Ascena Retail Group Inc (ASNA) Plunges 14% on Lower Earnings Guidance for FY2015; Is Stock a Buy?

Ascena Retail Group Inc (NASDAQ:ASNA) announced on Friday that the company is lowering its full year guidance for the Fiscal Year 2015, that ends on July 25. The retailer expects the full year earnings per share between $0.57 and $0.60 compared its previous estimate of $0.70-$0.75. In addition, analysts’ consensus earnings estimate for the company stands at $0.70 per share. The market did not receive the news positively, which resulted in a 12% drop in stock as the markets opened and it is currently trading at around 14% in red. Let’s see what is the hedge fund sentiment about Ascena Retail Group and which investors might be affected by the dip of the stock.

Ascena Retail Group Inc (NASDAQ:ASNA)

At the end of the first quarter, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on Ascena Retail Group Inc (NASDAQ:ASNA), with a total investment of $384.4 million. However, there were 27 hedge funds with $326.60 million worth of stock a quarter earlier. Meanwhile, the stock appreciated by 16% during the January – March period.

Most investors don’t understand hedge funds and indicators that are based on hedge fund and insider activity. They ignore hedge funds because of their recent poor performance in the long-running bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns enjoyed (or not) by investors. We uncovered through extensive research that hedge funds’ long positions in small-cap stocks actually greatly outperformed the market from 1999 to 2012, and built a system around this. The 15 most popular small-cap stocks among funds beat the S&P 500 Index by more than 84 percentage points since the end of August 2012 when this system went live, returning a cumulative 135% vs. 55% for the S&P 500 Index (read more details).

Likewise, other research (not our own) has shown insider purchases are also effective piggybacking methods for investors that lead to greater returns. That’s why we believe investors should pay attention to what hedge funds and insiders are buying and keep them apprised of this information. There was no insider purchase of Ascena Retail Group Inc (NASDAQ:ASNA) stock so far in this year, but Executive Vice President, Human Resources at Ascena Retail, John Pershing sold a minuscule 392 shares of the company during March.

Keeping all of this in mind, let’s take a look at the new hedge fund activities encompassing Ascena Retail Group Inc (NASDAQ:ASNA).

How have hedge funds been trading Ascena Retail Group Inc (NASDAQ:ASNA)?

Of the funds tracked by Insider Monkey, Chuck Royce‘s Royce & Associates had the largest position in Ascena Retail Group Inc (NASDAQ:ASNA), with around 7.5 million shares worth close to $108.4 million at the end of March. The second most bullish hedge fund manager is Alexander Medina Seaver of Stadium Capital Management, which owns around 6.5 million shares; the fund has 24.7% of its 13F portfolio invested in the stock. Other peers with similar optimism include Christopher Shackelton and Adam Gray’s Coliseum Capital, Ron Gutfleish‘s Elm Ridge Capital and Ken Griffin‘s Citadel Investment Group.

Hedge fund activity surrounding the stock indicates that several hedge funds opted to walk out of the Ascena Retail Group Inc (NASDAQ:ASNA) during the January – March period. For example, Steve Galbraith’s Herring Creek Capital closed the biggest stake of all the funds watched by Insider Monkey, which previously contained 1.3 million shares. Billionaire Israel Englander‘s Millennium Management also sold all of its 473,874 shares of the company during the first quarter. On the other hand, Ken Griffin’s Citadel Investment Group strengthened his position in the stock by buying around 1.5 million shares to 1.66 million shares, while Glenhill Advisors, led by Glenn J. Krevlin, initiated a fresh position with 1.36 million shares during the January – March period.

Overall, hedge funds were almost neutral on Ascena Retail Group Inc (NASDAQ:ASNA) and there have been no significant insider transactions so far. The current round of 13F filings will show whether hedge funds anticipate a decline of the company’s performance or remained bullish, but as for now, based on the lowered guidance we don’t recommend buying the stock at the moment.

Disclosure: None