FRAN Francescas Holdings Corporation

Francesca’s Holdings Corporation (NASDAQ:FRAN) today reported financial results for the fourth quarter and fiscal year ended January 28, 2017.  

Steve Lawrence, President and CEO, stated, “We are pleased to deliver fourth quarter earnings per share above the high-end of our guidance and flat comparable sales. These comp results were achieved in a challenging retail environment where we were up against an 11% comparable sales increase in the fourth quarter of last year. We worked hard to improve our inventory management and ended the year with total inventories down 24% versus the prior year.  This decrease was driven by disciplined receipt flows during the quarter coupled with both markdowns and mark-out-of-stock charges taken at year-end to ensure a clean transition into 2017. Looking ahead, we remain intently focused on invigorating the merchandise assortment, improving inventory management to ensure we maintain a consistent flow of new receipts, optimizing our real estate portfolio, creating an exceptional and personalized guest experience, and growing our ecommerce business. We will also continue to make strategic investments to ensure we have the infrastructure in place to achieve our long term growth objectives.’’

FOURTH QUARTER RESULTS

Net sales increased 9% to $146.3 million from $134.6 million in the comparable prior year quarter.  This increase was due to the addition of 55 net new boutiques since the prior year period and a 42% increase in ecommerce sales driven by increased website traffic and conversion rate.  Comparable sales were flat compared to the same period last year as the increase in average transaction value offset the decrease in transactions.  The Company opened five new boutiques and closed three boutiques during the quarter, bringing the total count to 671 at the end of the quarter.     

Gross profit, as a percent of net sales, decreased to 46.4% from 49.1% in the prior year quarter.  This unfavorable variance was principally due to the Company’s strategic move to take accelerated markdowns in January, which included marking some merchandise out-of-stock at the end of the year, in order to enter fiscal year 2017 with clean inventories. 

Selling, general and administrative expenses increased 6% to $44.3 million from $42.0 million in the prior year quarter. This increase was primarily due to higher boutique and corporate payroll to support the larger boutique base as well as increases in marketing and software costs, partially offset by lower impairment charges. The increase in marketing expense was due to the implementation of new marketing initiatives, while the higher software costs were due to continuing investments in technology and infrastructure.

Income from operations was $23.6 million, or 16.1% of net sales, compared to $24.2 million, or 18.0% of net sales, in the prior year quarter. 

Net income for the fourth quarter was $14.6 million, or $0.39 diluted earnings per share, compared to $14.7 million, or $0.35 diluted earnings per share, in the comparable prior year period. 

FULL YEAR RESULTS

Net sales increased 11% to $487.2 million from $439.4 million in the comparable prior year.  This increase was due a 2% increase in comparable sales as well as the addition of 55 net new boutiques since the prior year end.  Ecommerce sales increased 42% driven by increased website traffic and conversion rate.

During fiscal year 2016, the Company opened 64 new boutiques and closed nine boutiques compared to 83 new boutiques opened and six boutiques closed in fiscal year 2015.

Net income for fiscal year 2016 totaled $42.0 million, or $1.09 diluted earnings per share, compared to $38.2 million, or $0.91 diluted earnings per share, in the prior year.  Our results for fiscal year 2016 include a $2.0 million, or $0.03 per diluted share, net benefit associated with the previously announced resignation of the Company’s former Chairman, President and CEO.

BALANCE SHEET SUMMARY

Total cash and cash equivalents at the end of the quarter were $53.2 million compared to $56.2 million at the end of the comparable prior year quarter.  During the fourth quarter, the Company repurchased 298,000 shares of its common stock at a cost of $5.2 million, bringing the Company’s total year-to-date repurchases to 3,804,000 shares at a cost of $53.2 million.

The Company ended the quarter with $24.0 million of inventory on hand compared to $31.5 million at the end of the comparable prior year period.  Average ending inventory per boutique decreased by 30% (14% decrease on a two-year stack basis) versus the comparable prior year period principally due to improved inventory management. 

FIRST QUARTER AND FISCAL YEAR 2017 GUIDANCE

For the first quarter ending April 29, 2017, net sales are expected to be in the range of $111 million to $114 million; assuming comparable sales will be in the low single digit decrease to flat range compared to the prior year increase of 2%. The Company plans to open approximately 15 new boutiques and close approximately four existing boutiques during the first quarter. Diluted earnings per share are expected to be in the range of $0.12 to $0.16.

For the fiscal year ending February 3, 2018, net sales are expected to be in the range of $527 million to $543 million; assuming a flat to low-single digit increase in comparable sales compared to the prior year increase of 2%. The Company expects to open approximately 60 to 65 boutiques and close approximately 10 to 15 boutiques in fiscal year 2017, compared to 64 new boutiques opened and nine boutiques closed in fiscal year 2016.  Diluted earnings per share are expected to be in the range of $1.11 to $1.21 compared to the prior year of $1.09.  The number of average diluted shares for the full year assumed in guidance is 37.4 million shares. The effective tax rate is estimated to be 38%.

Capital expenditures for fiscal year 2017 are expected to be in the range of $28 million to $33 million.

Conference Call Information

A conference call to discuss the fourth quarter and fiscal year 2016 results is scheduled for March 21, 2017, at 8:30 a.m. ET. A live webcast of the conference call will be available in the investor relations section of the Company’s website, www.francescas.com. A replay of the call will be available after the conclusion of the call and remain available until March 28, 2017. To access the telephone replay, listeners should dial 1-844-512-2921. The access code for the replay is 4604086. 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 or changes in consumer environment, including changing expectations of service and experience in boutiques and online, and evolve our business model; 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 and distribute additional merchandise quantities necessary to support our growth. 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, as well as “Risk Factors” in our Annual Report on Form 10-K for the year ended January 28, 2017 that we will file with the SEC, and 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 approximately 671 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 Corporation
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts, Percentages and Basis Points)
	Thirteen Weeks Ended
	January 28, 2017							January 30, 2016							Variance
	In USD				As a % of Net Sales(1)			In USD				As a % of Net Sales(1)			In USD				%			Basis Points
Net sales	$	146,345			100.0	%		$	134,605			100.0	%		$	11,740			9	%		-
Cost of goods sold and occupancy costs		78,412			53.6	%			68,468			50.9	%			9,944			15	%		270
Gross profit		67,933			46.4	%			66,137			49.1	%			1,796			3	%		(270	)
Selling, general and administrative expenses		44,349			30.3	%			41,965			31.2	%			2,384			6	%		(90	)
Income from operations		23,584			16.1	%			24,172			18.0	%			(588	)		(2	)%		(190	)
Interest expense		(111	)		(0.1	)%			(113	)		(0.1	)%			2			(2	)%		-
Other income (expense)		29			0.0	%			(60	)		0.0	%			89			148	%		-
Income before income tax expense		23,502			16.1	%			23,999			17.8	%			(497	)		(2	)%		(170	)
Income tax expense		8,867			6.1	%			9,343			6.9	%			(476	)		(5	)%		(80	)
Net income	$	14,635			10.0	%		$	14,656			10.9	%		$	(21	)		0	%		(90	)
(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	$	0.39						$	0.35
Weighted average diluted share count		37,383							41,391
Comparable sales change		0				%			11				%
	Fiscal Year Ended
	January 28, 2017							January 30, 2016							Variance
	In USD				As a % of Net Sales			In USD				As a % of Net Sales			In USD				%			Basis Points
Net sales	$	487,188			100.0	%		$	439,377			100.0	%		$	47,811			11	%		-
Cost of goods sold and occupancy costs		258,561			53.1	%			229,673			52.3	%			28,888			13	%		80
Gross profit		228,627			46.9	%			209,704			47.7	%			18,923			9	%		(80	)
Selling, general and administrative expenses		160,702			33.0	%			147,387			33.5	%			13,315			9	%		(50	)
Income from operations		67,925			13.9	%			62,317			14.2	%			5,608			9	%		(30	)
Interest expense		(464	)		(0.1	)%			(457	)		(0.1	)%			(7	)		(2	)%		-
Other income (expense)		147			0.0	%			(151	)		0.0	%			298			197	%		-
Income before income tax expense		67,608			13.9	%			61,709			14.0	%			5,899			10	%		(10	)
Income tax expense		25,607			5.3	%			23,557			5.4	%			2,050			9	%		(10	)
Net income	$	42,001			8.6	%		$	38,152			8.7	%		$	3,849			10	%		(10	)
(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	$	1.09						$	0.91
Weighted average diluted share count		38,551							42,117
Comparable sales change		2				%			3				%

Francesca’s Holdings Corporation
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
		January 28,				January 30,
		2017				2016
ASSETS
Current assets:
Cash and cash equivalents		$	53,202			$	56,224
Accounts receivable			5,605				9,580
Inventories			23,958				31,541
Deferred income taxes			8,487				6,411
Prepaid expenses and other current assets			8,823				7,013
Total current assets			100,075				110,769
Property and equipment, net			80,484				77,894
Deferred income taxes			6,978				3,847
Other assets, net			2,056				1,067
TOTAL ASSETS		$	189,593			$	193,577
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	9,205			$	14,305
Accrued liabilities			25,761				16,328
Total current liabilities			34,966				30,633
Landlord incentives and deferred rent			38,092				36,552
Total liabilities			73,058				67,185
Commitments and contingencies
Stockholders’ equity:
Common stock-$.01 par value, 80.0 million shares authorized, 46.1 million and 45.9 million shares issued as of January 28, 2017 and January 30, 2016, respectively.			461				459
Additional paid-in capital			109,008				107,693
Retained earnings			143,557				101,556
Treasury stock, at cost – 8.5 million and 4.8 million shares held at January 28, 2017 and January 30, 2016, respectively.			(136,491	)			(83,316	)
Total stockholders’ equity			116,535				126,392
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	189,593			$	193,577

Francesca’s Holdings Corporation
Consolidated Statements of Cash Flows
(In thousands)
		Fiscal Year Ended
		January 28,				January 30,				January 31,
		2017				2016				2015
Cash Flows Provided by Operating Activities:
Net income		$	42,001			$	38,152			$	32,108
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			19,337				16,816				13,151
Stock-based compensation expense			1,016				2,932				2,668
Excess tax benefit from stock-based compensation			(34	)			(236	)			(309	)
Impairment charges			141				790				2,470
Loss on disposal of assets			407				487				364
Amortization of debt issuance costs			245				245				245
Deferred income taxes			(5,411	)			(3,226	)			(1,600	)
Changes in assets and liabilities:
Accounts receivable			3,975				2,935				(2,986	)
Inventories			7,583				(7,740	)			813
Prepaid expenses and other assets			(3,160	)			(524	)			373
Accounts payable			(4,936	)			4,137				(363	)
Accrued liabilities			9,467				4,424				2,081
Landlord incentives and deferred rent			1,540				3,675				5,429
Net cash provided by operating activities			72,171				62,867				54,444
Cash Flows Used in Investing Activities:
Purchase of property and equipment			(21,852	)			(24,276	)			(24,255	)
Other			8				12				13
Net cash used in investing activities			(21,844	)			(24,264	)			(24,242	)
Cash Flows Used in Financing Activities:
Repurchases of common stock			(53,853	)			(22,185	)			(5,270	)
Proceeds from the exercise of stock options			512				499				1,332
Excess tax benefit from stock-based compensation			34				236				309
Taxes paid related to net settlement of equity awards			(42	)			-				-
Repayment of borrowings under the revolving credit facility			-				-				(25,000	)
Net cash used in financing activities			(53,349	)			(21,450	)			(28,629	)
Net increase in cash and cash equivalents			(3,022	)			17,153				1,573
Cash and cash equivalents, beginning of year			56,224				39,071				37,498
Cash and cash equivalents, end of year		$	53,202			$	56,224			$	39,071
Supplemental Disclosures of Cash Flow Information:
Cash paid for income taxes		$	19,324			$	23,958			$	24,088
Interest paid		$	192			$	190			$	388

Francesca’s Holdings CorporationSupplemental Information

Quarterly Sales by Merchandise Category
	Thirteen Weeks Ended
	January 28, 2017						January 30, 2016						Variance
	In USD			As a % of Sales				In USD		As a % of Sales			In Dollars				%
	(in thousands, except percentages)
Apparel	$	60,677		41.5	%		$	53,434		39.7	%		$	7,243			14	%
Jewelry		34,069		23.3	%			29,658		22.0	%			4,411			15	%
Accessories		24,865		17.0	%			24,283		18.0	%			582			2	%
Gifts		25,834		17.6	%			26,615		19.8	%			(781	)		(3	)%
Merchandise sales		145,445		99.4	%			133,990		99.5	%			11,455			9	%
Others(1)		900		0.6	%			615		0.5	%			285			46	%
Net sales	$	146,345		100.0	%		$	134,605		100.0	%		$	11,740			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	7	%		4	%		(6	)%
Q4	0	%		11	%		1	%
Fiscal year	2	%		3	%		(5	)%

Boutique Count
	Fiscal Year EndedJanuary 28, 2017		Fiscal Year EndedJanuary 30, 2016		Fiscal Year EndedJanuary 31, 2015
Number of boutiques open at the beginning of period	616		539		451
Boutiques opened	64		83		88
Boutiques closed	(9	)	(6	)	-
Number of boutiques open at the end of period	671		616		539

 

CONTACT:
ICR, Inc.
Jean Fontana
646-277-1214

Company
Kelly Dilts 832-494-2236
Kate Venturina 832-494-2233
IR@francescas.com