Yahoo Finance Ascena Retail Group (ASNA) Q3 2018 Earnings Conference Call Transcript
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Ascena Retail Group (NASDAQ: ASNA)
Q3 2018 Earnings Conference Call
Jun. 4, 2018 4:30 p.m. ET
Contents:
Prepared Remarks
Questions and Answers
Call Participants
Prepared Remarks:
Operator
Good day, ladies and gentlemen, and welcome to the Q3 2018 earnings conference call. [Operator instructions] I would now like introduce your host for today's call, Jennifer Davis. Ma'am you may begin.
Jennifer Davis -- Investor Relations
Thank you. Good afternoon, and welcome to Ascena's third-quarter fiscal 2018 earnings call and webcast. Before we begin, I'd like to remind you that certain statements and information made available on today's call and webcast may be deemed to constitute forward-looking statements. These forward-looking statements reflect the company's current expectations as of June 4, 2018, and are subject to a number of known and unknown risks and uncertainties that could cause actual results to differ materially.
The company undertakes no obligation to revise or update any forward-looking statements. Additionally, today's call and webcast may refer to non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures discussed today is included in our earnings release, a copy of which was filed with the U.S. Securities and Exchange Commission and a current report on Form 8-K earlier today.
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Please refer to the For Investors section of ascenaretail.com for a replay of today's conference call. Note that the company has posted a supplemental slide package to augment information provided on today's call on it's IR website and as an attachment to its 8-K released earlier today. Hosting today's call are David Jaffe, Ascena's chief executive officer; Gary Muto, president and CEO of Ascena Brands; Brian Lynch, president and chief operating officer; and Robb Giamatteo, Ascena's chief financial officer. Thank you and I will now turn the call over to David.
David Jaffe -- Chairman and Chief Executive Officer
Thank you, Jennifer. Good afternoon, everyone, and thank you for joining us. Our third-quarter results reflected a soft start to February with sequential improvement over the combined March-April period. Another strong quarter at Justice was offset by continued challenges at our value segment, particularly at dressbarn.
We realized $0.08 loss per share on an adjusted basis for the quarter, which is certainly not at a level that we consider acceptable or representative of the company's earnings potential. That said, our transformation program delivered significant expense reductions, and we were pleased to see improved comp sales performance exiting the third quarter. This momentum has continued into our fourth quarter with quarter-to-date comp sales up mid-single digits. For the quarter, total company comp sales decreased 3% and were favorably impacted by 1 to 2 points from unseasonal weather during the key Easter period.
Transactions were flat the year-ago period with direct channel growth of almost 30% offset by a mid-single-digit decline in our stores channel. Within stores, the transaction decline was caused by a 3% decrease in traffic with growth at Justice offset by a 6% decline across the balance of our portfolio. We continued to make good progress across the three pillars of our Change for Growth transformation program. From a cost-takeout standpoint, we remain on track to achieve $300 million in annualized savings, both by July 2019.
We continue our work to identify additional opportunities as we move into the later stages of our transformation. From a capability standpoint, we are implementing systems that will enhance our competitive positioning and allow us to operate with greater flexibility. More importantly, we are progressing with the critical work of reinvigorating growth from our core. The customer intimacy and product research processes implemented at Justice have resulted in significant growth, and we are working to replicate these processes across our remaining brands.
I also want to touch briefly on new business development as we have narrowed our focus to three main areas of opportunity; our Cacique Intimates business, our supply chain platform and our digital points of distribution for our brands, including potential wholesale opportunities and third-party marketplaces. We have dedicated teams working to develop strategies around these areas of focus and will provide updates as we reach meaningful milestones. Looking forward, we will continue to drive our enterprise transformation to realize a value of our brand portfolio, and we're working quickly to stabilize performance at our value segment. Our brands are focused on delivering compelling fashion offerings and a differentiated experience to our customers, and we expect to leverage our leaner cost structure and our growing competitive capabilities to support sustained, profitable comp growth.
In parallel, we continue to evaluate opportunities across our growing brand portfolio to create shareholder value. With that, I'll hand things over to Gary to discuss key developments across our brand portfolio. Gary?
Gary Muto -- President and Chief Executive Officer, Ascena Brands
Thanks, David. Looking across our brand portfolio, we are pleased with the progress we're making at Justice, Lane Bryant and LOFT. And I'll touch on each of these briefly. Justice delivered double-digit comp growth in the third quarter.
Our Club Justice loyalty program, which launched this past October, has reached over 3.3 million members and is providing new insights to the brand to optimize its promotional strategies. Customer engagement has been very strong, reflected by a significant increased penetration of loyalty transactions and higher average spend. Club Justice loyalty customers represent 72% of domestic sales in the third quarter, up from 58% in the second quarter, and average spend was up 4% to last year. We are pleased with the solid year-on-year results that Justice has delivered and expect this momentum to continue as we work to return the brand to its historical level of earnings.
Turning to Lane Bryant, we delivered positive gross margin dollar growth, despite comp-sales performance that fell below expectations. Cacique Intimates delivered another strong quarter, with comp sales growth of 5%. On the apparel side, we delivered very strong performance in genuine dresses, but did not see the comp sales inflection we had expected due to challenges in our nit knit and pack categories. The majority of the mid to last year was isolated to warm weather products, specifically bare tops and crops, and we've seen sales trends pick up in these categories as seasonal weather kicked in.
Looking forward, we are focused on driving improvement on the apparel side, which is the key to delivering accelerated comp performance and realizing the full potential of this brand. Performance at LOFT improved sequentially through the quarter with a better balance of key items at fashion resulting in a 1% comp decline following a slow start in February. We believe we are well-positioned to transition back to growth in the fourth quarter. Our newly launched plus has significantly outperformed initial expectations, and we've been aggressively chasing this opportunity.
We are rolling out the plus assortment misses, a subset of 50 stores this coming fall season, building on the meaningful opportunity developing in our direct channel. In addition, later this summer, we will launch the LOFT [Inaudible] business online to drive omni-channel engagement with this customer. We've also seen continued recovery of our Lou & Grey business, which together with the plus and Outlet Online initiative should provide us with strong foundation to drive growth at our largest brand. Now I'd like to provide some context on the performance of our value segment, which was a major drag on third-quarter earnings.
We're taking steps to set this business on the right course with the sense of urgency, and particularly at dressbarn. Dressbarn's third-quarter performance represented a deceleration from what was a very disappointing fall, and the new leadership team has moved quickly to take action against challenges they've identified with the business. First and most importantly, we are moving quickly to reembrace our core customer. The brand went too young and neglected its core customer, who is in her mid-50s.
We're using market price to rapidly reset our product assortments. Secondly, we are reintroducing key third-party brands, such as Calvin Klein and Jones, and are allocating floor space in a way that fully optimizes and showcases these brands. And finally, we're taking steps to enhance perceived value based on customers' feedback. We are reviewing our overall pricing architecture and loyalty program framework to deliver a value proposition in line with our expectations.
The team has worked aggressively to reduce inventory liability in the current season, and will maintain a disciplined approach to inventory management in 2019, enabling us to be more flexible and responsible -- responsive to trends. We believe that with a healthy inventory position and an improved merchandise assortment, we should be set up for recovery starting later this calendar year. Turning to maurices. Early spring deliveries were not seasonally appropriate and are certain with mix heavily toward stress-free categories.
Importantly, performance improved as we moved through the quarter resulting from our efforts to increase penetration of our casual assortment. Despite declines in store traffic, we see evidence that our customer may engage with the brand, with online transactions up nearly 25% in the quarter. We are testing strategies to mitigate the ongoing store traffic declines, including stored-based social media efforts to engage customers on a more local level. We are increasingly confident that we have the right fashion assortment moving forward to recapture some of the [Inaudible] we've lost over the past two years.
In summary, based on the performance coming out of the third quarter, I believe that we can build on the momentum we're seeing at Justice, Lane Bryant, and LOFT. And we're beginning to see stabilization at both dressbarn and maurices. At Ann Taylor, we continue to reposition our merchandise assortment to regain our position as the wear-to-work destination for today's modern woman. We are not yet where we need to be, but I'm confident we will get there.
And at Catherines, the brand is settling in after its relocation from Pennsylvania to Ohio, and we're beginning to benefit from the oversight of the plus segment leadership team. With that, I'll hand it off to Brian for a brief update on our transformation work.
Brian Lynch -- President and Chief Operating Officer
Thanks, Gary, and good afternoon, everyone. Here's a brief update on our Change for Growth transformation program and the cost efficiency and capabilities we are building in support of our brand teams. First on cost efficiencies. As David indicated earlier, we are tracking comfortably to our $300 million cost takeout figure, and we are working on additional opportunities to take this figure higher.
In general, we made good progress with non-merchant procurement and headcount reductions, which are in line with program goals. Regarding fleet optimization, we have closed 27 stores in the quarter and expect to have a year-end fleet size of between 4,600 and 4,650. We also are continuing to maintain flexibility with lease terms, now averaging 2.2 years with a median term of 1.8 years. As for capabilities, we have rolled out our markdown optimization and size pack optimization across the enterprise, and we expect to realize these benefits starting this quarter.
Additionally, we have rolled out localized demand planning in Ann Taylor, and we'll deploy this tool across the portfolio with planned completion by early 2019. This will complete the merchandise planning suite of tools contemplated in our large transformation. We've also made progress building our customer experience management strategy to drive personalization and to optimize the lifetime value of our customers. All tools and third-party partners have been selected, and we anticipate full deployment by spring 2019.
We're expanding our advanced analytics function, initially focused on customer experience management capabilities. Our intent is to deploy these skills across the enterprise. Some of these projects in our pipeline include omnichannel fulfillment optimization, marketing spend modeling, and price and promotion forecasting. Lastly, we continue to expand our capabilities in processes and global merchandise sourcing to drive higher margins and product acceptance.
We've expanded our overseas offices, opening two new regional offices in Southeast Asia where we can deliver more innovation and reduce costs. We have also launched a significantly shorter product selection process with two of our segments, which allows us to make merchandising decisions closer to actual need. In closing, we remain optimistic that the capabilities we are deploying and the efficiencies we are delivering will enable our brands to be more effectively complete in our -- to more effectively compete in our continuously evolving sector. And with that, here's Rob.
Robb Giammatteo -- Chief Financial Officer
Good afternoon, everyone. BeforeI discuss our operational performance, I want to highlight that my comments on this call will reference non-GAAP results, which exclude items that affect year-on-year comparability, such as restructuring expenses, noncash purchase accounting entries and discrete noncash store impairment charges at dressbarn. Consistent with past practice, we've posted a supplemental earnings package to our IR website and attached it to our 8-K to provide additional context on performance for the quarter. And I will refer to this document in my prepared remarks and may reference it as well during Q&A.
As David referenced earlier, we've realized a third-quarter loss of $0.08 per share on an adjusted basis. Comp sales were down 3%, comprised of a negative high single-digit decline at our value segment and a 1% decline across the balance of our portfolio. Negative total company comp performance is caused by a decline in average dollar sale with total transactions flat to the year-ago period. Average dollar sale was unfavorably impacted by 9% decline in average selling price at dressbarn.
Gross margin rate of 58.7% was down 190 basis points to last year and 100 basis points below our guide caused by a 620-basis-point decline at our value segment. We took a $7 million unplanned charge against nonperforming dressbarn inventory in the quarter, which represented half of our overall rate-missed guidance. The remaining miss came from maurices caused by the challenges with early spring transitional product that Gary referenced earlier, which resulted in a deeper level of discounting than planned. Inventory at maurices and dressbarn is now well-positioned both from a level and composition standpoint, and we do not expect any significant rate drag in the value segment in our fourth quarter.
I'll touch more on inventory in a moment. Operating expense is down $31 million, or 4%, for the quarter, driven by savings from our transformation program. We realized $40 million in total transformation savings and synergies in the third quarter as a result of headcount reductions, non-merchandise procurement savings, and fleet optimization. We expect to realize approximately $180 million in platform savings for full-year fiscal 2018.
Touching briefly on fleet optimization. We're tracking in line with expectations for negotiated occupancy savings and toward the year-end fleet count range of between 4,600 and 4,650 stores that we shared last September. We are one year into our fleet optimization program, and recently expanded its scope from 667 to 864 stores to reflect current business trends. As a result of this expansion, we have increased our fleet optimization savings target from $50 million to $60 million.
More detail on our transformation cost savings target and the fleet optimization program is provided on slides 10 and 11 of our supplemental earnings package. Turning to our balance sheet. We ended the second quarter with $363 million in cash and cash-equivalents, with total debt of $1.574 billion, representing the balance of our term loan. Our asset base revolver was undrawn at quarter-end.
Subsequent to quarter-end, we repatriated $223 million of cash from our overseas subsidiaries and used roughly half this amount to prepay all required term loan amortization payments until November of 2019. Our term loan does not mature until August of 2022. Between revolver availability and cash, we had $834 million in liquidity at quarter-end. Regarding our capital structure, net debt is 2.6 times trailing 12-month EBITDA.
And trailing 12-month EBITDA is 4.9 times our annual interest obligation. Despite our strong liquidity position, we remain focused on maximizing our free cash flow and improving our overall financial flexibility by continuing to reduce our outstanding debt. We continue to value and are optimistic to create a more balanced capital structure and deliver value for our shareholders. We exited the quarter with inventory of $668 million, which was down approximately 6% from the year-ago period, with quarter-end inventory down across all segments.
Overall, inventory composition is considerably fresher than last year coming out of the third quarter. Specific to dressbarn, the brand's softening top line resulted in heavier quarter-end inventory balance than we intended. However, flat sales comp performance in May and a reduction in fourth-quarter receipts has allowed our team to rebalance inventory, and we plan to exit the fourth quarter with inventory levels down mid- to high-single digits. Capital expenditures for the third quarter were $49 million, and we continue to expect full-year fiscal 2018 capex in the range of $190 million to $220 million.
We're estimating fourth-quarter fiscal 2018 non-GAAP earnings per share ranging from a $0.05 loss to a $0.05 gain based on the following assumptions; top line in the range of $1.62 billion to $1.66 billion with comp sales flat to up 2%. The flat comp outlook reflects our recent practice of guiding based on our trailing 13-week trend, while the plus 2% outlook is based on May actuals and an assumed flat comp over the remainder of the quarter; gross margin rate in the range of 56.5% to 57% with the midpoint down 70 basis points to last year's fourth quarter, reflecting stabilizing inventory actions taken in the third quarter at our value segment, offset by the continued mix shift toward our digital channel and a record prior-year rate for our premium segment, depreciation and amortization of approximately $90 million, operating income in the range of $22 million to $42 million, interest expense of approximately $29 million, minimum taxes of approximately $3 million, and a diluted share count of 196 million. In conclusion, Justice performance continues to accelerate, LOFT and Lane Bryant are moving in the right direction. And we believe we're seeing signs of stabilization at our value segment.
Our transformation work is bringing significant incremental capabilities to our brands, and our leaner cost structure should enable solid flow-through on positive comp performance. That concludes our prepared remarks. And we'll now open it up to questions.
Questions and Answers:
Operator
Thank you, sir. [Operator instructions] Our first question comes from the line of Edward Yruma of KeyBanc Capital. Your line is open.
Sarah McCann -- KeyBanc Capital Markets -- Analyst
Hi. This is Sarah on for Ed. I was just wondering if you could expand more on the planned time frame for the roll-out of the plus-size set of stores? And how big of an opportunity you see that being over time? Thank you.
Gary Muto -- President and Chief Executive Officer, Ascena Brands
It's Gary. We're going to roll to 50 stores in fall, and we'll read and react from there. But we will have a fully expanded online assortment available in e-commerce starting in August. We're very bullish about this opportunity.
Obviously, we've seen great success initially with the launch in e-commerce, and we believe we also have a store opportunity as well.
Sarah McCann -- KeyBanc Capital Markets -- Analyst
Great. Thank you.
Operator
Thank you. Our next question comes from the line of Brian Tunick of RBC. Your line is open.
Brian Tunick -- RBC Capital Markets -- Analyst
Great. Thanks. Hey, guys.
Gary Muto -- President and Chief Executive Officer, Ascena Brands
Hey, Brian.
Brian Tunick -- RBC Capital Markets -- Analyst
Seems like Justice bucked a pretty choppy kids environment out there this quarter. So curious what made you think that Justice helped shine? And what a lot of people were talking that it was a very, I guess, weather-influenced quarter, so curious about your views on Justice? And maybe where you think market share might be coming from? And then second question, maybe just update us on sort of the IMU sourcing opportunities. I think you've talked about -- before about how much is still able to come on to the Ascena platform and could help merchandise margins going forward? Thank you very much.
Gary Muto -- President and Chief Executive Officer, Ascena Brands
Brian, it's Gary. I would say the secret to Justice's success is really twofold. One, the level of customer centricity that the brand has, has really helped them to understand their customer, both the girl and the mom, that's No. 1.
And we can address maybe the importance of that. No. 2, which really helped to drive the improvement in performance is really apparel business. The apparel business has significantly comped in the -- in our third quarter, and we're continuing to see strengthening of that business, though the specialty business, which is obviously the non-apparel business, has always been strong, has been so for the last couple of years, and we don't see that flowing down.
So it's truly incremental -- getting the apparel business back is truly incremental business for Justice.
Brian Lynch -- President and Chief Operating Officer
Brian, it's Brian Lynch. On sourcing, in general, we are still seeing the benefits of our mill strategies and trying to consolidate our fabric buys. We're still doing a pretty aggressive job of consolidation -- a better factory platform. As I indicated earlier, we are opening in -- substantially in Southeast Asia, which is bringing us more innovation, and frankly, cost.
And across the board, we've been pushing for synergies with all the brands that we have. Even with the diversion to some more market buys, particularly in dressbarn, we still see there being an opportunity with unit cost and improvements in IMU.
Brian Tunick -- RBC Capital Markets -- Analyst
Great. Good luck for the summer. Thanks, guys.
Gary Muto -- President and Chief Executive Officer, Ascena Brands
Thanks, Brian.
Operator
Thank you. Our next question comes from the line of Bob Drbul of Guggenheim Securities. Your line is open.
Bob Drbul -- Guggenheim Securities -- Analyst
Hi, guys, good afternoon. Just wondering if you could talk a little bit more about the additional points of distribution at 3P marketplaces and wholesale opportunities that you mentioned, so what's going on there? And I was also curious if you could talk about the -- was it the infinity style program under way at Ann Taylor and how that's going for you? Thanks.
David Jaffe -- Chairman and Chief Executive Officer
Sure. So I'll start off on the expanded channels of distribution. We're in conversations with the usual suspects on the marketplaces. And we think that there are a couple of brands that we'd like to test with one or two of those in, say, the next three to six months.
We'll have more announcements when we're ready to let you know. On the other hand, on the wholesale side, we're beginning to just put our big toe in the water and explore that opportunity, and we're thinking about everyone from the deep value players to department stores. So we're exploring it and doing a lot more research on it. But we think there is a real opportunity there from our initial work, Gary?
Gary Muto -- President and Chief Executive Officer, Ascena Brands
Yes. And Ann Taylor launched Infinite Style, which is their subscription service. We're still in the early stages. We're pleased with some of the results that we've seen.
But we're still in the test mode. So more to come as we learn more.
Bob Drbul -- Guggenheim Securities -- Analyst
OK, great. And then just on the plus segment in general, can you talk about, it seems pretty competitive, what's happening around the various competitive environment position? Just how, when you look at the relevancy there, just sort of the game plan around that segment?
David Jaffe -- Chairman and Chief Executive Officer
So we really like the plus marketplace. Obviously, dressbarn and maurices, both have a pre-existing plus business. You just heard Gary talk about what's happening at LOFT and looking at the future possible opportunity elsewhere. We think that the market is going to continue to grow.
When you look at the per capita spend of the plus customer versus her [Inaudible] friend, it's much, much lower. So we think as that customer has more choices, she's going to spend more. I think she has been a neglected customer. So we're pretty bullish about the outlook for the size of the market, and we thnk we've got strong brands that are participating directly in that growth.
Bob Drbul -- Guggenheim Securities -- Analyst
Great. Thank you very much. Good luck.
David Jaffe -- Chairman and Chief Executive Officer
Thank you.
Operator
Thank you. Our next question comes from the line of Steve Marotta of Ascena Retail Group. Your line is open.
Steve Marotta -- C.L. King & Associates -- Analyst
Good evening, everyone. As it relates to Justice's progress, you've done the deep dive on the consumer trying to understand what the mom and the daughter wants from a merchandise standpoint, from a pricing standpoint, when and how they want it from a marketing standpoint. You also have spoken on previous calls about endeavoring to execute on similar deep dives across the portfolio. Can you tell us where you are in those? Who's best keyed up and furthest along? Who still has ways to go? Just as it relates to what you've done with Justice vis-à-vis what you are doing with others?
Gary Muto -- President and Chief Executive Officer, Ascena Brands
Yes. So premium is the next segment that's furthest along. They're in the process of finishing up a very complete diagnostic on customer, including focus groups, closet walks, mall walks. So that information's in the process of being finalized right now.
Plus is the next segment that is up, but Gary is going to go and look at all three brands; Lane Bryant, Cacique, and Catherines. We actually did some work at Cacique that has enabled us to really identify where we have opportunity. So we're excited about that. And then, dressbarn is actually in the process of looking at their core customer.
So I would say we have work in progress at all brands. Obviously, Justice is the most fluid and that is the goal that this is not just a kind of one-and-done, that this is always ongoing, and it's very fluid. Premium is next. Like I said, plus is coming up after that.
And then, value is a fast follower.
Steve Marotta -- C.L. King & Associates -- Analyst
That's helpful. Thank you. Could you remind us from a comparison standpoint versus last year on a month-to-month basis, I know you don't do comps on a monthly basis, but if you could give some sort of direction as to which months in the fourth quarter last year were the least and most challenging?
David Jaffe -- Chairman and Chief Executive Officer
Yes. Steve, I think that we had most of the challenge that would have been in the later part of the quarter and it was primarily with maurices where we had some more aged inventory last year, we turned off new flow. Other than that, I think, again, you don't have a discrete shift that I would think is worth calling out at this point.
Steve Marotta -- C.L. King & Associates -- Analyst
OK. And my last question is, there was talk on the last call regarding the share repurchases. Did you execute anything in the quarter? And is -- are there any more repatriation measures expected within the next three to six months?
David Jaffe -- Chairman and Chief Executive Officer
So as always at our upcoming board meeting, we'll be dialoguing on capital-allocation options. And at this point, we did not execute anything this past quarter. As we said, we have repatriated and used half of that repatriation for debt pre-amortization. And in terms of going forward, the repatriation opportunity will continue overseas.
We do accumulate on an ongoing basis as part of our arm's length with our sourcing organization. We've made some working capital adjustments overseas that should allow us to get out a little bit more in the next couple of months. So again, we're really trying to drive cash flow to allow us the optionality to either get out more of [ph] the debt or to look for opportunities on the share side.
Steve Marotta -- C.L. King & Associates -- Analyst
Very helpful. Thank you.
David Jaffe -- Chairman and Chief Executive Officer
You bet.
Steve Marotta -- C.L. King & Associates -- Analyst
Thank you. Our next question comes from the line of Susan Anderson of B. Riley FBR. Your line is open.
Susan Anderson -- B. Riley FBR -- Analyst
Hi. Thanks for taking my question. Just a follow-up on Justice, maybe if you could talk about kind of the drivers of the comp or they all up in terms of AUR and UPT traffic, etc.? And then, are you seeing younger growth now going to Justice earlier since you rolled out the smaller size ranges?
David Jaffe -- Chairman and Chief Executive Officer
So, Susan, I'll take the retail metric side, and then let Gary jump in on the other part of that question. So transactions for the brand were up double digit. So again, we're really excited to see that. I think the Club Justice loyalty program is driving a lot of that.
We're very excited for continued progress on that front. Average dollar sale was up moderately for the period. So it was really about transaction story. Within average dollar sale, we had average selling price up nicely and units per transaction were down a tad.
Gary Muto -- President and Chief Executive Officer, Ascena Brands
Yes. And I would say we believe there's opportunity to appeal to a younger grow without losing our core customer. We're actually seeing signs of that now that we're able to track it through our loyalty program. So we believe there's opportunity there.
Susan Anderson -- B. Riley FBR -- Analyst
Great. Thank you. And then maybe just a follow-up on the weaker comp at Ann Taylor, and maybe if you could just kind of give some more color on what drove that? And when you kind of expect that to stabilize a little bit?
Gary Muto -- President and Chief Executive Officer, Ascena Brands
Yes. Ann Taylor's comp miss was really driven by tops. We've had very strong performance in our structured business and have for the last couple of quarters. Our tops business has been somewhat challenged.
We've taken measures very quickly to ride that, and we believe that we're headed down the right path, and we should see a different outcome as we approach fiscal '19, which starts in August.
Susan Anderson -- B. Riley FBR -- Analyst
Great. And then last one maybe just a little bit bigger picture view, I guess, the big question is when you have so many brands under one umbrella of the company, how do you, I guess, get them all to work together to drive the margin improvement? Or should we always think of this as maybe there's always going to be one lagging and so there is some sort of discount to gross margin to compensate for that? Or maybe just kind of give your thoughts on how you could get them all working together at once?
David Jaffe -- Chairman and Chief Executive Officer
Well, Susan, certainly, we want all our children to get straight As, and we support them as best we can. Just specifically, on the gross margin side, a lot of things that we're doing through our sourcing efforts that Brian mentioned earlier are across all brands, it's enterprisewide. So we think the margin has opportunities through things like going to factories or mills, representing all of our brands one by one and get better prices. But at the end of the day, each brand is designing its own product and creating its own in-store experience that's going to drive the success of that brands.
Gary Muto -- President and Chief Executive Officer, Ascena Brands
Yes, Susan, and our goal is to create a holistic framework. What we start is with understanding our customer. And I think better insight into our customer should lead us to better outcomes, better merchandising strategies and better outcomes. And I would say holding Justice up as the model, really gaining insight into what the girl wanted, what she actually wears, what mom wanted, let them to kind of rethink their whole product architecture, pricing strategy.
And we're taking a very similar approach from frameworks to methodology across all the segments. I believe with better insight, we'll be able to drive better product strategies, which will drive better financial outcomes.
Susan Anderson -- B. Riley FBR -- Analyst
Great. That's helpful. And maybe just one more if I could follow up on, I think you guys mentioned that total comps quarter to date were running positive mid-single digits. Maybe if you could comment, have all the brands picked up? Or how should we think about that?
David Jaffe -- Chairman and Chief Executive Officer
Yes, Susan, every one of the brands has kicked up. And I don't want to get into specific detail by brand. It's been really an 800-basis-point swing from where we were in the third quarter to where we are right now. And again, all brands saw substantial increase.
So certainly, some help from macro factors, but again, we're pleased with the product work that's going on in a couple of key brands that Gary called out.
Susan Anderson -- B. Riley FBR -- Analyst
Great. That's helpful. Thanks so much. Good luck next quarter.
David Jaffe -- Chairman and Chief Executive Officer
Thank you.
Operator
Thank you. Our next question comes from Paul Lejuez of Citigroup. Your line is open.
Paul Lejuez -- Citi -- Analyst
Thanks, guys. Hey, you guys have been managing expenses well for some time now. I'm curious if you've run into any places where you felt like you went a little bit too far? And either have started adding back expenses or feel that you need to start there?
Brian Lynch -- President and Chief Operating Officer
Paul, it's Brian. We've been -- you asked this question many times and the management has been really clear about all of our cuts were all these never to cut into the muscle of this company. We have made sure that with all of our expense cuts, we've been truly trying to add back capabilities, the best practice, best tools, best processes back to the brand. And we know that our long-term growth is clearly going to be aligned to growing our sales.
So we have been incredibly focused on that. And as a result, I would say we're very comfortable with our expense transformation plan as it sits today.
Paul Lejuez -- Citi -- Analyst
And just to follow up. As you think about the sales gross margin equation, big picture by brand, correct me if I'm wrong, you'd probably say that you're happy with the sales gross margin accretion at Justice. But as you think about the other brands, where you focused in terms of -- do you feel like you need to sacrifice gross margin to drive sales at certain brands versus the other way around, if you could maybe just talk about that dynamic on a brand-by-brand basis? Thanks.
Gary Muto -- President and Chief Executive Officer, Ascena Brands
Yes. Paul, I would say just -- let's start it with value because that's where we've seen the most challenges. I think the key to getting that business back on track is really kind of cleaning up any excess inventory, any liable inventory. And I think we've done a pretty good job to date kind of cleaning that up.
So I would say those businesses have been the most pressured. And like I said in my remarks, we're going to run dressbarn very lean. I think that's prudent based on the performance that they have seen to date. It's much better for us to have to chase inventory than to try to liquidate inventory.
What I would say in the premium segment, we've been probably the most -- the furthest along with a lot of our cost savings that we announced years ago, I would say we continue down that path to try to maximize margin every step of the way.
Robb Giammatteo -- Chief Financial Officer
Paul, this is Robert. I think from the loyalty-program standpoint, we plan to have some major loyalty programs going into our premium and our plus segments over the next six months or so. And as we do that, we will kind of reinvest markdowns from kind of these scattershot, which we have today, to more targeted and focused, which we think will be more productive. So we're hopeful that as we've seen with Justice right now, we'll receive some really nice sales margins, so I think we're going to be able to chase some of that into rather large segments, which are coming over the next six to nine months.
Paul Lejuez -- Citi -- Analyst
Great. Thank you, guys. Good luck.
Robb Giammatteo -- Chief Financial Officer
Thanks, Paul.
Operator
Thank you. And our next question comes from the line of Dana Telsey of Telsey Advisory Group. Your line is open.
Dana Telsey -- Telsey Advisory Group -- Analyst
Good afternoon, everyone. As you think about expense planning, and frankly, freight expense, wage expense that we've been hearing about, is your reduction in occupancy expense helping to offset some of this? How do you see the buckets of expenses? And how they're being planned? And where the opportunity is go-forward? Thank you.
David Jaffe -- Chairman and Chief Executive Officer
So, Dana, as you know, there's inflationary pressures in a number of places from wage to lots and lots of variable areas, including freights and things of that nature. As part of our ongoing work, we continue to look at opportunities to take off that business to get more cost-effective. The work that we have to do on a labor standpoint, again, we've had good offsets from all the transformation reductions that Brian talked about over the past couple of years. We'll have again some nice help in fiscal '19 from that front.
But as we've talked about several times, fiscal '20 is where those kind of preplanned savings at current levels starts to run out and that's where we have to continue to double down our efforts because candidly we need to offset inflationary pressure on an ongoing basis to be able to see good margin flow through on top-line performance.
Dana Telsey -- Telsey Advisory Group -- Analyst
Thank you.
David Jaffe -- Chairman and Chief Executive Officer
You're welcome.
Operator
Thank you. Our next question comes from the line of Marni Shapiro of Retail Tracker. Your line is open.
Marni Shapiro -- Retail Tracker -- Analyst
Hey, guys. So I just wanted to talk a little bit about your direct business, which seems to be moving along pretty nicely. Could you talk a little bit about, are you seeing the returns from your online purchases? Are they coming back to the store? And then across concepts, have your sales associates been effective in converting those returns back into sales? And then, can you talk a little bit about just how things like reserve in-store and all that kind of stuff, all the omni stuff is going in general?
Gary Muto -- President and Chief Executive Officer, Ascena Brands
Marni, it's Gary. We've been very pleased with the growth of online. And I'd say in some brands, we're seeing obviously, she buys online and she returns to store. There is opportunity.
We've seen opportunity where -- especially in the premium segment, where we can't convert that return into another sale. And sometimes, she just wants to come in and just return it. So it's not a one-size-fits-all. We have a multipronged approach.
Also in premium, we have buy online, pick up in store. We've been pleased with the results that we've seen to date, and we will continue to look for ways to kind of optimize that and roll that out across our other brands.
Marni Shapiro -- Retail Tracker -- Analyst
That's it. And could you also touch a little bit us on social media engagement. Have you seen a nice uptick -- I see Ann Taylor and LOFT have a nice level. Their engagement seems like it could be a little bit higher.
Justice is very good. Maurices seemed a little low from my expectations for how old the customer is? Can you just talk a little bit about what's going on there?
Gary Muto -- President and Chief Executive Officer, Ascena Brands
Yes. I would say that we definitely have a concerted effort to constantly increase our engagement in social media. I think every brand is in a slightly different stage, and we will monitor it as we go. And it's not a one-size-fits-all.
And that is one thing that we have to make sure that, what works in one brand is not necessarily a sure guarantee that it will work in another brand.
Marni Shapiro -- Retail Tracker -- Analyst
Yes, great. Best of luck with the summer, guys.
Gary Muto -- President and Chief Executive Officer, Ascena Brands
I think the only thing, Marni -- one last thing, I think the other thing the maurices is trying is more social media at a local level. So maybe at a national level, you're not seeing it. But those small mid-markets, those stores in these -- especially in these small markets, we've seen great success with the actual store creating their own social media handle, and we've seen nice increases in traffic and in sales. So more to come on that.
Marni Shapiro -- Retail Tracker -- Analyst
So you mean like how some of the stores in New York, not ones -- some of your stores, but a couple of specialty boutiques here where you have a chain of like five stores, their local store will have its own Instagram page and that page has a bigger following. Maurices is doing that on their -- with their [Inaudible]?
Gary Muto -- President and Chief Executive Officer, Ascena Brands
Yes.
Marni Shapiro -- Retail Tracker -- Analyst
That's fantastic. I'm going to check it out. Thank you so much, guys. Have a good summer.
Gary Muto -- President and Chief Executive Officer, Ascena Brands
Thanks, Marni. You too.
Operator
Thank you. At this time, I'd like to turn the call back over to David Jaffe for any closing remarks. Sir?
David Jaffe -- Chairman and Chief Executive Officer
Thanks, everyone, for your interest in Ascena, and we look forward to speaking to you again in the fall. Everyone, have a great summer, Thanks.
Operator
[Operator signoff]
Duration: 42 minutes
Call Participants:
Jennifer Davis -- Investor Relations
David Jaffe -- Chairman and Chief Executive Officer
Gary Muto -- President and Chief Executive Officer, Ascena Brands
Brian Lynch -- President and Chief Operating Officer
Robb Giammatteo -- Chief Financial Officer
Sarah McCann -- KeyBanc Capital Markets -- Analyst
Brian Tunick -- RBC Capital Markets -- Analyst
Bob Drbul -- Guggenheim Securities -- Analyst
Steve Marotta -- C.L. King & Associates -- Analyst
Susan Anderson -- B. Riley FBR -- Analyst
Paul Lejuez -- Citi -- Analyst
Robb Giammatteo -- Chief Financial Officer
Dana Telsey -- Telsey Advisory Group -- Analyst
Marni Shapiro -- Retail Tracker -- Analyst
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