Ascena Retail Group Inc. said its earnings fell 27% on higher costs that offset a modest increase in the women's apparel retailer's sales and improved margins during the quarter ended in April.

The owner of brands such as dressbarn, Justice and Lane Bryant in May reached a $2 billion deal for the parent of the Ann Taylor and Loft chains. The acquisition of Ann Inc. will add two storied names in women's apparel to a company that has made much of its money selling plus-size clothing to shoppers who often are middle-aged.

The combined company will be one of the largest sellers of women's clothing, with annual sales of $7.3 billion and more than 4,900 stores.

Chief Executive David Jaffe said in a news release Tuesday that while performance at dressbarn was softer than expected in the latest quarter, weather and flow from the ports "were major factors, and we remain confident in the momentum being built."

Mr. Jaffe also said the leadership team at Justice is developing new marketing and pricing strategies for fall, which it expects to introduce in July, in time for the back-to-school season.

For its fiscal third quarter ended April 25, Ascena reported a profit of $24.4 million, or 15 cents a share, down from $33.2 million, or 20 cents a share, a year earlier. Excluding acquisition-, integration- and restructuring-related impacts and other items, per-share earnings from continuing operations fell to 18 cents, from 27 cents. Net sales increased 0.5% to $1.15 billion.

Analysts polled by Thomson Reuters expected per-share profit of 19 cents and revenue of $1.16 billion.

Gross margin rose to 58.7% from 57.4%, including the eighth straight quarter of improvement at dressbarn.

Overhead costs rose 9%, and buying, distribution and occupancy expense increased 3.1%.

In the latest quarter, Ascena's comparable-store sales dropped 1% overall, which reflects a 3% decline at stores and a 13% increase at e-commerce operations.

Ascena also affirmed its annual outlook.

In May, Ann Inc. reported a weaker-than-expected 1.2% increase in first-quarter sales as the retailer continued to struggle with weak customer traffic and a retail environment marked by heavy discounting and tough competition.

Write to Tess Stynes at tess.stynes@wsj.com

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