Ascena Retail's (ASNA) CEO David Jaffe on Q2 2018 Results - Earnings Call Transcript

Ascena Retail Group Inc. (NASDAQ:ASNA) Q2 2018 Results Earnings Conference Call March 5, 2018 4:30 AM ET

Executives

Allison Kane - Investor Relations

David Jaffe - Chief Executive Officer

Gary Muto - President and Chief Executive Officer, Ascena Brands

Brian Lynch - President and Chief Operating Officer

Robb Giammatteo - Chief Financial Officer

Analysts

Edward Yruma - KeyBanc Capital Markets

Susan Anderson - FBR Capital Markets & Co.

Brian Tunick - RBC Capital Markets

Robert Drbul - Guggenheim Securities

Paul Lejuez - Citigroup

Steve Marotta - CL King & Associates

Operator

Good day, ladies and gentlemen and welcome to the Q2 2018 Ascena Retail Group, Inc. 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. Allison Kane of ICR. Ma'am, you may begin.

Allison Kane

Thank you, Operator. Good afternoon, and welcome to Ascena's second quarter fiscal 2018 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, March 05, 2018 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 financial measures to non-GAAP measures discussed today is included in our earnings 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 its IR site, and as an attachment to its 8-K released earlier today.

Hosting today's call are David Jaffe, Ascena's Chief Executive Officer; Gary Muto, President and CEO of Ascena Brands; Brian Lynch, President and Chief Operating Officer; and Robb Giammatteo, Ascena's Chief Financial Officer.

Thank you and I will now hand the call over to David. David?

David Jaffe

Thank you, Allison. Good afternoon, everyone and thank you for joining us. Our second quarter adjusted loss of $0.12 per share came in at the lower end of our guide and improvement in topline trend was offset by margin rate pressure primarily related to the final clearance of nonperforming product categories at our Value and Premium segments that carried over from the first quarter.

We were pleased with performance at Justice and Lane Bryant but merchandising challenges elsewhere in our portfolio resulted in performance below what we consider acceptable or expect to deliver going forward. This past quarter marks the midpoint of our three-year Change for Growth enterprise transformation program and we continue to make good progress across all three pillars of the program; cost takeout, capability enhancement, and the reinvigoration of our core business.

From a cost takeout standpoint, we remain on track to achieve 300 million in savings by July 2019. We are confident that we will create incremental opportunities to take this number higher as we move into the later stages of our transformation. From a capabilities standpoint we completed the rollout of the first wave of merchandising planning tools including markdown and size pack optimization across our portfolio. These capabilities are key building blocks of our larger transformation roadmap to deploy and utilize an enhanced suite of merchandise planning and marketing systems.

These systems will enhance our ability to compete in today's retail environment and we will continue our aggressive rollout schedule for the next 12 to 18 months. Most importantly, we are beginning to see traction with top line performance at the brands which are farthest along with their customer product work. Sustainable merchandising success requires a fundamental understanding of customer preferences. We believe strongly that the customers centricity work completed by Justice last year has led to the brand's positive performance inflection and we're using this suite of tools and process to develop our customer insights capability which will support merchant and marketing instincts with solid data and analysis.

This past quarter, we strengthened our executive team and made changes to our leadership structure to ensure each brand has the appropriate support to drive growth. First, we're thrilled that Eric Hunter joined Ascena as the President of our Plus segment back in January. Eric has great depth in strategic marketing and business transformation and we're confident that he and the talented senior leadership already in place will accelerate performance in this growing market.

We relocated our Catherines brand this past quarter and have the Lane Bryant, Cacique Catherines brands co-located and operating under a unified segment leadership team in Columbus, Ohio focused exclusively on serving the needs of this growing market.

Our Value segment we decided a different approach was necessary for both maurices and dressbarn at value concepts, the level of challenge posed by the required turnaround at dressbarn required reintroduction of a dedicated senior leadership team. We are pleased to have promoted Erin Stern to President to lead this effort. Erin was most recently the Head Merchant at maurices and brings a very strong merchant product lens from leadership position she held at Old Navy, Bebe, and Juicy Couture.

Her fresh perspective on dressbarn product and customer will be critical as we recover from significant product missteps this past season and focus on more effective merchandising and customer engagements.

While we've made significant progress on our enterprise transformation, we must deliver improved topline performance. We believe we've made needed changes in key leadership roles across our brands are well-positioned to reinvigorate growth from our core. In parallel, we continue to explore options to create shareholder value including new business development opportunities, use of our overseas cash, and ongoing evaluation of our brand portfolio.

With that, I'll hand things over to Gary to discuss key developments across our brand portfolio. Gary?

Gary Muto

Thanks David. Our second quarter represented a reset on the brand products. We cleared problematic inventory, adjusted key portions of our assortment and put better controls and leadership in place to mitigate the kinds of challenges going forward. While we are still early in our journey towards a reinvigorated core, we are pleased with the improvements we're seeing in certain brands and taking decisive steps at brands that require significantly more work.

Let me touch first on the areas of the portfolio we're beginning to get more constructive. At Justice, extensive use of customer panels, in-store shop alongs and in-home visits in different cities helped our design. Merchandising and marketing teams developed a very focused understanding of our girl and mom over the past year. The work to develop true customer intimacy has translated into strong business results.

The increased inventory investment we discussed at our last call translated into a high single-digit comp this past quarter with the increase driven by turnaround in the brand's casual apparel assortment. The new Justice royalty program Club Justice has signed up over 2.6 million members since its launch this past October we are already seeing the impact of this program with increased customer frequency and we're pleased with the transaction we're seeing at this brand and believe we have significant opportunity in front of us to recapture some of the volume that has been lost over the past three years.

At Lane Bryant we've seen nice improvement on our apparel business which has been a drag on Bryant's performance for an extended period. Bryant comp performance was modestly positive in the second quarter accompanied by mid single-digit margin dollar growth. Our Cacique intimate business delivered another quarter of positive comp sales along with its 20^th straight quarter of positive gross margin dollar growth. Looking forward, we anticipate continued improvement on the apparel side which is key to delivering accelerated comp performance and realizing the full profit potential of this brand.

The LOFT brand is recovering from the clearance cycle of product misses coming out of the first quarter and comp performance accelerated through the second quarter as merchandising adjustments began to flow in. LOFT's full price seasonal fashion assortment is off to a good start in Q3 supported by the recent launch of our Plus assortment. We've leveraged product tests through a leading online apparel rental service to get early feedback on Plus Fit and [indiscernible] assortment leading to a very successful online launch.

With product sale through significantly exceeding our initial expectations, we are chasing into inventory to feed the demand and developing plans to accelerate growth in this category go forward. Plus penetration at our sister brands is north of 20% and we see this as a meaningful opportunity go forward at our biggest brand.

Turning to areas of the portfolio where we have more work to do, we continue to make adjustments at Ann Taylor where second quarter performance fell below expectations. In an attempt to drive improved inventory productivity, we eliminated or significantly reduced investments in underperforming skews across our full price channel and our upper [ph] channel. The strategy was effective in the full price channel where we saw modest positive gross margin comp, a negative high single-digit sales comp.

However, the performance of factory channel was much more challenged. We have taken actions to correct the inventory and skew reduction at both Ann Taylor and Ann Taylor factory stores. We are rebalancing our penetration of fashion and wear to work at Ann Taylor and reinvesting in our [indiscernible] business in the factory channel. Adjusted merchandise received begins flowing mid to late-Q3 in both channels.

Looking across our value segment, at maurices while results are certainly not where they need to be at the brand level, we are pleased with this new traction in our direct business which delivered transaction growth of more than 20% for the quarter. However, the channel shift we're seeing has created challenges in our bricks-and-mortar channel where traffic remains down high single digits in the second quarter. We continue to test local strategies to mitigate this trend including the refinement of our loyalty program, increased media investment in micro-market and skew expansions with our Plus assortment which has been a strong comp driver in the past.

At dressbarn we got away from what made dressbarn successful, owning the value price dress business and delivering a highly localized assortment and we are focused on getting back to the core of what made this brand successful in the past. We are reintroducing and expanding key third-party brands that are important to our customer, including [indiscernible] dresses and Jones wear-to-work.

We are also redeveloping our assortment tier strategy to ensure we deliver the appropriate fashion depth in our large stores. While expected, clearance of nonperforming inventories from the first quarter hit us hard in both sales and margin this past quarter. I'm excited to partner with Erin and her team to get a foundation on the dressbarn and begin to make up some of the ground we lost this past fall. Looking forward we expect the early part of third quarter to remain challenging until we've established depth in new merchandise receipts.

Looking forward, we cannot have the breadth of merchandise issues that we issues that we've seen over the past couple of quarters. We are pushing hard for accountability in merchandising areas and we've made a number of leadership changes. While we have work to do to return the enterprise to positive comp growth, I feel better about the brand portfolio coming under second quarter. The problematic assortment strategies and inventory investments from the first quarter are mainly behind us at this point and I look forward to improved performances coming spring.

With that, I'll hand it over to Robb for an update on our financials. Robb?

Robb Giammatteo

Thanks Gary and good afternoon everyone. Before I discuss our operational performance, I want to highlight that my comments on this call will reference non-GAAP results which exclude items that affect year-on-year comparability including restructuring expense, non-cash purchase accounting entries, acquisition integration expense, the impact of nonrecurring tax related items and the extra week at our Premium segment which is recognized in January versus this coming July for our Legacy segments.

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 reference and refer to this document in my prepared remarks and may reference it as well during Q&A.

As David referenced earlier, we realized a second quarter loss of $0.12 per share on an adjusted basis. Comp sales were down 2% with positive comp growth at Justice offset by merchandise strategy challenges and store traffic declines at our Value segment and assortment misses at our Premium segment.

While favorable to our guidance range, comp performance was achieved in part due to an elevated level of clearance selling. Enterprise-wide we delivered low single-digit transaction growth which was offset by a mid single-digit decline in average dollar sale caused primarily by product acceptance issues at the Premium and Value segments.

Gross margin rate was flat to last year at 54.1% but well-off our plan primarily due to the need for aggressive clearance of underperforming product at our Premium and Value segments along with higher omnichannel penetration. These rate declines were partially offset by performance at our plus and kids segments which delivered rate increases of 220 and 130 basis points respectively resulting from improved apparel performance, disappointing inventory management and reduced markdown requirements.

Operative expense was down $14 million or 2% for the quarter. We continue to track in line with our expectations for full-year fiscal 2018 driven by our change for growth transformation program and ongoing Ann synergies. We realized approximately $50 million in platform savings in the second quarter driven by headcount reductions, non-merchandise procurement savings and fleet optimization and we expect to realize approximately $175 million in platform savings for full-year fiscal 2018.

Touching briefly on our fleet optimization program, we closed over 100 stores this past quarter on our way to a year-end fleet size of between 4600 and 4650 stores. We continue to build agility into our fleet with median an average remaining term life now at 1.9 years and 2.3 years respectively. More detail on both our transformation savings target and our Ann deal synergies is provided on Slide 10 of our supplemental earnings package.

Turning to our balance sheet, we ended the second quarter with $414 million in cash and cash equivalents with $283 million outside the U.S. We plan to repatriate over $200 million in our current quarter and we are evaluating options to create a more balanced capital structure and deliver value for our shareholders.

We ended the quarter with total debt of $1.574 billion which represented the remaining balance on our term loan. Our term loan is prepaid until August 2018 and does not mature until August 2022. Our asset based revolver was undrawn at quarter end and we recently amended terms to extend maturity out to February 2023. We also adjusted the line to $500 million to reflect our average level of collateralization. Between revolver availability and cash, we had $836 million in liquidity at quarter end.

Regarding our capital structure, net debt is 2.3 times our trailing 12-month EBITDA and trailing 12-month EBITDA is 5.5 times our annual interest obligation. Despite our strong liquidity position we remained focused on maximizing our free cash flow and improving our overall financial flexibility by continuing to reduce our outstanding debt.

We ended the second quarter with inventory of $600 million which was down approximately 11% from the year ago period. Quarter end inventory was down across all segments with the most significant reductions at our Value and Plus segments which were down mid teens reflecting timing of in-transit goods. We're comfortable with the level of operating inventory at all segments moving into the third quarter. Capital expenditures for the second quarter were $35 million and we continue to expect full-year fiscal 2018 CapEx in the range of $190 million to $220 million.

We are estimating third quarter fiscal 2018 non-GAAP earnings per share ranging from a $0.07 loss to a $0.12 loss based on the following assumptions; topline in the range of $1.48 billion to 1.52 billion; comp sales down 3% to down 5%; gross margin rate in the range of $59.7% to 60.2%; depreciation and amortization of approximately $86 million, operating income in the range of $5 million to $20 million; interest expense of approximately $28 million, minimum taxes of approximately $2.5 million and diluted share count of $196 million.

Note that our Q3 guide does not taken into any account any discrete changes that may arise from direction of the new dressbarn leadership team including the potential for more aggressive outlook on fleet optimization and potential inventory write-downs to affect a more rapid stabilization path by leveraging market goods in the near-term.

With that, let me hand things off to Brian for a brief update on our transformation program activities. Brian?

Brian Lynch

Thanks Robb and good afternoon everyone. Here's a brief update on our Change for Growth transformation program and some of the capabilities we are building in support of our brand teams. First on transformation, as David referenced earlier, we are tracking comfortably to our $300 million cost takeout and continue to explore opportunities to take this figure higher.

Importantly, we have started to operationalize capability enhancements to support topline and gross margin. We are live or in ramp up with both markdown and size pack optimization across our entire brand portfolio and expect to realize benefits from implementations starting later this spring. In addition, we are beginning rollout of localized demand planning capability across our portfolio following completion of a successful pilot at Ann. This rollout will continue through early calendar 2019 and we'll complete the merchandise planning suite of tools contemplated in our large transformation roadmap.

In parallel, we continue to build out our new digital marketing ecosystem which will enable us to provide a much more personalized experience for our customers. We have partnered with IBM to deliver marketing operations support, campaign management and contact optimization and expect to begin to bring these tools online as we move into the back half of calendar 2018.

Touching on our fleet optimization program we expect to close approximately 400 of our 667 program stores by July 2019 and remain very comfortable with our $50 million savings target. We continue our work to understand sales transfer patterns that could unlock larger opportunities within our fleet and are currently assessing results from our first tranche of closed stores from January 2017.

A quick note on our fulfillment capabilities, we are rolling less closed multichannel capability across our portfolio after successfully piloting the capability at Justice over holiday. We expect to deploy West Coast multichannel fulfillment capability next month supporting leading quick to delivery time in support of our outstanding customer service.

And on the product sourcing side we delivered significant product cost reductions this past quarter by consolidating our manufacturing in mill bases and we are expanding our operations into low cost countries. To give our brand teams more time to read customer demand and adjustment merchandising strategies, we are refining the product life cycle calendar at four of our brands targeting a 30% to 40% reduction in time required from concept to market.

In closing, we remain very optimistic that the capabilities we are developing as part of our transformation efforts will provide needed capabilities to support our brands throughout a successful turnaround.

That concludes our prepared remarks and we are now open for questions.

Question-and-Answer Session

Operator

Thank you, sir. [Operator Instructions] And our first question will come from the line of Ed Yruma with KeyBanc Capital Markets. Your line is now open.

Edward Yruma

Hi, good afternoon guys, thanks for taking my question. I guess first, you know, I want to ask a little bit strategically about dressbarn. You know, this business has struggled for many years, I know you've gone through different attempted repositionings, you've done dress power [ph] I guess how do you score the strategic relevance of the brand at your overall business, and I guess kind of what timeframe are you giving your latest attempts at a turnaround?

And then I guess second, on the reduction in development time, I guess how long until you can get to some of those faster cycles for the businesses? Thank you.

David Jaffe

So, let me take the first part of that Ed and then I'll turn it over to Brian to talk about sourcing. You know, as you think about it, dressbran is just one of our eight brands. You know it's a significant brand, but each brands stands independently. So we feel that dressbarn kind of stepped on its own feet in the fall. We've got Erin Stern leading kind of a recharge management team and we're going to give them a shot.

We don’t think that the brand is dead. We think that the millions of customers we have on our mailing list still like the brand. We just have done a poor job perhaps of giving her the merchandise that she wants. So I think we'll know a lot more through the research we're going to do this spring and as Erin starts bringing in her own product later this spring and summer we'll have a better sense of whether or not there for the future of dressbarn. Brian?

Brian Lynch

Thanks. Ed on sourcing timetables we break it in sort of two pieces, on some of the speed models, chase models we'll actually be up and running and effective this fall, but for the bulk of our PLC calendar that will come into play for spring 2019.

Edward Yruma

Great, thanks so much guys.

David Jaffe

Thanks, Ed.

Operator

Thank you. And our next question will come from the line of Susan Anderson with B. Riley FBR. Your line is now open.

Susan Anderson

Hi, thanks for taking my question. I was wondering if may be you could expand on the business development opportunities that you think that you are looking into maybe just talk a little bit about what those can potentially entail? And then also on the cash repatriation, just any thoughts around where you think you could utilize the cash?

And then finally, just really quick on Ann Taylor if you could expand a little bit on the merchandise misses and then also are you seeing her kind of go back and more directly look such as seeding [ph] ?

David Jaffe

We have four areas that we're really spending time on, you know, I'm not going to sit here and tell you how big they are, because we just don’t know yet, but we're going after four areas. One is international. We have little bit of international business at Justice and just a touch at Ann Taylor and LOFT. So we're seeing if there is an opportunity to expand that into other markets or other licensing opportunities.

Second, we're really only selling our products through our brands, websites and stores. So we're looking into other market places and you could imagine the big ones that we're talking to. Third, we think Cacique has an opportunity to play bigger. It's had great results. It's again constrained within our Lane Bryant store and website and we think that based on the success we've had with that, that brand can be expanded beyond plus-size and possibly beyond just Lane Bryant.

And then third, we've developed what we think is kind of leading edge back of the house shared services and we have capacity. So one of the things we're thinking of doing is leveraging that capacity for third parties and shoring up that capacity being able to deliver great services and at the same time reduce our cost because now we're spraying the overhead over other players. So those are four. We've done a fair amount of work on them over the last six months and we might have more to say at the next call or certainly by the call after that.

Robb Giammatteo

So Susan, it's Robb. I'll take the repatriation question. Certainly we talked before about we'd like a more balanced capital structure than we have today and we also recognize the importance that we have the opportunity to buyback a meaningful percentage of the float over time. So we obviously recognize that there is - we want more optionality on our balance sheet, so we certainly are biased toward paying down the debt, but we are looking at the opportunity on the share side as well. We are reviewing our plan with our Board next week and I think we'll have more to talk about when we get to the next quarter call.

Ann Taylor?

Gary Muto

And then regarding Ann Taylor, we have seen a resurgence in what we call the structured part of the business, very strong pat [ph] business, return to start performance in our dress business. I think our opportunity continues to be, how do we continue to refine our top offering at Ann Taylor? That's where we've seen some inconsistencies over the past quarter, whether it's world into sweaters, we have an opportunity to really continue to really fine tune that assortment and offer her really wardrobe of possibilities that she can coordinate personal outfitting for any end use.

Susan Anderson

Great, that’s helpful. I'll let someone else jump in the queue. Thanks so much. Good luck next quarter.

David Jaffe

Thanks.

Operator

Thank you. And our next question will come from the line of Brian Tunick with Royal Bank of Canada. Your line is now open.

Brian Tunick

Great, thanks. Good afternoon. I guess David, it's always helpful to hear your view on the macro environment out there, particularly how you think your customers interest in apparel is trending today versus maybe a couple of quarters ago. And then if you want to maybe talk about Justice, your viewpoint here on the sustainability of this turnaround, any view on where margins for this business can get to over the next maybe year or two and any learning’s from the Justice turnaround that you can apply to any of the other brands would be helpful? Thanks very much.

David Jaffe

Sure, so I’ll start with macro and I'll let Gary talk about Justice. I think the retail apocalypse is vastly overstated. I think that women's apparel may still be coming out of a little bit of a doldrums over the last number of years. We've seen pretty good response at the low end of value and whether it's H&M, Zara and TJ Maxx and those guys and also the luxury end, and the middle has been a little bit more sluggish until recently and some guys we've all seen the Macy's, JC Penney, Kohl's et cetera results, so I think that customer is interested in shopping in stores and online with us again.

I think the winners are going to be the guys that deliver great product and within our brands as you heard Gary talk where we've had great product, we've had great success. Our challenge is to become a little more consistent in that. The same thing goes for the experience in the stores. I think she's going to continue to shop because she likes the act of shopping. She likes touching products. She likes the social aspect of it.

So I don’t think stores are going away and from the reports we've all read talk about the declining acceleration of the penetration of online in apparel, is still going to grow, no question, but I don't think it's going to grow as fast as it did in the past and I think Holiday is a good example of that. So we feel pretty good that our customer wants to shop us and as we look by brand we actually have had flat traffic patterns.

There are some of our brands that are still significantly negative, like maurices and we're working on that specifically to get that traffic back, but when looking back over the last six months or so to see traffic kind of level off and not have those big drops that we were seeing a year ago gives us a lot more confidence looking out into the future.

Gary Muto

And then Brian regarding your question around Justice, I would say the gross margin rate is expected to be near high traditional levels, so this is really an opportunity to continue to grow topline. I think for me the brand is just getting started and we're going to replicate exactly what I spoke about in my remarks, the approach for customer intimacy really getting close to understanding her behavior? how she's shopping? what her interests are?, how she's putting her wardrobe together? I think that will really help that team and also the team has done an excellent job, really growing their client file and I think that has been one of the keys to their success along with this the launch of their loyalty program which they've seen tremendous, tremendous reaction to, which like I said is driving frequency. So I think there's more to come from the Justice brand.

Brian Tunick

Great, thanks very much and good luck guys.

David Jaffe

Thank you, Brian.

Operator

Thank you and our next question will come from the line of Bob Drbul with Guggenheim Securities. Your line is now open.

Robert Drbul

Hi guys, good evening. Just wondering if on the digital piece of the business, can you give a little bit more color in terms of how that’s performing for you and sort of the penetration rates of the various businesses and I guess specifically whether the LOFT or Ann Taylor business, how is that piece of the business holding up since it was more highly penetrated going into the Holiday season?

Robb Giammatteo

Yes, Bob it’s Robb. I think we saw strong transaction growth continue in the direct channel, we don’t break out specifically the sales growth figures due to attribution and the ability to tie specific sales. But from a transaction standpoint, we did see transactions up about 20% across all of our portfolio and the penetration actually is approaching 30% across the portfolio. It was 28% for the total portfolio. Obviously the Ann brands are much more penetrated than the legacy brands but we are seeing penetration increases and growth increases across all of our banners.

Robert Drbul

Got it. Okay. And then in terms of the total comp I think Robb you said that it was aided by the clearance, how much of the aggregate minus 2 was driven by comp, if you backed out, I'm sorry driven by the clearance piece of the business this past quarter?

Robb Giammatteo

Yes, Bob so the way that we’re thinking about that if you recall we’re guiding the third quarter down 3% to 5% that reflects essentially a clearance adjustment of what we ran in the second quarter. So it’s a way for you to think about it, but we’re trying to position the business forward based on the run rate where we’re coming from adjusted obviously for discrete things like the clearance goods.

Robert Drbul

Got it. Okay. That’s it from me. Thanks very much.

Robb Giammatteo

Thank you.

Operator

Thank you. And our next question will come from the line of Paul Lejuez with Citigroup. Your line is now open.

Paul Lejuez

Yes, hey thanks guys. Just a followup to Bob’s question, the inventory seemed to be in good shape, so I’m just trying to understand why gross margin guidance is to be below last year in the third quarter with the comp guidance of down 3% to 5%. Is there anything you could share on that front? And then just a second you mentioned selling into other marketplaces, how did that tie into what you’re thinking about in terms of right size of the store fleet if you do move in that direction? Thanks guys.

Robb Giammatteo

Yes Paul, it’s Robb. On the gross margin guide, so inventory is in very good position, but as you know, we're still working through some inventory issues at dressbarn, so that the quantity in decent shape again we’re still working out of some of the product quality issues and the non-performing product from the second quarter. So both at dressbarn and maurices and we have some pressure that we are looking to protect as we get into the third quarter. So it’s really just mainly around the Value segment where we see the pressure. And David do you want to add?

David Jaffe

Yes, Paul on the second point, the idea of going on new marketplaces is to attract new customers. So as we think about the traffic that these huge marketplaces generate, we think our brands would likely resonate with some of their customers and is there on those sites because it’s habit because they may have some kind of membership or what have you and they see our brands they might say, Oh, let me try that. And so, we see it as a customer acquisition to more than anything else.

Paul Lejuez

Got it. Thanks, good luck guys.

David Jaffe

Thanks Paul.

Operator

Thank you. [Operator Instructions] And our next question will come from the line of Steve Marotta with CL King & Associates. Your line is now open.

Steve Marotta

Good evening everybody. Just back to two questions ago, I’m still little confused about the answer of Q3 comp guidance implies deterioration from the third quarter, is this directional across the entire portfolio or is it more segment driven with deterioration and this is - particularly if you could layer the answer over the fact that there is an easier comp it seems to me or in the third quarter than it was in the second quarter comparison versus last year?

Robb Giammatteo

Yes Steve, it’s Robb. You’re absolutely right, we are going up against a much worse comp last year. So if you’re looking at this on a pure two-year stack you would suggest that there is meaningful opportunity from where we’re positioning this. We’ve gotten surprised by this in the past and so as we called out, we are guiding only on the momentum of the business right now.

Certainly I think that - I'll hand it over to Gary to give you his perspective in a moment, but we’re positioning this based on the run rate, based on what we see again adjusting for the traditional clearance velocity from Q2 and until we get more constructive on the merchandizing opportunities that is the way we’re going to continue to guide.

Gary Muto

Yes, and I would say the guidance is really not acceptable. I just think for right now, we – this is where we feel comfortable. The brands are working very, very hard to really turn their performance around I think we have opportunity, but that being said, we want to make sure that we’re measured in our approach.

Steve Marotta

Okay. Robb, could you just remind us what the current share authorization is outstanding, how much has been used recently and what the restrictions are from a debt standpoint in the near term?

Robb Giammatteo

Yes Steve, we have remaining authorization of around $180 million and there's no significant restrictions on that, so that’s been an open authorization for some time.

Steve Marotta

That’s helpful. Thank you.

David Jaffe

You bet.

Operator

Thank you. And I’m showing no further questions at this time. So now it’s my pleasure to turn the conference back over to Mr. David Jaffe for some closing comments, the remarks.

David Jaffe

Thank you everyone for your interest and we will look forward to speaking to you at the third quarter call if not sooner. Everyone have a good afternoon. Thank you very much. Bye.

Operator

Ladies and gentlemen thank you for your participation on today’s conference. This does conclude the program and we may all disconnect. Everybody have a wonderful day.