2018 ended on August 4, 2018 and reflected a 53-
week period (“Fiscal 2018”) as the Company conformed its fiscal period ends to the calendar of the National Retail Federation;
and fiscal year 2017 ended on July 29, 2017 and reflected a 52-week period (“Fiscal 2017”). All references to “Fiscal 2020”
refer to our 52-week period that will end on August 1, 2020.
Item 1. Business.
General
PART I
The Company is a national specialty retailer of apparel for women and tween girls. The Company's operations consist of its direct
channel operations and approximately 3,400 stores in the United States, Canada and Puerto Rico as of August 3, 2019. The Company
had annual revenues for Fiscal 2019 of approximately $5.5 billion.
Enterprise Transformation
Operational-related transformation
Retailers, especially those in the specialty apparel sector, continue to face intense competition, particularly as consumer spending
habits continue to indicate an increasing preference to purchase digitally as opposed to in traditional brick-and-mortar retail stores.
This preference has resulted in increased direct channel sales, but has continued to put pressure on our retail store sales. As a
result of these fundamental changes, we are continuing our previously announced strategic review of our brands and operations
with the goal to enhance shareholder value. We believe that structural and strategic changes are necessary to successfully compete
in the changing retail landscape.
3
To that end, over the past few years, the Company has undergone an extensive transformation of its business. This transformation
began during Fiscal 2017, when the Company announced that it was beginning a multi-year transformation plan with the objective
of supporting sustainable long-term growth and increasing shareholder value (the "Change for Growth" program). Actions
completed under this long-term transformation focused on (i) refinements to the Company's operating model to increase the focus
on key customer segments, (ii) developing initiatives designed to optimize the flow of product through the Company's distribution
channels, including its direct channel and its brick-and-mortar retail locations, including areas related to markdown optimization,
size pack optimization and localized inventory planning, (iii) consolidating certain support functions into shared services, including
Human Resources, Real Estate, Non-Merchandise Procurement, and Asset Protection, (iv) transitioning certain transaction
processing functions to an independent third-party managed-service provider, and (v) optimizing its store fleet with the goal of
reducing the number of under-performing stores through either rent reductions or store closures, in an effort to increase the overall
profitability of the remaining store portfolio and convert sales from these stores into direct channel sales or to nearby store locations.
The Company realized cumulative savings of approximately $290 million from the Change for Growth program through the end
of Fiscal 2019, substantially all of which are reflected in the results of our continuing operations, and which have served to offset
ongoing inflationary pressure and required reinvestment to support key incremental business initiatives.
The Company will continue to focus on identifying additional cost reduction opportunities to right-size the cost structure. In the
third quarter of Fiscal 2019, we announced an incremental cost reduction target and on June 4, 2019, we actioned our initial round
of savings towards achieving that target with the goal of realizing the majority of the anticipated savings in Fiscal 2020. We will
continue to formulate plans and take actions to achieve the remainder of that target and look for additional opportunities. These
opportunities represent a critical component of our enterprise transformation.
Structural-related transformation
On May 6, 2019, the Company and Maurices Incorporated, a Delaware corporation (“maurices”) and wholly owned subsidiary
of ascena, completed the transaction contemplated by the previously-announced Stock Purchase Agreement with Viking Brand
Upper Holdings, L.P., a Cayman Islands exempted limited partnership (“Viking”) and an affiliate of OpCapita LLP, providing for,
among other things, the sale by ascena of maurices to Viking (the “Transaction”). Effective upon the closing of the Transaction,
ascena received cash proceeds of approximately $210 million and a 49.6% ownership interest in the operations of maurices,
consisting of interests in Viking preferred and common stock.
On May 20, 2019, the Company announced the wind down of its Dressbarn brand. The wind down is currently expected to be
completed in the first half of Fiscal 2020. During Fiscal 2019, the Company recorded severance, professional fees, and non-cash
asset impairments and currently expects to incur additional wind down costs during the first half of Fiscal 2020, primarily related
to severance, inventory liquidation and closure of Dressbarn retail stores. As a result of these actions, once the wind down of
Dressbarn is complete, the Company will have exited its Value Fashion segment.
On May 1, 2019 the Company announced changes to its senior leadership team. These changes included the retirement of the
Company's Chief Executive Officer, the departure of the Company's Chief Operating Officer, as well as the appointment of a new
Chief Executive Officer and Interim Executive Chair of the Board. On August 4, 2019 the Senior Vice President, Finance and
Chief Accounting Officer, was promoted to Executive Vice President and Chief Financial Officer upon the resignation of the former
Executive Vice President and Chief Financial Officer. We believe that these changes will continue to support our structure-related
transformation activities as the new management team seeks additional ways to optimize our brand portfolio and distribution
framework which will allow us to better compete in the changing retail landscape.
Brands and Products
The Company brands, described in more detail below, are organized into four reportable segments as follows: Premium Fashion,
Plus Fashion, Kids Fashion and Value Fashion.
Premium Fashion
The Premium Fashion segment consists of the Ann Taylor and LOFT brands.
Ann Taylor includes 293 specialty retail and outlet stores and direct channel operations. Ann Taylor has been at the forefront of
American fashion, leading the way with the idea that style shouldn’t be work, and getting dressed should be about getting ready
for really big days and those just as important small moments. Ann Taylor features polished, modern feminine classics with an
iconic style point of view for every aspect of her life. Its retail stores are predominantly located in mall locations, lifestyle centers
and outlet centers.
4
LOFT includes 669 specialty retail and outlet stores, direct channel operations and certain licensed franchises in international
territories. LOFT offers modern, feminine and versatile clothing for a wide range of women with one common goal: to help them
look and feel confident, wherever the day takes them. From everyday essentials to attainable trends, LOFT consistently serves
up head-to-toe outfits and perfect pieces that make getting dressed feel effortless. Its retail stores are predominantly located in
mall locations, lifestyle centers and outlet centers.
Plus Fashion
The Plus Fashion segment consists of the Lane Bryant and Catherines brands.
Lane Bryant includes 721 specialty retail and outlet stores and direct channel operations. Lane Bryant is a widely recognized
brand name in plus-size fashion with stores concentrated in suburban and small towns, offering fashionable and sophisticated
apparel at a moderate price point to female customers in plus-sizes 14-28 through its namesake and Cacique intimates private
labels, along with select national brands. Merchandise assortment offerings include intimate apparel, wear-to-work and casual
apparel as well as accessories and select footwear. Lane Bryant retail stores are located in mall locations, strip shopping centers,
lifestyle centers and outlet centers.
Catherines includes 320 specialty retail stores and direct channel operations, offering a full range of plus sizes (16-34) and (0x-5x)
and extended sizes (28-34 and 4x-5x). Catherines offers classic and fashionable apparel and accessories for women at moderate
prices that includes casual apparel, wear-to-work apparel, intimate apparel and wide-width footwear. Catherines retail stores are
concentrated in suburban and small towns and are primarily located in strip shopping centers.
Kids Fashion
The Kids Fashion segment, which consists of the Justice brand, includes 826 specialty retail and outlet stores, direct channel
operations and certain licensed franchises in international territories. The Justice brand offers fashionable apparel to girls who are
ages 6 to 12 in an environment designed to match the energetic lifestyle of tween girls. Justice's merchandise mix represents the
broad assortment that a girl wants in her store - a mix of apparel, accessories, footwear, intimates and lifestyle products, such as
cosmetics and bedroom accessories, to meet all of her needs. Justice retail stores are located in mall locations, strip shopping
centers, lifestyle centers and outlet centers.
Value Fashion
The Value Fashion segment consists of our Dressbarn brand. As discussed in Note 2 to the accompanying consolidated financial
statements included herein, the Company completed the sale of its maurices brand on May 6, 2019, which previously was included
in the Value Fashion segment and announced plans to wind down its Dressbarn brand in the first half of Fiscal 2020. Dressbarn
operates 616 specialty retail and outlet stores and direct channel operations, offering moderate-to-better quality career, special
occasion and casual fashion for working women in a comfortable, easy-to-shop environment. Dressbarn retail stores are located
primarily in strip shopping centers in major trading and high-density markets and in surrounding suburban areas.
The tables below present net sales and operating loss by operating segment for the last three fiscal years:
Net sales:
Premium Fashion
Plus Fashion
Kids Fashion
Value Fashion
Total net sales
Fiscal 2019
Fiscal 2018
(millions)
Fiscal 2017
$
$
2,415.1
1,240.5
1,079.1
758.7
5,493.4
$
$
2,317.8
1,340.0
1,100.0
808.6
5,566.4
$
$
2,322.6
1,353.9
1,023.1
917.7
5,617.3
5
Operating loss:
Premium Fashion
Plus Fashion
Kids Fashion
Value Fashion
Unallocated restructuring and other related charges
Unallocated impairment of goodwill
Unallocated impairment of other intangible assets
Unallocated acquisition and integration expenses
Total operating loss
Omni-channel
Fiscal 2019
Fiscal 2018
(millions)
Fiscal 2017
$
$
$
72.7
(71.4)
(42.4)
(101.7)
(127.7)
(276.0)
(134.9)
—
(681.4) $
$
102.3
0.6
18.7
(128.5)
(76.6)
—
—
(5.4)
(88.9) $
129.6
(12.7)
(60.5)
(56.0)
(78.1)
(489.1)
(728.1)
(39.4)
(1,334.3)
The Company continues to invest in initiatives that support its omni-channel strategies. In recent years, the Company has completed
the consolidation of all brands into its shared distribution network and the transition of all brands onto its direct channel platform.
The platform allows the brands to (i) provide customers a seamless omni-channel shopping experience in-store and online, (ii)
integrate their marketing efforts to increase in-store and online traffic, (iii) improve product availability and fulfillment efficiency
and (iv) enhance the capability to analyze transaction data to support strategic decisions. These efforts have increased the Company's
e-commerce penetration from 19% in Fiscal 2016 to 31% in Fiscal 2019. Additionally, the Company has made significant
investments in its supply chain capability, and maintains highly efficient distribution and fulfillment centers in Etna, Ohio,
Greencastle, Indiana, and Riverside, California.
The Company's brands sell products online through social media and their direct channel sites:
• Ann Taylor – www.anntaylor.com and factory.anntaylor.com
• LOFT – www.LOFT.com, outlet.loft.com and www.louandgrey.com
• Lane Bryant – www.lanebryant.com
• Catherines – www.catherines.com
•
Justice – www.shopjustice.com
• Dressbarn – www.dressbarn.com
Store Locations
The Company's stores are typically open seven days a week and most evenings. As of August 3, 2019, the Company operated
approximately 3,400 stores in the United States, Canada and Puerto Rico. Ann Taylor and LOFT have stores in 41 and 46 states,
respectively, as well as the District of Columbia, Canada and Puerto Rico. In addition, LOFT has five international franchise
stores. Lane Bryant and Catherines have stores located in 47 and 44 states, respectively. Justice has stores in 47 states and
Canada as well as 80 international franchise stores. Dressbarn has stores in 46 states.
As of August 3, 2019, the Company's stores had a total of 19.1 million square feet consisting of Ann Taylor with 1.6 million
square feet, LOFT with 3.8 million square feet, Lane Bryant with 4.0 million square feet, Catherines with 1.3 million square
feet, Justice with 3.5 million square feet, and Dressbarn with 4.9 million square feet. All of the Company's store locations are
leased. Some of the leases contain renewal options and termination clauses, particularly in the early years of a lease, which are
exercisable if specified sales volumes are not achieved.
6
Store Count by Brand
Beginning of Period
Stores reduced from sale of maurices
Opened
Closed
End of Period
Beginning of Period
Opened
Closed
End of Period
Fiscal 2019
Ann
Taylor
304
—
1
(12)
293
LOFT
672
—
6
(9)
669
Lane
Bryant
749
—
—
(28)
721
Catherines
348
—
—
(28)
320
Justice
847
—
—
(21)
826
Dressbarn maurices
Total
972
4,622
(972)
(972)
—
7
(212)
—
— 3,445
730
—
—
(114)
616
Fiscal 2018
Ann
Taylor
322
1
(19)
304
LOFT
678
8
(14)
672
Lane
Bryant
764
2
(17)
749
Catherines
359
1
(12)
348
Justice
900
2
(55)
847
Dressbarn maurices
1,005
14
(47)
972
779
—
(49)
730
Total
4,807
28
(213)
4,622
In connection with the Company's efforts to right-size the cost structure, the Company conducted a strategic review of its store
fleet with the goal of improving overall profitability and cash flows of its store portfolio. The Company launched its fleet
optimization program in January of 2017, with an annualized savings target of $50 million through rent concessions and closure
of stores. In Fiscal 2018, the Company expanded its total annualized savings target to $60 million. As of the end of Fiscal 2019,
the program has generated total annualized savings to our continuing operations in excess of the $60 million target. The Company
will continue to seek opportunities to optimize its store portfolio and achieve rent reductions whenever possible.
Trademarks
The Company has U.S. Trademark Registration Certificates and trademark applications pending for the operating names of the
Company's stores and its major private label merchandise brands. The Company believes its trademarks such as ANN TAYLOR®,
LOFT®, ANN TAYLOR LOFT®, LOU & GREY®, JUSTICE®, LANE BRYANT®, CACIQUE®, CATHERINES®, and "&®"
are essential to the continued success of its business. The Company intends to maintain its trademarks and related registrations
and vigorously protect them against infringement.
International Operations
As of August 3, 2019, the Company operated stores across three brands in Canada (Justice (41), LOFT (9), and Ann Taylor (4)).
Additionally, as of August 3, 2019, Justice and LOFT had 80 and 5 international franchise stores, respectively, operated under
franchise agreements where we earn licensing revenue. International revenue from company-operated stores and franchised stores
accounts for approximately 2% of consolidated annual net sales.
Sourcing
The Company's brands source their products through one of three channels - ascena's internal sourcing group, third-party buying
agents, or directly from market vendors. Factors affecting the selection of sourcing channels include cost, speed to market,
merchandise selection, vendor capacity and fashion trends.
Operating through offices located in South Korea, China, India and Bangladesh, the Company maintains direct relationships with
manufacturing partners, enabling desired product quality control and speed to market, along with favorable pricing as compared
to market vendors.
Merchandise Vendors
The Company purchases its merchandise from many domestic and foreign suppliers. It has no long-term purchase commitments
or arrangements with any of its suppliers, and believes that it is not dependent on any one supplier as no third-party supplier
accounts for more than 10% of our merchandise purchases. The Company believes that it has good working relationships with its
suppliers.
7
Merchandising and Design
The Company continues to focus on building its merchandising and design functions to align with its market position. The
merchandising and design teams determine inventory needs for the upcoming season in response to fast changing fashion trends
and customer preferences. Over the last few years, the Company has made substantial investments to acquire and retain
merchandising and design talent allowing it to differentiate its fashion offerings, which it believes is a critical enabler for long-
term success.
Office and Distribution Centers
For a detailed discussion of the Company's office and distribution centers, see Part I, Item 2 “Properties” in this Annual Report
on Form 10-K, which information is incorporated by reference herein.
Information Technology Systems
The Company continues to make ongoing investments in its information technology systems to support its strategies in omni-
channel, merchandise procurement, inventory management and supply chain. Our information technology systems make the design,
marketing, importing and distribution of our products more efficient by providing common platforms for, among other things,
order processing, product and design information, and financial information.
Advertising and Marketing
The Company uses a combination of broad-based and targeted marketing and advertising strategies to effectively define, evolve,
and promote our brands. These strategies are designed to deliver a personalized and relevant shopping experience for our customers
and include customer research, advertising and promotional events, window and in-store marketing materials, direct mail marketing,
Internet and social media marketing, lifestyle magazines, and other means of communication.
Customer Relationship Management
The Company continues to focus on building our customer relationships and promoting customer loyalty through various programs
including brand-specific loyalty and credit card programs. Customers shopping at our brands who are enrolled in our loyalty
programs earn reward points that are redeemable toward future purchases. Our brands also offer credit card programs to eligible
customers providing additional discounts and promotional offers. During Fiscal 2019, the Company launched new loyalty programs
at its Premium Fashion and Plus Fashion segments. This follows the rollout of a new loyalty program at the Kids Fashion
segment in Fiscal 2018. These programs provide opportunities to attract new customers, retain and enhance existing customer
relationships, and deliver a more personalized shopping experience through a better understanding of our customers' preferences
and shopping behaviors.
Community Service
ascena and its brands have a rich history of giving. Together, the Company has a shared commitment to our associates and the
women and girls whom we serve. We support our associates through our ascenaCARES programs, which reflects our culture and
the philanthropic efforts taking place within our organization. The Company is proud to sponsor programs that provide leadership
development, training, and mentoring along with monetary grants awarded to female social entrepreneurs. Through cause-
marketing campaigns, our brands are committed to the communities in which we live and work. Whether through collective
partnerships or individual brand outreach, we are committed to supporting women and girls to live confidently in their own unique
ways. More information about our charitable giving, including the non-profit partners we support, is available at
www.ascenaretail.com.
Competition
The retail apparel industry is highly competitive and increasingly fragmented. The Company competes with numerous retailers,
including department stores, off-price retailers, specialty stores and Internet-based retailers, on pricing, styles and fulfillment
capability. Our business is vulnerable to demand and pricing shifts, channel shifts and changes in customer preferences. Some of
our competitors operate at a lower cost structure, and are able to offer better pricing; others have more sophisticated direct channel
or omni-channel capabilities. Examples of our competitive set include but are not limited to Gap Inc., Amazon, Walmart, Macy’s,
JCPenney, Target and TJX Companies. Other competitors may enter the markets we serve. If the Company fails to compete
successfully, it could face continued sales declines and may need to offer greater discounts to our customers, which could result
in decreased profitability. The Company is working aggressively to differentiate our brands and our assortments to reinforce the
8
value proposition it delivers by focusing on our target customers and by offering up-to-date fashion, unique experiences, superior
customer service and shopping convenience across our multiple sales channels.
Employees
As of August 3, 2019, the Company had approximately 53,000 employees, 40,000 of whom worked on a part-time basis. The
Company typically adds temporary employees during peak selling periods, which vary throughout the year at each of its brands,
and adjusts the hours they work to coincide with holiday shopping patterns. Additionally, none of the Company's employees are
covered by any collective bargaining agreement, except for approximately 85 employees of Lane Bryant who are represented by
unions. The Company believes that it has good working relations with its employees and unions.
Information About Our Executive Officers
The following table sets forth the name, age and position of our Executive Officers:
Name
Carrie Teffner
Gary Muto
Dan Lamadrid
Wendy Hufford
Age
52
60
44
58
Positions
Interim Executive Chair of the Board
Chief Executive Officer
Executive Vice President and Chief Financial Officer
Senior Vice President, General Counsel and Secretary
Ms. Carrie Teffner has been a member of the Company's Board of Directors since 2018 and became Interim Executive Chair of
the Board in May, 2019. Prior to that, Ms. Teffner served as Executive Vice President Finance and Strategic Projects at Crocs,
Inc. (“Crocs”) until April 2019, and served as Executive Vice President and Chief Financial Officer of Crocs from December 2015
to August 2018. Prior to joining Crocs, Ms. Teffner served as Executive Vice President and Chief Financial Officer at PetSmart,
Inc. ("PetSmart") from 2013 to 2015 until it was sold to BC Partners, where she was responsible for finance and information
technology. Prior to PetSmart, Ms. Teffner held a number of leadership roles at Weber Stephen Products LLC, The Timberland
Company and Sara Lee Corporation.
Mr. Gary Muto became Chief Executive Officer in May 2019. Prior to that, Mr. Muto served as President and Chief Executive
Officer-ascena Brands from August 2017 until May 2019, served as President and Chief Executive Officer of the Company’s
Premium Fashion segment from October 2016 to August 2017, and served as President and Chief Executive Officer of ANN
INC. ("ANN") from October 2015 to October 2016. Additionally, from 2008 to 2014 Mr. Muto served as President of ANN's
LOFT brand, and then from 2014 to 2015, as President of ANN Brands. Mr. Muto has over 25 years of fashion and retail experience,
having previously held a variety of executive leadership positions with Gap Inc.
Mr. Dan Lamadrid became Executive Vice President and Chief Financial Officer in August 2019. Mr. Lamadrid joined our
organization in 2017 as Senior Vice President, Finance and Chief Accounting Officer. Mr. Lamadrid has responsibility for all
Corporate Financial Planning activities as well as oversight of the Company's financial accounting and reporting operations. Prior
to joining the Company, Mr. Lamadrid was a Senior Vice President at Vitamin Shoppe, Inc. where he served as Controller from
2011 to 2012 and as Chief Accounting Officer from 2012 until 2017. Prior to Vitamin Shoppe, Mr. Lamadrid held various financial
leadership roles at Ralph Lauren, Hartz Mountain Corporation and Toys R Us. Mr. Lamadrid began his career in public accounting.
Ms. Wendy Hufford joined the Company in October 2018 and serves as Senior Vice President, General Counsel and Secretary. Ms.
Hufford has responsibility for all legal, compliance, legal risk and government affairs matters affecting the Company. Prior to
joining ascena, Ms. Hufford was the Chief Operating Officer, Legal Department & Vice President, US Litigation, Risk Management
& Human Resources at Boehringer Ingelheim USA from 2015 to 2018. Ms. Hufford was previously Vice President, Deputy General
Counsel and Assistant Secretary at ITT Corporation from 2010 to 2014 and Executive Vice President and Chief Litigation Counsel
at Cardinal Health from 2006 to 2009. She also held in-house roles at GE Consumer Finance and Credit Suisse First Boston. Early
in her career, she was in private practice at Davis Polk & Wardwell in New York and she served as a law clerk for the Honorable
Robert J. Ward on the U.S. District Court of the Southern District Court of New York.
9
Item 1A. Risk Factors.
There are risks associated with an investment in our securities. The following risk factors should be read carefully in connection
with evaluating our business and the forward-looking statements contained in this Annual Report on Form 10-K. Any of the
following risks could materially adversely affect our business, our prospects, our operational results, our financial condition, our
liquidity, the trading price of our securities, and the actual outcome of matters as to which forward-looking statements are made
in this report. The risk factors generally have been separated into four groups: (1) Macroeconomic and Industry Risks; (2)
Operational Risks; (3) Capital Risks; and (4) Legal and Regulatory Risks. Based upon information currently known to us, the
Company believes that the following information identifies the most significant risk factors affecting our Company and our
securities. However, the risks and uncertainties are not limited to those set forth in the risk factors described below. Before making
an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other
information included or incorporated by reference in this report. Our operational results, financial position and cash flows could
be negatively impacted by a number of factors including, but not limited to, those described below. If we are not successful in
managing these risks, they could have a negative impact on our business, operational results, financial position and cash flows.
Macroeconomic and Industry Risks
General economic conditions and other factors beyond the Company’s control impacting consumer spending may adversely affect
our business.
Our performance is subject to macroeconomic conditions that are beyond the Company’s control that could impact consumer
discretionary spending. Some of the factors negatively impacting consumer spending and consumer sentiment include volatility
in national and international financial markets, recession, inflation, deflation, consumer confidence, fiscal and monetary policies
of government, unemployment and wage levels, increased taxation, credit availability, high consumer debt, higher fuel, energy
and other prices, tax policies and changes in tax laws, increasing interest rates, severe or unseasonable weather conditions, natural
disasters, public health concerns, civil disturbances, the threat of or actual terrorist attacks, military conflicts, the domestic or
international political environment, and general uncertainty regarding the overall future economic environment as well as the
prospects of these factors and events. Such macroeconomic and other factors could have a negative effect on consumer spending
in the U.S., which in turn could have a material effect on our business, operational results, financial position and cash flows.
Existing and increased competition and fundamental shifts in the women’s and girls’ retail apparel industry may reduce our net
revenues, operational results and market share.
The women’s and girls’ retail apparel industry is highly competitive. Although the Company is one of the nation’s largest specialty
retailers, we have numerous and varied competitors at the national, regional and local level, primarily consisting of department
stores, off-price retailers, other specialty stores, discount stores, mass merchandisers, boutiques, and Internet retailers, some of
whom have advantages over us, including substantially greater financial, marketing or promotional resources. Many retailers,
such as department stores, also offer a broader selection of merchandise than we offer, continue to be promotional by reducing
their selling prices, and in some cases are expanding into markets in which we have a significant presence.
In addition, the growth and prominence of fast-fashion and value-fashion retailers and expansion of off-price retailers have
fundamentally shifted customers’ expectations of affordable pricing of well-known brands and has resulted in the continuation of
increased promotional pressure. The rise of these retailers as well as the shift in shopping preferences away from brick-and-mortar
stores to the direct channel, where online-only businesses or those with robust direct channel capabilities can facilitate competitive
entry and comparison shopping in our brands, have increased the difficulty of maintaining and gaining market share. The Company’s
execution of its own omni-channel strategy to adapt to these changes, in relation to its competitors’ actions as well as to its
customers’ adoption of new technology, presents a specific risk.
These competitive factors, including unanticipated changes in pricing, promotional activity such as free shipping and pricing
pressures, and other practices of the Company’s competitors could have a material adverse effect on our business, operational
results, financial position and cash flows.
Disruptions at ports used to import our products could have a material adverse impact on our business.
We currently ship the vast majority of our products by ocean. If a disruption occurs in the operation of ports through which our
products are imported, we and our vendors may have to ship some or all of our products from Asia or other regions by air freight
or to alternate shipping destinations in the United States. Shipping by air is significantly more expensive than shipping by ocean
and our profitability could be reduced. Similarly, shipping to alternate destinations in the United States could lead to increased
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lead times and costs for our products. A disruption at ports (domestic or abroad) through which our products are imported could
have a material adverse effect on our business, operational results, financial position and cash flows.
Increases in the price of raw materials, labor, energy, freight and trade relations could have a material adverse impact on our
business.
Raw materials used to manufacture our merchandise are subject to availability constraints and price volatility caused by high or
low demand for fabrics, labor conditions, trade wars and higher tariffs, transportation or freight costs, currency fluctuations,
weather conditions, supply conditions, government regulations, economic inflation, market speculation and other factors. Increases
in the demand for and price of cotton, wool and other raw materials used in the production of fabric and accessories, as well as
increases in labor and energy costs or shortages of skilled labor, could result in increases for the costs of our products as well as
their distribution to our distribution centers, retail locations and to our customers. The Company is also susceptible to fluctuations
in the cost of transportation. Additionally, substantially increased uncertainty with respect to trade relations, such as the imposition
of unilateral tariffs on imported products, could result in trade wars, higher barriers and tariffs, and higher product costs, which
could have a material adverse effect on our business, operational results, financial position and cash flows.
Extreme weather could have a material adverse impact on our business.
Frequent or unusually heavy snowfall, ice storms, hurricanes, rainstorms or other extreme or unseasonable weather conditions
over an extended period could make it difficult for our customers to travel to our stores, may cause a disruption in the shipment
or receipt of our merchandise, and may influence customer trends, consumer traffic and shopping habits, which could negatively
impact the Company's operational results. Extreme weather conditions in the areas in which the Company's stores are located
could negatively affect the Company's business, operational results, financial position and cash flows.
Acts of terrorism, active shooter situations, effects of war, public health incidents, man-made and natural disasters, other
catastrophes or political unrest could have a material adverse effect on our business.
Acts of terrorism and other catastrophic events remain a significant threat to the global economy. Terrorism and potential military
responses, active shooter situations, political unrest, natural disasters, pandemics and other health issues have disrupted or could
in the future disrupt commerce, impact our ability to operate our stores, offices or distribution and fulfillment centers in the affected
areas or impact our ability to provide critical functions or services necessary to the operation of our business, including our and
our third-party vendors’, suppliers’ and other providers’ systems and the networks as well as the utilities and telecommunications
infrastructure on which our business depends. A disruption of commerce, or an inability to recover critical functions or services
from such a disruption, could interfere with the production, shipment or receipt of our merchandise in a timely manner or increase
our costs to do so, which could have a material adverse impact on our business, operational results, financial position and cash
flows. In addition, any of the above disruptions could undermine consumer confidence, which could negatively impact consumer
spending or customer traffic, and thus have an adverse effect on our operational results.
Our ability to mitigate the adverse impact of any of the above disruptions also depends, in part, upon the effectiveness of our
disaster preparedness and response planning as well as business continuity planning. However, we cannot be certain that our plans
will be adequate or implemented properly in the event of an actual disaster or other catastrophic situation. In addition, although
we maintain insurance coverage, there can be no assurance that our insurance coverage will be sufficient, or that insurance proceeds
will be timely paid to us.
Operational Risks
Risks associated with our ongoing portfolio review and business transformation could adversely affect our financial results.
The Company’s previously announced comprehensive portfolio review has resulted in the Company’s recent sale of
the maurices brand, and the announcement of the wind down of the Dressbarn brand. As a result of these, and similar efforts,
we may incur unexpected costs, reductions in available liquidity, diversion of management’s attention and resources from our
business, stock price volatility, difficulty in negotiating, maintaining, or consummating business or strategic relationships or
transactions, difficulty in recruiting, hiring, motivating, and retaining talented and skilled personnel, and disruptions in operations,
supplier relationships and employee relations, which in turn could have a material adverse effect on our business, operational
results, financial position and cash flows.
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There are risks associated with the wind down of our Dressbarn brand.
On May 20, 2019, we reported that our Dressbarn brand announced plans to commence a wind down of Dressbarn’s operations.
In connection with the Dressbarn brand wind down, retail store locations will continue to be closed in a phased approach; the e-
commerce site, however, will remain active until the wind down is complete.
In connection with the Dressbarn brand wind down, we have incurred charges of approximately $50 million for the year ended
August 3, 2019 primarily related to actions including employee-related costs (including estimates for severance), professional
fees, and non-cash asset impairment charges, including costs associated with the write-down of Dressbarn's corporate office
space. We expect to incur additional costs until the wind down is complete, which may include additional severance, inventory
liquidation, non-cash asset impairments and contract assignment and termination costs, primarily with respect to store operating
leases. The amount of actual restructuring and transition charges and impairment charges may materially exceed our estimates,
when determined, due to various factors, many of which are outside of our control, including, without limitation, the actual
outcomes of discussions and negotiations (a number of which are currently ongoing) with the counterparties to the contracts we
intend to terminate or modify. In addition, because of uncertainties with respect to our wind down plan (including those described
above), we may not be able to complete the wind down of Dressbarn in the timeframe, on the terms or in the manner we expect,
and the costs incurred in connection with such wind down activities may exceed our estimates. If the actual restructuring charges
or impairment charges exceed our estimates, when determined, this could adversely impact the Company’s business, operational
results, financial position and cash flows.
Furthermore, because of the wind down of the Dressbarn brand and because of other factors that ordinarily influence consumer
acceptance of our other brands’ products (many of which are outside of our control), we may not be able to sell our Dressbarn
brand Fall 2019 products at prices that will generate a profit. If we incur losses relating to the sales of such products, this could
adversely impact the Company’s business, operational results, financial position and cash flows.
In addition, the announced wind down involves numerous risks, including but not limited to:
• the inability of the Dressbarn brand to retain qualified personnel necessary for the wind down during the wind
down period;
• potential disruption of the operations of the rest of our brands and businesses and diversion of management’s
attention from such businesses and operations;
• exposure to unknown, contingent or other liabilities, including litigation arising in connection with the Dressbarn
brand wind down;
• negative impact on our business relationships, including but not limited to potential relationships with our customers,
suppliers, vendors, lessors, licensees and employees; and
• unintended negative consequences from changes to our business profile.
If any of these or other factors impair our ability to successfully implement the wind down, we may not be able to realize other
business opportunities as we may be required to spend additional time and incur additional expense relating to the wind down that
otherwise would be used on the development and expansion of our other businesses, which could adversely impact the Company’s
business, operational results, financial position and cash flows.
Any divestitures, strategic investments, acquisitions, joint ventures or other transactions could fail to achieve strategic objectives
and result in operating difficulties, liabilities and expenses.
We have undertaken, and may undertake in the future, divestitures, strategic investments or other transactions in connection with
our comprehensive portfolio review, which has resulted in the Company’s recent sale of the maurices brand and the announcement
of the wind down of the Dressbarn brand. In addition, as a company of portfolio consumer brands, our business model may
include a certain level of acquisition, joint venture and/or divestiture activities. We must be able to successfully manage the impacts
of these activities, while at the same time delivering against our business objectives.
Specifically, with respect to divestitures, our financial results could be adversely impacted by the dilutive impacts from the loss
of earnings and corporate overhead contribution/allocation associated with divested brands. We may experience difficulty
separating out portions of the entire business, incur potential loss of revenue or experience negative impact on margins, or we may
not achieve the desired strategic and financial benefits from these transactions. Such transactions may also delay achievement of
our strategic objectives, cause us to incur additional expenses, potentially disrupt customer or employee relationships, and expose
us to unanticipated or ongoing obligations and liabilities, including any indemnification obligations, and divert management’s and
our employees’ time and attention. Further, during the pendency of a divestiture, we may be subject to risks related to a decline
in the business, loss of employees, customers, or suppliers and the risk that the transaction may not close, any of which would
have a material adverse effect on the business to be divested and the Company. If a divestiture is not completed for any reason,
we may not be able to find another buyer on the same terms, and we may have incurred significant costs without the corresponding
benefit.
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In May 2019, we completed the sale of our maurices brand to Viking Brand Upper Holdings, L.P. (“Viking”), an affiliate of
OpCapita LLP, for approximately $210 million in cash and approximately 49.6% of the outstanding equity interests in Viking,
which is now the owner of maurices. In connection with the closing of the sale of Maurices Incorporated, we entered into a
managed services agreement pursuant to which we will continue to support maurices on our shared business services platform,
including support for IT, supply chain, sourcing and certain back office functions pursuant to the managed services and/or
transitional services agreements. In the course of performing our obligations under these agreements, we will allocate certain of
our resources, including without limitation, assets, facilities, equipment and the time and attention of management and employees,
for the benefit of maurices and not us, which may negatively impact our business, results of operations and financial condition.
Additionally, we now hold a minority investment in the maurices’ owner. Minority investments inherently involve a lesser degree
of control over business operations, thereby potentially increasing the financial, legal, operational and compliance risks associated
with the investments. Management or other investors in these entities may have business goals and interests that are not aligned
with ours or may exercise their rights in a manner for which we do not approve. These circumstances could lead to delayed decisions
or disputes and litigation, all of which could have a material adverse impact on our reputation, business, results of operations and
financial condition. Refer to Note 9 to the accompanying consolidated financial statements for more information on our investment,
Our financial results could also be impacted in the event of acquisition or joint venture activities if changes in the cash flows or
other market-based assumptions cause the value of acquired assets to decline below book value, or we are not able to deliver the
expected cost and growth synergies associated with such acquisitions and joint ventures, which could also have an impact on
goodwill and intangible assets.
Our business is dependent upon our ability to anticipate and respond to changing fashion trends and customer preferences in a
timely manner.
Specialty fashion apparel trends and customer preferences tend to change rapidly, particularly for women and tween girls, and our
business is dependent upon our ability to effectively manage our inventory. Our success depends largely on our ability to anticipate
and respond to changing fashion trends and consumer preferences in a timely manner. Accordingly, our failure to anticipate,
identify and react to changing fashion trends or styles could adversely affect consumer acceptance of our merchandise, which in
turn could adversely affect our business and our image with our customers. Because the lead times required for many of our design
and purchase decisions must be made well in advance of the applicable selling season, we are vulnerable to changes in consumer
trends, preferences, price shifting, and the optimal selection and timing of merchandise purchases. A miscalculation of either the
demand for our merchandise or our customers’ tastes or purchasing habits could lead to, among other things, inventory shortages
or excess inventory that we may be required to sell at reduced prices, which would have an adverse effect on our business,
operational results, financial position and cash flows.
We may not fully realize the expected cost reductions and/or operating efficiencies from the cost reduction initiatives.
The Company has undertaken various cost reduction initiatives to right-size its cost structure. The actions implemented through
these initiatives present significant potential risks that may impair our ability to achieve anticipated operating enhancements and/
or cost reductions, or otherwise harm our business, including:
• higher than anticipated costs in implementing the program and/or initiative;
• failure to meet operational targets or customer requirements due to the loss of employees or inadequate transfer of
knowledge;
• failure to maintain adequate controls and procedures while executing, and subsequent to completing the other cost
reduction initiatives;
• diversion of management’s attention and resources from ongoing business activities and/or a decrease in employee
morale;
• attrition beyond any planned reduction in workforce; and
• damage to our reputation and brand image due to our restructuring-related activities, including certain store
closures.
The estimated costs and benefits associated with the Company's cost reduction initiatives may vary materially based on various
factors including: timing in execution, outcome of negotiations with landlords, and changes in management’s assumptions and
projections. Any delays and unexpected or higher than anticipated costs could result in our not realizing all, or any portion, of
the anticipated benefits of the cost reduction initiatives. As part of our cost-savings initiatives, we have reduced our headcount.
These reductions, as well as employee attrition, could result in the potential loss of specific knowledge relating to our Company,
operations and industry that could be difficult to replace. Also, we now operate with fewer employees, who have assumed additional
duties and responsibilities. These workforce changes may negatively impact communication, morale, management cohesiveness
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and decision-making, which could have an adverse impact on our business, operational results, financial position and cash flows.
If we are not successful in implementing and managing the cost reduction initiatives while continuing to invest in our business
growth, we may not be able to achieve targeted operating enhancements and/or cost reductions within the expected time frame or
at all, which could adversely impact our business, operational results, financial position and cash flows, and could also result in
the implementation of additional restructuring-related activities, which may be dilutive to our earnings in the short-term and present
incremental risks as discussed above.
Our stock price may continue to be volatile.
The Company’s stock price has experienced volatility over time and this volatility may continue, in part due to factors such as
those discussed in this Item 1A. Stock volatility may adversely affect stockholder confidence, as well as associate morale and
retention for those associates who receive equity grants as part of their compensation packages, which could have a material
adverse effect on our business, operational results, financial position and cash flows.
Additionally, future announcements or disclosures concerning us or any of our competitors, our strategic initiatives, our sales and
profitability, our financial condition, any delisting, any quarterly variations in actual or anticipated operating results or comparable
sales, any failure to meet analysts’ expectations and sales of large blocks of our stock, among other factors, could cause the market
price of our stock to decrease or fluctuate substantially. In addition, the stock market has experienced price and volume fluctuations
that have affected the market price of many retail and other stocks that are unrelated or disproportionate to the operating performance
of these companies.
Securities class action litigation has often been instituted against companies following periods of volatility in the overall market
and in the market price of a company’s securities. In June and July 2019, two purported securities law class actions were filed
against the Company and certain of our officers and directors alleging certain violations of federal securities laws based on, among
other things, purported materially false and misleading statements and omissions allegedly made by the Company. See the
information under Note 16 to the accompanying consolidated financial statements for more information. We deny the allegations
in the lawsuit and intend to defend ourselves vigorously. However, no assurance can be given that the results of these matters will
be favorable to us. In addition, we may be the target of securities-related litigation in the future, both related and unrelated to the
existing class action lawsuit. Such litigation could result in substantial costs, divert our management’s attention and resources and
have a material adverse effect on our business, operational results, financial position and cash flows. See below under “Our
business may be affected by other regulatory, administrative and litigation developments” for additional risks associated with
litigation against the Company.
We may be unable to successfully implement and optimize our omni-channel retail strategy and maintain a relevant and reliable
omni-channel experience for our customers.
One of our strategic priorities is to further develop and refine the omni-channel shopping experience for our customers through
the integration of our store and direct shopping channels. Our omni-channel initiatives include cross-channel logistics optimization
and exploring additional ways to develop an omni-channel shopping experience, including further direct channel integration, use
of advance analytics, customer personalization, the assessment and implementation of emerging technologies. These initiatives
involve significant investments in information technology systems, operational changes, and employee resources.
In addition, successful implementation of our omni-channel strategy is dependent on our ability to develop our direct channel
capabilities in conjunction with optimizing our physical store operations (through our fleet optimization program) and market
coverage, while maintaining profitability. The Company’s ability to optimize its store operations and market coverage requires
active management of its real estate portfolio in a manner that permits store sizes, layouts, locations and offerings to evolve by
brand over time. These efforts may involve the relocation or closing of existing stores or possibly the opening of additional stores,
which could potentially increase the cost of doing business and the risk that the Company’s business practices could result in
liabilities that could have a material effect on our business, operational results, financial position and cash flows.
In addition, our competitors are also investing in omni-channel programs, some of which may be more successful than our own.
If the implementation of our customer, direct, and omni-channel initiatives are not successful, or we do not realize our expected
return on our investment in these initiatives, we could experience a material adverse effect on our business, operational results,
financial position and cash flows.
We may be unable to maintain our brand image, engage new and existing customers or gain market share.
Our success is largely dependent on our ability to maintain, enhance and protect our brand image and reputation and our customers’
connections with our brands. Maintaining, promoting and growing our brands will depend largely on the success of our design,
14
merchandising and marketing efforts and our ability to provide a consistent, high-quality customer experience. In addition, our
success depends, in part, on our ability to keep existing customers, while engaging and attracting new customers to shop our
brands. Our business and results of operations could be adversely affected if we fail to achieve these objectives for any of our
brands. Failure to achieve consistent, positive performance at several of our brands simultaneously could have an adverse effect
on our sales and profitability.
Further, the use of social media by the Company and consumers has also increased the risk that the Company’s image and reputation
could be negatively impacted. The availability of information, reviews and opinions on social media is immediate, as is its impact.
The opportunity for dissemination of information, including inaccurate and inflammatory information and opinion, is nearly
infinite. Even if we react quickly and appropriately to negative social media about us or our brands, our reputation and customers’
perception of our brands could be negatively impacted. Damage to the brand image and reputation of the Company in any aspect
of its operations could have a material adverse effect on our business, operational results, financial position and cash flows.
Our business depends on effective marketing, advertising and promotional programs.
Customer traffic and demand for our merchandise is influenced by our advertising, marketing and promotional activities, the name
recognition and reputation of our brands, and the location of and service offered in our stores, in addition to many initiatives
focused on direct channel and mobile applications, including social media. Although we use marketing, advertising and promotional
programs to attract customers through various media, including social media, database marketing and print, if our competitors
increase their spending on marketing, advertising and promotional programs, if our marketing, advertising and promotional
expenses increase, if our programs become less effective than those of our competitors, or if we do not adequately leverage
technology and data analytic capabilities needed to generate concise and effective competitive insight, our business, operational
results, financial position and cash flows could be adversely impacted.
We depend on key personnel in order to support our existing business and future initiatives and may not be able to retain or replace
these employees, recruit additional qualified personnel or effectively manage succession.
In Fiscal 2019, the Company experienced a number of significant leadership changes, including appointing a new Chief Executive
Officer, a new Interim Executive Chair of the Board and a new Chief Financial Officer and the departures of our President and
Chief Operating Officer and Chief Human Resources Officer. Our success may be adversely impacted if we are not able to attract,
retain and develop talent and future leaders, including our senior executives and associates. Our senior executive team closely
supervises all major aspects of our business including the design, development, and procurement of merchandise; operation of
our information technology platforms, supply chain, and store network; development and retention of critical talent; and financial
planning, reporting and compliance. Our senior executive team has substantial experience and expertise in our retail business,
and serves an integral role in the growth and support of our brands. In addition, several of our strategic objectives and initiatives
require that we hire and/or develop associates with appropriate experience. If we were to lose the leadership of additional senior
executives or other personnel, our business could be adversely affected. In addition, if significant unexpected turnover occurs at
the associate level, the loss of the services of these individuals, or any resulting negative perceptions of our business, could damage
our reputation and our business. Competition for such qualified talent is intense, and we cannot be sure we will be able to find
suitable successors promptly, or at all, or to successfully integrate any successors, or that we will be able to attract, retain and
develop a sufficient number of qualified individuals in future periods.
We are dependent on our vendors and factors for credit to acquire merchandise, and any disruption in our supply of merchandise
would materially impact us.
Our business is dependent upon our ability to purchase merchandise at competitive terms through relationships with our vendors
and their factors, as applicable, and we depend on our vendors to provide financing on our purchases of merchandise. Any
significant change in vendor and factor financing or support could limit our ability to acquire desired merchandise at competitive
prices or payment terms. In addition, any insolvency of our vendors or their inability to access liquidity could lead to their failure
to deliver merchandise. Certain vendors finance their operations and reduce the risk associated with collecting accounts receivable
by selling or “factoring” the receivables or by purchasing credit insurance or other forms of protection from loss, and the ability
of vendors to do so is subject to the perceived credit quality of their customers. Our vendors’ ability to factor receivables or obtain
credit protection in the future because of our perceived financial position and creditworthiness could be limited, which could
reduce the availability of merchandise and increase the cost to us of the merchandise. Additionally, if we experience declining
operating performance or liquidity challenges, vendors and their factors may seek protection against non-payment, such as
accelerated payment terms, letters of credit and tighter limits on credit.
We have ongoing discussions with the vendor community and factors/third parties that offer various credit protection services to
our vendors concerning our liquidity and financial position, including discussions regarding pricing, payment terms and ongoing
15
business arrangements. As of the date of this report, we have not experienced any significant disruption in our access to merchandise
or our operations due to issues with our vendors. However, there can be no assurances that there will not be a disruption in the
future, and such circumstances could have a material adverse effect on our business, financial condition and results of operations.
We rely on foreign sources of production and other international service providers.
Our international operations subject us to additional risks which could have an adverse effect on our results of operations and may
impair our ability to operate effectively. We purchase nearly all of our merchandise from foreign sources, both directly in foreign
markets and indirectly through domestic vendors with foreign sources. Our ability to find qualified vendors and access products
in a timely and efficient manner is a significant challenge which is typically even more difficult for goods sourced outside the
United States.
Additionally, through outsourcing arrangements, we have engaged in efforts to reduce our costs by utilizing lower-cost labor
outside the U.S. in countries which may be subject to higher degrees of political and/or social instability than the U.S. and may
lack the infrastructure to withstand events that may disrupt their business. Such disruptions could impact our ability to deliver our
products and services on a timely basis, if at all, and to a lesser extent could decrease efficiency and increase our costs.
We face a variety of risks generally associated with doing business in and outsourcing certain services to foreign markets and
importing large quantities of merchandise from abroad, including, but not limited to:
• financial or political instability or terrorist acts in any of the countries in which we operate, outsource services or acquire
our merchandise, or through which our merchandise passes;
• new and additional U.S. government initiatives may be proposed or implemented that may have an impact on the
trading status of certain countries and may include retaliatory duties, tariffs or other trade sanctions that, if enacted,
could increase the cost of products purchased from suppliers in such countries or restrict the importation of products
from such countries;
• fluctuations in the value of the U.S. Dollar against foreign currencies or higher inflation rates in these countries, or
restrictions on the transfer of funds to and from foreign countries;
• inability of our manufacturers to comply with local laws, including labor laws, health and safety laws or labor
practices;
• increased security and regulatory requirements and inspections applicable to imported goods;
• enactment of tariffs, border adjustment taxes or increases in duties or quotas applicable to the merchandise we sell that
could increase the cost and reduce the supply of products available to us;
• impact of natural disasters, extreme weather, public health concerns or other catastrophes on our foreign sourcing
offices and vendor manufacturing operations;
• increased scrutiny in the U.S. of utilizing labor based in foreign countries;
• delays in shipping due to port security or congestion issues, labor disputes or shortages, local business practices, vendor
compliance with applicable import regulations or weather conditions;
• violations under the U.S. Foreign Corrupt Practices Act (the “FCPA”) or similar laws or regulations by us, our
subsidiaries or our local agents;
• the adoption of new legislation or regulations in the U.S. or foreign countries that make it more difficult, more costly
or impossible to continue our foreign activities;
• violation of applicable laws or regulations; and
• increased costs and/or capacities of transportation.
The future performance of our business depends on foreign suppliers and service providers, and may be adversely affected by the
factors listed above, most of which are beyond our control. The foregoing may impact our ability to deliver our products and
services on a timely basis, increase costs, negate or offset any cost reductions anticipated from operating outside the U.S., decrease
our efficiency or result in our inability to obtain sufficient quantities of merchandise.
We require our vendors, manufacturers and other service providers to operate in compliance with applicable laws and regulations,
including the FCPA and other anti-corruption laws, and our internal requirements. Our vendor code of conduct, guidelines and
other compliance programs promote ethical business practices, and we monitor compliance with them; however, we do not control
these vendors or manufacturers, their labor practices or business practices, the health and safety conditions of their facilities, or
their sources of raw materials, and from time to time these vendors, manufactures or other service providers may not be in
compliance with these standards or applicable laws. Significant or continuing noncompliance with such standards and laws by
one or more vendors, manufacturers or other service providers could have a negative impact on our reputation and our business,
and could subject us to liability in the form of substantial financial penalties, sanctions or otherwise.
16
Any of the aforementioned risks, independently or in combination with others, could have an adverse effect on our business,
operational results, financial position and cash flows.
Changes in U.S. trade policies, including the imposition of tariffs and a potential resulting trade war, could have a material adverse
impact on our business.
We source the majority of our merchandise from foreign countries, including Vietnam, Indonesia, China, India, Guatemala, Sri
Lanka and Bangladesh, making the price and availability of our merchandise susceptible to international trade risks and other
international conditions. In September 2018, the U.S. government implemented a 10% tariff on certain goods imported from China.
In May 2019, these tariffs were increased to 25% and in October 2019, these tariffs are scheduled to be increased to 30%. In
addition, the U.S. government has implemented tariffs on other goods from China. The imposition of such tariffs, or any future
tariffs, duties, border adjustment taxes or other trade restrictions by the United States could also result in the adoption of new or
increased tariffs or other trade restrictions by other countries. The tariffs may in the future cause us to further increase prices to
our customers which we believe may reduce demand for our products. Any such price increase may not be sufficient to fully offset
the impact of the tariffs and result in lowering our margin on products sold. In addition, the current U.S. administration has
indicated that it may withdraw the U.S. from the North American Free Trade Agreement (“NAFTA”) in order to encourage the
U.S. Congress to vote on the ratification of the United States-Mexico-Canada Agreement (“USMCA”) which was signed in 2018
and which is intended to be the successor to NAFTA. If the current administration increases or implements additional tariffs,
withdraws from NAFTA, the ratification and implementation of the USMCA is not completed promptly and effectively, or if
additional tariffs or trade restrictions are implemented by the U.S. or other countries, the resulting trade barriers could have a
significant adverse impact on our business. We are not able to predict future trade policy of the U.S. or of any foreign countries
in which we operate or purchase goods, or the terms of any renegotiated trade agreements, or their impact on our business. The
adoption and expansion of trade restrictions and tariffs, quotas and embargoes, the occurrence of a “trade war,” or other governmental
action related to tariffs or trade agreements or policies, has the potential to adversely impact demand for our products, our costs,
our customers, our suppliers and the world and U.S. economies, which in turn could have a material adverse effect on our business,
operational results, financial position and cash flows.
Our business could suffer as a result of a third-party manufacturer’s inability to produce goods for us on time and to our
specifications.
We do not own or operate any manufacturing facilities and therefore depend upon independent third-parties for the manufacture
of all of the goods that we sell. Both domestic and international manufacturers produce these goods. The Company is at risk for
increases in manufacturing costs, and we cannot be certain that we will not experience operational difficulties with these third-
party manufacturers, such as reductions in the availability of production capacity, errors in complying with merchandise
specifications, insufficient quality control and failure to meet production deadlines. In addition, we cannot predict the impact of
world-wide events, including inclement weather, natural or man-made disasters, public health issues, strikes, acts of terror or
political, social or economic conditions on our major suppliers. Our suppliers could also face economic pressures as a result of
rising wages and inflation or be affected by trade wars or increases in tariffs materially impacting their business or experience
difficulty obtaining adequate credit or access to liquidity to finance their operations, which could lead to vendor consolidation. A
manufacturer's inability to ship orders in a timely manner or to meet our cost, safety, quality and social compliance standards could
result in supply delays, shortages, failure to meet customer expectations and damage to our brands, which could have a material
adverse impact on our business, operational results, financial position and cash flows.
We rely upon independent third-party transportation providers for substantially all of our merchandise shipments.
We currently rely primarily on one independent third-party transportation provider for substantially all of our merchandise
shipments, including shipments to our stores and to the customer directly in the U.S., Canada and Puerto Rico through our direct
channel. Our use of third-party delivery services for shipments is subject to risks, including increased fuel prices, which would
increase our shipping costs, and employee strikes and inclement weather, which may impact a shipper’s ability to provide delivery
services that adequately meet our shipping needs. If we change shipping companies, we could face logistical difficulties that could
adversely impact deliveries and we would incur costs and expend resources in connection with such change. Moreover, we may
not be able to obtain terms as favorable as those received from the independent third-party transportation providers we currently
use, which could have a material adverse impact on our business, operational results, financial position and cash flows.
Our business could suffer a material adverse effect if our distribution or fulfillment centers were shut down, disrupted or fail to
operate efficiently.
We operate three distribution and fulfillment centers to manage the receipt, storage, sorting, packing and distribution of our
merchandise to the appropriate stores or to the customer directly through our direct channel. We depend in large part on the orderly
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operation of our receiving and distribution process, which depends, in turn, on adherence to shipping schedules, proper functioning
of our information technology and inventory control systems and overall effective management of our distribution and fulfillment
centers. As a result of damage to, or prolonged interruption of, operations at any of these facilities, or with respect to our third-
party transportation provider, due to a work stoppage, operations significantly below historical efficiency levels, supply chain
disruption, inclement weather, natural or man-made disasters, system failures, slowdowns or strikes, acts of terror or other
unforeseen events, we could incur significantly higher costs and longer lead times associated with distributing our products to our
stores or customers, which in turn could have a material adverse effect on our business, operational results, financial position and
cash flows. Refer to Item 2. Properties, for a listing of the distribution and fulfillment centers that we rely on.
Although we maintain business interruption and property insurance for these facilities, there can be no assurance that our insurance
coverage will be sufficient, or that insurance proceeds will be timely paid to us, if our distribution or fulfillment centers are shut
down or interrupted for any unplanned reason.
We also continue to explore ways to further optimize and leverage our integrated distribution network, which may include providing
distribution and fulfillment services to third-party retailers. Any disruption of our distribution and fulfillment capabilities would
also impact any third-party services we may provide in the future. There also can be no assurance that providing such distribution
and fulfillment services to third parties would be successful or profitable for us.
Risks associated with direct channel sales.
The successful operation of our direct channel business depends on our ability to maintain the efficient and continuous operation
of our websites and our associated fulfillment operations, and to provide a customer engaging shopping experience that will
generate orders and return visits to our websites. Our direct channel services are subject to numerous risks, including:
• system failures, including but not limited to, inadequate system capacity, human error, change in programming, website
downtimes, system upgrades or migrations, Internet service or power outages;
• cyber incidents, including but not limited to, security breaches and computer viruses;
• reliance on third-party computer hardware/software fulfillment and delivery providers;
• unfavorable federal or state regulations or laws;
• violations of federal, state or other applicable laws, including those related to online privacy;
• disruptions in telecommunication systems, power outages or other technical failures;
• ability to anticipate and implement innovations in technology and logistics;
• credit card fraud;
• constantly evolving technology;
• liability for online content;
• challenges associated with recreating the in-store experience for our customers through our direct channels; and
• natural or man-made disasters or adverse weather conditions.
Our failure to maintain efficient and uninterrupted order-taking and fulfillment operations or our failure to successfully address
and respond to any one or more of these risks could damage the reputation of our brands and have a material adverse effect on
our business, operational results, financial position and cash flows.
Our business could suffer if our information technology systems fail to operate effectively, are disrupted or are compromised.
Our success depends, in part, on the secure and uninterrupted performance of our existing information technology systems in
operating, supporting and monitoring all major aspects of our business, including sales (including stores and direct channel services),
warehousing, fulfillment, distribution, purchasing, inventory control, merchandise planning and replenishment, and financial
systems. We regularly evaluate and from time to time make investments to upgrade, enhance or replace these systems, including
those that relate to point-of-sale, direct channel, merchandising, planning, sourcing, logistics, inventory management and support
systems, which are utilized by our human resources, finance and other groups on a Company-wide basis, as well as leverage new
technologies to support our growth strategies. We are aware of inherent risks associated with operating, replacing and modifying
these systems, including inaccurate system information and system disruptions. We believe we are taking appropriate action to
mitigate the risks through testing, training, staging implementation and in-sourcing certain processes, as well as securing appropriate
commercial contracts with third-party vendors supplying such replacement and redundancy technologies; however, there is a risk
that information technology system disruptions and inaccurate system information, if not anticipated and/or appropriately mitigated,
could have a material adverse effect on our business, operational results, financial position and cash flows.
The reliability and capacity of our information technology systems (including third-party hardware and software systems or
services) are critical to our continued operations. Despite our precautionary efforts, our information technology systems, as well
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as those of our services providers, are vulnerable to damage or interruption from a variety of sources, including natural or man-
made disasters, technical malfunctions, inadequate systems capacity, power outages, computer viruses, malicious human acts,
security breaches and similar disruptive problems, which may require significant investment to fix or replace, and we may suffer
loss of critical data and interruptions or delays to our operations.
While we believe that we are diligent in selecting vendors, systems and services to assist us in maintaining the integrity of our
information technology systems, we realize that there are risks and that no assurance can be made that future disruptions, service
outages/failures or unauthorized intrusions will not occur. Certain of our information technology support functions are performed
by third-parties in overseas locations. Failure by any of these third-parties to implement and/or manage our information systems
and infrastructure effectively and securely could impact our operational results, financial position and cash flows.
We are subject to cybersecurity risks and other risks associated with data security breaches, credit card fraud and identity theft,
which may subject us to increased risk of liability and may cause us to incur increased expenses to mitigate our exposure or to
address any such incidents.
During the course of our business, we obtain and transmit confidential customer, employee, vendor and Company information
through our information technology systems, and we are subject to numerous laws, rules and regulations in the United States (both
federal and state) and foreign jurisdictions to protect both individual identifiable information as well as personal health information.
The protection of customer, employee, vendor and Company data is critical to our business. The regulatory environment
surrounding information security and privacy is demanding, with frequent changes in requirements and heightened public awareness
and scrutiny.
Our business and that of our third-party service providers employ systems and websites that allow us to process credit card
transactions containing personally identifiable information ("PII"), perform online direct channel and social media activities, and
store and transmit proprietary or confidential customer, employee, job applicant and other personal confidential information, as
well as the information of our vendors and suppliers. Security and/or privacy breaches, acts of vandalism or terror, computer
viruses, misplaced or lost data, programming and/or human error or other similar events could expose us to a risk of loss or misuse
of this information, reputational harm, litigation and potential liability. Because the techniques used to obtain unauthorized access
to our systems are constantly changing and becoming increasingly more sophisticated and often are not recognized until launched
against a target, we or our third-party service providers may not be able to anticipate these techniques or implement sufficient
preventative measures. We may not have the resources or technical sophistication to anticipate or prevent rapidly evolving types
of cyber-attacks or intrusions. We, our customers and our third-party service providers face an evolving threat landscape in which
cybercriminals, among others, employ a complex array of techniques designed to access PII and other information, including for
example, the use of fraudulent or stolen access credentials, malware, ransomware, phishing, denial of service and other types of
attacks. These types of cyber-attacks are becoming more prevalent, have occurred in our systems in the past, and may occur in
our systems in the future. While we have implemented and intend to continue to implement what we believe to be appropriate
cyber practices and cyber security systems and controls, these systems may prove to be inadequate and result in the disruption,
failure, misappropriation or corruption of our systems and infrastructure. Actual or anticipated attacks may cause us to incur
significant and additional costs, including, but not limited to the costs to deploy additional personnel and protection technologies,
train employees, engage third-party experts and consultants and compliance costs associated with various applicable laws or
industry standards regarding use and/or unauthorized disclosure of PII. We may also incur significant remediation costs, including
liability for stolen customer, job applicant or employee information, repairing system damage or providing credit monitoring or
other benefits to affected customers, job applicants or employees. Advances in computer capabilities, new technological discoveries
or other developments may result in the technology used by us to protect transaction or other data becoming obsolete.
In addition, data and security breaches can also occur as a result of non-technical issues, including breaches by us or by our third-
party service providers that result in the unauthorized release of personal or confidential information, employee error or malfeasance,
faulty password management or other irregularities that may result in a defeat of our or our third-party providers’ security measures.
We are also exposed to risks and costs associated with customer payment methods, including credit card fraud and identify theft,
which may cause us to incur unexpected expenses and loss of revenues.
Although we maintain cyber security insurance, there can be no assurance that our insurance coverage will cover the particular
cyber incident at issue or that such coverage will be sufficient, or that insurance proceeds will be paid to us in a timely manner.
The protection of customer, employee and Company PII and other data is critical, and our customers have a high expectation that
we will adequately protect their personal information. Any actual or perceived misappropriation, unauthorized disclosure or breach
involving this data could attract negative media attention, cause substantial harm to our reputation or brand and result in significant
liability (including but not limited to mandatory notifications, fines, substantial penalties or lawsuits), any of which could have a
material adverse effect on our business, operational results, financial position and cash flows.
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As we transition certain Human Resources and Finance functions to an externally managed service provider, we will become more
dependent on the third-party performing these functions.
As part of our long-term strategy, we look for opportunities to cost-effectively enhance the capability of our business services. In
some cases, this requires that we outsource certain services and/or functions to external third-party providers, as more fully
described in Note 6 to the accompanying consolidated financial statements. While we believe we conduct appropriate due diligence
before entering into agreements with these third parties, the failure of any of these third parties to provide the expected services
on a timely basis, at the level of quality expected, or at the prices/savings expected could disrupt or harm our business. Any
significant interruption in the operations of these service providers, over which we have no control, could also have an adverse
effect on our business. Furthermore, we may be unable to provide these services or implement substitute arrangements on a timely
or cost-effective basis on terms favorable to us.
Any further impairment to the carrying value of our goodwill or other intangible assets could result in significant non-cash charges
and could have a material adverse effect on our operational results.
Under generally accepted accounting principles, identifiable intangible assets with an indefinite useful life, including goodwill,
are not amortized, but are evaluated annually for impairment. A more frequent evaluation is performed if events or circumstances
indicate that impairment could have occurred. As of August 3, 2019, we had approximately $590 million of goodwill and other
intangible assets related to the acquisitions of Justice in November 2009, Lane Bryant and Catherines in June 2012 and ANN
in August 2015. Current and future economic conditions, as well as the other risks noted in this Item 1A, may adversely impact
our brands' ability to attract new customers, retain existing customers, maintain sales volumes and maintain margins. As discussed
in our Critical Accounting Policies included elsewhere in this report, these events could materially reduce our brands' profitability
and cash flows which could, in turn, lead to a further impairment of our goodwill and other intangible assets. Furthermore, significant
negative industry or general economic trends, disruptions to our business and unexpected significant changes or planned changes
in our use of the assets may result in additional impairments to our goodwill, intangible assets and other long-lived assets.
Additionally, declines in our stock price, or the fair value of our term loan debt, could also be deemed to be triggering events,
which would require an evaluation of goodwill and intangible assets. As described in Note 5 to the accompanying consolidated
financial statements included herein, in Fiscal 2019 and Fiscal 2017, we recorded impairment charges of $276.0 million and $596.3
million, respectively, related to goodwill and $134.9 million and $728.1 million, respectively, related to other intangible assets.
No impairments related to goodwill and other intangible assets were recorded in Fiscal 2018. There can be no assurance that we
will not experience further impairment charges with respect to goodwill or other intangible assets in future periods. Any future
impairment could have a material adverse effect on our operational results.
We may be unable to protect our trademarks and other intellectual property rights.
We believe that our core trademarks and service marks, as described in Item 1. Business, are essential to our success and our
competitive position due to their name recognition with our customers. We devote substantial resources to the establishment and
protection of our trademarks and service marks on a worldwide basis, including in the countries in which we have business
operations or plan to have business operations. Because we have not registered all of our trademarks in all categories, or in all
foreign countries in which we currently, or may in the future, source or offer our merchandise, our international expansion and
our merchandising of products using these marks could be negatively impacted. We are not aware of any material claims of
infringement or material challenges to our right to use any of our trademarks in the United States or Canada. Nevertheless, the
actions we have taken, including to establish and protect our trademarks and service marks, may not be adequate to prevent others
from imitating our products or to prevent others from seeking to block sales of our products, which could be detrimental to the
image of our brands. Also, others may assert proprietary rights in our intellectual property and we may not be able to successfully
resolve these types of conflicts to our satisfaction. In addition, the laws of certain foreign countries may not protect our proprietary
rights to the same extent as do the laws of the United States. Any litigation regarding our trademarks could be time-consuming
and costly. The loss of exclusive use of our trademarks could have a material adverse effect on our business, operational results,
financial position and cash flows.
We may suffer negative publicity and our business may be harmed if we need to recall any product we sell or if we fail to comply
with applicable product safety laws.
The products our brands sell are regulated by many different governmental bodies, including but not limited to the Consumer
Product Safety Commission and the Food and Drug Administration in the U.S., Health Canada in Canada, and similar state,
provincial and foreign regulatory authorities. Although our practice is to test (or have our suppliers test) the products sold in our
brands’ stores and on our brands’ websites for compliance with applicable mandatory and industry standards, selected products
still could present safety problems of which our brands are not aware. This could lead one or more of our brands to recall selected
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products, either voluntarily or at the direction of a governmental authority, and may lead to a lack of consumer acceptance or loss
of consumer trust. Product safety concerns, non-compliance with standards, recalls, defects or errors could result in the rejection
of our products by customers, significant damage to our reputation, lost sales, product liability litigation and increased costs, any
or all of which could harm our business and have a material adverse effect on our financial position, operational results and cash
flows.
The cost of compliance with current and future requirements of federal, state or foreign regulatory authorities could have a material
adverse effect on our financial position, operational results and cash flows. Examples of these requirements include regulatory
testing, certification, packaging, labeling, advertising and reporting requirements affecting broad categories of consumer
products. In addition, any failure of one or more of our brands to comply with such requirements could result in significant penalties,
require one or more of our brands to recall products and harm our reputation, any or all of which could have a material adverse
effect on our business, operational results, financial position and cash flows.
We depend on strip shopping center and mall traffic and our ability to identify suitable store locations.
Our ability to effectively obtain store locations depends on the availability of real estate that meets our criteria for consumer traffic,
square footage, co-tenancies, lease economics, demographics, and other factors. Many of our stores are located in strip shopping
centers, shopping malls and other retail centers that, historically, have benefited from their proximity to “anchor” retail tenants,
generally large department stores, and other attractions, which generate consumer traffic in the vicinity of our stores. Strip shopping
center and mall traffic may be adversely affected by, among other things, economic downturns, the closing of, or continued decline
of, anchor stores that drive consumer traffic or changes in customer shopping preferences. There has been a decline in the popularity
of strip shopping center or mall shopping among our target customers, and a continuation of such decline could have a material
adverse effect on customer traffic and our operational results. In order to leverage customer traffic and the shopping preferences
of our customers, we need to maintain or acquire stores in desirable consumer locations, however competition for such suitable
store locations is intense.
In addition, continued consolidation in the commercial retail real estate market could affect our ability to seek to downsize,
consolidate, reposition, relocate, or close some of our stores. Several large landlords dominate ownership of prime retail real estate
and should significant consolidation continue, a large portion of our store base could be concentrated with one or a few landlords
that could then be in a position to dictate unfavorable terms to us due to their significant negotiating leverage. If we are unable to
negotiate favorable lease terms with these landlords, this could affect our ability to profitably operate our stores, which in turn
could have a material adverse effect on our business, operational results, financial condition and cash flows.
Capital Risks
We have incurred significant indebtedness with significant payment obligations in connection with the ANN INC. acquisition,
which could adversely affect us.
We substantially increased our indebtedness in connection with the acquisition of ANN (the "ANN Acquisition") as described in
Note 10 to the accompanying consolidated financial statements, which could have the effect, among other things, of reducing our
flexibility to respond to changing business and economic conditions and further increasing our interest expense. We also incurred
various costs and expenses associated with our financings. The amount of cash flows required to pay interest on our indebtedness,
and thus the demands on our cash resources, may reduce funds available for working capital, capital expenditures, acquisitions
and other general corporate purposes and may create competitive disadvantages for us relative to other companies with lower debt
levels. If we do not achieve the expected benefits and cost reductions from the acquisition or from our cost reduction initiatives,
or if our financial and operating performance does not meet expectations, our ability to service our indebtedness may be adversely
impacted.
Our indebtedness bears interest at variable interest rates. If interest rates increase, variable rate debt will create higher debt service
requirements, which could adversely affect our operational results and cash flows. In March 2019, we entered into an interest rate
swap designed to mitigate some of the risk associated with our variable rate debt. Refer to Item 7 "Interest Rate Risk Management"
for more information.
In addition, our credit ratings affect the cost and availability of future borrowings and, accordingly, our cost of capital. Our ratings
reflect each rating organization’s opinion of our financial strength, operating performance and ability to meet our debt obligations.
In connection with the debt financing, we received ratings from S&P and Moody’s. There can be no assurance that we will maintain
particular ratings, or that we will not be subject to further downgrades, in the future.
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To service our indebtedness, and to fund capital expenditures and other initiatives, we will require a significant amount of cash
and our ability to generate cash depends on many factors beyond our control.
We currently have substantial indebtedness. Our ability to make cash payments on our indebtedness, as well as our ability to fund
planned capital expenditures and operating or strategic initiatives, will depend on our ability to generate significant operating cash
flows in the future, which is, to a significant extent, subject to general economic, financial, competitive, legislative, regulatory
and other factors that are beyond our control, as well as the successful execution of our transformational initiatives.
Our business may not generate sufficient cash flows from operations to enable us to pay our indebtedness or fund our other liquidity
needs. In any such circumstance, we may need to refinance all or a portion of our indebtedness, on or before maturity, or incur
additional debt subject to the restrictions of our borrowing agreements. We may not be able to refinance any indebtedness or incur
additional debt on commercially reasonable terms or at all. If we cannot service our indebtedness or incur additional debt, we may
have to take actions such as selling assets, seeking additional equity or reducing or delaying capital expenditures, strategic
acquisitions and investments. Any such action, if necessary, may not be effected on commercially reasonable terms, within the
timing needed, or at all. The instruments governing our indebtedness may restrict our ability to sell assets and our use of the
proceeds from such sales.
If we are unable to generate sufficient cash flows or are otherwise unable to obtain funds necessary to meet required payments of
principal and interest on our indebtedness, we could be in default under the terms of the agreements governing such indebtedness.
In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due
and payable, together with accrued and unpaid interest, and the lenders under the term facility, the revolving facility and other
indebtedness, or any replacement facilities in respect thereof, could elect to terminate their commitments thereunder, cease making
further loans and institute foreclosure proceedings against the Company’s assets, and we could be forced into bankruptcy or
liquidation.
Our amended revolving credit agreement and our term loan contain various covenants that impose restrictions on the Company
and certain of its subsidiaries that may affect their ability to operate their businesses.
The amended revolving credit agreement and the term loan contain various affirmative and negative covenants that, subject to
certain exceptions, restrict the ability of the Company and certain of its subsidiaries to, among other things, incur debt, have liens
on their property, change the nature of their business, transact business with affiliates and/or merge or consolidate with any other
person or sell or convey certain of their assets to any one person and also, under certain conditions, restrict our ability to pay
dividends, repurchase common shares and make other restricted payments as defined in our borrowing agreements. In addition,
the amended revolving credit agreement contains a financial covenant that, under certain circumstances, will require the Company
to maintain compliance with certain financial ratios. The ability of the Company and its subsidiaries to comply with these provisions
may be affected by our operating results as well as events beyond our control. Failure to comply with these covenants could result
in an event of default, which, if not cured or waived, would give our lenders thereunder the ability to accelerate the Company’s
repayment obligations and exercise other remedies.
A further downgrade in our credit rating could negatively impact our cost of and ability to access capital and could increase
interest expense.
We receive credit ratings from the major credit rating agencies in the United States, which periodically review our capital structure
and the quality and stability of our earnings. Our credit ratings may be impacted by certain factors, including debt levels, planned
asset purchases or sales, near-term and long-term growth opportunities, liquidity, asset quality, cost structure, and product mix. In
Fiscal 2019, the credit rating on certain of our outstanding debt instruments was downgraded and further downgrades may occur
in the future. A deterioration in our capital structure or the quality and stability of our earnings could result in a further downgrade
of our credit rating. Negative ratings actions could constrain the capital available to us or our industry, could limit our ability to
access capital required to fund our operations at rates and on terms we determine to be attractive, or at all, and could likely cause
our interest rates to increase. If our ability to access capital becomes constrained, it could negatively impact the Company's business,
operational results, financial position and cash flows. Additionally, further changes to our credit rating could affect our future
interest costs.
We may be adversely affected by changes in LIBOR reporting practices or the method in which LIBOR is determined.
As of August 3, 2019 we had outstanding approximately $1,371.5 million of variable debt that is indexed to the London Interbank
Offered Rate (“LIBOR”). On July 27, 2017, the Financial Conduct Authority (the “FCA”) announced its intention to phase out
LIBOR rates by the end of 2021. It is unclear whether LIBOR will cease to exist or if new methods of calculating LIBOR will be
established such that it continues to exist after 2021, or whether any alternative reference rate will attain market acceptance as a
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replacement for LIBOR. It is not possible to predict the further effect of the rules of the FCA, any changes in the methods by
which LIBOR is determined or any other reforms to LIBOR that may be enacted in the United Kingdom, the European Union or
elsewhere. Any such developments may cause LIBOR to perform differently than in the past, or cease to exist. In addition, any
other legal or regulatory changes made by the FCA, the European Commission or any other successor governance or oversight
body, or future changes adopted by such body, in the method by which LIBOR is determined or the change from LIBOR to a
successor benchmark may result in, among other things, a sudden or prolonged increase or decrease in LIBOR, a delay in the
publication of LIBOR, and changes in the rules or methodologies in LIBOR, which may discourage market participants from
continuing to administer or to participate in LIBOR’s determination, and, in certain situations, could result in LIBOR no longer
being determined and published. If a published U.S. dollar LIBOR rate is unavailable after 2021, the interest rates on our debt
which are indexed to LIBOR will be determined using an alternative method, which may result in interest obligations which are
more than or do not otherwise correlate over time with the payments that would have been made on such debt if U.S. dollar LIBOR
was available in its current form. Further, the same costs and risks that may lead to the discontinuation or unavailability of U.S.
dollar LIBOR may make one or more of the alternative methods impossible or impracticable to determine. Any of these proposals
or consequences could have a material adverse effect on our financing costs.
Our inability to access the credit or capital markets could adversely affect the Company's business, operational results, financial
position or cash flows.
Changes in the credit and capital markets, including market disruptions, limited liquidity and interest rate fluctuations, may increase
the cost of financing or restrict the Company’s access to potential sources of future liquidity. As a result of general unpredictability
in the global financial markets, there can be no assurance that our liquidity will not be affected or that our capital resources will
at all times be sufficient to satisfy our liquidity needs. Although we believe that our existing cash and cash equivalents, cash
provided by operations, and our availability under our amended revolving credit agreement, will be adequate to satisfy our capital
needs for at least the next twelve months, any renewed tightening of the credit or capital markets could make it more difficult for
us to access funds, enter into an agreement for new indebtedness or obtain funding through the issuance of our securities. Our
borrowing agreements also have financial convents and certain restrictions which, if not met, may limit our ability to access funds.
In addition, we also have cash and cash equivalents on deposit at overseas financial institutions as well as at FDIC-insured financial
institutions that are currently in excess of FDIC-insured limits. As a result, we cannot be assured that we can access the cash and
cash equivalents overseas when we are in need of liquidity, or that we will not experience losses with respect to cash on deposit
at these financial institutions.
Legal and Regulatory Risks
Our inability to comply with the continued listing requirements of the Nasdaq Global Select Stock Market could result in our
common stock being delisted, which would adversely affect the market price and liquidity of our securities and could have other
material adverse effects.
On July 29, 2019, we received a letter from the Listing Qualifications staff of Nasdaq (the “Notification Letter”), indicating that,
based upon the closing bid price of the Company’s common stock for the last 30 consecutive business days, the Company no
longer meets the requirement of the Nasdaq Global Select Market to maintain a minimum bid price of $1 per share, as set forth
in Nasdaq Listing Rule 5450(a)(1).
The Notification Letter does not impact our listing on The Nasdaq Global Select Market at this time. In accordance with Nasdaq
Listing Rule 5810(c)(3)(A), we have been provided a period of 180 calendar days, or until January 27, 2020, in which to regain
compliance. In order to regain compliance with the minimum bid price requirement, the closing bid price of our common stock
must be at least $1 per share for a minimum of ten consecutive business days during this 180-day period. In the event that we do
not regain compliance within this 180-day period, we may be eligible to transfer to the Nasdaq Capital Market and seek an additional
compliance period of 180 calendar days if we (i) meet the continued listing requirement for market value of publicly held shares
and all other initial listing standards for the Nasdaq Capital Market, with the exception of the bid price requirement, and (ii) provide
written notice to Nasdaq of our intent to cure the deficiency during this second compliance period, including by effecting a reverse
stock split, if necessary. However, if it appears to the Nasdaq staff that we will not be able to cure the deficiency, or if we are
otherwise not eligible, Nasdaq will provide notice to us that we will not be eligible for the additional compliance period and our
common stock will be subject to delisting. We would then be entitled to appeal the determination to a Nasdaq Listing Qualification
Panel and request a hearing. We are considering our available options to regain compliance, including whether to effect a reverse
stock split. There can be no assurance that we will be able to regain compliance with the minimum bid price requirement or
maintain compliance with the other Nasdaq listing requirements. If we do not regain compliance with Nasdaq continuing listing
requirements, our common stock will be delisted from the Nasdaq Global Select Market (or Nasdaq Capital Market, if applicable)
and it could be more difficult to buy or sell our securities and to obtain accurate quotations, and the price of our common stock
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could suffer a material decline. In addition, a delisting would impair our ability to raise capital through the public markets, could
deter broker-dealers from making a market in or otherwise seeking or generating interest in our securities and might deter certain
institutions and persons from investing in our securities at all, any of which could have a significant negative impact on our
business, operational results, financial position and cash flows.
Fluctuations in our tax obligations and effective tax rate may result in volatility in our results of operations.
We are subject to income taxes in many U.S. and foreign jurisdictions. In addition, our products are subject to import and excise
duties and/or sales, consumption or value-added taxes (“VAT”) in many jurisdictions. We record tax expense based on our estimates
of future payments, which include reserves for estimates of probable settlements of foreign and domestic tax audits. At any one
time, many tax years are subject to audit by various taxing jurisdictions. The results of these audits and negotiations with taxing
authorities may affect the ultimate settlement of these issues. As a result, we expect that throughout the year there could be ongoing
variability in our quarterly tax rates as taxable events occur and exposures are evaluated. In addition, our effective tax rate in any
given financial reporting period may be materially impacted by changes in the mix and level of earnings or losses by taxing
jurisdictions or by changes to existing accounting rules or regulations. Fluctuations in duties could also have a material impact on
our financial condition, results of operations or cash flows. In some international markets, we are required to hold and submit VAT
to the appropriate local tax authorities. Failure to correctly calculate or submit the appropriate amounts could subject us to substantial
fines and penalties that could have an adverse effect on our financial condition, results of operations or cash flows. In addition,
tax law may be enacted in the future, domestically or abroad, that impacts our current or future tax structure and effective tax rate.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law. The Act made broad and significantly
complex changes to the U.S. corporate income tax system. Given the complexities associated with the Act, the estimated financial
impact for Fiscal 2018 was provisional and subject to further analysis, interpretation and clarification. In addition, the U.S. Treasury
Department, the Internal Revenue Service and other standard-setting bodies could interpret or issue guidance in the future on how
provisions of the Act will be applied or otherwise administered that differs from our interpretations and could result in changes
to our assessment. SEC Staff Accounting Bulletin No. 118 (“SAB 118”) requires that the Company finalize its estimate of the
impact of the Act by December 22, 2018. In the second quarter of Fiscal 2019, we finalized our assessment of the impact of the
Act taking into account the published guidance and recorded the additional cost in the quarter. Refer to Note 15 to the accompanying
consolidated financial statements for further discussion.
In June 2018, the U.S. Supreme Court ruled that states and local jurisdictions may require remote vendors to collect and remit
sales tax on goods sold to buyers in the state, even if the seller has no physical presence in the state. A number of states have
already begun, or have prepared to begin, requiring sales and use tax collection by remote vendors and/or by online marketplaces.
The details and effective dates of these collection requirements vary from state to state. We are in the process of determining how
and when our collection practices will need to change in certain jurisdictions. In the event we are required to collect taxes where
we presently do not do so, or to collect more taxes in a jurisdiction in which we currently do collect taxes, we could incur significant
tax liabilities, including taxes on past sales, penalties and interest, which could negatively affect the Company's business, operational
results, financial position and cash flows.
Our business may be affected by other regulatory, administrative and litigation developments.
Laws and regulations at the local, state, federal and international levels frequently change, and the ultimate cost of compliance
cannot be reasonably estimated. In addition, we cannot predict the impact that may result from regulatory or administrative changes.
Changes in regulations, the imposition of additional regulations, or the enactment of any new or more stringent legislation that
impacts employment and labor, trade, advertising and marketing practices, product safety, transportation and logistics, healthcare,
tax, accounting, privacy, operations or environmental issues, among others, could have an adverse impact on our business,
operational results, financial position and cash flows.
While it is our policy and practice to comply with all legal and regulatory requirements and our procedures and internal controls
are designed to promote such compliance, we cannot assure that all of our operations will at all times comply with all such legal
and regulatory requirements. A finding that we or our vendors or agents are out of compliance with applicable laws and regulations
could subject us to civil remedies or criminal sanctions, which could have a material adverse effect on our business, operational
results, financial position and cash flows. In addition, even the claim of a violation of applicable laws or regulations could
negatively affect our reputation.
We are also involved from time to time in litigation, claims and assessments arising primarily in the ordinary course of business.
Litigation matters may include, among other things, employment, commercial, intellectual property, advertising or stockholder
claims, and any adverse decision in any such litigation or disputes could adversely impact our business, operational results, financial
position and cash flows. Resolution of these matters can be prolonged and costly, and the ultimate resolutions are uncertain due
to the inherent uncertainty in such proceedings. Moreover, our potential liabilities are subject to change over time due to new
24
developments, changes in settlement strategy or the impact of evidentiary requirements. While we maintain insurance for certain
risks, it is not possible to obtain insurance to protect against all our operational risks and liabilities. Accordingly, in certain instances,
we may become subject to or be required to pay damage awards or settlements that could have a material adverse effect on our
results of operations, financial position, and cash flows. Certain of these proceedings could also have a negative impact on the
Company's reputation or relations with its employees, customers or other third parties.
Regulation in the areas of privacy, data protection and information security could increase our costs and affect or limit our business
opportunities and how we collect and/or use data.
As privacy, data protection and information security laws, including data localization laws, are interpreted and applied, compliance
costs may increase, particularly in the context of providing adequate data protection and adequate data transfer mechanisms and
addressing consumer rights to access and delete data. The United States, other countries in which we operate, and various states
and other local jurisdictions are increasingly adopting or revising privacy, data protection and information security laws that could
have significant impact on our current and planned data and information security-related practices, our collection, use, sharing,
retention and safeguarding of customer and/or employee information, and some of our current or future business plans. New
legislation or regulation, and the interpretation and application of existing laws and regulations, could increase our costs of
compliance, technology and business operations, and could reduce revenues from certain business initiatives. Moreover, the
application of existing or new laws to existing technology and practices can be uncertain and may lead to additional compliance
risk and cost.
In recent years, there has been increasing regulatory enforcement and litigation activity in the area of privacy, data protection and
information security in the United States and in various other countries in which we operate. Any failure to comply with privacy,
data protection and information security laws could result in potentially significant regulatory and/or governmental investigations
and/or actions, litigation, fines, sanctions, ongoing regulatory monitoring, increased reporting of compliance and security breaches,
a mandated chief privacy officer or other structural changes to the organization, or other compliance requirements, and/or customer
attrition, any of which could have a material adverse impact on our business, operational results, financial position and cash flows.
In 2016, the European Union (“EU”) adopted a comprehensive overhaul of its data protection regime from the current national
legislative approach to a single European Economic Area Privacy Regulation, the General Data Protection Regulation ("GDPR"),
which went into effect on May 25, 2018. The GDPR generally expands the scope of EU data protection law to foreign companies
processing personal data of EU residents and imposes a strict data protection compliance regime, including new security breach
notice obligations, with significant monetary penalties. There remain significant questions about the precise scope and application
of the GDPR and the proposed EU ePrivacy Regulation that may affect our online marketing practices. Development,
implementation, modification, and maintenance of compliance protocols for the GDPR and similar emerging and changing privacy
and data protection requirements may cause us to incur substantial costs and may require us to change our business practices,
which could have a material adverse impact on our business, operational results, financial position and cash flows.
In 2018, the state of California enacted the California Consumer Privacy Act (the “CCPA”), which provides significant rights to
California consumers and greatly increases legally-mandated compliance obligations on companies, including providing consumers
with access, deletion and opt-out rights. Complying with the CCPA and similar emerging and changing regulation by other states
or the federal government may cause us to incur substantial costs and may require us to change our business practices, which
could have a material adverse impact on our business, operational results, financial position and cash flows.
Increases in labor costs related to changes in employment laws or regulations could impact our business, operational results,
financial position and cash flows.
Various foreign and domestic labor laws govern our relationship with our employees and affect our operating costs. These include
minimum wage requirements, overtime and sick pay, paid time off, work scheduling, healthcare reform and the Patient Protection
and Affordable Care Act (“ACA”), unemployment tax rates, workers’ compensation rates, and union organizations. A number of
factors could adversely affect our operating costs, including additional government-imposed increases in minimum wages, overtime
and sick pay, paid leaves of absence and mandated health benefits, and changing regulations from the National Labor Relations
Board or other agencies. Additionally, recent political changes could lead to the repeal of, or changes to, some or all of the ACA.
Complying with any new legislation and/or reversing changes implemented under the ACA could be time-intensive and expensive
and could have a material adverse impact on our business, operational results, financial position and cash flows.
Failure to comply with Section 404 of the Sarbanes-Oxley Act of 2002 could negatively impact our business, the price of our
common stock and market confidence in our reported financial information.
25
We must continue to document, test, monitor and enhance our internal control over financial reporting in order to satisfy the
requirements of Section 404 of the Sarbanes-Oxley Act of 2002. We cannot be assured that our disclosure controls and procedures
and our internal control over financial reporting required under Section 404 of the Sarbanes-Oxley Act will prove to be adequate
in the future. Any failure to maintain the effectiveness of our disclosure controls or our internal control over financial reporting
or to comply with the requirements of the Sarbanes-Oxley Act could have a material adverse impact on our business, operational
results, financial position and cash flows.
Changes to accounting rules and regulations may adversely affect our operational results, financial position and cash flows.
Generally accepted accounting principles and related accounting pronouncements, implementation guidelines and interpretations
with regards to a wide range of matters that are relevant to our business, including but not limited to revenue recognition, leases,
impairment of goodwill and intangible assets, inventory, income taxes and litigation, are highly complex and involve many
subjective assumptions, estimates and judgments. Changes in these rules or their interpretation or changes in underlying
assumptions, estimates or judgments could significantly change or increase volatility of our reported or expected financial
performance or financial condition. Refer to Note 4 to the accompanying consolidated financial statements and “Critical Accounting
Policies” included herein which discuss accounting policies considered to be important to our operational results and financial
condition. These and other future changes to accounting rules or regulations could have an adverse impact on our business,
operational results, financial position and cash flows.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Retail Store Space
We lease space for all our retail store locations. Terms of our new store leases vary and may have an initial term of up to ten years,
although certain leases are cancelable if specified sales levels are not achieved or co-tenancy requirements are not being satisfied,
providing us greater flexibility to close under-performing stores. Over half of our leases have terms that either expire, or have
upcoming lease action dates available to us within the next two years, which provides us the opportunity to aggressively negotiate
new lease terms while continuing to shorten our overall portfolio average lease life.
The table below, covering all open store locations leased by us on August 3, 2019, indicates the number of leases expiring during
the period indicated and the number of expiring leases with and without renewal options:
Fiscal Years
2020
2021
2022
2023
2024
2025 and thereafter
Total
Leases Expiring
861
684
581
455
334
530
3,445
Number with
Renewal Options
106
274
193
192
128
228
1,121
Number without
Renewal Options
755
410
388
263
206
302
2,324
Our store leases generally provide for a base rent per square foot per annum. Certain leases have formulas requiring the payment
of additional rent as a percentage of sales, generally when sales reach specified levels. Our aggregate minimum lease payments
under operating leases in effect at August 3, 2019 and excluding locations acquired after August 3, 2019, are approximately $462.0
million for Fiscal 2020. In addition, we are typically responsible under our store leases for our pro rata share of maintenance
expenses and common area charges in strip shopping centers, lifestyle centers, outlet centers and enclosed malls.
Our investment in new stores consists primarily of inventory, leasehold improvements, fixtures and equipment, and information
technology. We generally receive tenant improvement allowances from landlords to offset a portion of these initial investments
in leasehold improvements.
26
Corporate Office Space
The Company owns the following facilities:
•
•
•
•
a 280,000 square foot campus which serves as the corporate office for the Justice brand, located in New Albany, Ohio;
a 202,000 square foot campus which serves as the corporate office for the Dressbarn brand and for ascena located in
Mahwah, NJ;
a 200,000 square foot building in Duluth, Minnesota, the majority of which is subject to a lease to maurices which, as
discussed earlier, was sold in May 2019. The building also serves as the corporate office for a portion of the Company's
brand services operations; and
a 168,000 square foot building which serves as the corporate office for the majority of the Company's brand services
operations, located in Etna Township, Ohio, adjacent to our distribution center.
The Company acquired leased corporate office facilities of approximately 308,000 square feet in New York City, NY and
approximately 42,000 square feet in Milford, CT through the ANN Acquisition. The Company also leases approximately 135,000
square feet in Columbus, Ohio that serves as Lane Bryant’s and Catherines corporate headquarters.
Internationally, the Company owns and leases office space in China, and leases office space in South Korea, India and Bangladesh.
Distribution and Fulfillment Facilities
The Company owns a 903,000 square foot fulfillment center in Greencastle, Indiana, which serves as the Company's primary
direct channel fulfillment center, and a 695,000 square foot distribution center in Etna Township, Ohio, which serves as the
Company's primary brick-and-mortar store distribution center. The Etna facility also is used to fulfill direct channel orders.
In Fiscal 2016, the Company entered into a ten-year lease for a 583,000 square foot distribution center in Riverside, California to
serve as the receiving and west coast distribution hub for the Company's merchandise sourced from Asia. The Riverside facility
began operations in March 2017 and operates as a multichannel distribution facility.
Item 3. Legal Proceedings.
Information regarding legal proceedings is incorporated by reference from Note 16 to the accompanying consolidated financial
statements.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Prices of Common Stock
The common stock of Ascena Retail Group, Inc. is quoted on the Nasdaq Global Select Market under the ticker symbol “ASNA.”
The table below sets forth the high and low prices as reported on the Nasdaq Global Select Market for the last eight fiscal quarters.
Fiscal
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Number of Holders of Record
Fiscal 2019
Fiscal 2018
High
$5.29
$4.55
$2.73
$1.50
Low
$3.46
$2.25
$0.97
$0.31
High
$2.67
$2.69
$2.50
$4.74
Low
$1.69
$1.85
$1.79
$2.01
As of October 8, 2019, we had approximately 4,297 holders of record of our common stock.
27
Dividend Policy
We have never declared or paid cash dividends on our common stock. However, payment of dividends is within the discretion of,
and are payable only when declared by our Board of Directors. Additionally, payments of dividends are limited by our borrowing
arrangements as described in Note 10 to the accompanying consolidated financial statements.
Performance Graph
The following graph illustrates, for the period from July 27, 2014 through August 3, 2019, the cumulative total shareholder return
of $100 invested (assuming that all dividends, if any, were reinvested) in (1) our common stock, (2) the S&P Composite-500 Stock
Index and (3) the S&P Specialty Apparel Retailers Index.
The comparisons in this table are required by the rules of the SEC and, therefore, are not intended to forecast, or be indicative of,
possible future performance of our common stock.
Securities Authorized for Issuance under Equity Compensation Plans
The information set forth in Item 12 of Part III of this Annual Report on Form 10-K is incorporated by reference herein.
Issuer Purchases of Equity Securities
The following table provides information about the Company’s repurchases of common stock during the quarter ended August 3,
2019.
Period
Total
Number of
Shares
Purchased
Average Price
Paid per
Share
Total Number
of
Shares
Purchased
as Part of
Publicly
Announced
Plans
or Programs(a)
Approximate Dollar
Value of Shares that
May Yet Be
Purchased Under the
Plans or Programs (a)
Month # 1 (May 5, 2019 – June 1, 2019)
Month # 2 (June 2, 2019 – July 6, 2019)
Month # 3 (July 7, 2019 – August 3, 2019)
—
—
—
$—
$—
$—
—
—
—
$181 million
$181 million
$181 million
(a) On December 15, 2015, the Company’s Board of Directors announced a $200 million share repurchase program (the “2016 Stock Repurchase
Program”). Under the 2016 Stock Repurchase Program, purchases of shares of common stock may be made at the Company’s discretion from
time to time, subject to overall business and market conditions. Currently, share repurchases in excess of $100 million are subject to certain
restrictions under the terms of the Company's borrowing agreements, as more fully described in Note 10 to the accompanying consolidated
financial statements. Purchases, if any, will be made at prevailing market prices, through open market purchases or in privately negotiated
transactions and will be subject to applicable SEC rules. No shares were repurchased under the 2016 Stock Repurchase Program in Fiscal
2017, Fiscal 2018 or Fiscal 2019.
28
Item 6. Selected Financial Data.
The following table sets forth selected historical financial information as of the dates and for the periods indicated.
The consolidated statement of operations data for each of the three fiscal years in the period ended August 3, 2019 has been derived
from, and should be read in conjunction with, the audited consolidated financial statements and other financial information presented
elsewhere herein. The consolidated statement of operations data for the fiscal years ended July 30, 2016 and July 25, 2015 has
been derived from consolidated financial statements which have been recast to present maurices as a discontinued operation. The
historical results are not necessarily indicative of the results to be expected in any future period.
The consolidated balance sheet data as of August 3, 2019 and August 4, 2018 has been derived from, and should be read in
conjunction with, the audited consolidated financial statements and other financial information presented elsewhere herein. The
consolidated balance sheet data as of July 29, 2017, July 30, 2016 and July 25, 2015 has been derived from consolidated financial
statements which have been recast to present maurices as a discontinued operation.
August 3,
2019 (c)
August 4,
2018
Fiscal Years Ended(a)
July 29,
2017 (c)
(millions, except for share data)
July 30,
2016 (b)
July 25,
2015 (c)
Statement of Operations Data:
Net sales
Restructuring and other related charges
Impairment of goodwill
Impairment of other intangible assets
Acquisition and integration expenses
Depreciation and amortization expense
Operating loss
Loss from continuing operations
Net loss per common share - continuing
operations:
Basic
Diluted
$
$
5,493.4
(127.7)
(276.0)
(134.9)
—
(299.9)
(681.4)
(782.3)
$
5,566.4
(76.6)
—
—
(5.4)
(323.5)
(88.9)
(143.0)
$
5,617.3
(78.1)
(489.1)
(728.1)
(39.4)
(350.8)
(1,334.3)
(1,068.0)
$
5,894.1
—
—
—
(77.4)
(323.8)
(80.9)
(120.2)
3,742.3
—
(261.7)
(44.7)
(32.8)
(184.7)
(411.2)
(346.0)
$
$
(3.96) $
(3.96) $
(0.73) $
(0.73) $
(5.48) $
(5.48) $
(0.63) $
(0.63) $
(2.13)
(2.13)
$
Balance sheet data (d):
Cash and cash equivalents
Working capital
Total assets
Total debt
Total equity
________
(a) Fiscal 2018 and Fiscal 2016 consisted of 53 weeks, which resulted in incremental revenue of approximately $94.8 million in Fiscal 2018
recognized across all segments and $64.4 million in Fiscal 2016 reflected at all segments except our Premium Fashion segment. Fiscal 2019,
Fiscal 2017 and Fiscal 2015 each consisted of 52 weeks.
230.1
212.6
2,343.3
106.5
1,518.1
363.4
194.2
4,931.4
1,648.5
1,863.3
306.3
150.5
3,427.6
1,538.1
821.0
328.0
356.8
2,699.8
1,338.6
151.0
231.0
188.4
3,169.2
1,328.7
798.5
$
$
$
$
(b) Fiscal 2016 included the results of our Premium Fashion segment for the post-acquisition period from August 22, 2015 to July 30, 2016 and
reflected a non-cash purchase accounting expense of approximately $126.9 million related to the amortization of the write-up of inventory to
fair market value recorded at our Premium Fashion segment.
(c) Fiscal 2019 included non-cash impairments of goodwill and other intangible assets by segment as follows: $75.3 million of intangible assets
at the Premium Fashion segment, $115.1 million of goodwill and $43.0 million of other intangible assets at the Plus Fashion segment, and
$160.9 million of goodwill and $16.6 million of other intangible assets at the Kids Fashion segment. Fiscal 2017 included non-cash impairments
of goodwill and other intangible assets by segment as follows: $428.9 million of goodwill and $566.3 million of other intangible assets at the
Premium Fashion segment and $60.2 million of goodwill and $161.8 million of other intangible assets at the Plus Fashion segment. A Fiscal
2017 goodwill impairment at our Value Fashion segment of $107.2 million has been excluded from the table as it is included within income
from discontinued operations in the accompanying consolidated statements of income. Fiscal 2015 included non-cash impairment charges of
$261.7 million of goodwill and $44.7 million of other intangible assets at the Plus Fashion segment. Refer to Note 5 to the accompanying
consolidated financial statements for additional information.
(d) Excludes balances related to discontinued operations.
29
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”).
The following discussion should be read in conjunction with our audited consolidated financial statements and related notes thereto,
which are included elsewhere in this Annual Report on Form 10-K for Fiscal 2019 (“Fiscal 2019 10-K”). Fiscal year 2019 ended
on August 3, 2019 and reflected a 52-week period ("Fiscal 2019"). Fiscal year 2018 ended on August 4, 2018 ("Fiscal 2018") and
reflected a 53-week period as the Company conformed its fiscal period ends to the calendar of the National Retail Federation;
Fiscal year 2017 ended on July 29, 2017 and reflected a 52-week period (“Fiscal 2017”). All references to “Fiscal 2020” reflect
a 52-week period that will end on August 1, 2020.
INTRODUCTION
MD&A is provided as a supplement to the accompanying consolidated financial statements and footnotes to help provide an
understanding of our operational results, financial condition, liquidity and changes in financial condition. MD&A is organized as
follows:
• Overview. This section includes recent developments, our objectives and risks, and a summary of our financial performance
for Fiscal 2019.
• Results of operations. This section provides an analysis of our operational results for Fiscal 2019, Fiscal 2018 and Fiscal
2017.
• Financial condition and liquidity. This section provides an analysis of our cash flows for Fiscal 2019, Fiscal 2018 and
Fiscal 2017, as well as a discussion of our financial condition and liquidity as of August 3, 2019. The discussion of our
financial condition and liquidity includes (i) our available financial capacity under our revolving credit agreement, (ii) a
summary of our capital spending, and (iii) a summary of our contractual and other obligations as of August 3, 2019.
• Market risk management. This section discusses how we manage our risk exposures related to interest rates, foreign
currency exchange rates and our investments, as well as the underlying market conditions as of August 3, 2019.
• Critical accounting policies. This section discusses accounting policies considered to be important to our operational
results and financial condition, which require significant judgment and estimation on the part of management in their
application. In addition, all of our significant accounting policies, including our critical accounting policies, are
summarized in Note 3 to our accompanying consolidated financial statements.
• Recently issued accounting pronouncements. This section discusses the potential impact to our reported operational results
and financial condition of accounting standards that have been recently issued.
OVERVIEW
Our Business
Ascena Retail Group, Inc., a Delaware corporation, is a national specialty retailer of apparel for women and tween girls with annual
revenue of approximately $5.5 billion for Fiscal 2019. We and our subsidiaries are collectively referred to herein as the “Company,”
“ascena,” “we,” “us,” “our” and “ourselves,” unless the context indicates otherwise.
Objectives and Initiatives
Retailers, especially those in the specialty apparel sector, continue to face intense competition, particularly as consumer spending
habits continue to indicate an increasing preference to purchase digitally as opposed to in traditional brick-and-mortar retail stores.
This preference has resulted in increased direct channel sales, but has continued to put pressure on our retail store sales. As a
result of these fundamental changes, we are continuing our previously announced strategic review of our brands and operations
with the goal to enhance shareholder value. We believe that such structural and strategic changes are necessary to successfully
compete in the changing retail landscape.
To that end, over the past few years, the Company has undergone an extensive transformation of its business. The more significant
of these initiatives are described below.
30
ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)
Structural-related transformation
On May 6, 2019, the Company and Maurices Incorporated, a Delaware corporation (“maurices”) and wholly owned subsidiary
of ascena, completed the transaction contemplated by the previously-announced Stock Purchase Agreement with Viking Brand
Upper Holdings, L.P., a Cayman Islands exempted limited partnership (“Viking”) and an affiliate of OpCapita LLP, providing
for, among other things, the sale by ascena of maurices to Viking (the “Transaction”). Effective upon the closing of the
Transaction, ascena received cash proceeds of approximately $210 million and a 49.6% ownership interest in the operations of
maurices, consisting of interests in Viking preferred and common stock.
In addition, on May 20, 2019, the Company announced its plan to wind down its Dressbarn brand. The wind down is currently
expected to be completed in the first half of Fiscal 2020. As a result of these actions, once the wind down of Dressbarn is
complete, the Company will have exited its Value Fashion segment.
On May 1, 2019 the Company announced changes to its senior leadership team. These changes included the retirement of the
Company's Chief Executive Officer, the departure of the Company's Chief Operating Officer, as well as the appointment of a
new Chief Executive Officer and Interim Executive Chair of the Board. On August 4, 2019 the Senior Vice President, Finance
and Chief Accounting Officer, was promoted to Executive Vice President and Chief Financial Officer upon the resignation of
the former Executive Vice President and Chief Financial Officer. We believe that these changes will continue to support our
structure-related transformation activities as the new management team seeks additional ways to optimize our brand portfolio
and extensive distribution framework which will allow us to better compete in the changing retail landscape.
Operational-related transformation
During Fiscal 2017, the Company announced that it was beginning a multi-year transformation plan with the objective of
supporting sustainable long-term growth and increasing shareholder value (the "Change for Growth" program). Actions
completed under this long-term transformation focused on (i) refinements to the Company's operating model to increase the
focus on key customer segments, (ii) developing initiatives designed to optimize the flow of product through the Company's
distribution channels, including its direct channel and its brick-and-mortar retail locations, including areas related to markdown
optimization, size pack optimization and localized inventory planning, (iii) consolidating certain support functions into its brand
services group, including Human Resources, Real Estate, Non-Merchandise Procurement, and Asset Protection, (iv) transitioning
certain transaction processing functions within the brand services group to an independent third-party managed-service provider,
and (v) optimizing its store fleet with the goal of reducing the number of under-performing stores through either rent reductions
or store closures, in an effort to increase the overall profitability of the remaining store portfolio and convert sales from these
stores into direct channel sales or to nearby store locations. Cost reductions achieved from the program have served to offset
ongoing inflationary pressure and required reinvestment to support key incremental business initiatives. The Company realized
cumulative annualized cost reductions of approximately $290 million from the Change for Growth program through the end of
Fiscal 2019, substantially all of which are reflected in the results of our continuing operations. The Company currently expects
that total annualized cost reductions from the program benefiting our continuing operations will exceed the original program
target of $300 million.
The Company will continue to focus on identifying additional cost reduction opportunities to right-size the cost structure. As
a result, in the third quarter of Fiscal 2019, we announced an incremental cost reduction target and on June 4, 2019, we actioned
our initial round of savings towards achieving that target with the goal of realizing the majority of the anticipated savings in
Fiscal 2020. We will continue to formulate plans and take actions to achieve the remainder of that target and look for additional
opportunities. These opportunities represent a critical component of our enterprise transformation.
Omni-channel Expansion
We continue to invest in initiatives that support our omni-channel strategies. Over the last couple of years, we have continued
to develop technology solutions which will allow our brands to (i) provide customers a seamless omni-channel shopping
experience in-store and online, (ii) integrate our marketing efforts to increase in-store and online traffic, (iii) improve product
availability and fulfillment efficiency and (iv) enhance our capability to analyze transaction data to support strategic decisions.
Additionally, in Fiscal 2018, we expanded the functionality of our Riverside, California distribution center and it supports both
our brick-and-mortar and direct channel operations.
31
ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)
Distribution and Fulfillment
Over the last few years, (i) our brands' distribution and fulfillment capabilities were centralized into our brick-and-mortar store
distribution facility in Etna, Ohio and our direct channel fulfillment facility in Greencastle, Indiana which has resulted in increased
processing efficiencies, and (ii) we entered into a lease agreement for a distribution center in Riverside, California to serve as
the receiving and west coast distribution hub for merchandise sourced from Asia. In Fiscal 2018, we completed the expansion
of our Riverside facility to include both brick-and-mortar and direct channel distribution, and we introduced direct fulfillment
capability at our Etna facility to further increase our capacity in this growing channel. We continue to explore ways to optimize
and leverage our integrated distribution network, which may include providing such services to third parties.
Sourcing
Our brands source their products through a variety of sourcing channels including our internal sourcing group and externally
through third-party buying agents based mainly in Asia. Factors affecting the selection of sourcing channels include cost, speed-
to-market, merchandise selection, vendor capacity and fashion trends. We continue to manage our relationships with vendors
through our internal channel and with third-party buying agents to meet the needs of our brands.
Integration of ANN
In Fiscal 2018, we substantially completed our integration of ANN INC. ("ANN integration") into our existing operations. Total
synergies and cost reductions related to the ANN integration, including amounts achieved from Fiscal 2016 through Fiscal 2019,
were approximately $235 million, substantially all of which are reflected in the results of our continuing operations.
Seasonality of Business
Our individual segments are typically affected by seasonal sales trends primarily resulting from the timing of holiday and back-
to-school shopping periods. In particular, sales at our Kids Fashion segment tend to be significantly higher during the fall season,
which occurs during the first and second quarters of our fiscal year, as this includes the back-to-school period and the December
holiday season. Our Plus Fashion segment tends to experience higher sales during the spring season, which include the Easter
and Mother's Day holidays. Our Premium Fashion and Value Fashion segments have relatively balanced sales across the Fall
and Spring seasons. As a result, our operational results and cash flows may fluctuate materially in any quarterly period depending
on, among other things, increases or decreases in comparable store sales, adverse weather conditions, shifts in the timing of certain
holidays and changes in merchandise mix.
Summary of Financial Performance
Fiscal Period
As disclosed in Note 2 to the accompanying consolidated financial statements, we recognized an additional week in Fiscal 2018
as we conformed our fiscal calendar to that of the National Retail Federation.
Discontinued Operations
On May 6, 2019, the Company completed its sale of maurices. Effective upon the closing of the Transaction, ascena received
cash proceeds of approximately $210 million and a 49.6% ownership interest in the operations of maurices. As the sale of maurices
represented a major strategic shift, the Company's maurices business has been classified as a component of discontinued operations
within the consolidated financial statements for all periods presented. Thus, the foregoing discussion of our results excludes
maurices, which has been removed from the Value Fashion segment below, as discussed in Note 2 to the consolidated financial
statements. In addition, shared expenses of $78 million, $96 million and $81 million for the fiscal years ended August 3, 2019,
August 4, 2018 and July 29, 2017, respectively, which were previously allocated to maurices, have been reallocated to the remaining
operating units.
Dressbarn Wind Down
As noted above, the Company has begun a wind down of its Dressbarn brand. The wind down is currently expected to be completed
in the first half of Fiscal 2020. During Fiscal 2019, the Company recorded approximately $50 million of costs, primarily reflecting
$26 million of severance costs as well as a non-cash impairment charge of approximately $20 million to write-down Dressbarn's
32
ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)
headquarters building to its fair market value. We also expect to record other closing costs during the first half of Fiscal 2020,
primarily related to severance, inventory liquidation and closure of Dressbarn retail stores. Costs associated with the wind down,
which could have a material impact on our results of operations and cash flows in the first half of Fiscal 2020, are expected to be
paid from cash flows from operations, available cash, and to any extent required, availability from our revolving credit facility.
Goodwill and Other Indefinite-lived Intangible Asset Impairment Charges
The continued negative sales performance at our Plus Fashion segment, coupled with a significant decline in the Company's stock
price, resulted in a conclusion that a triggering event had occurred in the third quarter of Fiscal 2019, thereby requiring us to test
our goodwill and intangible assets for impairment. As a result of the assessment, we recorded non-cash impairment charges to
write-down the carrying values of our Lane Bryant and Catherines trade name intangible assets to their fair values by $23.0
million and $2.0 million, respectively. In addition, we recognized goodwill impairment charges of $65.8 million and $49.3 million
at the Lane Bryant and Catherines reporting units, respectively, to write-down the carrying values of the reporting units to their
fair values. These impairment charges are more fully described in Note 5 to the accompanying consolidated financial statements.
Further, continued declines in the stock price and the fair value of the Company's Term Loan debt resulted in a conclusion that
another triggering event occurred in the fourth quarter of Fiscal 2019, thereby requiring us to test our goodwill and intangible
assets for impairment. As a result of the assessment, we recorded non-cash impairment losses to write-down the carrying values
of our trade name intangible assets to their fair values as follows: $15.0 million of our Ann Taylor trade name, $60.3 million of
our LOFT trade name, $14.0 million of our Lane Bryant trade name, $4.0 million of our Catherines trade name and $16.6 million
of our Justice trade name. In addition, the Company recognized a goodwill impairment charge of $160.9 million at the Justice
reporting unit to write-down the carrying value of the reporting unit to its fair value.
Inventory Update
We experienced increases in inventory levels at our Premium Fashion, Plus Fashion and Kids Fashion segments, reflecting a
decline in trends at those segments compared to when inventory was bought. While our inventory balance at the end of Fiscal
2019 only increased by 2% over that of Fiscal 2018, the efforts throughout Fiscal 2019 to reduce the excess inventory levels had
a negative impact on our gross margin as discussed below. Those efforts included closer monitoring of brand inventory levels and
purchases in relation to underlying sales trends.
Summary and Key Developments
Operating highlights for Fiscal 2019 are as follows:
• Comparable sales increased by 2%, reflecting increases at our Premium Fashion, Kids Fashion and Value Fashion
segments offset in part by a decrease at our Plus Fashion segment;
• Gross margin rate decreased by 240 basis points to 55.7% primarily as a result of higher markdown requirements needed
to address elevated inventory levels, along with competitive pricing pressures;
• Operating loss of $681.4 million compared to $88.9 million for the year-ago period, resulting primarily from the impairment
of goodwill and other intangible assets and the decline in both net sales and gross margin; and
• Loss from continuing operations per diluted share of $3.96 in Fiscal 2019, compared to $0.73 in Fiscal 2018.
Liquidity for Fiscal 2019 primarily reflected:
• Cash flows provided by operations was $21.1 million, compared to $273.9 million in the year-ago period;
• Cash flows provided by investing activities for Fiscal 2019 was $67.7 million, consisting primarily of net proceeds from
the sale of maurices of $203.2 million, offset in part by capital expenditures of $136.5 million, compared to net cash used
in investing activities of $134.2 million in the year-ago period; and
• Cash flows provided by financing activities for Fiscal 2019 was $0.3 million, compared to net cash used in financing
activities of $226.2 million in the year-ago period, consisting primarily of term loan repayments of $225.0 million.
33
ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)
RESULTS OF OPERATIONS
Fiscal 2019 Compared to Fiscal 2018
The following table summarizes our operational results and expresses the percentage relationship to net sales of certain financial
statement captions:
Net sales
Cost of goods sold
Cost of goods sold as % of net sales
Gross margin
Gross margin as % of net sales
Other operating expenses:
Buying, distribution and occupancy expenses
Buying, distribution and occupancy expenses as % of net sales
Selling, general and administrative expenses
SG&A expenses as % of net sales
Restructuring and other related charges
Impairment of goodwill
Impairment of other intangible assets
Acquisition and integration expenses
Depreciation and amortization expense
Total other operating expenses
Operating loss
Operating loss as % of net sales
Interest expense
Interest and other income, net
Loss on extinguishment of debt
Loss from continuing operations before benefit for income taxes
and loss from equity method investment
Benefit for income taxes from continuing operations
Effective tax rate (a)
Loss from equity method investment
Loss from continuing operations
Discontinued operations
Income from discontinued operations, net of taxes (b)
Gain on disposal of discontinued operations, net of taxes (c)
Net loss
Net (loss) income per common share - basic:
Continuing operations
Discontinued operations
Total net loss per basic common share
Net (loss) income per common share - diluted:
Continuing operations
Discontinued operations
Total net loss per diluted common share
34
Fiscal Years Ended
August 3,
2019
August 4,
2018
(millions, except per share data)
$ 5,566.4
$
5,493.4
$ Change
% Change
$
(73.0)
(1.3)%
(2,432.1)
(2,334.1)
(98.0)
(4.2)%
44.3 %
3,061.3
55.7 %
41.9 %
3,232.3
58.1 %
(1,120.5)
20.4 %
(1,783.7)
32.5 %
(127.7)
(276.0)
(134.9)
—
(299.9)
(3,742.7)
(681.4)
(12.4)%
(107.0)
3.4
—
(785.0)
14.5
1.8 %
(11.8)
(782.3)
76.4
44.5
(661.4)
(3.96)
0.61
(3.35)
(3.96)
0.61
(3.35)
$
$
$
$
$
(1,149.5)
20.7 %
(1,766.2)
31.7 %
(76.6)
—
—
(5.4)
(323.5)
(3,321.2)
(88.9)
(1.6)%
(113.0)
1.6
(5.0)
(205.3)
62.3
30.3 %
—
(143.0)
103.3
—
(39.7)
(0.73)
0.53
(0.20)
(0.73)
0.53
(0.20)
$
$
$
$
$
$
$
$
$
$
(171.0)
(5.3)%
29.0
2.5 %
(17.5)
(1.0)%
(51.1)
(276.0)
(134.9)
5.4
23.6
(421.5)
(592.5)
6.0
1.8
5.0
(66.7)%
NM
NM
100.0 %
7.3 %
(12.7)%
NM
5.3 %
NM
100.0 %
(579.7)
(47.8)
NM
(76.7)%
(11.8)
(639.3)
(26.9)
44.5
(621.7)
(3.23)
0.08
(3.15)
(3.23)
0.08
(3.15)
NM
NM
(26.0)%
NM
NM
NM
NM
NM
NM
NM
NM
ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)
_________
(a) Effective tax rate is calculated by dividing the Benefit for income taxes from continuing operations by the Loss from continuing operations before the
benefit for income taxes.
(b) Income from discontinued operations is presented net of income tax expense of $21.8 million and $20.5 million for the fiscal years ended August 3,
2019 and August 4, 2018, respectively.
(c) Gain on sale of discontinued operations is presented net of income tax benefit of $4.0 million for the fiscal year ended August 3, 2019.
(NM) Not meaningful.
Net sales. Total net sales decreased by $73.0 million, or 1.3%, to $5,493.4 million. The Net sales decrease was attributable to the
additional week for all four segments in Fiscal 2018, which contributed an incremental $94.8 million, and a decrease in non-
comparable sales of $109.5 million, or 73.2%, to $40.0 million, reflecting a lower store count resulting from the Company's fleet
optimization program. These items were partly offset by a 2% increase in comparable sales, as well as an increase in other revenues
of $33.6 million, or 17.5%, to $225.3 million, primarily reflecting higher wholesale and shipping revenues.
Net sales data for our four operating segments is presented below.
Net sales:
Premium Fashion
Plus Fashion
Kids Fashion
Value Fashion
Total net sales
Comparable sales (a)(b)(c)
_______
Fiscal Years Ended
August 3,
2019
August 4,
2018
(millions)
$ Change
% Change
$
$
2,415.1
1,240.5
1,079.1
758.7
5,493.4
$
$
2,317.8
1,340.0
1,100.0
808.6
5,566.4
$
$
97.3
(99.5)
(20.9)
(49.9)
(73.0)
4.2 %
(7.4)%
(1.9)%
(6.2)%
(1.3)%
2 %
(a) Comparable sales represent combined store comparable sales and direct channel sales. Store comparable sales generally refers to the growth
of sales in stores only open in the current period and comparative calendar period in the prior year (including stores relocated within the same
shopping center and stores with minor square footage additions). Stores that close during the fiscal year are excluded from store comparable
sales beginning with the fiscal month the store actually closes. Direct channel sales refer to growth of sales from our direct channel in the
current period and comparative calendar period in the prior year. Due to customer cross-channel behavior, we report a single, consolidated
comparable sales metric, inclusive of store and direct channels.
(b) Incremental revenues of approximately $94.8 million due to the inclusion of the additional week in Fiscal 2018 are excluded from the calculation
of comparable sales.
(c) During the first quarter of Fiscal 2019 and the first nine months of Fiscal 2018, vouchers distributed in the first quarter of Fiscal 2018 in
connection with the Justice pricing litigation continued to be redeemed through October 2018. Comparable sales related to these transactions
includes the transaction value in excess of the voucher value.
Premium Fashion net sales performance in Fiscal 2019 primarily reflected:
•
•
•
•
a 5% comparable sales increase of $36.6 million at Ann Taylor, and a 6% comparable sales increase of $92.9 million at
LOFT;
a $15.7 million decline in non-comparable sales, comprised of:
–
–
a $13.2 million decline from 11 net Ann Taylor store closures, and
a $2.5 million decline from 3 net LOFT store closures;
a $24.6 million decline due to the inclusion of the additional week in the year-ago period; and
an $8.1 million increase in other revenues primarily reflecting higher shipping revenues.
35
ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)
Plus Fashion net sales performance in Fiscal 2019 primarily reflected:
•
•
•
•
a 4% comparable sales decline of $37.3 million at Lane Bryant and a 6% comparable sales decline of $14.5 million at
Catherines;
a $28.1 million decline in non-comparable sales, primarily comprised of:
–
–
a $20.2 million decline from 28 Lane Bryant store closures, and
a $7.9 million decline from 28 Catherines store closures;
a $20.7 million decline due to the inclusion of the additional week in the year-ago period; and
a $1.1 million increase in other revenues.
Kids Fashion net sales performance in Fiscal 2019 primarily reflected:
•
•
•
•
a 1% comparable sales increase of $12.5 million;
a $22.8 million decline in non-comparable sales primarily due to 21 Justice store closures;
a $35.1 million decline due to the inclusion of the additional week in the year-ago period; and
a $24.5 million increase in other revenues primarily due to higher wholesale revenue.
Value Fashion net sales performance in Fiscal 2019 primarily reflected:
•
•
•
•
a 1% comparable sales increase of $7.5 million;
a $42.9 million decline in non-comparable sales primarily due to 114 store closures;
a $14.4 million decline due to the inclusion of the additional week in the year-ago period; and
a $0.1 million decline in other revenues.
Gross margin. Gross margin, in terms of dollars, was primarily lower as a result of a decline in rate, which represents the difference
between net sales and cost of goods sold, expressed as a percentage of net sales. Gross margin rate is dependent upon a variety
of factors, including brand sales mix, product mix, channel mix, the timing and level of promotional activities and fluctuations in
material costs. These factors, among others, may cause cost of goods sold as a percentage of net revenues to fluctuate from period
to period.
Gross margin rate decreased by 240 basis points to 55.7% in Fiscal 2019 resulting from lower margin at our Kids Fashion, Plus
Fashion, and Premium Fashion segments, which were partially offset by increased margins at our Value Fashion segment. On
a consolidated basis, the gross margin rate reduction reflects higher shipping costs of approximately $30 million across the segments
as a result of an increased mix of direct channel sales, and increased promotional selling and markdown requirements. Gross
margin rate highlights on a segment basis are as follows:
• Premium Fashion gross margin rate performance declined by approximately 200 basis points, primarily reflecting
increased promotional selling to address elevated inventory levels along with higher shipping costs related to increased
direct channel penetration.
• Plus Fashion gross margin rate performance declined by approximately 190 basis points, reflecting declines of 160 basis
points and 280 basis points at Lane Bryant and Catherines, respectively, primarily reflecting higher levels of promotional
selling and markdown requirements to clear under-performing inventory receipts, and higher shipping costs related to
increased direct channel penetration.
• Kids Fashion gross margin rate performance declined approximately 580 basis points as a result of significant promotional
selling and markdown requirements to address elevated inventory levels and clear under-performing assortment categories,
higher shipping costs related to increased direct channel penetration and a higher mix of lower margin wholesale revenue.
• Value Fashion gross margin rate performance increased approximately 50 basis points primarily reflecting lower levels
of promotional selling and markdowns versus the year-ago period. Markdowns in the year-ago period reflected significant
charges for certain slow-turning product categories.
Buying, distribution and occupancy ("BD&O") expenses consist of store occupancy and utility costs (excluding depreciation) and
all costs associated with the buying and distribution functions.
36
ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)
BD&O expenses decreased by $29.0 million, or 2.5%, to $1,120.5 million in Fiscal 2019. The reduction in expenses was driven
by lower occupancy expenses resulting primarily from our fleet optimization program, which provided approximately $25 million
of cost reductions during Fiscal 2019, and was partially offset by higher variable distribution costs related to the increased penetration
of our direct channel business. BD&O expenses as a percentage of net sales decreased by 30 basis points to 20.4% in Fiscal 2019.
Selling, general and administrative (“SG&A”) expenses consist of compensation and benefit-related costs for sales and store
operations personnel, administrative personnel and other employees not associated with the functions described above under
BD&O expenses. SG&A expenses also include advertising and marketing costs, information technology and communication costs,
supplies for our stores and administrative facilities, insurance costs, legal costs and costs related to other administrative services.
SG&A expenses increased by $17.5 million, or 1.0%, to $1,783.7 million in Fiscal 2019. The increase in SG&A expenses was
primarily due to inflationary increases, higher marketing expenses, higher write-offs of store related fixed assets at the Plus Fashion
segment, and the write-off of corporate-held fixed assets. These increases were offset in part by approximately $55 million in cost
reduction initiatives, mainly reflecting headcount and non-merchandise procurement savings, and the impact of the additional
week recorded during Fiscal 2018 for all of the segments. SG&A expenses as a percentage of net sales increased by 80 basis
points to 32.5% in Fiscal 2019.
Depreciation and amortization expense decreased by $23.6 million, or 7.3%, to $299.9 million in Fiscal 2019. The decrease was
across all of our segments and was driven by a lower level of store-related fixed-assets, offset in part by incremental depreciation
from capital investments.
Operating loss. Operating loss was $681.4 million for Fiscal 2019 compared to $88.9 million in Fiscal 2018 and is discussed on
a segment basis below.
Operating results for our four operating segments are presented below.
Operating loss:
Premium Fashion
Plus Fashion
Kids Fashion
Value Fashion
Unallocated restructuring and other related charges
Unallocated impairment of goodwill
Unallocated impairment of other intangible assets
Unallocated acquisition and integration expenses
Total operating loss
_______
(NM) Not meaningful.
Fiscal Years Ended
August 3,
2019
August 4,
2018
(millions)
$ Change
% Change
$
$
$
72.7
(71.4)
(42.4)
(101.7)
(127.7)
(276.0)
(134.9)
—
(681.4) $
$
102.3
0.6
18.7
(128.5)
(76.6)
—
—
(5.4)
(88.9) $
(29.6)
(72.0)
(61.1)
26.8
(51.1)
(276.0)
(134.9)
5.4
(592.5)
(28.9)%
NM
NM
(20.9)%
(66.7)%
NM
NM
100.0 %
NM
Premium Fashion operating income decreased by $29.6 million primarily due to a decline in gross margin rate and higher variable
distribution costs, employee-related costs and marketing expenses, partially offset by an increase in comparable sales and lower
store expenses associated with our fleet optimization program.
Plus Fashion operating results decreased by $72.0 million primarily due to a decline in comparable sales and gross margin rate,
and higher write-downs of store-related fixed assets, offset in part by lower occupancy and store expenses associated with our
fleet optimization program.
Kids Fashion operating results decreased by $61.1 million primarily due to a significantly lower gross margin rate, partially offset
by an increase in comparable sales and lower operating expenses. Operating expense reductions were primarily driven by lower
occupancy and store expenses associated with our fleet optimization program.
37
ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)
Value Fashion operating results improved by $26.8 million primarily due to an increase in comparable sales and in gross margin
rate and a decrease in operating expenses, as discussed above. Operating expense reductions were primarily driven by lower
occupancy and store expenses associated with our fleet optimization program.
Unallocated restructuring and other related charges reflects costs incurred under the transformational programs discussed earlier.
Expenses of $127.7 million for Fiscal 2019 primarily included $38.6 million for professional fees, reflecting costs incurred in
connection with the identification and implementation of transformation initiatives under the Change for Growth program and the
Dressbarn wind down, $43.0 million related to severance and other related charges, reflecting severance associated with the cost
reduction actions taken in the fourth quarter of Fiscal 2019 as well as severance related to the Dressbarn wind down, and $45.4
million of non-cash asset impairments, reflecting the write-down of the Dressbarn corporate headquarters as a result of the wind
down and the write-down of a corporate-owned office building in Duluth, MN to fair market value as a result of the sale of
maurices. The $76.6 million of unallocated restructuring and other related charges in Fiscal 2018 reflect $59.2 million for
professional fees incurred in connection with the identification and implementation of transformation initiatives, $5.7 million of
severance and other related expenses and asset impairments of $11.7 million reflecting decisions within the fleet optimization
program to close under-performing stores as well as the write-down of a building.
Unallocated impairment of goodwill reflects the Fiscal 2019 write-down of the carrying values of the Lane Bryant, Catherines
and Justice reporting units to their fair values as follows: $65.8 million at Lane Bryant, $49.3 million at Catherines, and $160.9
million at Justice. There was no impairment of goodwill recorded in Fiscal 2018.
Unallocated impairment of other intangible assets reflects the Fiscal 2019 write-down of the Company's trade name intangible
assets to their fair values as follows: $15.0 million at Ann Taylor, $60.3 million at LOFT, $37.0 million of our Lane Bryant
trade name, $6.0 million of our Catherines trade name and $16.6 million of our Justice trade name. There was no impairment
of other intangible assets recorded in Fiscal 2018.
Unallocated acquisition and integration expenses of $5.4 million for Fiscal 2018 primarily reflected costs associated with the
post-acquisition integration of ANN's distribution operations, including the closure of the former ANN distribution facility in
Louisville, Kentucky, as well as the gain on the related sale of that facility, which occurred in Fiscal 2018. There were no such
expenses during Fiscal 2019.
Interest expense decreased by $6.0 million to $107.0 million for Fiscal 2019, primarily caused by a lower average outstanding
term loan balance as a result of repayments in the third and fourth quarters of Fiscal 2018, mostly offset by a higher interest rate
on our variable rate term loan.
Loss on extinguishment of debt. In Fiscal 2018, the Company made repayments of $180.0 million which were applied towards
future scheduled quarterly payments of the outstanding principal balance of the term loan debt, resulting in a $5.0 million pre-tax
loss reflecting the acceleration of deferred financing fees. There was no such extinguishment in Fiscal 2019.
Benefit for income taxes from continuing operations represents federal, foreign, state and local income taxes. We recorded a benefit
of $14.5 million in Fiscal 2019 on a pre-tax loss of $785.0 million, for an effective tax rate of 1.8%, which was lower than the
statutory tax rate primarily due to non-deductible impairments of goodwill, a partial federal valuation allowance, and GILTI. In
Fiscal 2018, we recorded a benefit of $62.3 million on a pre-tax loss of $205.3 million for a 30.3% effective tax rate, which reflects
the provisional impact of recording the tax effects associated with the 2017 Act. This was offset by the impact of recording a
valuation allowance on certain state deferred tax assets. Refer to Note 15 to the accompanying consolidated financial statements.
Loss from continuing operations increased by $639.3 million to $782.3 million in Fiscal 2019, primarily due to the impairment of
goodwill and intangible assets, as well as lower operating results, both discussed above.
Loss from continuing operations per diluted common share was $3.96 per share in Fiscal 2019 compared to $0.73 per share in the
year-ago period, primarily a result of an increase in the loss from continuing operations, as discussed above.
38
ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)
Fiscal 2018 Compared to Fiscal 2017
The following table summarizes our operational results and expresses the percentage relationship to net sales of certain financial
statement captions:
Net sales
Cost of goods sold
Cost of goods sold as % of net sales
Gross margin
Gross margin as % of net sales
Other operating expenses:
Buying, distribution and occupancy expenses
Buying, distribution and occupancy expenses as % of net sales
Selling, general and administrative expenses
SG&A expenses as % of net sales
Restructuring and other related charges
Impairment of goodwill
Impairment of other intangible assets
Acquisition and integration expenses
Depreciation and amortization expense
Total other operating expenses
Operating loss
Operating loss as % of net sales
Interest expense
Interest and other income, net
Loss on extinguishment of debt
Loss from continuing operations before benefit for income taxes
Benefit for income taxes from continuing operations
Effective tax rate (a)
Loss from continuing operations
Income (loss) from discontinued operations, net of tax (b)
Net loss
Net (loss) income per common share - basic:
Continuing operations
Discontinued operations
Total net loss per basic common share
Net (loss) income per common share - diluted:
Continuing operations
Discontinued operations
Total net loss per diluted common share
_________
Fiscal Years Ended
August 4,
2018
July 29,
2017
(millions, except per share data)
$ 5,566.4
$ 5,617.3
$ Change
% Change
$
(50.9)
(0.9)%
(2,334.1)
(2,333.4)
(0.7)
— %
41.9 %
41.5 %
3,232.3
3,283.9
(51.6)
(1.6)%
58.1 %
58.5 %
(1,149.5)
(1,138.5)
(11.0)
(1.0)%
28.0
1.6 %
20.3 %
(1,794.2)
31.9 %
(78.1)
(489.1)
(728.1)
(39.4)
(350.8)
(4,618.2)
(1,334.3)
(23.8)%
(102.2)
1.0
—
(1,435.5)
367.5
25.6 %
1.5
489.1
728.1
34.0
27.3
1,297.0
1,245.4
(10.8)
0.6
(5.0)
1,230.2
(305.2)
20.7 %
(1,766.2)
31.7 %
(76.6)
—
—
(5.4)
(323.5)
(3,321.2)
(88.9)
(1.6)%
(113.0)
1.6
(5.0)
(205.3)
62.3
30.3 %
(143.0)
103.3
(39.7)
(1,068.0)
0.7
$ (1,067.3)
925.0
102.6
$ 1,027.6
(0.73)
0.53
(0.20)
(0.73)
0.53
(0.20)
$
$
$
$
(5.48)
—
(5.48)
(5.48)
—
(5.48)
$
$
$
$
4.75
0.53
5.28
4.75
0.53
5.28
$
$
$
$
$
1.9 %
100.0 %
100.0 %
86.3 %
7.8 %
28.1 %
93.3 %
NM
NM
NM
85.7 %
83.0 %
86.6 %
NM
96.3 %
86.7 %
NM
96.4 %
86.7 %
NM
96.4 %
(a) Effective tax rate is calculated by dividing the Benefit for income taxes from continuing operations by the Loss from continuing operations
before the benefit for income taxes.
(b) Income from discontinued operations is presented net of income tax expense of $20.5 million and $20.6 million for the fiscal years ended August
4, 2018 and July 29, 2017, respectively.
(NM) Not meaningful.
39
ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)
Net sales. Net sales decreased by $50.9 million, or 0.9%, to $5,566.4 million in Fiscal 2018. The decline in net sales primarily
reflected a 2% decline in comparable sales that mainly resulted from an 11.9% decline in net sales at our Value Fashion segment,
as well as product assortment challenges during the first half of Fiscal 2018 experienced by the Premium Fashion segment, which
returned to positive comparable sales performance in the second half of Fiscal 2018. Non-comparable sales declined by $70.5
million, or 47.0%, to $79.6 million, as discussed on a segment basis below. Other revenues increased by $6.3 million, or 3.4%, to
$191.7 million. Net sales for all four segments also included incremental revenues of $94.8 million due to the inclusion of the
additional week in Fiscal 2018 as previously discussed.
Net sales data for our four operating segments is presented below.
Net sales:
Premium Fashion
Plus Fashion
Kids Fashion
Value Fashion
Total net sales
Comparable sales (a)(b)(c)
_______
Fiscal Years Ended
August 4,
2018
July 29,
2017
(millions)
$ Change
% Change
$
$
2,317.8
1,340.0
1,100.0
808.6
5,566.4
$
$
2,322.6
1,353.9
1,023.1
917.7
5,617.3
$
$
(4.8)
(13.9)
76.9
(109.1)
(50.9)
(0.2)%
(1.0)%
7.5 %
(11.9)%
(0.9)%
(2)%
(a) Comparable sales represent combined store comparable sales and direct channel sales. Store comparable sales generally refers to the growth
of sales in stores only open in the current period and comparative calendar period in the prior year (including stores relocated within the same
shopping center and stores with minor square footage additions). Stores that close during the fiscal year are excluded from store comparable
sales beginning with the fiscal month the store actually closes. Direct channel sales refer to growth of sales from our direct channel in the
current period and comparative calendar period in the prior year. Due to customer cross-channel behavior, we report a single, consolidated
comparable sales metric, inclusive of store and direct channels.
(b) Incremental revenues of $94.8 million due to the inclusion of the additional week in Fiscal 2018 are excluded from the calculation of comparable
sales.
(b) During Fiscal 2018, vouchers distributed in the first quarter of Fiscal 2018 in connection with the Justice pricing litigation began to be
redeemed. Comparable sales related to these transactions includes the transaction value in excess of the voucher value.
Premium Fashion net sales performance in Fiscal 2018 primarily reflected:
•
•
•
•
a 5% comparable sales decline of $37.3 million at Ann Taylor, and a less than 1% comparable sales decline of $7.3 million
at LOFT;
a $4.9 million increase in non-comparable sales primarily reflecting a net positive impact at LOFT, as the impact of 8
store openings more than offset the impact of 14 store closures, which was offset in part by the negative impact of 18 net
store closures at Ann Taylor;
a $24.6 million increase due to the inclusion of the additional week period; and
a $10.3 million increase in other revenues primarily related to higher gift card breakage and higher credit revenue.
Plus Fashion net sales performance in Fiscal 2018 primarily reflected:
•
•
•
•
a 1% comparable sales decline of $7.9 million at Lane Bryant and a 3% comparable sales decline of $9.6 million at
Catherines;
an $11.0 million decline in non-comparable sales at Lane Bryant due to 15 net store closures and a $7.0 million decline
in non-comparable sales at Catherines due to 11 net store closures;
a $20.7 million increase due to the inclusion of the additional week period; and
a $0.9 million increase in other revenues.
40
ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)
Kids Fashion net sales performance in Fiscal 2018 primarily reflected:
•
•
•
•
a 7% comparable sales increase of $67.4 million;
a $21.7 million decline in non-comparable sales primarily due to 53 net store closures;
a $35.1 million increase due to the inclusion of the additional week period; and
a $3.9 million decline in other revenues primarily due to lower wholesale revenue.
Value Fashion net sales performance in Fiscal 2018 primarily reflected:
•
•
•
•
a 10% comparable sales decline of $86.8 million;
a $35.7 million decline in non-comparable sales due to 49 store closures;
a $14.4 million increase due to the inclusion of the additional week period; and
a $1.0 million decline in other revenues.
Gross margin. Gross margin, in terms of dollars, decreased as a result of the decline in comparable sales as well as a decline in
gross margin rate. Gross margin rate, which represents the difference between net sales and cost of goods sold, expressed as a
percentage of net sales, decreased by 40 basis points to 58.1% in Fiscal 2018. Improved performance at our Plus Fashion and
Kid Fashion segments was offset by declines at our Premium Fashion and Value Fashion segments. On a consolidated basis,
gross margin reflects higher shipping costs of approximately $40 million across the segments as a result of an increased mix of
direct channel sales and higher air freight costs, offset by the realization of approximately $35 million in synergies and cost reduction
benefits achieved from product sourcing and transportation costs.
Gross margin as a percentage of net sales is dependent upon a variety of factors, including changes in the relative sales mix among
brands, changes in the mix of products sold, the timing and level of promotional activities and fluctuations in material costs. These
factors, among others, may cause cost of goods sold as a percentage of net revenues to fluctuate from period to period.
Gross margin rate highlights on a segment basis are as follows:
• Premium Fashion gross margin rate performance declined by approximately 60 basis points, reflecting higher shipping
costs related to increased direct channel penetration and an increased level of promotional selling resulting from soft
product acceptance during the first half of Fiscal 2018, offset in part by the segment's cost of goods sold initiative.
• Plus Fashion gross margin rate performance improved by approximately 30 basis points, reflecting improved product
acceptance and lower levels of promotional selling, offset in part by higher shipping costs related to the increased direct
channel penetration.
• Kids Fashion gross margin rate performance improved approximately 90 basis points, resulting from improved product
acceptance, offset in part by incremental freight expenses necessary to meet higher product demand.
• Value Fashion gross margin rate performance declined approximately 280 basis points, resulting from higher markdown
requirements to maintain appropriate inventory levels, a higher level of promotional selling due to lower than expected
customer demand, and higher shipping costs related to the increased direct channel penetration.
Buying, distribution and occupancy ("BD&O") expenses consist of store occupancy and utility costs (excluding depreciation) and
all costs associated with the buying and distribution functions.
BD&O expenses increased by $11.0 million, or 1.0%, to $1,149.5 million in Fiscal 2018. Higher buying costs and variable
distribution costs related to the increased penetration of our direct channel business were partly offset by lower occupancy expenses
related to our fleet optimization program, which provided approximately $15 million of cost reductions during Fiscal 2018. BD&O
expenses as a percentage of net sales increased 40 basis points to 20.7% in Fiscal 2018, primarily due to the de-leveraging effect
of lower comparable sales.
Selling, general and administrative (“SG&A”) expenses consist of compensation and benefit-related costs for sales and store
operations personnel, administrative personnel and other employees not associated with the functions described above under
BD&O expenses. SG&A expenses also include advertising and marketing costs, information technology and communication costs,
supplies for our stores and administrative facilities, insurance costs, legal costs and costs related to other administrative services.
41
ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)
SG&A expenses decreased by $28.0 million, or 1.6%, to $1,766.2 million in Fiscal 2018. The decrease in SG&A expenses was
primarily due to $110 million in synergies and cost reduction initiatives, mainly reflecting headcount and non-merchandise
procurement savings. Also contributing to the decrease were lower store expenses, resulting from the fleet optimization program,
and lower performance-based compensation. These items were offset in part by inflationary increases, higher write-downs of store
related fixed assets, primarily at the Value Fashion segment, and the impact of the additional week in Fiscal 2018 recorded for
all segments. SG&A expenses as a percentage of net sales decreased by 20 basis points to 31.7% in Fiscal 2018, and reflects the
impact of the reduced expenses, offset in part by the de-leveraging effect of lower comparable sales.
Depreciation and amortization expense decreased by $27.3 million, or 7.8%, to $323.5 million in Fiscal 2018. The decrease was
primarily due to a reduction in store count resulting from our fleet optimization program, offset in part by incremental depreciation
from capital investments.
Operating loss. Operating loss was $88.9 million for Fiscal 2018 compared to $1,334.3 million for Fiscal 2017 and is discussed
on a segment basis below.
Operating results for our four operating segments is presented below.
Operating loss:
Premium Fashion
Plus Fashion
Kids Fashion
Value Fashion
Unallocated restructuring and other related charges
Unallocated impairment of goodwill
Unallocated impairment of other intangible assets
Unallocated acquisition and integration expenses
Total operating loss
_______
(NM) Not meaningful.
Fiscal Years Ended
August 4,
2018
July 29,
2017
(millions)
$ Change
% Change
$
$
$
102.3
0.6
18.7
(128.5)
(76.6)
—
—
(5.4)
(88.9) $
$
129.6
(12.7)
(60.5)
(56.0)
(78.1)
(489.1)
(728.1)
(39.4)
(1,334.3) $
(27.3)
13.3
79.2
(72.5)
1.5
489.1
728.1
34.0
1,245.4
(21.1)%
NM
NM
NM
(1.9)%
NM
NM
86.3 %
93.3 %
Premium Fashion operating income decreased by $27.3 million as a result of lower gross margin, as discussed above, and higher
operating expenses. The operating expense increase was primarily caused by higher BD&O expense reflecting increased penetration
of our direct channel business.
Plus Fashion operating income increased by $13.3 million as a result of an increase in the gross margin rate, as discussed above,
and a decrease in SG&A expenses, which were offset in part by higher BD&O expenses and a decrease in comparable sales, also
discussed above. The higher BD&O expenses primarily reflected the increased penetration of our direct channel business. SG&A
expense reductions were primarily driven by a decrease in administrative payroll costs, lower marketing expenses, and other cost
reductions associated with the Change for Growth program.
Kids Fashion operating income increased by $79.2 million as a result of an increase in comparable sales and gross margin rate,
as discussed above, as well as lower SG&A expenses. SG&A expense reductions were primarily driven by lower store expenses
associated with our fleet optimization program, lower marketing expenses and a decrease in administrative payroll costs mainly
associated with the Change for Growth program.
Value Fashion operating results decreased by $72.5 million as a result of lower comparable sales and gross margin rate, as discussed
above, and an increase in SG&A expenses, which were offset in part by lower BD&O expenses. The higher SG&A expenses
primarily reflect higher non-cash charges to write-down store-related fixed assets as previously discussed, offset in part by a
decrease in administrative payroll costs mainly associated with the Change for Growth program. The lower BD&O expenses
primarily reflect lower occupancy expenses associated with our fleet optimization program.
42
ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)
Unallocated restructuring and other related charges reflect costs incurred under the Change for Growth program. Expenses of
$76.6 million for Fiscal 2018 included $59.2 million for professional fees incurred in connection with the identification and
implementation of the transformation initiatives, $5.7 million of severance and other related expenses, and asset impairments of
$11.7 million reflecting the closure of certain under-performing stores as well as the write-down of a building. The $78.1 million
of unallocated restructuring and other related charges in Fiscal 2017 primarily reflect $30.8 million of severance and other related
expenses, $12.7 million for charges related to the fleet optimization program and $33.4 million for professional fees incurred in
connection with the identification and implementation of transformation initiatives.
Unallocated impairment of goodwill reflects the Fiscal 2017 write-down of the carrying values of the reporting units to their fair
values and is included in our operating segments as follows: $428.9 million at our Premium Fashion segment and $60.2 million
at our Plus Fashion segment. There was no unallocated impairment of goodwill in Fiscal 2018.
Unallocated impairment of other intangible assets reflects the Fiscal 2017 write-down of our trade name intangible assets to their
fair values as follows: $210.0 million of our Ann Taylor trade name, $356.3 million of our LOFT trade name and $161.8 million
of our Lane Bryant trade name. There was no unallocated impairment of other intangible assets in Fiscal 2018.
Unallocated acquisition and integration expenses of $5.4 million for Fiscal 2018 primarily reflected costs associated with the
post-acquisition integration of ANN's distribution operations, including the closure of the former ANN distribution facility in
Louisville, Kentucky, as well as the gain on the related sale of that facility, which occurred in Fiscal 2018. The $39.4 million of
unallocated acquisition and integration expenses in Fiscal 2017 represents costs related to the ANN Acquisition consisting of $14.3
million of severance and retention costs, $8.0 million of settlement charges and professional fees related to the termination of the
pension plan acquired in the ANN Acquisition, and $17.1 million of other costs associated with the post-acquisition integration
of ANN's operations.
Interest expense increased by $10.8 million to $113.0 million for Fiscal 2018, primarily due to a higher interest rate on our term
loan.
Loss on extinguishment of debt. During Fiscal 2018, the company made repayments of $180.0 million which were applied towards
future scheduled quarterly payments of the outstanding principal balance of the term loan debt, resulting in a $5.0 million pre-tax
loss reflecting the acceleration of deferred financing fees.
Benefit for income taxes from continuing operations represents federal, foreign, state and local income taxes. We recorded a benefit
of $62.3 million in Fiscal 2018 on a pre-tax loss of $205.3 million, for an effective tax rate of 30.3%, which reflects the provisional
impact of recording the tax effects associated with the 2017 Act. This was offset by the impact of recording a valuation allowance
on certain state deferred tax assets and accounting for the tax effects of share-based compensation. In Fiscal 2017, we recorded
a benefit of $367.5 million on a pre-tax loss of $1,435.5 million for a 25.6% effective tax rate. The effective annual tax rate for
Fiscal 2017 is lower than the statutory federal and state tax rate primarily because $489.1 million of the impairment of goodwill
is non-deductible for income tax purposes and is treated as a permanent difference. Refer to Note 15 to the accompanying
consolidated financial statements.
Loss from continuing operations decreased by $925.0 million to $143.0 million in Fiscal 2018, primarily due to the impairment
of goodwill and other intangible assets, net of the related income tax benefit, recorded in the year-ago period as discussed above.
Loss from continuing operations per diluted common share was $0.73 per share in Fiscal 2018 compared to $5.48 per share in the
year-ago period due to lower net loss discussed above.
43
ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)
FINANCIAL CONDITION AND LIQUIDITY
Cash Flows
Fiscal 2019 Compared to Fiscal 2018
The table below summarizes our cash flows for the years presented as follows:
Cash flows provided by operating activities
Cash flows provided by (used in) investing activities
Cash flows provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Fiscal Years Ended
August 3,
2019
August 4,
2018
$
$
(millions)
21.1
67.7
0.3
89.1
$
$
273.9
(134.2)
(226.2)
(86.5)
Cash flows provided by operating activities. Net cash provided by operating activities was $21.1 million for Fiscal 2019, compared
with $273.9 million during the year-ago period. Cash flows from operations was lower during Fiscal 2019 primarily due to higher
net loss before non-cash expenses and higher working capital outflows, primarily related to timing of payments for inventory and
other operating expenses, offset in part by favorable timing of store rent expense payments.
Cash flows provided by (used in) investing activities. Net cash provided by investing activities for Fiscal 2019 was $67.7 million,
compared with cash used in investing activities of $134.2 million for the year-ago period. Net cash provided by investing activities
in Fiscal 2019 consisted primarily of net proceeds from the sale of maurices of $203.2 million, offset in part by capital expenditures
of $136.5 million. Net cash used in investing activities in the year-ago period was $134.2 million, consisting primarily of capital
expenditures of $186.3 million, offset in part by $52.1 million of proceeds from the sale of assets, which substantially reflects the
redemption of the cash surrender value on certain company-owned life insurance policies.
Net cash provided by (used in) financing activities. Net cash provided by financing activities was $0.3 million during Fiscal 2019.
Net cash used in financing activities was $226.2 million during the year-ago period, consisting primarily of principal repayments
of our term loan debt.
Fiscal 2018 Compared to Fiscal 2017
The table below summarizes our cash flows for the years presented as follows:
Cash flows provided by operating activities
Cash flows used in investing activities
Cash flows used in financing activities
Net decrease in cash and cash equivalents
Fiscal Years Ended
August 4,
2018
July 29,
2017
(millions)
$
273.9
(134.2)
(226.2)
(86.5) $
343.6
(269.7)
(120.9)
(47.0)
$
$
Cash flows provided by operating activities. Net cash provided by operating activities was $273.9 million for Fiscal 2018, compared
with $343.6 million during Fiscal 2017. Cash provided by operations was lower during Fiscal 2018 primarily due to lower net
income before non-cash expenses and higher working capital outflows, primarily related to timing of payments for store rent
expense.
Cash flows used in investing activities. Net cash used in investing activities for Fiscal 2018 was $134.2 million, compared with
$269.7 million for Fiscal 2017. Net cash used in investing activities in Fiscal 2018 consisted primarily of capital expenditures of
$186.3 million, offset in part by $52.1 million of proceeds from the sale of assets, which substantially reflects the redemption of
44
ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)
the cash surrender value on certain company-owned life insurance policies. Net cash used in investing activities in Fiscal 2017
was $269.7 million, consisting primarily of capital expenditures of $258.1 million and the purchase of an intangible asset of $11.6
million.
Cash flows used in financing activities. Net cash used in financing activities was $226.2 million during Fiscal 2018, consisting
primarily of $225.0 million of principal repayments of our term loan debt. Net cash used in financing activities was $120.9 million
during Fiscal 2017, consisting primarily of principal repayments of our term loan debt.
Capital Spending
In Fiscal 2019, we had $136.5 million in capital expenditures, which included spending for capital investments primarily including
initiatives identified with the Change for Growth program as well as routine spending in connection with our digital initiatives,
infrastructure, and our retail store network. The most significant initiatives are described below.
During Fiscal 2019, we continued to invest in initiatives that support our omni-channel capability as well as initiatives aimed at
improving product availability and fulfillment efficiency to enhance our capability to analyze transaction data to support more
effective product and marketing decisions. Lastly, in connection with the Change for Growth program, we spent approximately
$35 million in Fiscal 2019 on projects to improve operational efficiency and enhance our customer-facing capabilities.
For Fiscal 2020, we expect a significant reduction in the level of capital spending reflecting the end of the Change for Growth
program and fewer new store openings. As a result of those changes, we expect that total capital spending in Fiscal 2020 will be
in the range of $80-$100 million. Our capital requirements are expected to be funded primarily with available cash and cash
equivalents, operating cash flows and, to the extent necessary, borrowings under the Company's Amended Revolving Credit
Agreement which is defined and discussed below.
Liquidity
Our primary sources of liquidity are the cash flows generated from our operations, remaining availability under our Amended
Revolving Credit Agreement after taking into account outstanding borrowings, letters of credit (inclusive of the collateral limitation),
proceeds from the sale of assets, such as the disposition of maurices, and available cash and cash equivalents. As of August 3,
2019, we had $396.5 million of availability under the Amended Revolving Credit Agreement.
These sources of liquidity are used to fund our ongoing cash requirements, such as inventory purchases and other changes in
working capital requirements, retail store expansion, construction and renovation of stores, investment in technological and supply
chain infrastructure, acquisitions, debt service, stock repurchases, contingent liabilities (including uncertain tax positions) and
other corporate activities.
In addition to the ongoing cash requirements, those sources of liquidity will also be used to fund the announced wind down of our
Dressbarn operations which is expected to result in the payment of severance related benefits, as well as other closing costs,
primarily related to the closing of our retail stores. Such payments could be significant and have a material effect on our cash
flows from operations. Further, as the Company identifies additional cost reduction opportunities, costs associated with those
actions may have a material impact on our cash flows from operations. Lastly, it will also fund the payments to former members
of management under the Company's deferred compensation program, as well as severance payments to employees impacted by
the job eliminations in the fourth quarter of Fiscal 2019. Management believes that cash flows from operations at anticipated
levels and our existing sources of liquidity described above will be sufficient to support our operating needs, costs associated with
our transformation initiatives, capital requirements and our debt service requirements for at least the next twelve months.
As of August 3, 2019, we had cash and cash equivalents of $328.0 million, approximately $33 million, or 10%, which was held
overseas by our foreign subsidiaries. We continue to evaluate various alternatives for our remaining foreign held cash balances
and will repatriate any excess cash balances as necessary.
45
ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)
Debt
For a detailed description of the terms and restrictions under our amended and restated revolving credit agreement dated February
27, 2018 (the "Amended Revolving Credit Agreement") and the $1.8 billion seven-year term loan (the "Term Loan"), see Note 10
to the accompanying consolidated financial statements.
Amended Revolving Credit Agreement
We believe that our Amended Revolving Credit Agreement is adequately diversified with no undue concentrations in any one
financial institution. We were in compliance with all financial covenants contained in the Amended Revolving Credit Agreement
as of August 3, 2019. The Amended Revolving Credit Agreement extends the maturity of the Company's revolving credit facility
from August 2020 to the earlier of (i) 5 years from the closing date (or February 2023) or (ii) 91 days prior to the maturity date of
the Term Loan (unless (a) the outstanding principal amount of the Term Loans is $150 million or less and (b) the Company maintains
liquidity, as defined in the Amended Revolving Credit Agreement (which can include (1) availability under the revolving credit
facility in excess of the greater of $100 million and 20% of the credit limit and (2) cash held in a controlled account of the
administrative agent of the revolving credit facility) in an amount equal to the outstanding principal amount of the remaining Term
Loan, as described in more detail in Note 10 to the accompanying consolidated financial statements. We believe the remaining
availability under our Amended Revolving Credit Agreement, as amended on September 20, 2019 and described in Note 22 to the
accompanying consolidated financial statements, after taking into account outstanding borrowings, letters of credit (inclusive of
the collateral limitation), together with cash flows generated from our operations at anticipated levels, proceeds from the sale of
assets, such as the disposition of maurices, and available cash and cash equivalents will provide sufficient liquidity to continue
to support our operating needs, costs associated with our transformational initiatives and capital requirements for at least the next
twelve months.
Term Loan
In Fiscal 2018, we repaid a total of $225.0 million of Term Loan debt of which $180.0 million was applied to future quarterly
scheduled payments such that we are not required to make our next quarterly payment of $22.5 million until November of calendar
2020. We may from time to time seek to repay or purchase our outstanding debt through open market transactions, privately
negotiated transactions, or otherwise depending on prevailing market conditions and our liquidity requirements, subject to any
restrictions under our debt arrangements, among other factors.
Additionally, we expect to incur cash interest expense of approximately $93 million on the Term Loan in Fiscal 2020 based on
the outstanding balance and interest rates in effect as of August 3, 2019. Such interest and principal payments are expected to be
funded with our cash flows from operations and available cash and cash equivalents.
Common Stock Repurchase Program
There were no purchases of common stock during Fiscal 2019, Fiscal 2018 or Fiscal 2017 under the repurchase program. For a
complete description of our 2016 Stock Repurchase Program, see Note 17 to the accompanying consolidated financial statements.
We may from time to time repurchase shares under the repurchase program depending on our liquidity requirements and prevailing
market conditions, subject to any restrictions under our debt agreements, among other factors.
46
ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)
CONTRACTUAL AND OTHER OBLIGATIONS
Firm Commitments
The following table summarizes certain of our aggregate contractual obligations as of August 3, 2019, and the estimated timing
and effect that such obligations are expected to have on our liquidity and cash flows in future periods. We expect to fund the firm
commitments with operating cash flows generated in the normal course of business, available cash and cash equivalents and,
availability under the Amended Revolving Credit Agreement, as required.
Contractual Obligations
Fiscal 2020
Payments Due by Period
Fiscal 2021-
2022
Fiscal 2023-
2024
(millions)
Fiscal 2025
and
Thereafter
Total
Long-term debt
Interest payments on long-term debt
Operating leases
Inventory purchase commitments
Other commitments
Total
$
$
— $
93.2
462.0
635.8
44.7
1,235.7
$
156.5
175.9
727.7
—
24.9
1,085.0
$
$
1,215.0
6.4
415.3
—
5.8
1,642.5
$
$
— $
—
563.3
—
1.1
564.4
$
1,371.5
275.5
2,168.3
635.8
76.5
4,527.6
The following is a description of our material, firmly committed contractual obligations as of August 3, 2019:
•
•
Long-term debt represents contractual payments of outstanding borrowings under our borrowing agreements as of
August 3, 2019.
Interest payments on long-term debt represent interest payments related to our borrowing agreements. Interest payments
on our Term Loan were calculated based on the interest rates in effect as of August 3, 2019 and the estimated outstanding
balance, giving effect to the contractual repayments in future periods. Interest payments on our Amended Revolving
Credit Agreement, if any, were calculated based on the outstanding balance and the interest rates in effect as of August 3,
2019, as if the borrowings remain outstanding until repayment is required at expiration in February 2023.
• Operating lease obligations represent the estimated minimum lease rental payments for our real estate and operating
equipment in various locations around the world and do not include incremental rentals based on a percentage of sales.
Although such amounts are generally non-cancelable, certain leases are cancelable if specified sales levels are not achieved
or co-tenancy requirements are not being satisfied. All future minimum rentals under these cancelable leases have been
included in the above table. In addition to such amounts, we are normally required to pay taxes, insurance and occupancy
costs relating to the leased real estate properties, which are not included in the table above.
•
Inventory purchase commitments represent our agreements to purchase fixed or minimum quantities of goods at
determinable prices. While a portion of these commitments may be canceled at our option up to 30 days prior to the
vendor’s scheduled shipment date, such commitments are generally not canceled and are included in the table above.
• Other commitments primarily represent contractual payments related to information technology services. While these
commitments may be canceled at our option for a termination fee, such commitments are generally not canceled and are
included in the table above.
Excluded from the above contractual obligations table is the non-current liability for unrecognized tax benefits of $72.8 million
as of August 3, 2019. This liability for unrecognized tax benefits has been excluded from the above table because we cannot make
a reliable estimate of the period in which the liability will be settled, if ever.
The above table also excludes the following: (i) non-debt related amounts included in current liabilities in the consolidated balance
sheet as of August 3, 2019, as these items will be paid within one year; and (ii) non-current liabilities that have no cash outflows
47
ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)
associated with them (e.g., deferred revenue) or the cash outflows associated with them are uncertain or do not represent a "purchase
obligation" as the term is used herein (e.g., deferred taxes and other miscellaneous items).
We also have certain contractual arrangements that would require us to make payments if certain circumstances occur. See Notes
16 and 19 to the accompanying consolidated financial statements for a description of our contingent commitments not included
in the above table, including obligations under employment agreements.
Off-Balance Sheet Arrangements
Our off-balance sheet firm commitments, which include outstanding letters of credit, amounted to approximately $43.5 million
as of August 3, 2019. We do not maintain any other off-balance sheet arrangements, transactions, obligations or other relationships
with unconsolidated entities that would be expected to have a material current or future effect on our operational results, financial
condition and cash flows.
MARKET RISK MANAGEMENT
We are exposed to a variety of market-based risks, representing our potential exposure to losses arising from adverse changes in
market rates and prices. These market risks include, but are not limited to, changes in foreign currency exchange rates relating to
our Canadian operations, changes in interest rates, and changes in both the value and liquidity of our cash and cash equivalents.
Consequently, in the normal course of business, we employ a number of established policies and procedures to manage such risks,
including considering, at times, the use of derivative financial instruments to hedge such risks. In order to protect against our
interest rate exposure, we entered into an interest rate swap agreement in March 2019. However, as a matter of policy, we do not
enter into derivative financial instruments for speculative or trading purposes.
Foreign Currency Risk Management
We currently do not have any significant risks related to the fluctuation of foreign currency exchange rates. Purchases of inventory
for resale in our retail stores and direct channel operations normally are transacted in U.S. dollars. In addition, our 100% owned
international retail operations represent approximately 2% of our consolidated revenues for Fiscal 2019.
Interest Rate Risk Management
As of August 3, 2019, we had $1,371.5 million in variable-rate debt outstanding under our borrowing agreements. To protect
against future increases in interest rates, on March 22, 2019, we entered into an interest rate swap contract, which was designated
as a cash flow hedge. This interest rate swap became effective on March 29, 2019. It has a notional principal amount of $600.0
million, a swap rate of 2.35%, and matures on March 31, 2021. We remain subject to changes in interest rates for the remaining
portion of our variable-rate debt not covered by the interest rate swap contract. For each 0.125% increase or decrease in interest
rates, our interest expense would increase or decrease by approximately $1.0 million, and net income would decrease or increase,
respectively, by approximately $0.7 million. See Note 10 to the accompanying consolidated financial statements for a summary
of the terms and conditions of our borrowing agreements and Note 13 for a summary of the terms of our interest rate swap.
Investment Risk Management
As of August 3, 2019, we had cash and cash equivalents of $328.0 million. We maintain cash deposits and cash equivalents with
well-known and stable financial institutions; however, there were significant amounts of cash and cash equivalents on deposit at
overseas financial institutions as well as FDIC-insured financial institutions that were in excess of FDIC-insured limits at the end
of Fiscal 2019. This represents a concentration of credit risk. While there have been no losses recorded on deposits of cash and
cash equivalents to date, there can be no assurance that we will not experience losses on our deposits in the future.
48
ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)
CRITICAL ACCOUNTING POLICIES
The SEC's Financial Reporting Release No. 60, "Cautionary Advice Regarding Disclosure About Critical Accounting
Policies" ("FRR 60"), suggests companies provide additional disclosure and commentary on those accounting policies considered
most critical. FRR 60 considers an accounting policy to be critical if it is important to our operational results and financial position
and requires significant judgment and estimates on the part of management in its application. Our estimates are often based on
complex judgments, probabilities and assumptions that management believes to be reasonable, but that are inherently uncertain
and unpredictable. Actual results may differ from these estimates under different assumptions or conditions. It is also possible
that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of
alternative estimated amounts. We believe that the following list represents the critical accounting policies as contemplated by
FRR 60. For a discussion of all of our significant accounting policies, see Notes 3 and 4 to the accompanying consolidated financial
statements.
Inventories
Retail Inventory Method
We hold inventory for sale through our retail stores and direct channel sites. All of our segments, other than Premium Fashion
discussed below, use the retail inventory method of accounting, under which inventory is stated at the lower of cost, on a First In,
First Out (“FIFO”) basis, or market. Under the retail inventory method, the valuation of inventory at cost and the resulting gross
margin are calculated by applying a calculated cost-to-retail ratio to the retail value of inventory. Inherent in the retail method are
certain significant management judgments and estimates including, among others, initial merchandise markup, markdowns and
shrinkage, which significantly impact the ending inventory valuation at cost as well as the resulting gross margins.
We continuously review inventory levels to identify slow-moving merchandise and markdowns necessary to clear slow-moving
merchandise, which reduces the cost of inventories to its estimated net realizable value. Consideration is given to a number of
quantitative and qualitative factors, including current pricing levels and the anticipated need for subsequent markdowns, aging of
inventories, historical sales trends, and the impact of market trends and economic conditions. Estimates of markdown requirements
may differ from actual results due to changes in quantity, quality and mix of products in inventory, as well as changes in consumer
preferences, market and economic conditions. Our historical estimates of these costs and the markdown provisions have not differed
materially from actual results.
Weighted-average Cost Method
The Premium Fashion segment uses the weighted-average cost method to value inventory, under which inventory is valued at
the lower of average cost or market, at the individual item level. Inventory cost is adjusted when the current selling price or future
estimated selling price is less than cost.
Reserves for inventory shrinkage, representing the risk of physical loss of inventory, are estimated based on historical experience
and are adjusted based upon physical inventory counts.
Impairment of Goodwill and Other Intangible Assets
Goodwill and certain other intangible assets deemed to have indefinite useful lives are not amortized. Rather, goodwill and such
indefinite-lived intangible assets are assessed for impairment at least annually, or whenever events or changes in circumstances
indicate that it is more likely than not that the carrying amount may not be recoverable.
To assist management in the process of determining goodwill impairment, we review and consider an appraisal from an independent
valuation firm. Estimates of fair value are determined using discounted cash flows and market comparisons. These approaches
use significant estimates and assumptions, including projected future cash flows and the timing of those cash flows, discount rates
reflecting the risks inherent in future cash flows, perpetual growth rates and determination of appropriate market comparables.
Estimating the fair value is judgmental in nature, which could have a significant impact on whether or not an impairment charge
is recognized and the magnitude of any such charge.
49
ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)
The fair values of the reporting units are determined using a combination of the income approach (the discounted cash flows
method) and the market approach (guideline public company method and guideline transaction method). We believe that the income
approach is the most reliable indication of value as it captures forecasted revenues and earnings for the reporting units in the
projection period that the market approach may not directly incorporate. Therefore, a greater weighting was applied to the income
approach than the market approach.
The assessment is performed at the reporting unit level. Through the third quarter of Fiscal 2019, the reporting units identified for
the purpose of goodwill impairment assessment, after considering the economic aggregation criteria, were ANN, Justice, Lane
Bryant, Dressbarn and Catherines. During the fourth quarter, the Company determined that several discrete events had occurred
which changed the manner in which the business was expected to be managed going forward. The sale of maurices, the announced
wind down of the Dressbarn brand, as well as changes in senior management, including the appointment of a new Chief Operating
Decision Maker (“CODM”), all occurred in the fourth quarter of Fiscal 2019. After considering the impact of all these changes,
the Company concluded that its new management was beginning to request more discrete operating information related to its Ann
Taylor and LOFT businesses, which are components of the Premium Fashion segment. Therefore, since new management,
which included the Company's chief operating decision maker, was beginning to look at the components separately, and beginning
to make decisions and allocate resources on that basis, the Company concluded that these components meet the definition of
separate operating segments. Given that the determination of a reporting unit for purposes of goodwill impairment testing cannot
be at a level higher than the operating segment, the Company determined that Ann Taylor and LOFT now meet the definition of
separate operating segments and therefore goodwill has been separately allocated to these two units and tested for impairment as
part of the fourth quarter impairment test.
Fiscal 2019 Interim Impairment Assessment
The third quarter of Fiscal 2019 marked the continuation of the challenging market environment in which the Company competes.
Continued declines in customer traffic across the Company's brands negatively impacted our February and March performance
causing lower comparative sales than expected, along with the expectation that such trends may continue into the fourth quarter.
The Company concluded that these factors, as well as the significant decline in the Company's stock price, represented impairment
indicators which required the Company to test its goodwill and indefinite-lived intangible assets for impairment during the third
quarter of Fiscal 2019 (the "Interim Test").
As a result of lower forecasted revenue assumptions over the projection period, partially offset by the impact of estimated cost
reductions resulting from the Change for Growth Program (refer to the Overview section of this MD&A for a detailed discussion),
the Company recognized an impairment loss of $25.0 million to write-down the carrying values of its trade name intangible assets
as follows: $23.0 million of our Lane Bryant trade name and $2.0 million of our Catherines trade name. The fair value of the
trade names was determined using an approach that values the Company’s cash savings from having a royalty-free license compared
to the market rate it would pay for access to use the trade name (Level 3 measurement). In addition, the Company recognized a
goodwill impairment charge of $115.1 million as follows: $65.8 million at the Lane Bryant reporting unit and $49.3 million at
the Catherines reporting unit to write-down the carrying values of the reporting units (based on the revised carrying value after
deducting the trade name impairments discussed above) to their fair values.
Significant assumptions underlying the discounted cash flows included: a weighted average cost of capital ("WACC") of 15.0%
for Lane Bryant and 14.0% for Catherines which was determined from relevant market comparisons and adjusted for specific
risks; operating income margin of low single-digits and a terminal growth rate of 2%. Changes in these assumptions could have
a significant impact on the valuation model. As an example, the impact of a hypothetical change in each of the significant
assumptions is described below. In quantifying the impact, we changed only the specific assumption and held all other assumptions
constant. A hypothetical 1% change in the WACC rate would increase/decrease the fair value by approximately $2 million at Lane
Bryant and have no effect at Catherines. A hypothetical 1% change in the operating income margin percentages in all periods
would increase/decrease the fair value by approximately $50 million at Lane Bryant and approximately $15 million at Catherines.
Finally, a hypothetical 1% change in the terminal growth rate would increase/decrease the fair value by approximately $1 million
at Lane Bryant and have no effect at Catherines. Any changes in fair value resulting from changes in the assumptions discussed
above would increase/decrease the impairment charges of the respective trade name. However, since the goodwill balances have
been written down to zero, changes in the underlying assumptions discussed above would have had no impact on the Catherines
goodwill impairment and may have resulted in a decrease in the goodwill impairment charge at Lane Bryant.
50
ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)
Fiscal 2019 Year-End Impairment Assessment
The Company performed its regular annual assessment at the beginning of the fourth quarter and did not note any impairment of
goodwill or intangible assets as it had just completed the Interim Test. However, during the fourth quarter of Fiscal 2019, the
Company's stock price again declined significantly, dropping from the price used in the Interim Test of $1.20 to a value of $0.33
at the end of Fiscal 2019. This decline, coupled with a decline in the fair value of the Company's Term Loan, as defined herein,
led the Company to conclude that the items represented further impairment indicators which again required the Company to test
its goodwill and indefinite-lived intangible assets for impairment during the fourth quarter of Fiscal 2019 (the "Year-End Test").
The Year-End Test was determined with the assistance of an independent valuation firm using the same methodologies as the
Interim Test. While the actual cash flows achieved in the fourth quarter of Fiscal 2019 differed from the projected Fiscal 2019
cash flows used in the Interim Test, the Company concluded that the primary difference arose from differences in gross margin
rate, which resulted from the excess inventory positions previously noted herein. As a result, the Company concluded that the
changes did not impact the cash flow estimates used for the future years, therefore the cash flow projections underlying the Year-
End Test were substantially the same as those used in the Interim Test. The primary driver of the change in value was the change
in the discount rate assumption. In the Interim Test, the discount rate ranged from 14%-15%. However, because of further declines
in the Company's stock price and the fair value of the Company's debt, the discount rates used in the Year-End Test ranged from
27% for ANN and 29% for the other units. Other key assumptions included operating income margin ranging from low single-
digits to low double-digits and a terminal growth rate of 2%.
Additionally, as a result of identifying that Ann Taylor and LOFT were additional reporting units, we performed an initial test
on those units utilizing a similar approach as that used for the ANN test described above. The discount rates used were 27% for
LOFT and 28% for Ann Taylor.
While the fair value of the LOFT reporting unit significantly exceeded its carrying value in the Year-End test, the fair value of
the Ann Taylor reporting unit exceeded its carrying value by approximately 10%. Additionally, as a result of the significantly
higher discount rate compared to the Interim Test, the Company recognized impairment losses to write-down the carrying values
of its trade name intangible assets to their fair values as follows: $15.0 million of our Ann Taylor trade name, $60.3 million of
our LOFT trade name, $14.0 million of our Lane Bryant trade name, $4.0 million of our Catherines trade name and $16.6 million
of our Justice trade name. In addition, the Company recognized a goodwill impairment charge of $160.9 million at the Justice
reporting unit to write-down the carrying values of the reporting units to their fair values.
Other
If we continue to experience sustained periods of unexpected declines or shifts in consumer spending, or fail to realize the anticipated
benefits of the cost reduction initiatives, it could adversely impact the long-term assumptions used in our Interim Test and Year-
End Test. Such trends may also have a negative impact on some of the other key assumptions used in the Interim Test and Year-
End Test, including anticipated operating income margin as well as the weighted average cost of capital rate. These assumptions
are highly judgmental and subject to change. In addition, further declines in the Company's stock price, or the fair value of its
Term Loan debt, could cause declines in the weighted average cost of capital rate. Such changes, if material, may require us to
incur additional impairment charges for goodwill and/or other indefinite-lived intangible assets in future periods, including at the
Ann Taylor reporting unit. As an example, the impact of a hypothetical 1% reduction in the operating income percentage in all
periods would decrease the fair value of Justice by approximately $35 million and the fair value of Ann Taylor by approximately
$25 million. If that were to occur, the fair value of the Ann Taylor reporting unit would be less than its carrying value and would
result in an impairment of goodwill.
Impairment of Long-Lived Assets
Property and equipment, along with other long-lived assets, are evaluated for impairment periodically whenever events or changes
in circumstances indicate that their related carrying amounts may not be recoverable. In evaluating long-lived assets, including
finite-lived intangible assets, for recoverability, we use our best estimate of future cash flows expected to result from the use of
the asset and its eventual disposition. To the extent that estimated future undiscounted net cash flows attributable to the asset are
less than the carrying amount, an impairment loss is recognized equal to the difference between the carrying value of such asset
51
ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)
and its fair value, considering external market participant assumptions. Assets to be disposed of, and for which there is a committed
plan of disposal, are reported at the lower of carrying value or fair value less costs to sell.
In determining future cash flows, we take various factors into account, including changes in merchandising strategy, the emphasis
on retail store cost controls, the effects of macroeconomic trends such as consumer spending, and the impacts of more experienced
retail store managers and increased local advertising. Since the determination of future cash flows is an estimate of future
performance, there may be future impairments in the event that future cash flows do not meet expectations.
During Fiscal 2019, Fiscal 2018 and Fiscal 2017, we recorded total non-cash impairment charges within continuing and discontinued
operations of $85.8 million, $49.2 million and $35.6 million, respectively, to reduce the net carrying value of certain long-lived
tangible assets to their estimated fair value. Of these amounts, $46.5 million, $12.8 million and $12.7 million in Fiscal 2019, Fiscal
2018 and Fiscal 2017, respectively, are included within Restructuring and other related charges in the consolidated statements of
operations. There have been no impairment losses recorded on our finite-lived intangible assets for any of the periods presented.
See Notes 6 and 8 to the accompanying consolidated financial statements for a further discussion of impairments of long-lived
assets.
Income Taxes
Income taxes are provided using the asset and liability method. Under this method, income taxes (i.e., deferred tax assets and
liabilities, current taxes payable/refunds receivable and tax expense) are recorded based on amounts refundable or payable in the
current year, and include the results of any differences between U.S. GAAP and tax reporting. Deferred income taxes reflect the
tax effect of net operating loss, capital loss and general business credit carry forwards and the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial statement and income tax purposes, as determined under enacted
tax laws and rates. We account for the financial effect of changes in tax laws or rates in the period of enactment.
Valuation allowances are established when management determines that it is more-likely-than-not that some portion or all of a
deferred tax asset will not be realized. This determination requires significant judgment by management. Tax valuation allowances
are analyzed quarterly and adjusted as events occur, or circumstances change, that warrant adjustments to those balances. We have
evaluated the available positive and negative evidence and have concluded that, for a portion of our deferred tax asset, it is more
likely than not that it will not be realized in the foreseeable future. A valuation allowance is a non-cash charge, which does not
eliminate the deferred tax asset but instead reduces the benefit we expect to realize from it in the future.
We also establish a reserve for uncertain tax positions. If we consider that a tax position is more-likely-than-not of being sustained
upon audit, based solely on the technical merits of the position, we recognize the tax benefit. We measure the tax benefit by
determining the largest amount that is greater than 50% likely of being realized upon settlement, presuming that the tax position
is examined by the appropriate taxing authority that has full knowledge of all relevant information. These assessments can be
complex and we often obtain assistance from external advisors. We regularly monitor our position and subsequently recognize the
tax benefit if (i) there are changes in tax law or analogous case law that sufficiently raise the likelihood of prevailing on the technical
merits of the position to more-likely-than-not, (ii) the statute of limitation expires or (iii) there is a completion of an audit resulting
in a settlement of that tax year with the appropriate agency.
As previously mentioned, in the fourth quarter of Fiscal 2019, the Company sold its maurices subsidiary. Effective upon the
closing of the Transaction, the Company received cash proceeds of approximately $210 million and a 49.6% ownership interest
in the operations of maurices through its investment in Viking, consisting of interests in Viking preferred and common stock. The
determination of our estimated tax gain on sale required significant analysis of historic information to determine its tax basis. We
utilized historic information and certain judgments, which we believe were reasonable, in order to estimate the tax impact arising
from the sale of maurices.
In December 2017, the 2017 Tax Cuts and Jobs Act (the "2017 Act") was signed into law. The 2017 Act makes broad and complex
changes to the U.S. tax code that affected the Company in Fiscal 2018 and beyond. Determinations made in applying the 2017
Act require significant judgment by management and the Company believes it made reasonable estimates in recording provisional
amounts during Fiscal 2019 and Fiscal 2018. In that regard, the SEC staff issued Staff Accounting Bulletin Number 118 ("SAB
118"), which provided guidance on accounting for the tax effects of the 2017 Act. SAB 118 provided a measurement period that
should not extend beyond one year from the 2017 Act enactment date of December 22, 2017 for companies to complete the
52
ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)
accounting under Accounting Standards Codification Topic 740, “Income Taxes” ("ASC 740"). That period expired during the
second quarter of Fiscal 2019. During the second quarter of Fiscal 2019, the Company completed its accounting for the impact
of the 2017 Act and increased its Fiscal 2018 estimate of the one-time federal and state transition tax by $2.3 million to $26.9
million and by $0.2 million to $0.9 million, respectively. See Note 15 to the accompanying consolidated financial statements for
further discussion.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
See Note 4 to the accompanying consolidated financial statements for a description of certain recently issued or proposed accounting
standards which may impact our financial statements in future reporting periods.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
For a discussion of our exposure to, and management of our market risks, see “Market Risk Management” in Item 7 included
elsewhere in this Annual Report on Form 10-K and incorporated by reference herein.
Item 8. Financial Statements and Supplementary Data.
The Consolidated Financial Statements of Ascena Retail Group, Inc. and subsidiaries are filed together with this report, as indexed
on page F-1 of this Annual Report on Form 10-K and incorporated by reference herein.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures.
The Company maintains disclosure controls and procedures that are designed to provide reasonable assurance that information
required to be disclosed in the reports that the Company files or submits under the Securities and Exchange Act of 1934, as amended
(the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and
forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
The Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls
and procedures pursuant to Rules 13(a)-15(e) and 15(d)-15(e) of the Exchange Act. Based on that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective at the reasonable
assurance level as of the end of the fiscal year covered by this Annual Report on Form 10-K.
(b) Management’s Assessment of Internal Control over Financial Reporting.
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in
Exchange Act Rule 13a-15(f). Internal control over financial reporting is designed to provide reasonable assurance regarding the
reliability of financial reporting and preparation of financial statements for external purposes in accordance with U.S. Generally
Accepted Accounting Principles. Internal control over financial reporting includes maintaining records that in reasonable detail
accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for
preparation of our financial statements; providing reasonable assurance that receipts and expenditures of the Company's assets
are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use
or disposition of the Company's assets that could have a material effect on our financial statements would be prevented or detected
on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute
53
assurance that a misstatement of our financial statements would be prevented or detected. Further, the evaluation of the effectiveness
of internal control over financial reporting was made as of a specific date, and continued effectiveness in future periods is subject
to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with our
policies and procedures may decline.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial
Officer, the Company conducted an evaluation of the effectiveness of our internal control over financial reporting as of the end
of the fiscal year covered by this report based on the framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission in Internal Control-Integrated Framework (2013). Based on this evaluation, management concluded that
the Company's internal control over financial reporting was effective at the reasonable assurance level as of the end of the fiscal
year covered by this Annual Report on Form 10-K.
Deloitte & Touche LLP, the Company's independent registered public accounting firm, has issued an attestation report on the
Company's internal control over financial reporting. The report is included elsewhere in this Annual Report on Form 10-K.
(c) Changes in Internal Control Over Financial Reporting.
There has been no change in the Company’s internal control over financial reporting during the fiscal quarter ended August 3,
2019 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information.
None.
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
Information with respect to this item is incorporated by reference from our definitive Proxy Statement to be filed with the SEC
within 120 days after the end of our last fiscal year. We have adopted a Code of Ethics for the Chief Executive Officer and Senior
Financial Officers. The Code of Ethics for the Chief Executive Officer and Senior Financial Officers is posted on our website,
www.ascenaretail.com, and can be found by clicking on “For Investors,” then under the Investors Relations pull-down menu, click
on "Corporate Governance," then clicking the link for the “Code of Ethics for Senior Financial Officers.” We intend to satisfy the
disclosure requirement regarding any amendment to, or a waiver of, a provision of the Code of Ethics by posting such information
on our website, www.ascenaretail.com. We undertake to provide to any person a copy of this Code of Ethics upon request to our
Secretary at our principal executive offices, 933 MacArthur Boulevard, Mahwah, NJ 07430.
Item 11. Executive Compensation.
Information with respect to this item is incorporated by reference from our definitive Proxy Statement to be filed with the SEC
within 120 days after the end of our last fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Securities Authorized for Issuance under Equity Compensation Plans
The following table summarizes our equity compensation plans under which the Company's equity securities are authorized for
issuance as of August 3, 2019:
54
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
_______
(a)
(b)
(c)
Number of Securities
to be Issued upon
Exercise of
Outstanding Options
and Vesting of
Restricted Stock
Units
24,365,498
—
24,365,498
Weighted-Average
Exercise Price of
Outstanding Options
and the Grant Date
Fair Value for
Restricted Stock
Units
$
$
5.92
—
5.92
Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in Column (a)(1))
18,764,734
—
18,764,734
(1) In November 2015, the Board of Directors approved the amended and restated 2010 Stock Incentive Plan (the “2016 Omnibus Incentive Plan”)
which was approved by the Company’s shareholders and became effective on December 10, 2015. In November 2018, the Board of Directors
approved the amendment of the Company's 2016 Omnibus Incentive Plan to increase the shares available for grant thereunder, which was
approved by the Company's shareholders and became effective on December 14, 2018. All of the securities remaining available for future
issuance set forth in column (c) may be in the form of options, restricted stock, restricted stock units, performance awards or other stock-
based awards under the Company’s 2016 Omnibus Incentive Plan.
Other Information with respect to security ownership of certain beneficial owners and management is incorporated by reference
from our definitive Proxy Statement to be filed with the SEC within 120 days after the end of our fiscal year.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information with respect to this item is incorporated by reference from our definitive Proxy Statement to be filed with the SEC
within 120 days after the end of our fiscal year.
Item 14. Principal Accounting Fees and Services.
Information with respect to this item is incorporated by reference from our definitive Proxy Statement to be filed with the SEC
within 120 days after the end of our fiscal year.
Item 15. Exhibits, Financial Statement Schedules
PART IV
(a) The index to the financial statements and financial statement schedules are filed as a part of this report on page F-1 and
incorporated by reference herein.
55
(b) List of Exhibits
The following exhibits are filed as part of this Report and except Exhibits 10.15, 21, 23, 31.1, 31.2, 32.1 and 32.2 are all
incorporated by reference from the sources shown.
Exhibit
Number
2.1
3(i)
3(ii)
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
Description
Stock Purchase Agreement, dated March 24, 2019, by and among Ascena Retail Group, Inc., Maurices Incorporated
and Viking Brand Upper Holdings, L.P., is incorporated by reference to Exhibit 2.1 to the Form 8-K filed on March
27, 2019.
Third Amended and Restated Certificate of Incorporation of Ascena Retail Group, Inc. is incorporated by reference
to Exhibit 3.1 to the Form 8-K filed on December 14, 2018.
Second Amended and Restated By-Laws of Ascena Retail Group, Inc., adopted and effective October 3, 2018, are
incorporated by reference to Exhibit 3.1 to the Form 8-K filed on October 9, 2018.
Description of Securities Registered Under Section 12 of the Exchange Act, filed herewith.
Ascena Retail Group, Inc., 2016 Omnibus Incentive Plan is incorporated by reference to Annex A to the Proxy
Statement dated November 3, 2015.*
Employment Agreement dated May 2, 2002 with Elliot S. Jaffe is incorporated by reference to Exhibit 10(tt) to
the Form 10-K filed for the fiscal year ended July 27, 2002, filed on October 15, 2002.*
Amendment dated July 10, 2006 to Employment Agreement dated May 2, 2002 with Elliot S. Jaffe is incorporated
by reference to Exhibit 99.1 to the Form 8-K filed on July 13, 2006.*
Employment Letter dated January 23, 2015 with John Pershing is incorporated by reference to Exhibit 10.6 to the
Form 10-K filed for the fiscal year ended July 25, 2015, filed on September 16, 2015.*
Employment Letter dated July 20, 2015 with Robb Giammatteo is incorporated by reference to Exhibit 10.7 to
the Form 10-K filed for the fiscal year ended July 25, 2015, filed on September 16, 2015.*
Supplemental Retirement Benefit Agreement dated August 29, 2006 with Mrs. Roslyn Jaffe is incorporated by
reference to Exhibit 99.1 to the Form 8-K filed on August 30, 2006.*
Form of Indemnification Agreement, adopted January 1, 2011, for Members of the Board of Directors and certain
executive officers is incorporated by reference to Exhibit 10.24 to the Form 10-K filed for the fiscal year ended
July 30, 2011, filed on September 28, 2011.*
Fifth Amendment and Restatement Agreement dated and effective as of February 27, 2018, among the Company,
the Borrowing Subsidiaries party thereto, the Loan Parties party thereto, the Lenders party thereto and JPMorgan
Chase Bank, N.A., as Administrative Agent, together with the exhibits and schedules thereto, is incorporated by
reference to Exhibit 10.1 to the Form 8-K filed on March 5, 2018.
First Amendment, dated September 20, 2019, to the Fifth Amended and Restated Credit Agreement, dated and
effective as of February 27, 2018, among the Company, the Loan Parties thereto, the Lenders party thereto, the
Issuing Banks party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent and Swingline Lender,
filed herewith.
Term Credit Agreement dated as of August 21, 2015 among the Company, AnnTaylor Retail, Inc., the Lenders
party thereto and Goldman Sachs Bank USA, as Administrative Agent, is incorporated by reference to Exhibit
10.2 to the Form 8-K filed on August 27, 2015.
Ascena Retail Group, Inc. Transformation Bonus Program Terms and Conditions under the Ascena Retail Group,
Inc. 2016 Omnibus Incentive Plan (as Amended and Restated effective December 10, 2015) is incorporated by
reference to Exhibit 10.17 to the Form 10-K for the fiscal year ended July 29, 2017, filed on September 25, 2017.*
Form of Award Agreement pursuant to the Ascena Retail Group, Inc. Transformation Bonus Program under the
2016 Omnibus Incentive Plan (as Amended and Restated effective December 10, 2015) effective as of March 30,
2017, is incorporated by reference to Exhibit 10.18 to the Form 10-K for the fiscal year ended July 29, 2017, filed
on September 25, 2017.*
56
Exhibit
Number
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
21
23
31.1
31.2
32.1
32.2
Description
Amended and Restated Credit Card Program Agreement dated April 28, 2017, by and between Ascena Retail
Group, Inc. and Capital One, National Association, is incorporated by reference to Exhibit 10.1 to the Form 10-
Q for the fiscal quarter ended April 29, 2017, filed on June 8, 2017.
Ascena Retail Group, Inc. Executive Severance Plan, Amended and Restated effective as of June 8, 2017, is
incorporated by reference to Exhibit 10.1 to the Form 8-K filed on June 8, 2017.*
Employment Letter dated July 29, 2017 with David Jaffe is incorporated by reference to Exhibit 10.1 to the Form
8-K filed on August 1, 2017.*
Employment Letter dated August 24, 2018 with Wendy Hufford, filed herewith.*
Amendment Number One to the Ascena Retail Group, Inc., 2016 Omnibus Incentive Plan (Amended and Restated
effective December 10, 2015) approved and effective as of September 27, 2017, is incorporated by reference to
Exhibit 10.1 to the Form 8-K filed on December 14, 2018.*
Amendment Number Two to the Ascena Retail Group, Inc., 2016 Omnibus Incentive Plan (Amended and Restated
effective December 10, 2015), as amended, approved and effective as of December 14, 2018, is incorporated by
reference to Exhibit 10.2 to the Form 8-K filed on December 14, 2018.*
Amended and Restated Employment Letter dated April 5, 2019 with Brian Lynch is incorporated by reference to
Exhibit 10.1 to the Form 8-K filed on April 8, 2019.*
Transition and Separation Agreement and General Release dated May 1, 2019 with David Jaffe is incorporated
by reference to Exhibit 10.1 to the Form 8-K filed on May 1, 2019.*
Employment Letter dated May 1, 2019 with Gary Muto is incorporated by reference to Exhibit 10.2 to the Form
8-K filed on May 1, 2019.*
Employment Letter dated May 1, 2019 with Carrie Teffner is incorporated by reference to Exhibit 10.3 to the
Form 8-K filed on May 1, 2019.*
Retention Agreement dated May 1, 2019 with Robb Giammatteo is incorporated by reference to Exhibit 10.4 to
the Form 8-K filed on May 1, 2019.*
Retention Agreement dated May 1, 2019 with Dan Lamadrid is incorporated by reference to Exhibit 10.6 to the
Form 10-Q for the fiscal quarter ended May 4, 2019, filed on June 12, 2019.*
Employment Letter dated July 25, 2019 with Dan Lamadrid is incorporated by reference to Exhibit 10.1 to the
Form 8-K filed on July 25, 2019.*
Subsidiaries of the Registrant, filed herewith.
Consent of Independent Registered Public Accounting Firm, filed herewith.
Section 302 Certification of President and Chief Executive Officer, filed herewith.
Section 302 Certification of Chief Financial Officer, filed herewith.
Section 906 Certification of President and Chief Executive Officer, filed herewith.**
Section 906 Certification of Chief Financial Officer, filed herewith.**
57
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
*Each of these exhibits constitutes a management contract, compensatory plan or arrangement required to be filed as an exhibit
pursuant to Item 15 (b) of this report.
**This certification accompanies each report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to
the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended.
(c) Financial Statement Schedules
None.
58
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: October 10, 2019
Ascena Retail Group, Inc.
by /s/ GARY MUTO
Gary Muto
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ GARY MUTO
Gary Muto
/s/ DAN LAMADRID
Dan Lamadrid
/s/ CARRIE W. TEFFNER
Carrie W. Teffner
/s/ KATIE J. BAYNE
Katie J. Bayne
/s/ KATE BUGGELN
Kate Buggeln
/s/ DAVID JAFFE
David Jaffe
/s/ KATHERINE L. KRILL
Katherine L. Krill
/s/ STACEY RAUCH
Stacey Rauch
/s/ CARL S. RUBIN
Carl S. Rubin
/s/ JOHN L. WELBORN, JR.
John L. Welborn, Jr.
/s/ LINDA YACCARINO
Linda Yaccarino
Chief Executive Officer and Director (Principal
October 10, 2019
Executive Officer)
Executive Vice President and Chief Financial
Officer (Principal Financial Officer and Principal
Accounting Officer)
October 10, 2019
Interim Executive Chair of the Board and Director
October 10, 2019
October 10, 2019
October 10, 2019
October 10, 2019
October 10, 2019
October 10, 2019
October 10, 2019
October 10, 2019
October 10, 2019
Director
Director
Director
Director
Director
Director
Director
Director
59
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
ASCENA RETAIL GROUP, INC.
Consolidated Financial Statements:
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Cash Flows
Consolidated Statements of Equity
Notes to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm
Supplementary Information:
Quarterly Financial Information (Unaudited)
Page
F-2
F-3
F-4
F-5
F-6
F-7
F-45
F-47
All schedules are omitted because either they are not applicable or the required information is shown in the consolidated
financial statements or notes thereto.
F-1
ASCENA RETAIL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
Current assets:
Cash and cash equivalents.........................................................................................................
Inventories.................................................................................................................................
Prepaid expenses and other current assets ................................................................................
Assets related to discontinued operations .................................................................................
Total current assets .............................................................................................................
Property and equipment, net .........................................................................................................
Goodwill........................................................................................................................................
Other intangible assets, net ...........................................................................................................
Equity method investment ............................................................................................................
Other assets ...................................................................................................................................
Total assets ...................................................................................................................................
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable ......................................................................................................................
Accrued expenses and other current liabilities..........................................................................
Deferred income........................................................................................................................
Liabilities related to discontinued operations ...........................................................................
Total current liabilities........................................................................................................
Long-term debt..............................................................................................................................
Lease-related liabilities .................................................................................................................
Deferred income taxes ..................................................................................................................
Other non-current liabilities ..........................................................................................................
Total liabilities .............................................................................................................................
Commitments and contingencies (Note 16)
Equity:
August 3,
2019
August 4,
2018
(millions, except per share data)
$
$
$
$
$
$
328.0
547.7
279.3
—
1,155.0
847.0
313.5
276.6
42.1
65.6
2,699.8
336.0
333.9
128.3
—
798.2
1,338.6
234.2
0.6
177.2
2,548.8
231.0
535.1
229.4
401.3
1,396.8
1,106.8
589.5
427.0
—
50.4
3,570.5
394.7
304.0
108.4
166.2
973.3
1,328.7
260.8
2.6
206.6
2,772.0
Common stock, par value $0.01 per share; 198.5 and 196.3 million shares issued and
outstanding.............................................................................................................................
Additional paid-in capital..........................................................................................................
Accumulated deficit ..................................................................................................................
Accumulated other comprehensive loss ....................................................................................
Total equity .........................................................................................................................
Total liabilities and equity ..........................................................................................................
$
2.0
1,100.6
(935.9)
(15.7)
151.0
2,699.8
$
2.0
1,088.2
(278.8)
(12.9)
798.5
3,570.5
See accompanying notes.
F-2
ASCENA RETAIL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Years Ended
August 3,
2019
August 4,
2018
July 29,
2017
(millions, except per share data)
Net sales ...................................................................................................................
Cost of goods sold ....................................................................................................
Gross margin...........................................................................................................
$
$
5,493.4
(2,432.1)
3,061.3
$
5,566.4
(2,334.1)
3,232.3
5,617.3
(2,333.4)
3,283.9
Other operating expenses:
Buying, distribution and occupancy expenses ......................................................
Selling, general and administrative expenses........................................................
Restructuring and other related charges ................................................................
Impairment of goodwill.........................................................................................
Impairment of other intangible assets ...................................................................
Acquisition and integration expenses....................................................................
Depreciation and amortization expense ................................................................
Total other operating expenses.................................................................................
Operating loss .........................................................................................................
Interest expense ........................................................................................................
Interest and other income, net ..................................................................................
Loss on extinguishment of debt ...............................................................................
Loss from continuing operations before benefit for income taxes and loss
from equity method investment ............................................................................
Benefit for income taxes from continuing operations ..............................................
Loss from equity method investment .......................................................................
Loss from continuing operations...........................................................................
Discontinued operations ........................................................................................
Income from discontinued operations, net of taxes (a) ...........................................
Gain on disposal of discontinued operations, net of taxes (b).................................
Net loss.....................................................................................................................
Net loss per common share - basic:
Continuing operations............................................................................................
Discontinued operations.........................................................................................
Total net loss per basic common share .................................................................
Net loss per common share - diluted:
Continuing operations............................................................................................
Discontinued operations.........................................................................................
Total net loss per diluted common share ..............................................................
(1,120.5)
(1,783.7)
(127.7)
(276.0)
(134.9)
—
(299.9)
(3,742.7)
(681.4)
(107.0)
3.4
—
(785.0)
14.5
(11.8)
(782.3)
(1,149.5)
(1,766.2)
(76.6)
—
—
(5.4)
(323.5)
(3,321.2)
(88.9)
(113.0)
1.6
(5.0)
(205.3)
62.3
—
(143.0)
(1,138.5)
(1,794.2)
(78.1)
(489.1)
(728.1)
(39.4)
(350.8)
(4,618.2)
(1,334.3)
(102.2)
1.0
—
(1,435.5)
367.5
—
(1,068.0)
76.4
103.3
0.7
44.5
(661.4) $
—
(39.7) $
—
(1,067.3)
(3.96) $
0.61
(3.35) $
(0.73) $
0.53
(0.20) $
(3.96) $
0.61
(3.35) $
(0.73) $
0.53
(0.20) $
(5.48)
—
(5.48)
(5.48)
—
(5.48)
$
$
$
$
$
Weighted average common shares outstanding:
Basic ................................................................................................................
Diluted.............................................................................................................
197.5
197.5
196.0
196.0
194.8
194.8
___________
(a) Income from discontinued operations is presented net of income tax expense of $21.8 million, $20.5 million, and $20.6 million for the fiscal years ended
August 3, 2019, August 4, 2018 and July 29, 2017, respectively.
(b) Gain on sale of discontinued operations is presented net of income tax benefit of $4.0 million for the fiscal year ended August 3, 2019.
See accompanying notes.
F-3
ASCENA RETAIL GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Net loss.............................................................................................................................. $
Other comprehensive (loss) income, net of tax:
Net actuarial loss on a defined benefit pension plan, net of income tax benefit of
$0.4 million...........................................................................................................
Deferred loss related to interest rate hedge, net of income tax benefit of $1.3 million.
Foreign currency translation adjustment........................................................................
Total other comprehensive (loss) income before reclassification .....................................
Reclassification of settlement charges for ANN's pension plan, net of income tax
benefit of $2.9 million ..........................................................................................
Reclassification adjustment for realized gain from foreign currency translation upon
disposition of maurices........................................................................................
Total comprehensive loss ................................................................................................ $
Fiscal Years Ended
August 3,
2019
August 4,
2018
(millions)
July 29,
2017
(661.4) $
(39.7) $ (1,067.3)
—
(5.0)
(0.5)
(5.5)
—
—
—
(2.5)
(2.5)
—
(0.7)
—
3.5
2.8
4.5
2.7
(664.2) $
—
—
(42.2) $ (1,060.0)
See accompanying notes.
F-4
ASCENA RETAIL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years Ended
August 3,
2019
August 4,
2018
(millions)
July 29,
2017
Cash flows from operating activities:
Net loss ................................................................................................................................ $
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization expense..........................................................................
Deferred income tax benefit ...........................................................................................
Deferred rent and other occupancy costs........................................................................
Loss on extinguishment of debt......................................................................................
Gain on sale of fixed assets ............................................................................................
Gain on sale of maurices ...............................................................................................
Loss from equity method investment .............................................................................
Stock-based compensation expense ...............................................................................
Impairment of goodwill..................................................................................................
Impairment of other intangible assets.............................................................................
Impairment and write-down of tangible assets...............................................................
Non-cash interest expense ..............................................................................................
Other non-cash (income) expense, net ...........................................................................
Changes in operating assets and liabilities:
Inventories ......................................................................................................................
Accounts payable, accrued liabilities and income taxes payable ...................................
Deferred income .............................................................................................................
Lease-related liabilities...................................................................................................
Other balance sheet changes, net....................................................................................
Cash flows provided by operating activities....................................................................
Cash flows from investing activities:
Capital expenditures .......................................................................................................
Acquisition of intangible assets......................................................................................
Proceeds from the sale of assets .....................................................................................
Proceeds from the sale of maurices, net ........................................................................
Proceeds from the settlement of corporate-owned life insurance policies .....................
Cash flows provided by (used in) investing activities.....................................................
Cash flows from financing activities:
Proceeds from revolver borrowings ...............................................................................
Repayments of revolver borrowings ..............................................................................
Redemptions and repayments of term loan ....................................................................
Payment of deferred financing costs ..............................................................................
Proceeds from stock options exercised and employee stock purchases .........................
Tax payments related to share-based awards
Cash flows provided by (used in) financing activities ....................................................
Net increase (decrease) in cash, cash equivalents and restricted cash ................................
Cash, cash equivalents and restricted cash at beginning of year .........................................
(661.4) $
(39.7) $ (1,067.3)
321.1
(10.0)
(35.7)
—
(0.3)
(44.5)
11.8
11.5
276.0
134.9
103.3
9.9
(3.1)
(11.9)
(93.1)
11.9
11.7
(11.0)
21.1
(136.5)
—
1.0
203.2
—
67.7
28.1
(28.1)
—
—
0.9
(0.6)
0.3
89.1
240.1
355.5
(47.1)
(47.1)
5.0
(1.6)
—
—
19.8
—
—
49.2
11.9
0.2
16.4
(11.2)
13.0
20.9
(71.3)
273.9
(186.3)
—
14.6
—
37.5
(134.2)
553.5
(553.5)
(225.0)
(1.3)
0.4
(0.3)
(226.2)
(86.5)
326.6
384.9
(371.3)
(62.7)
—
—
—
—
24.5
596.3
728.1
35.6
12.1
10.9
10.0
(26.0)
15.6
31.4
21.5
343.6
(258.1)
(11.6)
—
—
—
(269.7)
1,221.9
(1,221.9)
(122.5)
—
1.6
—
(120.9)
(47.0)
373.6
Cash, cash equivalents and restricted cash at end of year............................................. $
329.2
$
240.1
$
326.6
See accompanying notes.
F-5
ASCENA RETAIL GROUP, INC.
CONSOLIDATED STATEMENTS OF EQUITY
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Accumulated
Deficit
(millions)
Accumulated
Other
Comprehensive
Loss
Total
Equity
Balance, July 30, 2016..................................................
194.2
$
1.9
$ 1,050.3
$
828.8
$
(17.7) $ 1,863.3
Net loss...........................................................................
Total other comprehensive income ................................
Shares issued and equity grants made pursuant to
stock-based compensation plans ................................
Other ..............................................................................
—
—
0.9
—
Balance, July 29, 2017..................................................
195.1
Net loss...........................................................................
Total other comprehensive loss......................................
Shares issued and equity grants made pursuant to
stock-based compensation plans ................................
Other ..............................................................................
—
—
1.2
—
Balance, August 4, 2018...............................................
196.3
Net loss...........................................................................
Total other comprehensive loss......................................
Shares issued and equity grants made pursuant to
stock-based compensation plans ................................
Cumulative effect of change in accounting upon
adoption of ASC Topic 606........................................
—
—
2.2
—
Balance, August 3, 2019 ...............................................
198.5
$
—
—
0.1
—
2.0
—
—
—
—
2.0
—
—
—
—
2.0
—
—
17.9
—
1,068.2
—
—
20.0
—
1,088.2
—
—
12.4
—
(1,067.3)
— (1,067.3)
—
—
(0.3)
(238.8)
(39.7)
—
—
(0.3)
(278.8)
(661.4)
—
(0.6)
4.9
7.3
—
—
(10.4)
—
(2.5)
—
—
(12.9)
—
(2.8)
—
—
7.3
18.0
(0.3)
821.0
(39.7)
(2.5)
20.0
(0.3)
798.5
(661.4)
(2.8)
11.8
4.9
$ 1,100.6
$
(935.9) $
(15.7) $
151.0
See accompanying notes.
F-6
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
Ascena Retail Group, Inc., a Delaware corporation, is a national specialty retailer of apparel for women and tween girls. The
Company's continuing operations consist of its direct channel operations and approximately 3,400 stores throughout the United
States, Canada and Puerto Rico. The Company had annual revenues for the fiscal year ended August 3, 2019 of approximately
$5.5 billion. The Company and its subsidiaries are collectively referred to herein as the “Company,” “ascena,” “we,” “us,” “our”
and “ourselves,” unless the context indicates otherwise.
The Company operates its business in four reportable segments: Premium Fashion, Plus Fashion, Kids Fashion and Value
Fashion. All of our segments sell fashion merchandise to the women's and girls' apparel market across a wide range of ages, sizes
and demographics. Our segments consist of specialty retail, outlet and direct channel as well as licensed franchises in international
territories at our Kids Fashion segment. Our Premium Fashion segment consists of our Ann Taylor and LOFT brands; our Plus
Fashion segment consists of our Lane Bryant and Catherines brands; our Kids Fashion segment consists of our Justice brand;
and our Value Fashion segment consists of our Dressbarn brand. As further discussed in Note 2, at the beginning of the fourth
quarter, the Company completed the sale of its maurices brand, which previously was included in the Value Fashion segment
and announced plans to wind down its Dressbarn brand.
The Company's brands included in the continuing operations had the following store counts as of August 3, 2019: Justice 826
stores; Lane Bryant 721 stores; LOFT 669 stores; Dressbarn 616 stores; Catherines 320 stores; and Ann Taylor 293 stores.
2. Basis of Presentation
Basis of Consolidation
The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United
States of America (“U.S. GAAP”), and present the financial position, operational results, comprehensive loss and cash flows of
entities in which the Company has a controlling financial interest and is determined to be the primary beneficiary. All intercompany
balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from
those estimates.
Significant estimates inherent in the preparation of the consolidated financial statements include: evaluation of goodwill and other
intangible assets for impairment; the realizability of inventory; impairments of long-lived tangible assets; and the realizability of
deferred tax assets.
Fiscal Year
Fiscal year 2019 ended on August 3, 2019 and reflected a 52-week period (“Fiscal 2019"); fiscal year 2018 ended on August 4,
2018 and reflected a 53-week period (“Fiscal 2018") as the Company conformed its fiscal periods to the National Retail Federation
calendar; and fiscal year 2017 ended on July 29, 2017 and reflected a 52-week period (“Fiscal 2017”). All references to “Fiscal
2020” reflect a 52-week period that will end on August 1, 2020.
The Company's Premium Fashion segment, which historically has followed the National Retail Federation calendar, recognized
an additional week during the second quarter of Fiscal 2018, consistent with other retail companies already on that calendar. The
Company's Plus Fashion, Kids Fashion and Value Fashion segments recognized an additional week in the fourth quarter of
Fiscal 2018 due to reporting systems constraints.
Discontinued Operations
In the fourth quarter of Fiscal 2019, on May 6, 2019, the Company and Maurices Incorporated, a Delaware corporation (“maurices”)
and wholly owned subsidiary of ascena, completed the transaction contemplated by the previously-announced Stock Purchase
F-7
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Agreement with Viking Brand Upper Holdings, L.P., a Cayman Islands exempted limited partnership (“Viking”) and an affiliate
of OpCapita LLP ("OpCapita”), providing for, among other things, the sale by ascena of maurices to Viking (the “Transaction”).
Effective upon the closing of the Transaction, ascena received cash proceeds of approximately $210 million and a 49.6% ownership
interest in the operations of maurices through its investment in Viking, consisting of interests in Viking preferred and common
stock.
As the sale of maurices represented a major strategic shift, as well as the Company's determination that it did not have a significant
continuing involvement in the business, the Company's maurices business has been classified as discontinued operations within
the consolidated financial statements. As such, assets and liabilities related to discontinued operations have been segregated and
separately disclosed in the consolidated financial statements for all periods presented.
In connection with the sale of maurices, the Company agreed to provide transition services to maurices for varying periods of
time depending on the service. Service periods range from 3-36 months and include services such as legal, tax, logistics, sourcing
and other back office functions. Per the agreement, such services are to be provided at the Company's estimated costs to provide
the services. As such, in connection with the accounting for the sale, the Company recorded the services at fair value assuming a
normalized profit margin. The resulting balance of $10 million was included within Deferred income as of August 3, 2019 and
will be recognized over the 3-36 months service period.
In addition, the Company has guaranteed that maurices will receive annual revenues from its private label credit card arrangements
in line with those received historically. The guarantee period ranges from June 2019 through May 2023. The Company believes
that the income generated by these arrangements will be substantially in line with the amount contemplated by the guarantee and
has provided for any projected shortfall as a component of the gain on the sale of maurices.
The sale was recorded in the fourth quarter of Fiscal 2019 and resulted in a gain of $44.5 million, net of tax, which was recorded
as a component of discontinued operations in the accompanying consolidated statement of operations and was calculated as follows:
Consideration received: .................................................
Cash ......................................................................
Investment in Viking.............................................
$ 209.8
53.9
August 3,
2019
(millions)
Less: ...............................................................................
Net assets of maurices .........................................
Deferred income of transition services contracts..
Transaction costs...................................................
Other related costs ................................................
Gain on disposition of maurices before taxes......
Income tax benefit from the sale of maurices (a)..
Gain on disposition of maurices after taxes.........
_______
263.7
(201.1)
(10.0)
(6.7)
(5.4)
40.5
4.0
44.5
$
(a) The Company's tax basis in maurices exceeded that of its book basis. As a result, the Company recorded a tax
benefit of $4.0 million on the sale in the fourth quarter of Fiscal 2019.
F-8
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table summarizes the results of maurices classified as discontinued operations:
Net sales ........................................................................................... $
Depreciation and amortization expense ...........................................
Operating income .............................................................................
Pretax income from discontinued operations ...................................
Income tax expense ..........................................................................
Income from discontinued operations, net of tax .......................... $
_______
Fiscal Years Ended
August 4,
2018
August 3,
2019 (a)
July 29,
2017
(millions)
749.4
(21.2)
97.7
98.2
(21.8)
76.4
$
$
1,011.9
(32.0)
123.2
123.8
(20.5)
103.3
$
$
1,032.5
(34.1)
20.5
21.3
(20.6)
0.7
(a) Results for the fiscal year ended August 3, 2019 represent results for the period prior to the sale closing on May 6, 2019 and do not
reflect the Gain on the disposition of $44.5 million, which is also included under the discontinued operations line in the Company's
consolidated statements of operations.
The major components of assets and liabilities related to discontinued operations are summarized below:
Cash and cash equivalents
Inventories
Prepaid expenses and other current assets
Property and equipment, net
Goodwill
Other intangible assets, net
Other assets
Total assets related to discontinued operations
Accounts payable and other current liabilities
Lease-related liabilities
Other liabilities
Total liabilities related to discontinued operations
August 3,
2019
August 4,
2018
(millions)
— $
—
—
—
—
—
—
— $
— $
—
—
— $
7.9
87.8
19.1
98.5
93.5
89.0
5.5
401.3
83.6
54.4
28.2
166.2
$
$
$
$
The major components of cash flows related to discontinued operations are summarized below:
Cash provided by operating activities of discontinued operations
Cash used in investing activities of discontinued operations
$
$
77.0
(2.7)
$
119.6
(5.9)
128.1
(18.2)
Fiscal Years Ended
August 3,
2019
August 4,
2018
(millions)
July 29,
2017
3. Summary of Significant Accounting Policies
Revenue Recognition
Effective August 5, 2018, the Company adopted Accounting Standard Update 2014-09, “Revenue from Contracts with
Customers,” ("ASU 2014-09") which supersedes most preexisting revenue recognition guidance. Refer to Note 4 for more detailed
information about the adoption of ASU 2014-09 and the differences between ASU 2014-09 and the prior guidance.
F-9
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Revenue is recognized when there is persuasive evidence of an arrangement, delivery has occurred, price has been fixed or is
determinable and collectability is reasonably assured. Retail store revenue is recognized net of estimated returns at the time of
sale to consumers. Direct channel revenue from sales of products ordered through the Company’s retail internet sites is recognized
upon delivery and receipt of the shipment by our customers. Such revenue is reduced by an estimate of returns. The Company
accounts for sales and other related taxes on a net basis, thereby excluding such taxes from revenue.
Reserves for estimated product returns are recorded based on historical return trends and are adjusted for known events, as applicable.
As of August 3, 2019, the liability for estimated returns was approximately $19.9 million and the corresponding balance of the
right of return asset for merchandise was approximately $9.7 million. As of August 4, 2018, the reserve for product returns was
$19.9 million, of which $1.0 million was included in the Liabilities related to discontinued operations.
Gift cards, gift certificates and merchandise credits (collectively, “gift cards”) issued by the Company are recorded as a deferred
income liability until they are redeemed, at which point revenue is recognized. Gift cards do not have expiration dates. A substantial
majority of all gift cards are redeemed within a 12-month period with the highest redemption period occurring in the same quarter
the card was issued. The Company recognizes income for unredeemed gift cards when the likelihood of a gift card being redeemed
by a customer is remote and the Company determines that it does not have a legal obligation to remit the value of the unredeemed
gift card to the relevant jurisdiction as unclaimed or abandoned property. Gift card breakage is recognized in Net sales over time
based on the historical redemption patterns and historically has not been material. For the fiscal year ended August 3, 2019, the
opening balance of deferred revenue related to gift cards, gift certificates and merchandise credits was $92.7 million, of which
$10.4 million was recorded within Liabilities related to discontinued operations. Of these balances, we recognized approximately
$39 million as revenue during Fiscal 2019, of which approximately $6 million was recorded within Income from discontinued
operations. The closing balance of deferred revenue related to gift cards, gift certificates and merchandise credits was $85.9 million
as of August 3, 2019.
Revenue associated with merchandise shipments to other third-party retailers is recognized at the time title passes and risk of loss
is transferred to customers, which generally occurs at the date of shipment. In addition to retail-store, direct channel and third-
party sales, the Company's segments recognize revenue from (i) licensing arrangements with franchised stores, (ii) royalty payments
received under license agreements for the use of their trade name and (iii) credit card agreements as it is earned in accordance with
the terms of the underlying agreements.
The Company offers numerous customer loyalty programs for participating customers based on their level of purchases. For every
qualifying purchase, the Company defers a portion of the revenue until the loyalty points are redeemed. The transaction price is
allocated between the product and the loyalty points based on the relative stand-alone selling price. Loyalty points accumulate
until predetermined thresholds are met at which point the loyalty points can be redeemed as a discount off of a future purchase.
Substantially all loyalty points are redeemed within a 12-month period. For the fiscal year ended August 3, 2019, the opening
(after adjusting for the impact of adopting ASU 2014-09) balance of deferred revenue related to outstanding loyalty points was
$35.4 million, of which $4.6 million was recorded within Liabilities related to discontinued operations. Of these balances, we
recognized approximately $33 million as revenue during Fiscal 2019, of which approximately $4 million was recorded within
Income from discontinued operations. The closing balance of deferred revenue related to outstanding loyalty points was $26.9
million as of August 3, 2019.
The Company’s revenues by major product categories as a percentage of total net sales are as follows:
Apparel
Accessories
Other
Total net sales
Fiscal Years Ended
August 3,
2019
August 4,
2018
83%
12%
5%
100%
83%
13%
4%
100%
Cost of Goods Sold
Cost of goods sold (“COGS”) consists of all costs of merchandise (net of purchase discounts and vendor allowances), merchandise
acquisition costs (primarily commissions and import fees) and freight to our distribution centers and stores. These costs are
F-10
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
determined to be directly or indirectly incurred in bringing an article to its existing condition and location. Additionally, the direct
costs associated with shipping goods to customers and adjustments to the carrying value of inventory related to realizability and
shrinkage are recorded as components of COGS.
Our COGS and Gross margin may not be comparable to those of other entities. Some entities, like us, exclude costs related to their
distribution network, buying function, store occupancy costs and depreciation and amortization expenses from COGS and include
them in other operating expenses, whereas other entities include these costs in their COGS.
Buying, Distribution and Occupancy Expenses
Buying, distribution and occupancy expenses ("BD&O expenses") consist of store occupancy and utility costs, fulfillment expense
(as defined below) and all costs associated with the buying and distribution functions (excluding depreciation).
Selling, General and Administrative Expenses
Selling, general and administrative expenses (“SG&A expenses”) consist of compensation and benefit-related costs for sales and
store operations personnel, administrative personnel and other employees not associated with the functions described above under
BD&O expenses. SG&A expenses also include advertising and marketing costs, information technology and communication costs,
supplies for our stores and administrative facilities, insurance costs, legal costs and costs related to other administrative services.
Acquisition and Integration Expenses
Acquisition and integration expenses consist primarily of transaction expenses representing legal, consulting and investment
banking-related costs that are direct, incremental costs incurred prior to the closing of an acquisition, costs to integrate the operations
of acquired businesses into the Company's existing infrastructure and severance and retention-related expenses from integrating
acquired businesses.
Restructuring and Other Related Charges
Restructuring and other related charges consist of severance and benefit costs, long-lived asset impairment charges and professional
fees incurred in connection with identification and implementation of the cost reduction initiatives, primarily associated with the
Change for Growth program, and the Dressbarn wind down, as more fully described in Note 6.
Shipping and Fulfillment
Shipping and fulfillment fees billed to customers are recorded as revenue. The direct costs associated with shipping goods to
customers are recorded as a component of COGS. Costs associated with preparing the merchandise for shipping, such as picking,
packing, warehousing and order charges ("fulfillment expense") are recorded as a component of BD&O expenses. Fulfillment
expense was approximately $65.3 million in Fiscal 2019, $53.4 million in Fiscal 2018 and $41.0 million in Fiscal 2017, of which
$6.9 million for Fiscal 2019, $7.2 million for Fiscal 2018 and $5.4 million for Fiscal 2017 was recorded within Income from
discontinued operations.
Marketing and Advertising Costs
Marketing and advertising costs are included in SG&A expenses. Marketing and advertising costs are expensed when the
advertisement is first exhibited. Marketing and advertising expenses were $265.1 million for Fiscal 2019, $265.1 million for Fiscal
2018 and $269.1 million for Fiscal 2017, of which $30.8 million for Fiscal 2019, $39.4 million for Fiscal 2018 and $34.4 million
for Fiscal 2017 was recorded within Income from discontinued operations. Deferred marketing and advertising costs, which
principally relate to advertisements that have not yet been exhibited or services that have not yet been received, were not material
at the end of either Fiscal 2019, Fiscal 2018 or Fiscal 2017.
Foreign Currency Translation and Transactions
The operating results and financial position of foreign operations are consolidated using the local currency as the functional
currency. Local currency assets and liabilities are translated at the rates of exchange on the balance sheet date, and local currency
revenues and expenses are translated at average rates of exchange during the period. The resulting translation gains or losses are
F-11
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
included in the consolidated statements of comprehensive loss, and in the consolidated statements of equity as a component of
accumulated other comprehensive loss (“AOCL”). Gains and losses on the translation of intercompany loans made to foreign
subsidiaries that are of a long-term investment nature also are included within AOCL.
The Company recognizes gains and losses on transactions that are denominated in a currency other than the respective entity's
functional currency. Foreign currency transaction gains and losses also result from intercompany loans made to foreign subsidiaries
that are not of a long-term investment nature and include amounts realized on the settlement of certain intercompany loans with
foreign subsidiaries. Net losses (gains) from foreign currency transactions were $0.7 million in Fiscal 2019, $1.1 million in Fiscal
2018 and $(0.4) million in Fiscal 2017, of which losses of $0.1 million for Fiscal 2019, $0.2 million for Fiscal 2018 and $0.1
million for Fiscal 2017 were recorded within Income from discontinued operations. Such amounts are recognized in earnings and
included within Interest income and other income, net in the accompanying consolidated statements of operations.
Stock-Based Compensation
The Company expenses stock-based compensation to employees and non-employee directors based on the grant date fair value
of the awards over the requisite service period, adjusted for estimated forfeitures. The Company uses the Black-Scholes valuation
method to determine the grant date fair value of its service-based option compensation and a Monte Carlo simulation model to
determine the grant date fair value of its market and performance-based option compensation. Shares of restricted stock and
restricted stock units are issuable with service-based, market-based or performance-based conditions (collectively, “Restricted
Equity Awards”). Compensation expense for Restricted Equity Awards is recognized over the vesting period based on the grant-
date fair values of the awards that are expected to vest based upon the service, market and performance-based conditions.
Long-Term Incentive Plans
The Company maintains a long-term cash incentive program ("LTIP") which entitles the holder to a cash payment equal to a target
amount earned at the end of a performance period and is subject to (a) the grantee’s continuing employment and (b) the Company’s
achievement of certain performance goals over a one or three-year performance period. Compensation expense for the LTIP is
recognized over the related performance periods based on the expected achievement of the performance goals.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with original maturities of 90 days or less and receivables from
financial institutions related to credit card purchases due to the high-credit quality and short time frame for settlement of the
outstanding amounts.
Concentration of Credit Risk
The Company maintains cash deposits and cash equivalents with well-known and stable financial institutions; however, there were
significant amounts of cash and cash equivalents on deposit at overseas financial institutions as well as at financial institutions
that were in excess of FDIC-insured limits at August 3, 2019.
Inventories
Retail Inventory Method
We hold inventory for sale through our retail stores and direct channel sites. All of the Company's segments, other than our Premium
Fashion segment discussed below, use the retail inventory method of accounting, under which inventory is stated at the lower of
cost, on a First In, First Out (“FIFO”) basis, or market. Under the retail inventory method, the valuation of inventory at cost and
the resulting gross margin are calculated by applying a calculated cost to retail ratio to the retail value of inventory. Inherent in
the retail method are certain significant management judgments and estimates including, among others, initial merchandise markup,
markdowns and shrinkage, which significantly impact the ending inventory valuation at cost as well as the resulting gross margins.
The Company continuously reviews its inventory levels to identify slow-moving merchandise and markdowns necessary to clear
slow-moving merchandise, which reduces the cost of inventories to its estimated net realizable value. Consideration is given to a
number of quantitative and qualitative factors, including current pricing levels and the anticipated need for subsequent markdowns,
aging of inventories, historical sales trends, and the impact of market trends and economic conditions. Estimates of markdown
F-12
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
requirements may differ from actual results due to changes in quantity, quality and mix of products in inventory, as well as changes
in consumer preferences, market and economic conditions. The Company’s historical estimates of these costs and its markdown
provisions have not differed materially from actual results.
Reserves for inventory shrinkage, representing the risk of physical loss of inventory, are estimated based on historical experience
and are adjusted based upon physical inventory counts.
Weighted-average Cost Method
Our Premium Fashion segment uses the weighted-average cost method to value inventory, under which inventory is valued at
the lower of average cost or market. Inventory cost is adjusted when the current selling price or future estimated selling price is
less than cost.
Reserves for inventory shrinkage, representing the risk of physical loss of inventory, are estimated based on historical experience
and are adjusted based upon physical inventory counts.
Property and Equipment, Net
Property and equipment, net, is stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line
method over the following estimated useful lives:
Buildings and improvements
Distribution center equipment and machinery
Leasehold improvements
Furniture, fixtures, and equipment
Information technology
5-40 years
3-20 years
Shorter of the useful life or expected term of the lease
2-10 years
2-10 years
Certain costs associated with computer software developed or obtained for internal use are capitalized, including internal costs.
The Company capitalizes certain costs for employees that are directly associated with internal use computer software projects once
specific criteria are met. Costs are expensed for preliminary stage activities, training, maintenance and all other post-implementation
stage activities as they are incurred.
Property and equipment, along with other long-lived assets, are evaluated for impairment periodically whenever events or changes
in circumstances indicate that their related carrying amounts may not be recoverable. In evaluating long-lived assets for
recoverability, including finite-lived intangible assets as described below, the Company uses its best estimate of future cash flows
expected to result from the use of the asset and its eventual disposition. To the extent that estimated future undiscounted net cash
flows attributable to the asset are less than the carrying amount, an impairment loss is recognized equal to the difference between
the carrying value of such asset and its fair value, considering external market participant assumptions. Assets to be disposed of
and for which there is a committed plan of disposal are reported at the lower of carrying value or fair value less costs to sell.
Goodwill and Other Intangible Assets, Net
At acquisition, the Company estimates and records the fair value of purchased intangible assets, which primarily consist of certain
trade names, customer relationships, favorable leases, proprietary software and franchise rights. The fair value of these intangible
assets is estimated based on management's assessment, considering independent third-party appraisals, when necessary. The excess
of the purchase consideration over the fair value of net assets acquired is recorded as goodwill.
Goodwill and certain other intangible assets deemed to have indefinite useful lives, including trade names and certain franchise
rights, are not amortized but assessed for impairment annually or whenever events or changes in circumstances indicate that it is
more likely than not that the carrying amount may not be recoverable. Such assessment is performed using a quantitative approach
at the reporting unit level. Through the third quarter of Fiscal 2019, the reporting units identified for the purpose of goodwill
impairment assessment, after considering the economic aggregation criteria, were ANN, Justice, Lane Bryant, Dressbarn and
Catherines. During the fourth quarter, the Company determined that several discrete events had occurred which changed the
manner in which the business was expected to be managed going forward. The sale of maurices, the announced wind down of
F-13
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
the Dressbarn brand, as well as the changes in senior management, including the appointment of a new Chief Operating Decision
Maker (“CODM”), all occurred in the fourth quarter of Fiscal 2019. After considering the impact of all these changes, the Company
concluded that its new management was beginning to request more discrete operating information related to its Ann Taylor and
LOFT businesses, which are components of the Premium Fashion segment. Therefore, since new management, which included
the Company's chief operating decision maker, was beginning to look at the components separately, and beginning to make decisions
and allocate resources on that basis, the Company concluded that these components meet the definition of separate operating
segments. Given that the determination of a reporting unit for purposes of goodwill impairment testing cannot be at a level higher
than the operating segment, the Company determined that Ann Taylor and LOFT now meet the definition of separate operating
segments and therefore goodwill has been separately allocated to these two units and tested for impairment as part of the fourth
quarter impairment test.
A goodwill impairment loss is recognized in an amount equal to the excess of the reporting unit's carrying value over its fair value,
up to the amount of goodwill allocated to the reporting unit.
The impairment test for other indefinite-lived intangible assets consists of a comparison of the fair value of the intangible asset
with its carrying value. The fair value of indefinite-lived intangible assets is primarily determined using an approach that values
the Company’s cash savings from having a royalty-free license compared to the market rate it would pay for access to use the trade
name. If the carrying value of the indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized equal
to the excess. In addition, in evaluating finite-lived intangible assets for recoverability, we use our best estimate of future cash
flows expected to result from the use of the asset and eventual disposition. To the extent that estimated future undiscounted net
cash flows attributable to the asset are less than the carrying amount, an impairment loss is recognized equal to the difference
between the carrying value of such asset and its fair value.
Finite-lived intangible assets are amortized over their respective estimated useful lives and, along with other long-lived assets (as
discussed above), are evaluated for impairment periodically whenever events or changes in circumstances indicate that their related
carrying amounts may not be recoverable. Refer to the Company's accounting policy for long-lived asset impairment as described
earlier under the caption "Property and Equipment, Net."
Investments
Accounting Standards Codification (“ASC”) 810—Consolidation (“ASC 810”) requires the consolidation of all entities for which
a Company has a controlling voting interest and all variable interest entities (“VIEs”) for which a Company is deemed to be the
primary beneficiary. An entity is generally a VIE if it meets any of the following criteria: (i) the entity has insufficient equity to
finance its activities without additional subordinated financial support from other parties, (ii) the equity investors cannot make
significant decisions about the entity’s operations or (iii) the voting rights of some investors are not proportional to their obligations
to absorb the expected losses of the entity or receive the expected returns of the entity and substantially all of the entity’s activities
involve or are conducted on behalf of the investor with disproportionately few voting rights. For those entities that are not considered
VIEs, or are considered VIEs but the Company is not the primary beneficiary, the Company uses either the equity method or the
cost method of accounting, depending on a variety of factors as set forth in ASC 323—Investments (“ASC 323”), to account for
those investments which are not required to be consolidated under U.S. GAAP.
Insurance Reserves
The Company uses a combination of insurance and self-insurance mechanisms to provide for the potential liabilities for workers’
compensation, general liability and employee healthcare benefits. Liabilities associated with these risks are estimated, in part, by
considering historical claims experience, demographic factors, severity factors and other actuarial assumptions. Such liabilities
are capped through the use of stop-loss contracts with insurance companies. The estimated accruals for these liabilities could be
significantly affected if future occurrences and claims differ from these assumptions and historical trends. As of August 3, 2019
these reserves were $60.8 million and as of August 4, 2018 they were $69.2 million of which $3.4 million was recorded within
Liabilities from discontinued operations. The Company is subject to various claims and contingencies related to insurance and
other matters arising out of the normal course of business. The Company is self-insured for expenses related to its employee medical
and dental plans, its workers’ compensation plan and its general liability plan, up to certain thresholds. Claims filed, as well as
claims incurred but not reported, are accrued based on management’s estimates, using information received from plan
administrators, historical analysis and other relevant data. The Company’s stop-loss insurance coverage limit for individual claims
under these policies is $750,000 for medical claims, $500,000 for workers' compensation claims and $150,000 for general liability
F-14
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
claims. The Company believes its accruals for claims and contingencies are adequate based on information currently available.
However, it is possible that actual results could differ significantly from the recorded accruals for claims and contingencies.
Income Taxes
Income taxes are provided using the asset and liability method. Under this method, income taxes (i.e., deferred tax assets and
liabilities, current taxes payable/refunds receivable and tax expense) are recorded based on amounts refundable or payable in the
current year, and include the results of any differences between U.S. GAAP and tax reporting. Deferred income taxes reflect the
tax effect of net operating loss, capital loss and general business credit carry forwards and the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial statement and income tax purposes, as determined under enacted
tax laws and rates. The Company accounts for the financial effect of changes in tax laws or rates in the period of enactment.
Valuation allowances are established when management determines that it is more-likely-than-not that some portion or all of a
deferred tax asset will not be realized. Tax valuation allowances are analyzed periodically and adjusted as events occur, or
circumstances change, that warrant adjustments to those balances.
In determining the income tax provision for financial reporting purposes, the Company establishes a reserve for uncertain tax
positions. If the Company considers that a tax position is more-likely-than-not of being sustained upon audit, based solely on the
technical merits of the position, it recognizes the tax benefit. The Company measures the tax benefit by determining the largest
amount that is greater than 50% likely of being realized upon settlement, presuming that the tax position is examined by the
appropriate taxing authority that has full knowledge of all relevant information. These assessments can be complex and the Company
often obtains assistance from external advisors. To the extent that the Company’s estimates change or the final tax outcome of
these matters is different than the amounts recorded, such differences will impact the income tax provision in the period in which
such determinations are made. If the initial assessment fails to result in the recognition of a tax benefit, the Company regularly
monitors its position and subsequently recognizes the tax benefit if (i) there are changes in tax law or analogous case law that
sufficiently raise the likelihood of prevailing on the technical merits of the position to more-likely-than-not, (ii) the statute of
limitation expires or (iii) there is a completion of an audit resulting in a settlement of that tax year with the appropriate agency.
Uncertain tax positions are classified as current only when the Company expects to pay cash within the next twelve months. Interest
and penalties, if any, are recorded within the Benefit (provision) for income taxes in the Company’s accompanying consolidated
statements of operations and are classified on the accompanying consolidated balance sheets with the related liability for uncertain
tax positions.
Leases
The Company leases certain facilities and equipment, including its retail stores. The Company's leases contain renewal options,
rent escalation clauses and/or landlord incentives. Rent expense for non-cancelable operating leases with scheduled rent increases
and/or landlord incentives is recognized on a straight-line basis over the lease term, beginning with the effective lease
commencement date. The effective lease commencement date represents the date on which the Company takes possession of, or
controls the physical use of, the leased property. The excess of straight-line rent expense over scheduled payment amounts and
landlord incentives is recorded as a deferred rent liability and is classified on the consolidated balance sheets within Lease-related
liabilities.
Certain leases provide for contingent rents, which are determined as a percentage of gross sales in excess of specified levels. A
contingent rent liability is recognized together with the corresponding rent expense when specified levels have been achieved or
when management determines that achieving the specified levels during the fiscal year is probable.
4. Recently Issued Accounting Standards
Recently adopted standards
Revenue Recognition
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers," ("ASU 2014-09") which supersedes the
revenue recognition requirements in FASB Accounting Standards Codification, "Revenue Recognition (Topic 605)." The guidance
requires that an entity recognize revenue in a way that depicts the transfer of promised goods or services to customers in the amount
F-15
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
that reflects the consideration to which the entity expects to be entitled to in exchange for those goods and services. The Company
adopted the guidance on a modified retrospective basis in the first quarter of Fiscal 2019. The new guidance primarily impacted
the Company's accounting for its customer loyalty and credit card program contracts. Under the new standard, the Company
accounts for its customer loyalty programs using a deferred revenue model, which defers revenue at the estimated fair value as
the loyalty points are redeemed. Also under the new standard, the Company records financing charges and other income under
its credit card programs as variability is resolved. As a result of the changes discussed above, upon adoption of ASU 2014-09 in
the first quarter of Fiscal 2019, we recorded a cumulative net after-tax adjustment to opening Accumulated deficit of approximately
$5 million. The comparative financial information has not been restated and continues to be reported under the accounting standards
in effect for those periods.
Other changes related to the adoption of ASU 2014-09 include a change in how expected product sales returns are recorded. While
the Company continues to establish a reserve based on historical experience, under ASU 2014-09, the reserve is now recorded on
a gross basis, rather than a net basis. As a result of this change, we recorded an offsetting increase of approximately $13 million
to Inventories and Accrued expenses and other current liabilities.
The following tables summarize the impact of ASU 2014-09 on our consolidated statement of operations and balance sheet:
Fiscal Year Ended August 3, 2019
As Reported
Balances Without
Adoption of ASU
2014-09
(millions)
Impact of Adoption
Net sales.......................................................................
Cost of goods sold........................................................
Gross margin................................................................
$
$
5,493.4
(2,432.1)
3,061.3
$
5,490.4
(2,426.6)
3,063.8
Operating loss ..............................................................
(681.4)
(678.9)
Loss from continuing operations before benefit for
income taxes................................................................
(785.0)
(782.5)
Benefit for income taxes from continuing operations..
14.5
13.9
Loss from continuing operations .................................
Income from discontinued operations, net of taxes .....
Gain on disposal of discontinued operations, net of
taxes .............................................................................
Net loss ........................................................................
(782.3)
76.4
(780.4)
78.2
44.5
(661.4) $
44.5
(657.7) $
$
3.0
(5.5)
(2.5)
(2.5)
(2.5)
0.6
(1.9)
(1.8)
—
(3.7)
F-16
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Assets
Inventories
Prepaid expenses and other current assets
Liabilities and Equity
Accrued expenses and other current liabilities
Deferred income
Accumulated deficit
As Reported
August 3, 2019
Balances Without
Adoption of ASU
2014-09
(millions)
Impact of Adoption
$
$
547.7
279.3
$
539.8
264.0
333.9
128.3
(935.9)
324.9
117.9
(934.7)
7.9
15.3
9.0
10.4
1.2
The following table summarizes the impact of ASU 2014-09 on our consolidated balance sheet as of the date of adoption:
Assets
Inventories
Prepaid expenses and other current assets
Assets related to discontinued operations
Liabilities and Equity
Accrued expenses and other current liabilities
Liabilities related to discontinued operations
Deferred income
Accumulated deficit
Restricted Cash
As Reported
August 4, 2018
Balances After
Adoption of ASU
2014-09
(millions)
Impact of Adoption
$
$
535.1
229.4
401.3
$
548.5
249.3
404.3
304.0
166.2
108.4
(278.8)
319.1
170.0
120.9
(273.9)
13.4
19.9
3.0
15.1
3.8
12.5
4.9
In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash," ("ASU 2016-18").
ASU 2016-18 requires restricted cash be included with cash and cash equivalents when reconciling the total beginning and ending
amounts on the statement of cash flows. The standard also requires companies who report cash and restricted cash separately on
the balance sheet to reconcile those amounts to the statement of cash flows. The Company adopted ASU 2016-18 in the first quarter
of Fiscal 2019, using the retrospective method. The other provisions of ASU 2016-18 did not have a material effect on the Company.
A reconciliation of cash, cash equivalents and restricted cash in the consolidated balance sheets to the amounts shown on the
consolidated statements of cash flows is shown below:
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents ......................................................
Restricted cash included in other current assets .....................
Cash included in discontinued operations...............................
Total cash, cash equivalents and restricted cash .....................
$
$
August 3,
2019
August 4,
2018
July 29,
2017
328.0
$
231.0
$
306.3
1.2
—
1.2
7.9
1.0
19.3
329.2
$
240.1
$
326.6
F-17
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Recently issued standards
Leases
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which supersedes lease accounting
as contained within ASC 840. The core principle of ASU 2016-02 is that a lessee should recognize on the balance sheet the lease
assets and lease liabilities that arise from all lease arrangements with terms greater than 12 months. Recognition of these lease
assets and lease liabilities represents a change from previous GAAP, which did not require lease assets and lease liabilities to be
recognized for operating leases. Qualitative disclosures along with specific quantitative disclosures will be required to provide
enough information to supplement the amounts recorded in the financial statements so that users can understand the nature of the
Company’s leasing activities.
The provisions of ASU 2016-02 are effective for Fiscal 2020, which begins on August 4, 2019, including interim periods within
that fiscal year. The Company plans to elect the package of practical expedients included in this guidance, which allows us (i) to
not reassess whether any expired or existing contracts contain leases; (ii) to not reassess the lease classification for any expired or
existing leases; (iii) to account for a lease and non-lease component as a single component for certain classes of assets; and (iv)
to not reassess the initial direct costs for existing leases. In addition, the Company does not plan to recognize short-term leases on
its Consolidated Balance Sheets and will recognize the expense for those lease payments in the Consolidated Statements of
Operations.
In July 2018, the FASB issued ASU No. 2018-11, “Leases - Targeted Improvements,” as an update to the previously-issued guidance.
This update added a modified retrospective approach under which the cumulative effect of initially applying the standard will be
recognized as an adjustment to its opening Fiscal 2020 retained earnings, with no restatement of prior year amounts. The Company
plans to elect this transition option.
Upon adoption on August 4, 2019, we will recognize right-of-use assets and lease liabilities that have not previously been recorded.
The lease liability for operating leases is based on the net present value of future minimum lease payments using the Company's
incremental borrowing rate as of the date of adoption of ASU 2016-02. The Company has received a preliminary analysis of the
rates to be used upon adoption and is reviewing the analysis. The preliminary analysis indicates that the Company's incremental
borrowing rate is in the range of 25-30%, which is similar to the yield underlying the fair value of the Company's Term Loan debt,
as disclosed in Note 14. The right-of-use asset for operating leases is based on the lease liability adjusted for the reclassification
of certain balance sheet amounts such as deferred rent. Deferred and prepaid rent will not be presented separately after the adoption
of the new lease standard.
The Company expects that this standard will have a material impact on our Consolidated Balance Sheet and related disclosures,
however, the adoption of this standard is not expected to have a material impact on the Consolidated Statement of Income and
Consolidated Statement of Cash Flows. It is also not expected to have any impact on the Company’s covenant compliance under
its current debt agreements. The Company continues to enhance accounting systems and update business processes and controls
related to the new guidance for leases and we are finalizing the impact of the standard to our accounting policies, processes,
disclosures, and internal control over financial reporting. Collectively, these activities are expected to enable the Company to meet
the new accounting and disclosure requirements upon adoption in the first quarter of Fiscal 2020.
5. Goodwill and Other Intangible Assets
Goodwill
The following details the changes in goodwill for each reportable segment:
F-18
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Balance at July 29, 2017
Impairment losses
Balance at August 4, 2018
Impairment losses
Balance at August 3, 2019
Premium
Fashion (a)
Plus
Fashion (b)
Kids
Fashion (c)
Total (d)
(millions)
$
$
305.0
—
305.0
—
305.0
$
$
$
115.1
—
115.1
(115.1)
— $
169.4
—
169.4
(160.9)
8.5
$
$
589.5
—
589.5
(276.0)
313.5
(a) Net of accumulated impairment losses of $428.9 million for the ANN reporting unit as of August 3, 2019 and August 4, 2018.
(b) Represents the Plus Fashion segment impairment losses as of August 3, 2019, which $65.8 million and $49.3 million relates to Lane Bryant
and Catherines reporting units, respectively. The accumulated impairment loss at the Lane Bryant and Catherines reporting units as of
August 3, 2019 was $387.7 million and $49.3 million, respectively. The accumulated impairment loss at the Lane Bryant and Catherines
reporting units as of August 4, 2018 was $321.9 million and $0, respectively.
(c) Represents the Kids Fashion segment impairment losses as of August 3, 2019, which also represents the accumulated impairment loss as of
August 3, 2019.
(d) Goodwill at our Value Fashion segment of $93.5 million as of August 4, 2018 has been excluded from the table as it is included within Assets
related to discontinued operations in the accompanying consolidated balance sheets. The balance as of that date is net of accumulated impairment
losses of $107.2 million.
Other Intangible Assets
Other intangible assets consist of the following:
Description
Intangible assets subject to amortization (a):
Proprietary technology
Customer relationships
Favorable leases
Trade names
Total intangible assets subject to amortization
Intangible assets not subject to amortization:
Brands and trade names (b) (c)
Franchise rights
Total intangible assets not subject to amortization
Total intangible assets
August 3, 2019
August 4, 2018
Gross
Carrying
Amount
Accumulated
Amortization
Net
Gross
Carrying
Amount
Accumulated
Amortization
Net
$
$
4.8
52.0
38.2
5.3
100.3
252.0
10.9
262.9
363.2
$
$
(4.8) $
(46.7)
(29.8)
(5.3)
(86.6)
(millions)
— $
5.3
8.4
—
13.7
—
—
—
252.0
10.9
262.9
(86.6) $ 276.6
$
4.8
52.0
38.2
5.3
100.3
386.9
10.9
397.8
498.1
$
$
(4.8) $
(39.7)
(21.3)
(5.3)
(71.1)
—
12.3
16.9
—
29.2
—
—
—
386.9
10.9
397.8
(71.1) $ 427.0
(a) There were no finite-lived intangible asset impairment losses recorded for any of the periods presented.
(b) The Company recorded impairment charges related to trade names during Fiscal 2019, as discussed by reporting unit below.
(c) Brands and trade names within Intangible assets not subject to amortization excludes $89 million for each period associated with our maurices
brand which is included within Assets related to discontinued operations in the accompanying consolidated balance sheets.
Amortization
The Company recognized amortization expense on finite-lived intangible assets, excluding favorable leases discussed below, of
$7.0 million in Fiscal 2019, $9.5 million in Fiscal 2018 and $12.5 million in Fiscal 2017, which is classified within Depreciation
and amortization expense in the accompanying consolidated statements of operations. The Company amortizes customer
relationships recognized as part of the acquisition of ANN INC. (the "ANN Acquisition") over five years based on the pattern of
revenue expected to be generated from the use of the asset. In that regard, the remaining balance as of August 3, 2019 of $5.3
million will be amortized during Fiscal 2020.
F-19
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Favorable leases are amortized into either Buying, distribution and occupancy expenses or Selling, general and administrative
expenses over a weighted-average lease term of approximately four years. The Company recognized amortization expense on
favorable leases of $8.5 million in Fiscal 2019, $6.9 million in Fiscal 2018 and $7.3 million in Fiscal 2017. The expected amortization
for each of the next five fiscal years is as follows: Fiscal 2020: $5.0 million; Fiscal 2021: $1.8 million; Fiscal 2022: $1.0 million;
Fiscal 2023: $0.5 million; and Fiscal 2024 and thereafter: $0.1 million.
Goodwill and Other Indefinite-lived Intangible Assets Impairment Assessment
As discussed in Note 3, the Company typically performs its annual impairment assessment of goodwill and indefinite-lived
intangible assets during the fourth quarter of each fiscal year unless a triggering event has occurred in a previous quarter. The
impairment test for other indefinite-lived intangible assets consists of a comparison of the fair value of the intangible asset with
its carrying value. If the carrying value of the indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized
equal to the excess. Based on the results of the Company’s annual impairment testing of goodwill and indefinite-lived intangible
assets for Fiscal 2018, no impairment charges were deemed necessary.
Fiscal 2019 Interim Impairment Assessment
The third quarter of Fiscal 2019 marked the continuation of the challenging market environment in which the Company competes.
Continued declines in customer traffic across the Company's brands negatively impacted our February and March performance
causing lower comparative sales than expected, along with the expectation that such trends may continue into the fourth quarter.
The Company concluded that these factors, as well as the significant decline in the Company's stock price, represented impairment
indicators which required the Company to test its goodwill and indefinite-lived intangible assets for impairment during the third
quarter of Fiscal 2019 (the "Interim Test").
As a result, the Company performed its Interim Test of goodwill and indefinite-lived intangible assets using a quantitative approach
as of April 6, 2019, which was the last day in the second month of the third fiscal quarter. The Interim Test was determined with
the assistance of an independent valuation firm using two valuation approaches, including the income approach (discounted cash
flow method ("DCF")) and market approach (guideline public company method). The Company believes that the income approach
(Level 3 measurement) is the most reliable indication of value as it captures forecasted revenues and earnings for the reporting
units in the projection period that the market approach may not directly incorporate. Therefore, a greater weighting was applied
to the income approach than the market approach. The weighing of the fair values by valuation approach (income approach vs.
market approach) is generally consistent across all reporting units. For substantially all of the reporting units the income approach
was weighted 75% and the market approach 25%. Under the market approach, the Company estimated a fair value based on
comparable companies' market multiples of revenues and earnings before interest, taxes, depreciation and amortization, factored
in a control premium, and used the market approach as a comparison of respective fair values. The estimated fair value determined
under the market approach validated our estimate of fair value determined under the income approach. The only difference to the
75% / 25% weighting was at the Catherines reporting unit where the income approach was weighted 100% as the resulting low
profit margins made the market approach impracticable. This approach at Catherines had no impact on the overall conclusion.
Further, the Company's maurices reporting unit was valued utilizing the sales price inherent in the Transaction described in Note
2. Finally, the Company’s publicly traded market capitalization was reconciled to the sum of the fair value of the reporting units.
The projections used in the Interim Test reflect revised assumptions across certain key areas versus prior plans as a result of recent
operating performance. In particular, sales growth assumptions were significantly lowered at certain brands to reflect the shortfall
in actual results versus those previously projected, reflecting the uncertainty of future comparable sales given the sector's dynamic
change. Based on the results of the impairment assessment, the fair value of our ANN, Justice and maurices reporting units
significantly exceeded their carrying value.
Conversely, the changes in key assumptions and the resulting reduction in projected future cash flows included in the Interim Test
resulted in a decrease in the fair values of our Lane Bryant and Catherines reporting units such that their fair values were less
than their carrying values. As a result, the Company recognized impairment losses to write down the carrying values of its trade
name intangible assets to their fair values as follows: $23.0 million of our Lane Bryant trade name and $2.0 million of our
Catherines trade name. The fair value of the trade names was determined using an approach that values the Company’s cash
savings from having a royalty-free license compared to the market rate it would pay for access to use the trade name (Level 3
measurement). In addition, the Company recognized the following goodwill impairment charges: a loss of $65.8 million at the
Lane Bryant reporting unit and $49.3 million at the Catherines reporting unit to write down the carrying values of the reporting
F-20
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
units to their fair values. These impairment losses have been disclosed separately on the face of the accompanying consolidated
statements of operations.
Fiscal 2019 Fourth Quarter Assessment
The Company performed its regular annual assessment at the beginning of the fourth quarter and did not note any impairment of
goodwill or intangible assets as it had just completed the Interim Test. However, during the fourth quarter of Fiscal 2019, the
Company's stock price again declined significantly, dropping from the price used in the Interim Test of $1.20 to a value of $0.33
at the end of Fiscal 2019. This decline, coupled with a decline in the fair value of the Company's Term Loan, as defined herein,
and discussed in Notes 10 and 14, led the Company to conclude that the items represented further impairment indicators which
again required the Company to test its goodwill and indefinite-lived intangible assets for impairment during the fourth quarter of
Fiscal 2019 (the "Year-End Test").
The Year-End Test was determined with the assistance of an independent valuation firm using the same methodologies as the
Interim Test. While the actual cash flows achieved in the fourth quarter of Fiscal 2019 differed from the projected Fiscal 2019
cash flows used in the Interim Test, the Company concluded that the primary difference arose from differences in gross margin
rate, which resulted from the higher inventory levels experienced during Fiscal 2019. As a result, the Company concluded that
the changes did not substantially impact the cash flow estimates used for the future years, therefore the cash flow projections
underlying the Year-End Test were substantially the same as those used in the Interim Test. The primary driver of the change in
value was the change in the discount rate assumption. In the Interim Test, the discount rate ranged from 14%-15%. Because of
declines in the Company's stock price and the fair value of the Company's Term Loan, the discount rate used in the Year-End Test
ranged from 27%-29%.
Primarily as a result of the significantly higher discount rate assumption in the Year-End Test, the fair value of the Justice reporting
unit, which significantly exceeded its carrying value as of the Interim Test, was less than its carrying value in the Year-End Test.
Based on the results of the impairment assessment, the fair value of ANN, which significantly exceeded its carrying value in the
Interim Test, still significantly exceeded its carrying value in the Year-End Test, however by a lower amount.
Additionally, as a result of the previously described change in operating segments during the fourth quarter which led to Ann
Taylor and LOFT being identified as separate reporting units not subject to further aggregation, we performed an initial test on
those units utilizing a similar approach as that used for the ANN test described above. The discount rates used were 27% for LOFT
and 28% for Ann Taylor.
Based on the conclusions of the Year-End Test, the Company recognized impairment losses to write-down the carrying values of
its trade name intangible assets to their fair values as follows: $15.0 million of our Ann Taylor trade name, $60.3 million of our
LOFT trade name, $14.0 million of our Lane Bryant trade name, $4.0 million of our Catherines trade name and $16.6 million
of our Justice trade name. In addition, the Company recognized a goodwill impairment charge of $160.9 million at the Justice
reporting unit to write-down the carrying values of the reporting units to their fair values. These impairment losses have been
disclosed separately in the accompanying consolidated statements of operations.
As a result of the impairment charges recorded in both the Interim Test and the Year-End Test, the Company included an income
tax benefit of approximately $33 million in the estimated effective tax rate for Fiscal 2019. The income tax benefit was calculated
by applying a blended statutory rate of approximately 25% to the $134.9 million of impairment of other intangible assets. The
total goodwill impairment charges of $276.0 million under the two tests were treated as non-deductible for income tax purposes
and were a significant factor in reducing the Company's effective income tax rate for the fiscal year ended August 3, 2019.
Fiscal 2017 Interim Impairment Assessment
The third quarter of Fiscal 2017 marked the continuation of the challenging market environment in which the Company competes.
Lower than expected comparable sales for the third quarter, along with a reduced comparable sales outlook for the fourth quarter
led the Company to significantly reduce its level of forecasted earnings for Fiscal 2017 and future periods. The Company concluded
that these factors, as well as the decline in the Company's stock price, represented impairment indicators which required the
Company to test its goodwill and indefinite-lived intangible assets for impairment during the third quarter of Fiscal 2017 (the
"2017 Interim Test").
F-21
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
As a result, the Company performed the 2017 Interim Test using a quantitative approach on the last day of its third fiscal quarter.
The 2017 Interim Test was determined with the assistance of an independent valuation firm using two valuation approaches,
including the income approach (the discounted cash flow method) and the market approach (guideline public company method).
The Company believes that the income approach (Level 3 measurement) is the most reliable indication of value as it captures
forecasted revenues and earnings for the reporting units in the projection period that the market approach may not directly
incorporate. Therefore, a greater weighting was applied to the income approach than the market approach. The weighing of the
fair values by valuation approach (income approach vs. market approach) was consistent across all reporting units. For all reporting
units, the income approach was weighted 85% and the market approach 15%. Under the market approach, the Company estimated
a fair value based on comparable companies' market multiples of revenues and earnings before interest, taxes, depreciation and
amortization, factored in a control premium, and used the market approach as a comparison of respective fair values. The estimated
fair value determined under the market approach validated its estimate of fair value determined under the income approach. Finally,
the Company’s publicly traded market capitalization was reconciled to the sum of the fair value of the reporting units, taking into
account subsequent changes in the Company's stock price reflecting information known as of, but made public subsequent to, the
date of the 2017 Interim Test.
The projections used in the 2017 Interim Test reflect lower assumptions across certain key areas as a result of lower-than-expected
performance and a sustained challenging retail environment. In particular, sales growth assumptions were significantly lowered
to reflect the shortfall in actual results versus those previously projected, reflecting the uncertainty of future comparable sales
given the sector's dynamic change. The lower sales outlook resulted in a significant reduction in fair market value compared to
the prior valuation performed in Fiscal 2016. Based on the results of the impairment assessment, the fair value of its Catherines
reporting unit significantly exceeded its carrying value and was not at risk of impairment, while its Justice reporting unit only
exceeded its carrying value by 8%.
The changes in key assumptions and the resulting reduction in the long-term growth rates and profitability included in the 2017
Interim Test resulted in a decrease in the fair values of trade names and goodwill at its ANN, maurices and Lane Bryant reporting
units such that their fair values were less than their carrying values. As a result, the Company recognized impairment losses to
write-down the carrying values of its trade name intangible assets to their fair values as follows: $210.0 million of its Ann Taylor
trade name, $356.3 million of its LOFT trade name and $161.8 million of its Lane Bryant trade name. The fair value of the trade
names was determined using an approach that values the Company’s cash savings from having a royalty-free license compared to
the market rate it would pay for access to use the trade name (Level 3 measurement). In addition, the Company recognized the
following goodwill impairment charges: a loss of $428.9 million at the ANN reporting unit, $60.2 million at the Lane Bryant
reporting unit and $107.2 million at the maurices reporting unit, which is included in discontinued operations, to write-down the
carrying values of the reporting units to their fair values. These impairment losses have been disclosed separately on the face of
the accompanying consolidated statements of operations.
6. Restructuring and Other Related Charges
In Fiscal 2017, the Company announced that it was beginning a multi-year transformation plan with the objective of supporting
sustainable long-term growth and increasing shareholder value (the "Change for Growth" program). In Fiscal 2017, the Company
(i) refined its operating model to increase the focus on key customer segments, (ii) developed initiatives which will optimize the
flow of product through the Company's distribution channels, including direct channel and its brick-and-mortar retail locations,
(iii) consolidated certain support functions into its brand services group, including Human Resources, Real Estate, Non-Merchandise
Procurement, and Asset Protection, and (iv) began a review of its store fleet with the goal of reducing the number of under-
performing stores through either rent reductions or store closures, in an effort to increase the overall profitability of the remaining
store portfolio and convert sales from these stores into direct channel sales or to nearby store locations.
In Fiscal 2018 and 2019, in addition to continuing a number of the activities started in Fiscal 2017, the Company (i) developed
new capabilities such as markdown optimization, size pack optimization and localized inventory planning with the goal of allowing
it to better compete in the shifting retail landscape, (ii) enhanced our capability to analyze transaction data to support strategic
decisions, and (iii) transitioned certain transaction processing functions within the brand services group to an independent third-
party managed-service provider.
Other activities during Fiscal 2018 and 2019 included the ongoing fleet optimization store program as the Company continues to
renegotiate leases and close stores. Such activities included the planned closure of under-performing stores and the completion
of the previously announced relocation of the Catherines brand to Columbus, Ohio, which resulted in a write-down of their former
F-22
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
headquarters building in Bensalem, Pennsylvania to fair market value during Fiscal 2018. The building was sold in the third quarter
of Fiscal 2018. These previously mentioned charges were recorded within Restructuring and other related charges. Actions
associated with the Change for Growth program were completed in Fiscal 2019.
In addition to the Change for Growth program, the Company announced an additional organizational restructuring in the fourth
quarter of Fiscal 2019, which included job eliminations, as it continues its cost reduction initiatives.
As a result of the cost reduction initiatives, the Company incurred the following charges, which are included within Restructuring
and other related charges:
Cash restructuring charges:
Severance and benefit costs (a)
Lease termination and store closure costs
Other related charges (b)
Total cash charges
Non-cash charges:
Impairment of store assets (c)
Total non-cash charges
Fiscal Years Ended
August 3,
2019
$
43.0
0.7
38.6
82.3
45.4
45.4
August 4,
2018
(millions)
5.7
$
—
59.2
64.9
11.7
11.7
$
July 29,
2017
30.8
1.2
33.4
65.4
12.7
12.7
Total restructuring and other related charges
$
127.7
$
76.6
$
78.1
_______
(a) Severance and benefit costs reflect severance accruals as well as adjustments to true up estimates of previously accrued severance-related
costs to reflect amounts actually paid.
(b) Other related charges consist of professional fees and other third-party costs incurred in connection with the identification and implementation
of transformation initiatives associated with the Change for Growth program, professional fees in connection with the Dressbarn wind down,
and third-party costs associated with the relocation of the Catherines brand to Ohio in Fiscal 2018.
(c) Non-cash asset impairments primarily reflect the write-down of the Dressbarn corporate headquarters to fair market value as a result of the
wind down and the write-down of a corporate-owned office building in Duluth, MN to fair market value as a result of the sale of maurices,
decisions within the Company's fleet optimization program to close certain under-performing stores, primarily at the Premium Fashion
segment, and write-downs associated with a Plus Fashion segment building to fair market value. The amount for Fiscal 2018 includes asset
impairments of $12.8 million and was offset by the write-off of $1.1 million of tenant allowances.
A summary of activity for Fiscals 2017, 2018 and 2019 in the restructuring-related liabilities, which is included within Accrued
expenses and other current liabilities, is as follows:
Balance at July 30, 2016
Additions charged to expense
Cash payments
Balance at July 29, 2017
Additions charged to expense
Cash payments
Balance at August 4, 2018
Additions charged to expense (a)
Cash payments
Balance at August 3, 2019
_______
Severance and
benefit costs
Lease
termination
and store
closure costs
Other related
charges
Total
$
— $
30.8
(15.2)
15.6
5.7
(17.3)
4.0
47.7
(7.0)
44.7
$
$
(millions)
— $
1.2
(1.2)
—
—
—
—
0.7
(0.7)
— $
— $
33.4
(28.3)
5.1
59.2
(58.3)
6.0
38.6
(39.8)
4.8
$
—
65.4
(44.7)
20.7
64.9
(75.6)
10.0
87.0
(47.5)
49.5
(a) Additions charged to expense for Fiscal 2019 exclude $(4.7) million of long-term incentive program expense reversals related to the announced
changes to the Company's senior leadership team.
F-23
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7. Inventories
Inventories substantially consist of finished goods merchandise. Inventory by segment is set forth below:
Premium Fashion
Plus Fashion
Kids Fashion
Value Fashion
Total inventories
August 3,
2019
August 4,
2018
(millions)
226.3
156.5
107.9
57.0
547.7
$
$
212.2
153.0
103.8
66.1
535.1
$
$
8. Property and Equipment
Property and equipment, net, consist of the following:
Property and Equipment:
Land
Buildings and improvements
Leasehold improvements
Furniture, fixtures and equipment
Information technology
Construction in progress
Less: accumulated depreciation
Property and equipment, net
Long-Lived Asset Impairments
August 3,
2019
August 4,
2018
(millions)
$
$
22.5
194.9
748.6
637.3
868.6
13.5
2,485.4
(1,638.4)
847.0
$
$
27.3
236.8
791.4
644.1
792.3
29.2
2,521.1
(1,414.3)
1,106.8
The charges below reduced the net carrying value of certain long-lived assets to their estimated fair value, as determined using
discounted expected cash flows, which are classified as Level 3 measurements in the fair value measurements hierarchy. These
impairment charges arose from the Company's routine assessment of under-performing retail stores and are included as a component
of Selling, general and administrative expenses in the accompanying consolidated statements of operations for all periods.
Impairment charges related to retail store assets by segment are as follows:
Premium Fashion
Plus Fashion
Kids Fashion
Value Fashion
Total impairment charges (a)
________
August 3,
2019
Fiscal Years Ended
August 4,
2018
(millions)
July 29,
2017
$
$
2.2
17.8
1.7
16.1
37.8
$
$
2.3
5.1
1.8
20.3
29.5
$
$
0.7
6.3
3.5
7.4
17.9
F-24
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(a) The Company incurred additional impairment charges, which are considered to be outside the Company’s typical quarterly real-estate review.
These additional charges are included within Restructuring and other related charges and are more fully described in Note 6.
Depreciation
The Company recognized depreciation expense of $292.9 million in Fiscal 2019, $314.0 million in Fiscal 2018 and $338.3 million
in Fiscal 2017, which is classified within Depreciation and amortization expense in the accompanying consolidated statements of
operations.
9. Investment and Variable Interest Entity
As discussed in Note 2, on May 6, 2019, the Company and OpCapita completed the Transaction which provided for, among other
things, the sale by ascena of maurices to Viking. Effective upon the closing of the Transaction, ascena received cash proceeds of
approximately $210 million and a 49.6% ownership interest in the operations of maurices through its investment in Viking,
consisting of interests in Viking preferred and common stock. Viking's operations substantially consist of its investment in maurices.
At inception, the Company determined, in accordance with ASC 810, based on the corporate structure, voting rights and
contributions of the Company and OpCapita, that Viking is a VIE and not subject to consolidation, as the Company is not the
primary beneficiary of Viking because the Company does not have the power to direct the activities that most significantly impact
Viking’s economic performance. As a result, the Company has recorded its initial investment in Viking of $53.9 million, based
on a third-party valuation that utilized a binomial lattice model, and will account for its investment under the equity method of
accounting.
As part of the Transaction, the Company has guaranteed that maurices will receive annual revenues from its private label credit
card arrangements in line with those received historically over the period ranging from June 2019 through May 2023. The Company
believes that the income generated by these arrangements will be substantially in line with the amount contemplated by the guarantee
and has provided for the projected shortfall as a component of the gain on the sale of maurices.
Viking, primarily through its investment in maurices, reported a loss of approximately $12 million in the fourth quarter of Fiscal
2019, which represents results from the operations of maurices for the post acquisition period in Fiscal 2019. The results of
maurices includes the preliminary impact of adjusting its assets and liabilities to fair value under the acquisition method of
accounting for business combinations, which will be finalized during Fiscal 2020. Accordingly, the Company recognized its share
of the loss in the accompanying consolidated statement of operations which was determined by using the hypothetical liquidation
at book value ("HLBV"). HLBV is a balance sheet approach whereby a calculation is prepared at each balance sheet date to
determine the amount that the Company would receive if the underlying equity investment entity were to liquidate all of its assets
(as valued in accordance with GAAP) and distribute that cash to its investors based on the contractually defined liquidation
priorities. The difference between the calculated liquidation distribution amounts at the beginning and the end of the reporting
period, after adjusting for capital contributions and distributions, is the Company's share of the earnings or losses from the equity
investment for that period.
As of August 3, 2019, the Company's investment in Viking was recorded at $42.1 million and the Company had a receivable due
from maurices of $59.8 million, primarily for in-transit inventory purchased on their behalf. Of the receivable balance, $12 million
is classified in non-current assets. There were no amounts due to maurices as of August 3, 2019. The Company's investment
balance, plus the receivable and the private label credit card revenue guarantee, both previously discussed, represent our maximum
exposures to any potential loss.
In connection with the sale of maurices, the Company agreed to provide transition services to maurices for varying periods of
time depending on the service. Service periods range from 3-36 months and include services such as legal, tax, logistics, sourcing
and other back office functions. For the three months ended August 3, 2019, the Company recognized fees from these services
of approximately $13.9 million.
10. Debt
Debt consists of the following:
F-25
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Revolving credit facility
Less: unamortized debt issuance costs (a)
Term loan
Less: unamortized original issue discount (b)
unamortized debt issuance costs (b)
Less: current portion
Total long-term debt
_______
August 3,
2019
August 4,
2018
(millions)
— $
(3.2)
(3.2)
1,371.5
(13.8)
(15.9)
1,341.8
—
(4.3)
(4.3)
1,371.5
(18.0)
(20.5)
1,333.0
—
1,338.6
$
—
1,328.7
$
$
(a) The unamortized debt issuance costs are amortized on a straight-line basis over the life of the amended revolving credit agreement.
(b) The original issue discount and debt issuance costs for the term loan are amortized over the life of the term loan using the interest method
based on an imputed interest rate of approximately 6.3%.
Amended Revolving Credit Agreement
On February 28, 2018, the Company and certain of its domestic subsidiaries entered into an amendment and restatement of its
revolving credit agreement dated August 21, 2015, as amended October 31, 2016, among the lenders party thereto and JPMorgan
Chase Bank, N.A., as administrative agent (the "Amended Revolving Credit Agreement"). The Amended Revolving Credit
Agreement provides aggregate revolving commitments up to $500 million, with an optional increase of up to $200 million.
The revolving credit facility may be used for the issuance of letters of credit, to fund working capital requirements and capital
expenditures, and for general corporate purposes. The revolving credit facility also includes a $200 million letter of credit sublimit,
all of which can be used for standby letters of credit pursuant to an amendment to the revolving credit facility dated September
20, 2019, and a $30 million swingline loan sublimit. Refer to Note 22 for more details on the amendment. The interest rates, pricing
and fees under the agreement fluctuate based on the average daily availability, as defined therein. The Amended Revolving Credit
Agreement extends the maturity of the Company’s revolving credit facility from August 2020 to the earlier of (i) five years from
the closing date (or February 2023) or (ii) 91 days prior to the maturity date of the Term Loan (unless (a) the outstanding principal
amount of the Term Loan is $150 million or less and (b) the Company maintains liquidity, as defined in the Amended Revolving
Credit Agreement (which can include (1) availability under the revolving credit facility in excess of the greater of $100 million
and 20% of the credit limit and (2) cash held in a controlled account of the administrative agent of the revolving credit facility),
in an amount equal to the outstanding principal amount of the remaining Term Loan. There are no mandatory reductions in
aggregate revolving commitments throughout the term of the Amended Revolving Credit Agreement. However, availability under
the revolving credit facility is limited to a percentage of the amount of eligible cash, eligible inventory and eligible credit card
accounts receivable as defined in the Amended Revolving Credit Agreement.
Throughout the term of the Amended Revolving Credit Agreement, the Company can elect to borrow either Alternative Base Rate
Borrowings ("ABR Borrowings") or Eurodollar Borrowings. Eurodollar Borrowings bear interest at a variable rate using the
LIBOR for such Interest Period plus an applicable margin ranging from 125 basis points to 150 basis points based on the Company’s
average availability during the previous fiscal quarter. ABR Borrowings bear interest at a variable rate determined using a base
rate equal to the greatest of (i) prime rate, (ii) federal funds rate plus 50 basis points or (iii) one-month LIBOR plus 100 basis
points; plus an applicable margin ranging from 25 basis points to 50 basis points based on the average availability during the
previous fiscal quarter.
Under the terms of the Amended Revolving Credit Agreement, the unutilized commitment fee ranges from 20 basis points to 25
basis points per annum based on the Company's average utilization during the previous fiscal quarter.
F-26
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
As of August 3, 2019, there were no borrowings outstanding under the Amended Revolving Credit Agreement. After taking into
account the $43.5 million in outstanding letters of credit, the Company had $396.5 million of availability under the Amended
Revolving Credit Agreement.
Term Loan
In connection with the ANN Acquisition, the Company entered into a $1.8 billion variable-rate term loan (the "Term Loan"), which
was issued at a 2% discount and provides for a term facility of $200 million. The Company would also be eligible to borrow an
unlimited amount, if it were to maintain a minimum senior secured leverage ratio as defined in the Term Loan (the "Senior Secured
Leverage Ratio") among other requirements.
The Term Loan matures on August 21, 2022 and its terms require quarterly repayments of $4.5 million during the first half of
Fiscal 2017 and $22.5 million thereafter, with a remaining balloon payment of approximately $1.2 billion required at maturity.
During Fiscal 2018, the Company made repayments totaling $225 million of which $180.0 million was applied to future quarterly
scheduled payments such that the Company is not required to make its next quarterly payment of $22.5 million until November
of calendar 2020. The Company is also required to make mandatory prepayments in connection with certain prepayment events,
including (i) commencing with the fiscal year ending July 29, 2017 if the Company has excess cash flows, as defined in the Term
Loan, for any fiscal year and the Senior Secured Leverage Ratio for such fiscal year exceeds certain predetermined limits and (ii)
from Net Proceeds, as defined in the Term Loan, of asset dispositions and certain casualty events that are greater than $25 million
in the aggregate in any fiscal year and not reinvested (or committed to be reinvested) within one year, in each case subject to certain
conditions and exceptions. No such mandatory prepayments are due for Fiscal 2019. The Company has the right to prepay the
Term Loan in any amount and at any time with no prepayment penalties.
At the time of initial borrowings and renewal periods throughout the term of the Term Loan, the Company may elect to borrow
either ABR Borrowings or Eurodollar Borrowings. Eurodollar Borrowings bear interest at a variable rate using LIBOR (subject
to a 75 basis points floor) plus an applicable margin of 450 basis points. ABR Borrowings bear interest at a variable rate determined
using a base rate (subject to a 175 basis points floor) equal to the greatest of (i) prime rate, (ii) federal funds rate plus 50 basis
points or (iii) LIBOR plus 100 basis points, plus an applicable margin of 350 basis points. As of August 3, 2019, borrowings under
the Term Loan consisted entirely of Eurodollar Borrowings at a rate of 6.79%. The Company entered into an interest rate swap
agreement in March 2019 to mitigate some of the risk associated the variable rate. Refer to Note 13 for additional information.
In connection with the Fiscal 2018 principal prepayments of $180.0 million referred to above, the Company recorded a $5.0 million
loss on the early extinguishment of debt.
Restrictions under the Term Loan and the Amended Revolving Credit Agreement (collectively the "Borrowing Agreements")
Under the Amended Revolving Credit Agreement, the Company is required to maintain a fixed charge coverage ratio, as defined
in the Amended Revolving Credit Agreement, of at least 1.00 any time in which the Company is in a covenant period, as defined
in the Amended Revolving Credit Agreement (the "Covenant Period"). Such Covenant Period is in effect if Availability is less
than the greater of (a) 10% of the Credit Limit (the lesser of total Revolving Commitments and the Borrowing Base) and (b) $37.5
million for three consecutive business days and ends when Availability is greater than these thresholds for 30 consecutive days.
The Covenant Period was not in effect as of August 3, 2019.
The Borrowing Agreements contain customary negative covenants, subject to negotiated exceptions, on (i) liens and guarantees,
(ii) investments, (iii) indebtedness, (iv) significant corporate changes including mergers and acquisitions, (v) dispositions and (vi)
restricted payments, cash dividends, stock repurchases and certain other restrictive agreements. The Borrowing Agreements also
contain customary events of default, such as payment defaults, cross-defaults to certain material indebtedness, bankruptcy and
insolvency, the occurrence of a defined change in control, or the failure to observe the negative covenants and other covenants
related to the operation of the Company’s business, in each case subject to customary grace periods.
The Company's Amended Revolving Credit Agreement allows us to make restricted payments, including dividends and share
repurchases, subject to the Company satisfying certain conditions set forth in the Company's Amended Revolving Credit Agreement,
notably that at the time of and immediately after giving effect to the restricted payment, (i) there is no default or event of default,
and (ii) Availability is not less than 20% of the aggregate revolving commitments. The Company's Term Loan allows us to make
restricted payments, including dividends and share repurchases, up to a predetermined dollar amount. The dollar amount limitation
is waived upon the satisfaction of certain conditions under the Term Loan, notably that at the time of and immediately after giving
F-27
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
effect to such restricted payment, (i) there is no default or event of default, and (ii) the total leverage ratio, as defined in the Term
Loan agreement, is below predetermined limits. Dividends are payable when declared by our Board of Directors.
The Company’s obligations under the Borrowing Agreements are guaranteed by certain of its domestic subsidiaries (the “Subsidiary
Guarantors”). As collateral under the Borrowing Agreements and the guarantees thereof, the Company and the Subsidiary
Guarantors have granted to the administrative agents for the benefit of the lenders a first priority lien on substantially all of their
tangible and intangible assets, including, without limitation, certain domestic inventory and certain material real estate.
Maturities of Debt
The Company's debt matures as follows:
Fiscal Year
2020
2021
2022
2023
Total maturities
Amount
(millions)
$
$
—
66.5
90.0
1,215.0
1,371.5
11. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following:
Prepaid expenses
Accounts and other receivables (a)
Restricted cash
Other current assets
Total prepaid expenses and other current assets
________
August 3,
2019
August 4,
2018
(millions)
131.6
131.1
1.2
15.4
279.3
$
$
134.2
93.5
1.2
0.5
229.4
$
$
(a) Increase primarily reflects the third-party receivables due from maurices for services performed under the agreements described in Note 2.
12. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
Accrued salary, wages and related expenses
Accrued operating expenses
Sales tax payable
Income taxes payable
Other
Total accrued expenses and other current liabilities
F-28
August 3,
2019
August 4,
2018
(millions)
114.1
169.3
19.0
6.8
24.7
333.9
$
$
119.0
134.5
24.0
5.4
21.1
304.0
$
$
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
13. Derivative Financial Instruments
As discussed in Note 10, the interest rate under the Company's Term Loan is based on a variable rate. Therefore, the Company
has exposure to increases in the underlying interest rate. In order to protect against our interest rate exposure, we entered into an
interest rate swap agreement in March 2019. We do not hold any derivative financial instruments for speculative or trading purposes.
The effective portion of changes in the fair value of derivatives designated, and that qualify, as cash flow hedges are recorded in
the line item Accumulated other comprehensive loss on the Company’s Consolidated Balance Sheets and are subsequently
reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Amounts reported in Accumulated
other comprehensive loss related to the Company’s derivative contracts will be reclassified to interest expense as interest payments
are made on the Company’s variable-rate debt.
As of August 3, 2019, the Company had the following outstanding interest rate derivative that was designated as a cash flow hedge
of interest rate risk:
Interest Rate Derivative
Number of Instruments
Notional Agreement Principal
Amount
Interest rate swap
One
$600.0 Million
Interest
Rate
6.85%
Maturity Date
March 31, 2021
The interest rate swap was recorded at its estimated fair value of $6.3 million as of August 3, 2019 based on Level 2 measurements.
Amounts included in the consolidated balance sheet as of August 3, 2019 include $3.1 million in Accrued expenses and other
current liabilities and $3.2 million in Other non-current liabilities. The amount of unrealized losses deferred to Accumulated other
comprehensive loss before the effect of taxes was $6.3 million as of August 3, 2019. The amount of classification of gains and
losses from Accumulated other comprehensive loss into earnings related to the Company's derivative instrument during the fiscal
year ended August 3, 2019 was de minimis. Based on current valuations, we estimate $3.3 million will be reclassified from
Accumulated other comprehensive loss into Interest expense during the next twelve months. There was no material ineffectiveness
related to the interest rate swap agreement during the fiscal year ended August 3, 2019.
14. Fair Value Measurements
Fair value is the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market
participants at the measurement date. In evaluating the fair value measurement techniques for recording certain financial assets
and liabilities, there is a three-level valuation hierarchy under which financial assets and liabilities are designated. The determination
of the applicable level within the hierarchy of a particular financial asset or liability depends on the lowest level of inputs used
that are significant to the fair value measurement as of the measurement date as follows:
Level 1 Quoted prices for identical instruments in active markets;
Level 2 Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets
that are recently traded (not active); model-derived valuations whose inputs are observable or whose significant
value drivers are observable; and
Level 3
Instruments with little, if any, market activity are valued using significant unobservable inputs or valuation
techniques.
Fair Value Measurements of Financial Instruments
As of August 3, 2019 and August 4, 2018, the Company believes that the carrying values of cash and cash equivalents approximates
its fair value based on Level 1 measurements. The fair value of the Term Loan was determined to be $850.3 million as of August 3,
2019 and $1.258 billion as of August 4, 2018 based on quoted market prices from recent transactions, which are considered Level
2 inputs within the fair value hierarchy.
Fair Value Measurements of Long-lived Assets Measured on a non-Recurring Basis
As more fully described in Note 6 and Note 8, during Fiscal 2019, assets of $145.5 million related to 649 under-performing stores
and two corporate buildings were written down to their estimated fair values of $60.2 million, resulting in total impairment charges
F-29
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
of $85.3 million. In Fiscal 2018, store-related assets of $65.0 million related to (i) 327 under-performing stores and (ii) 105 stores
and one office building under the fleet optimization review were written down to their estimated fair values of $15.8
million, resulting in total impairment charges of $49.2 million. In Fiscal 2017, store-related assets of $38.4 million related to
approximately 120 under-performing stores and approximately 130 stores under the fleet optimization review were written down
to their estimated fair values of $2.8 million, resulting in total impairment charges of $35.6 million. Key assumptions used to
determine fair values were future cash flows including, among other things, expected future operating performance, changes in
economic conditions as well as other market information obtained from brokers. Significant inputs related to valuing the store-
related assets are classified as Level 3 in the fair value measurement hierarchy.
For further discussion of the determination of fair values of goodwill and other intangible assets, see Note 5.
15. Income Taxes
Taxes on Income
Domestic and foreign pretax loss from continuing operations is as follows:
Domestic
Foreign
Total loss before benefit for income taxes and loss from equity method investment
The benefit for current and deferred income taxes is as follows:
Current:
Federal
State and local
Foreign
Deferred:
Federal
State and local
Foreign
Fiscal Years Ended
August 3,
2019
August 4,
2018
(millions)
July 29,
2017
$
$
(838.5) $
53.5
(785.0) $
(239.6) $ (1,471.8)
36.3
(205.3) $ (1,435.5)
34.3
Fiscal Years Ended
August 3,
2019
August 4,
2018
(millions)
July 29,
2017
$
— $
(4.0)
(8.9)
(12.9)
21.5
5.5
0.4
27.4
14.5
$
(2.2) $
(1.1)
(5.7)
(9.0)
93.9
(22.4)
(0.2)
71.3
62.3
$
(8.1)
(11.7)
(5.2)
(25.0)
328.2
66.0
(1.7)
392.5
367.5
Total benefit for income taxes
$
The Company's net income tax benefit in Fiscal 2019 was unfavorably impacted by certain non-routine, discrete items, including
an increase of its valuation allowance for U.S. Federal and state jurisdictions. The Company has evaluated the available positive
and negative evidence and has concluded that, for some of its deferred tax assets, it is more likely than not that it will not be realized
in the foreseeable future. A valuation allowance is a non-cash charge, which does not eliminate the deferred tax asset but instead
reduces the benefit expected to be realized from it in the future.
In December 2017, the 2017 Tax Cuts and Jobs Act (the "2017 Act") was signed into law. A full description of the 2017 Act and
its expected impact on the Company is discussed in Note 14 to the audited consolidated financial statements included in the
Company's Annual Report on Form 10-K for the fiscal year ended August 4, 2018 and should be read in conjunction with the
update below.
The SEC staff issued Staff Accounting Bulletin Number 118 ("SAB 118"), which is also included in FASB ASU 2018-05, and
provided guidance on accounting for the tax effects of the 2017 Act. SAB 118 allows for a measurement period that should not
F-30
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
extend beyond one year from the 2017 Act enactment date of December 22, 2017 for companies to complete the accounting under
Accounting Standards Codification Topic 740, “Income Taxes” ("ASC 740"). The Company completed its accounting for the
impact of the 2017 Act during the second quarter of Fiscal 2019 and increased its Fiscal 2018 estimate of the one-time federal and
state transition tax by $2.3 million to $26.9 million and by $0.2 million to $0.9 million, respectively.
The 2017 Act subjects the Company to a new minimum tax on global intangible low-taxed income (“GILTI”) earned by foreign
subsidiaries for taxable years beginning after December 31, 2017. Accordingly, the Company has made an accounting policy
election to treat GILTI taxes as a current period expense and has made a reasonable estimate of the impact of GILTI which is
included in its Fiscal 2019 effective tax rate discussed below.
Effective Tax Rate
The Company’s effective tax rate is reflective of the jurisdictions where the Company has operations. As shown below, the effective
tax rate for Fiscal 2019 was 1.8%. The effective tax rate was impacted primarily by a valuation allowance on the Company’s net
Federal deferred tax asset ("DTA") and a non-deductible impairment to goodwill.
As a result of the Company’s recent financial performance, the Company has determined it is appropriate to record a valuation
allowance on its net Federal and state DTAs. This tax expense during Fiscal 2019 was $99.2 million.
As of August 4, 2018, the Company had a $53.3 million valuation allowance against the aggregate carrying value of its deferred
tax assets. Such valuation allowance provides for the uncertainty that a portion of the recognized deferred tax assets may not be
realizable. The valuation allowance increased by $99.2 million in Fiscal 2019 to $152.5 million as of August 3, 2019.
Tax Rate Reconciliation
The differences between income taxes expected at the U.S. federal statutory income tax rate and income taxes provided are as
set forth below:
Benefit for income taxes at the U.S. federal statutory rate (a)
Increase (decrease) due to:
State and local income taxes, net of federal benefit
Foreign rate differential
Tax Cuts and Job Act
Federal valuation allowance
State valuation allowance
Share-based compensation
Goodwill impairment
Net change relating to uncertain income tax benefits
GILTI
Other – net
Total benefit for income taxes
_______
Fiscal Years Ended
August 3,
2019
$
167.4
August 4,
2018
(millions)
54.9
$
July 29,
2017
$
501.3
18.6
2.8
—
(84.7)
(14.5)
(3.5)
(57.9)
(2.5)
(7.7)
(3.5)
14.5
$
0.8
1.9
36.9
—
(21.8)
(4.6)
—
0.7
—
(6.5)
62.3
$
41.2
—
—
—
—
—
(171.2)
(3.2)
—
(0.6)
367.5
$
(a) The U.S. federal statutory rate for Fiscal 2017 was 35%. The 2017 Act reduced the statutory rate from 35% to 21% effective January 1, 2018,
and under Section 15 of the Internal Revenue Code resulted in a blended statutory rate of 27% for Fiscal 2018. The statutory rate for Fiscal
2019 was 21%. The Fiscal 2019 benefit of $167.4 million includes the $11.8 million Loss from equity method investment at the federal
statutory tax rate.
F-31
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Tax Incentives
In connection with the Company’s relocation of its Dressbarn and corporate offices to New Jersey, as well as the expansion of
its distribution centers in Ohio and Indiana, the Company was approved for various state and local tax incentives. In order to
receive these incentives, the Company will generally need to meet certain minimum employment or expenditure commitments,
as well as comply with periodic reporting requirements. These incentives, estimated to total approximately $23.5 million, are
expected to be recognized over a 10-15 year period. Approximately $5.9 million was recognized in Fiscal 2019, $4.3 million in
Fiscal 2018 and $6.1 million in Fiscal 2017.
Deferred Taxes
Significant components of the Company's net deferred tax asset are as follows:
Deferred tax assets (a):
Inventories
Net operating loss carryforwards and tax credits
Accrued payroll and benefits
Share-based compensation
Straight-line rent
Federal benefit of uncertain tax positions
Gift cards and merchandise credits
Investments
Other
Total deferred tax assets
Deferred tax liabilities:
Depreciation
Amortization
Foreign unremitted earnings
Other
Total deferred tax liabilities
Valuation allowance
Net deferred tax asset
_______
August 3,
2019
August 4,
2018
(millions)
$
$
$
18.0
98.6
40.1
12.3
37.8
24.6
10.1
6.8
19.7
268.0
26.5
62.8
—
17.3
106.6
(152.5)
8.9
$
21.5
65.2
41.5
15.5
40.5
23.6
8.9
—
12.1
228.8
55.1
97.6
0.4
22.4
175.5
(53.3)
—
(a) Deferred tax asset of $9.5 million as of August 3, 2019 and $2.6 million as of August 4, 2018 are included within Other assets.
Net Operating Loss Carry Forwards
As of August 3, 2019, the Company had U.S. Federal net operating loss carryforwards of $264.6 million and state net operating
loss carryforwards of $594.5 million that are available to offset future U.S. Federal and state taxable income. The U.S. Federal
net operating losses generated prior to Fiscal 2018 have a twenty-year carryforward period, with $49.0 million to expire in Fiscal
2036 and $32.5 million to expire in Fiscal 2037. Due to the 2017 Act, the U.S. Federal net operating losses generated in Fiscal
2018 and forward have an unlimited carryforward, therefore, $183.1 million will carryforward indefinitely. The state net operating
losses have carryforward periods of five to twenty years, with varying expiration dates and amounts as follows: $33.9 million in
one to five years, $51.9 million in six to ten years, $115.7 million in eleven to fifteen years, $355.7 million in sixteen to twenty
years and $37.3 million will carryforward indefinitely.
F-32
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Uncertain Income Tax Benefits
Reconciliation of Liabilities
A reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding interest and penalties, is presented
below:
Unrecognized tax benefit beginning balance
Additions related to current period tax positions
Additions related to tax positions in prior years
Reductions related to prior period tax positions
Reductions related to settlements with taxing authorities
Reductions related to expiration of statute of limitations
Unrecognized tax benefit ending balance
Fiscal Years Ended
August 3,
2019
August 4,
2018
(millions)
July 29,
2017
$
$
50.9
—
0.9
(0.8)
(0.1)
(0.6)
50.3
$
$
45.3
—
9.8
(0.5)
(1.3)
(2.4)
50.9
$
$
43.2
2.0
1.9
(0.2)
(0.1)
(1.5)
45.3
The Company classifies interest and penalties related to unrecognized tax benefits as part of its provision for income taxes. A
reconciliation of the beginning and ending amounts of accrued interest and penalties related to unrecognized tax benefits is presented
below:
Accrued interest and penalties beginning balance
Additions (reductions) charged to expense, net
Accrued interest and penalties ending balance
August 3,
2019
Fiscal Years Ended
August 4,
2018
(millions)
July 29,
2017
$
$
22.1
3.1
25.2
$
$
19.4
2.7
22.1
$
$
17.2
2.2
19.4
The Company’s liability for unrecognized tax benefits (including accrued interest and penalties), which is primarily included in
Other non-current liabilities in the accompanying consolidated balance sheets, was $72.8 million as of August 3, 2019 and $69.4
million as of August 4, 2018.
Future Changes in Unrecognized Tax Benefits
The amount of unrecognized tax benefits relating to the Company's tax positions is subject to change based on future events
including, but not limited to, the settlements of ongoing audits and/or the expiration of applicable statutes of limitations. Although
the outcomes and timing of such events are highly uncertain, the Company anticipates that the balance of the liability for
unrecognized tax benefits will decrease by approximately $1.9 million during the next twelve months. However, changes in the
occurrence, expected outcomes and timing of those events could cause the Company’s current estimate to change materially in
the future. The Company’s portion of gross unrecognized tax benefits that would affect its effective tax rate, including interest and
penalties, is $48.4 million.
The Company files tax returns in the U.S. federal and various state, local and foreign jurisdictions. With few exceptions, the
Company is no longer subject to examinations by the relevant tax authorities for years prior to Fiscal 2013.
F-33
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
16. Commitments and Contingencies
Lease Commitments
The Company leases all of its retail stores. Certain leases provide for additional rents based on percentages of net sales, charges
for real estate taxes, insurance and other occupancy costs. Store leases generally have an initial term of approximately ten years,
although certain leases are cancelable if specified sales levels are not achieved or co-tenancy requirements are not being satisfied.
Leases may also have one or more five-year options to extend the lease or have provisions for rent escalations during the initial
term.
The Company’s operating lease obligations represent future minimum lease payments under non-cancelable operating leases as
of August 3, 2019. The minimum lease payments do not include common area maintenance ("CAM") charges or real estate taxes,
which are also required contractual obligations under the operating leases. In the majority of the Company’s operating leases,
CAM charges are not fixed and can fluctuate from year to year.
A summary of occupancy costs for continuing operations are as follows:
Fiscal Years Ended
Base rentals
Percentage rentals
Other occupancy costs, primarily CAM and real estate taxes
Total (a)
August 3,
2019
August 4,
2018
(millions)
July 29,
2017
$
$
492.1
23.3
203.0
718.4
$
$
509.7
32.1
205.7
747.5
$
$
539.3
26.2
198.8
764.3
(a) Total occupancy costs included in discontinued operations were $66.8 million for Fiscal 2019, $94.9 million for Fiscal 2018 and $99.2
million for Fiscal 2017.
The following is a schedule of future minimum rentals under non-cancelable operating leases as of August 3, 2019:
Fiscal Years
2020
2021
2022
2023
2024
Thereafter
Total future minimum rentals
Minimum Operating
Lease Payments (a) (b)
(millions)
$
$
462.0
402.3
325.4
242.7
172.6
563.3
2,168.3
(a) Net of sublease income, which is not expected to be significant in any period.
(b) Although such amounts are generally non-cancelable, certain leases are cancelable if specified sales levels are not achieved or co-tenancy
requirements are not being satisfied. All future minimum rentals under such leases have been included in the above table.
Employment Agreements
The Company has employment agreements with certain executives in the normal course of business which provide for compensation
and certain other benefits. These agreements also provide for severance payments under certain circumstances.
Other Commitments
The Company enters into various cancelable and non-cancelable commitments during the year. Typically, those commitments are
for less than a year in duration and are principally focused on the construction of new retail stores and the procurement of inventory.
F-34
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company normally does not maintain any long-term or exclusive commitments or arrangements to purchase merchandise
from any single supplier. Preliminary commitments with the Company’s private-label merchandise vendors typically are made
five to seven months in advance of planned receipt date. A portion of these merchandise purchase commitments are cancelable up
to 30 days prior to the vendor’s scheduled shipment date.
In addition, the Company had $43.5 million of outstanding letters of credit as of August 3, 2019.
Other Contingencies
On July 29, 2019, the Company received a letter from the Listing Qualifications staff of Nasdaq (the “Notification Letter”),
indicating that, based upon the closing bid price of the Company’s common stock for the last 30 consecutive business days, the
Company no longer meets the requirement of the Nasdaq Global Select Market to maintain a minimum bid price of $1 per share.
The Notification Letter does not impact the Company’s listing on The Nasdaq Global Select Market at this time. The Company
has been provided a period of 180 calendar days, or until January 27, 2020, in which to regain compliance. In the event that the
Company does not regain compliance within this 180-day period, the Company may be eligible to transfer to the Nasdaq Capital
Market and seek an additional compliance period of 180 calendar days if the Company (i) meets the continued listing requirement
for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, with the exception
of the bid price requirement, and (ii) provides written notice to Nasdaq of the Company’s intent to cure the deficiency during this
second compliance period. The Company is considering actions that it may take in order to regain compliance, including whether
to effect a reverse stock split.
Legal Proceedings
Federal Securities Class Action
On June 7, 2019, plaintiff James Newman commenced a federal securities class action in the United States District Court for the
District of New Jersey, naming Ascena Retail Group, Inc. and certain of Ascena’s current and former officers and directors as
defendants. The Newman complaint asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and
Rule 10b-5 related to the Company’s goodwill impairment accounting and statements regarding the success of the 2015 purchase
of ANN and the overall performance and expected growth of the ANN brands. Plaintiff seeks damages on behalf of a proposed
class of purchasers of Ascena securities between September 16, 2015 and June 8, 2017 (the proposed “Class Period”).
On July 2, 2019, a second lawsuit was filed by Michaella Corporation. The Michaella complaint is substantially similar to the
Newman complaint. Both the Michaella complaint and the Newman complaint name the same defendants, allege the same proposed
class period, and challenge the same categories of public statements under Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934 and Rule 10b-5.
On August 6, 2019, two potential lead plaintiffs (Joel Patterson and Michaella Corporation) filed motions for appointment as lead
plaintiff in the Newman and Michaella actions, and to consolidate both actions. James Newman did not move for appointment as
lead plaintiffs. On August 23, 2019, the Court consolidated the two actions as In re Ascena Retail Group, Inc. Sec. Litig. and
appointed Patterson and Michaella Corporation as joint lead-plaintiffs.
Defendants believe they have strong defenses to these claims and will respond accordingly. The range of loss, if any, is not
reasonably estimable at this time.
Derivative Action
On August 19, 2019, William Cunningham, an Ascena Retail Group, Inc. shareholder, filed a derivative action, purportedly on
behalf of Ascena, in federal court in Delaware against certain of Ascena’s current and former officers and directors. The complaint
alleges that the management and the board breached their fiduciary duties by failing to exercise proper oversight of Ascena,
including by failing to disclose issues regarding the acquisition of ANN, the true condition of the ANN brands purchased in the
acquisition, and the timing of certain impairment charges to the value of ANN’s goodwill. The plaintiffs seek damages on behalf
of Ascena for the alleged breaches of fiduciary duty, reforms to the corporate governance and internal procedure to ensure compliance
with governance obligations and applicable law, as well as an award to plaintiff of attorneys’ fees and costs incurred in pursuing
this action.
F-35
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Defendants believe they have strong defenses to these claims and will respond accordingly. The range of damages, if any, is not
reasonably estimable at this time.
Other litigation
The Company is involved in routine litigation arising in the normal course of its business. In the opinion of management, such
litigation is not expected to have a material adverse effect on the Company's consolidated financial statements.
17. Equity
Capital Stock
The Company’s capital stock consists of one class of common stock and one class of preferred stock. There are 360 million shares
of common stock authorized to be issued and 100,000 shares of preferred stock authorized to be issued. There are no shares of
preferred stock issued or outstanding.
Common Stock Repurchase Program
In December 2015, the Company’s Board of Directors authorized a $200 million share repurchase program (the “2016 Stock
Repurchase Program”). Under the 2016 Stock Repurchase Program, purchases of shares of common stock may be made at the
Company’s discretion from time to time, subject to overall business, liquidity, and market conditions. Currently, share repurchases
in excess of $100 million are subject to certain restrictions under the terms of the Company's Borrowing Agreements, as more
fully described in Note 10. Repurchased shares are retired and treated as authorized but unissued. The excess of repurchase price
over the par value of common stock for the repurchased shares is charged entirely to retained earnings.
No shares of common stock were repurchased in Fiscal 2019, Fiscal 2018 or Fiscal 2017. Cumulative repurchases under the 2016
Stock Repurchase Program total 2.1 million shares of common stock, which were repurchased at an aggregate cost of $18.6 million
and the remaining availability under the 2016 Stock Repurchase Program was approximately $181.4 million at August 3, 2019.
Net Loss Per Common Share
Basic net loss per common share is computed by dividing the net loss applicable to common shares after preferred dividend
requirements, if any, by the weighted-average number of common shares outstanding during the period. Diluted net income per
common share adjusts basic net income per common share for the effects of outstanding stock options, restricted stock units and
any other potentially dilutive financial instruments, only in the periods in which such effect is dilutive under the treasury stock
method.
The weighted-average number of common shares outstanding used to calculate basic net loss per common share is reconciled to
those shares used in calculating diluted net loss per common share as follows:
Basic
Dilutive effect of stock options, restricted stock and restricted stock units (a)
Diluted shares
August 3,
2019
Fiscal Years Ended
August 4,
2018
(millions)
July 29,
2017
197.5
—
197.5
196.0
—
196.0
194.8
—
194.8
(a) There was no dilutive effect of stock options, restricted stock and restricted stock units for all periods presented as the impact of these items
was anti-dilutive because of the Company's net loss incurred during these periods.
Options to purchase shares of common stock at an exercise price greater than the average market price of the common stock during
the reporting period are anti-dilutive, and therefore not included in the computation of diluted net loss per common share. In
addition, the Company has outstanding restricted stock units that are issuable only upon the achievement of certain service
conditions. Any performance or market-based restricted stock units outstanding are included in the computation of diluted shares
F-36
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
only to the extent the underlying performance or market conditions (a) are satisfied prior to the end of the reporting period or
(b) would be satisfied if the end of the reporting period was the end of the related contingency period, and the result would be
dilutive under the treasury stock method. Potentially dilutive instruments are not included in the computation of net loss per share
for Fiscal 2019, Fiscal 2018 and Fiscal 2017 as the impact of those items would have been anti-dilutive due to the net loss incurred
for these periods. For Fiscal 2019, Fiscal 2018 and Fiscal 2017, respectively, 24.4 million, 24.1 million and 19.5 million shares
of anti-dilutive options and restricted stock units were excluded from the diluted share calculations.
Dividends
The Company has never declared or paid cash dividends on its common stock. However, payment of dividends is within the
discretion of, and are payable only when declared by, the Company’s Board of Directors. Additionally, payments of dividends are
limited by the Company's liquidity and borrowing arrangements as described in Note 10.
18. Stock-Based Compensation
Omnibus Incentive Plan
In November 2018, the Board of Directors approved the amendment of the Company's 2016 Omnibus Incentive Plan, as amended
and restated on December 10, 2015 (the "2016 Omnibus Incentive Plan"). The amendment to the 2016 Omnibus Incentive plan
was approved by the Company's shareholders and became effective on December 14, 2018 to increase the aggregate number of
shares that may be issued under the plan by an additional 13.1 million shares to 83.6 million shares of stock-based awards to
eligible employees and directors of the Company. The 2016 Omnibus Incentive Plan provides for the granting of service-based
and performance-based stock awards as well as performance-based cash incentive awards. The 2016 Omnibus Incentive Plan
expires in November 2025.
As of August 3, 2019, there were approximately 18.8 million shares remaining under the 2016 Omnibus Incentive Plan available
for future grants. The Company issues new shares of common stock when stock option awards are exercised and restricted stock
units vest.
Impact on Results
A summary of the total compensation expense and associated income tax benefit recognized related to stock-based compensation
arrangements on a consolidated basis is as follows:
Compensation expense
Income tax benefit
Stock Options
August 3,
2019
Fiscal Years Ended
August 4,
2018
(millions)
July 29,
2017
$
$
11.5
2.4
$
$
19.8
5.3
$
$
24.5
9.3
Stock option awards outstanding under the Company’s current plans have been granted at exercise prices that are equal to the
market value of its common stock on the date of grant. Such options generally vest over a period of two to five years and expire
at either seven or ten years after the grant date. The Company recognizes compensation expense ratably over the vesting period,
net of estimated forfeitures. The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock options
granted, which requires the input of both subjective and objective assumptions as follows:
Expected Term — The estimate of expected term is based on the historical exercise behavior of grantees, as well as the contractual
life of the option grants.
Expected Volatility — The expected volatility factor is based on the historical volatility of the Company's common stock for a
period equal to the expected term of the stock option.
F-37
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Risk-free Interest Rate — The risk-free interest rate is determined using the implied yield for a traded zero-coupon U.S. Treasury
bond with a term equal to the expected term of the stock option.
Expected Dividend Yield — The expected dividend yield is based on the Company's historical practice of not paying dividends on
its common stock.
The Company’s weighted-average assumptions used to estimate the fair value of stock options granted during the fiscal years
presented were as follows:
Expected term (years)
Expected volatility
Risk-free interest rate
Expected dividend yield
Weighted-average grant date fair value
Fiscal Years Ended
August 3,
2019
August 4,
2018
July 29,
2017
5.2
47.5%
2.9%
—%
5.1
43.9%
2.0%
—%
$
1.77
$
0.98
$
5.1
37.6%
1.3%
—%
1.87
A summary of the stock option activity under service-based plans during Fiscal 2019 is as follows:
Options outstanding – August 4, 2018
Granted
Exercised
Canceled/Forfeited
Options outstanding – August 3, 2019
Options vested and expected to vest at August 3, 2019 (b)
Options exercisable at August 3, 2019
Weighted-
Average
Exercise Price
Number of
Shares
(thousands)
19,307.9
4,545.8
(40.2)
(6,788.1)
17,025.4
16,879.7
10,311.9
$
$
$
$
8.97
3.89
2.37
8.54
7.80
7.83
10.53
Weighted-
Average
Remaining
Contractual
Terms
(years)
Aggregate
Intrinsic
(a)
Value
(millions)
4.2
$
9.3
4.1
4.1
3.1
$
$
$
—
—
—
______
(a) The intrinsic value is the amount by which the market price at the end of the period of the underlying share of stock exceeds the exercise
price of the stock option.
(b) The number of options expected to vest takes into consideration estimated expected forfeitures.
As of August 3, 2019, there was $4.7 million of total unrecognized compensation cost related to non-vested options, which is
expected to be recognized over a remaining weighted-average vesting period of 1.1 years. The total intrinsic value of options
exercised during Fiscal 2019 and Fiscal 2017 was de minimis. There were no options exercised during Fiscal 2018. The total grant
date fair value of options that vested during Fiscal 2019, Fiscal 2018 and Fiscal 2017, was approximately $9.6 million, $11.2
million and $13.4 million, respectively.
Market-based Stock Options
Market-based non-qualified stock options (“NQSO Awards”) entitle the holder to receive options to purchase shares of common
stock of the Company during the vesting period. However, such awards are subject to the grantee’s continuing employment and
the Company’s achievement of certain market-based goals over the pre-defined performance period.
The NQSO Awards' fair value is determined using a Monte-Carlo simulation model on the grant date. A Monte-Carlo simulation
model estimates the fair value of the market-based award based on an expected term of 7 years, a risk-free interest rate of 2.3%,
an expected dividend yield of zero and an expected volatility measure of 56.4% for the Company. Compensation expense for
NQSOs Awards is recognized over the vesting period regardless of whether the market conditions are expected to be achieved.
F-38
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company granted 3.5 million of NQSO Awards during the third quarter of Fiscal 2019 at an exercise price of $1.17 per share.
The weighted-average grant date fair value of the awards was $0.22 per share. The total unrecognized compensation cost at
August 3, 2019 was $0.8 million to be recognized over 2.8 years. There were no vestings of the NQSOs Awards as of August 3,
2019.
Restricted Equity Awards
The 2010 Stock Plan allowed for the issuance of shares of restricted stock and restricted stock units (“RSUs”) with service-based,
market-based and performance-based conditions (collectively, “Restricted Equity Awards”).
Under the 2016 Omnibus Incentive Plan, shares of Restricted Equity Awards are issuable with service-based, market-based or
performance-based conditions. Any shares of Restricted Equity Awards issued are counted against the shares available for future
grant limit as 2.3 shares for every one Restricted Equity Award granted. In general, if options are canceled for any reason or expire,
the shares covered by such options again become available for grant. If a share of restricted stock or a RSU is forfeited for any
reason, 2.3 shares become available for grant.
Service-based Restricted Equity Awards entitle the holder to receive unrestricted shares of common stock of the Company at the
end of a vesting period, subject to the grantee’s continuing employment. Service-based Restricted Equity Awards generally vest
over a three or four year period of time.
The fair values of service-based Restricted Equity Awards are based on the fair value of the Company’s unrestricted common stock
at the date of grant. Compensation expense for service-based Restricted Equity Awards is recognized over the vesting period based
on the grant-date fair values of the awards that are expected to vest based upon the service and performance-based conditions.
A summary of Service-based Restricted Equity Awards activity during Fiscal 2019 is as follows:
Nonvested at August 4, 2018
Granted
Vested
Canceled/Forfeited
Nonvested at August 3, 2019
Service-based
Restricted Equity Awards
Weighted-
Average
Grant Date
Fair Value Per
Share
$
$
4.57
3.75
5.22
3.49
4.57
Number of
Shares
(thousands)
4,171.3
269.9
(1,825.8)
(1,266.9)
1,348.5
As of August 3, 2019, there was $1.5 million of total unrecognized compensation cost related to the service-based Restricted Equity
Awards, which is expected to be recognized over a remaining weighted-average vesting period of 0.8 years. The total fair value
of the service-based Restricted Equity Awards vested during Fiscal 2019, Fiscal 2018 and Fiscal 2017 was $5.6 million, $2.8
million and $3.9 million, respectively. The weighted-average grant-date fair value per share of the service-based Restricted Equity
Awards granted during Fiscal 2019, Fiscal 2018 and Fiscal 2017 was $3.75, $2.45 and $5.28, respectively.
Market-based Restricted Equity Awards
Market-based Restricted Equity Awards entitle the holder to receive shares of common stock of the Company during the vesting
period. However, such awards are subject to the grantee’s continuing employment and the Company’s achievement of certain
market-based goals over the pre-defined performance period.
The market-based Restricted Equity Awards fair value is determined using a Monte-Carlo simulation model on the grant date. A
Monte-Carlo simulation model estimates the fair value of the market-based award based on an expected term of 3 years, a risk-
free interest rate of 2.3%, an expected dividend yield of zero and an expected volatility measure of 74.2% for the Company.
Compensation expense for market-based Restricted Equity Awards is recognized over the vesting period regardless of whether the
market conditions are expected to be achieved.
F-39
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company granted approximately 2.5 million of market-based Restricted Equity Awards during the third quarter ended May
4, 2019. The weighted-average grant day fair value of the awards was $0.47 per share. The total unrecognized compensation at
August 3, 2019 was $1.2 million to be recognized over 2.7 years. There were no vestings of the market-based Restricted Equity
Awards as of August 3, 2019.
19. Employee Benefit Plans
Long-Term Incentive Plans
During Fiscal 2016, the Company created a long-term incentive program ("LTIP") for vice presidents and above under the 2016
Omnibus Incentive Plan. The LTIP entitles the holder to either a cash payment, or a stock payment for certain officers at the
Company's option, equal to a predetermined target amount earned at the end of a performance period and is subject to (a) the
grantee’s continuing employment and (b) the Company’s achievement of certain performance goals over a one or three-year
performance period. Compensation expense for the LTIP is recognized over the related performance periods based on the expected
achievement of the performance goals.
The Company recognized $0.1 million, $(7.2) million and $13.6 million in compensation expense under the LTIP during Fiscal
2019, Fiscal 2018 and Fiscal 2017, respectively, which was recorded within Selling, general and administrative expenses in the
accompanying consolidated financial statements. The net credits recorded in Fiscal 2018 primarily reflect (1) the Compensation
Committee's determination in late September 2017 that although certain metrics within the 2017 LTIP were achieved, negative
discretion should be applied based upon the overall performance of the Company, thus the LTIP amounts were not distributed and
(2) the Company's determination in Fiscal 2018 that certain performance targets for the 2018 LTIP year would not be achieved.
As of August 3, 2019, there was $19.1 million of expected unrecognized compensation cost related to the LTIP, which is expected
to be recognized over a remaining weighted-average vesting period of 1.8 years. As of August 3, 2019, the liability for LTIP Awards
was $10.7 million, which was all classified within Other non-current liabilities in the accompanying consolidated balance sheets.
No amounts were paid during Fiscal 2019 or Fiscal 2018 and $10.4 million was paid during Fiscal 2017.
Retirement Savings Plan (401(k))
The Company currently sponsors a defined contribution retirement savings plan (the "401(k)" plan). This plan covers substantially
all eligible U.S. employees. Participating employees may contribute a percentage of their annual compensation, subject to certain
limitations under the U.S Internal Revenue Code. The Company's contribution is made in accordance with a matching formula
established prior to the beginning of each plan year. Effective with the plan year started January 1, 2015, the Company contributes
a matching amount based on eligible salary contributed by an employee equal to 100% of the first 3% contributed and 50% of the
next 2% contributed. Under the terms of the plan, such matching contributions are immediately vested. The Company incurred
expenses relating to its contributions to and administration of its 401(k) plan of $15.3 million in Fiscal 2019, $15.8 million in
Fiscal 2018 and $17.1 million in Fiscal 2017.
Defined Benefit Plan
During Fiscal 2017, the Company completed its plan to terminate a defined benefit plan assumed in the ANN Acquisition whereby
eligible participants elected to receive lump sum distributions. Subsequent to those distributions, also during Fiscal 2017, the
remaining obligation was transferred to a third-party and settled through a non-participating annuity contract whereby the trust
was fully liquidated. As a result, during Fiscal 2017, the accumulated actuarial loss of $7.4 million (net of an income tax benefit
of $2.9 million) was reclassified from Accumulated other comprehensive loss to Acquisition and integration expenses. In addition,
the Company recorded total settlement charges and professional fees of $8.0 million within Acquisition and integration expenses
during Fiscal 2017.
Executive Retirement Plan
The Company sponsors an Executive Retirement Plan (the “ERP Plan”) for certain officers and key executives. The ERP Plan is
a non-qualified deferred compensation plan. The purpose of the ERP Plan is to attract and retain a select group of management
and to provide them with an opportunity to defer compensation on a pretax basis above U.S. Internal Revenue Service
F-40
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
limitations. ERP Plan balances cannot be rolled over to another qualified plan or IRA upon distribution. Unlike a qualified plan,
the Company is not required to pre-fund the benefits payable under the ERP Plan.
ERP Plan participants can contribute up to 50% of base salary and 75% of bonuses, before federal and state taxes are calculated.
The Company makes a matching contribution to the ERP Plan in the amount of 100% on the first 1% of base salary and bonus
salary deferred up to $270,000. The Company makes an additional matching contribution to the ERP Plan in the amount of 100%
on the first 5% of base salary and bonus salary deferred in excess of $270,000. Plan participants vest immediately in their voluntary
deferrals and are incrementally vested in their employer matching contributions over a five year vesting period after which they
are 100% vested. The Company incurred expenses related to its matching contributions of approximately $1.0 million in Fiscal
2019, $1.0 million in Fiscal 2018 and $0.9 million in Fiscal 2017 relating to the ERP Plan. In addition, as the ERP Plan is unfunded
by the Company, the Company is also required to pay an investment return to participating employees on all account balances in
the ERP Plan based on 27 reference investment fund elections offered to participating employees. As a result, the Company’s
obligations under the ERP Plan are subject to market appreciation and depreciation, which resulted in expense of $1.0 million in
Fiscal 2019, $6.7 million in Fiscal 2018 and $8.6 million in Fiscal 2017. The Company’s obligations under the ERP Plan, including
employee compensation deferrals, matching employer contributions and investment returns on account balances, were $60.5
million as of August 3, 2019 and $71.6 million as of August 4, 2018. As of August 3, 2019, $31.6 million was classified within
Accrued expenses and other current liabilities and $28.9 million was classified within Other non-current liabilities in the
accompanying consolidated balance sheets. As of August 4, 2018, $4.2 million was classified within Accrued expenses and other
current liabilities and $67.4 million was classified within Other non-current liabilities in the accompanying consolidated balance
sheets. The increase in the current portion of the liability as of August 3, 2019 reflects amounts due to former senior executives
who left the Company during in the second half of Fiscal 2019. The amounts are expected to be paid during Fiscal 2020.
Employee Stock Purchase Plan
The Company also sponsors an Employee Stock Purchase Plan, which allows employees to purchase shares of the Company’s
common stock during each quarterly offering period at a 15% discount through payroll deductions. During the fourth quarter of
Fiscal 2017 the plan reached the maximum number of authorized shares to be issued and purchases under the plan were automatically
terminated. On December 7, 2017, stockholders approved an amended and restated Employee Stock Purchase Plan effective as
of January 1, 2018. The principal purpose of adopting this amended and restated plan was to approve a 4,000,000 share increase
to the number of shares of common stock available for issuance under the plan. Purchases under the amended and restated plan
began in the third quarter of Fiscal 2018. Expenses incurred during Fiscal 2019, Fiscal 2018 and Fiscal 2017 relating to this plan
were de minimis.
20. Segments
The Company's segment reporting structure reflects an approach designed to optimize the operational coordination and resource
allocation of its businesses across multiple functional areas including specialty retail, direct channel and licensing. The Company
classifies its businesses into four reportable operating segments: Premium Fashion, Plus Fashion, Kids Fashion and Value
Fashion. Each segment is reviewed by the Company's Chief Executive Officer, who functions as the chief operating decision
maker (the "CODM"), and is responsible for reviewing the operating activities, financial results, forecasts and business plans of
the segment. Accordingly, the Company's CODM evaluates performance and allocates resources at the segment level. During the
third quarter of Fiscal 2019, the Company made revisions to its reportable segments upon the divesting of its maurices business.
As a result, the Company removed the maurices business from the Value Fashion segment and reallocated all corporate overhead
to the remaining operating segments. The financial information presented below reflects such changes for all periods presented,
including the prior year financial information.
The four reportable segments are as follows:
• Premium Fashion segment – consists primarily of the specialty retail, outlet and direct channel operations of the Ann
Taylor and LOFT brands.
• Plus Fashion segment – consists of the specialty retail, outlet and direct channel operations of the Lane Bryant and
Catherines brands.
• Kids Fashion segment – consists of the specialty retail, outlet, direct channel and licensing operations of the Justice brand.
• Value Fashion segment – consists of the specialty retail, outlet and direct channel operations of the Dressbarn brand.
F-41
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The accounting policies of the Company’s reporting segments are consistent with those described in Notes 3 and 4. All intercompany
revenues are eliminated in consolidation. Corporate overhead expenses are allocated to the segments based upon specific usage
or other reasonable allocation methods. Certain expenses, including acquisition and integration expenses, and restructuring and
other related charges, have not been allocated to the segments, which is consistent with the CODM's evaluation of the segments.
Net sales and operating (loss) income for each operating segment are as follows:
Net sales (a) (b):
Premium Fashion
Plus Fashion
Kids Fashion
Value Fashion
Total net sales
Operating loss (a) (b):
Premium Fashion
Plus Fashion
Kids Fashion
Value Fashion
Unallocated restructuring and other related charges (c)
Unallocated impairment of goodwill (Note 5)
Unallocated impairment of other intangible assets (Note 5)
Unallocated acquisition and integration expenses
Total operating loss
_______
August 3,
2019
Fiscal Years Ended
August 4,
2018
(millions)
July 29,
2017
2,415.1
1,240.5
1,079.1
758.7
5,493.4
$
$
2,317.8
1,340.0
1,100.0
808.6
5,566.4
$
$
2,322.6
1,353.9
1,023.1
917.7
5,617.3
$
72.7
(71.4)
(42.4)
(101.7)
(127.7)
(276.0)
(134.9)
—
(681.4) $
$
102.3
0.6
18.7
(128.5)
(76.6)
—
—
(5.4)
(88.9) $
129.6
(12.7)
(60.5)
(56.0)
(78.1)
(489.1)
(728.1)
(39.4)
(1,334.3)
$
$
$
$
(a) Prior period amounts have not been restated due to the adoption of ASU 2014-09 and continue to be reported under the accounting standards
in effect for those periods. For more information on ASU 2014-09, refer to Note 4.
(b) For Fiscal 2019, Fiscal 2018 and Fiscal 2017, respectively, the maurices business was excluded from the Value Fashion segment and has
been classified as discontinued operations within the consolidated financial statements. As a result, shared expenses of $78 million, $96
million and $81 million, respectively, for the fiscal years ended August 3, 2019, August 4, 2018 and July 29, 2017, which were previously
allocated to maurices have been reallocated to the remaining operating units for all periods presented.
F-42
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(c) Restructuring and other related charges by operating segment are as follows:
Fiscal Years Ended
August 3, 2019
August 4, 2018
July 29, 2017
(millions)
$
Cash related charges(1):
Severance and benefit costs:
Premium Fashion
Plus Fashion
Kids Fashion
Value Fashion
Corporate
Total Severance and benefit costs
Professional fees and other related charges:
Plus Fashion
Value Fashion
Corporate
Total Professional fees and other related charges
Total Cash related charges
Non-cash charges:
Impairment of assets:
Premium Fashion
Plus Fashion
Kids Fashion
Value Fashion
Corporate
Total Non-cash charges
3.3
3.5
1.8
26.9
7.5
43.0
—
6.1
33.2
39.3
82.3
—
—
—
0.5
44.9
45.4
$
$
1.3
3.2
0.2
(0.8)
1.8
5.7
2.2
—
57.0
59.2
64.9
6.5
4.4
0.2
0.6
—
11.7
Total restructuring and other related charges
$
127.7
$
76.6
$
(1) The charges incurred under the Company's cost reduction initiatives are more fully described in Note 6.
3.0
9.4
2.4
5.7
10.3
30.8
1.2
—
33.4
34.6
65.4
3.2
4.8
1.6
3.1
—
12.7
78.1
F-43
ASCENA RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Depreciation and amortization expense and capital expenditures for each operating segment are as follows:
Depreciation and amortization expense (a):
Premium Fashion
Plus Fashion
Kids Fashion
Value Fashion
Total depreciation and amortization expense
Capital expenditures (a):
Premium Fashion
Plus Fashion
Kids Fashion
Value Fashion
Corporate (b)
Total capital expenditures
Fiscal Years Ended
August 3,
2019
August 4,
2018
(millions)
July 29,
2017
$
$
$
$
125.3
65.9
64.2
44.5
299.9
28.6
8.5
6.1
3.1
85.9
132.2
$
$
$
$
134.4
69.4
66.4
53.3
323.5
40.7
8.8
6.1
5.7
118.3
179.6
$
$
$
$
135.3
76.6
78.8
60.1
350.8
64.2
21.2
17.9
13.5
119.2
236.0
(a) Depreciation and amortization expense and capital expenditures related to the maurices business, historically reported within the
Value Fashion segment, has been excluded from the tables and is now classified as discontinued operations within the consolidated
financial statements. Refer to Note 2.
(b) Includes capital expenditures for technology and supply chain infrastructure.
The Company’s executive team does not regularly review asset information by operating segment and, as a result, we do not report
asset information by operating segment. In addition, the Company’s operations are largely concentrated in the United States and
Canada. Accordingly, net sales and long-lived assets by geographic location are not meaningful at this time.
21. Additional Financial Information
Cash Interest and Taxes:
Cash paid for interest
Cash paid for income taxes (a)
_______
Fiscal Years Ended
August 3,
2019
August 4,
2018
(millions)
July 29,
2017
$
$
97.4
5.9
$
$
112.9
5.1
$
$
90.8
3.5
(a) Includes a net refund of $0.2 million for Fiscal 2019 and net payments of $0.5 million and $0.8 million for Fiscal 2018 and 2017,
respectively, related to the maurices business, which is classified in discontinued operations.
Non-cash Transactions
Non-cash investing activities of continuing operations include the accrued purchases of fixed assets in the amount of $19.3 million
as of August 3, 2019, $20.6 million as of August 4, 2018 and $24.7 million as of July 29, 2017.
22. Subsequent Events
On September 20, 2019, the Company and certain of its domestic subsidiaries entered into an amendment to our Amended Revolving
Credit Agreement among the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent. The amendment
expands the limit on the letter of credit sublimit available for standby letters of credit from $100 million to $200 million, which
offers the Company greater financing flexibility to meet its working capital needs.
F-44
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Ascena Retail Group, Inc.
Mahwah, New Jersey
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Ascena Retail Group, Inc. and subsidiaries (the "Company")
as of August 3, 2019 and August 4, 2018, the related consolidated statements of operations, comprehensive loss, equity and cash
flows for each of the three fiscal years in the period ended August 3, 2019, and the related notes (collectively referred to as the
"financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the
Company as of August 3, 2019 and August 4, 2018, and the results of its operations and its cash flows for each of the three fiscal
years in the period ended August 3, 2019, in conformity with accounting principles generally accepted in the United States of
America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of August 3, 2019, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and
our report dated October 10, 2019, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
October 10, 2019
We have served as the Company’s auditor since at least 1980, in connection with its initial public offering.
F-45
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Ascena Retail Group, Inc.
Mahwah, New Jersey
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Ascena Retail Group, Inc, and subsidiaries (the “Company”)
as of August 3, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of August 3, 2019, based on criteria established in Internal Control
- Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated financial statements as of and for the fiscal year ended August 3, 2019, of the Company and our
report dated October 10, 2019, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Assessment of Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
October 10, 2019
F-46
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth the quarterly financial information of the Company:
Fiscal Year Ended August 3, 2019
Fourth
Quarter (a)(b)(c)
Third
Quarter (a)(b)(c)
Second
Quarter (a)(b)
First
Quarter (a)(b)
Net sales
Gross margin
Net loss from continuing operations
Net loss from continuing operations per common share:
Basic
Diluted
Net (loss) income
Net (loss) income per common share:
Basic
Diluted
1,454.2
789.2
(420.2)
$
(millions, except per share data)
1,435.0
$
748.7
(94.1)
1,265.7
722.3
(244.2)
$
1,338.5
801.1
(23.8)
(2.12) $
(2.12) $
(1.24) $
(1.24) $
(0.48) $
(0.48) $
(358.0)
(237.9)
(71.5)
(1.81) $
(1.81) $
(1.20) $
(1.20) $
(0.36)
(0.36)
(0.12)
(0.12)
5.9
0.03
0.03
$
$
$
$
$
Fiscal Year Ended August 4, 2018
Fourth
Quarter (a)(b)(d)
Net sales
Gross margin
Net income (loss) from continuing operations
Net income (loss) from continuing operations per
common share:
Basic
Diluted
Net income (loss)
Net income (loss) per common share:
Basic
Diluted
________
$
$
$
$
$
1,519.5
882.3
15.8
0.08
0.08
33.2
0.17
0.17
$
$
$
$
$
Third
Quarter (a)(b)
Second
Quarter (a)(b)(d)
(millions, except per share data)
1,456.4
$
790.6
(75.2)
1,266.7
753.2
(59.4)
First
Quarter (a)(b)
$
1,323.8
806.2
(24.2)
(0.30) $
(0.30) $
(0.38) $
(0.38) $
(40.2)
(39.3)
(0.20) $
(0.20) $
(0.20) $
(0.20) $
(0.12)
(0.12)
6.6
0.03
0.03
(a) For all periods presented, the maurices business has been classified as discontinued operations within the consolidated financial statements
and has been excluded from the results of continuing operations shown herein.
(b) Fiscal 2019 continuing operations includes Restructuring and other related expenses of $7.9 million, $14.1 million, $7.1 million and $98.6
million in the first, second, third and fourth quarters, respectively. Fiscal 2018 continuing operations includes Restructuring and other related
expenses of $22.0 million, $18.9 million, $18.0 million and $17.7 million in the first, second, third and fourth quarters, respectively.
(c) In the third and fourth quarters of Fiscal 2019, the Company recorded non-cash impairment charges of $140.1 million and $270.8 million,
respectively, related to goodwill and other intangible assets. Refer to Note 5 to the accompanying financial statements for additional information.
(d) Fiscal 2018 continuing operations includes incremental revenues from the 53rd week of $24.6 million at the Premium Fashion segment in
the second quarter and $70.2 million at the Plus Fashion, Kids Fashion and Value Fashion segments in the fourth quarter.
F-47