Francesca’s Holdings Corporation (Nasdaq: FRAN) today reported
financial results for the second quarter ended August 4, 2018.
Steve Lawrence, President and CEO, stated, “Second quarter sales
results were disappointing mostly due to weak traffic
trends. While we have made significant progress in our
merchandising strategy, inventory discipline and store renovations,
we know there is additional work to be done to win back our core
customer. We did see some positives in the business, including
improving conversion, very strong ecommerce sales growth, and a
significant reduction in clearance inventory.”
Mr. Lawrence continued, “While we did not see the positive
inflection in our results that we had hoped for, I strongly believe
that the steps we are taking in resetting our merchandising
strategy, investing in our omni-channel and reformatting our stores
to better showcase our product, were the right decisions for the
business. In addition, we are taking action to drive improved
traffic trends through a number of marketing initiatives. That
said, as we see the progress in our business coming at a more
measured pace, we are reducing our annual guidance. I am proud of
the team’s hard work and dedication and look forward to building
upon our efforts to get our business back on track to deliver
sustainable long-term sales and profitability growth.”
SECOND QUARTER RESULTS
Net sales decreased 6% to $113.0 million from $119.7 million in
the second quarter of fiscal 2017 due to a 13% decrease in
comparable sales. This follows a 3% decrease in comparable sales
for the prior year quarter. The decline in comparable sales was
primarily due to the decline in boutique traffic and conversion
rate, although conversion sequentially improved from month-to-month
during the quarter. These decreases were partially offset by sales
from 50 net new boutiques added since the same period last year.
The Company opened four new boutiques and closed six boutiques
during the quarter, bringing the total boutique count to 742 at the
end of the quarter.
Gross profit, as a percent of net sales, decreased to 39.0% from
46.3% in the comparable prior year quarter. This unfavorable
variance was due to the decrease in merchandise margin and higher
occupancy costs. Merchandise margin decreased versus last year due
to higher markdowns and marked-out-of-stock charges as a result of
our in-season clearance strategy and in order to transition the
boutiques to our new merchandising direction. Occupancy costs
increased versus last year primarily due to the increased number of
boutiques, higher rent and related expenses driven by increased
penetration of boutiques in high traffic centers, and higher
depreciation as a result of increased new boutique and remodel
costs. Additionally, occupancy costs deleveraged significantly
versus last year as a result of lower sales.
Selling, general and administrative expenses decreased 1% to
$43.3 million in the thirteen weeks ended August 4, 2018 from $43.6
million in the thirteen weeks ended July 29, 2017. This decrease
was due to lower short- and long-term performance-based incentive
expenses as a result of lower expected payouts partially offset by
an increase in corporate payroll and marketing expenses.
Income from operations was $0.8 million, or 0.7% of net sales,
compared to income from operations of $11.8 million, or 9.9% of net
sales, in the comparable prior year quarter.
The Company’s effective tax rate for the quarter was 44.6%
compared to 38.7% in the comparable prior year quarter. The
increase in the Company’s effective tax rate was due to additional
expense recognized related to the vesting of certain stock-based
awards partially offset by the lower corporate tax rate under the
Tax Cuts and Jobs Act enacted in December 2017.
Net income for the second quarter was $0.5 million, or $0.01
diluted earnings per share, compared to net income of $7.3 million,
or $0.20 diluted earnings per share, in the comparable prior year
quarter.
BALANCE SHEET SUMMARY
Total cash and cash equivalents at the end of the quarter were
$23.4 million compared to $33.3 million at the end of the
comparable prior year quarter, with no debt outstanding. Inventory
on hand totaled $31.9 million at the end of the second quarter
compared to $34.0 million at the end of the comparable prior year
quarter. Average ending inventory per boutique decreased 13% versus
the comparable prior year period as the Company continues to
diligently control inventory through enhanced inventory management
processes.
THIRD QUARTER AND REVISED FISCAL YEAR 2018
GUIDANCE
For the third quarter ending November 3, 2018, net sales are
expected to be in the range of $105 million to $110 million,
assuming a comparable sales decrease of 3% to 8% compared to the
prior year decrease of 18%. The Company plans to open one new
boutique and close three existing boutiques during the third
quarter. The Company expects a diluted loss per share of $0.03 to a
diluted earnings per share of $0.02.
For the fiscal year ending February 2, 2019, net sales are now
expected to be in the range of $453 million to $463 million;
assuming a comparable sales decrease of 8% to 10% compared to the
prior year decrease of 11% in comparable sales. Diluted earnings
per share are expected to be in the range of $0.15 to $0.25
compared to prior year diluted earnings per share of $0.43. This
also compares to prior year adjusted diluted earnings per share of
$0.52, which excludes the $3.3 million, or $0.09 per diluted share,
charge related to the remeasurement of the Company’s deferred tax
assets.
Capital expenditures for fiscal year 2018 are still expected to
be approximately $30 million. The Company now expects to open 34
boutiques, close 24 boutiques and refresh 80 to 85 boutiques in
fiscal year 2018.
Conference Call Information
A conference call to discuss the second quarter fiscal year 2018
results is scheduled for September 11, 2018, 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 18,
2018. To access the telephone replay, listeners should dial
1-844-512-2921. The access code for the replay is 3108228. 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 website; our ability to successfully open,
refresh and operate new boutiques each year; our ability to
efficiently source, distribute additional merchandise quantities
necessary to support our growth; and the impact of potential tariff
increases or new tariffs. 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 February 3, 2018
filed with the Securities and Exchange Commission (“SEC”) on March
28, 2018 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.
Non-GAAP Information
This press release includes non-GAAP adjusted diluted earnings
per share, a non-GAAP financial measure. The Company believes this
non-GAAP financial measure not only provides our management with
comparable financial data for internal financial analysis but also
provides meaningful supplemental information to investors.
Specifically, this non-GAAP financial measure allows investors to
better understand the performance of the business and facilitate a
meaningful evaluation of our fiscal year 2017 diluted earnings per
share on a comparable basis with our expected fiscal year 2018
results. This non-GAAP measure should be considered a supplement
to, and not as a substitute for or superior to, financial measures
calculated in accordance with GAAP.
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 742 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.
| CONTACT: |
|
| ICR, Inc.Jean
Fontana646-277-1214 |
CompanyKelly Dilts
832-494-2236Kate Venturina 832-494-2233IR@francescas.com |
Francesca’s Holdings
CorporationConsolidated Statements of
Operations(In Thousands, Except Per Share Amounts,
Percentages and Basis Points)
| |
Thirteen Weeks Ended |
|
|
|
|
|
|
|
|
| |
August 4, 2018 |
|
July 29, 2017 |
|
Variance |
| |
In USD |
|
As a %of NetSales(1) |
|
In USD |
|
As a %of NetSales(1) |
|
In USD |
|
% |
|
BasisPoints |
| Net sales |
$ |
113,025 |
|
|
100.0 |
% |
|
$ |
119,707 |
|
|
100.0 |
% |
|
$ |
(6,682 |
) |
|
(6 |
)% |
|
- |
|
| Cost of goods sold and
occupancy costs |
68,918 |
|
|
61.0 |
% |
|
64,312 |
|
|
53.7 |
% |
|
4,606 |
|
|
7 |
% |
|
730 |
|
| Gross profit |
44,107 |
|
|
39.0 |
% |
|
55,395 |
|
|
46.3 |
% |
|
(11,288 |
) |
|
(20 |
)% |
|
(730 |
) |
| Selling, general and
administrative expenses |
43,277 |
|
|
38.3 |
% |
|
43,556 |
|
|
36.4 |
% |
|
(279 |
) |
|
(1 |
)% |
|
190 |
|
| Income from
operations |
830 |
|
|
0.7 |
% |
|
11,839 |
|
|
9.9 |
% |
|
(11,009 |
) |
|
(93 |
)% |
|
(920 |
) |
| Interest expense |
(112 |
) |
|
(0.1) |
% |
|
(110 |
) |
|
(0.1) |
% |
|
(2 |
) |
|
2 |
% |
|
- |
|
| Other income |
102 |
|
|
0. 1 |
% |
|
119 |
|
|
0.1 |
% |
|
(17 |
) |
|
(14 |
)% |
|
- |
|
| Income before income
tax expense |
820 |
|
|
0.7 |
% |
|
11,848 |
|
|
9.9 |
% |
|
(11,028 |
) |
|
(93 |
)% |
|
(920 |
) |
| Income tax expense |
366 |
|
|
0.3 |
% |
|
4,585 |
|
|
3.8 |
% |
|
(4,219 |
) |
|
(92 |
)% |
|
(350 |
) |
| Net income |
$ |
454 |
|
|
0.4 |
% |
|
$ |
7,263 |
|
|
6.1 |
% |
|
$ |
(6,809 |
) |
|
(94 |
)% |
|
(570 |
) |
| (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 |
$ |
0.01 |
|
|
|
|
|
$ |
0.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted average
diluted share count |
35,020 |
|
|
|
|
|
36,472 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Comparable sales
change |
(13)% |
|
|
(3)% |
|
|
|
|
|
|
|
|
|
| |
Twenty-Six Weeks Ended |
|
|
|
|
|
|
|
|
| |
August 4, 2018 |
|
July 29, 2017 |
|
Variance |
| |
In USD |
|
As a %of NetSales(1) |
|
In USD |
|
As a %of NetSales(1) |
|
In USD |
|
% |
|
Basis Points |
| Net sales |
$ |
213,430 |
|
|
100.0 |
% |
|
$ |
227,396 |
|
|
100.0 |
% |
|
$ |
(13,966 |
) |
|
(6 |
)% |
|
- |
|
| Cost of goods sold and
occupancy costs |
130,960 |
|
|
61.4 |
% |
|
123,317 |
|
|
54.2 |
% |
|
7,643 |
|
|
6 |
% |
|
710 |
|
| Gross profit |
82,470 |
|
|
38.6 |
% |
|
104,079 |
|
|
45.8 |
% |
|
(21,609 |
) |
|
(21 |
)% |
|
(710 |
) |
| Selling, general and
administrative expenses |
86,160 |
|
|
40.4 |
% |
|
84,934 |
|
|
37.4 |
% |
|
1,226 |
|
|
1 |
% |
|
300 |
|
| Loss (income) from
operations |
(3,690 |
) |
|
(1.7 |
)% |
|
19,145 |
|
|
8.4 |
% |
|
(22,835 |
) |
|
(119 |
)% |
|
(1,010 |
) |
| Interest expense |
(229 |
) |
|
(0.1 |
)% |
|
(223 |
) |
|
(0.1 |
)% |
|
(6 |
) |
|
(3 |
)% |
|
- |
|
| Other income |
252 |
|
|
0.1 |
% |
|
190 |
|
|
0.1 |
% |
|
62 |
|
|
33 |
% |
|
- |
|
| (Loss) income before
income tax (benefit) expense |
(3,667 |
) |
|
(1.7 |
)% |
|
19,112 |
|
|
8.4 |
% |
|
(22,779 |
) |
|
(119 |
)% |
|
(1,010 |
) |
| Income tax (benefit)
expense |
(236 |
) |
|
(0.1 |
)% |
|
7,516 |
|
|
3.3 |
% |
|
(7,752 |
) |
|
(103 |
)% |
|
(340 |
) |
| Net (loss) income |
$ |
(3,431 |
) |
|
(1.6 |
)% |
|
$ |
11,596 |
|
|
5.1 |
% |
|
$ |
(15,027 |
) |
|
(130 |
)% |
|
(670 |
) |
| (1)
Percentage totals or differences in the above table may not
equal the sum or difference of the components due to rounding. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Diluted (loss) earnings
per share |
$ |
(0.10 |
) |
|
|
|
|
$ |
0.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted average
diluted share count |
34,807 |
|
|
|
|
|
36,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Comparable sales
change |
(15)% |
|
(4)% |
|
|
|
|
|
|
|
|
|
Francesca’s Holdings
CorporationConsolidated Balance
Sheets(In thousands, except share and per share
amounts)
| |
August 4, 2018 |
|
February 3, 2018 |
|
July 29, 2017 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
| Current assets: |
|
|
|
|
|
|
|
|
|
|
|
| Cash and
cash equivalents |
$ |
23,354 |
|
|
$ |
31,331 |
|
|
$ |
33,298 |
|
| Accounts
receivable |
|
19,764 |
|
|
|
16,642 |
|
|
|
18,416 |
|
|
Inventories |
|
31,902 |
|
|
|
26,816 |
|
|
|
34,036 |
|
| Prepaid
expenses and other current assets |
|
10,549 |
|
|
|
9,714 |
|
|
|
9,433 |
|
| Total current
assets |
|
85,569 |
|
|
|
84,503 |
|
|
|
95,183 |
|
| Property and equipment,
net |
|
89,858 |
|
|
|
87,702 |
|
|
|
83,956 |
|
| Deferred income
taxes |
|
7,233 |
|
|
|
9,413 |
|
|
|
16,009 |
|
| Other assets, net |
|
4,912 |
|
|
|
3,622 |
|
|
|
3,138 |
|
| TOTAL
ASSETS |
$ |
187,572 |
|
|
$ |
185,240 |
|
|
$ |
198,286 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
| Current
liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| Accounts
payable |
$ |
29,406 |
|
|
$ |
17,801 |
|
|
$ |
26,971 |
|
| Accrued
liabilities |
|
11,926 |
|
|
|
14,654 |
|
|
|
17,748 |
|
| Total current
liabilities |
|
41,332 |
|
|
|
32,455 |
|
|
|
44,719 |
|
| Landlord incentives and
deferred rent |
|
35,904 |
|
|
|
38,337 |
|
|
|
38,125 |
|
| Total liabilities |
|
77,236 |
|
|
|
70,792 |
|
|
|
82,844 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Commitments and
contingencies |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Stockholders’
equity: |
|
|
|
|
|
|
|
|
|
|
|
| Common
stock - $0.01 par value, 80.0 million shares authorized; 47.3
million, 46.3 million and 46.4 million shares issued at August 4,
2018, February 3, 2018 and July 29, 2017, respectively. |
|
473 |
|
|
|
463 |
|
|
|
464 |
|
|
Additional paid-in capital |
|
112,136 |
|
|
|
111,439 |
|
|
|
111,405 |
|
| Retained
earnings |
|
157,748 |
|
|
|
159,045 |
|
|
|
155,080 |
|
| Treasury
stock, at cost – 11.1 million, 10.3 million and 9.7 million shares
at August 4, 2018, February 3, 2018 and July 29, 2017,
respectively. |
|
(160,021 |
) |
|
|
(156,499 |
) |
|
|
(151,507 |
) |
| Total stockholders’
equity |
|
110,336 |
|
|
|
114,448 |
|
|
|
115,442 |
|
| TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ |
187,572 |
|
|
$ |
185,240 |
|
|
$ |
198,286 |
|
Francesca’s Holdings
CorporationConsolidated Statements of Cash
Flows(In thousands)
| |
Twenty-Six Weeks Ended |
| |
August 4, 2018 |
|
July 29, 2017 |
| Cash Flows Provided by
Operating Activities: |
|
|
|
|
|
|
|
| Net
(loss) income |
$ |
(3,431 |
) |
|
$ |
11,596 |
|
|
Adjustments to reconcile net (loss) income to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
12,105 |
|
|
|
10,310 |
|
|
Stock-based compensation expense |
|
733 |
|
|
|
2,422 |
|
| Loss on
disposal of assets |
|
350 |
|
|
|
233 |
|
| Deferred
income taxes |
|
1,473 |
|
|
|
(497 |
) |
|
Impairment charges |
|
148 |
|
|
|
100 |
|
| Changes
in operating assets and liabilities: |
|
|
|
|
|
|
|
| Accounts
receivable |
|
(3,122 |
) |
|
|
(12,538 |
) |
|
Inventories |
|
(5,086 |
) |
|
|
(10,078 |
) |
| Prepaid
expenses and other assets |
|
(2,411 |
) |
|
|
(1,978 |
) |
| Accounts
payable |
|
12,590 |
|
|
|
16,864 |
|
| Accrued
liabilities |
|
20 |
|
|
|
(8,013 |
) |
| Landlord
incentives and deferred rent |
|
(2,433 |
) |
|
|
33 |
|
| Net cash provided by
operating activities |
|
10,936 |
|
|
|
8,454 |
|
| |
|
|
|
|
|
|
|
| Cash Flows Used in
Investing Activities: |
|
|
|
|
|
|
|
| Purchases
of property and equipment |
|
(14,436 |
) |
|
|
(12,890 |
) |
| Net cash used in
investing activities |
|
(14,436 |
) |
|
|
(12,890 |
) |
| |
|
|
|
|
|
|
|
| Cash Flows Used in
Financing Activities: |
|
|
|
|
|
|
|
|
Repurchases of common stock |
|
(3,980 |
) |
|
|
(15,326 |
) |
| Taxes
paid related to net settlement of equity awards |
|
(26 |
) |
|
|
(142 |
) |
| Payment
of debt issuance costs |
|
(471 |
) |
|
|
- |
|
| Net cash used in
financing activities |
|
(4,477 |
) |
|
|
(15,468 |
) |
| |
|
|
|
|
|
|
|
| Net decrease in cash
and cash equivalents |
|
(7,977 |
) |
|
|
(19,904 |
) |
| Cash and cash
equivalents, beginning of year |
|
31,331 |
|
|
|
53,202 |
|
| Cash and cash
equivalents, end of period |
$ |
23,354 |
|
|
$ |
33,298 |
|
| |
|
|
|
|
|
|
|
| Supplemental
Disclosures of Cash Flow Information: |
|
|
|
|
|
|
|
| Cash paid
for income taxes |
$ |
226 |
|
|
$ |
23,742 |
|
| Interest
paid |
$ |
77 |
|
|
$ |
97 |
|
Francesca’s Holdings
CorporationSupplemental Information
Quarterly Sales by Merchandise Category
| |
Thirteen Weeks Ended |
|
|
| |
August 4, 2018 |
|
July 29, 2017 |
|
Variance |
| |
In USD |
|
As a %of Sales |
|
|
In USD |
|
As a %of Sales |
|
In USD |
|
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
(in thousands, except percentages) |
| Apparel |
56,807 |
|
50.3 |
% |
|
$ |
65,396 |
|
54.6 |
% |
|
$ |
(8,589 |
) |
(13 |
)% |
| Jewelry |
26,984 |
|
23.9 |
% |
|
|
25,560 |
|
21.4 |
% |
|
|
1,424 |
|
6 |
% |
| Accessories |
17,181 |
|
15.2 |
% |
|
|
14,735 |
|
12.3 |
% |
|
|
2,446 |
|
17 |
% |
| Gifts |
11,337 |
|
10.0 |
% |
|
|
12,836 |
|
10.7 |
% |
|
|
(1,499 |
) |
(12 |
)% |
| Merchandise sales |
112,309 |
|
99.4 |
% |
|
|
118,527 |
|
99.0 |
% |
|
|
(6,218 |
) |
(5 |
)% |
| Others(1) |
716 |
|
0.6 |
% |
|
|
1,180 |
|
1.0 |
% |
|
|
(464 |
) |
(39 |
)% |
| Net sales |
113,025 |
|
100.0 |
% |
|
$ |
119,707 |
|
100.0 |
% |
|
$ |
(6,682 |
) |
(6 |
)% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes gift card breakage income, shipping and change in
return reserve. |
Quarterly Comparable Sales
| |
FY 2018 |
|
FY 2017 |
|
FY 2016 |
| Q1 |
(16 |
)% |
|
(5 |
)% |
|
2 |
% |
| Q2 |
(13 |
)% |
|
(3 |
)% |
|
0 |
% |
| Q3 |
|
|
|
(18 |
)% |
|
7 |
% |
| Q4 |
|
|
|
(15 |
)% |
|
0 |
% |
| Fiscal year |
|
|
|
(11 |
)% |
|
2 |
% |
Boutique Count
| |
Twenty-SixWeeks Ended August
4, 2018 |
|
Fiscal
YearEndedFebruary 3,
2018 |
|
Twenty-SixWeeks
EndedJuly 29, 2017 |
| Number of boutiques
open at the beginning of period period |
721 |
|
|
671 |
|
|
671 |
|
| Boutiques opened |
31 |
|
|
60 |
|
|
28 |
|
| Boutiques closed |
(10 |
) |
|
(10 |
) |
|
(7 |
) |
| Number of boutiques
open at the end of period |
742 |
|
|
721 |
|
|
692 |
|
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