Company Quick10K Filing
Ascena Retail Group
Price0.25 EPS-3
Shares199 P/E-0
MCap50 P/FCF-1
Net Debt1,108 EBIT-529
TEV1,158 TEV/EBIT-2
TTM 2019-11-02, in MM, except price, ratios
10-K 2020-08-01 Filed 2020-12-11
10-Q 2020-05-02 Filed 2020-08-07
10-Q 2020-02-01 Filed 2020-03-09
10-Q 2019-11-02 Filed 2019-12-10
10-K 2019-08-03 Filed 2019-10-10
10-Q 2019-05-04 Filed 2019-06-12
10-Q 2019-02-02 Filed 2019-03-14
10-Q 2018-11-03 Filed 2018-12-10
10-K 2018-08-04 Filed 2018-09-24
10-Q 2018-04-28 Filed 2018-06-04
10-Q 2018-01-27 Filed 2018-03-05
10-Q 2017-10-28 Filed 2017-12-04
10-K 2017-07-29 Filed 2017-09-25
10-Q 2017-04-29 Filed 2017-06-08
10-Q 2017-01-28 Filed 2017-03-06
10-Q 2016-10-29 Filed 2016-12-01
10-K 2016-07-30 Filed 2016-09-19
10-Q 2016-04-23 Filed 2016-05-31
10-Q 2016-01-23 Filed 2016-03-01
10-Q 2015-10-24 Filed 2015-12-01
10-K 2015-07-25 Filed 2015-09-16
10-Q 2015-04-25 Filed 2015-06-02
10-Q 2015-01-24 Filed 2015-03-03
10-Q 2014-10-25 Filed 2014-12-02
10-K 2014-07-26 Filed 2014-09-23
10-Q 2014-04-26 Filed 2014-06-03
10-Q 2014-01-25 Filed 2014-03-03
10-Q 2013-10-26 Filed 2013-12-02
10-Q 2013-04-27 Filed 2013-06-05
10-Q 2013-01-26 Filed 2013-03-04
10-Q 2012-10-27 Filed 2012-12-06
10-K 2012-07-28 Filed 2012-09-26
10-Q 2012-04-28 Filed 2012-05-31
10-Q 2012-01-28 Filed 2012-03-01
10-Q 2011-10-29 Filed 2011-12-08
10-K 2011-07-30 Filed 2011-09-28
10-Q 2011-04-30 Filed 2011-06-09
10-Q 2011-01-29 Filed 2011-03-10
8-K 2021-02-03 Officers, Amend Bylaw, Exhibits
8-K 2020-12-23 Enter Agreement, Leave Agreement, M&A, Exit Costs, Officers, Regulation FD, Exhibits
8-K 2020-12-10 Earnings
8-K 2020-11-26 Enter Agreement, Exit Costs, Regulation FD, Exhibits
8-K 2020-11-23
8-K 2020-11-12
8-K 2020-09-16
8-K 2020-08-14
8-K 2020-08-03
8-K 2020-07-24
8-K 2020-07-24
8-K 2020-07-24
8-K 2020-07-23
8-K 2020-06-26
8-K 2020-06-17
8-K 2020-05-26
8-K 2020-05-26
8-K 2020-04-08
8-K 2020-03-24
8-K 2020-03-16
8-K 2020-03-09
8-K 2020-02-24
8-K 2020-01-06
8-K 2019-12-17
8-K 2019-12-10
8-K 2019-12-09
8-K 2019-11-21
8-K 2019-10-02
8-K 2019-07-29
8-K 2019-07-25
8-K 2019-06-21
8-K 2019-06-10
8-K 2019-05-31
8-K 2019-05-31
8-K 2019-05-18
8-K 2019-05-06
8-K 2019-05-01
8-K 2019-04-05
8-K 2019-03-24
8-K 2019-03-14
8-K 2019-01-14
8-K 2018-12-14
8-K 2018-12-10
8-K 2018-10-03
8-K 2018-09-28
8-K 2018-09-24
8-K 2018-07-12
8-K 2018-06-07
8-K 2018-06-04
8-K 2018-05-17
8-K 2018-03-14
8-K 2018-03-05
8-K 2018-02-27
8-K 2018-01-08
8-K 2018-01-08

ASNA 10K Annual Report

Part I
Item 1. Business.
Item 1A. Risk Factors.
Item 1B. Unresolved Staff Comments.
Item 2. Properties.
Item 3. Legal Proceedings.
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Item 6. Selected Financial Data.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A").
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Item 8. Financial Statements
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Item 9A. Controls and Procedures.
Item 9B. Other Information.
Part III
Part IV
Item 15. Exhibits, Financial Statement Schedules
EX-4.2 ascenaex42descriptiono.htm
EX-10.13 exhibit1013macfarlanej.htm
EX-21 exhibit21fy20.htm
EX-31.1 exhibit311fy20.htm
EX-31.2 exhibit312fy20.htm
EX-32.1 exhibit321fy20.htm
EX-32.2 exhibit322fy20.htm

Ascena Retail Group Earnings 2020-08-01

Balance SheetIncome StatementCash Flow
10.08.06.04.02.00.02012201420172020
Assets, Equity
1.91.30.70.1-0.5-1.12012201420172020
Rev, G Profit, Net Income
1.81.10.4-0.2-0.9-1.62012201420172020
Ops, Inv, Fin

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ýANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended August 1, 2020
 or
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  
Commission file number 001-39300

ASCENA RETAIL GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware30-0641353
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification No.)
933 MacArthur Boulevard
Mahwah,New Jersey07430
(Address of principal executive offices)(Zip Code)
(551) 777-6700
(Registrant's telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
 
Securities registered pursuant to Section 12(g) of the Act: None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No ¨
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No ý
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 ¨
Accelerated filer
Non-accelerated filer
 ý
Smaller reporting company
 ý
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.    ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $39 million as of February 1, 2020, based on the last reported sales price on the Nasdaq Global Select Market on that date. As of December 8, 2020, 10,090,162 shares of voting common shares were outstanding.

The registrant intends to file on Form 10-K/A an amendment to the Annual Report on Form 10-K, which will be incorporated by reference into Part III of the Annual Report on Form 10-K.



ASCENA RETAIL GROUP, INC.
FORM 10-K
FISCAL YEAR ENDED AUGUST 1, 2020
TABLE OF CONTENTS
    Page
PART I    
 Item 1. Business 
 Item 1A. Risk Factors 
 Item 1B. Unresolved Staff Comments 
 Item 2. Properties 
 Item 3. Legal Proceedings 
PART II    
 Item 5. 
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
 Item 6. Selected Financial Data 
 Item 7. 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 
 Item 8. Financial Statements and Supplementary Data 
 Item 9. 
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
 Item 9A. Controls and Procedures 
 Item 9B. Other Information 
PART III   
PART IV    
 Item 15. Exhibits, Financial Statement Schedules 
 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This Annual Report on Form 10-K, including the section labeled Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements that should be read in conjunction with the consolidated financial statements, notes to the consolidated financial statements and the risk factors that we have included elsewhere in this report. These forward-looking statements are based on our current expectations, assumptions, estimates and projections about our business and our industry, and involve known and unknown risks, uncertainties and other factors that may cause our results, level of activity, performance or achievements to be materially different from any future results, level of activity, performance or achievements expressed or implied in, or contemplated by, the forward-looking statements. We generally identify these statements by words or phrases such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “may,” “should,” “estimate,” “predict,” “project,” “potential,” “continue,” “remains optimistic,” or the negative of such terms or other similar expressions.
 
Our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include those discussed below under Item 1A. Risk Factors, and other factors discussed in this Annual Report on Form 10-K and other reports we file with the Securities and Exchange Commission. We disclaim any intent or obligation to update or revise any forward-looking statements as a result of developments occurring after the period covered by this report.
 
WEBSITE ACCESS TO COMPANY REPORTS
 
We maintain our corporate Internet website at www.ascenaretail.com. The information on our Internet website is not incorporated by reference into this report. We make available, free of charge through publication on our Internet website, a copy of our Annual Reports on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K, including any amendments to those reports, as filed with or furnished to the Securities and Exchange Commission (“SEC”) pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after they have been so filed or furnished. Information relating to corporate governance at Ascena Retail Group, Inc., including our Code of Ethics for the Chief Executive Officer and Senior Financial Officers, information concerning our directors, committees of the Board of Directors, including committee charters, and SEC filings reporting transactions in Ascena Retail Group, Inc. securities by directors and executive officers, is also available at our website.
 
In this Annual Report on Form 10-K, references to “ascena,” “ourselves,” “we,” “us,” “our” or “Company” or other similar terms refer to Ascena Retail Group, Inc. and its subsidiaries, unless the context indicates otherwise. Fiscal year 2020 ended on August 1, 2020 and reflected a 52-week period (“Fiscal 2020”) and Fiscal year 2019 ended on August 3, 2019 and reflected a 52-week period (“Fiscal 2019”). All references to “Fiscal 2021” refer to our 52-week period that will end on July 31, 2021.

PART I

Item 1. Business.
 
General

The Company is a national specialty retailer of apparel for women and tween girls. The Company's operations consist of its direct channel operations and approximately 2,500 stores in the United States, Canada and Puerto Rico as of August 1, 2020. The Company had annual revenues for Fiscal 2020 of approximately $3.7 billion.

Recent Developments

In March of Fiscal 2020, the World Health Organization declared the coronavirus disease ("COVID-19") a global pandemic and recommended containment and mitigation measures worldwide. To date, COVID-19 has surfaced in nearly all regions around the world and resulted in restrictions and shutdowns implemented by national, state, and local authorities. In response to those shutdowns the Company took a number of steps, some of which included a temporary closure of our retail stores, which had a significant impact on our Net sales and liquidity in the second half of Fiscal 2020. Other steps were taken to mitigate at least a portion of the impact of the temporary store closures, such as temporary associate furloughs and temporary suspension of rent payments. However, given the Company's significant indebtedness, which primarily consisted of its Term Loan, and borrowings under the Amended Revolving Credit Agreement, as well as obligations related to its retail store leases, on July 23, 2020 (the “Petition Date”), the Company and certain of the Company’s direct and indirect subsidiaries commenced voluntary cases (the “Chapter 11 Cases”) under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United
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States Bankruptcy Court for the Eastern District of Virginia (the “Bankruptcy Court”). The filing of the Chapter 11 Cases constitutes an event of default under the Company’s Term Loan and Amended Revolving Credit Agreement, resulting in the automatic and immediate acceleration of the outstanding obligations thereunder.

While operating as a debtor-in-possession pursuant to the Bankruptcy Code, we may sell, or otherwise dispose of or liquidate, assets or settle liabilities, subject to the approval of the Bankruptcy Court or as otherwise permitted in the ordinary course of business, for amounts other than those reflected in the accompanying consolidated financial statements. Further, a Chapter 11 plan of reorganization is likely to materially change the amounts and classifications of assets and liabilities reported in our audited financial statements. The outcome of the Chapter 11 Cases are subject to a high degree of uncertainty and are dependent upon factors that are outside of the Company’s control, including actions of the Bankruptcy Court and the Company’s creditors. There can be no assurance that the Company will confirm and consummate a plan of reorganization with respect to the Chapter 11 Cases. We expect that our equity holders could experience a complete loss on their investment, depending on the outcome of the Chapter 11 Cases. The terms of the restructuring support agreement contemplates that the Company’s common stock will be canceled. We caution that trading in our securities, including our common stock, during the pendency of the Chapter 11 Cases is highly speculative and poses substantial risks. Trading prices for our common stock may bear little or no relationship to the actual recovery, if any, by holders of our securities in the Chapter 11 Cases. For more detail on the Chapter 11 Cases, see Note 2 to the accompanying consolidated financial statements.

Brands and Products
 
The Company brands, described in more detail below, are organized into three reportable segments as follows: Premium Fashion, Plus Fashion and Kids Fashion.

Premium Fashion

The Premium Fashion segment consists of the Ann Taylor and LOFT brands. See Note 24 to the accompanying consolidated financial statements for more information related to the pending sale of the Premium Fashion segment.

Ann Taylor includes 275 specialty retail and outlet stores and direct channel operations. Ann Taylor has been at the forefront of American fashion, leading the way with the idea that style shouldn’t be work, and getting dressed should be about getting ready for really big days and those just as important small moments. Ann Taylor features polished, modern feminine classics with an iconic style point of view for every aspect of her life. Its retail stores are predominantly located in mall locations, lifestyle centers and outlet centers.

LOFT includes 619 specialty retail and outlet stores, direct channel operations and certain licensed franchises in international territories. LOFT offers modern, feminine and versatile clothing for a wide range of women with one common goal: to help them look and feel confident, wherever the day takes them. From everyday essentials to attainable trends, LOFT consistently serves up head-to-toe outfits and perfect pieces that make getting dressed feel effortless. Its retail stores are predominantly located in mall locations, lifestyle centers and outlet centers.

Plus Fashion
 
The Plus Fashion segment consists of the Lane Bryant and Catherines brands.

Lane Bryant includes 637 specialty retail and outlet stores and direct channel operations. Lane Bryant is a widely recognized brand name in plus-size fashion with stores concentrated in suburban and small towns, offering fashionable and sophisticated apparel at a moderate price point to female customers in plus-sizes 14-28 through its namesake and Cacique intimates private labels, along with select national brands. Merchandise assortment offerings include intimate apparel, wear-to-work and casual apparel as well as accessories and select footwear. Lane Bryant retail stores are located in mall locations, strip shopping centers, lifestyle centers and outlet centers. See Note 24 to the accompanying consolidated financial statements for more information related to the pending sale of Lane Bryant.
  
Catherines includes 255 specialty retail stores and direct channel operations, offering a full range of plus sizes (16-34) and (0x-5x) and extended sizes (28-34 and 4x-5x). Catherines offers classic and fashionable apparel and accessories for women at moderate prices that includes casual apparel, wear-to-work apparel, intimate apparel and wide-width footwear. Catherines retail stores are concentrated in suburban and small towns and are primarily located in strip shopping centers. See Note 24 to the accompanying consolidated financial statements for more information related to the sale of the Catherines intellectual property assets.

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Kids Fashion

The Kids Fashion segment, which consists of the Justice brand, includes 747 specialty retail and outlet stores, direct channel operations and certain licensed franchises in international territories. The Justice brand offers fashionable apparel to girls who are ages 6 to 12 in an environment designed to match the energetic lifestyle of tween girls. Justice's merchandise mix represents the broad assortment that a girl wants in her store - a mix of apparel, accessories, footwear, intimates and lifestyle products, such as cosmetics, to meet all of her needs. Justice retail stores are located in mall locations, strip shopping centers, lifestyle centers and outlet centers. See Note 24 to the accompanying consolidated financial statements for more information related to the sale of the Justice intellectual property and other Justice brand assets. This sale, the sale of Catherines intellectual property assets and the pending sale of the Premium Fashion segment and Lane Bryant are referred to as the “363 Sales.”
 
Discontinued operations

During the second quarter of Fiscal 2020, the Company completed its previously announced wind down of its Dressbarn brand. In addition, on May 6, 2019, the Company and Maurices Incorporated, a Delaware corporation (“maurices”) and wholly owned subsidiary of ascena, completed the transaction contemplated by the previously-announced Stock Purchase Agreement with Viking Brand Upper Holdings, L.P., a Cayman Islands exempted limited partnership (“Viking”) and an affiliate of OpCapita LLP, providing for, among other things, the sale by ascena of maurices to Viking (the “Transaction”). Effective upon the closing of the Transaction, ascena received cash proceeds of approximately $210 million and a 49.6% ownership interest in the operations of maurices, consisting of interests in Viking preferred and common stock. As a result of these actions, the results of both brands, which previously constituted the Value Fashion segment, are now reported in discontinued operations, which concluded the reporting of the Value Fashion segment.

The tables below present Net sales and Operating loss by operating segment for the last two fiscal years:
 Fiscal 2020Fiscal 2019
Net sales:(millions)
Premium Fashion
$1,852.6 $2,415.1 
Plus Fashion1,055.9 1,240.5 
Kids Fashion809.6 1,079.1 
Total net sales$3,718.1 $4,734.7 
 Fiscal 2020Fiscal 2019
Operating (loss) income:(millions)
Premium Fashion
$(280.9)$35.1 
Plus Fashion(90.1)(101.6)
Kids Fashion(226.7)(66.8)
Unallocated restructuring and other related charges(238.3)(94.1)
Unallocated impairment of goodwill(148.9)(276.0)
Unallocated impairment of other intangible assets(128.7)(134.9)
Total operating loss$(1,113.6)$(638.3)
 
Omni-channel

To support its omni-channel strategy, the Company's brands are consolidated into one shared distribution network and operate on a shared direct channel platform. The platform allows the brands to (i) provide customers a seamless omni-channel shopping experience in-store and online, (ii) integrate their marketing efforts to increase in-store and online traffic, (iii) improve product availability and fulfillment efficiency and (iv) enhance the capability to analyze transaction data to support strategic decisions. These efforts have increased the Company's e-commerce penetration from 22% in Fiscal 2016 to 47% in Fiscal 2020. Additionally, the Company operates distribution and fulfillment centers in Etna, Ohio, Greencastle, Indiana, and Riverside, California.

The Company's brands sell products online through social media and their direct channel sites:

Ann Taylor – www.anntaylor.com and factory.anntaylor.com
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LOFT – www.LOFT.com, outlet.loft.com and www.louandgrey.com
Lane Bryant – www.lanebryant.com
Catherines – www.catherines.com
Justice – www.shopjustice.com

Store Locations

The Company's stores are typically open seven days a week and most evenings. As of August 1, 2020, the Company operated approximately 2,500 stores in the United States, Canada and Puerto Rico. Ann Taylor and LOFT have stores in 42 and 48 states, respectively, as well as the District of Columbia, Canada and Puerto Rico. In addition, LOFT has five international franchise stores. Lane Bryant and Catherines have stores located in 47 and 43 states, respectively. Justice has stores in 46 states and Canada as well as 91 international franchise stores.

As of August 1, 2020, the Company's stores had a total of 12.7 million square feet consisting of Ann Taylor with 1.5 million square feet, LOFT with 3.6 million square feet, Lane Bryant with 3.5 million square feet, Catherines with 1.0 million square feet and Justice with 3.1 million square feet. All of the Company's store locations are leased. Some of the leases contain renewal options and termination clauses, particularly in the early years of a lease, which are exercisable if specified sales volumes are not achieved. 

As a result of the Chapter 11 Cases and the 363 Sales, the number of store locations and square footage is expected to significantly decrease during Fiscal 2021.

Store Count by Brand
 Fiscal 2020
 Ann TaylorLOFTLane
Bryant
CatherinesJusticeDressbarnTotal
Beginning of Period293 669 721 320 826 616 3,445 
Stores reduced from Dressbarn wind down
— — — — — (616)(616)
Opened— — 
Closed(19)(51)(85)(65)(81)— (301)
End of Period275 619 637 255 747 — 2,533 
 Fiscal 2019
 Ann TaylorLOFTLane
Bryant
CatherinesJusticeDressbarnmauricesTotal
Beginning of Period304 672 749 348 847 730 972 4,622 
Store reduced from sale of maurices
— — — — — — (972)(972)
Opened— — — — — 
Closed(12)(9)(28)(28)(21)(114)— (212)
End of Period293 669 721 320 826 616 — 3,445 

In connection with the Company's efforts to right-size its cost structure, the Company continues to review its existing store portfolio which has resulted in rent concessions and closure of stores. The Company continues to renegotiate its store leases where possible and expects such negotiations to continue in connection with the Chapter 11 Cases. As a result of the Chapter 11 Cases, the number of stores is expected to significantly decrease during Fiscal 2021. See Note 2 to the accompanying consolidated financial statements for more information.

Trademarks
 
The Company has U.S. Trademark Registration Certificates and trademark applications pending for the operating names of the Company's stores and its major private label merchandise brands. The Company believes its trademarks such as ANN TAYLOR®, LOFT®, LOU & GREY®, JUSTICE®, LANE BRYANT®, CACIQUE®, CATHERINES®, and "&®" are essential to the continued success of its business. The Company intends to maintain its trademarks and related registrations and vigorously protect them against infringement.

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International Operations
 
As of August 1, 2020, the Company operated stores across three brands in Canada (Justice (38), LOFT (7), and Ann Taylor (4)). Additionally, as of August 1, 2020, Justice and LOFT had 91 and five international franchise stores, respectively, operated under franchise agreements where we earn licensing revenue. International revenue from company-operated stores and franchised stores accounts for approximately 2% of consolidated annual net sales. As a result of the Chapter 11 Cases, the company closed all of its operated stores in Canada during the first quarter of Fiscal 2021 and expects to exit its international stores and franchises during Fiscal 2021.
 
Sourcing
 
Prior to Fiscal 2020, the Company's brands source their products through one of three channels - ascena's internal sourcing group, third-party buying agents, or directly from market vendors. During the first quarter of Fiscal 2020, the Company announced a reorganization of its sourcing operation in connection with its cost reduction initiatives. As a result of the reorganization, the Company closed and ceased regular business operations for the offices in South Korea, China and India effective November 1, 2019.

By the end of second quarter of Fiscal 2020, the Company also completed the transition of production from ascena’s internal sourcing group to an agent or direct vendor model and the internal sourcing group no longer provides sourcing activities for affiliated companies in the United States and Canada. The internal sourcing group continues to provide sourcing activities to certain non-affiliates. The Company continues to source through third-party buying agents or directly from market vendors. Factors affecting the selection of sourcing channels include cost, speed to market, merchandise selection, vendor capacity and fashion trends.

Merchandise Vendors
 
The Company purchases its merchandise from many domestic and foreign suppliers. It has no long-term purchase commitments or arrangements with any of its suppliers, and believes that it is not dependent on any one supplier as no third-party supplier accounts for more than 10% of our merchandise purchases. The Company believes that it has good working relationships with its suppliers.

Merchandising and Design

The Company continues to focus on building its merchandising and design functions to align with its market position. The merchandising and design teams determine inventory needs for the upcoming season in response to fast changing fashion trends and customer preferences. Over the last few years, the Company has made substantial investments to acquire and retain merchandising and design talent allowing it to differentiate its fashion offerings, which it believes is a critical enabler for long-term success.

Office and Distribution Centers
 
For a detailed discussion of the Company's office and distribution centers, see Part I, Item 2 “Properties” in this Annual Report on Form 10-K, which information is incorporated by reference herein.

Information Technology Systems
 
The Company continues to make ongoing investments in its information technology systems to support its strategies in omni-channel, merchandise procurement, inventory management and supply chain. Our information technology systems make the design, marketing, importing and distribution of our products more efficient by providing common platforms for, among other things, order processing, product and design information, and financial information.

Advertising and Marketing

The Company uses a combination of broad-based and targeted marketing and advertising strategies to effectively define, evolve, and promote our brands. These strategies are designed to deliver a personalized and relevant shopping experience for our customers and include customer research, advertising and promotional events, window and in-store marketing materials, direct mail marketing, Internet and social media marketing, lifestyle magazines, and other means of communication.

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Customer Relationship Management

The Company continues to focus on building our customer relationships and promoting customer loyalty through various programs including brand-specific loyalty and credit card programs. Customers shopping at our brands who are enrolled in our loyalty programs earn reward points that are redeemable toward future purchases. Our brands also offer credit card programs to eligible customers providing additional discounts and promotional offers. These programs provide opportunities to attract new customers, retain and enhance existing customer relationships, and deliver a more personalized shopping experience through a better understanding of our customers' preferences and shopping behaviors.
Community Service

ascena and its brands have a rich history of giving. Together, the Company has a shared commitment to our associates and the women and girls whom we serve. We support our associates through our ascenaCARES programs, which reflects our culture and the philanthropic efforts taking place within our organization. Through cause-marketing campaigns, our brands are committed to the communities in which we live and work. Whether through collective partnerships or individual brand outreach, we are committed to supporting women and girls to live confidently in their own unique ways. More information about our charitable giving, including the non-profit partners we support, is available at www.ascenaretail.com.
Competition

The retail apparel industry is highly competitive and increasingly fragmented. The Company competes with numerous retailers, including department stores, off-price retailers, specialty stores and Internet-based retailers, on pricing, styles and fulfillment capability. Our business is vulnerable to demand and pricing shifts, channel shifts and changes in customer preferences. Some of our competitors operate at a lower cost structure, and are able to offer better pricing; others have more sophisticated direct channel or omni-channel capabilities. Examples of our competitive set include but are not limited to Gap Inc., Amazon, Walmart, Macy’s, JCPenney, Target and TJX Companies. Other competitors may enter the markets we serve. If the Company fails to compete successfully, it could face continued sales declines and may need to offer greater discounts to our customers, which could result in decreased profitability. The Company is working aggressively to differentiate our brands and our assortments to reinforce the value proposition it delivers by focusing on our target customers and by offering up-to-date fashion, unique experiences, superior customer service and shopping convenience across our multiple sales channels.
 
Employees
 
As of August 1, 2020, the Company had approximately 35,000 employees, 26,000 of whom worked on a part-time basis. The Company typically adds temporary employees during peak selling periods, which vary throughout the year at each of its brands, and adjusts the hours they work to coincide with holiday shopping patterns. Additionally, none of the Company's employees are covered by any collective bargaining agreement, except for approximately 10 employees of Lane Bryant who are represented by unions. The Company believes that it has good working relations with its employees and unions.

As a result of the Chapter 11 Cases and the 363 Sales, the number of employees is expected to significantly decrease during Fiscal 2021.
 
Item 1A. Risk Factors.

There are risks associated with an investment in our securities. The following risk factors should be read carefully in connection with evaluating our business and the forward-looking statements contained in this Annual Report on Form 10-K. Any of the following risks could materially adversely affect our business, our prospects, our operational results, our financial condition, our liquidity, the trading price of our securities, and the actual outcome of matters as to which forward-looking statements are made in this report. The risk factors generally have been separated into four groups: (1) Bankruptcy Specific Risks; (2) Macroeconomic and Industry Risks; (3) Operational Risks; and (4) Legal and Regulatory Risks. Based upon information currently known to us, the Company believes that the following information identifies the most significant risk factors affecting our Company and our securities. However, the risks and uncertainties are not limited to those set forth in the risk factors described below. Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included or incorporated by reference in this report. Our operational results, financial position and cash flows could be negatively impacted by a number of factors including, but not limited to, those described below. If we are not successful in managing these risks, they could have a negative impact on our business, operational results, financial position and cash flows.

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Bankruptcy Specific Risks

Trading in our securities during the pendency of the Chapter 11 Cases is highly speculative and poses substantial risks.

We expect that our equity holders could experience a complete loss on their investment, depending on the outcome of the Chapter 11 Cases. The terms of the restructuring support agreement contemplates that the Company’s common stock will be canceled. We caution that trading in our securities, including our common stock, during the pendency of the Chapter 11 Cases is highly speculative and poses substantial risks. Trading prices for our common stock may bear little or no relationship to the actual recovery, if any, by holders of our securities in the Chapter 11 Cases. See Note 2 to the accompanying consolidated financial statements for more information on the restructuring support agreement and the Chapter 11 Cases.

We are subject to the risks and uncertainties associated with the Chapter 11 Cases.

On July 23, 2020, the Company and certain of its subsidiaries commenced the Chapter 11 Cases. For the duration of the Chapter 11 Cases, our operations and our ability to develop and execute our strategic business plan, as well as our continuation as a going concern, are subject to the risks and uncertainties associated with bankruptcy. These risks include the following:

our ability to develop, confirm and consummate a Chapter 11 plan or alternative restructuring transaction;
the high costs of bankruptcy proceedings and related fees;
our ability to obtain court approval with respect to motions filed in connection with the Chapter 11 Cases from time to time;
our ability to maintain our relationships with our landlords, suppliers, vendors, service providers, customers, employees and other third parties;
our ability to maintain contracts that are critical to our operations;
the ability of third parties to seek and obtain approval to terminate contracts and other agreements with us;
the ability of third parties to seek and obtain court approval to terminate or shorten the exclusivity period for us to propose and confirm a Chapter 11 plan, to appoint a Chapter 11 trustee, or to convert the Chapter 11 Cases to a Chapter 7 proceeding; and
the action and decisions of our creditors and other third parties who have interests in the Chapter 11 Cases that may be inconsistent with our strategic business plan.

Delays in our Chapter 11 Cases increase the risks of us being unable to reorganize our business and emerge from bankruptcy and increase our costs associated with the bankruptcy process.

These risks and uncertainties could affect our business and operations in various ways. For example, negative events associated with the Chapter 11 Cases could adversely affect our relationships with our landlords, suppliers, vendors, service providers, customers, employees, and other third parties, which in turn could adversely affect our operations and financial condition. Also, we need the prior approval of the Bankruptcy Court for transactions outside the ordinary course of business, which may limit our ability to respond timely to certain events or take advantage of certain opportunities. Because of the risks and uncertainties associated with the Chapter 11 Cases, we cannot accurately predict or quantify the ultimate impact of events that will occur during the pendency of the Chapter 11 Cases that may be inconsistent with our strategic business plans.

Even if a Chapter 11 plan is consummated, we will continue to face a number of risks, including our ability to reduce expenses, implement any strategic initiatives and generally maintain favorable relationships with, and secure the confidence of, our counterparties. Further, due to the uncertainty around the scope and duration of the COVID-19 pandemic and the related disruption to our business and financial impacts, and because our plans, including those in connection with the Chapter 11 Cases, are not yet finalized, fully executed, or approved by the Bankruptcy Court, we cannot guarantee that the proposed financial restructuring will achieve our stated goals nor can we give any assurance of our ability to continue as a going concern.

Operating under Bankruptcy Court protection for an extended period of time may have an adverse effect on our business.

Our future results are dependent upon the successful confirmation and implementation of a plan of reorganization. An extended period of operations under Bankruptcy Court protection could have a material adverse effect on business, operational results, financial position and cash flows. So long as the Chapter 11 Cases continue, our senior management will be required to spend a significant amount of time and effort dealing with the reorganization instead of focusing exclusively on our business operations. In addition, the longer the Chapter 11 Cases continue, the more likely it is that our landlords, suppliers and customers will lose confidence in our ability to reorganize our business successfully and will seek to establish alternative commercial relationships.

Additionally, so long as the Chapter 11 Cases continue, we will be required to incur significant costs for professional fees and other expenses associated with the administration of the Chapter 11 Cases. Although we believe that we will have sufficient liquidity to operate our business during the pendency of the Chapter 11 Cases, there can be no assurance that the cash made
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available to us under the DIP Facilities (as defined in Item 7 herein) or otherwise in our restructuring process and revenue generated by our business operations will be sufficient to fund our operations. In the event that revenues and other available cash are not sufficient to meet our liquidity requirements, we may be required to seek additional financing, and there can be no assurance that such additional financing would be available or, if available, offered on terms that are acceptable. If we are unable to obtain such financing on favorable terms or at all, our chances of successfully reorganizing our business may be seriously jeopardized, and the likelihood that we instead will be required to liquidate our assets may be enhanced.

Furthermore, we cannot predict the ultimate amount of all settlement terms for the liabilities that will be subject to a plan of reorganization. Even once a plan of reorganization is approved and implemented, our operating results may be adversely affected by the possible reluctance of prospective lenders and other counterparties to do business with a company that recently emerged from bankruptcy.

We may not be able to obtain confirmation of a Chapter 11 plan of reorganization.

To emerge successfully from Bankruptcy Court protection as a viable entity, we must meet certain statutory requirements with respect to adequacy of disclosure with respect to a Chapter 11 plan of reorganization, solicit and obtain the requisite acceptances of such plan and fulfill other statutory conditions for confirmation of such plan, which have not occurred to date. The confirmation process is subject to numerous, unanticipated potential delays. If a Chapter 11 plan of reorganization is not confirmed by the Bankruptcy Court, it is unclear whether we would be able to reorganize our business and what, if anything, holders of claims against us would ultimately receive with respect to their claims.

Our long-term liquidity requirements and the adequacy of our capital resources are difficult to predict at this time.

We face uncertainty regarding the adequacy of our liquidity and capital resources, and in addition to the cash requirements necessary to fund ongoing operations, we have incurred significant professional fees and other costs in connection with preparation for the Chapter 11 Cases and expect that we will continue to incur significant professional fees and costs throughout the pendency of the Chapter 11 Cases.

Our liquidity, including our ability to meet our ongoing operational obligations, is dependent upon, among other things: (i) availability under the DIP Facilities and our ability to comply with their terms, conditions and covenants, (ii) our ability to comply with the terms and conditions of any cash collateral order that may be entered by the Bankruptcy Court in connection with the Chapter 11 Cases, (iii) our ability to maintain adequate cash on hand, (iv) our ability to generate cash flow from operations, (v) our ability to develop, confirm and consummate a Chapter 11 plan or other alternative restructuring transaction, and (vi) the cost, duration and outcome of the Chapter 11 Cases. There is no certainty that we will be able to comply with the covenants of the DIP Facilities or that cash on hand and cash flow from operations will be sufficient to continue to fund our operations and allow us to satisfy our obligations related to the Chapter 11 Cases until we are able to emerge from the Chapter 11 Cases.

Because of our financial condition, we will have heightened exposure to, and less ability to withstand, the operating risks that are customary in our industry, such as fluctuations in raw material prices and currency exchange rates. Any of these factors could result in the need for substantial additional funding. A number of other factors, including the Chapter 11 Cases, our recent financial results, our substantial indebtedness and the competitive environment we face, adversely affect the availability and terms of funding that might be available to us during bankruptcy. As such, we may not be able to source capital at rates acceptable to us, or at all, to fund our current operations. The inability to obtain necessary additional funding on acceptable terms would have a material adverse impact on us and on our ability to sustain our operations.

As a result of the Chapter 11 Cases, our financial results may be volatile and may not reflect historical trends.

During the pendency of the Chapter 11 Cases, we expect our financial results to continue to be volatile as restructuring activities and expenses, contract terminations and rejections, and claims assessments significantly impact our consolidated financial statements. As a result, our historical financial performance is likely to not be indicative of our financial performance after the date of the bankruptcy filing. In addition, if we emerge from Chapter 11, the amounts reported in subsequent consolidated financial statements may materially change relative to historical consolidated financial statements, including as a result of revisions to our operating plans pursuant to a plan of reorganization. We also may be required to adopt fresh start accounting, in which case our assets and liabilities will be recorded at fair value as of the fresh start reporting date, which may differ materially from the recorded values of assets and liabilities on our consolidated balance sheets. Our financial results after the application of fresh start accounting also may be different from historical trends.

We may be subject to claims that will not be discharged in the Chapter 11 Cases, which could have a material adverse effect on our financial condition and results of operations.

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The Bankruptcy Code provides that the confirmation of a plan of reorganization discharges a debtor from substantially all debts arising prior to confirmation. With few exceptions, all claims that arose prior to July 23, 2020, would be subject to compromise and/or treatment under the plan of reorganization and/or discharged in accordance with the terms of the plan of reorganization. Any claims not ultimately discharged through the plan of reorganization could be asserted against the reorganized entities and may have a material adverse effect on business, operational results, financial position and cash flows on a post-reorganization basis.

The Chapter 11 Cases have and will continue to consume a substantial portion of the time and attention of our management and we may experience increased levels of employee attrition.

While the Chapter 11 Cases continue, our management will be required to spend a significant amount of time and effort focusing on the cases. This diversion of attention may have a material adverse effect on business, operational results, financial position and cash flows, particularly if the Chapter 11 Cases are protracted. Additionally, as a result of the Chapter 11 Cases, we may experience increased levels of employee attrition, and our employees likely will face considerable distraction and uncertainty. A loss of key personnel or material erosion of employee morale could adversely affect our business and results of operations. Our ability to engage, motivate and retain key employees or take other measures intended to motivate and incent key employees to remain with us through the pendency of the Chapter 11 Cases is limited by restrictions on implementation of incentive programs under the Bankruptcy Code. The loss of services of members of our senior management team or material erosion of employee morale could impair our ability to execute our strategy and implement operational initiatives, which would be likely to have a material adverse effect on business, financial position, cash flows and results of operations.

In certain instances, a Chapter 11 case may be converted to a case under Chapter 7 of the Bankruptcy Code.

There can be no assurance as to whether we will successfully reorganize and emerge from the Chapter 11 Cases or, if we do successfully reorganize, as to when we would emerge from the Chapter 11 Cases.

If the Bankruptcy Court finds that it would be in the best interest of creditors and/or the Debtors, the Bankruptcy Court may convert our Chapter 11 Cases to cases under Chapter 7 of the Bankruptcy Code. In such event, a Chapter 7 trustee would be appointed or elected to liquidate the Debtors’ assets for distribution in accordance with the priorities established by the Bankruptcy Code. The Debtors believe that liquidation under Chapter 7 would result in significantly smaller distributions being made to the Debtors’ creditors than those provided for in a Chapter 11 plan or reorganization because of (i) the likelihood that the assets would have to be sold or otherwise disposed of in a disorderly fashion over a short period of time rather than reorganizing or selling in a controlled manner the Debtors’ businesses as a going concern, (ii) additional administrative expenses involved in the appointment of a Chapter 7 trustee, and (iii) additional expenses and claims, some of which would be entitled to priority, that would be generated during the liquidation and from the rejection of leases and other executory contracts in connection with a cessation of operations.

Macroeconomic and Industry Risks

The COVID-19 pandemic has disrupted and is expected to continue to disrupt our business, which in turn could have a material adverse effect on our business, financial position, cash flow and results of operations for an extended period of time.

The COVID-19 pandemic has had, and continues to have, an unprecedented impact on the U.S. economy as federal, state and local governments react to, and manage, this public health crisis, which has created significant uncertainties. These uncertainties include, but are not limited to, the significant impact of the pandemic on the economy, our customers, supply chain partners, associates and stores, and consumer sentiment in general. In response to the pandemic, which has materially adversely affected our near-term revenues, earnings, liquidity and cash flows, and resulting economic uncertainty, and in an effort to preserve capital, we have, among other measures, closed stores and furloughed associates, reduced base salaries, reduced advertising expenses and planned capital expenditures, extended vendor payment terms and withheld rent payments. We have also reduced merchandise inventory orders, which could impact product availability and sales in future periods due to both the operational issues associated with the reduced orders as well as the result of extended payment terms. In May 2020, we began the process of reopening our stores to the public in accordance with local, state and federal health and safety guidelines, and in June 2020, previous reductions in base salaries were restored.

The substantial majority of our retail stores have re-opened to the public, most with restricted operations. However, we are experiencing significantly reduced customer traffic relative to the same period last year, even with respect to our fully re-opened stores. As our stores re-open, new practices or protocols could impact our business and may continue and/or increase our operating costs, such as, for example, occupancy limitations. The Company continues to closely monitor changes in government guidelines, as well as any possible resurgence of the pandemic, and may have to as a result extend closures or restrict operations of our stores, corporate offices and distribution facilities. In addition, in some cases, we have had to close stores that had reopened. The extent to which the COVID-19 pandemic impacts our business, financial position, cash flows and
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results of operations will depend on future developments, including, but not limited to, the duration, spread, severity, impact and possible resurgence of the COVID-19 pandemic, the effects of the pandemic on our customers, associates and vendors, and the regulatory response and the impact of stimulus measures adopted by local, state and federal governments, and to what extent normal economic and operating conditions can resume. As such, the impact of the COVID-19 pandemic to our business remain highly uncertain. Additionally, an extended period of remote working by the Company’s corporate employees could strain its technology resources and introduce operational risks, including heightened cybersecurity risk. Remote working environments may be less secure and more susceptible to hacking attacks, including phishing and social engineering attempts that seek to exploit the COVID-19 pandemic. The COVID-19 pandemic, by materially reducing our near-term revenues, earnings, liquidity and cash flows, also magnifies many of the other risks to our business, operations, liquidity and financial condition.

Even after the COVID-19 pandemic subsides, we may continue to experience material adverse impacts to our business as a result of an economic recession or depression that has occurred or may occur in the future due to a continued erosion in consumer sentiment or the effect of high unemployment on our customer base. Furthermore, the financial condition of our customers may be adversely impacted, which may result in a decrease in discretionary consumer spending and our store traffic and sales. These events may, in turn, have a material adverse impact on our business, financial position, cash flows and results of operations.

Economic and political conditions and other factors beyond the Company’s control impacting consumer spending may adversely affect our business.

Our performance is subject to macroeconomic conditions that are beyond the Company’s control that could impact consumer discretionary spending. Some of the factors negatively impacting consumer spending and consumer sentiment include volatility in national and international financial markets, recession, inflation, deflation, consumer confidence, fiscal and monetary policies of government, unemployment and wage levels, increased taxation, credit availability, high consumer debt, higher fuel costs, energy and other prices, tax policies and changes in tax laws, increasing interest rates, severe or unseasonable weather conditions, natural disasters, public health concerns, including global pandemics, civil disturbances, the threat of or actual terrorist attacks, military conflicts, the domestic or international political environment, and general uncertainty regarding the overall future economic environment as well as the prospects of these factors and events. Such macroeconomic and other factors could have a negative effect on consumer spending in the U.S., which in turn could have a material effect on our business, operational results, financial position and cash flows.

Existing and increased competition and fundamental shifts in the women’s and girls’ retail apparel industry may reduce our net revenues, operational results and market share.

The women’s and girls’ retail apparel industry is highly competitive. Although the Company is a large specialty retailer, we have numerous and varied competitors at the national, regional and local level, primarily consisting of department stores, off-price retailers, other specialty stores, discount stores, mass merchandisers, boutiques, and Internet retailers, some of whom have advantages over us, including substantially greater financial, marketing or promotional resources. Many retailers, such as department stores, also offer a broader selection of merchandise than we offer, continue to be promotional by reducing their selling prices, and in some cases are expanding into markets in which we have a significant presence.

In addition, the growth and prominence of fast-fashion and value-fashion retailers and expansion of off-price retailers have fundamentally shifted customers’ expectations of affordable pricing of well-known brands and has resulted in the continuation of increased promotional pressure. The rise of these retailers as well as the shift in shopping preferences away from brick-and-mortar stores to the direct channel, where online-only businesses or those with robust direct channel capabilities can facilitate competitive entry and comparison shopping in our brands, have increased the difficulty of maintaining and gaining market share. The Company’s execution of its own omni-channel strategy to adapt to these changes, in relation to its competitors’ actions as well as to its customers’ adoption of new technology, presents a specific risk.

These competitive factors, including unanticipated changes in pricing, promotional activity such as free shipping and pricing pressures, and other practices of the Company’s competitors could have a material adverse effect on our business, operational results, financial position and cash flows.

Extreme weather could have a material adverse impact on our business.

Frequent or unusually heavy snowfall, ice storms, hurricanes, rainstorms or other extreme or unseasonable weather conditions over an extended period could make it difficult for our customers to travel to our stores, may cause a disruption in the shipment or receipt of our merchandise, and may influence customer trends, consumer traffic and shopping habits, which could negatively impact the Company's operational results. Extreme weather conditions in the areas in which the Company's stores are located could negatively affect the Company's business, operational results, financial position and cash flows.
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Acts of terrorism, active shooter situations, political unrest, public health incidents, man-made and natural disasters or other catastrophes could have a material adverse effect on our business.

Acts of terrorism and other catastrophic events remain a significant threat to the global economy. Terrorism and potential military responses, active shooter situations, political unrest, natural disasters, global pandemics, including the COVID-19 pandemic and other health issues have disrupted or could in the future disrupt commerce, impact our ability to operate our stores, offices or distribution and fulfillment centers in the affected areas or impact our ability to provide critical functions or services necessary to the operation of our business, including our and our third-party vendors’, suppliers’ and other providers’ systems and the networks as well as the utilities and telecommunications infrastructure on which our business depends. A disruption of commerce, or an inability to recover critical functions or services from such a disruption, could interfere with the production, shipment or receipt of our merchandise in a timely manner or increase our costs to do so, which could have a material adverse impact on our business, operational results, financial position and cash flows. In addition, any of the above disruptions could undermine consumer confidence, which could negatively impact consumer spending or customer traffic, and thus have an adverse effect on our operational results.

Our ability to mitigate the adverse impact of any of the above disruptions also depends, in part, upon the effectiveness of our disaster preparedness and response planning as well as business continuity planning. However, we cannot be certain that our plans will be adequate or implemented properly in the event of an actual disaster or other catastrophic situation. In addition, although we maintain insurance coverage, there can be no assurance that our insurance coverage will be sufficient, or that insurance proceeds will be timely paid to us.

Disruptions at ports used to import our products could have a material adverse impact on our business.

We currently ship the vast majority of our products by ocean. If a disruption occurs in the operation of ports through which our products are imported, we and our vendors may have to ship some or all of our products from Asia or other regions by air freight or to alternate shipping destinations in the United States. Shipping by air is significantly more expensive than shipping by ocean and our profitability could be reduced. Similarly, shipping to alternate destinations in the United States could lead to increased lead times and costs for our products. A disruption at ports (domestic or abroad) through which our products are imported could have a material adverse effect on our business, operational results, financial position and cash flows.

Increases in the price of raw materials, labor, energy, freight and trade relations could have a material adverse impact on our business.

Raw materials used to manufacture our merchandise are subject to availability constraints and price volatility caused by high or low demand for fabrics, labor conditions, trade wars and higher tariffs, transportation or freight costs, currency fluctuations, weather conditions, supply conditions, government regulations, economic inflation, market speculation and other factors. Increases in the demand for and price of cotton, wool and other raw materials used in the production of fabric and accessories, as well as increases in labor and energy costs or shortages of skilled labor, could result in increases for the costs of our products as well as their distribution to our distribution centers, retail locations and to our customers. The Company is also susceptible to fluctuations in the cost of transportation. Additionally, substantially increased uncertainty with respect to trade relations, such as the imposition of unilateral tariffs on imported products, could result in trade wars, higher barriers and tariffs, and higher product costs, which could have a material adverse effect on our business, operational results, financial position and cash flows.

Operational Risks

Our business is dependent upon our ability to anticipate and respond to changing fashion trends and customer preferences in a timely manner.

Specialty fashion apparel trends and customer preferences tend to change rapidly, particularly for women and tween girls, and our business is dependent upon our ability to effectively manage our inventory. Our success depends largely on our ability to anticipate and respond to changing fashion trends and consumer preferences in a timely manner. Accordingly, our failure to anticipate, identify and react to changing fashion trends or styles could adversely affect consumer acceptance of our merchandise, which in turn could adversely affect our business and our image with our customers. Because the lead times required for many of our design and purchase decisions must be made well in advance of the applicable selling season, we are vulnerable to changes in consumer trends, preferences, price shifting, and the optimal selection and timing of merchandise purchases. A miscalculation of either the demand for our merchandise or our customers’ tastes or purchasing habits could lead to, among other things, inventory shortages or excess inventory that we may be required to sell at reduced prices, which would have an adverse effect on our business, operational results, financial position and cash flows.

Our business is dependent upon our ability to effectively manage our inventory levels.
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Inventory is one of the largest assets on our balance sheet and represented approximately 14% of our total assets at August 1, 2020. Efficient inventory management is a key component of our business success and profitability. To be successful, we must maintain sufficient inventory levels to meet our customers’ demands without allowing those levels to increase to such an extent that the costs to store and hold the goods unduly impact our financial results. If our buying decisions do not accurately predict customer trends or purchasing actions, we may have to take unanticipated markdowns to dispose of the excess inventory, which also can adversely impact our financial results. We have recorded significant inventory write-downs from time to time in the past and there can be no assurances that we will not record additional inventory charges in the future. We continue to focus on ways to reduce these risks, but we cannot assure that we will be successful in our inventory management. Failing to successfully manage our inventory balances could have a material effect on our business, operational results, financial position and cash flows.

Any divestitures, strategic investments, joint ventures or other transactions could fail to achieve strategic objectives and result in operating difficulties, liabilities and expenses.

We have undertaken, and may undertake in the future, divestitures, strategic investments or other transactions in connection with our comprehensive portfolio review. As part of the Chapter 11 Cases, we have divested the Catherines’ E-Commerce business and Justice’s intellectual property and other assets. We have also entered into an agreement to sell assets relating to the Company’s Ann Taylor, LOFT and Lane Bryant brands. In addition, our Company’s business model may include a certain level of joint venture and/or divestiture activities. We must be able to successfully manage the impacts of these activities, while at the same time deliver against our business objectives.

Specifically, with respect to divestitures, our financial results could be adversely impacted by the dilutive impacts from the loss of earnings and corporate overhead contribution/allocation associated with divested brands. We may experience difficulty separating out portions of the entire business, incur potential loss of revenue or experience negative impact on margins, or we may not achieve the desired strategic and financial benefits from these transactions. Such transactions may also delay achievement of our strategic objectives, cause us to incur additional expenses, potentially disrupt customer or employee relationships, and expose us to unanticipated or ongoing obligations and liabilities, including any indemnification obligations, and divert management’s and our employees’ time and attention. Further, during the pendency of a divestiture, we may be subject to risks related to a decline in the business, loss of employees, customers, or suppliers and the risk that the transaction may not close, any of which would have a material adverse effect on the business to be divested and the Company. If a divestiture is not completed for any reason, we may not be able to find another buyer on the same terms, and we may have incurred significant costs without the corresponding benefit.

Our financial results could also be impacted in the event of joint venture activities if changes in the cash flows or other market-based assumptions cause the value of acquired assets to decline below book value, or we are not able to deliver the expected cost and growth synergies associated with such joint ventures, which could also have an impact on goodwill and intangible assets.

We may be unable to successfully implement and optimize our omni-channel retail strategy and maintain a relevant and reliable omni-channel experience for our customers.

One of our strategic priorities is to further develop and refine the omni-channel shopping experience, with our buy-online-pickup-in-store program for our customers through the integration of our store and direct shopping channels. Our omni-channel initiatives include cross-channel logistics optimization and exploring additional ways to develop an omni-channel shopping experience, including further direct channel integration, use of advance analytics, customer personalization, the assessment and implementation of emerging technologies. These initiatives involve significant investments in information technology systems, operational changes, and employee resources.

In addition, successful implementation of our omni-channel strategy is dependent on our ability to develop our direct channel capabilities in conjunction with optimizing our physical store operations and market coverage, while maintaining profitability. The Company’s ability to optimize its store operations and market coverage requires active management of its real estate portfolio in a manner that permits store sizes, layouts, locations and offerings to evolve by brand over time. These efforts may involve the relocation or closing of existing stores or possibly the opening of additional stores, which could potentially increase the cost of doing business and the risk that the Company’s business practices could result in liabilities that could have a material effect on our business, operational results, financial position and cash flows.

If the implementation of our customer, direct, and omni-channel initiatives are not successful, or we do not realize our expected return on our investment in these initiatives, we could experience a material adverse effect on our business, operational results, financial position and cash flows.

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We may be unable to maintain our brand image, engage new and existing customers or gain market share.

Our success is largely dependent on our ability to maintain, enhance and protect our brand image and reputation and our customers’ connections with our brands. Maintaining, promoting and growing our brands will depend largely on the success of our design, merchandising and marketing efforts and our ability to provide a consistent, high-quality customer experience. In addition, our success depends, in part, on our ability to keep existing customers, while engaging and attracting new customers to shop our brands. Our business and results of operations could be adversely affected if we fail to achieve these objectives for any of our brands. Failure to achieve consistent, positive performance at several of our brands simultaneously could have an adverse effect on our sales and profitability.

Further, the use of social media by the Company and consumers has also increased the risk that the Company’s image and reputation could be negatively impacted. The availability of information, reviews and opinions on social media is immediate, as is its impact. The opportunity for dissemination of information, including inaccurate and inflammatory information and opinion, is nearly infinite. Even if we react quickly and appropriately to negative social media about us or our brands, our reputation and customers’ perception of our brands could be negatively impacted. Damage to the brand image and reputation of the Company in any aspect of its operations could have a material adverse effect on our business, operational results, financial position and cash flows.

Our business depends on effective marketing, advertising and promotional programs.

Customer traffic and demand for our merchandise is influenced by our advertising, marketing and promotional activities, the name recognition and reputation of our brands, and the location of and service offered in our stores, in addition to many initiatives focused on direct channel and mobile applications, including social media. Although we use marketing, advertising and promotional programs to attract customers through various media, including social media, database marketing and print, if our competitors increase their spending on marketing, advertising and promotional programs, if our marketing, advertising and promotional expenses increase, if our programs become less effective than those of our competitors, or if we do not adequately leverage technology and data analytic capabilities needed to generate concise and effective competitive insight, our business, operational results, financial position and cash flows could be adversely impacted.

We depend on key personnel in order to support our existing business and future initiatives and may not be able to retain or replace these employees, recruit additional qualified personnel or effectively manage succession.

Our success may be adversely impacted if we are not able to attract, retain and develop talent and future leaders, including our senior executives and associates. Our senior executive team closely supervises all major aspects of our business including the design, development, and procurement of merchandise; operation of our information technology platforms, supply chain, and store network; development and retention of critical talent; and financial planning, reporting and compliance. Our senior executive team has substantial experience and expertise in our retail business, and serves an integral role in the growth and support of our brands. If we were to lose the leadership of additional senior executives or other personnel, our business could be adversely affected. In addition, if significant unexpected turnover occurs at the associate level, the loss of the services of these individuals, or any resulting negative perceptions of our business, could damage our reputation and our business. Competition for such qualified talent is intense, and we cannot be sure we will be able to find suitable successors promptly, or at all, or to successfully integrate any successors, or that we will be able to attract, retain and develop a sufficient number of qualified individuals in future periods.

We are dependent on our vendors and factors for credit to acquire merchandise, and any disruption in our supply of merchandise would materially impact us.

Our business is dependent upon our ability to purchase merchandise at competitive terms through relationships with our vendors and their factors, as applicable, and we depend on our vendors to provide financing on our purchases of merchandise. Any significant change in vendor and factor financing or support could limit our ability to acquire desired merchandise at competitive prices or payment terms. In addition, any insolvency of our vendors or their inability to access liquidity could lead to their failure to deliver merchandise. Certain vendors finance their operations and reduce the risk associated with collecting accounts receivable by selling or “factoring” the receivables or by purchasing credit insurance or other forms of protection from loss, and the ability of vendors to do so is subject to the perceived credit quality of their customers. Our vendors’ ability to factor receivables or obtain credit protection in the future because of our perceived financial position and creditworthiness could be limited, which could reduce the availability of merchandise and increase the cost to us of the merchandise. Additionally, if we experience declining operating performance or liquidity challenges, vendors and their factors may seek protection against non-payment, such as accelerated payment terms, letters of credit and tighter limits on credit.

We have ongoing discussions with the vendor community and factors/third parties that offer various trade credit protection services to our vendors concerning our liquidity and financial position, including discussions regarding pricing, payment terms
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and ongoing business arrangements. Vendors may be less willing to conduct business with us on customary trade terms during the pendency of our Chapter 11 Cases and, in some instances could decline to do business with us altogether. Any adverse or prolonged change in our trade credit or access to merchandise for these or other reasons could have a material adverse effect on our business, financial condition and results of operations.

We rely on foreign sources of production and other international service providers.

Our international operations subject us to additional risks which could have an adverse effect on our results of operations and may impair our ability to operate effectively. We purchase nearly all of our merchandise from foreign sources, both directly in foreign markets and indirectly through domestic vendors with foreign sources. Our ability to find qualified vendors and access products in a timely and efficient manner is a significant challenge which is typically even more difficult for goods sourced outside the United States.

Additionally, through outsourcing arrangements, we have engaged in efforts to reduce our costs by utilizing lower-cost labor outside the U.S. in countries which may be subject to higher degrees of political and/or social instability than the U.S. and may lack the infrastructure to withstand events that may disrupt their business. Such disruptions could impact our ability to deliver our products and services on a timely basis, if at all, and to a lesser extent could decrease efficiency and increase our costs.

We face a variety of risks generally associated with doing business in and outsourcing certain services to foreign markets and importing large quantities of merchandise from abroad, including, but not limited to:

financial or political instability or terrorist acts in any of the countries in which we operate, outsource services or acquire our merchandise, or through which our merchandise passes;
new and additional U.S. government initiatives may be proposed or implemented that may have an impact on the trading status of certain countries and may include retaliatory duties, tariffs or other trade sanctions that, if enacted, could increase the cost of products purchased from suppliers in such countries or restrict the importation of products from such countries;
fluctuations in the value of the U.S. Dollar against foreign currencies or higher inflation rates in these countries, or restrictions on the transfer of funds to and from foreign countries;
inability of our manufacturers to comply with local laws, including labor laws, health and safety laws or labor practices;
increased security and regulatory requirements and inspections applicable to imported goods;
enactment of tariffs, border adjustment taxes or increases in duties or quotas applicable to the merchandise we sell that could increase the cost and reduce the supply of products available to us;
impact of public health concerns, including global pandemics, natural disasters, extreme weather or other catastrophes on our foreign sourcing offices and vendor manufacturing operations;
increased scrutiny in the U.S. of utilizing labor based in foreign countries;
delays in shipping due to port security or congestion issues, labor disputes or shortages, local business practices, vendor compliance with applicable import regulations or weather conditions;
violations under the U.S. Foreign Corrupt Practices Act (the “FCPA”) or similar laws or regulations by us, our subsidiaries or our local agents;
the adoption of new legislation or regulations in the U.S. or foreign countries that make it more difficult, more costly or impossible to continue our foreign activities;
violation of applicable laws or regulations; and
increased costs and/or capacities of transportation.

The future performance of our business depends on foreign suppliers and service providers, and may be adversely affected by the factors listed above, most of which are beyond our control. The foregoing may impact our ability to deliver our products and services on a timely basis, increase costs, negate or offset any cost reductions anticipated from operating outside the U.S., decrease our efficiency or result in our inability to obtain sufficient quantities of merchandise.

We require our vendors, manufacturers and other service providers to operate in compliance with applicable laws and regulations, including the FCPA and other anti-corruption laws, and our internal requirements. Our vendor code of conduct, guidelines and other compliance programs promote ethical business practices, and we monitor compliance with them; however, we do not control these vendors or manufacturers, their labor practices or business practices, the health and safety conditions of their facilities, or their sources of raw materials, and from time to time these vendors, manufactures or other service providers may not be in compliance with these standards or applicable laws. Significant or continuing noncompliance with such standards and laws by one or more vendors, manufacturers or other service providers could have a negative impact on our reputation and our business, and could subject us to liability in the form of substantial financial penalties, sanctions or otherwise.

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Any of the aforementioned risks, independently or in combination with others, could have an adverse effect on our business, operational results, financial position and cash flows.

Changes in U.S. trade policies, including the imposition of tariffs and a potential resulting trade war, could have a material adverse impact on our business.

We source the majority of our merchandise from foreign countries, including Vietnam, Indonesia, China, India, Guatemala, Sri Lanka and Bangladesh, making the price and availability of our merchandise susceptible to international trade risks and other international conditions. In September 2018, the U.S. government implemented a 10% tariff on certain goods imported from China. In May 2019, these tariffs were increased to 25%. In September 2019, the U.S. government implemented a 15% tariff on certain additional goods imported from China, and subsequently reduced that tariff rate to 7.5% in February 2020 as a result of the Phase One U.S.-China trade agreement. In October 2020, the U.S. government launched an investigation on Vietnam similar to the investigation on China. Based on the findings and potential actions taken by the administration at that time, certain goods from Vietnam could be subject to additional tariffs. The imposition of such tariffs, or any future tariffs, duties or other trade restrictions by the United States could also result in the adoption of new or increased tariffs or other trade restrictions by other countries. The tariffs may in the future cause us to further increase prices to our customers which we believe may reduce demand for our products. Any such price increase may not be sufficient to fully offset the impact of the tariffs and result in lowering our margin on products sold. If the current administration or a future administration increases or implements additional tariffs, or if additional tariffs or trade restrictions are implemented by the U.S. or other countries, the resulting trade barriers could have a significant adverse impact on our business. We are not able to predict future trade policy of the U.S. or of any foreign countries in which we operate or purchase goods, or the terms of any renegotiated trade agreements, or their impact on our business. The adoption and expansion of trade restrictions and tariffs, quotas and embargoes, the occurrence of a “trade war,” or other governmental action related to tariffs or trade agreements or policies, has the potential to adversely impact demand for our products, our costs, our customers, our suppliers and the world and U.S. economies, which in turn could have a material adverse effect on our business, operational results, financial position and cash flows.

Our business could suffer as a result of a third-party manufacturer’s inability to produce goods for us on time and to our specifications.

We do not own or operate any manufacturing facilities and therefore depend upon independent third-parties for the manufacture of all of the goods that we sell. Both domestic and international manufacturers produce these goods. The Company is at risk for increases in manufacturing costs, and we cannot be certain that we will not experience operational difficulties with these third-party manufacturers, such as reductions in the availability of production capacity, errors in complying with merchandise specifications, insufficient quality control and failure to meet production deadlines. In addition, we cannot predict the impact of world-wide events, including inclement weather, natural or man-made disasters, public health issues, strikes, acts of terror or political, social or economic conditions on our major suppliers. Our suppliers could also face economic pressures as a result of rising wages and inflation or be affected by trade wars or increases in tariffs materially impacting their business or experience difficulty obtaining adequate credit or access to liquidity to finance their operations, which could lead to vendor consolidation. A manufacturer's inability to ship orders in a timely manner or to meet our cost, safety, quality and social compliance standards could result in supply delays, shortages, failure to meet customer expectations and damage to our brands, which could have a material adverse impact on our business, operational results, financial position and cash flows.

We rely upon independent third-party transportation providers for substantially all of our merchandise shipments.

We currently rely primarily on one independent third-party transportation provider for substantially all of our merchandise shipments, including shipments to our stores and to the customer directly in the U.S., Canada and Puerto Rico through our direct channel. Our use of third-party delivery services for shipments is subject to risks, including increased fuel prices, which would increase our shipping costs, and employee strikes and inclement weather, which may impact a shipper’s ability to provide delivery services that adequately meet our shipping needs. If we change shipping companies, we could face logistical difficulties that could adversely impact deliveries and we would incur costs and expend resources in connection with such change. Moreover, we may not be able to obtain terms as favorable as those received from the independent third-party transportation providers we currently use, which could have a material adverse impact on our business, operational results, financial position and cash flows.

Our business could suffer a material adverse effect if our distribution or fulfillment centers were shut down, disrupted or fail to operate efficiently.

We operate three distribution and fulfillment centers to manage the receipt, storage, sorting, packing and distribution of our merchandise to the appropriate stores or to the customer directly through our direct channel. We depend in large part on the orderly operation of our receiving and distribution process, which depends, in turn, on adherence to shipping schedules, proper
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functioning of our information technology and inventory control systems and overall effective management of our distribution and fulfillment centers. As a result of damage to, or prolonged interruption of, operations at any of these facilities, or with respect to our third-party transportation provider, due to a work stoppage, operations significantly below historical efficiency levels, supply chain disruption, inclement weather, natural or man-made disasters, system failures, slowdowns or strikes, acts of terror or other unforeseen events, we could incur significantly higher costs and longer lead times associated with distributing our products to our stores or customers, which in turn could have a material adverse effect on our business, operational results, financial position and cash flows. Refer to Item 2. Properties, for a listing of the distribution and fulfillment centers that we rely on.

Although we maintain business interruption and property insurance for these facilities, there can be no assurance that our insurance coverage will be sufficient, or that insurance proceeds will be timely paid to us, if our distribution or fulfillment centers are shut down or interrupted for any unplanned reason.

We also continue to explore ways to further optimize and leverage our integrated distribution network, which may include providing distribution and fulfillment services to third-party retailers. Any disruption of our distribution and fulfillment capabilities would also impact any third-party services we may provide in the future. There also can be no assurance that providing such distribution and fulfillment services to third parties would be successful or profitable for us.

Risks associated with direct channel sales.

The successful operation of our direct channel business depends on our ability to maintain the efficient and continuous operation of our websites and our associated fulfillment operations, and to provide a customer engaging shopping experience that will generate orders and return visits to our websites. Our direct channel services are subject to numerous risks, including:

system failures, including but not limited to, inadequate system capacity, human error, change in programming, website downtimes, system upgrades or migrations, Internet service or power outages;
cyber incidents, including but not limited to, security breaches and computer viruses;
reliance on third-party computer hardware/software fulfillment and delivery providers;
unfavorable federal or state regulations or laws;
violations of federal, state or other applicable laws, including those related to online privacy;
disruptions in telecommunication systems, power outages or other technical failures;
ability to anticipate and implement innovations in technology and logistics;
credit card fraud;
constantly evolving technology;
liability for online content;
challenges associated with recreating the in-store experience for our customers through our direct channels; and
natural or man-made disasters or adverse weather conditions.

Our failure to maintain efficient and uninterrupted order-taking and fulfillment operations or our failure to successfully address and respond to any one or more of these risks could damage the reputation of our brands and have a material adverse effect on our business, operational results, financial position and cash flows.

Our business could suffer if our information technology systems fail to operate effectively, are disrupted or are compromised.

Our success depends, in part, on the secure and uninterrupted performance of our existing information technology systems in operating, supporting and monitoring all major aspects of our business, including sales (including stores and direct channel services), warehousing, fulfillment, distribution, purchasing, inventory control, merchandise planning and replenishment, and financial systems. We regularly evaluate and from time to time make investments to upgrade, enhance or replace these systems, including those that relate to point-of-sale, direct channel, merchandising, planning, sourcing, logistics, inventory management and support systems, which are utilized by our human resources, finance and other groups on a Company-wide basis, as well as leverage new technologies to support our growth strategies. We are aware of inherent risks associated with operating, replacing and modifying these systems, including inaccurate system information and system disruptions. We believe we are taking appropriate action to mitigate the risks through testing, training, staging implementation and in-sourcing certain processes, as well as securing appropriate commercial contracts with third-party vendors supplying such replacement and redundancy technologies; however, there is a risk that information technology system disruptions and inaccurate system information, if not anticipated and/or appropriately mitigated, could have a material adverse effect on our business, operational results, financial position and cash flows.

The reliability and capacity of our information technology systems (including third-party hardware and software systems or services) are critical to our continued operations. Despite our precautionary efforts, our information technology systems, as well as those of our services providers, are vulnerable to damage or interruption from a variety of sources, including natural or man-
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made disasters, technical malfunctions, inadequate systems capacity, power outages, computer viruses, malicious human acts, security breaches and similar disruptive problems, which may require significant investment to fix or replace, and we may suffer loss of critical data and interruptions or delays to our operations.

While we believe we are diligent in the execution of operational standards to maintain the level of confidentiality, availability, and integrity of our information technology systems, we realize that there are risks and that no assurances can be made that future disruptions, service outages/failures, or unauthorized access will not occur. Certain of our information technology support functions are performed by third-parties in overseas locations. Failure by any of these third-parties to implement and/or manage our information systems and infrastructure effectively and securely could impact our operational results, financial position and cash flows.

We are subject to cybersecurity risks and other risks associated with data security breaches, credit card fraud and identity theft, which may subject us to increased risk of liability and may cause us to incur increased expenses to mitigate our exposure or to address any such incidents.

During the course of our business, we obtain and transmit confidential customer, employee, vendor and Company information through our information technology systems, and we are subject to numerous laws, rules and regulations in the United States (both federal and state) and foreign jurisdictions to protect both individual identifiable information as well as personal health information. The protection of customer, employee, vendor and Company data is critical to our business. The regulatory environment surrounding information security and privacy is demanding, with frequent changes in requirements and heightened public awareness and scrutiny.

Our business and that of our third-party service providers employ systems and websites that allow us to process credit card transactions containing personally identifiable information ("PII"), perform online direct channel and social media activities, and store and transmit proprietary or confidential customer, employee, job applicant and other personal confidential information, as well as the information of our vendors and suppliers. Security and/or privacy breaches, acts of vandalism or terror, computer viruses, misplaced or lost data, programming and/or human error or other similar events could expose us to a risk of loss or misuse of this information, reputational harm, litigation and potential liability. Because the techniques used to obtain unauthorized access to our systems are constantly changing and becoming increasingly more sophisticated and often are not recognized until launched against a target, we or our third-party service providers may not be able to anticipate these techniques or implement sufficient preventative measures. We, our customers and our third-party service providers face an evolving threat landscape in which cybercriminals, among others, employ a complex array of cyber-attack techniques designed to access PII and other information, including for example, the use of fraudulent or stolen access credentials, malware, ransomware, phishing, denial of service and other types of attacks. These types of cyber-attacks are becoming more prevalent, have occurred in our systems in the past, and may occur in our systems in the future. Additionally, the extended period of remote working by the Company’s corporate employees due to the COVID-19 pandemic could strain our technology resources and introduce heightened cybersecurity risk. Remote working environments may be less secure and more susceptible to hacking attacks, including phishing and social engineering attempts that seek to exploit the COVID-19 pandemic. While we have implemented and intend to continue to implement what we believe to be appropriate cyber practices and cyber security systems and controls, these systems may prove to be inadequate and result in the disruption, failure, misappropriation or corruption of our systems and infrastructure. Actual or anticipated attacks may cause us to incur significant and additional costs, including, but not limited to the costs to deploy additional personnel and protection technologies, train employees, engage third-party experts and consultants and compliance costs associated with various applicable laws or industry standards regarding use and/or unauthorized disclosure of PII. We may also incur significant remediation costs, including liability for stolen customer, job applicant or employee information, repairing system damage or providing credit monitoring or other benefits to affected customers, job applicants or employees.

In addition, data and security breaches can also occur as a result of non-technical issues, including breaches by us or by our third-party service providers that result in the unauthorized release of personal or confidential information, employee error or malfeasance, faulty password management or other irregularities that may result in a defeat of our or our third-party providers’ security measures. We are also exposed to risks and costs associated with customer payment methods, including credit card fraud and identify theft, which may cause us to incur unexpected expenses and loss of revenues.

Although we maintain cyber security insurance, there can be no assurance that our insurance coverage will cover the particular cyber incident at issue or that such coverage will be sufficient, or that insurance proceeds will be paid to us in a timely manner.

The protection of customer, employee and Company PII and other data is critical, and our customers have a high expectation that we will adequately protect their personal information. Any actual or perceived misappropriation, unauthorized disclosure or breach involving this data could attract negative media attention, cause substantial harm to our reputation or brand and result in significant liability (including but not limited to mandatory notifications, fines, substantial penalties or lawsuits), any of which could have a material adverse effect on our business, operational results, financial position and cash flows.
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As we transition certain functions to an externally managed service provider, we will become more dependent on the third-party performing these functions.

As part of our long-term strategy, we look for opportunities to cost-effectively enhance the capability of our business services. In some cases, this requires that we outsource certain services and/or functions to external third-party providers. While we believe we conduct appropriate due diligence before entering into agreements with these third parties, the failure of any of these third parties to provide the expected services on a timely basis, at the level of quality expected, or at the prices/savings expected could disrupt or harm our business. Any significant interruption in the operations of these service providers, over which we have no control, could also have an adverse effect on our business. Furthermore, we may be unable to provide these services or implement substitute arrangements on a timely or cost-effective basis on terms favorable to us.

Any further impairment to the carrying value of our goodwill or other intangible assets could result in significant non-cash charges and could have a material adverse effect on our operational results.

Under generally accepted accounting principles, identifiable intangible assets with an indefinite useful life, including goodwill, are not amortized, but are evaluated annually for impairment. A more frequent evaluation is performed if events or circumstances indicate that impairment could have occurred. As of August 1, 2020, we had approximately $298.8 million of goodwill and other intangible assets substantially related to the acquisitions of ANN in August 2015. Current and future economic conditions, as well as the other risks noted in this Item 1A, may adversely impact our brands' ability to attract new customers, retain existing customers, maintain sales volumes and maintain margins. As discussed in our Critical Accounting Policies included elsewhere in this report, these events could materially reduce our brands' profitability and cash flows which could, in turn, lead to a further impairment of our goodwill and other intangible assets. Furthermore, significant negative industry or general economic trends, disruptions to our business and unexpected significant changes or planned changes in our use of the assets may result in additional impairments to our goodwill, intangible assets and other long-lived assets. As described in Note 7 to the accompanying consolidated financial statements included herein, in Fiscal 2020, we recorded impairment charges of $148.9 million and $128.7 million, respectively, related to goodwill and other intangible assets. Additionally, in Fiscal 2020, we recognized impairment charges of $399.0 million related to our store fixed assets, our right-of-use assets and other long-lived tangible assets. Incremental charges may result from additional store closures based on the Debtors' review or rejection of other leases and contracts, or due to changes in other factors or circumstances, including deterioration in the macroeconomic environment or in the retail industry, deterioration in our performance or our future projections as a result of the Chapter 11 Cases or otherwise, if actual results are not consistent with our estimates and assumptions used in the impairment analyses, or changes in our plans for one or more indefinite-lived intangible assets. The impairment analyses are particularly sensitive to changes in the projected revenue growth rate and the assumed weighted-average cost of capital or other discount rates. Changes to these key assumptions could result in revisions of management's estimates of the fair value of the indefinite-lived intangible assets, long-lived assets or right-of-use lease assets and could result in impairment charges in the future, which could be material to our results of operations and financial position.

We may be unable to protect our trademarks and other intellectual property rights.

We believe that our core trademarks and service marks, as described in Item 1. Business, are essential to our success and our competitive position due to their name recognition with our customers. We devote substantial resources to the establishment and protection of our trademarks and service marks on a worldwide basis, including in the countries in which we have business operations or plan to have business operations. Because we have not registered all of our trademarks in all categories, or in all foreign countries in which we currently, or may in the future, source or offer our merchandise, our international expansion and our merchandising of products using these marks could be negatively impacted. We are not aware of any material claims of infringement or material challenges to our right to use any of our trademarks in the United States. Nevertheless, the actions we have taken, including to establish and protect our trademarks and service marks, may not be adequate to prevent others from imitating our products or to prevent others from seeking to block sales of our products, which could be detrimental to the image of our brands. Also, others may assert proprietary rights in our intellectual property, and we may not be able to successfully resolve these types of conflicts to our satisfaction. In addition, the laws of certain foreign countries may not protect our proprietary rights to the same extent as do the laws of the United States. Any litigation regarding our trademarks could be time-consuming and costly. The loss of exclusive use of our trademarks in the United States could have a material adverse effect on our business, operational results, financial position and cash flows.

We may suffer negative publicity and our business may be harmed if we need to recall any product we sell or if we fail to comply with applicable product safety laws.

The products our brands sell are regulated by many different governmental bodies, including but not limited to the Consumer Product Safety Commission and the Food and Drug Administration in the U.S., Health Canada in Canada, and similar state, provincial and foreign regulatory authorities. Although our practice is to test (or have our suppliers test) the products sold in our
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brands’ stores and on our brands’ websites for compliance with applicable mandatory and industry standards, selected products still could present safety problems of which our brands are not aware. This could lead one or more of our brands to recall selected products, either voluntarily or at the direction of a governmental authority and may lead to a lack of consumer acceptance or loss of consumer trust. Product safety concerns, non-compliance with standards, recalls, defects or errors could result in the rejection of our products by customers, significant damage to our reputation, lost sales, product liability litigation and increased costs, any or all of which could harm our business and have a material adverse effect on our financial position, operational results and cash flows.

The cost of compliance with current and future requirements of federal, state or foreign regulatory authorities could have a material adverse effect on our financial position, operational results and cash flows. Examples of these requirements include regulatory testing, certification, packaging, labeling, advertising and reporting requirements affecting broad categories of consumer products. In addition, any failure of one or more of our brands to comply with such requirements could result in significant penalties, require one or more of our brands to recall products and harm our reputation, any or all of which could have a material adverse effect on our business, operational results, financial position and cash flows.

We depend on strip shopping center and mall traffic and our ability to identify suitable store locations.

Our ability to effectively obtain store locations depends on the availability of real estate that meets our criteria for consumer traffic, square footage, co-tenancies, lease economics, demographics, and other factors. Many of our stores are located in strip shopping centers, shopping malls and other retail centers that, historically, have benefited from their proximity to “anchor” retail tenants, generally large department stores, other destination retailers, and other attractions, which generate consumer traffic in the vicinity of our stores. Strip shopping center and mall traffic may be adversely affected by, among other things, economic downturns, the closing of, or continued decline of, anchor stores that drive consumer traffic or changes in customer shopping preferences. There has been a decline in the popularity of strip shopping center or mall shopping among our target customers, even before the start of the COVID-19 pandemic, and a continuation of such decline could have a material adverse effect on customer traffic and our operational results. In order to leverage customer traffic and the shopping preferences of our customers, we need to maintain or acquire stores in desirable consumer locations, however competition for such suitable store locations is intense.

In addition, continued consolidation in the commercial retail real estate market could affect our ability to seek to downsize, consolidate, reposition, relocate, or close some of our stores. Several large landlords dominate ownership of prime retail real estate and should significant consolidation continue, a large portion of our store base could be concentrated with one or a few landlords that could then be in a position to dictate unfavorable terms to us due to their significant negotiating leverage. If we are unable to negotiate favorable lease terms with these landlords, this could affect our ability to profitably operate our stores, which in turn could have a material adverse effect on our business, operational results, financial condition and cash flows.

Legal and Regulatory Risks

Fluctuations in our tax obligations and effective tax rate may result in volatility in our results of operations.

We are subject to income taxes in many U.S. and foreign jurisdictions. In addition, our products are subject to import and excise duties and/or sales, consumption or value-added taxes (“VAT”) in many jurisdictions. We record tax expense based on our estimates of future payments, which include reserves for estimates of probable settlements of foreign and domestic tax audits. At any one time, many tax years are subject to audit by various taxing jurisdictions. The results of these audits and negotiations with taxing authorities may affect the ultimate settlement of these issues. As a result, we expect that throughout the year there could be ongoing variability in our quarterly tax rates as taxable events occur and exposures are evaluated. In addition, our effective tax rate in any given financial reporting period may be materially impacted by changes in the mix and level of earnings or losses by taxing jurisdictions or by changes to existing accounting rules or regulations. Fluctuations in duties could also have a material impact on our financial condition, results of operations or cash flows. In some international markets, we are required to hold and submit VAT to the appropriate local tax authorities. Failure to correctly calculate or submit the appropriate amounts could subject us to substantial fines and penalties that could have an adverse effect on our financial condition, results of operations or cash flows. In addition, tax law may be enacted in the future, domestically or abroad, that impacts our current or future tax structure and effective tax rate. On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law. The Act made broad and significantly complex changes to the U.S. corporate income tax system. Given the complexities associated with the Act, the estimated financial impact for Fiscal 2018 was provisional and subject to further analysis, interpretation and clarification. In addition, the U.S. Treasury Department, the Internal Revenue Service and other standard-setting bodies could interpret or issue guidance in the future on how provisions of the Act will be applied or otherwise administered that differs from our interpretations and could result in changes to our assessment. SEC Staff Accounting Bulletin No. 118 (“SAB 118”) requires that the Company finalize its estimate of the impact of the Act by December 22, 2018. In the second quarter of Fiscal 2019, we finalized our assessment of the impact of the Act taking into account the
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published guidance and recorded the additional cost in the quarter. Refer to Note 17 to the accompanying consolidated financial statements for further discussion.

In June 2018, the U.S. Supreme Court ruled that states and local jurisdictions may require remote vendors to collect and remit sales tax on goods sold to buyers in the state, even if the seller has no physical presence in the state. A number of states have already begun, or have prepared to begin, requiring sales and use tax collection by remote vendors and/or by online marketplaces. The details and effective dates of these collection requirements vary from state to state. We have analyzed each jurisdictions rules where guidance has been issued and are collecting tax accordingly based on the analysis. In the event jurisdictions issue further guidance and we determine we are required to collect taxes where we presently do not do so, or collect more taxes in a jurisdiction in which we currently do collect taxes, it is possible we would incur additional sales tax, penalties and interest. We believe the impact to the Company’s business, operational results, financial position and cash flows would be minimal.

Our business may be affected by other regulatory, administrative and litigation developments.

Laws and regulations at the local, state, federal and international levels frequently change, and the ultimate cost of compliance cannot be reasonably estimated. In addition, we cannot predict the impact that may result from regulatory or administrative changes. Changes in regulations, the imposition of additional regulations, or the enactment of any new or more stringent legislation that impacts employment and labor, trade, advertising and marketing practices, product safety, transportation and logistics, healthcare, tax, accounting, privacy, operations or environmental issues, among others, could have an adverse impact on our business, operational results, financial position and cash flows.

While it is our policy and practice to comply with all legal and regulatory requirements and our procedures and internal controls are designed to promote such compliance, we cannot assure that all of our operations will at all times comply with all such legal and regulatory requirements. A finding that we or our vendors or agents are out of compliance with applicable laws and regulations could subject us to civil remedies or criminal sanctions, which could have a material adverse effect on our business, operational results, financial position and cash flows. In addition, even the claim of a violation of applicable laws or regulations could negatively affect our reputation.

We are also involved from time to time in litigation, claims and assessments arising primarily in the ordinary course of business. Litigation matters may include, among other things, employment, commercial, intellectual property, advertising or stockholder claims, and any adverse decision in any such litigation or disputes could adversely impact our business, operational results, financial position and cash flows. Resolution of these matters can be prolonged and costly, and the ultimate resolutions are uncertain due to the inherent uncertainty in such proceedings. Moreover, our potential liabilities are subject to change over time due to new developments, changes in settlement strategy or the impact of evidentiary requirements. While we maintain insurance for certain risks, it is not possible to obtain insurance to protect against all our operational risks and liabilities. Accordingly, in certain instances, we may become subject to or be required to pay damage awards or settlements that could have a material adverse effect on our results of operations, financial position, and cash flows. Certain of these proceedings could also have a negative impact on the Company's reputation or relations with its employees, customers or other third parties.

Regulation in the areas of privacy, data protection and information security could increase our costs and affect or limit our business opportunities and how we collect and/or use data.

Our business involves the storage and/or transmission of customers’ personal information, shipping preferences and credit card information, as well as confidential information regarding our business, employees and third parties. In addition, as part of our acceptance of customers’ debit and credit cards as forms of payment, we are required to comply with the Payment Card Industry Data Security Standards (“PCI”).

Because we have access to, collect or maintain this information, the protection of this data is critical to our business. The regulatory environment pertaining to information security and privacy continues to evolve, and new laws afford additional rights to control how personal data is used. Once such law is the European Union’s General Data Protection Regulation (“GDPR”). Our failure to comply with the obligations of GDPR could in the future result in significant penalties which could have a material adverse impact on our business, operational results, financial position and cash flows. In addition, the State of California adopted the California Consumer Protection Act of 2018 (“CCPA”), which became effective in 2020 and regulates the collection and use of consumers’ data. Complying with GDPR, CCPA and similar U.S. federal and state laws, and other countries in which we operate could also cause us to incur substantial costs and could have a material adverse impact on our business, operational results, financial position and cash flows.

Increases in labor costs related to changes in employment laws or regulations could impact our business, operational results, financial position and cash flows.

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Various foreign and domestic labor laws govern our relationship with our employees and affect our operating costs. These include minimum wage requirements, overtime and sick pay, paid time off, work scheduling, healthcare reform and the Patient Protection and Affordable Care Act (“ACA”), unemployment tax rates, workers’ compensation rates, and union organizations. A number of factors could adversely affect our operating costs, including additional government-imposed increases in minimum wages, overtime and sick pay, paid leaves of absence and mandated health benefits, and changing regulations from the National Labor Relations Board or other agencies. Additionally, recent political changes could lead to the repeal of, or changes to, some or all of the ACA. Complying with any new legislation and/or reversing changes implemented under the ACA could be time-intensive and expensive and could have a material adverse impact on our business, operational results, financial position and cash flows.
Item 1B. Unresolved Staff Comments.
 
None.

Item 2. Properties.
 
Retail Store Space

We lease space for all our retail store locations. Terms of our new store leases vary and may have an initial term of up to ten years, although certain leases are cancelable if specified sales levels are not achieved or co-tenancy requirements are not being satisfied, providing us greater flexibility to close under-performing stores. Over half of our leases have terms that either expire, or have upcoming lease action dates available to us within the next two years, which provides us the opportunity to aggressively negotiate new lease terms while continuing to shorten our overall portfolio average lease life.

As disclosed above, we had 2,533 open stores as of August 1, 2020. Of that amount, 16 store leases had expired as of August 1, 2020 but remained open. The table below covers all open store locations with unexpired leases as of August 1, 2020 and shows the number of leases expiring during the period indicated and the number of expiring leases with and without renewal options:
Fiscal YearsLeases ExpiringNumber with
Renewal Options
Number without
Renewal Options
2021785123662
2022578160418
2023420159261
2024302108194
202519678118
2026 and thereafter23597138
Total2,5167251,791
 
Our store leases generally provide for a base rent per square foot per annum. Certain leases have formulas requiring the payment of additional rent as a percentage of sales, generally when sales reach specified levels. Our aggregate minimum lease payments under operating leases in effect at August 1, 2020 and excluding locations acquired after August 1, 2020, are approximately $351.8 million for Fiscal 2021. In addition, we are typically responsible under our store leases for our pro rata share of maintenance expenses and common area charges in strip shopping centers, lifestyle centers, outlet centers and enclosed malls.
 
Our investment in new stores consists primarily of inventory, leasehold improvements, fixtures and equipment, and information technology. We generally receive tenant improvement allowances from landlords to offset a portion of these initial investments in leasehold improvements.

Corporate Office Space
 
The Company owns the following facilities:

a 280,000 square foot campus which serves as the corporate office for the Justice brand, located in New Albany, Ohio;
a 200,000 square foot building in Duluth, Minnesota, the majority of which is subject to a lease to maurices which, as discussed earlier, was sold in May 2019. The building also serves as the corporate office for a portion of the Company's brand services operations; and
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a 168,000 square foot building which serves as the corporate office for the majority of the Company's brand services operations, located in Etna Township, Ohio, adjacent to our distribution center.

The Company acquired leased corporate office facilities of approximately 308,000 square feet in New York City, NY through the ANN Acquisition. The Company also primarily leases approximately 135,000 square feet in Columbus, Ohio that serves as Lane Bryant’s and Catherines corporate headquarters, although it is currently in the process of vacating that space in connection with the Chapter 11 Cases. The Company leases corporate office facilities of approximately 50,000 square feet in Mahwah, NJ, which were previously owned by the Company.

Internationally, the Company owns office space in China, and leases office space in Bangladesh. We are currently in the process of vacating the Bangladesh space in connection with the Chapter 11 Cases.

Distribution and Fulfillment Facilities

The Company owns a 903,000 square foot fulfillment center in Greencastle, Indiana, which serves as the Company's primary direct channel fulfillment center, and a 695,000 square foot distribution center in Etna Township, Ohio, which serves as the Company's primary brick-and-mortar store distribution center. The Etna facility also is used to fulfill direct channel orders.

In Fiscal 2016, the Company entered into a ten-year lease for a 583,000 square foot distribution center in Riverside, California to serve as the receiving and west coast distribution hub for the Company's merchandise sourced from Asia. The Riverside facility began operations in March 2017 and operates as a multichannel distribution facility.

Item 3. Legal Proceedings.
 
Information regarding legal proceedings is incorporated by reference from Note 18 to the accompanying consolidated financial statements.

PART II
 
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
 
We expect that our equity holders could experience a complete loss on their investment, depending on the outcome of the Chapter 11 Cases. The terms of the restructuring support agreement contemplates that the Company’s common stock will be canceled. We caution that trading in our securities, including our common stock, during the pendency of the Chapter 11 Cases is highly speculative and poses substantial risks. Trading prices for our common stock may bear little or no relationship to the actual recovery, if any, by holders of our securities in the Chapter 11 Cases.

Market Prices of Common Stock
 
Prior to the commencement of the Chapter 11 Cases, the Company's common stock traded on the Nasdaq Global Select Market ("Nasdaq") under the ticker symbol "ASNA". On July 24, 2020, the Company received a letter from the Listing Qualifications Department staff of Nasdaq notifying the Company that, as a result of the Chapter 11 Cases and in accordance with Nasdaq Listing Rules 5101, 5110(b) and IM5101-1, the staff of Nasdaq has determined that trading of the Company’s common stock would be suspended from the Nasdaq at the opening of business on August 4, 2020. The Company did not appeal the Nasdaq's determination and as a result, the Company's common stock began trading on the OTC Pink Marketplace on August 4, 2020.

Number of Holders of Record
 
As of December 8, 2020, we had approximately 1,047 holders of record of our common stock.

Dividend Policy
 
We have never declared or paid cash dividends on our common stock. However, payment of dividends is within the discretion of, and are payable only when declared by our Board of Directors. Additionally, payments of dividends are limited by our borrowing arrangements as described in Note 12 to the accompanying consolidated financial statements.

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Securities Authorized for Issuance under Equity Compensation Plans
 
The information set forth in Item 12 of Part III of this Annual Report on Form 10-K is incorporated by reference herein.
 
Issuer Purchases of Equity Securities
 
The following table provides information about the Company’s repurchases of common stock during the quarter ended August 1, 2020.
Period Total
Number of
Shares
Purchased
 Average Price
Paid per
Share
 
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs(a)
 
Approximate Dollar
Value of Shares that
May Yet Be
Purchased Under the
Plans or Programs (a)
 
         
Month # 1 (May 3, 2020 – May 30, 2020)   $—   $181 million 
Month # 2 (May 31, 2020 – July 4, 2020)   $—   $181 million 
Month # 3 (July 5, 2020 – August 1, 2020)   $—   $181 million 
(a) On December 15, 2015, the Company’s Board of Directors announced a $200 million share repurchase program (the “2016 Stock Repurchase Program”). Under the 2016 Stock Repurchase Program, purchases of shares of common stock may be made at the Company’s discretion from time to time, subject to overall business and market conditions. Currently, share repurchases in excess of $100 million are subject to certain restrictions under the terms of the Company's borrowing agreements, as more fully described in Note 12 to the accompanying consolidated financial statements. Purchases, if any, will be made at prevailing market prices, through open market purchases or in privately negotiated transactions and will be subject to applicable SEC rules. No shares were repurchased under the 2016 Stock Repurchase Program in Fiscal 2019 or Fiscal 2020.


Item 6. Selected Financial Data.

Not applicable.
  

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”).
 
The following discussion should be read in conjunction with our audited consolidated financial statements and related notes thereto, which are included elsewhere in this Annual Report on Form 10-K for Fiscal 2020 (“Fiscal 2020 10-K”). Fiscal year 2020 ended on August 1, 2020 and reflected a 52-week period ("Fiscal 2020"). Fiscal year 2019 ended on August 3, 2019 and reflected a 52-week period ("Fiscal 2019"). All references to “Fiscal 2021” reflect a 52-week period that will end on July 31, 2021.
 
INTRODUCTION
 
MD&A is provided as a supplement to the accompanying consolidated financial statements and footnotes to help provide an understanding of our operational results, financial condition, liquidity and changes in financial condition. MD&A is organized as follows:
 
Overview. This section includes recent developments, our objectives and risks, and a summary of our financial performance for Fiscal 2020.

Results of operations. This section provides an analysis of our operational results for Fiscal 2020 and Fiscal 2019.

Financial condition and liquidity. This section provides an analysis of our cash flows for Fiscal 2020 and Fiscal 2019, as well as a discussion of our financial condition and liquidity as of August 1, 2020. The discussion of our financial condition and liquidity includes (i) our available financial capacity and (ii) a summary of our capital spending.

Critical accounting policies. This section discusses accounting policies considered to be important to our operational results and financial condition, which require significant judgment and estimation on the part of management in their application. In addition, all of our significant accounting policies, including our critical accounting policies, are summarized in Note 4 to our accompanying consolidated financial statements.

Recently issued accounting pronouncements. This section discusses the potential impact to our reported operational results and financial condition of accounting standards that have been recently issued.
OVERVIEW

Our Business

Ascena Retail Group, Inc., a Delaware corporation, is a national specialty retailer of apparel for women and tween girls with annual revenue of approximately $3.7 billion for Fiscal 2020. We and our subsidiaries are collectively referred to herein as the “Company,” “ascena,” “we,” “us,” “our” and “ourselves,” unless the context indicates otherwise.
 
Recent Developments

Voluntary Reorganization Under Chapter 11

On July 23, 2020 (the “Petition Date”), the Company and certain of its subsidiaries (collectively, the “Debtors”) commenced voluntary cases (the “Chapter 11 Cases”) under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Eastern District of Virginia (“the Bankruptcy Court”). The Company’s Chapter 11 Cases are being jointly administered under the caption In re: Ascena Retail Group, Inc., et al., Case No. 20-33113. The Debtors will continue to operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. Bankruptcy Court filings and other information related to the Chapter 11 Cases are available free of charge online at http://cases.primeclerk.com/ascena/.

26



ASCENA RETAIL GROUP, INC.
(DEBTOR-IN-POSSESSION)
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)

The Debtors have filed the Chapter 11 Cases to implement the terms of a Restructuring Support Agreement, dated July 23, 2020 (together with all exhibits and schedules thereto, the “RSA”), by and among the Company and certain of its subsidiaries (each, a “Company Party” and collectively, the “Company Parties”) and members of an ad hoc group of lenders (the “Consenting Stakeholders”) under the Term Credit Agreement, dated as of August 21, 2015 (as amended, restated, supplemented or otherwise modified from time to time, the “Prepetition Term Credit Agreement”), among the Company, AnnTaylor Retail, Inc., the lenders party thereto and Goldman Sachs Bank USA, as administrative agent. The RSA is supported by Consenting Stakeholders holding approximately 68% of the borrowings under the Prepetition Term Credit Agreement as of the Petition Date.

As part of the Chapter 11 Cases, the Company has divested the Catherines’ E-Commerce business and Justice’s intellectual property and other assets. The Company has also entered into an agreement to sell assets relating to the Company’s Ann Taylor, LOFT and Lane Bryant brands. See Note 24 to the accompanying consolidated financial statements.

For the duration of the Chapter 11 Cases, the Company’s operations and ability to develop and execute its business plan are subject to the risks and uncertainties associated with the Chapter 11 process as described in Part I, Item 1A — “Risk Factors” of this Annual Report on Form 10-K. As a result of these risks and uncertainties, the amount and composition of the Company’s assets and liabilities could be significantly different following the outcome of the Chapter 11 Cases, and the description of the Company’s operations, properties and liquidity and capital resources included in this Annual Report on Form 10-K may not accurately reflect its operations, properties and liquidity and capital resources following emergence from the Chapter 11 Cases.

For more information regarding the Chapter 11 Cases, see Note 2 to the accompanying consolidated financial statements, and for information regarding our ability to continue as a going concern, see Note 1 to the accompanying consolidated financial statements.

COVID-19 Pandemic

As described elsewhere herein, the coronavirus disease ("COVID-19") has had far-reaching adverse impacts on many aspects of our operation, directly and indirectly, including our employees, consumer behavior, distribution and logistics, our suppliers, and the market overall. The scope and nature of these impacts have been rapidly changing and is expected to continue to be so in the near term. In light of the continued uncertain situation relating to COVID-19, we took a number of precautionary measures in the second half of Fiscal 2020 to manage our resources conservatively by reducing and/or deferring capital expenditures, inventory purchases and operating expenses to mitigate the adverse impact of COVID-19, which is intended to help minimize the risk to our Company, employees, customers, and the communities in which we operate. Such measures include the following:
The temporary closure of our retail stores;
The temporary furlough of a substantial portion of our workforce;
Reductions in pay of ranging amounts for a substantial majority of those employees not placed on temporary furlough;
Working with our landlords to minimize costs associated with closed retail stores;
Drawing down $230 million under the Company’s revolving credit facility as a precautionary measure in order to increase its cash position and preserve financial flexibility; and
Extended vendor payment terms on merchandise and non-merchandise purchases.

In addition to the effects described above, our supply chain has been affected by COVID-19. Certain of the Company’s vendors in Asia were temporarily closed for a portion of the third quarter of Fiscal 2020 as a result of COVID-19, however the vendors had resumed production by the end of the quarter. It is possible that if COVID-19 re-emerges in the countries where we obtain our goods, it could cause our vendors to cease production again. At the current time, we believe that we have sufficient inventory and supplies to support our demand in the near future.
Besides the lower store sales impact, COVID-19 also significantly impacted our margin rates and our long-term growth assumptions, which resulted in long-term asset impairments in the second half of Fiscal 2020, as described more fully in Notes 7 and 10 to the accompanying consolidated financial statements.
27



ASCENA RETAIL GROUP, INC.
(DEBTOR-IN-POSSESSION)
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)


In May 2020, the Company started to reopen its retail stores. As stores began to reopen, the Company also began to bring certain employees back from temporary furlough. Employees necessary to support the phased re-opening of the business were brought back first. In addition, in June 2020, the Company restored all employees who were not on temporary furlough back to their original pay rates.

Although each of the remedial measures discussed above were taken by the Company to protect the business and preserve liquidity, each may also have the potential to have a material adverse impact on our current business, financial condition and results of operations, and may create additional risks for our Company. While we started to reverse at least some of the temporary measures, we cannot predict the specific duration for which other precautionary measures will stay in effect, and we may elect or need to take additional measures, or reinstate previous measures, as the information available to us continues to develop, including with respect to our employees, distribution centers, relationships with our third-party vendors, and our customers.

As the Company reopened its retail stores, it did so in accordance with local government guidelines. As of the time of this filing, substantially all of our retail stores have re-opened to the public with restricted operations. However, the Company continues to closely monitor changes in government guidelines and of the outbreak itself. In certain cases, we have had to close stores that had re-opened. As a result, we continue to believe that COVID-19 will have a significant negative impact on our results of operations, financial position and cash flows through the first half of Fiscal 2021.

Seasonality of Business

Our individual segments are typically affected by seasonal sales trends primarily resulting from the timing of holiday and back-to-school shopping periods. In particular, sales at our Kids Fashion segment tend to be significantly higher during the Fall season, which occurs during the first and second quarters of our fiscal year, as this includes the back-to-school period and the December holiday season. Our Plus Fashion segment tends to experience higher sales during the Spring season, which include the Easter and Mother's Day holidays. Our Premium Fashion segment has relatively balanced sales across the Fall and Spring seasons. As a result, our operational results and cash flows may fluctuate materially in any quarterly period depending on, among other things, increases or decreases in comparable store sales, adverse weather conditions, shifts in the timing of certain holidays and changes in merchandise mix. 
 
Summary of Financial Performance

Discontinued Operations
 
Dressbarn Wind Down

The Company completed the wind down of its Dressbarn brand during the second quarter of Fiscal 2020. All Dressbarn store locations were closed as of December 31, 2019. As a result, the Company's Dressbarn business has been classified as a component of discontinued operations within the audited consolidated financial statements for all periods presented, and when coupled with the sale of maurices discussed below, we no longer present results of the Value Fashion segment. The operating results of Dressbarn are excluded from the discussion below. In connection with the Dressbarn wind down, we have incurred cumulative costs of approximately $58 million, of which approximately $5 million was incurred during Fiscal 2020 and included in discontinued operations.

Sale of maurices

On May 6, 2019, the Company and Maurices Incorporated, a Delaware corporation (“maurices”) and wholly owned subsidiary of ascena, completed the transaction contemplated by the previously-announced Stock Purchase Agreement with Viking Brand Upper Holdings, L.P., a Cayman Islands exempted limited partnership (“Viking”) and an affiliate of OpCapita LLP, providing for, among other things, the sale by ascena of maurices to Viking (the “Transaction”). Effective upon the closing of the Transaction in May 2019, ascena received cash proceeds of approximately $210 million and a 49.6% ownership interest in the operations of maurices, consisting of interests in Viking preferred and common stock. As discussed in Note 3 to the accompanying consolidated financial statements, upon completion of the sale of maurices, the Company has classified
28



ASCENA RETAIL GROUP, INC.
(DEBTOR-IN-POSSESSION)
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)

maurices as a component of discontinued operations within the audited consolidated financial statements for Fiscal 2019 and is also excluded from the discussion below.

Goodwill and Other Indefinite-lived Intangible Asset Impairment Charges

While overall performance during the second quarter of Fiscal 2020 was in line with management's expectations, lower than expected sales at our Justice brand, and lower than expected margins at our Ann Taylor brand, resulted in a conclusion that these factors represented impairment indicators which required the Company to test our goodwill and indefinite-lived intangible assets for impairment during the second quarter of Fiscal 2020. As a result of the assessment, we recognized goodwill impairment charges of $54.9 million and $8.5 million at the Ann Taylor and Justice reporting units, respectively, to write-down the carrying values of the reporting units to their fair values. In addition, we recorded non-cash impairment charges to write-down the carrying values of our other intangible assets of $46.9 million which substantially consisted of write-downs of our trade name intangible assets to their fair values at Ann Taylor and Justice by $10.0 million and $35.0 million, respectively.

Further, the impact of the retail store closures in response to COVID-19, along with the continued declines in the stock price and the fair value of our Term Loan debt, resulted in a conclusion that another triggering event occurred in the third quarter of Fiscal 2020, thereby requiring us to test our goodwill and intangible assets for impairment (the “April Interim Test”). The April Interim Test reflected revised long-range assumptions that were reflected in contemplation of the Chapter 11 Cases discussed above. Those assumptions included the wind down of the Catherines brand, and a significant reduction in the number of Justice retail stores, an overall reductions in the number of retail stores at the Company's other brands, and a significant reduction in the Company's workforce commensurate with the store reductions. As a result of the revised assumptions, we recognized goodwill impairment charges of $15.0 million and $70.5 million at the Ann Taylor and LOFT reporting units to write-down the carrying value of the reporting units to their fair value. In addition, we recorded non-cash impairment charges totaling $41.3 million to write-down the carrying values of our trade name intangible assets to their fair values as follows: $17.7 million at Ann Taylor, $7.8 million at LOFT, $7.8 million at Justice, $3.0 million at Catherines and $5.0 million of our Justice international franchise rights. These impairment charges are more fully described in Note 7 to the accompanying consolidated financial statements.

Finally, the commencement of the Chapter 11 Cases, discussed above, led the Company to conclude this represented further impairment indicators. As a result, the Company was required to test its goodwill and indefinite-lived intangible assets for impairment during the fourth quarter of Fiscal 2020 (the “Year-End Test"). The cash flow projections underlying the Year-End Test reflected revised assumptions for Fiscal 2021 and Fiscal 2022 based on the current consumer demand, the continuation of the negative impacts of COVID-19 and the potential release of a vaccine during Fiscal 2021 with the expectation that the Company will be back in line with the original long-range projections for Fiscal 2023 and beyond. As of the third quarter of Fiscal 2020, only our LOFT brand had goodwill remaining and was tested for goodwill impairment in the fourth quarter. The Year-End Test indicated the fair value of the LOFT brand exceeded its carrying value and as a result no goodwill impairment charge was required in the fourth quarter. However, the Year-End Test resulted in the Company recognizing impairment charges to write-down the carrying values of its other intangible assets to their fair values as follows: $34.2 million on the LOFT trade name and $1.3 million on the Ann Taylor trade name. In addition, the Company impaired the remaining Justice international franchise rights of $5 million as the Company will no longer be supporting this business strategy.

Tangible Asset Impairment Charges

As a result of the revised projections utilized in the Company’s goodwill and intangible asset impairment testing described above, which reflect significant reductions in near-term cash flows of certain of our retail stores, as well as the planned store reductions discussed above, we recognized impairment charges of $196.8 million to write-down store-related fixed assets and right-of-use assets to their fair values. Impairment charges by segment reflected $115.3 million at the Premium Fashion segment, $25.2 million at the Plus Fashion segment, and $56.3 million at the Kids Fashion segment. In addition, a long-lived Corporate asset impairment charge of $12.9 million was recorded during the second half of Fiscal 2020 which reflects an $8.4 million write-down of the book value of the Company’s campus in Mahwah, NJ to fair market value recorded in the third quarter of Fiscal 2020 in connection with its planned sale and a long-lived asset impairment charge of $4.5 million was recorded in the fourth quarter of Fiscal 2020 relating to the Company's Duluth, MN building to reflect a write-down of the book value to fair market value. These impairment charges are more fully described in Note 10 to the accompanying consolidated financial statements.
29



ASCENA RETAIL GROUP, INC.
(DEBTOR-IN-POSSESSION)
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)


Summary and Key Developments

Operating highlights for Fiscal 2020 are as follows: 

Sales decreased by 21.5%, reflecting decreases at all of our operating segments due primarily to the temporary retail store closures;
Gross margin rate decreased by 530 basis points to 50.6% primarily due to markdown and promotional selling necessary to clear excess inventory that was unable to be sold after the temporary retail store closures;
Operating loss of $1,113.6 million compared to $638.3 million for the year-ago period, resulting primarily from the lower Net sales and Gross margin decline, higher store-related asset-impairment charges, and higher restructuring and other related charges, which were offset in part by expense reductions, primarily reflecting the furlough of a significant portion of our workforce in response to COVID-19, the impact of our previously-announced cost reduction initiatives, and lower impairment of goodwill and other intangible assets; and
Net loss from continuing operations per diluted share of $120.68 in Fiscal 2020, compared to $73.87 in Fiscal 2019.

Liquidity for Fiscal 2020 primarily reflected:
 
Cash flows provided by operations was $131.6 million, compared to $21.1 million in the year-ago period;
Cash flows used in investing activities for Fiscal 2020 was $39.5 million, consisting primarily of capital expenditures of $65.1 million, offset in part by $20.6 million received from the sale of our corporate building in Mahwah, New Jersey, compared to net cash provided by investing activities of $67.7 million in the year-ago period; and
Cash flows provided by financing activities for Fiscal 2020 was $160.3 million, consisting primarily of the $230.0 million borrowed under the revolving credit facility during the third quarter, offset in part by the repurchased $79.5 million of outstanding term loan debt for $49.4 million and the term loan prepayment of $20.4 million compared to net cash provided by financing activities of $0.3 million in the year-ago period.
30



ASCENA RETAIL GROUP, INC.
(DEBTOR-IN-POSSESSION)
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)

RESULTS OF OPERATIONS
 
Fiscal 2020 Compared to Fiscal 2019
 
The following table summarizes our operational results and expresses the percentage relationship to net sales of certain financial statement captions:
 Fiscal Years Ended  
 August 1,
2020
August 3,
2019
$ Change% Change
 (millions, except per share data) 
Net sales$3,718.1 $4,734.7 $(1,016.6)(21.5)%
Cost of goods sold(1,836.2)(2,088.0)251.8 12.1 %
         Cost of goods sold as % of net sales49.4 %44.1 %  
Gross margin1,881.9 2,646.7 (764.8)(28.9)%
        Gross margin as % of net sales50.6 %55.9 %  
Other operating expenses:    
    Buying, distribution and occupancy expenses(825.8)(953.8)128.0 13.4 %
        Buying, distribution and occupancy expenses as % of net sales22.2 %20.1 %  
    Selling, general and administrative expenses(1,421.1)(1,545.8)124.7 8.1 %
        SG&A expenses as % of net sales38.2 %32.6 %  
    Restructuring and other related charges(238.3)(94.1)(144.2)NM
    Impairment of goodwill(148.9)(276.0)127.1 46.1 %
    Impairment of other intangible assets(128.7)(134.9)6.2 4.6 %
    Depreciation and amortization expense(232.7)(280.4)47.7 17.0 %
Total other operating expenses(2,995.5)(3,285.0)289.5 8.8 %
Operating loss(1,113.6)(638.3)(475.3)(74.5)%
        Operating loss as % of net sales(30.0)%(13.5)%  
Interest expense(99.4)(107.0)7.6 7.1 %
Interest and other (expense) income, net(7.6)3.8 (11.4)NM
Gain on extinguishment of debt28.5 — 28.5 NM
Reorganization items, net(3.4)— (3.4)NM
Loss from continuing operations before (provision) benefit for income taxes and income (loss) from equity method investment(1,195.5)(741.5)(454.0)(61.2)%
(Provision) benefit for income taxes from continuing operations(13.7)23.9 (37.6)NM
        Effective tax rate (a)
(1.1)%3.2 %  
Income (loss) from equity method investment3.1 (11.8)14.9 NM
Loss from continuing operations(1,206.1)(729.4)(476.7)(65.4)%
Discontinued operations
Income from discontinued operations, net of taxes (b)
64.3 23.5 40.8 NM
Gain on disposal of discontinued operations, net of taxes (c)
— 44.5 (44.5)(100.0)%
Net loss$(1,141.8)$(661.4)$(480.4)(72.6)%
Net loss per common share - basic:    
Continuing operations$(120.68)$(73.87)$(46.81)(63.4)%
Discontinued operations6.43 6.89 (0.46)(6.6)%
Total net loss per basic common share$(114.25)$(66.98)$(47.27)(70.6)%
Net loss per common share - diluted:
Continuing operations$(120.68)$(73.87)$(46.81)(63.4)%
Discontinued operations6.43 6.89 (0.46)(6.6)%
Total net loss per diluted common share$(114.25)$(66.98)$(47.27)(70.6)%
31



ASCENA RETAIL GROUP, INC.
(DEBTOR-IN-POSSESSION)
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)

________
(a) Effective tax rate is calculated by dividing the (Provision) benefit for income taxes from continuing operations by the Loss from continuing operations before (provision) benefit for income taxes and income (loss) from equity method investment.
(b) Income from discontinued operations is presented net of income tax expense of $0.2 million and $31.2 million for the fiscal years ended August 1, 2020 and August 3, 2019, respectively.
(c) Gain on sale of discontinued operations is presented net of income tax benefit of $4.0 million for the fiscal year ended August 3, 2019.
(NM) Not meaningful.

Net sales. Total Net sales decreased by $1,016.6 million, or 21.5%, to $3,718.1 million. Specifically, the total store and e-commerce revenue decreased by $974.1 million and other revenue decreased by $42.5 million compared to the prior year period. The decrease in Net sales was primarily driven by the temporary closure of our retail stores as a result of COVID-19 during the second half of Fiscal 2020.

Net sales data for our three operating segments is presented below.
 Fiscal Years Ended  
 August 1,
2020
August 3,
2019
$ Change% Change
 (millions) 
Net sales:    
Premium Fashion$1,852.6 $2,415.1 $(562.5)(23.3)%
Plus Fashion1,055.9 1,240.5 (184.6)(14.9)%
Kids Fashion809.6 1,079.1 (269.5)(25.0)%
Total net sales$3,718.1 $4,734.7 $(1,016.6)(21.5)%
Comparable sales (a)
  NM
________
(a) Comparable sales represent combined store comparable sales and direct channel sales. Store comparable sales generally refers to the growth of sales in stores only open in the current period and comparative calendar period in the prior year (including stores relocated within the same shopping center and stores with minor square footage additions). Stores that close during the fiscal year are excluded from store comparable sales beginning with the fiscal month the store actually closes. Direct channel sales refer to growth of sales from our direct channel in the current period and comparative calendar period in the prior year. Due to customer cross-channel behavior, we typically report a single, consolidated comparable sales metric, inclusive of store and direct channels. In light of the store closures related to COVID-19, the Company has not disclosed comparable sales as the results are not considered meaningful.

Gross margin. Gross margin, in terms of dollars, was primarily lower as a result of a decline in sales and a decline in rate, which is discussed on a segment basis below. The gross margin rate represents the difference between net sales and cost of goods sold, expressed as a percentage of net sales. Gross margin rate is dependent upon a variety of factors, including brand sales mix, product mix, channel mix, the timing and level of promotional activities and fluctuations in material costs. These factors, among others, may cause cost of goods sold as a percentage of net revenues to fluctuate from period to period.

Gross margin rate decreased by 530 basis points from 55.9% for Fiscal 2019 to 50.6% for Fiscal 2020 resulting from lower margin at all three operating segments. Gross margin rate highlights on a segment basis are as follows:

Premium Fashion gross margin rate performance declined to 51.5% for Fiscal 2020 from 56.5% for Fiscal 2019 primarily reflecting increased inventory reserves and promotional selling to clear excess inventory that was unable to be sold in the normal course due to the temporary closure of our retail stores as a result of COVID-19 during the second half of Fiscal 2020 and higher shipping costs related to increased direct channel penetration.
Plus Fashion gross margin rate performance declined to 53.9% for Fiscal 2020 from 57.3% for Fiscal 2019 primarily reflecting inventory markdown reserves and increased promotional selling to clear excess inventory that was unable to be sold in the normal course due to the temporary closure of our retail stores as a result of COVID-19 during the second half of Fiscal 2020 and higher shipping costs related to increased direct channel penetration, offset in part by the improved product acceptance experienced during the first half of Fiscal 2020.
32



ASCENA RETAIL GROUP, INC.
(DEBTOR-IN-POSSESSION)
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)

Kids Fashion gross margin rate performance declined to 44.3% for Fiscal 2020 from 53.0% for Fiscal 2019 primarily due to significant inventory markdown reserves and increased promotional selling to clear excess inventory that was unable to be sold in the normal course due to the temporary closure of our retail stores as a result of COVID-19 during the second half of Fiscal 2020. The gross margin decline also reflects increased markdowns in the first half of Fiscal 2020 resulting from lower store traffic.

Buying, distribution and occupancy ("BD&O") expenses consist of store occupancy and utility costs (excluding depreciation) and all costs associated with the buying and distribution functions.
 
BD&O expenses decreased by $128.0 million, or 13.4%, to $825.8 million in Fiscal 2020. The reduction in expenses was driven by the furlough in the second half of Fiscal 2020 of a significant portion of our workforce in response to COVID-19, lower occupancy expense and lower-employee related costs, both resulting from the continued impact of our previously announced cost reduction efforts, as well as amounts received under the transition services agreement with maurices as further discussed in Note 11 to the accompanying consolidated financial statements. BD&O expenses as a percentage of net sales increased to 22.2% in Fiscal 2020 from 20.1% in Fiscal 2019.

Selling, general and administrative (“SG&A”) expenses consist of compensation and benefit-related costs for sales and store operations personnel, administrative personnel and other employees not associated with the functions described above under BD&O expenses. SG&A expenses also include advertising and marketing costs, information technology and communication costs, supplies for our stores and administrative facilities, insurance costs, legal costs and costs related to other administrative services.
 
SG&A expenses decreased by $124.7 million, or 8.1%, to $1,421.1 million in Fiscal 2020. The decrease in SG&A expenses was primarily due to the furlough in the second half of Fiscal 2020 of a significant portion of our workforce in response to COVID-19, the continuation of our previously announced cost reduction initiatives, mainly reflecting lower store related expenses and non-merchandise procurement savings, lower marketing expenses, and amounts received under the transition services agreement with maurices, as further discussed in Note 11 to the accompanying consolidated financial statements. These savings were offset in part by higher store-related impairment charges. SG&A expenses as a percentage of net sales increased to 38.2% in Fiscal 2020 from 32.6% in Fiscal 2019.

Depreciation and amortization expense decreased by $47.7 million, or 17.0%, to $232.7 million in Fiscal 2020. The decrease was across all of our operating segments and was driven by a lower level of store-related fixed-assets, offset in part by incremental depreciation from capital investments placed into service during Fiscal 2019.

Operating loss. Operating loss was $1,113.6 million for Fiscal 2020 compared to $638.3 million in Fiscal 2019 and is discussed on a segment basis below.

Operating results for our three operating segments are presented below.
 Fiscal Years Ended 
 August 1,
2020
August 3,
2019
$ Change% Change
 (millions) 
Operating (loss) income:    
Premium Fashion$(280.9)$35.1 $(316.0)NM
Plus Fashion(90.1)(101.6)11.5 11.3 %
Kids Fashion(226.7)(66.8)(159.9)NM
Unallocated restructuring and other related charges(238.3)(94.1)(144.2)NM
Unallocated impairment of goodwill(148.9)(276.0)127.1 46.1 %
Unallocated impairment of other intangible assets(128.7)(134.9)6.2 4.6 %
Total operating loss$(1,113.6)$(638.3)$(475.3)(74.5)%
________
(NM) Not meaningful.
33



ASCENA RETAIL GROUP, INC.
(DEBTOR-IN-POSSESSION)
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)

Premium Fashion operating results decreased by $316.0 million primarily driven by a decline in Net sales and a lower gross margin rate, as discussed above, offset in part by lower operating expenses. Operating expense reductions were primarily driven by the furlough in the second half of Fiscal 2020 of a significant portion of our workforce in response to COVID-19, lower expenses as a result of our continued cost reduction efforts, and lower depreciation expense. These expense reductions were offset in part by significantly higher store-related impairment charges.
Plus Fashion operating results improved by $11.5 million primarily due to lower operating expenses, which were mostly offset by declines in Net sales and a lower gross margin rate, as discussed above. Operating expense reductions were primarily driven by the furlough in the second half of Fiscal 2020 of a significant portion of our workforce in response to COVID-19 and lower expenses as a result of our continued cost reduction efforts.
Kids Fashion operating results decreased by $159.9 million primarily due to a decline in Net sales and a lower gross margin rate, as discussed above, offset in part by lower operating expenses. Operating expense reductions were primarily driven by the furlough in the second half of Fiscal 2020 of a significant portion of our workforce in response to COVID-19 and lower expenses as a result of our continued cost reduction efforts. These expense reductions were offset in part by significantly higher store-related impairment charges.

Unallocated restructuring and other related charges of $238.3 million primarily includes charges resulting from announcements and actions taken in connection with the Chapter 11 Cases and included $29.3 million of severance and other related charges, $19.3 million of professional fees, and $189.3 million of non-cash asset impairments primarily related to right-of-use lease assets associated with the stores identified to close as a result of the Chapter 11 Cases. The $94.1 million of unallocated restructuring and other related charges in Fiscal 2019 primarily included $33.1 million for professional fees incurred in connection with the identification and implementation of transformation initiatives, $16.1 million of severance and other related charges, reflecting severance associated with the cost reduction actions taken in the fourth quarter of Fiscal 2019, and $44.9 million of non-cash asset impairments, reflecting the write-down of the Mahwah, NJ corporate headquarters as a result of the Dressbarn wind down and the write-down of a corporate-owned office building in Duluth, MN to fair market value as a result of the sale of maurices.
Unallocated impairment of goodwill reflects the Fiscal 2020 write-down of the carrying values of the Ann Taylor, LOFT and Justice reporting units to their fair values as follows: $69.9 million at Ann Taylor, $70.5 million at LOFT, and $8.5 million at Justice. The $276.0 million in Fiscal 2019 reflects the write-down of the carrying values of the Lane Bryant,