Ascena Retail Group Incorporated (NASDAQ:ASNA) Q3 2017 Earnings Conference Call June 8, 2017 4:30 PM ET
Allison Kane - ICR, Investor Relations
David Jaffe - President and Chief Executive Officer
Brian Lynch - Chief Operating Officer
Robb Giammatteo - Chief Financial Officer
Oliver Chen - Cowen and Company
Ed Yruma - KeyBanc Capital Markets
Steve Marotta - CL King & Associates
Good day, ladies and gentlemen. And welcome to the Q3 2017 Ascena Retail Group, Inc. Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct the question-and-answer session, and instructions will follow at that time [Operator Instructions]. As a reminder, this conference is being recorded.
I would now like to introduce your host for today's conference, Ms. Allison Kane of ICR. You may begin.
Thank you, Operator. Good afternoon, and welcome to Ascena's third quarter fiscal 2017 earnings call and webcast. Before we begin, I would like to remind you that certain statements and information made available on today's call and webcast may be deemed to constitute forward-looking statements. These forward-looking statements reflect the Company's current expectations as of today, June 08, 2017 and are subject to a number of known and unknown risks and uncertainties that could cause 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 press release, a copy of which was filed with the U.S. Securities and Exchange Commission in 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. Note that the Company has posted a supplemental slide package to augment information provided on today's call on is IR Web site, and as an attachment to its 8-K released earlier today.
Hosting today's call are David Jaffe, Ascena's President and Chief Executive Officer; Brian Lynch, Ascena's Chief Operating Officer; and Robb Giammatteo, Ascena's Chief Financial Officer. Thank you for your attention to those items. And I will now hand the call over to David. Please go ahead.
Thanks, Allison. Good afternoon, everyone and thank you for joining us. Our third quarter adjusted EBITDA earnings per share for the quarter were $0.05 within the revised guidance range we provided several weeks ago. This performance reflects an extremely competitive market environment, characterized by persistent store traffic declines and intense commercial activity. We expect these factors will remain major headwinds for the foreseeable future and reflect an accelerated shift to consumer demand toward ecommerce. Responding to the shift requires fundamental changes in retail operating model, and we’ve made significant progress toward transforming our business to compete in this new environment. Make no mistake, we were very disappointment with our performance for the quarter, and we must accelerate our transformation and improve execution across our portfolio.
Today, I want to focus on aggressive actions we are taking to navigate current market conditions. Our transformation work is proceeding simultaneously on two tracks; an accelerated and relentless attack on structural costs; and elevation of our platform capabilities to unlock top-line performance. I'd like to start by talking about our accelerated cost reduction initiatives. We recently increased the cost takeout target of our Change for Growth transformation program to a range of $250 million to $300 million by Fiscal 2019. This is as much as double our previously announced $150 million target, and reflects our determination to increase the intensity and scope of our program activity.
A major driver of the increased cost savings commitment is our fleet optimization program, which has already begun. As you know, we have been developing this program for several quarters, and over this period, we have performed a comprehensive analysis of our fleet, customer behavior and sales transfer rates. We are aggressively going after the 60% at some of our fleet with lease terms that mature by July of 2019, and are confident the strategy shared today will create a leaner more profitable Ascena.
Over the next two years, we expect to close or achieve substantial rent reductions in more than 650 stores, which represent almost 25% of the total store population with lease term maturity between 2017 and July of 2019. We’ve indentified more than 250 locations that will be permanently closed through 2019. An additional 400 or so more stores will be closed its specific ranking sections are obtained through landlord negotiations of the same period. We expect our fleet optimization program will be earning accretive and will deliver working capital benefits.
The other drivers of our increased cost savings commitment are primarily related to efficiency opportunities across both front-end -- front and backlog dysfunctions and deeper reductions in merchandizing procurement spending. I wanted to be very clear here, the $250 million to $300 million cost takeout target is not where this process ends. We’re embedding new behaviors in our organization to continuously seek incremental opportunity to become more and more efficient, while maintaining the site of our overarching objectives, to drive profitable growth from the compelling portfolio of leading brands, supported by a highly competitive set of platform capabilities.
As a result of the $300 million multiyear technology and investment and infrastructure investment cycle, we have developed a highly efficient supply chain and foundational omni-channel platform that will enable us to respond to the fundamental changes in consumer behavior that are disrupting our industry. The unprecedented store traffic declines to the retail apparel sector are clearly masking what we see as an ongoing opportunity to create value through our powerful brands. The enterprise level we are working aggressively to starting our product development cycle and to elevate our digital capabilities through implementation of new customer experience management tools.
In addition to our platform level capability work, each segment is developing discreet initiatives designed to enhance performance at a more granular level. Some specific examples include; we're excited about clienteling projects, now being tested at Ann Taylor and Lane Bryant. Launch of the plus size assortment in fiscal 2018 and Justice has recently rolled out plus size of this for their girls. We're expanding our Cacique intimates experience across our plus segment and exploring potential synergies as we evaluate intimates opportunities at Maurice’s.
We are continuing our smart store implementation at dressbarn and expect to fully realize the benefits of rationalized two accounts and increase fashion depth as we approach the end of July. We're also evaluating opportunities to capitalize on the strength of the Justice brand, which is the second most relevant brand through the Twin Girl behind Disney. On this front, we continue to grow our international franchise business and explore potential licensing partnerships. Our combination of talented team’s leading-edge omni-channel platform capabilities and iconic, and portfolio of iconic brands, is unique in our industry.
We’re confident that our brand initiatives, enterprise transformational work and capital structure will enable us to navigate this during a disruption and emerge as well positioned and agile competitor. We will continue to evaluate all of our capital allocation options including potential share and debt repurchases, as well as portfolio options that could simultaneously represent opportunities to both strengthen our balance sheet and create meaningful value for our shareholders.
Before I hand it over to Brian, I wanted to highlight our ongoing commitment to strong corporate governance. Earlier today, following an extensive search process, Marc Lasry and Stacey Rauch were appointed as new independent directors to our Board effectively immediately. For those of you who don’t know Mark, he is the member of the Ascena's Board from 2004 to 2006. He is the CEO of Avenue Capital Group and brings tremendous depth and experience with capital allocation strategies.
Stacey is director of America's McKinsey & Company where she was senior partner for 12 years, and leader of McKinsey’s North American retail practice for many years. She is currently non-executive Chairman of the Fiesta Restaurant Group and non-executive director of Land Securities Plc. We’re thrilled to have Mark and Stacey join our Board, and their addition underscored our commitment to successfully position Ascena for growth in our highly competitive marketplace.
With that, I'll hand it over to Brian, our COO, to provide update on key enterprise level work streams, including our change for growth transformation program. Brian?
Thanks, David and good afternoon, everyone. I spoke to you last quarter about our sense of urgency and our commitment to act on cost rationalization and efficiency opportunities. We continue to move quickly on multiple fronts. On the operating side of the house, we delivered two significant milestones in the quarter, first Riverside DECREASE has commenced support of West Coast brick-and-mortar distribution, and we will enable the facility for multichannel distribution and fulfillment by this coming holiday. We’ve cited a major building block in the Ascena supply chain network responsible for approximately $25 million in planned transportation synergies on an annual basis. From a capability standpoint, this new facility along with our Greencastle fulfillment center and enhancements we are making to our Edmond DC to allow multi-channel capability, will allow us to provide top tiered click to delivery service to our customers, while realizing the benefit of industry leading distribution cost per unit.
Our supply chain network capability provides us with a meaningful competitive edge over many others in our space. The second milestone we achieved this past quarter was our omnichannel technology deployment. We brought Lane Bryant and Catherine onto our platform and fully stabilized ship from store capability at both brands. We expect to transition dressbarn onto our internal Web platform later this month, and enable ship from store capability shortly afterwards. That event will mark the completion of our omnichannel platform rollout. We are very pleased with the direct channel performance we have seen to-date at Justice and Maurice’s, which have both been operating on our omnichannel platform since last fall. And we look forward to accelerated growth in the digital channel to migrate cost declines in brick-and-mortar channel.
Onto our Change for Growth transformation program, we’ve been pushing really hard here. As David highlighted, we have quantified some additional upside, we lose the identified in our Investor Day this past January. We’ve increased our target cost takeout commitment to a range of $250 million to $300 million from our prior $150 million target. This increase is related to our fleet optimization work and the extended scope related to our structural cost reduction activity. I remain very confident that we will achieve our upward revised target. And I reinforce David’s comments we’re not stopping in $300 million. You can refer to reference slide 11 in supplemental earnings package for our transformation program detail.
While the majority of the change for growth program savings target will be realized through fiscal 2019, I would add that I will note that we anticipate fiscal 2018 transformation program savings to be approximately $100 million, roughly double what we expected to realize in fiscal 2017. And we fully expect additional opportunities to develop valuable share in the future.
Turning to fleet optimization. We recently completed strategic fleet reviews across our brand portfolio. This work was supported by new analytics, which provided detailed understanding of store networks, associate sales, transfer, with these networks and an omni view of customer interactions. While the analytics took several quarters to complete, we already have begun to execute. We expect to close or achieve substantial lease rate reductions in the 667 store program locations by July of 2019. Since January of this year, we have closed 71 stores to-date and we will continue at a solid pace with more than 50 additional closures planned in the fourth quarter.
The decision criteria for each of our program stores is very simple; we either achieve the store specific target occupancy rate with concession to keep the store open, or we close it and take the working capital benefit. Please refer to slide 13 through 18 in our supplemental slide package for fleet optimization detail as well as slide seven for third quarter segment level fleet activity. We will continue to brief you on this very important program status each quarter.
Taking a step back, we have several other in-flight transformation projects on the structural cost takeout side. These projects, which include non-merchandise spend reductions, sourcing, supply chain efficiencies and our enterprise organizational structure are all progressing well. We are also making progress on two areas of capabilities that offer significant sales and margin opportunity. First, we have recently begun an enterprise wide implementation of new markdown optimization capability. Based on benchmarking work we have done, we believe this capability could represent in $25 million to $50 million gross margin opportunity through increased average selling price. Secondly, we have partnered with the leader in customer experience management to re-price existing CRM capabilities and move to a best-in-class capability with personalization and customer activation.
With close to 15 million names in our customer database, in our collective margin profile, we plan to have a better understanding of our customers’ needs and be able to deliver more meaningful one-to-one offers and communications that resonate with her on an individual level. While we will not be including the expected benefit of these programs in our change for growth cost takeout target, we believe both programs represent significant margin upside and will provide details as appropriate when system implementation is complete and we can objectively measure the business impact.
We are very serious about this work and determined to move decisively and quickly. Accepting status quo in this environment is simply not an option. And with that, I will hand things off to Robb to provide financial update.
Thank you, Brian and good afternoon everyone. Before I jump into our operational performance, I want to highlight that my comments on this call will reference non-GAAP results, which exclude certain items that affect year-on-year comparability. One such item for the third quarter was the $1.3 billion non-cash impairment charge related to enterprise goodwill and trade-ins. This chart represents a significant change in the market environment we've seen over the past couple of years. I will note that it has no impact on our operations, ability to service debt, compliance with financial covenants, or underlying liquidity.
As David referenced earlier, third quarter adjusted earnings of $0.05 per share were in line with the revised outlook we provided last month. Our performance relative to our initial expectations was primarily the result of a roughly 10.4 traffic decline for all segments, except our kids fashion segment. While store traffic was slightly positive at Justice, promotions were significantly elevated as we were forced to clear two key fashion watches that fail to resonate with the customer. Comp sales were down 8% across our portfolio, representing a deceleration of the business on a two years stack base from the trend coming out of holiday.
Gross margin rate, while down 30 basis points in last year, was supported by trade related deal synergies, the cost of goods sold initiative at our premium fashion segment, and improved economics related to our new value fashion segment credit card program. Our segments were able to effectively use promotional levers to maintain appropriate inventory levels despite softer than expected overall demand. We continue to deliver significant reductions in structural costs from our transformation initiatives along with committed synergies related to the ANN acquisition.
Non-GAAP operating expense down more than $40 million in the quarter or 4.8% with the largest reductions coming from home office expense which was down approximately 15% for the quarter as a result of our transformation work; more detail on both our transformation savings target and our ANN deal synergies and cost savings is provided on slide 11 of our supplemental earnings package.
The revised full year fiscal 2017 outlook that we shared on May 17th reflects an assumption that our 8% third quarter comp decline will continue through the fourth quarter with full year fiscal 2017 non-GAAP earnings per share expected between $0.10 and $0.15. For the fourth quarter, we expect net sales in the range of $1.575 billion and $1.625 billion; gross margin rates in the range of 56.5% to 57%; operating income in the range of zero to $15 million; and earnings per share in the range of negative $0.06 to negative $0.01. Regarding fourth quarter performance to-date, comp sales were up modestly versus our third quarter trend, while demand continues to be inconsistent. As a result, we are maintaining our negative 8% comp outlook for the quarter. For more detail on our fourth quarter and full year fiscal 2017 guide, please reference page nine of our supplemental slide package.
Turning to our balance sheet, we ended the third quarter with $300 million in cash and cash equivalents. Of this amount, $251 million is outside the U.S. We ended the quarter with total debt of $1.67 billion, which represents the remaining balance on our $1.8 billion term loan and a draw of approximately $70 million on our $600 million asset based revolver. Between revolver availability and on hand cash, we currently have approximately $750 million in liquidity and $68.5 million of the $90 million is scheduled fiscal 2018 term loan amortization has been prepared with our next required payment not due until May of 2018.
While we remain focused on deleveraging our balance sheet, we’re comfortable with our capital structure. Net debt to trailing 12 month EBITDA is reasonable at 2.5 times, and our trailing 12 months EBITDA provides approximately 6.3 times interest coverage. Our segment teams have controlled inventory well despite the challenging top line trend. Total inventory at cost was $714 million at the close of third quarter, down 3% to last year.
Adjusting for intercompany differences from the prior year that are reflected in the reported segment inventory balances, quarter end inventory was down mid to high single digits across our premium, value and plus segments. While the increase at our kids segment was laded to earlier receipt flow this year to support floor set timing shift that was in week one of May this year versus week three in the year ago period. Please reference the slide five in our supplemental slide package for additional segment level inventory detail.
Capital expenditures for the third quarter were $52 million, and we continue to expect full-year fiscal 2017 CapEx in the range of $235 million to $260 million. We plan to continue to reduce CapEx level as we move into fiscal 2018 with reduction in store capital outlays, partially offset by increased investments in our e-com channel.
I’ll close by commenting that the third quarter reminded us again of changing nature of our competitive space and the need for us to operate in a more agile, efficient manner. We recognized the severity of the challenge in front of us and are commitment to navigating current market conditions by leveraging the strength of our operating platform and accelerating our enterprise transformation work to position the Company as an aggressive omnichannel competitor.
Thank you for your attention. That concludes our prepared remarks, and we’ll now open it up for questions.
[Operator Instructions] And our first question comes from the line of Oliver Chen with Cowen and Company. Your line is now open.
We had a question related to the closure program. And what are the main drivers as you think about the -- what happens regarding the working capital benefit, as well as your thoughts on how revenue recapture can occur, and where that maybe easier versus harder? And then, David, could you just take a step back and help us understand how you would prioritize factors in terms of the journey to positive comps, because there is different things happening, some within your control and some not within your control. But what would you say are key building blocks to return to positive comps? Thanks.
Oliver, its Robb. I'll start and then we’ll kick things around here. Regarding working capital benefit, there is some supplemental material out there. But at the end of the day, as David alluded to, we’re going to be closing 268 of these program stores and potentially up to 667 of these stores. The 268 store closure would represent the best case scenario for us where we’ve achieved $50 million in EBITDA benefit from negotiated occupancy rate settlements. That situation would give us a lower balance working capital benefit of about $15 million.
If we don’t get participation from our landlords, is the highly unlikely scenario, but if we don’t get any participation from our landlord we will close all 667 of these stores and we would see working capital benefit of about $55 million. So that that information is laid out in the back, we certainly don’t expect to be at full achievement or zero achievement, we expect to be somewhere in middle there. But at least give you a sense of the working capital dimensions. Regarding the sales transfer, as we’ve highlighting here, we are starting this journey off of being very mindful of free cash flow. We have a lot of the analytics that suggests that the rate of sales transfer could be in the 15% to 30% range. We are using lower bound estimates for the initial assessment here to make sure that we learn before we start closing profitable stores.
If we find out that sales transfer rates are 30% north of that if we can put in some of these -- benefit for some of these CEM tools to get really efficient to transferring sales, this gets very interesting in terms of what the number of closures could be. In today's environment, not like we’ll walk away from the store that’s taking our $200,000 in free cash. In the future, if a store is able to transfer 30%-35% higher, things get very interesting in terms of how profitable we can be with a significantly smaller fleet. So hopefully some color for you there, I'll kick over to Brain for additional.
Yes, I think Robb covered most of it, Oliver. But I would just add that with the help of -- quite the Accenture on this, we did some fairly sophisticated analysis. We’ve looked at all of our customer attributes and the store networks that we exist in, all of the market demand, both from an omni standpoint that exist for that specific store with the transfer rates at very specific store. It's not an average across the fleet. And we looked at our capital investments, the type of location that was in, the quality of the location, what we anticipated, the feature of that center to operate like, as well as we put some fairly conservative points of view regarding what the future sales potential of those locations could be. So with all of those inputs in mind, we triangulated on stores that we believe that we should save and stores that we think are closed and of course we get capital to fix it -- capital reduction, working capital reduction.
So on the last point, Oliver, I think as we’ve looked forward to the journey of the positive comps, one thing I want to make sure everybody is clear. We are not assuming that track is suddenly all of this is going to turn positive. I think we have a long-term secular decline in traffic. I think all of us get the ShopperTrak numbers every week, and I don’t see that flattening out or reversing to suddenly become positive. So we really have to own it ourselves.
So let me go through a few things that I think are important; first of all, we look at our comps, it includes our online comps. So we blend them together and our online business is growing nicely. Unfortunately, not to offset the declines at the brick-and-mortar level, but that's the continuation that as Brian talked about with the move to our platform we see opportunities to further enhance the growth at all of our brands. Second, when you think about going into the store, it's what's new in this store. Why would I want to go in? So first and foremost, we are a fashion retailer, and we need to drive fashion at all of our brands. In the last year or so, we've brought on three new merchants, Chief Merchandizing Officers, and we actually are in the search for one more. So we believe and bringing the best talent we can, we think it all started with fashion and we're pretty pleased with the direction we’re going at all our brands for fall.
Next, we need to create special experiences, active storage, to give her a reason to come in. So it could range from a broad fitting event I can see within our Lane Bryant stores or perhaps a fashion show at our Justice stores. And so we're experimenting with all different types of programs, including our personal selling appointments as well. Also, at the store level, we have loyalty programs that some are in place and some are being enhanced that we think will help to create greater share of wallet with our customers.
Within our omnichannel platform, we have three different programs that I think will enhance our store traffic and volume; one, is buy online pick-up in store. So if it takes a customer that’s shopping online comes into the store and saves on any shipping cost, but also when she comes to the store, typically she’ll find something else. And she converts at a similar level to a customer coming in. And it's very convenient for her, if it is an exchange or what have you. Another program we have is order in-store. So if she has the confidence that even if she can't find what she wants to the size or the color that she can get through this order in-store system, I think that's another reason for her to feel confident to coming into the stores.
And so these types of omnichannel capabilities are going to continue to be enhanced and we have a goal of trying to make her shopping experience as seamless and frictionless as possible. Another point store closings; we believe that on average we're going to have about 30% retention rate from a closed store, which means that we think we’ll transfer 30% either online into other stores and we're working on programs to further enhance that number.
And the next question comes from the line of Ed Yruma with KeyBanc Capital Markets. Your line is now open.
I guess first, and looking through the programs towards, it looks like its dressbarn and Justice are the two kind of largest contributors. Was the determination of programs, or is it really just driven by store level economics, or are you finding longer term on the future or relevance of those two brands. And then I guess as a follow up, the $50 million that you committed for Change for Growth, its real estate related. Is that simply by that 100% achievement of the rent concessions, or how do we think about the puts and takes if you don’t get the concessions and how that may affect the change for growth target? Thanks.
I'll answer the first question, this is Brian. The store closings are determined by individual stores, not by the brand. There is no overarching brand point of view. It's literally the economics of the individual stores. And then regarding the benefit we talked about. So the reduction that we -- the perfect enrolment that we get $50 million in negotiated occupancy reductions and we get everything we want our landlord partners. And obviously we're going to push as hard as we can to get there. In event that we can’t get there, as we close more and more stores, we're going to have more benefit from what we're calling EBITDA transfer as we transfer sales from close stores to remaining network stores which become from profitable.
Again, there is some supplemental material out there which shows you that we intend to get $50 million in the event that the occupancy reductions are short, we're going to go and make it up; again, outside these programs stores. So I think, Brian always tells me there is no acceptable rent. And I think that while we’re focused hard on these program stores, we’re going to also look at the remainder of the fleet. As you all know, we’ve got a lot of stores. There is a lot of opportunity on every store that’s out there that’s got relatively short term lease duration, and we're going after all of it.
So again, anything that’s short and on occupancy rush that we're going to go really work hard to make up on the sales transfer side. And again, our intent to go as deep as we can, I mean, these are numbers that we feel confident we're going to get. There is also, there is more. But again, there is lot of work to be done here and Brain has got the team set up to go work that.
And I’d just add to that. These are leases that we have lease actions on during the program period. So we are control of the event, and we're not posturing here in terms of may we get the right numbers in terms of confessions to keep it open or we will close them.
And so the quick follow up, it's just unclear. So there is $550 million and that’s the sum of all those stores that are within the program. Is that correct, and that’s what we should be thinking about this 10% to 30% transfer rate based on, I guess, really upon closures? And then finally, are you contemplating any store closures that would require cash payment or that will be outsize of natural lease exploration? Thank you.
You’re thinking about it really in terms of the cumulative store base and in terms of what top line volume it has. And yes, we're using right now, from a financial standpoint, assuming a 10% lower balance transfer, to David's point earlier. We've models from Accentures and we had internally worked suggesting that number is high as 30. Again, we're going to be very cautious on that until we can read these. And as you might imagine, when we close the store, we're not going to immediately see the transfer, and we're not going to able to say if we see it for month, two month, if that’s going to stick for 12 months. So we have to make really important decision here in terms of getting a couple of quarters to read what the transfer rate is and does it hold. Ed, refresh my memory on the last question.
The last question was, would you consider closing stores that were outside of that release action? Thanks.
So we are focused right now on driving cash flow, Ed. And so to the extent that something makes sense where we can get out of it without a cash flow, we’ll to it. But to the extent that we’re going to run the thing out and make more cash, we’re focused on maximizing our cash flow. And to the extent that we run the stores out we’ll do that. We may close the store political, the landlord and they may be willing to let us stay there on a month-to-month basis making money, we’ll do that. But we are very focused on maximizing cash flow right now.
And our next question comes from the line of Susan Anderson with FBR Capital Markets. Your line is now open.
This is Louis Han on for Susan. So marices and Lane Bryant seem to be greater than the rest of that portfolio. What do you think is causing the weakness there? And how do you guys think about getting those brands back on track?
I think the Maurice’s has had some challenges in the smaller markets. There were some possible commodity issues that we saw, energy, et cetera. And we saw some challenges at our collogues that are also in these markets, like day stores and buckle. And one of our smaller local competitors actually went bankrupt, another small market player, Rue21, has also going bankrupt. So there are certainly challenges in these smaller markets. But I think that some of them maybe, as I say, cyclical type to commodity business, but I think there is also a shift.
These customers that maybe 10 years ago, didn’t have access to fashion now do through ecommerce. And that maybe one of the contributing factors. I think another factor simply is for both Lane Bryan and Maurice’s, we had a few fashion that this and that’s natural in our business. And perhaps we had more than our fair share as we look at what we’re doing before, as I mentioned earlier. We’ve got a terrifically merchant on apparel at Lane Bryant that we’re very excited about. And I think that our fall line looks great. And at Maurice’s, the same thing, we’re very pleased with what we’re seeing in initial readings for fall. So they both had a difficult season, difficult year, but we’re optimistic that things will turn up for the fall.
And I would add just a couple of things on that from a store of traffic standpoint. Those were the brands with two most challenging store traffic for the quarter; one other point of note, we talked to you several quarters ago about opening price point strategies on both Maurice’s and Lane Bryant rolled out opening price point strategies this spring. Those strategies were tested. We expect to them to it. Unfortunately, we realized if we put those price points out that we did not get the unit velocity acceleration we were expecting.
So as you might imagine, I'm lowering the initial ticket price, which we thought was the right thing for the customer. We think that the unit velocity we had to take promos and markdowns off of a lower ticket price. So there wasn’t ASP average selling price pressure for the quarter for both of those brands. We are unwinding that. So for fall season that pricing pressure should not be there. And to David's point earlier, both brands are working on trying on -- everybody who invested in this sector is working on trying to driver traffic, and some of that things we talked about clienteling and really engaging with the customer on a one-on-one basis at the store level on that be unlocked that everyone is looking for.
And our next question comes from the line of Brian Tunick with the Royal Bank of Canada. Your line is now open.
This is Kate on for Brian, thanks for taking our question. Robb, I guess just as we’re thinking about the longer term CapEx run rate of $200 million and $250 million. Just as you’re implementing the store closure program, could we think that maybe that could tick down even further just as you emphasized the cash flow? And then secondly, understanding it's a bit too early to guide fiscal '18. But at your Analyst Day previously you talked about the $580 million to $670 million EBITDA target in '18, assuming the flat to down to 2.6% comp. I guess if you can remind update to the change for growth and some of these investments that you’re making any clienteling omnichannel, et cetera. How can we think about net expense savings maybe between the P&L next year, just given the traffic volatility and their might be some of these investments? Thank you.
Sure, Kate. So regarding the capital budget, as I mentioned in the prepared remarks, we are dialing back our store of capital as is and distort investments to ecommerce now, Brian talk a little bit about that in a moment. So yes, I think that as we take stores out, if we take out 657 stores, if we take out more right at the store channel with more challenge than we expect, you would obviously expect the store capital to come down even further. We are tightening back significantly on new stores. There is still opportunities for new stores out there in small markets and in some urban areas and things, but outside of very, very select opportunities where we may have year-on-year cash payback and a one or two year out where there is almost no risk, those are coming down and therefore capital is coming down on the store side.
Again, we are being very aggressive on the ecommerce side. I'll let Brian talk to that in a moment. But we are very focused on makings sure we have the best-in-class omnichannel platform and are really competitive on that front. And regarding fiscal '18, we’ve talked before about. There is limited visibility out there in our fourth quarter guidance based on what we know from Q3. We've learned before by getting out in front and assuming things, and right now, you should expect us as a very short on core visibility until we have a strong point of view. I'm very, very focused on rebuilding credibility in our guide. And again, you should expect us to remain really thoughtful about that, going forward. So anyone has any comments on ecommerce?
Yes, I mean, let me start it up by just saying, our big push here and focus is clearly we want to be a fashion company. We absolutely want to deliver digital competency in all of our brands, and be a top tier performance there, and as well as the Change for Growth is lowering our fixed cost component of our model here. As it relates to digital, the good news is we have our base platform now to play across the entire fleet here shortly will be entire enterprise. And so our investments now are to continue to make digital connections with our customer, so that easy to use is a lot better; certainly, connect individually with our customers in terms of all of our marketing programs; and last but not least, so that we are as confident as we possibly can to be in a mobile space, which is where all the growth is and we want to actually own that. So we're still making IT investments in a significant way in the digital space.
[Operator Instructions] And our next question comes from the line of Bob Drbul with Guggenheim. Your line is now open.
This is Andrew on for Bob. So the commentary around the pick-up in the comp. Can that be, could we take that as there is a pick-up in traffic, or how should we look at that?
I think what I would say is generally we’re seeing a same sorts of trends that we saw in Q3. Again, the comment I made about things being inconsistent, we had a little bit of stronger periods at the beginning in May. Memorial Day was a bit more challenging. Again, some of it is northeast and weather, and then there were many pieces out written about how traffic was challenging that weak across the sector. So I think that I would tell you that we're generally seeing the same sorts of trends that we saw on the third quarter, just really a slight modest improvement. But nothing that I would articulate as any significant change from what we’ve been looking at.
And then just following up on that is, there any nameplates that you recall out growing better or performing worse?
From the standpoint of the specific brands, nothing that call out at this point.
And our next question comes from the line of Steve Marotta with CL King & Associates. Your line is now open.
Most of my question have been asked and answered. I just have one question. You stated in the press release that portfolio options that could simultaneously represent opportunities to strengthen the balance sheet and create meaningful value for shareholders. Could that be interrupted as anything beyond the scope of what's been spoken about already on the call?
Steve, I'm not sure what you mean by spoken about call. We've made the comment in the prepared remarks, but let me just make sure, I articulated fairly what we mean there. We have a portfolio of brands. So we've got seven brands, eight if you think about Lou & Grey, which is really an incubator. And each of those has their strengths and their challenges. And we’ve got to evaluate them individually when it comes to, for example, capital allocation center. So as we think about our future, if we have an opportunity to create value by selling one of those brands, we’ve got to consider it. And over the years we’ve got an interest in various of our brands; so these are steps that we have take to make sure that we're managing our portfolio as best we can.
And I'm showing no further questions, at this time. I would now like to turn the call back over to management for closing remarks.
Thank you everyone for your interest in Ascena. Everyone, have a great summer and we’ll talk to you again in September. Take care.
Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, you may now disconnect. Everyone, have a great day.
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