Ascena To Post 25% YoY Decline In Earnings On Flat Revenue

Ascena Retail Group Inc ASNA is scheduled to announce its third quarter financial results after the market closes on Tuesday and, according to Estimize, both experts and the crowd expect to see a year-over-year decline in earnings of more than 25 percent.

The Street is modeling earnings of $0.19 per share on revenue of $1.163 billion for the quarter. Meanwhile, the crowd is projecting earnings of $0.20 per share on revenue of $1.154 billion.

These figures compare to the earnings of $0.27 per share on revenue of $1.145 billion reported a year ago, but stand above last quarter’s earnings of $0.07 per share on revenue of $1.289 billion.

Looking at the irregularity in the chart above, one cannot anticipate either a beat or miss this quarter.

Can This Acquisition Drive Future Earnings?

Despite the poor estimates, analysts at Piper Jaffray recommended holding on to Ascena’s stock, following the company's announcement of its plans to acquire Ann Inc ANN for $37.34 per share in cash, plus 0.68 Ascena shares for each Ann share. This equates to a purchase price of roughly $47 per Ann share.
Related Link: Piper Jaffray: Don't Sell The Ascena-Ann Merger

In the report the analysts assure they are “favorable on this transaction despite the downward pressure in ASNA shares yesterday, and believe investors have a unique opportunity to buy ASNA shares at depressed levels for what could be significant stock price appreciation over time, especially as the integration of ANN INC. is underway and cost savings and synergies are achieved."

The firm believes the transaction makes "a great deal of sense in helping shareholders unlock value (…) A shared services business model is likely the more efficient way to accomplish sustained, positive returns on invested capital over time."

The analysts set new EPS estimates for after the merger. They now expect EPS of $1.05 for FY16, $1.22 for FY17 and $1.44 for FY18.