Francesca’s Holdings Corporation (NASDAQ:FRAN) today reported
financial results for the second quarter ended July 30, 2016.
Richard Kunes, Interim Chairman, President, and CEO stated, “We
are very pleased to have exceeded our sales and earnings
expectations for the second quarter. Our compelling
merchandise assortment and personalized guest experience resonated
well with our customers despite the tough retail landscape and
significant traffic decline we experienced early in the
quarter. As we enter the third quarter, we are pleased with
initial results as we successfully executed our targeted
back-to-school programs. Looking ahead, we are encouraged by
our trend-right merchandise assortment, ecommerce growth and
favorable inventory position. Our in-boutique team is
providing an exceptional guest experience and we are focused on
expense management. With all of our strategic initiatives
beginning to align, we believe we are on the path to deliver
long-term, sustainable growth and profitability. With higher
than expected second quarter sales and profitability as well as a
favorable outlook for third quarter, we are increasing our full
year diluted earnings per share guidance to $0.96 to $1.03.”
SECOND QUARTER RESULTS
Net sales increased 9% to $115.3 million from $106.0 million in
the comparable prior year period. This increase was due to
the addition of 44 net new boutiques since the prior year period,
and a 37% increase in ecommerce sales to $4.8 million driven by
increased website traffic and conversion rate. Our total
comparable sales were flat compared to the same period last year as
the increase in transactions offset the decrease in average
transaction value. We opened 19 new boutiques and closed four
underperforming boutiques during the quarter bringing our total
boutique count to 652 at the end of the quarter.
Gross profit, as a percentage of net sales, decreased to 46.8%
from 47.4% in the prior year quarter. This decrease is
attributable to 30 basis points of lower merchandise margin and 30
basis points deleveraging of occupancy costs. The decrease in
merchandise margin was primarily attributable to a sales mix change
to lower margin categories.
Selling, general and administrative expenses (“SG&A”)
increased 5% to $36.8 million from $35.1 million in the prior year
quarter. The increase in SG&A is primarily due to increased
corporate and boutique payroll, to support the larger boutique base
and strategic initiatives, as well as an increase in marketing and
depreciation expenses. The increase in marketing expense was due to
implementation of new marketing initiatives, while the higher
depreciation was due to continuing investments in technology and
infrastructure. These changes were partially offset by a $2.0
million net benefit associated with the previously announced
resignation of our prior Chairman, President and Chief Executive
Officer, which consisted of $2.6 million reversal of previously
accrued stock-based compensation expense related to the forfeiture
of unvested awards and $0.6 million of professional expenses
related to the search process.
Income from operations was $17.1 million, or 14.9% of net sales,
compared to $15.2 million, or 14.3% of net sales, in the prior year
quarter.
BALANCE SHEET SUMMARY
Total cash and cash equivalents at the end of the quarter were
$26.0 million compared to $48.8 million at the end of the
comparable prior year quarter. During the second quarter, we
repurchased 2.3 million shares of our common stock at a cost of
$27.0 million.
We ended the quarter with $32.7 million of inventory on hand
compared to $33.6 million at the end of the comparable prior year
period. Average ending inventory per boutique decreased by 9%
versus the comparable prior year period.
THIRD QUARTER AND FISCAL YEAR 2016 GUIDANCE
For the third quarter ending October 29, 2016, net sales are
expected to be in the range of $114 million to $118 million;
assuming a mid-single digit increase in comparable sales compared
to the prior year increase of 4%. The Company plans to open 14 to
20 new boutiques and close one to three boutiques during the third
quarter. Diluted earnings per share are expected to be in the range
of $0.16 to $0.19.
For the full year ending January 28, 2017, we now expect net
sales to be in the range of $473 million to $488 million; assuming
a low-single digit decrease to a low single-digit increase in
comparable sales compared to the prior year increase of 3%. The
Company expects to open 55 to 65 boutiques and close six to ten
underperforming boutiques in fiscal year 2016 compared to 83 new
boutiques opened and six boutiques closed in fiscal year
2015. Diluted earnings per share are now expected to be in
the range of $0.96 to $1.03, which includes a $0.03 per share
benefit associated with the previously announced resignation of our
Chairman, President and Chief Executive Officer. The number
of average diluted shares for the full year assumed in guidance is
38.6 million shares. The effective tax rate is estimated to be
37.8%.
Capital expenditures for fiscal year 2016 are expected to be in
the range of $28.0 million to $31.0 million.
Conference Call Information
A conference call to discuss the second quarter fiscal year 2016
results is scheduled for September 7, 2016, at 8:30 a.m. ET. A live
webcast of the conference call will be available in the investor
relations section of our website, www.francescas.com. A replay
of the call will be available after the conclusion of the call and
remain available until September 14, 2016. To access the telephone
replay, listeners should dial 1-877-870-5176. The access code for
the replay is 8230219. A replay of the web cast will also be
available shortly after the conclusion of the call and will remain
on the website for ninety days.
Forward-Looking Statements
Certain statements in this release are "forward-looking
statements" made pursuant to the safe-harbor provisions of the
Private Securities Litigation Reform Act of 1995, as amended. Such
forward-looking statements reflect our current expectations or
beliefs concerning future events and are subject to various risks
and uncertainties that may cause actual results to differ
materially from those that we expected. These risks and
uncertainties include, but are not limited to, the following: the
risk that we cannot anticipate, identify and respond quickly to
changing fashion trends and customer preferences; our ability to
attract a sufficient number of customers to our boutiques or sell
sufficient quantities of our merchandise through our ecommerce
business; our ability to successfully open and operate new
boutiques each year; and our ability to efficiently source;
distribute additional merchandise quantities necessary to support
our growth; and our ability to attract and integrate a new
President and Chief Executive Officer. For additional information
regarding these and other risks and uncertainties that could cause
actual results to differ materially from those contained in our
forward-looking statements, please refer to "Risk Factors" in our
Annual Report on Form 10-K for the year ended January 30, 2016
filed with the Securities and Exchange Commission (“SEC”) on March
25, 2016 and our Quarterly Report on Form 10-Q for the quarter
ended April 30, 2016 filed with the SEC on June 9, 2016, as well as
any risk factors contained in subsequent quarterly and annual
reports we file with the SEC. We undertake no obligation to
publicly update or revise any forward-looking statement.
About Francesca's Holdings Corporation
francesca's® is a growing specialty retailer which operates a
nationwide-chain of boutiques providing customers a unique, fun and
personalized shopping experience. The merchandise assortment
is a diverse and balanced mix of apparel, jewelry, accessories and
gifts. Today francesca's® operates 656 boutiques in 48 states
and the District of Columbia and also serves its customers through
francescas.com. For additional information on francesca's®, please
visit www.francescas.com.
Francesca’s Holdings
CorporationConsolidated Statements of
Operations(In Thousands, Except Per Share Amounts,
Percentages and Basis Points)
|
Thirteen Weeks Ended |
|
|
|
|
|
|
|
July 30, 2016 |
|
August 1, 2015 |
|
Variance |
|
In USD |
|
As a % of Net Sales (1) |
|
In USD |
|
As a % of Net Sales (1) |
|
In USD |
|
% |
|
Basis Points |
Net sales |
$ |
115,260 |
|
|
|
100.0 |
% |
|
$ |
106,033 |
|
|
|
100.0 |
% |
|
$ |
9,227 |
|
|
|
9 |
% |
|
|
- |
|
Cost of goods sold and
occupancy costs |
|
61,323 |
|
|
|
53.2 |
% |
|
|
55,725 |
|
|
|
52.6 |
% |
|
|
5,598 |
|
|
|
10 |
% |
|
|
60 |
|
Gross profit |
|
53,937 |
|
|
|
46.8 |
% |
|
|
50,308 |
|
|
|
47.4 |
% |
|
|
3,629 |
|
|
|
7 |
% |
|
|
(60 |
) |
Selling, general and
administrative expenses |
|
36,815 |
|
|
|
31.9 |
% |
|
|
35,133 |
|
|
|
33.1 |
% |
|
|
1,682 |
|
|
|
5 |
% |
|
|
(120 |
) |
Income from
operations |
|
17,122 |
|
|
|
14.9 |
% |
|
|
15,175 |
|
|
|
14.3 |
% |
|
|
1,947 |
|
|
|
13 |
% |
|
|
60 |
|
Interest expense |
|
(113 |
) |
|
(0.1) % |
|
|
(112 |
) |
|
(0.1) % |
|
|
(1 |
) |
|
(1) % |
|
|
- |
|
Other income
(expense) |
|
39 |
|
|
|
0.0 |
% |
|
|
(54 |
) |
|
(0.1) % |
|
|
93 |
|
|
|
172 |
% |
|
|
10 |
|
Income before income
tax expense |
|
17,048 |
|
|
|
14.8 |
% |
|
|
15,009 |
|
|
|
14.2 |
% |
|
|
2,039 |
|
|
|
14 |
% |
|
|
60 |
|
Income tax expense |
|
6,457 |
|
|
|
5.6 |
% |
|
|
5,705 |
|
|
|
5.4 |
% |
|
|
752 |
|
|
|
13 |
% |
|
|
20 |
|
Net income |
$ |
10,591 |
|
|
|
9.2 |
% |
|
$ |
9,304 |
|
|
|
8.8 |
% |
|
$ |
1,287 |
|
|
|
14 |
% |
|
|
40 |
|
|
(1)
Percentage totals or differences in the above table may not
equal the sum or difference of the components due to rounding. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share |
$ |
0.27 |
|
|
|
|
$ |
0.22 |
|
|
|
|
|
|
|
|
|
Weighted average
diluted share count |
|
38,755 |
|
|
|
|
|
42,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable sales
change |
|
|
|
|
0 |
% |
|
|
|
|
|
|
|
|
(4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Six Weeks Ended |
|
|
|
|
|
|
|
July 30, 2016 |
|
August 1, 2015 |
|
Variance |
|
In USD |
|
As a % of Net Sales (1) |
|
In USD |
|
As a % of Net Sales (1) |
|
In USD |
|
% |
|
Basis Points |
Net sales |
$ |
221,373 |
|
|
|
100.0 |
% |
|
$ |
201,044 |
|
|
|
100.0 |
% |
|
$ |
20,329 |
|
|
|
10 |
% |
|
|
- |
|
Cost of goods sold and
occupancy costs |
|
118,306 |
|
|
|
53.4 |
% |
|
|
105,843 |
|
|
|
52.6 |
% |
|
|
12,463 |
|
|
|
12 |
% |
|
|
80 |
|
Gross profit |
|
103,067 |
|
|
|
46.6 |
% |
|
|
95,201 |
|
|
|
47.4 |
% |
|
|
7,866 |
|
|
|
8 |
% |
|
|
(80 |
) |
Selling, general and
administrative expenses |
|
74,481 |
|
|
|
33.6 |
% |
|
|
68,136 |
|
|
|
33.9 |
% |
|
|
6,345 |
|
|
|
9 |
% |
|
|
(30 |
) |
Income from
operations |
|
28,586 |
|
|
|
12.9 |
% |
|
|
27,065 |
|
|
|
13.5 |
% |
|
|
1,521 |
|
|
|
6 |
% |
|
|
(60 |
) |
Interest expense |
|
(222 |
) |
|
(0.1) % |
|
|
(222 |
) |
|
(0.1) % |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other income
(expense) |
|
39 |
|
|
|
0.0 |
% |
|
|
(120 |
) |
|
(0.1) % |
|
|
159 |
|
|
|
132 |
% |
|
|
10 |
|
Income before income
tax expense |
|
28,403 |
|
|
|
12.8 |
% |
|
|
26,723 |
|
|
|
13.3 |
% |
|
|
1,680 |
|
|
|
6 |
% |
|
|
(50 |
) |
Income tax expense |
|
10,731 |
|
|
|
4.8 |
% |
|
|
10,178 |
|
|
|
5.1 |
% |
|
|
553 |
|
|
|
5 |
% |
|
|
(30 |
) |
Net income |
$ |
17,672 |
|
|
|
8.0 |
% |
|
$ |
16,545 |
|
|
|
8.2 |
% |
|
$ |
1,127 |
|
|
|
7 |
% |
|
|
(20 |
) |
|
(1)
Percentage totals or differences in the above table may not
equal the sum or difference of the components due to rounding. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share |
$ |
0.45 |
|
|
|
|
$ |
0.39 |
|
|
|
|
|
|
|
|
|
Weighted average
diluted share count |
|
39,580 |
|
|
|
|
|
42,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable sales
change |
|
|
|
|
1 |
% |
|
|
|
|
|
|
|
|
(3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Francesca’s Holdings
Corporation Consolidated Balance
Sheets(In thousands, except share and per share
amounts)
|
|
July 30, 2016 |
|
|
January 30, 2016 |
|
|
August 1, 2015 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents |
|
$ |
26,021 |
|
|
$ |
56,224 |
|
|
$ |
48,840 |
|
Accounts
receivable |
|
|
10,791 |
|
|
|
9,580 |
|
|
|
9,061 |
|
Inventories |
|
|
32,667 |
|
|
|
31,541 |
|
|
|
33,642 |
|
Deferred
income taxes |
|
|
6,728 |
|
|
|
6,411 |
|
|
|
5,537 |
|
Prepaid
expenses and other current assets |
|
|
6,715 |
|
|
|
7,013 |
|
|
|
5,915 |
|
Total current
assets |
|
|
82,922 |
|
|
|
110,769 |
|
|
|
102,995 |
|
Property and equipment,
net |
|
|
80,225 |
|
|
|
77,894 |
|
|
|
80,176 |
|
Deferred income
taxes |
|
|
4,640 |
|
|
|
3,847 |
|
|
|
5,426 |
|
Other assets, net |
|
|
1,296 |
|
|
|
1,067 |
|
|
|
1,677 |
|
TOTAL
ASSETS |
|
$ |
169,083 |
|
|
$ |
193,577 |
|
|
$ |
190,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable |
|
$ |
16,620 |
|
|
$ |
14,305 |
|
|
$ |
13,301 |
|
Accrued
liabilities |
|
|
14,327 |
|
|
|
16,328 |
|
|
|
13,465 |
|
Total current
liabilities |
|
|
30,947 |
|
|
|
30,633 |
|
|
|
26,766 |
|
Landlord incentives and
deferred rent |
|
|
38,673 |
|
|
|
36,552 |
|
|
|
37,404 |
|
Total liabilities |
|
|
69,620 |
|
|
|
67,185 |
|
|
|
64,170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and
contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity: |
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock - $0.01 par value, 80.0 million shares authorized; 45.9
million, 45.9 million and 45.5 million shares issued at July
30, 2016, January 30, 2016 and August 1, 2015, respectively. |
|
|
459 |
|
|
|
459 |
|
|
|
455 |
|
Additional paid-in capital |
|
|
106,916 |
|
|
|
107,693 |
|
|
|
105,843 |
|
Retained
earnings |
|
|
119,228 |
|
|
|
101,556 |
|
|
|
79,949 |
|
Treasury
stock, at cost – 8.0 million, 4.8 million and 3.2 million shares at
July 30, 2016, January 30, 2016 and August 1, 2015,
respectively. |
|
|
(127,140 |
) |
|
|
(83,316 |
) |
|
|
(60,143 |
) |
Total stockholders’
equity |
|
|
99,463 |
|
|
|
126,392 |
|
|
|
126,104 |
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
$ |
169,083 |
|
|
$ |
193,577 |
|
|
$ |
190,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Francesca’s Holdings
CorporationConsolidated Statements of Cash
Flows(In thousands)
|
|
Twenty-Six Weeks Ended |
|
|
|
July 30, 2016 |
|
|
August 1, 2015 |
|
Cash Flows Provided by
Operating Activities: |
|
|
|
|
|
|
|
|
Net
income |
|
$ |
17,672 |
|
|
$ |
16,545 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
9,482 |
|
|
|
8,000 |
|
Stock-based compensation expense |
|
|
(857 |
) |
|
|
1,591 |
|
Excess
tax benefit from stock-based compensation |
|
|
(6 |
) |
|
|
(61 |
) |
Loss on
sale of assets |
|
|
155 |
|
|
|
282 |
|
Deferred
income taxes |
|
|
(1,315 |
) |
|
|
(3,940 |
) |
Changes
in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts
receivable |
|
|
(1,205 |
) |
|
|
3,279 |
|
Inventories |
|
|
(1,126 |
) |
|
|
(9,841 |
) |
Prepaid
expenses and other assets |
|
|
(55 |
) |
|
|
86 |
|
Accounts
payable |
|
|
2,599 |
|
|
|
2,466 |
|
Accrued
liabilities |
|
|
(2,001 |
) |
|
|
1,561 |
|
Landlord
incentives and deferred rent |
|
|
2,121 |
|
|
|
4,527 |
|
Net cash provided by
operating activities |
|
|
25,464 |
|
|
|
24,495 |
|
|
|
|
|
|
|
|
|
|
Cash Flows Used in
Investing Activities: |
|
|
|
|
|
|
|
|
Purchases
of property and equipment |
|
|
(11,149 |
) |
|
|
(14,959 |
) |
Other |
|
|
8 |
|
|
|
3 |
|
Net cash used in
investing activities |
|
|
(11,141 |
) |
|
|
(14,956 |
) |
|
|
|
|
|
|
|
|
|
Cash Flows (Used in)
Provided by Financing Activities: |
|
|
|
|
|
|
|
|
Proceeds
from the exercise of stock options |
|
|
280 |
|
|
|
169 |
|
Excess
tax benefit from stock-based compensation |
|
|
6 |
|
|
|
61 |
|
Repurchases of common stock |
|
|
(44,812 |
) |
|
|
- |
|
Net cash (used in)
provided by financing activities |
|
|
(44,526 |
) |
|
|
230 |
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase
in cash and cash equivalents |
|
|
(30,203 |
) |
|
|
9,769 |
|
Cash and cash
equivalents, beginning of year |
|
|
56,224 |
|
|
|
39,071 |
|
Cash and cash
equivalents, end of period |
|
$ |
26,021 |
|
|
$ |
48,840 |
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures of Cash Flow Information: |
|
|
|
|
|
|
|
|
Cash paid
for income taxes |
|
$ |
9,175 |
|
|
$ |
8,335 |
|
Interest
paid |
|
$ |
95 |
|
|
$ |
94 |
|
|
|
|
|
|
|
|
|
|
Francesca’s Holdings
Corporation Supplemental
Information
Quarterly Sales by Merchandise Category
|
Thirteen Weeks Ended |
|
Variance |
|
July 30, 2016 |
|
August 1, 2015 |
|
In Dollars |
|
% |
|
(in
thousands, except percentages) |
Apparel |
$ |
61,081 |
|
$ |
56,441 |
|
$ |
|
4,640 |
|
|
|
8 |
% |
Jewelry |
|
25,368 |
|
|
23,442 |
|
|
|
1,926 |
|
|
|
8 |
% |
Accessories |
|
15,136 |
|
|
14,537 |
|
|
|
599 |
|
|
|
4 |
% |
Gifts |
|
13,209 |
|
|
11,069 |
|
|
|
2,140 |
|
|
|
19 |
% |
Merchandise Sales |
|
114,794 |
|
|
105,489 |
|
|
|
9,305 |
|
|
|
9 |
% |
Others(1) |
|
466 |
|
|
544 |
|
|
|
(78 |
) |
|
|
(14 |
)% |
Net sales |
$ |
115,260 |
|
$ |
106,033 |
|
$ |
|
9,227 |
|
|
|
9 |
% |
|
(1) Includes gift card breakage income, shipping and change in
return reserve. |
|
Quarterly Comparable Sales
|
FY 2016 |
|
FY 2015 |
|
FY 2014 |
Q1 |
|
2 |
% |
|
|
(2 |
)% |
|
|
(7 |
)% |
Q2 |
|
0 |
% |
|
|
(4 |
)% |
|
|
(7 |
)% |
Q3 |
|
|
|
4 |
% |
|
|
(6 |
)% |
Q4 |
|
|
|
11 |
% |
|
|
1 |
% |
Fiscal
year |
|
|
|
3 |
% |
|
|
(5 |
)% |
Boutique Count
|
Twenty-Six Weeks EndedJuly 30,
2016 |
|
Fiscal Year EndedJanuary 30,
2016 |
|
Twenty-Six Weeks EndedAugust 1,
2015 |
Number of boutiques open
at the beginning of period |
616 |
|
539 |
|
539 |
Boutiques added |
41 |
|
83 |
|
69 |
Boutiques closed |
(5 |
) |
(6 |
) |
- |
Number of boutiques open
at the end of period |
652 |
|
616 |
|
608 |
CONTACT:
ICR, Inc.
Jean Fontana
646-277-1214
Company
Kelly Dilts 832-494-2236
Kate Venturina 832-494-2233
IR@francescas.com
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