We expect Ascena Retail Group Inc. (ASNA - Free Report) to beat expectations when it reports first-quarter fiscal 2017 results on Dec 1.
Last quarter, the company reported a negative surprise of 52.9%. Though the bottom line has outperformed the Zacks Consensus Estimate in the prior three quarters, the company has a negative average surprise of 4.5% in the trailing four quarters. Let’s see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Ascena may beat earnings because it has the right combination of the two key components.
Zacks ESP: Ascena currently has an Earnings ESP of +14.29%. This is because the Most Accurate estimate is at 24 cents, while the Zacks Consensus Estimate is pegged lower at 21 cents. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Ascena carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1, 2 or 3 have a significantly higher chance of beating earnings. Conversely, Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.
The combination of Ascena’s Zacks Rank #3 and positive ESP makes us reasonably confident of a positive earnings beat.
What's Driving the Better-than-Expected Earnings?
Though Ascena posted disappointing results in the previous quarter, the company recently unveiled a new ‘Change for Growth’ program that marks the start of the execution phase of its transformation plan, alongside restructuring its operating segments. This program, which follows a major planning session of over six months, will generate cost savings in the band of $100–$150 million by fiscal 2019, in addition to the existing $235 million related to the integration of recently acquired ANN INC.
The new growth plan will improve the company’s operating model by paying more attention to the shared services platform, along with improving customer services and reducing working capital. As part of the plan, Ascena has streamlined its business structure into four new operating segments − Premium Fashion, Plus Fashion, Value Fashion and Kids Fashion. Further, the company made a number of leadership changes to support the program.
These organizational changes were followed by several executive departures to avoid any organizational overlap, which is likely to attract a pre-tax charge of nearly $10–$12 million in first-quarter fiscal 2017. Additionally, management anticipates benefiting from these changes in the form of lower operational costs through fiscal 2017.
With these encouraging factors at play, we would like to wait and see what is in store for Ascena in the to-be-reported quarter.
Other Stocks that Warrant a Look
Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:
PVH Corp. (PVH - Free Report) is slated to report earnings on Nov 30 and currently has an Earnings ESP of +0.42%. The stock carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Express Inc. (EXPR - Free Report) , with an Earnings ESP of + 16.67% and a Zacks Rank #3, is slated to release earnings on Dec 1.
The Kroger Co. (KR - Free Report) , with a Zacks Rank #3 and an Earnings ESP of +2.38%, is scheduled to release earnings on Dec 1.
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