Ascena Soars on Plan to Sell Struggling Maurices Clothing Chain

(Bloomberg) -- Ascena Retail Group Inc., the owner of Ann Taylor and Dressbarn, soared after announcing it will sell a majority interest in its Maurices Inc. chain to a private equity firm. The shares jumped the most in three months on the news.

• An affiliate of OpCapita LLP will buy a stake in the women’s clothing retailer in a deal d at about $300 million, Ascena said in a statement.

Key Insights

• The deal shouldn’t come as a complete surprise: Earlier this month, the company said its unit, which includes Maurices and Dressbarn, was operating at an “unacceptable level of profitability.”
• Maurices Chief Executive Officer George Goldfarb will continue to run the chain, while Jeff Kirwan becomes executive chairman, OpCapita said in a statement. Kirwan, who led the struggling Gap brand for three years before departing last year, failed to return it to “operational excellence and accelerated profit growth,” Gap Inc. said at the time.
• As the retail industry gets more competitive, Ascena has been taking steps to address its cost structure and refocus on brands that can deliver growth. Chairman David Jaffe reiterated Monday that the “structural changes in our industry” have hit Ascena and pledged more “deliberate actions” ahead.
• The Maurices transaction will strengthen Ascena’s liquidity and balance sheet, the company said, noting that cash proceeds from the deal will be used partly to pay down the existing term loan balance. Ascena has $1.6 billion in total debt, the vast majority of which comes due in 2022.
• The deal “checks a lot of boxes,” CL King analyst Steve Marotta said. It “typifies management’s creativity in endeavoring to de-risk both the balance sheet and the income statement.”

Market Reaction

• The shares climbed as much as 18 percent to $1.26 in New York Monday, the biggest intraday gain since Dec. 11. They had lost 57 percent this year through Friday’s close.

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• For more on the transaction, click here.

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