Francesca's: A Strong Buy - Analyst Blog
December 28 2012 - 3:50AM
Zacks
Impressive third quarter results,
positive earnings surprises in the last 4 quarters with an average
beat of 12.2% and upward rising estimates helped
Francesca's Holdings Corporation (FRAN) to attain
a Zacks #1 Rank (Strong Buy) on December 7, 2012.
Moreover, shares of this operator
of a chain of retail boutiques have generated a solid year-to-date
return of 48.3%, offering an attractive investment opportunity.
The Rank
Drivers
Better-than-expected third quarter
earnings, earnings momentum and an upbeat outlook – are the primary
rank drivers for this stock.
Francesca's Holdings reported
third-quarter earnings of 24 cents a share surpassing the Zacks
Consensus Estimate by a couple of cents or 9.1% and more than
doubled from the prior-year quarter earnings of 11 cents. Net sales
came in at $72 million, up 44% year over year and exceeded the
Zacks Consensus Estimate of $71 million. Comparable boutique
sales improved 16.7%.
Operating income jumped 120.4% to
$17.7 million. Operating margin expanded 855 basis points to 24.6%,
reflecting selling, general and administrative expense leverage as
well as gross margin improvement of 96 basis points to 52.6%.
The company now expects fourth
quarter net sales between $82.5 million – $83.5 million, while
comparable boutique sales are expected to increase in the
mid-single digits. Earnings per share are expected to be in the
range of 27 cents – 28 cents.
For fiscal 2012, Francesca's
expects net sales between $292.2 million – $293.2 million with
earnings per share of $1.00 to $1.01. Earlier, management had
guided sales between $290 million – $292 million, and earnings per
share of 96 cents – 98 cents. Management now forecasts a
low-double-digit increase in comparable boutique sales and plans to
open 76 new boutiques and an outlet boutique during the fiscal
year.
Rising Estimate
Revisions
The Zacks Consensus Estimate for
fiscal 2012 increased 3.1% to $1.01 per share in the past 30 days,
as 12 out of 14 estimates were revised higher. The current
projection implies an estimated year-over-year growth of 83.1%.
Moreover, the estimate revision
trends remain approximately the same for fiscal 2013 as 10 out of
14 estimates were revised in the upward direction, thus lifting the
Zacks Consensus Estimate by 4.2% to $1.25 per share. The current
estimate suggests year-over-year growth of 23.6%.
Premium
Valuation
Francesca’s currently trades at a
forward P/E of 25.4x, reflecting a 67.1% premium to the peer group
average of 15.2x. Also, on a price-to-book basis, the shares trade
at 20.1x, a substantial premium to the peer group average of 1.0x.
Given the company's strong fundamentals, the premium valuation is
justified, and well reflected through long-term earnings growth
projection of 27.5%. Moreover, with respect to return on equity
(ROE), the stock looks attractive. It has a trailing 12-month ROE
of 113.9%, which is significantly above its peer group average of
12.2%. This implies that the company reinvests its earnings more
efficiently than its peer group.
Company
Description
Founded in 1999 and headquartered
in Houston, Texas, Francesca’s Holdings Corporation operates a
chain of retail boutiques under the Francesca’s collections brand
in the United States. It is a holding company and operates through
its subsidiary, Francesca’s Collections Inc. The company targets
female customers and offers a diverse and uniquely balanced mix of
high-quality, trend-right apparel, jewelry, accessories and gifts
at attractive prices. Francesca’s Holdings, which competes with
Urban Outfitters Inc. (URBN) and ANN
Inc. (ANN), has a market cap of $1.10 billion.
ANN INC (ANN): Free Stock Analysis Report
FRANCESCAS HLDG (FRAN): Free Stock Analysis Report
URBAN OUTFITTER (URBN): Free Stock Analysis Report
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