Ascena Retail Group reported financial results for its fiscal third quarter ended April 23, 2016. Earnings were $0.08 per diluted share compared to earnings of $0.15 per diluted share in the same period of fiscal 2015.
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The decrease was primarily due to integration costs, interest expense incurred under the $1.8 billion term loan and the effect of non-cash purchase accounting adjustments, all of which were related to the acquisition of ANN, which closed during the first quarter of fiscal 2016.
Also contributing to the year-over-year decline was an increase in the provision for income taxes. For the third quarter of Fiscal 2016, the company reported adjusted earnings of $0.15 per diluted share. This compares to earnings of $0.16 per diluted share in the same period of Fiscal 2015.
On a GAAP basis, Gross margin increased to $1,017 million, or 60.9% of sales, for the third quarter of Fiscal 2016. This compared to $675 million, or 58.7% of third quarter sales last year with the growth in terms of dollars being driven by the acquisition of ANN.
On an adjusted basis, inclusive of ANN, Gross margin for the third quarter of Fiscal 2016 was $1.018 billion, or 60.9% of sales, compared to $1.008 billion, or 57.7% of sales, in the third quarter last year.
This strong improvement in gross margin rate was driven primarily by disciplined inventory management across all of our brands, successful implementation of the new Justice selling model, and better full-price sell-through and reduced product cost at ANN.
On a GAAP basis, Buying, distribution and occupancy (BD&O) expenses for the third quarter of Fiscal 2016 were $325 million, or 19.5% of sales, compared to $214 million, or 18.6% of third quarter sales last year, with approximately $115 million of the increase related to the acquisition of ANN.
On an adjusted basis, inclusive of ANN, third quarter BD&O expenses decreased modestly to $324 million, or 19.4% of sales, compared to $325 million, or 18.6% of sales last year.
The expense decline was driven primarily by lower distribution expense, which improved from 1.3% of sales in the year-ago period to 1.1% of sales, reflecting continued realization of legacy ascena supply chain synergies, mostly offset by increases in the merchandising and design function capability.
On a GAAP basis, Selling, general and administrative (“SG&Aâ€) expenses for the third quarter of Fiscal 2016 were $536 million, or 32.1% of sales, compared to $365 million, or 31.7% of third quarter sales last year, with the increase almost entirely related to the acquisition of ANN.
On an adjusted basis, inclusive of ANN, third quarter SG&A expenses were $534 million, or 32.0% of sales, compared to last year's $529 million, or 30.2% of sales.
In terms of dollars, expenses were up 1% to last year, with increases in general administrative costs and marketing investments to support brand building at multiple brands mostly offset by lower store expenses at Justice, SG&A optimization savings at ANN and realized synergies from the acquisition of ANN.
On a GAAP basis, the company generated Operating income for the third quarter of Fiscal 2016 of $57 million, or 3.4% of third quarter sales compared to Operating income of $34 million, or 3.0% of third quarter sales last year.
On an adjusted basis, inclusive of ANN, Operating income for the third quarter of Fiscal 2016 was $78 million, or 4.7% of adjusted Net sales compared to $73 million, or 4.2% of adjusted Net sales last year. ■