S&P Global Ratings downgraded Ann Taylor parent Ascena Retail Group Inc.’s rating to B from B-plus on Wednesday, after the women’s apparel retailer reported declines in same-store sales and margins in its recent fiscal second-quarter earnings. “We expect Ascena’s operating performance to remain challenged because of the company’s lack of operating capabilities to effectively adapt to the sustained structural changes in the specialty apparel industry,” S&P analyst Mathew Christy wrote in a note. The outlook on the rating is negative, meaning the agency could downgrade it again in the medium term. S&P is expecting operating trends and credit metrics to remain negative, even though it expects Ascena to pay down some debt with repatriated cash. Ann Taylor and Dressbarn are expected to continue to post negative same-store sales, which will weigh against “modestly positive” trends at Justice and Lane Bryant. “Although the company continues to execute on its operating initiatives, such as product procurement and back-office function consolidation, we believe its omnichannel capabilities, store experience, and loyalty programs lag behind peers’,” said Christy. “As such, the company will likely continue to be reliant on discounting to drive traffic, which we expect to further pressure margins.” Shares were up 1% on Wednesday, but have fallen 50% in the last 12 months, while the S&P 500
has gained 17%.