Francesca’s Holdings Corporation (NASDAQ:FRAN) today reported
financial results for the second quarter ended July 29, 2017.
Steve Lawrence, President and CEO, stated, “As we previously
announced, our second quarter EPS exceeded our expectations as a
result of better than expected merchandise margins and SG&A
expenses. Comparable sales came in at the low-end of the expected
range and further softened in August. We believe that the recent
downturn in business is primarily reflective of merchandising
missteps. We are taking decisive actions to efficiently move
through our back-to-school product and to get back on track as we
turn the corner into the holiday season. Our core merchandising
philosophy of surprising every guest, every time with a unique,
trend-right assortment at a great value will continue to dictate
our go-forward strategy. Moreover, we will remain highly
disciplined in managing our inventory to ensure a constant flow of
newness and swiftly move through slow-sellers.
“Hurricane Harvey had a devastating impact on south Texas and
Louisiana. Our dedicated team has been resilient and, even though
personally impacted, have worked hard to get us back up and
running. Our corporate headquarters, ecommerce fulfilment,
distribution center, approximately 40 boutiques and many team
members located in Houston or neighboring areas were directly
impacted by the storm. As of Tuesday, September 5th, we have fully
re-opened our corporate facilities and all but one of our impacted
boutiques. The disruption to our supply chain is impacting
all of our boutiques and we expect it to take a couple of weeks
before things normalize. While there is a lot of work to be done,
we have a talented and capable team who is firmly committed to
taking the necessary steps to reinvigorate our merchandise
assortments as well as work through the challenges created by
Hurricane Harvey.”
SECOND QUARTER RESULTS
Net sales increased 4% to $119.7 million from $115.3 million in
the comparable prior year quarter. This increase was due to the
addition of 40 net new boutiques since the end of the second
quarter last year. Comparable sales decreased 3% compared to the
same period last year due to a decrease in boutique conversion
rates. Prior year second quarter comparable sales were flat.
The Company opened 16 new boutiques and closed three boutiques
during the quarter, bringing the total count to 692 at the end of
the quarter.
Gross profit, as a percent of net sales, decreased to 46.3% from
46.8% in the prior year quarter. This was primarily due to
deleveraging of occupancy costs as merchandise margin compared to
last year was essentially flat.
Selling, general and administrative expenses (“SG&A”)
increased 18% to $43.5 million from $36.8 million in the prior year
quarter. This increase was primarily due to higher boutique and
corporate payroll, professional service fees, software, stock-based
compensation and marketing expenses. Additionally, prior year
SG&A included a $2.0 million net benefit in connection with the
resignation of the Company’s previous Chairman, President and Chief
Executive Officer.
Income from operations was $11.9 million, or 10.0% of net sales,
compared to $17.1 million, or 14.9% of net sales, in the prior year
quarter.
BALANCE SHEET SUMMARY
Total cash and cash equivalents at the end of the second quarter
were $33.3 million compared to $26.0 million at the end of the
comparable prior year quarter. During the second quarter, the
Company repurchased 0.5 million shares of its common stock at a
cost of $5.7 million.
The Company ended the quarter with $34.0 million of inventory on
hand compared to $32.7 million at the end of the comparable prior
year period. Average ending inventory per boutique decreased
by 2% compared to the comparable prior year period, as the Company
continues to diligently control inventory through enhanced
inventory management processes that began in the second quarter of
2016.
THIRD QUARTER AND REVISED FISCAL YEAR 2017
GUIDANCE
For the third quarter ending October 28, 2017, net sales are
expected to be in the range of $105 million to $109 million;
assuming a comparable sales decrease in the mid- to high-teens
compared to a 7% comparable sales increase in the prior year. The
Company plans to open approximately 32 new boutiques and close one
existing boutique during the third quarter. Diluted earnings
per share are expected to be in the range of $0.00 to $0.05.
This guidance includes the Company’s best estimate of the impact of
Hurricane Harvey.
For the fiscal year ending February 3, 2018, net sales are now
expected to be in the range of $481 million to $491 million;
assuming a high-single digit decrease in comparable sales compared
to the prior year increase of 2%. The Company expects to open
approximately 60 to 65 boutiques and close approximately 8 to 10
boutiques in fiscal year 2017, compared to 64 new boutiques opened
and nine boutiques closed in fiscal year 2016. Diluted
earnings per share are now expected to be in the range of $0.71 to
$0.81 compared to the prior year of $1.09. The number of average
diluted shares for the full year assumed in guidance is 36.5
million shares. The effective tax rate is estimated to be
38.3%.
Capital expenditures for fiscal year 2017 are expected to be in
the range of $30 million to $33 million.
Conference Call Information
A conference call to discuss the second quarter results is
scheduled for September 6, 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 September 13, 2017. To access the telephone
replay, listeners should dial 1-844-512-2921. The access code for
the replay is 2728299. 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; our ability to efficiently
source and distribute additional merchandise quantities necessary
to support our growth; our ability to successfully attract, hire
and integrate our next Chief Merchant and our ability to
successfully rebound from the impact of Hurricane Harvey. 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 28, 2017 filed with the Securities and Exchange
Commission on March 22, 2017 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 692 boutiques in
47 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 29, 2017 |
|
July 30, 2016 |
|
Variance |
|
In USD |
|
As a %of Net Sales(1) |
|
In USD |
|
As a %of Net Sales(1) |
|
In USD |
|
% |
|
BasisPoints |
Net sales |
$ |
119,707 |
|
|
100.0 |
% |
|
$ |
115,260 |
|
|
100.0 |
% |
|
$ |
4,447 |
|
|
4 |
% |
|
- |
|
Cost of goods sold and
occupancy costs |
|
64,312 |
|
|
53.7 |
% |
|
|
61,323 |
|
|
53.2 |
% |
|
|
2,989 |
|
|
5 |
% |
|
50 |
|
Gross profit |
|
55,395 |
|
|
46.3 |
% |
|
|
53,937 |
|
|
46.8 |
% |
|
|
1,458 |
|
|
3 |
% |
|
(50 |
) |
Selling, general and
administrative expenses |
|
43,456 |
|
|
36.3 |
% |
|
|
36,815 |
|
|
31.9 |
% |
|
|
6,641 |
|
|
18 |
% |
|
440 |
|
Income from
operations |
|
11,939 |
|
|
10.0 |
% |
|
|
17,122 |
|
|
14.9 |
% |
|
|
(5,183 |
) |
|
(30 |
)% |
|
(490 |
) |
Interest expense |
|
(110 |
) |
|
(0.1 |
)% |
|
|
(113 |
) |
|
(0.1 |
)% |
|
|
3 |
|
|
3 |
% |
|
- |
|
Other income |
|
19 |
|
|
0.0 |
% |
|
|
39 |
|
|
0.0 |
% |
|
|
(20 |
) |
|
(51 |
)% |
|
- |
|
Income before income
tax expense |
|
11,848 |
|
|
9.9 |
% |
|
|
17,048 |
|
|
14.8 |
% |
|
|
(5,200 |
) |
|
(31 |
)% |
|
(490 |
) |
Income tax expense |
|
4,585 |
|
|
3.8 |
% |
|
|
6,457 |
|
|
5.6 |
% |
|
|
(1,872 |
) |
|
(29 |
)% |
|
(180 |
) |
Net income |
$ |
7,263 |
|
|
6.1 |
% |
|
$ |
10,591 |
|
|
9.2 |
% |
|
$ |
(3,328 |
) |
|
(31 |
)% |
|
(310 |
) |
____________________ |
|
|
|
|
(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 |
$ |
0.20 |
|
|
|
|
$ |
0.27 |
|
|
|
|
|
|
|
|
|
Weighted average
diluted share count |
|
36,472 |
|
|
|
|
|
38,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable sales |
|
|
|
|
(3)% |
|
|
|
|
|
|
0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Six Weeks Ended |
|
|
|
|
|
|
|
July 29, 2017 |
|
July 30, 2016 |
|
Variance |
|
In USD |
|
As a %of Net Sales |
|
In USD |
|
As a %of Net Sales |
|
In USD |
|
% |
|
BasisPoints |
Net sales |
$ |
227,396 |
|
|
100.0 |
% |
|
$ |
221,373 |
|
|
100.0 |
% |
|
$ |
6,023 |
|
|
3 |
% |
|
- |
|
Cost of goods sold and
occupancy costs |
|
123,317 |
|
|
54.2 |
% |
|
|
118,306 |
|
|
53.4 |
% |
|
|
5,011 |
|
|
4 |
% |
|
80 |
|
Gross profit |
|
104,079 |
|
|
45.8 |
% |
|
|
103,067 |
|
|
46.6 |
% |
|
|
1,012 |
|
|
1 |
% |
|
(80 |
) |
Selling, general and
administrative expenses |
|
84,934 |
|
|
37.4 |
% |
|
|
74,481 |
|
|
33.6 |
% |
|
|
10,453 |
|
|
14 |
% |
|
380 |
|
Income from
operations |
|
19,145 |
|
|
8.4 |
% |
|
|
28,586 |
|
|
12.9 |
% |
|
|
(9,441 |
) |
|
(33 |
)% |
|
(450 |
) |
Interest expense |
|
(223 |
) |
|
(0.1 |
)% |
|
|
(222 |
) |
|
(0.1 |
)% |
|
|
(1 |
) |
|
- |
|
|
- |
|
Other income |
|
190 |
|
|
0.1 |
% |
|
|
39 |
|
|
0.0 |
% |
|
|
151 |
|
|
387 |
% |
|
10 |
|
Income before income
tax expense |
|
19,112 |
|
|
8.4 |
% |
|
|
28,403 |
|
|
12.8 |
% |
|
|
(9,291 |
) |
|
(33 |
)% |
|
(440 |
) |
Income tax expense |
|
7,516 |
|
|
3.3 |
% |
|
|
10,731 |
|
|
4.8 |
% |
|
|
(3,215 |
) |
|
(30 |
)% |
|
(150 |
) |
Net income |
$ |
11,596 |
|
|
5.1 |
% |
|
$ |
17,672 |
|
|
8.0 |
% |
|
$ |
(6,076 |
) |
|
(34 |
)% |
|
(290 |
) |
____________________ |
|
|
|
|
(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 |
$ |
0.32 |
|
|
|
|
$ |
0.45 |
|
|
|
|
|
|
|
|
|
Weighted average
diluted share count |
|
36,811 |
|
|
|
|
|
39,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable sales |
|
|
|
|
(4)% |
|
|
|
|
|
|
1% |
|
|
|
|
|
|
|
Francesca’s Holdings
CorporationConsolidated Balance
Sheets(In thousands, except share and per share
amount)
|
|
July 29, 2017 |
|
|
January 28, 2017 |
|
|
July 30, 2016 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents |
|
$ |
33,298 |
|
|
$ |
53,202 |
|
|
$ |
26,021 |
|
Accounts
receivable |
|
|
18,416 |
|
|
|
5,605 |
|
|
|
10,791 |
|
Inventories |
|
|
34,036 |
|
|
|
23,958 |
|
|
|
32,667 |
|
Deferred
income taxes |
|
|
- |
|
|
|
8,487 |
|
|
|
6,728 |
|
Prepaid
expenses and other current assets |
|
|
9,433 |
|
|
|
8,823 |
|
|
|
6,715 |
|
Total current
assets |
|
|
95,183 |
|
|
|
100,075 |
|
|
|
82,922 |
|
Property and equipment,
net |
|
|
83,956 |
|
|
|
80,484 |
|
|
|
80,225 |
|
Deferred income
taxes |
|
|
16,009 |
|
|
|
6,978 |
|
|
|
4,640 |
|
Other assets, net |
|
|
3,138 |
|
|
|
2,056 |
|
|
|
1,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS |
|
$ |
198,286 |
|
|
$ |
189,593 |
|
|
$ |
169,083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable |
|
$ |
26,971 |
|
|
$ |
9,205 |
|
|
$ |
16,620 |
|
Accrued
liabilities |
|
|
17,748 |
|
|
|
25,761 |
|
|
|
14,327 |
|
Total current
liabilities |
|
|
44,719 |
|
|
|
34,966 |
|
|
|
30,947 |
|
Landlord incentives and
deferred rent |
|
|
38,125 |
|
|
|
38,092 |
|
|
|
38,673 |
|
Total liabilities |
|
|
82,844 |
|
|
|
73,058 |
|
|
|
69,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and
contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity: |
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock - $0.01 par value, 80.0 million shares authorized; 46.4
million, 46.1 million and 45.9 million shares issued at July 29,
2017, January 28, 2017 and July 30, 2016, respectively. |
|
|
464 |
|
|
|
461 |
|
|
|
459 |
|
Additional paid-in capital |
|
|
111,405 |
|
|
|
109,008 |
|
|
|
106,916 |
|
Retained
earnings |
|
|
155,080 |
|
|
|
143,557 |
|
|
|
119,228 |
|
Treasury
stock, at cost – 9.7 million, 8.5 million and 8.0 million shares at
July 29, 2017, January 28, 2017 and July 30, 2016,
respectively. |
|
|
(151,507 |
) |
|
|
(136,491 |
) |
|
|
(127,140 |
) |
Total stockholders’
equity |
|
|
115,442 |
|
|
|
116,535 |
|
|
|
99,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
$ |
198,286 |
|
|
$ |
189,593 |
|
|
$ |
169,083 |
|
Francesca’s Holdings
CorporationConsolidated Statements of Cash
Flows(In thousands)
|
|
Twenty-Six Weeks Ended |
|
|
|
July 29, 2017 |
|
|
July 30, 2016 |
|
Cash Flows Provided by
Operating Activities: |
|
|
|
|
|
|
|
|
Net
income |
|
$ |
11,596 |
|
|
$ |
17,672 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
10,310 |
|
|
|
9,482 |
|
Stock-based compensation expense |
|
|
2,422 |
|
|
|
(857 |
) |
Excess
tax benefit from stock-based compensation |
|
|
- |
|
|
|
(6 |
) |
Loss on
disposal of assets |
|
|
233 |
|
|
|
155 |
|
Deferred
income taxes |
|
|
(497 |
) |
|
|
(1,315 |
) |
Impairment charges |
|
|
100 |
|
|
|
- |
|
Changes
in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts
receivable |
|
|
(12,538 |
) |
|
|
(1,205 |
) |
Inventories |
|
|
(10,078 |
) |
|
|
(1,126 |
) |
Prepaid
expenses and other assets |
|
|
(1,978 |
) |
|
|
(55 |
) |
Accounts
payable |
|
|
16,864 |
|
|
|
2,599 |
|
Accrued
liabilities |
|
|
(8,013 |
) |
|
|
(2,001 |
) |
Landlord
incentives and deferred rent |
|
|
33 |
|
|
|
2,121 |
|
Net cash provided by
operating activities |
|
|
8,454 |
|
|
|
25,464 |
|
|
|
|
|
|
|
|
|
|
Cash Flows Used in
Investing Activities: |
|
|
|
|
|
|
|
|
Purchases
of property and equipment |
|
|
(12,890 |
) |
|
|
(11,149 |
) |
Other |
|
|
- |
|
|
|
8 |
|
Net cash used in
investing activities |
|
|
(12,890 |
) |
|
|
(11,141 |
) |
|
|
|
|
|
|
|
|
|
Cash Flows Used in
Financing Activities: |
|
|
|
|
|
|
|
|
Repurchases of common stock |
|
|
(15,326 |
) |
|
|
(44,812 |
) |
Taxes
paid related to net settlement of equity awards |
|
|
(142 |
) |
|
|
- |
|
Proceeds
from the exercise of stock options |
|
|
- |
|
|
|
280 |
|
Excess
tax benefit from stock-based compensation |
|
|
- |
|
|
|
6 |
|
Net cash used in
financing activities |
|
|
(15,468 |
) |
|
|
(44,526 |
) |
|
|
|
|
|
|
|
|
|
Net decrease in cash
and cash equivalents |
|
|
(19,904 |
) |
|
|
(30,203 |
) |
Cash and cash
equivalents, beginning of year |
|
|
53,202 |
|
|
|
56,224 |
|
Cash and cash
equivalents, end of period |
|
$ |
33,298 |
|
|
$ |
26,021 |
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures of Cash Flow Information: |
|
|
|
|
|
|
|
|
Cash paid
for income taxes |
|
$ |
23,742 |
|
|
$ |
9,175 |
|
Interest
paid |
|
$ |
97 |
|
|
$ |
95 |
|
Francesca’s Holdings
CorporationSupplemental Information
Quarterly Sales by Merchandise Category
|
Thirteen Weeks Ended |
|
|
|
|
|
July 29, 2017 |
|
July 30, 2016 |
|
Variance |
|
In USD |
|
As a % of Sales
|
|
In USD |
|
As a % of Sales
|
|
In Dollars |
|
% |
|
(in thousands, except
percentages) |
|
|
|
|
Apparel (1) |
$ |
65,396 |
|
54.6 |
% |
|
$ |
62,367 |
|
54.1 |
% |
|
$ |
3,029 |
|
|
5 |
% |
Jewelry |
|
25,560 |
|
21.4 |
% |
|
|
25,368 |
|
22.0 |
% |
|
|
192 |
|
|
1 |
% |
Accessories (1) |
|
14,735 |
|
12.3 |
% |
|
|
13,850 |
|
12.0 |
% |
|
|
885 |
|
|
6 |
% |
Gifts |
|
12,836 |
|
10.7 |
% |
|
|
13,209 |
|
11.5 |
% |
|
|
(373 |
) |
|
(3 |
)% |
Merchandise sales
|
|
118,527 |
|
99.0 |
% |
|
|
114,794 |
|
99.6 |
% |
|
|
3,733 |
|
|
3 |
% |
Others (2) |
|
1,180 |
|
1.0 |
% |
|
|
466 |
|
0.4 |
% |
|
|
714 |
|
|
153 |
% |
|
$ |
119,707 |
|
100.0 |
% |
|
$ |
115,260 |
|
100.0 |
% |
|
$ |
4,447 |
|
|
4 |
% |
_____________(1) In the
first quarter of fiscal 2017, swimwear was reclassified out of
accessories to apparel. To facilitate comparability, prior
year amounts were
reclassified.(2) Includes gift
card breakage income, shipping and change in return reserve.
Quarterly Comparable Sales
|
FY 2017 |
|
FY 2016 |
|
FY 2015 |
Q1 |
(5 |
)% |
|
2 |
% |
|
(2 |
)% |
Q2 |
(3 |
)% |
|
0 |
% |
|
(4 |
)% |
Q3 |
|
|
7 |
% |
|
4 |
% |
Q4 |
|
|
0 |
% |
|
11 |
% |
Fiscal
year |
|
|
2 |
% |
|
3 |
% |
Boutique Count
|
Twenty-Six Weeks EndedJuly 29,
2017 |
|
Fiscal Year Ended January 28,
2017 |
|
Twenty-Six Weeks EndedJuly 30,
2016 |
|
Number of boutiques
open at the beginning of period |
671 |
|
616 |
|
616 |
|
Boutiques opened |
28 |
|
64 |
|
41 |
|
Boutiques closed |
(7 |
) |
(9 |
) |
(5 |
) |
Number of boutiques
open at the end of period |
692 |
|
671 |
|
652 |
|
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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