Ascena Retail Group's (ASNA) CEO David Jaffe on Q1 2017 Results - Earnings Call Transcript

| About: Ascena Retail (ASNA)

Ascena Retail Group, Inc. (NASDAQ:ASNA)

Q1 2017 Earnings Conference Call

December 01, 2016 04:30 PM ET

Executives

Stacy Turnof - IR

David Jaffe - CEO

Robb Giammatteo - CFO

Analysts

Neely Tamminga - Piper Jaffray

Oliver Chen - Cowen and Company

Kate Berry - Royal Bank of Canada

Susan Anderson - FBR Capital Markets

Marni Shapiro - Retail Tracker

Operator

Good day, ladies and gentlemen and welcome to the First Quarter Fiscal 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time [Operator Instructions]. As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Ms. Stacy Turnof, Vice President, Investor Relations of Ascena Retail Group. Ma'am, you may begin.

Stacy Turnof

Thank you. Good afternoon and welcome to Ascena's first quarter fiscal 2017 earnings call and webcast. Before we begin I'd like to remind you that certain statements and information made available on today's call and web cast may be deemed to constitute forward-looking statements. These forward-looking statements reflect the company’s current expectations as of December 1, 2016, and are subject to a number of known and unknown risks and uncertainties that could actual results to differ materially. The company undertakes no obligation to revise or update any forward-looking statements.

Additionally, today’s call and webcast may refer to non-GAAP financial measures. A reconciliation of GAAP measures to non-GAAP measures we discuss today is included in our earnings release, a copy of which was filed with the U.S. Securities and Exchange Commission and a current report on Form 8-K earlier today. Please refer to the ’For Investors’ section of ascenaretail.com for a replay of today’s conference call.

Joining me today are David Jaffe, Ascena’s President and CEO; and Robb Giammatteo, our CFO. And with that I’ll hand the call over to David.

David Jaffe

Thank you, Stacy. Good afternoon everyone and thank you for joining us. Our performance in the first quarter was again challenge by ongoing store traffic headwinds and increasing customer price sensitivity that our industry has been contending with for multiple seasons. While we believe the extraordinary election cycle and warmer weather contributed to lackluster consumer activity, ultimately we were disappointed with our sales performance. Total Ascena comp sales were down 5% below our run rate in mid-September, when we issued our fiscal 2017 and first quarter guidance.

Although sales and margin results did not coming as we had hope. I’m pleased that our efforts delivered first quarter non-GAAP earnings in the middle of our guidance range. We reacted decisively to unfavorable selling trends in September through more aggressive, but targeted and effective promotional activity. We also reduced operating costs and capital expenditures that will benefit full year earnings and free cash flow.

I’d like to share few segments specifics from our first quarter performance. Comp sales in our Premium Fashion segment were down 6%, both brands outperformed significant store traffic declines and delivered strong improvement in gross margin rate. LOFT comp sales were down 3% on a 8% store traffic decline and Ann Taylor comp sales were down 11% on a 13% decline of store traffic. Excluding the impact of non-cash purchase accounting last year. The premium fashion segment delivered 200 basis points increased in gross margin rate versus a year ago period reflecting effective inventory management, lower product costs related to the segment strategic sourcing initiatives and synergies related to company’s ongoing supply chain integration.

LOFT product acceptance remains strong particularly with fashion knits, woven and dresses. While product acceptance in Ann Taylor remain difficult particularly in dresses, pants and skirts we’re seeing positive reaction new fashion silhouette and style and we’ll be increasing our investment in print, pattern and novelty to capture the missed demand this quarter. Fashion penetration at Ann Taylor is expected to more than double this coming spring versus last year with the focus on tops and dresses.

Comp sales in our value fashion segment were down 6% for the quarter with both Maurices and Dressbarn out mid-single-digits. Segment gross margin rate was down 70 basis points last year caused by higher than anticipated mark-downs at Maurices partially offset by lower product costs at Dressbarn by due to increased penetration of internally sourced product. Specific to Maurices, we are responding to increasing customer price sensitivity by enhancing our opening price points assortment which will represent 20% to 25% of the assortment this spring.

Dressbarn is in the process of making strategic adjustment to its assortment, narrowing its choice count and providing additional inventory depth behind all store buys. These adjustments were formed by testing over the priority few season and will be phased in across the chain through the coming spring season. We expect a better inventory in stock position in our stores will improve the comp trend that has been in place at the Dressbarn for the past several quarters.

Comp sales in our Plus Fashion segment were down 5%, here too our brands outperformed store traffic decline. Lane Bryant comp sales were down 4% on an 8% decline in store traffic and Catherines comp sales were down 10% on a 5% decline in store traffic. Loyalty events at both brands drove strong demand during peak, but were unable to offset softer than expected base demand. The segment delivered a 150 basis point increase in gross margin rate reflecting continued refinement of promotional strategies and opening price point assortments of both brands.

From the product segment standpoint we saw segment strength in intimates with Catherines intimates up 5% and Lane Bryant Cacique intimates business up 2%, continuing a four year positive comp trend. Cacique also delivered a record high gross margin rate for the quarter, up almost 400 basis points versus the year ago period. Across the segment cold weather goods were most challenged with specific pressure in sweater and denim which were down double-digits.

Finally comp sales in our Kids Fashion segment were down 1% for the quarter following comp sales growth of 2% and very strong direct demand in the back to school period, overall demand softened below expectations with store traffic ending down 3% in the quarter. The lower trend in September and October required a higher level of promotional activities to maintain appropriate inventory levels. As a result we saw a double-digit decline in average selling price for the quarter which more than offset strong performance in the direct channel that was driven by the new Ascena omnichannel platform.

While the drop in average selling price resulted in growth marginally decline of 370 basis points versus last year record level, rate performance remained well above fiscal 2014 and '15 levels reflecting continued adherence to the brands disciplined promotional model. We continue to build on the momentum of our live Justice platform with the launch of our new app which features things like latest trend, the ability to create product wish list and the ability to connect with our Girls With Heart brand ambassador. A lot of fun things for our girl that we expect will be a competitive point of differentiation for Justice moving forward.

Regarding second quarter performance, while it is too early to predict the trends for the upcoming holiday period selling has picked up a bit following a very difficult period leading to Election Day. Total comp sales were up 2% for the nine day period from the Sunday preceding thanksgiving through Cyber Monday. Importantly total merchandize margin dollars were up 2% as well reflecting effective promotional strategies of our brand.

Double-digit ecommerce growth over this period more than offset negative brick and mortar performance that resulted from continued traffic headwind. Performance during this peak period was mixed across our segments with strong performance at our Premium Fashion segment offset by softer than expected results at our Value Fashion segment. Our Kids Fashion and Plus Fashion segments were up low single-digits over this period.

Turning to our key enterprise initiatives, we remained highly focused on driving these work streams and capturing the efficiencies they create which is key to mitigating the ongoing impact of our difficult selling environment. We're continue to accelerate the pace of our Change for Growth enterprise transformation and have clear line of sight to the $150 million cost reduction target we shared in October. We expect to achieve full realization of this target by fiscal 2019 and are aggressively working to pull forward cost take out opportunities.

Our integration of Ann continues to progress well with our next milestone expected in the early calendar 2017 when we expect to bring on our Riverside, California retail distribution center online. We remain confident that we will achieve our 235 million cost reduction and synergy targets rate by fiscal 2018 year end. And finally we continue to be very pleased with the rollout of our new omnichannel platform across the legacy Ascena brand.

Justice went live on the platform in June and Maurice has recompleted its rollout on the platform in October, consistent with results at Justice, initial results that Maurice’s have been encouraging and we look forward to bringing Lane Bryant, Catherine's and Dressbarn on to the platform in calendar 2017. This new capability allows our customers to better access our brands where and how she wants and we look forward to continue enhancements the platform as we move past holiday.

In conclusion market conditions are challenging and at this time we believe it is prudent to assume that they will remain so. We are focused on the areas of business that we can control, we expect to drive down inventory level, execute cost control and build a more flexible and responsive organization in general. While these actions will support our near term performance we will also continue to aggressively work on our enterprise transformation to create sustainable performance longer term through enhanced customer facing capability.

The tough environment certainly highlights the necessity of the transformation we're executing and we are working to ensure that Ascena emergence as a strong competitor that can simultaneously drive value to demanding customer and produce returns expected by our shareholders.

Now I'll hand it off to Robb for a summary of first quarter financials and our thinking on the remainder of fiscal 2017.

Robb Giammatteo

Thank you David, and good afternoon everyone. Before reviewing our first quarter results I will note that GAAP earnings include the following. 13 weeks of operating results for our premium fashion segment versus 10 weeks of operating results in the year ago period due to the three weeks sub period preceding August 21st, 2015 acquisition date of Ann Inc. Non-comparable year-on-year non-cash purchase accounting entries and finally discrete restructuring and acquisition and integration expenses that were not included in our fiscal 2017 guidance due to uncertainty regarding timing and magnitude of associated expenses.

Non-GAAP measures referenced herein exclude restructuring expenses, non-cash purchase accounting entries and acquisition and integration expense. In addition premium fashion segment operating results for the three weeks sub period preceding the Ann Inc. acquisition date are included in the year ago non-GAAP results to enhance period over period comparability. Consistent with last quarter we have posted a supplemental earnings package to our IR website and attached it to our 8-K to provide additional context on performance for the quarter. I will refer to this document in my prepared remarks and may reference it as well during Q&A.

GAAP first quarter net sales were up slightly to 1.68 billion from 1.67 billion in the year ago period which excluded roughly 122 million of premium fashion segment sales in the sub period that preceded the Ann acquisition date. Comp sales were down 5% but outperformed an 8% decline in store traffic and a 2% decline in average dollar sales that resulted from increased promotional activity that was needed to offset softer than expected demand. Our conversion performance improved which we see as a general validation of a merchandize assortment. We also continue to see growth in the direct channel, supported by our new omnichannel platform, that is now fully live at Justice and Maurice’s.

GAAP first quarter gross margin was $1.01 billion, or 60.4% of sales compared to 903 million or 54% sales in the year ago period, which excluded roughly 75 million of premium fashion segment gross margin dollars in a sub period that preceding the Ann acquisition date. Note that the prior year period was unfavorably impacted by purchase accounting write-up of premium fashion segment inventory which significantly increased cost of goods sold for the period by roughly 104 million.

Adjusting for purchase accounting items in the prior year’s sub period, total company non-GAAP gross margin rate was up 10 basis points from the year ago period. With our premium and plus fashion segment delivering rate increases up 200 and 150 basis points respectively. These increases were mostly offset by rate declines at our value and kids fashion segments, although we were generally pleased with rate performance at these segments, which are up against record performance levels in the year ago period.

GAAP first quarter buying, distribution and occupancy expenses were 321 million or 19.1% of sales versus 303 million or 18.1% of sales in the year ago period, which excluded roughly 27 million of premium fashion segment expense in a sub period that preceding the Ann acquisition date. On a non-GAAP basis BD&O expenses were down 3% to the year ago period, representing lower occupancy expense on a reduced store account along with Ann synergy capture evidenced by 10 basis points of distribution expense rate leverage despite the negative comp performance.

GAAP first quarter selling, general and administrative expenses were $524 million or 31.2% of sales versus $487 million or 29.1% of sales in the year ago period, which excluded roughly 40 million of premium fashion segment expenses in the sub period that preceding the Ann acquisition date. On a non-GAAP basis SG&A expenses were down 1%, to the year ago period with cost reduction actions and the release to performance based compensation offsetting deflationary pressure [ph].

First quarter acquisition and integration expenses were 12 million down from 43 million in the year ago period. Restructuring expenses were 12 million of the quarter associated with ongoing work with our Change for Growth transformation initiative.

GAAP first quarter operating income was $51 million or 3.1% of sales versus the loss of 12 million in the year ago period. On a non-GAAP adjusted basis, operating incomes was down 40% caused primarily by declines in our value and kids fashion segments.

The operating incomes decline in our value fashion segment was caused by negative mid single digit comp performance, coupled with a decline in gross margin rates, associated with a higher level promotional activity versus the year ago period.

The operating income decline in our kids fashion segment was caused primarily by decline in gross margin rates from last year’s record performance along with a timing shift from last year’s 53 week fiscal year that pushed roughly 10 million in earnings from the weak back to school week to this year’s fiscal fourth quarter.

GAAP first quarter earnings per share were $0.07, which includes roughly a $0.08 impact from the aforementioned restructuring and acquisition and integration cost that were not included in our guidance. First quarter GAAP earnings also included roughly $0.03 in non-cash purchase accounting adjustments. Non-GAAP first quarter earnings per share were $0.18.

As David referenced early, we’re tracking well towards full realization of the 235 million deal synergies and cost savings target, [indiscernible] from our acquisition the Ann, and we continue to expect that we realize approximately 90 million in saving in fiscal 2017.

We realized approximately 27 million in combined synergies and cost savings in the first quarter, in line with our expectations. Most of the realized saving for the quarter came from our supply chain work, Ann product costs and non-merchandize procurement.

Turning to the balance sheet, we ended the quarter with 271 million in cash and cash equivalents. Of this amount, 207 is outside the U.S. We ended the quarter with total debt of 1.668 billion, which represented the remaining 1.619 billion on our 1.8 billion term loan and 49 million draw on our asset based revolver. Our brands did an excellent job managing working capital in the quarter, through continued inventory discipline. Total inventory at cost was 808 million at the close of the first quarter, representing a 7% decline to last year after adjusting for the prior year non-cash purchase accounting write-up of premium segment inventory to market value.

Inventory levels remain generally well-controlled with the Kids Fashion segment slightly elevated due to softer than expected demand versus our inventory buy. We are comfortable, we will be able to manage the Kids Fashion segment inventory level back in line with comp trends through our holiday promotional activity.

Please refer to Slide 6 in our supplemental slide package for segment level inventory detail. Capital expenditures for the quarter were 77 million, inclusive of store capital, supply chain integration and support of our new omnichannel platform. We have reduce our capital plan to drive cash flow in this difficult selling environment and now expect full year fiscal 2017 CapEx in the range of 235 million to 260 million versus our prior plan 295 million to 325 million. In terms of unit development, we opened 29 stores and closed 15 in the first quarter.

Please refer to Slide 8 in our supplemental slide package for segment level store detail. Specific to the second quarter, we are modeling a comp decline of roughly 4% and non-GAAP earnings per share of between breakeven and a loss of $0.05, which excludes the impact of non-cash purchase accounting and restructuring and acquisition and integration expense.

Regarding our full year fiscal 2017 guidance, we currently see non-GAAP earnings per share towards the lower end of our original $0.60 to $0.65 range, which excludes the impact of non-cash purchase accounting and restructuring and acquisition and integration expense. Our current outlook reflects sales of approximately 6.9 billion and gross margin rate of approximately 59%. Our cost reduction efforts and acceleration of our Change for Growth transformation work has mostly offset the full year risk we see, the comp sales and gross margin rate from the first quarter and performance through the Black Friday, Cyber Monday period was generally in line with our expectations.

For more detail on our Q2 and full year fiscal 2017 guide. Please reference Pages 10 and 11 of the supplemental slide package available today or as an attachment to our 8-K released earlier today.

That concludes our prepared remarks, and we will now open it up to questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions]. And our first question comes from Neely Tamminga with Piper Jaffray. Your line is now open.

Neely Tamminga

A little bit question on Justice for Kids Fashion and then also the CapEx if I may. On -- totally appreciate the fact that demand flowed in the quarter and you guys have to clear out those goods. I guess, two related question, how do you feel about your IMU [ph] in general, [indiscernible] going on with the IMU side of that business or do you feel like you delivered on that, that it’s really just about kind of the unplanned slowdown and unplanned mark downs as to where we came down too.

And then secondly, how should we be thinking about comp performance, you guys are obviously really starved and clearing inventory if memory serves last year during that quarter. So have you cleared out a lot of it? Should we be thinking about having more balance, but slightly more robust comps that you actually have clearance inventory for the assets? And then on the CapEx side Robb, the change in CapEx if I'm hearing the presentation correctly, the change in CapEx have you cancelled projects or delayed projects, sort of what's the scope and scale of some of the change of baking on the CapEx change? Thanks.

Robb Giammatteo

Let me start with that and I'll let David jump in if he wants, I think on the Justice side, Neely, with margin it really is about the markdown rate. We had bought this season to do a mid-single digit comp and as you can see coming in negative was something that’s just a math exercise where the trend wasn't what we hope it would be and we just needed to clear the goods. I don't think there's a much of the story on the IMU side, we are calibrating our style by non-style by mix and I think there's more work to be done there from the brand standpoint, but it really it was a story about markdown rate more than it was related to the IMU.

From the CapEx standpoint most of the capital was taken out of the stores, so as always we do a hindsight of our prior fiscal year work and based on performance of projects versus targets from the prior year in the hindsight we've taken a really aggressive view on the original allocation of capital and we've been able to take quite a bit back as you can see from the decline that we had. So, again we've taken a large chunk out of stores, as you know we're taking a more refined view at the store of fleet, projects are going forward only when they clear a significantly high hurdle rate, that's heavily risk assessed and we've just been able to dial that back based on the challenging store trends that we've seen in the way that we're risk assessing these projects. So the bulk of it has come out of the store capital and we look for opportunities to continue to dial this back while protecting key strategic initiatives like our omnichannel platform.

Operator

Thank you. And our next question comes from Oliver Chen with Cowen and Company. Your line is now open.

Oliver Chen

What was nice was, a lot of your comps outpaced the store traffic. Do you expect that dynamic to continue in terms of being able to outpace store traffic? And also David on the Dressbarn and opening price point and as to your SKU [ph] rationalization, is that something that is an opportunity at other banner as well as you think about making sure you optimize your inventory across the banner? Sorry about the background noise.

David Jaffe

First, I do think that our comps will continue to outpace the decline in store traffic, I think what's happening and probably across the industry, not just us is as traffic declines you're getting fewer kind of window shoppers, and people as you know are pre shopping on their phones, or their tablets whatever before they come in. So they're coming in because they have more of a purpose perhaps than they did couple of years ago. So, I think that trend will continue.

On the second point the few SKU rationalization at Dressbarn is the way to go narrower and deeper and be a little bit more focused in what we're presenting. That was a particular issue at Dressbarn much more so than the other brands. So I don't know if that issue is as relevant, although certainly we'll keep looking at it across all the brands. The first point on opening price point at some of our brands, yes it is something that we're looking at across Ascena.

As you know Justice has their Style Buys and that’s been out there now for over a year and very successful. So we're going to continue to look at the response to Style Buys, what we've learned for that and we're going to take that strategy of adjusting opening price points on more basic or core items and look at it as it may be applicable for each brand.

Oliver Chen

[Technical difficulty] It sounds like you're happy --.

David Jaffe

Oliver you're cutting out. Oliver can you hear us.

Oliver Chen

Just had a question on inventory and how you're feeling about cleanliness of the inventory levels at this point?

David Jaffe

Okay, that came in loud and clear. Inventory is in really good shape, its levels are appropriate, Robb mentioned a slight little blip we've got at Justice besides that, all the inventory levels are down, you can see that in the supplemental slides we sent out when you get a chance. We're pleased also with the content, I think the customers responded well that's what drove our 2% comp over last nine days of the Black Friday week and also you saw that the comp, the 2% comp was matched by 2% gross margin gains which we felt really good about. So we weren't doing excessive discounting or promoting to move that product.

Oliver Chen

Thank you so much, best regards for the holiday.

David Jaffe

Thanks Oliver, you too.

Operator

Thank you, and our next question comes from Brian Tunis of Royal Bank of Canada, your line is now open.

Kate Berry

Yes, hi, this is Kate on for Brian, thank you for taking our question. I guess I'm just trying to rationalize you know the negative 4 to 5 comps that we're expecting here in the first half of the fiscal year with you know full year guidance for the down 1 to 2 comps. Do you guys feel like you're being conservative enough for that back half outlook?

And then secondly, Robb you talked about managing operating cost in the quarter, can you just speak to you know maybe further flexibility on the operating expense side as the year progresses, just in case the topline remains volatile. Thank you.

David Jaffe

I think it's a really good call out on the comp, what we’re doing is looking not just on the annual comp, but really looking at the two year stacked and so when we -- and this is also on our supplemental slides that you can see the trend that we’ve got. We think based on the two year stack and on some of the initiatives we've got particularly our omnichannel initiative with the rollout of Lane Bryant Catherine, we think this is reasonable and achievable.

Having said that I never would have projected the kind of fall that we had, so you just never know. I'd like to blame hat on the warm weather and election, certainly I'm sure there are other factors, but when I look at the business I think that the three weeks since election have given us a little more confidence that things are firming up a bit. Still challenging, but not nearly as much as it was in the earlier part of the fall and so if this is close to new normal I don't think the numbers we have for fall are unreasonable.

Robb Giammatteo

And Kate your question on OpEx, so as you might imagine, as we saw these trends start to pop up in September we really jumped on this in terms of trying to get in front of OpEx and offsetting what was happening on the gross margin line. So we made some tough decisions including things like merit freezes [ph] and you know we put in a lot more of the larger projects that we're talking about with Change for Growth, which we're really excited about and we do view as a transformational impact to our company.

In addition to the 10-5 announcement we had when we announced our segment restructuring we been working activity on this work stream. I’m not going to go into a lot of detail on it today because we’ll be sharing more on our Investor Day on January 18, but there is certainly forward OpEx that’s been taking our related to that. Things like you know value targeting and overall non-merchandize procurement spend. So we’ve gone after than hard and we’ll continue to do that, and then the things that you would expect us to do in such an environment, things like travel, consulting, temp spending bills [ph], things we have gotten pretty aggressive at.

So we’ve taken a large chunk, we’re going to continue to look at pulling ahead as much of the change for growth initiative as we can and we’re going to be as active as we can offset some challenging things we’re seen on the top and we’ve seen coming into the through the first quarter.

Operator

Thank you. And our next question comes from Anna Andreeva with Oppenheimer. Your line is open.

Unidentified Analyst

Hi this is Sam on for Anna, thanks for taking our question, we’re just hoping you could expand a little on the quarter-to-day trends you are seeing and how you’re thinking about performance by division. And then on the Plus size business, specifically with the further deterioration, what are you seeing in that space? Thank you.

David Jaffe

So the quarter-to-day trends, really kind of bifurcate it. When you think about it, we had the two weeks leading into the election, which weeks were really tough and then we got some firming afterwards, and then all the sudden here, you know you have Black Friday, and looking forward I’ve never seen Black Friday to be a strong co-relator or to holiday business for better or for worse. So we’re certainly not counting our chickens either way.

So I don’t really know what to tell you about that, as we’ve said early got inventory well position, we’ve got all kinds of promos ready to go and contingencies, and that we’re well prepared. And we have two extra shopping days, which I think will benefit us, you’re looking you’re Farmer's Almanac, it says it’s going to be a little cooler this year than last year, which certainly should help as well.

So beyond that I’m not sure what to tell you.

Robb Giammatteo

I think that’s a good call, I think we’ve seen traffic improve modestly, still down mid single digit but better then what we saw in the first quarter-to-day at this point. Pre-election, post-election, Veterans Day, Black Friday, it’s just too noisy for us to read it this time and it wouldn’t really project what that means going forward.

On the Plus business, I think we see the same sort of things we see in other segments, we see the some of the core, more commodity type businesses that can be replicated by competitors, we see a lot of price sense to be there and we’re continuing to work the opening price point assortment as David mentioned early where, we know we need to have a core product in our stores to build wardrobes and at the same time we recognized that the pricing has to be competing with things that are out the door at some of the big boxes that we know are there as well as Amazon and [indiscernible].

David Jaffe

And as a general comment I’d say, our customers across all of our brands and may be across the whole industry is really looking for fashion and value. She wants what see wants now, and I think part of that is whether it’s Prime from Amazon that gets it to you a day later, two days later. She been trained now that sees something, she wants to get it immediately. She doesn’t want to buy something and not be able to wear it for another two or three months. She is buy now, wear now. She wants new fashion and she wants a great value.

So while these trends maybe have already always been there, we’ve seen then really come into focus in a big way this fall.

Operator

Thank you. And our next question comes from Paul Lejuez from Citi. Your line is now open.

Unidentified Analyst

Hi guys, its Jennifer, not Paul. Good evening. Quick question on Justice, just wondering, if you feel like you may be missed anything in terms of merchandise or if you -- should be the consequent really primarily to traffic?

David Jaffe

Certainly traffic is a big issue across all of our brands, that just a big challenge we have and we’re going to focus on it. Secondly, I think at the more basic end of our product sportswear. We really had some challenges competitively, you’ve heard us talk a little bit about that already. The product wasn’t that it was bad product at all, but a lot of people have similar products and it became a price game and that’s what you heard us talk about in terms of incremental markdowns.

Where we’ve success is where we have unique and differentiated product, product that truly represent Justice at its best, whether it’s fashion, whether it’s our lifestyle product, which had a very strong season thus far. We feel that this is what we should be focusing on and making sure that all of our product, no matter how core basic is still has that Justice aesthetic built into it.

Unidentified Analyst

Okay. So do you feel like you’ve got a little bit two basic in some of the Style Buys?

Robb Giammatteo

Yes. I think that’s fair. I mean, it seems like a long time ago, but this is the first quarter that really is a comp period from when we changed the strategy last year. So before the last year change, we were too far in the fashion side, we had too much build into product costs, tickets were too high and we were over reliant on promotions. We came back last year with the substantial assortment that’s entered the price point of Style Buys and the customer responded pretty well.

And this year competitors don’t stand still and there is some dynamics out there with Style Buys where we have to be on our toes with pricing and have to maintain a sharp buy, externally. And we need to continue to collaborate this model. We’ve talk before about, what makes just special is the non-replicable product and if we get two basic we lose that. At the same time, there is a final line between going too embellished and too much.

So I think we are still calibrating this, I think that we feel, we perhaps were a bit to too much in the style buys and we’re going to continue to collaborate that as we move forward.

Unidentified Analyst

All right. Great, thanks. And then one more quickly if I can. Given the kind of traffic trends you’ve seen. Are there any updates on kind of your thoughts about store closers?

David Jaffe

We are working actively on assessing our fleet as part of our Change for Growth activity. So we’re working on right now a full evaluation with Accenture, looking at analytics related to our stores, looking at store transfer rates trying to understand what opportunity there might be in, above and beyond sort of the glide path that we’re on.

So we recognized that stores play a critical role in the future with omnichannel. And at the same time, there is probably an opportunity to be more profitable with less, we’re very aware of that, we’re working it aggressively, nothing to report today and we were of course share insights as we have them going forward.

Unidentified Analyst

All right. Great. Thanks and best of luck.

David Jaffe

Thank you.

Operator

Thank you. And our next question comes from Susan Anderson with FBR Capital Markets. Your line is now open.

Susan Anderson

I was wondering if you could maybe talk about, just kind of what you’re seeing out there in the Kids environment. Are you seeing more promotional activity or higher inventory from your peers?

David Jaffe

It is very-very competitive out there and it's not just the specialty stores, it's the big boxes, it's the discounters. So as we said earlier that has really put pressure on our more basic products, our core products, our Style Buys and so I'm not sure that ever goes away and that's what kind of led to the strategy you just heard Rob talking about trying to develop more unique Justice aesthetics products.

Susan Anderson

And then one last one, I signed on early and maybe repeating someone, but maybe if you could just give some color on your outlook for Maurices, just to kind of see some improvement there but how do you see things kind of trending over the next few quarters? Thanks.

David Jaffe

I think Maurices has got a lot of opportunity in front of them as they continue to refine their merchandize. This is a business that's been really doing well for a while and hit a bit of a rough spot for the last few quarters. Some of it is macro in the Midwest and some of it is just their merchandize mix and pricing strategy.

So that'll be refined; we talked a little bit earlier about our opening price point strategy across Ascena and this is one of the brands that's looking hardest at their opening price point. So, we're anticipating taking our price point down a notch and really focusing on fashion for our customer. So, we're optimistic about this brand and look forward to seeing a stronger result in the spring.

Operator

Thank you. And our next comes from Marni Shapiro with Retail Tracker. Your line is now open.

Marni Shapiro

So David I have to agree with you that people are shopping at home and then coming into stores and so they're walking in with what I call, intent. So I guess two questions along those lines, the first is, can you talk a little bit about your conversion rate at the stores, because every customer that walks in there today is arguably much more valuable than she used to be. And then also can you talk a bit about what you're doing to drive traffic from your online stores into your physical stores to make that connection clear.

David Jaffe

So, first conversion is up, and that's why very simply when you look at our traffic being down and our sales being down less than the traffic that's the main driver of that improvement. So --.

Marni Shapiro

Was it up sequentially? Sorry, I should have been more clear. Was it up sequentially, has it been consistently moving up I guess as people are shopping more at home?

Robb Giammatteo

Yes, store conversion has been up the past two quarters, it was up low single-digits, it was up low single-digits again this quarter, so it's a continuing trend.

David Jaffe

And then on your second point, we're trying to be creative and develop ways to get the customer who is shopping online into the store. So to give you a really simple one that a couple of our brands are doing with much success, is giving the customer the opportunity to order online and have it shipped to the store for free. And that way she comes into the store, it's very convenient for her, if it’s the wrong size, or if she wants to get another piece to match with it, it becomes very easy for her and we see the same conversion rate for this customer on incremental purchases as someone coming in off the street.

So that’s worked really well for a couple of our brands and some of the other brands are testing that now as well. In addition we're trying to make it really easy so that when she's in the store if we don't have what she's interested in we can offer her other products through selling in store. So if we -- if you think of a associate, who’s got an iPad, she says oh, okay well if you're interested in this product let me show you some other products that we have that we don't have in this store, but we have available online.

So that's kind of reverse and in essence what we're trying to do is create a seamless omnichannel experience, I mean you've heard a lot of the other special retailers talk about it and by developing this Ascena omnichannel platform which we're rolling out to Lane Bryant and Catherines and Dressbarn this spring, you'll see more of that and that gives us a basis from which to build up on this platform for all of our brands over time with additional features.

So clearly we're on it and we're going to be thinking as to how we can do more things for our customer.

Robb Giammatteo

And Marni, one other the things I'd add, Justice is doing some really innovative things with their new app, where they have augmented reality and scavenger hunts in their store with the new apps. So there are exciting things that are happening across the portfolio. We just started this journey, there's a lot more to do there to drive that traffic.

Marni Shapiro

That's fantastic, and at Justice you did say that lifestyle was selling, I'm assuming that means the whole sleep personal care that part of the business?

David Jaffe

Yes, accessories, toys, games, exactly.

Marni Shapiro

Looks fantastic, best of luck for the holiday season guys, thank you very much.

David Jaffe

Thank you Marni.

Operator

Thank you, [Operator Instructions] I'm showing no further questions at this time, I'd like to turn the call back over to Mr. David Jaffe, President and CEO for closing remarks.

David Jaffe

Thank you Operator and thank you everyone for listening in and if you have any other questions please feel free to follow up with us and if we don't speak to you beforehand, best wishes to everyone for a happy holiday season, thank you.

Operator

Ladies and gentlemen thank you for your participation in today's conference, this does conclude the program and you may now disconnect, everyone have a great day.

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