ITEM 1. FINANCIAL STATEMENTS
Francesca’s Holdings Corporation
Unaudited Consolidated Balance Sheets
(In thousands, except 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
|
|
The accompanying notes are an integral
part of these Unaudited Consolidated Financial Statements.
Francesca’s Holdings Corporation
Unaudited Consolidated Statements of
Operations
(In thousands, except per share data)
|
|
Thirteen Weeks Ended
|
|
|
Twenty-Six Weeks Ended
|
|
|
|
August 4, 2018
|
|
|
July 29, 2017
|
|
|
August 4, 2018
|
|
|
July 29, 2017
|
|
Net sales
|
|
$
|
113,025
|
|
|
$
|
119,707
|
|
|
$
|
213,430
|
|
|
$
|
227,396
|
|
Cost of goods sold and occupancy costs
|
|
|
68,918
|
|
|
|
64,312
|
|
|
|
130,960
|
|
|
|
123,317
|
|
Gross profit
|
|
|
44,107
|
|
|
|
55,395
|
|
|
|
82,470
|
|
|
|
104,079
|
|
Selling, general and administrative expenses
|
|
|
43,277
|
|
|
|
43,556
|
|
|
|
86,160
|
|
|
|
84,934
|
|
Income (loss) from operations
|
|
|
830
|
|
|
|
11,839
|
|
|
|
(3,690
|
)
|
|
|
19,145
|
|
Interest expense
|
|
|
(112
|
)
|
|
|
(110
|
)
|
|
|
(229
|
)
|
|
|
(223
|
)
|
Other income
|
|
|
102
|
|
|
|
119
|
|
|
|
252
|
|
|
|
190
|
|
Income (loss) before income tax expense (benefit)
|
|
|
820
|
|
|
|
11,848
|
|
|
|
(3,667
|
)
|
|
|
19,112
|
|
Income tax expense (benefit)
|
|
|
366
|
|
|
|
4,585
|
|
|
|
(236
|
)
|
|
|
7,516
|
|
Net income (loss)
|
|
$
|
454
|
|
|
$
|
7,263
|
|
|
$
|
(3,431
|
)
|
|
$
|
11,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share
|
|
$
|
0.01
|
|
|
$
|
0.20
|
|
|
$
|
(0.10
|
)
|
|
$
|
0.32
|
|
Diluted earnings (loss) per common share
|
|
$
|
0.01
|
|
|
$
|
0.20
|
|
|
$
|
(0.10
|
)
|
|
$
|
0.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares
|
|
|
34,759
|
|
|
|
36,336
|
|
|
|
34,807
|
|
|
|
36,639
|
|
Diluted shares
|
|
|
35,020
|
|
|
|
36,472
|
|
|
|
34,807
|
|
|
|
36,811
|
|
The accompanying notes are an integral
part of these Unaudited Consolidated Financial Statements.
Francesca’s Holdings Corporation
Unaudited Consolidated Statement of Changes
in Stockholders’ Equity
(In thousands)
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
Treasury
|
|
|
Total
|
|
|
|
Shares
Outstanding
|
|
|
Par
Value
|
|
|
Paid-in
Capital
|
|
|
Retained
Earnings
|
|
|
Stock, at
cost
|
|
|
Stockholders'
Equity
|
|
Balance, February 3, 2018
|
|
|
35,875
|
|
|
|
463
|
|
|
|
111,439
|
|
|
|
159,045
|
|
|
|
(156,499
|
)
|
|
|
114,448
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,431
|
)
|
|
|
-
|
|
|
|
(3,431
|
)
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
733
|
|
|
|
-
|
|
|
|
-
|
|
|
|
733
|
|
Restricted stocks issued, net of forfeitures
|
|
|
1,012
|
|
|
|
10
|
|
|
|
(10
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Shares withheld related to net settlement of equity awards
|
|
|
(5
|
)
|
|
|
-
|
|
|
|
(26
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(26
|
)
|
Cumulative effect adjustment on adoption of new accounting standards, net of tax
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,134
|
|
|
|
-
|
|
|
|
2,134
|
|
Repurchases of common stock
|
|
|
(659
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,522
|
)
|
|
|
(3,522
|
)
|
Balance, August 4, 2018
|
|
|
36,223
|
|
|
|
473
|
|
|
|
112,136
|
|
|
|
157,748
|
|
|
|
(160,021
|
)
|
|
|
110,336
|
|
The accompanying notes are an integral
part of these Unaudited Consolidated Financial Statements.
Francesca’s Holdings Corporation
Unaudited Consolidated 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
|
|
The accompanying notes are an integral
part of these Unaudited Consolidated Financial Statements
.
Francesca’s Holdings Corporation
Notes to Unaudited Consolidated Financial
Statements
|
1.
|
Summary of Significant Accounting Policies
|
Nature of Business
Francesca’s Holdings Corporation is a holding company
incorporated in 2007 under the laws of the State of Delaware whose business operations are conducted through its subsidiaries. Unless
the context otherwise requires, the “Company,” refers to Francesca’s Holdings Corporation and its consolidated
subsidiaries. The Company operates a nationwide-chain of boutiques providing its customers with a unique, fun and personalized
shopping experience. The Company offers a diverse and balanced mix of apparel, jewelry, accessories and gifts at attractive values.
At August 4, 2018, the Company operated 742 boutiques, which are located in 47 states throughout the United States
and the District of Columbia, and its ecommerce website.
Basis of Presentation
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”)
for interim financial statements and are in the form prescribed by the Securities and Exchange Commission (“SEC”).
Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the
opinion of management, these unaudited financial statements include all adjustments, consisting of normal recurring adjustments,
considered necessary for a fair presentation of the Company’s financial position, results of operations, changes in equity,
and cash flows at the dates and for the periods presented. The financial information as of February 3, 2018 was derived from the
Company’s audited consolidated financial statements and notes thereto as of and for the fiscal year ended February 3, 2018
included in the Company’s Annual Report on Form 10-K filed with the SEC on March 28, 2018.
These unaudited interim consolidated financial statements should
be read in conjunction with the Company’s audited consolidated financial statements and related notes as of and for the fiscal
year ended February 3, 2018 included in the Company’s Annual Report on Form 10-K.
Due to seasonal variations in the Company’s business,
interim results are not necessarily indicative of results that may be expected for any other interim period or for a full year.
Principles of Consolidation
The accompanying unaudited consolidated financial statements
include the accounts of the Company and all its subsidiaries. All intercompany balances and transactions have been eliminated in
consolidation.
Fiscal Year
The Company maintains its accounts on a 52- or 53-week year
ending on the Saturday closest to January 31st. Fiscal year 2018 includes 52 weeks of operations while fiscal year 2017 includes
53 weeks of operations. The fiscal quarters ended August 4, 2018 and July 29, 2017 refer to the thirteen week periods ended as
of those dates. The year-to-date periods ended August 4, 2018 and July 29, 2017 refer to the twenty-six week periods ended as of
those dates.
Management Estimates and Assumptions
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, net of estimated
sales returns, and expenses during the reporting periods. Actual results could differ materially from those estimates.
Reclassifications
Certain prior year amounts were reclassified between selling,
general expenses and other income in order to provide consistency with the current period presentation. These reclassifications
did not materially impact the financial statement for the periods presented.
Revenue Recognition
The Company adopted Accounting Standards Codification (“ASC”)
606, “Revenue from Contracts with Customers” on February 4, 2018 using the modified retrospective approach. Prior period
amounts were not adjusted and continue to be reported in accordance with ASC 605, “Revenue Recognition.” As a result
of adoption of ASC 606, the Company recorded an adjustment of $2.0 million, net of $0.7 million tax effect, to the beginning balance
of retained earnings related to the change in timing of recognizing gift card breakage income. In addition, the cost of estimated
returns is now included in current assets rather than netted with the allowance for sales returns, and ecommerce sales are now
recognized upon shipment rather than delivery to the customer, with the cumulative effect related to this change determined to
be immaterial.
Francesca’s Holdings Corporation
Notes to Unaudited Consolidated Financial
Statements
The Company recognizes revenue when control of the merchandise
is transferred to customers in an amount that reflects the consideration received in exchange for such merchandise. For boutique
sales, control is transferred at the point at which the customer receives and pays for the merchandise at the register. For ecommerce
sales, control is transferred when merchandise is tendered to a third party carrier for delivery to the customer. The consideration
received is the stated price of the merchandise, net of any discount, sales tax collected and estimated sales returns, and, in
the case of ecommerce sales, includes shipping revenue. Cash is typically received on the day of or, in the case of credit or debit
card transactions, within several days of the related sales. Management estimates future returns on previously sold merchandise
based on return history and current sales levels. Estimated returns are periodically compared to actual sales returns and adjusted,
if appropriate. The provision for estimated returns is included in accrued liabilities while the associated cost of merchandise
is included as part of prepaid and other current assets in the consolidated balance sheets.
Disaggregated revenue
The Company disaggregates net sales into the following major
merchandise departments.
|
|
|
Thirteen Weeks Ended
|
|
|
Twenty-Six Weeks Ended
|
|
|
|
|
August 4, 2018
|
|
|
July 29, 2017
|
|
|
August 4, 2018
|
|
|
July 29, 2017
|
|
|
|
|
(in thousands)
|
|
Apparel
|
|
|
$
|
56,807
|
|
|
$
|
65,396
|
|
|
$
|
106,341
|
|
|
$
|
125,408
|
|
Jewelry
|
|
|
|
26,984
|
|
|
|
25,560
|
|
|
|
50,842
|
|
|
|
49,331
|
|
Accessories
|
|
|
|
17,181
|
|
|
|
14,735
|
|
|
|
32,665
|
|
|
|
28,716
|
|
Gifts
|
|
|
|
11,337
|
|
|
|
12,836
|
|
|
|
22,442
|
|
|
|
23,951
|
|
Others
(1)
|
|
|
|
716
|
|
|
|
1,180
|
|
|
|
1,140
|
|
|
|
(10
|
)
|
|
|
|
$
|
113,025
|
|
|
$
|
119,707
|
|
|
$
|
213,430
|
|
|
$
|
227,396
|
|
|
(1)
|
Includes gift card breakage income, shipping revenue and change in return reserve.
|
Contract liability
Contract liability consists of gift card liability.
The Company accounts for the sale of gift cards as a liability at the time a gift card is sold. The liability is relieved
and revenue is recognized upon redemption of the gift card. The Company’s gift cards do not have an expiration date.
Income from gift card breakage is estimated based on historical redemption patterns and recognized over the historical
redemption period. Unredeemed gift cards at the end of the prior fiscal year recognized in revenues for the thirteen and
twenty-six weeks ended August 4, 2018 totaled $1.1 million and $3.0 million, respectively, and for the thirteen and
twenty-six weeks ended July 29, 2017 totaled $1.2 million and $3.3 million, respectively.
New Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update (“ASU”) 2016-04 “Liabilities - Extinguishments of Liabilities (Subtopic 405-20),
Recognition of Breakage for Certain Prepaid Stored-Value Products.” The new guidance allows a company to derecognize amounts
related to expected breakage to the extent that it is probable that a significant reversal of the recognized breakage amount will
not subsequently occur. ASU 2016-04 is effective for annual periods, and interim periods within those annual periods, beginning
after December 15, 2017, with early adoption permitted. This standard may be adopted on either a modified retrospective or a retrospective
basis.
In May 2014, the FASB issued ASU 2014-09, “Revenue from
Contracts with Customers.” This pronouncement requires entities to recognize revenue in a way that depicts the transfer of
promised goods or services to customers in an amount that reflects the consideration which the entity expects to be entitled to
in exchange for those goods and services. This standard is effective for reporting periods beginning on or after December 15, 2017,
including interim periods within that fiscal year, with early adoption permitted for interim and annual periods beginning on or
after December 15, 2016. Since the original issuance of ASU 2014-09, the FASB has issued several amendments and updates to this
guidance. This guidance may be adopted on a full retrospective basis to each prior reporting period presented or on a modified
retrospective basis with the cumulative effect of initially applying the guidance recognized at the date of initial application.
Francesca’s Holdings Corporation
Notes to Unaudited Consolidated Financial
Statements
The Company adopted ASU 2016-04 and ASU 2014-09 on February
4, 2018 using the modified retrospective approach. Please refer to the
Revenue Recognition
policy section of this Note 1
to the Unaudited Consolidated Financial Statements for further information.
Recent Accounting Pronouncements Not Yet Adopted
In August 2018, the FASB issued ASU 2018-15, "Intangibles-Goodwill
and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing
Arrangement That is a Service Contract." ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred
in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop
or obtain internal-use software. This new guidance will be effective for public companies for fiscal years beginning after December
15, 2019 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the effect
that the new guidance will have on its consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU 2016-02, “Leases
(Topic 842).” The new guidance, among other things, requires lessees to recognize the following for all leases (with the
exception of short-term leases) at the commencement date: (i) a lease liability, which is a lessee’s obligation to make lease
payments arising from a lease, measured on a discounted basis and (ii) a right-of-use asset, which is an asset that represents
the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting
is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting
model and ASC Topic 606, Revenue from Contracts with Customers. In July 2018, the FASB issued ASU 2018-11, “Leases (Topic
842): Targeted Improvements,” to provide an additional, optional transition method for adopting ASU 2016-02 which allow entities
to apply the new lease standard at the adoption date and recognize a cumulative effect adjustment to the opening balance of retained
earnings in the period of adoption while comparative periods presented will continue to be in presented in accordance with current
ASC Topic 840. This new guidance will be effective for fiscal years beginning after December 15, 2018, including interim periods
within those fiscal years. Early adoption is permitted. The guidance is required to be adopted using the modified retrospective
approach or the additional, optional transition method set forth in ASU 2018-11. The Company is in the process of compiling all
agreements that are considered as a lease under this new guidance as well as implementing its leasing software solution, including
identifying changes to its business processes, systems and controls to support its adoption in fiscal year 2019. While the Company
is still evaluating the impact of this new guidance on its consolidated financial statements, it expects that the adoption of this
guidance will not have a material impact on its results of operations; however, it will result in a significant increase in total
assets and total liabilities on the Company’s balance sheet given that the Company has a significant number of leases.
|
2.
|
Earnings (Loss) per Share
|
Basic earnings (loss) per common share amounts are calculated
using the weighted-average number of common shares outstanding for the period. Diluted earnings (loss) per common share amounts
are calculated using the weighted-average number of common shares outstanding for the period and include the dilutive impact of
restricted stock and stock option grants using the treasury stock method. The following table summarizes the potential dilution
that could occur if stock options to acquire common stock were exercised or if the restricted stock grants were fully vested and
reconciles the weighted-average common shares outstanding used in the computation of basic and diluted earnings (loss) per share.
|
|
Thirteen Weeks Ended
|
|
|
Twenty-Six Weeks Ended
|
|
|
|
August 4, 2018
|
|
|
July 29, 2017
|
|
|
August 4, 2018
|
|
|
July 29, 2017
|
|
|
|
(in thousands, except per share data)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
454
|
|
|
$
|
7,263
|
|
|
$
|
(3,431
|
)
|
|
$
|
11,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding - basic
|
|
|
34,759
|
|
|
|
36,336
|
|
|
|
34,807
|
|
|
|
36,639
|
|
Restricted stocks and stock options
|
|
|
261
|
|
|
|
136
|
|
|
|
-
|
(1)
|
|
|
172
|
|
Weighted-average common shares outstanding - diluted
|
|
|
35,020
|
|
|
|
36,472
|
|
|
|
34,807
|
|
|
|
36,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share
|
|
$
|
0.01
|
|
|
$
|
0.20
|
|
|
$
|
(0.10
|
)
|
|
$
|
0.32
|
|
Diluted earnings (loss) per common share
|
|
$
|
0.01
|
|
|
$
|
0.20
|
|
|
$
|
(0.10
|
)
|
|
$
|
0.32
|
|
|
(1)
|
Due to the Company being in a net loss position in the twenty-six weeks ended August 4, 2018, no restricted stocks and stock
options were included in the computation of diluted loss per share as their effect would have been anti-dilutive.
|
Potentially issuable shares under the Company’s stock-based
compensation plans amounting to approximately 0.3 million shares and 0.9 million in the thirteen and twenty-six weeks ended August
4, 2018, respectively, and 0.4 million shares in each of the thirteen and twenty-six weeks ended July 29, 2017 were excluded in
the computation of diluted weighted-average common shares outstanding due to their anti-dilutive effect. The Company also excluded
contingently issuable performance-based awards totaling 0.7 million shares in each of the thirteen and twenty-six weeks ended August
4, 2018 and 0.4 million shares in each of the thirteen and twenty-six weeks ended July 29, 2017 from the computation of diluted
earnings per share because the pre-established goals had not been satisfied as of the end of each period.
Francesca’s Holdings Corporation
Notes to Unaudited Consolidated Financial
Statements
|
3.
|
Fair Value Measurements
|
Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The
carrying amount reflected in the consolidated balance sheets of financial assets and liabilities, which includes cash and cash
equivalents, accounts receivable, accounts payable and accrued liabilities, approximated their fair values due to the short term
nature of these financial assets and liabilities.
The provision for income taxes is based on
the Company’s current estimate of the annual effective tax rate. The effective income tax rates for the thirteen
weeks ended August 4, 2018 and July 29, 2017 were 44.6% and 38.7%, respectively, and for the twenty six-weeks ended August 4,
2018 and July 29, 2017 were 6.4% and 39.3%, respectively. The change in the effective tax rates for the thirteen
and twenty-six weeks ended August 4, 2018 versus the comparable prior year period and the statutory federal corporate tax
rate under the
Tax Cuts and Jobs Act enacted in
December 2017
was primarily due to the additional tax
expense recognized related to certain stock-based awards.
As of August 4, 2018 and July 29, 2017, income tax receivable
totaled $11.7 million and $9.6 million, respectively.
The Company has not recorded any adjustment to its estimates
at the end of fiscal year 2017 as a result of the enactment of the Tax Act. As the Company continues to refine and update its analysis
of the Tax Act and interprets any additional guidance, it may make adjustments to the amounts that have been previously recorded.
Any such adjustment will be reflected in income tax expense or benefit in fiscal year 2018.
|
5.
|
Revolving Credit Facility
|
Prior Revolving Credit Facility
On August 30, 2013, Francesca’s Collections, Inc., as
borrower, and its parent company, Francesca’s LLC, a wholly-owned subsidiary of the Company, entered into a Second Amended
and Restated Credit Agreement (“Second Amended and Restated Credit Agreement”) with Royal Bank of Canada, as Administrative
Agent and Collateral Agent, and the lenders party thereto. The credit facility provided capacity of $75.0 million (including
up to $10.0 million for letters of credit) and was scheduled to mature on August 30, 2018. On May 25, 2018,
concurrent with entering into the Asset Based Revolving Credit Facility described below, the Second Amended and Restated Credit
Agreement was terminated.
Asset Based Revolving Credit Agreement
On May 25, 2018, Francesca’s Holdings
Corporation (the “Holdings”), as a guarantor, certain of its subsidiaries, as borrowers (the “Borrowers”),
and certain of its subsidiaries as guarantors (together with Holdings and the Borrowers, the “Loan Parties”), entered
into an asset based revolving Credit Agreement (“Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative
agent and the lenders party thereto. The Credit Agreement provides for revolving commitments of $50.0 million (including up to
$10.0 million for letters of credit) and matures on May 25, 2023. Availability under the Credit Agreement is subject to a customary
borrowing base comprised of: (a) a specified percentage of the Borrower’s credit card accounts
(as
defined in the Credit Agreement); and (b) a specified percentage of the Borrower’s eligible inventory (as defined in
the Credit Agreement), and reduced by (c) certain customary reserves and adjustments (as defined in the Credit Agreement).
The
Credit Agreement also contains an increase option permitting the Borrowers, subject to certain requirements, to arrange with lenders
for additional revolving commitments for up to an aggregate of $25.0 million. At August 4, 2018, there were no borrowings outstanding
and $28.4 million of borrowing base availability under the Credit Agreement.
All obligations of each Loan Party under
the Credit Agreement are unconditionally guaranteed by Holdings and each of Holdings’ existing and future direct and indirect
wholly owned domestic subsidiaries, including the Borrowers. All obligations under the Credit Agreement, and the guarantees of
those obligations (as well as banking services obligations and any interest rate hedging or other swap agreements), are secured
by substantially all of the assets of Holdings and each of Holdings’ existing and future direct and indirect wholly owned
domestic subsidiaries. In addition, the Credit Agreement requires the Loan Parties to maintain a minimum ratio of (i) EBITDAR (as
defined in the Credit Agreement) minus unfinanced capital expenditures (as defined in the Credit Agreement), to (ii) fixed charges
of 1.00 to 1.00 during periods when availability (as defined in the Credit Agreement) is less than $6.0 million (or has recently
been less than $6.0 million as further specified in the Credit Agreement) (such ratio, the “Fixed Charge Coverage Ratio”).
As of August 4, 2018, the borrowing availability under the Credit Agreement was more than $6.0 million resulting in the elimination
of the fixed charge coverage ratio requirement.
Francesca’s Holdings Corporation
Notes to Unaudited Consolidated Financial
Statements
Borrowings under the Credit Agreement bear
interest at a rate equal to an applicable margin plus, at the option of the Borrowers, either (a) in the case of base rate borrowings,
a rate equal to the highest of (1) the prime rate of JPMorgan Chase Bank, N.A., (2) the federal funds rate plus 1/2 of 1.00%, and
(3) LIBOR for an interest period of one month plus 1.00% (subject to a 0.0% LIBOR floor), provided that that the interest rate
for base rate borrowings (including the addition of the applicable margin) shall be no less than 1.50% per annum, or (b) in the
case of LIBOR borrowings, a rate equal to the LIBOR for the interest period relevant to such borrowing subject to a 0.00% floor.
The applicable margin for borrowings under the Credit Agreement ranges from -0.50% to 0.00% per annum with respect to base rate
borrowings and from 1.25% to 1.75% per annum with respect to LIBOR borrowings, in each case based upon the achievement of specified
levels of the Fixed Charge Coverage Ratio. The Credit Agreement also requires the Borrowers to pay a commitment fee for the unused
portion of the revolving facility of 0.20% per annum.
In connection with the Credit Agreement,
the Company incurred $0.5 million of debt issuance costs during the twenty-six weeks ended August 4, 2018, which is being amortized
over the term of the facility.
|
6.
|
Stock-based Compensation
|
Stock-based compensation cost is measured at the grant date
fair value and is recognized as an expense on a straight-line basis over the employee’s requisite service period. The Company
recognized $0.3 million and $0.7 million of stock-based compensation expense in the thirteen and twenty-six weeks ended August
4, 2018, respectively, and $1.2 million and $2.4 million of stock-based compensation expense in the thirteen and twenty-six weeks
ended July 29, 2017, respectively.
Management Awards
During the twenty-six weeks ended August 4, 2018 and July 29,
2017, the Company granted 0.9 million and 0.3 million shares of restricted stock, respectively, to certain executives and key employees. For
the fiscal 2018 award, 50% of the total shares awarded were in the form of performance-based restricted shares (“PSA”)
while the remaining 50% were in the form of time-based restricted shares (“RSA”). For the fiscal 2017 award, 65%
of the total shares awarded were in the form of PSAs while the remaining 35% were in the form of RSAs.
The
number of PSAs that may ultimately vest will equal 0% to 150% of the target shares awarded subject to the achievement of pre-established
performance goals and the employee’s continued employment through the third anniversary of the grant date. The RSAs vest
in one installment on the third anniversary of the award date.
At the end of each reporting period, the Company assessed
the probability of achieving the pre-established performance conditions related to the PSAs. As a result of such assessment, the Company recorded a reversal of previously accrued expense totaling
$0.5 million and $0.9 million in the thirteen and twenty-six weeks ended August 4, 2018, respectively, and $0.2 million
in each of the thirteen and twenty six weeks ended July 29, 2017.
On March 15, 2016, the Company’s Board of Directors authorized
a $100.0 million share repurchase program (“Repurchase Plan”) which commenced in April 2016. The Repurchase Plan has
no expiration date. Under the Repurchase Plan, purchases can be made from time to time in the open market, in privately negotiated
transactions, under Rule 10b5-1 plans or through other available means. The specific timing and amount of the repurchases
is dependent on market conditions, securities law limitations and other factors.
The following table summarizes the Company’s repurchase
activity for the periods presented. The cost of repurchased shares is presented as treasury stock in the unaudited consolidated
balance sheets.
|
|
Thirteen Weeks Ended
|
|
|
Twenty-Six Weeks Ended
|
|
|
|
August 4, 2018
|
|
|
July 29, 2017
|
|
|
August 4, 2018
|
|
|
July 29, 2017
|
|
|
|
(in thousands, except per share data)
|
|
Number of shares repurchased
|
|
|
-
|
|
|
|
513
|
|
|
|
659
|
|
|
|
1,122
|
|
Total cost of shares repurchased
|
|
$
|
-
|
|
|
$
|
5,731
|
|
|
$
|
3,522
|
|
|
$
|
15,016
|
|
Average price per share (including brokers’ commission)
|
|
$
|
-
|
|
|
$
|
11.16
|
|
|
$
|
5.34
|
|
|
$
|
13.38
|
|
At August 4, 2018, there was $40.2 million remaining balance
available for future purchases under the Repurchase Plan.
Francesca’s Holdings Corporation
Notes to Unaudited Consolidated Financial
Statements
|
8.
|
Commitments and Contingencies
|
Operating Leases
The Company leases boutique space, office space and its distribution
center under operating leases expiring in various years through the fiscal year ending 2029. Certain of the leases provide that
the Company may cancel the lease, with penalties as defined in the lease, if the Company’s boutique sales at that location
fall below an established level. Certain leases provide for additional rent payments to be made when sales exceed a base amount.
Certain operating leases provide for renewal options for periods from three to five years at their fair rental value at the time
of renewal.
Minimum future rental payments under non-cancellable operating
leases as of August 4, 2018, are as follows:
Fiscal year
|
|
Amount
|
|
|
|
(in thousands)
|
|
Remainder of 2018
|
|
$
|
25,272
|
|
2019
|
|
|
48,848
|
|
2020
|
|
|
43,426
|
|
2021
|
|
|
36,580
|
|
2022
|
|
|
30,747
|
|
Thereafter
|
|
|
82,851
|
|
|
|
$
|
267,724
|
|
Legal Proceedings
On January 27, 2017, a purported collective action lawsuit entitled
Meghan Magee, et al. v. Francesca’s Holdings Corp., et al. was filed in New Jersey Federal District Court against the Company
for alleged violations of federal and state wage and hour laws. The Company believes that the allegations contained in the lawsuit
are without merit and intends to vigorously defend itself against all claims asserted therein. A reasonable estimate of the amount
of any possible loss or range of loss cannot be made at this time and, as such, the Company has not recorded an accrual for any
possible loss.
The Company, from time to time, is subject to various claims
and legal proceedings, including employment claims, wage and hour claims, intellectual property claims, contractual and commercial
disputes and other matters that arise in the ordinary course of business. While the outcome of any such claim cannot
be predicted with certainty, the Company does not believe that the outcome of these matters will have a material adverse effect
on the Company’s business, results of operations or financial condition.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This report contains statements that constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These statements concern our
business, operations and financial performance and condition as well as our plans, objectives and expectations for our business
operations and financial performance and condition, which are subject to risks and uncertainties. All statements other than statements
of historical fact included in this report are forward-looking statements. These statements may include words such as “aim”,
“anticipate”, “assume”, “believe”, “can have”, “could”, “due”,
“estimate”, “expect”, “goal”, “intend”, “likely”, “may”,
“objective”, “plan”, “potential”, “positioned”, “predict”, “should”,
“target”, “will”, “would” and other words and terms of similar meaning in connection with any
discussion of the timing or nature of future operating or financial performance or other events or trends. For example, all statements
we make relating to our estimated and projected earnings, sales, costs, expenditures, cash flows, growth rates, market share and
financial results, our plans and objectives for future operations, growth or initiatives, strategies or the expected outcome or
impact of pending or threatened litigation are forward-looking statements.
These forward-looking statements are based on current expectations,
estimates, forecasts and projections about our business and the industry in which we operate and our management’s beliefs
and assumptions. These statements are not guarantees of future performance or development and involve known and unknown risks,
uncertainties and other factors that are in many cases beyond our control. All of our forward-looking statements are subject to
risks and uncertainties that may cause our actual results to differ materially from our expectations. 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, refresh and operate
new boutiques each year; our ability to efficiently source and distribute additional merchandise quantities necessary to support
our growth; and impact of potential tariff increases and 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 “Item 1A. Risk Factors,” in our Annual Report on Form 10-K for the fiscal year ended February 3, 2018
and filed with the Securities and Exchange Commission (“SEC”) on March 28, 2018 (“Fiscal Year 2017 10-K”)
and any risk factors contained in subsequent Quarterly Reports on Form 10-Q or other filings we file with the SEC, as well as our
disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and
elsewhere in this report and in our Fiscal Year 2017 10-K.
We derive many of our forward-looking statements from our own
operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable,
we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors
that could affect our actual results. All written and oral forward-looking statements attributable to us, or persons acting on
our behalf, are expressly qualified in their entirety by the cautionary statements contained in this report as well as other cautionary
statements that are made from time to time in our other SEC filings and public communications. You should evaluate all forward-looking
statements made in this report in the context of these risks and uncertainties.
Potential investors and other readers are urged to consider
these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on the forward-looking
statements. These forward-looking statements speak only as of the date of this report. Except as required by law, we undertake
no obligation to update or revise any forward-looking statements publicly after the date of this report whether as a result of
new information, future developments or otherwise.
Overview
Unless the context otherwise requires, the “Company,”
“we,” “our,” “ours,” “us” and “francesca’s®” refer to Francesca’s
Holdings Corporation and its consolidated subsidiaries.
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. As of
August 4, 2018, francesca’s
®
operated 742 boutiques in 47 states and the District of Columbia and
also served its customers through www.francescas.com, our ecommerce website. The information contained on our ecommerce website
is not incorporated by reference into this Quarterly Report on Form 10-Q and you should not consider information contained on our
ecommerce website to be part of this Quarterly Report on Form 10-Q.
During the thirteen weeks ended August 4, 2018, our net sales
decreased 6% to $113.0 million from $119.7 million, income from operations decreased by $11.0 million from $11.8 million to $0.8
million, and net income decreased $6.8 million from $7.3 million to $0.5 million, over the comparable prior year quarter. Diluted
earnings per share for the thirteen weeks ended August 4, 2018 was $0.01, based on 35.0 million weighted average diluted shares
outstanding, compared to diluted earnings per share of $0.20, based on 36.5 million weighted average diluted shares outstanding,
in the thirteen weeks ended July 29, 2017.
During the twenty-six weeks ended August 4, 2018, our net sales
decreased 6% to $213.4 million from $227.4 million, income from operations decreased $22.8 million from income from operations
of $19.1 million to a loss from operations of $3.7 million, and net income decreased $15.0 million from net income of $11.6 million
to a net loss of $3.4 million. Diluted loss per share for the twenty-six weeks ended August 4, 2018 was $0.10, based on 34.8 million
weighted average diluted shares outstanding, compared to diluted earnings per share of $0.32, based on 36.8 million weighted average
diluted shares outstanding.
We increased our boutique count to 742 boutiques as of August
4, 2018 from 692 boutiques as of July 29, 2017. Additionally, we remodeled 45 and 14 boutiques in the twenty-six weeks ended August
4, 2018 and July 29, 2017, respectively. We plan to open three boutiques, close 14 boutiques and refresh 35 to 40 boutiques during
the remainder of fiscal year 2018.
We are in the process of deploying new technologies to enhance
our omni-channel and customer engagement capabilities as part of our long-term strategic plan. In fiscal year 2017, we completed
our legacy point-of-sale system replacement and the implementation of a new customer relationship management system. We started
the implementation of a new warehouse management system for ecommerce and expect that such implementation will be completed in
fiscal year 2018. This new system will enhance our visibility into our products and supply chain which we expect will result in
improved customer service, improved operational efficiency, enhanced management analytics and increased inventory synergies between
our ecommerce and our boutique channels.
Results of Operations
The following represents operating data for the thirteen and
twenty-six weeks ended August 4, 2018 and July 29, 2017.
|
|
Thirteen Weeks Ended
|
|
|
Twenty-Six Weeks Ended
|
|
|
|
August 4, 2018
|
|
|
July 29, 2017
|
|
|
August 4, 2018
|
|
|
July 29, 2017
|
|
Net sales change for period
|
|
|
(6
|
)%
|
|
|
4
|
%
|
|
|
(6
|
)%
|
|
|
3
|
%
|
Comparable sales results for the period
(1)
|
|
|
(13
|
)%
|
|
|
(3
|
)%
|
|
|
(15
|
)%
|
|
|
(4
|
)%
|
Number of boutiques open at end of period
|
|
|
742
|
|
|
|
692
|
|
|
|
742
|
|
|
|
692
|
|
Net sales per average square foot for period
(2)
|
|
$
|
105
|
|
|
$
|
125
|
|
|
$
|
202
|
|
|
$
|
239
|
|
Average square feet per boutique
(3)
|
|
|
1,448
|
|
|
|
1,404
|
|
|
|
1,448
|
|
|
|
1,404
|
|
Total gross square feet at end of period
|
|
|
1,074,000
|
|
|
|
972,000
|
|
|
|
1,074,000
|
|
|
|
972,000
|
|
|
(1)
|
A boutique is included in comparable sales on the first day of the fifteenth full month following the boutique’s opening.
If a boutique is closed for four or more days within a given fiscal week for any reason, we exclude sales from that boutique from
comparable sales for that full fiscal week. If a boutique is permanently closed, we exclude sales from that boutique from comparable
sales on the first day of the fiscal month that it did not register full month of sales. Comparable sales include our ecommerce
sales and exclude gift card breakage income.
|
|
(2)
|
Net sales per average square foot is calculated by dividing net sales for the period by the average square feet during the
period. For purposes of providing net sales per square foot measure, we use average square feet during the period as opposed to
total gross square feet at the end of the period. For individual quarterly periods, average square feet is calculated as (a) the
sum of total gross square feet at the beginning and end of the period divided by (b) two. For periods consisting of more than
one fiscal quarter, average square feet is calculated as (a) the sum of total gross square feet at the beginning of the period
and total gross square feet at the end of each fiscal quarter within the period, divided by (b) the number of fiscal quarters
within the period plus one (which, for a fiscal year, is five). There may be variations in the way in which some of our competitors
and other retailers calculate sales per square foot or similarly titled measures. As a result, average square feet and net sales
per average square foot for the period may not be comparable to similar data made available by other retailers.
|
|
(3)
|
Average square feet per boutique is calculated by dividing total gross square feet at the end of the period by the number of
boutiques open at the end of the period.
|
Boutique Count
The following table summarizes the number of boutiques open
at the beginning and end of the periods and the number of boutiques remodeled for the periods indicated.
|
|
Thirteen Weeks Ended
|
|
|
Twenty-Six Weeks Ended
|
|
|
|
August 4, 2018
|
|
|
July 29, 2017
|
|
|
August 4, 2018
|
|
|
July 29, 2017
|
|
Number of boutiques open at beginning of period
|
|
|
744
|
|
|
|
679
|
|
|
|
721
|
|
|
|
671
|
|
Boutiques added
|
|
|
4
|
|
|
|
16
|
|
|
|
31
|
|
|
|
28
|
|
Boutiques closed
|
|
|
(6
|
)
|
|
|
(3
|
)
|
|
|
(10
|
)
|
|
|
(7
|
)
|
Number of boutiques open at the end of period
|
|
|
742
|
|
|
|
692
|
|
|
|
742
|
|
|
|
692
|
|
Number of boutiques remodeled for the period
|
|
|
30
|
|
|
|
10
|
|
|
|
45
|
|
|
|
14
|
|
Thirteen Weeks Ended August 4, 2018 Compared to Thirteen
Weeks Ended July 29, 2017
|
|
Thirteen
Weeks Ended
|
|
|
|
|
|
|
August
4, 2018
|
|
|
July
29, 2017
|
|
|
Variance
|
|
|
|
In
USD
|
|
|
As
a %
of
Net
Sales
(1)
|
|
|
In
USD
|
|
|
As
a %
of Net
Sales
(1)
|
|
|
In
USD
|
|
|
%
|
|
|
Basis
Points
|
|
|
|
(In thousands, except
percentages and basis points)
|
|
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.
|
Net Sales
Net sales decreased 6% to $113.0 million in the thirteen weeks
ended August 4, 2018 from $119.7 million in the thirteen weeks ended July 29, 2017 due to a 13% decrease in comparable sales.
This follows a 3% decrease in comparable sales for the same prior year quarter. The decrease in comparable sales was primarily
due to the decline in boutique traffic and conversion rate, although conversion has sequentially improved from month-to-month during
the quarter. These decreases were partially offset by 50 net new boutiques added since the prior year quarter. There were 663 comparable
boutiques and 79 non-comparable boutiques open at August 4, 2018 compared to 622 and 70, respectively, at July 29, 2017.
Cost of Goods Sold and Occupancy Costs
Cost of goods sold and occupancy costs increased 7% to $68.9
million in the thirteen weeks ended August 4, 2018 from $64.3 million in the thirteen weeks ended July 29, 2017. Cost of merchandise
and freight expenses increased by $1.3 million compared to the same period of the prior year primarily due to increased markdowns
and marked-out-of-stock charges as a result of our in-season clearance strategy and in order to transition the boutiques to the
new merchandising direction. Occupancy costs increased by $3.3 million due to the increase in the number of boutiques in operation,
higher rent and related expenses driven by increased penetration of boutiques in high traffic centers and higher
depreciation as a result of increased costs of opening new boutiques and remodeling existing boutiques.
As a percentage of net sales, cost of goods sold and occupancy
costs increased to 61.0% in the thirteen weeks ended August 4, 2018 from 53.7% in the thirteen weeks ended July 29, 2017, an unfavorable
variance of 730 basis points. This change was driven by lower merchandise margin and higher occupancy costs. Merchandise margins
decreased due to higher markdowns and marked-out-of-stock charges while the higher occupancy costs was due to higher rent and related
expenses as well as depreciation. Additionally, occupancy costs deleveraged significantly versus last year as a result of lower
sales.
Selling, General and Administrative Expenses
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 primarily due to $1.6 million of lower short- and long-term performance-based incentive expenses as
a result of lower expected payouts partially offset by increases of $0.9 million in corporate payroll and $0.3 million in
marketing expenses to support the larger boutique base and ecommerce operations as well as infrastructure and
strategic investments.
As a percentage of net sales, selling, general and administrative
expense increased to 38.3% in the thirteen weeks ended August 4, 2018 as compared to 36.4% in the thirteen weeks ended July 29,
2017 primarily due to deleveraging of expenses as a result of lower sales.
Income Tax Expense
The decrease in provision for income taxes
of $4.2 million in the thirteen weeks ended August 4, 2018 compared to the thirteen weeks ended July 29, 2017 was primarily due
to the decrease in pre-tax income. The effective tax rate in the thirteen weeks ended August 4, 2018 increased to 44.6% from 38.7%
in the thirteen weeks ended July 29, 2017. The change in the effective tax rate versus the comparable prior year period and the
statutory federal corporate tax rate under the Tax Cuts and Jobs Act (“Tax Act”) enacted in December 2017 was primarily
due to additional tax expense recognized related to the vesting of certain stock-based awards.
We did not record any adjustment to our estimates at the end
of fiscal year 2017 as a result of the enactment of the Tax Act. As we continue to refine and update our analysis of the Tax
Act and interpret any additional guidance, we may make adjustments to the amounts previously recorded. Any such adjustment will
be reflected in income tax expense or benefit in fiscal year 2018.
Twenty-Six Weeks Ended August 4, 2018 Compared to Twenty-Six
Weeks Ended July 29, 2017
|
|
Twenty-Six
Weeks Ended
|
|
|
|
|
|
|
August
4, 2018
|
|
|
July
29, 2017
|
|
|
Variance
|
|
|
|
In
USD
|
|
|
As a %
of
Net
Sales
(1)
|
|
|
In
USD
|
|
|
As
a %
of Net
Sales
(1)
|
|
|
In
USD
|
|
|
%
|
|
|
Basis
Points
|
|
|
|
(In thousands, except
percentages and 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.
|
Net Sales
Net sales decreased 6% to $213.4 million in the twenty-six weeks
ended August 4, 2018 from $227.4 million in the twenty-six weeks ended July 29, 2017 due to a 15% decrease in comparable sales.
This follows a 4% decrease in comparable sales for the same prior year period. The decrease in comparable sales was primarily due
to a decline in boutique traffic and conversion rate. These decreases were partially offset by 50 net new boutiques added since
the comparable prior year period. There were 663 comparable boutiques and 79 non-comparable boutiques open at August 4, 2018 compared
to 622 and 70, respectively, at July 29, 2017.
Cost of Goods Sold and Occupancy Costs
Cost of goods sold and occupancy costs increased 6% to $131.0
million in the twenty-six weeks ended August 4, 2018 from $123.3 million in the twenty-six weeks ended July 29, 2017. Cost of merchandise
and freight expenses increased by $0.9 million compared to the same period of the prior year primarily due to increased markdowns
and marked-out-of-stock charges as a result of our in-season clearance strategy and in order to transition the boutiques in to
the new merchandising direction. Occupancy costs increased by $6.7 million due to the increase in the number of boutiques in operation,
higher rent and related expenses driven by increased penetration of boutiques in high traffic centers and higher
depreciation as a result of increased costs of opening new boutiques and remodeling existing boutiques.
As a percentage of net sales, cost of goods sold and occupancy
costs increased to 61.4% in the twenty-six weeks ended August 4, 2018 from 54.2% in the twenty-six weeks ended July 29, 2017, an
unfavorable variance of 710 basis points. This change was driven by lower merchandise margin and higher occupancy costs. Merchandise
margins decreased due to higher markdowns and marked-out-of-stock charges while the higher occupancy costs was due to higher rent
and related expenses as well as depreciation. Additionally, occupancy costs deleveraged significantly versus last year as a result
of lower sales.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 1% to
$86.2 million in the twenty-six weeks ended August 4, 2018 from $84.9 million in the twenty-six weeks ended July 29, 2017.
This variance was due to increases of $2.1 million in boutique and corporate payroll and related expenses, $0.5 million in boutique
supplies, $0.3 million in marketing, and $0.3 million in corporate depreciation, all of which were to support the larger boutique
base and ecommerce operations as well as infrastructure and strategic investments. These increases were partially offset by a $2.5
million decrease in short- and long-term performance-based incentive expenses as a result of the lower expected payouts.
As a percentage of net sales, selling, general and administrative
expense increased to 40.4% in the twenty-six weeks ended August 4, 2018 as compared to 37.4% in the twenty-six weeks ended July
29, 2017 primarily due to deleveraging of expenses as a result of lower sales.
Income Tax (Benefit) Expense
The decrease in provision for income taxes
of $7.8 million in the twenty-six weeks ended August 4, 2018 compared to the twenty-six weeks ended July 29, 2017 was primarily
due to the decrease in pre-tax income. The effective tax rate in the twenty-six weeks ended August 4, 2018 decreased to 6.4% from
39.3% in the twenty-six weeks ended July 29, 2017. The change in the effective tax rate versus the comparable prior year period
and the statutory federal corporate tax rate under the Tax Cuts and Jobs Act (“Tax Act”) enacted in December 2017 was
primarily due to additional tax expense recognized related to the vesting of certain stock-based awards.
We did not record any adjustment to our estimates at the end
of fiscal year 2017 as a result of the enactment of the Tax Act. As we continue to refine and update our analysis of the Tax
Act and interpret any additional guidance, we may make adjustments to the amounts previously recorded. Any such adjustment will
be reflected in income tax expense or benefit in fiscal year 2018.
Sales by Merchandise
Department
|
|
Thirteen Weeks Ended
|
|
|
Twenty-Six Weeks Ended
|
|
|
|
August 4, 2018
|
|
|
July 29, 2017
|
|
|
August 4, 2018
|
|
|
July 29, 2017
|
|
|
|
In Dollars
|
|
|
As a % of
Net Sales
(1)
|
|
|
In Dollars
|
|
|
As a % of
Net Sales
(1)
|
|
|
In Dollars
|
|
|
As a % of
Net Sales
(1)
|
|
|
In Dollars
|
|
|
As a % of
Net Sales
(1)
|
|
|
|
(in thousands, except percentages)
|
|
Apparel
|
|
$
|
56,807
|
|
|
|
50.3
|
%
|
|
$
|
65,396
|
|
|
|
54.6
|
%
|
|
$
|
106,341
|
|
|
|
49.8
|
%
|
|
$
|
125,408
|
|
|
|
55.2
|
%
|
Jewelry
|
|
|
26,984
|
|
|
|
23.9
|
%
|
|
|
25,560
|
|
|
|
21.4
|
%
|
|
|
50,842
|
|
|
|
23.8
|
%
|
|
|
49,331
|
|
|
|
21.7
|
%
|
Accessories
|
|
|
17,181
|
|
|
|
15.2
|
%
|
|
|
14,735
|
|
|
|
12.3
|
%
|
|
|
32,664
|
|
|
|
15.3
|
%
|
|
|
28,716
|
|
|
|
12.6
|
%
|
Gifts
|
|
|
11,337
|
|
|
|
10.0
|
%
|
|
|
12,836
|
|
|
|
10.7
|
%
|
|
|
22,442
|
|
|
|
10.5
|
%
|
|
|
23,951
|
|
|
|
10.5
|
%
|
Other
(2)
|
|
|
716
|
|
|
|
0.6
|
%
|
|
|
1,180
|
|
|
|
1.0
|
%
|
|
|
1,140
|
|
|
|
0.5
|
%
|
|
|
(10
|
)
|
|
|
0.0
|
%
|
|
|
$
|
113,025
|
|
|
|
100.0
|
%
|
|
$
|
119,707
|
|
|
|
100.0
|
%
|
|
$
|
213,430
|
|
|
|
100.0
|
%
|
|
$
|
227,396
|
|
|
|
100.0
|
%
|
|
(1)
|
Percentage totals in the above table may not equal the sum of the components due to rounding.
|
|
(2)
|
Includes gift card breakage income, shipping and change in return reserve.
|
Liquidity and Capital Resources
Our primary sources of liquidity are cash flows from operations
and borrowings under our revolving credit facility. Our primary cash needs are for capital expenditures in connection with opening
new boutiques and remodeling existing boutiques, investing in improved technology and distribution facility enhancements, funding
normal working capital requirements and payments of interest and principal, if any, under our revolving credit facility. We may
use cash or our revolving credit facility to issue letters of credit to support merchandise imports or for other corporate purposes.
The most significant components of our working capital are cash and cash equivalents, merchandise inventories, accounts payable
and other current liabilities. Our working capital position benefits from the fact that we generally collect cash from sales to
customers the day of or, in the case of credit or debit card transactions, within several days of the related sales and we typically
have up to 30 days to pay our vendors.
On August 4, 2018, we had $23.4 million of cash and
cash equivalents as well as no borrowings outstanding and $28.4 million of borrowing base availability under our Asset Based
Revolving Credit Facility. See “Revolving Credit Facility” below for more information.
We expect that our cash flow from operations along with borrowings
under our Asset Based Revolving Credit Facility and tenant allowances for new boutiques will be sufficient to fund capital expenditures
and our working capital requirements for at least the next twelve months.
Cash Flow
A summary of our operating, investing and financing activities
are shown in the following table:
|
|
Twenty-Six Weeks Ended
|
|
|
|
August 4, 2018
|
|
|
July 29, 2017
|
|
|
|
(in thousands)
|
|
Provided by operating activities
|
|
$
|
10,936
|
|
|
$
|
8,454
|
|
Used in investing activities
|
|
|
(14,436
|
)
|
|
|
(12,890
|
)
|
Used in financing activities
|
|
|
(4,477
|
)
|
|
|
(15,468
|
)
|
Net decrease in cash and cash equivalents
|
|
$
|
(7,977
|
)
|
|
$
|
(19,904
|
)
|
Operating Activities
Operating activities consist of net (loss) income adjusted for
non-cash items, including depreciation and amortization, deferred taxes, the effect of working capital changes and tenant allowances
received from landlords. Net cash provided by operating activities were $10.9 million and $8.5 million in each of the twenty-six
weeks ended August 4, 2018 and July 29, 2017, respectively. The increase in cash provided by operating activities in the current
period as compared to the same period of the prior year was primarily due to lower income tax payments partially offset by lower net income.
Investing Activities
Investing activities consist primarily of capital expenditures
for new boutiques, improvements to existing boutiques, as well as investments in information technology and our distribution facility.
|
|
Twenty-Six Weeks Ended
|
|
|
|
August 4, 2018
|
|
|
July 29, 2017
|
|
|
|
(in thousands)
|
|
Capital expenditures for:
|
|
|
|
|
|
|
|
|
New boutiques
|
|
$
|
7,807
|
|
|
$
|
8,467
|
|
Remodels
|
|
|
4,186
|
|
|
|
1,826
|
|
Existing boutiques
|
|
|
980
|
|
|
|
1,612
|
|
Technology
|
|
|
891
|
|
|
|
955
|
|
Corporate and distribution
|
|
|
572
|
|
|
|
30
|
|
|
|
$
|
14,436
|
|
|
$
|
12,890
|
|
Our total capital expenditures for the twenty-six weeks ended
August 4, 2018 and July 29, 2017 were $14.4 million and $12.9 million, respectively, with new boutiques accounting for most of
our spending at $7.8 million and $8.5 million, respectively. Spending for new boutiques included amounts associated with boutiques
that will open subsequent to the end of each fiscal quarter.
|
|
Twenty-Six Weeks Ended
|
|
|
|
August 4, 2018
|
|
|
July 29, 2017
|
|
New boutiques:
|
|
|
|
|
|
|
|
|
Number of new boutiques opened
|
|
|
31
|
|
|
|
28
|
|
Average cost per new boutique
|
|
$
|
315,000
|
|
|
$
|
290,000
|
|
Average tenant allowance per new boutique
|
|
$
|
43,000
|
|
|
$
|
57,000
|
|
|
|
|
|
|
|
|
|
|
Remodels:
|
|
|
|
|
|
|
|
|
Number of boutiques remodeled
|
|
|
45
|
|
|
|
14
|
|
Average cost per remodeled boutique
|
|
$
|
140,000
|
|
|
$
|
130,000
|
|
The increase in the average cost of new boutiques during the
twenty-six weeks ended August 4, 2018 compared to the same prior year period was due to higher costs of leasehold improvements
as well as furniture and fixtures as a result of implementing our new boutique design piloted in our existing boutiques
last year. Average tenant allowance per boutique decreased principally due to our continued focus in lowering rental rates. Tenant
allowances are amortized as a reduction in rent expense over the term of the lease. The average collection period for these allowances
is approximately six months after boutique opening. As a result, we fund the cost of new boutiques with cash flow from operations,
tenant allowances from our landlords, or borrowings under our revolving credit facility. As previously disclosed, we are embarking
on a remodel program in fiscal year 2018. For the twenty-six weeks ended August 4, 2018, the average cost of a remodel increased
compared to the same period last year primarily as a result of more extensive updates to our boutiques.
Management anticipates that capital expenditures for the remainder
of fiscal year 2018 will be approximately $16 million. The majority of this amount will be spent on remodeling existing boutiques
as well as investments in our technology systems.
Financing Activities
Financing activities consist of borrowings and payments under
our revolving credit facility, repurchases of our common stock, and proceeds from the exercise of stock options and the related
tax consequence.
Net cash used in financing activities totaled $4.5 million and
$15.5 million during the twenty-six weeks ended August 4, 2018 and July 29, 2017, respectively. Cash used in financing activities
in each period primarily consists of repurchases of common stock.
Revolving Credit Facility
Prior Revolving Credit Facility
On August 30, 2013, Francesca’s Collections, Inc., as
borrower, and its parent company, Francesca's LLC, a wholly owned subsidiary of the Company, entered into a Second Amended and
Restated Credit Agreement with Royal Bank of Canada, as Administrative Agent and Collateral Agent, and the lenders party thereto.
The credit facility provided capacity of $75.0 million (including up to $10.0 million for letters of credit) and was scheduled
to mature on August 30, 2018. On May 25, 2018, concurrent with entering into the Asset Based Revolving Credit Facility described
below, the Second Amended and Restated Credit Agreement was terminated.
Asset Based Revolving Credit Facility
On May 25, 2018, Francesca’s Holdings
Corporation (the “Holdings”), as a guarantor, certain of its subsidiaries, as borrowers (the “Borrowers”),
and certain of its subsidiaries as guarantors (together with the Company and the Borrowers, the “Loan Parties”), entered
into an asset based revolving Credit Agreement (“Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative
agent and the lenders party thereto. The Credit Agreement provides for revolving commitments of $50.0 million (including up to
$10.0 million for letters of credit) and matures on May 25, 2023. Availability under the Credit Agreement is subject to a customary
borrowing base comprised of: (a) a specified percentage of the Borrower’s credit card accounts
(as
defined in the Credit Agreement); and (b) a specified percentage of the Borrower’s eligible inventory (as defined in
the Credit Agreement), and reduced by (c) certain customary reserves and adjustments (as defined in the Credit Agreement).
The
Credit Agreement also contains an increase option permitting the Borrowers, subject to certain requirements, to arrange with lenders
for additional revolving commitments for up to an aggregate of $25.0 million. At August 4, 2018, there were no borrowings outstanding
and $28.4 million of borrowing base availability under the Credit Agreement.
All obligations of each Loan Party under
the Credit Agreement are unconditionally guaranteed by the Company and each of the Company’s existing and future direct and
indirect wholly owned domestic subsidiaries, including the Borrowers. All obligations under the Credit Agreement, and the guarantees
of those obligations (as well as banking services obligations and any interest rate hedging or other swap agreements), are secured
by substantially all of the assets of the Company and each of the Company’s existing and future direct and indirect wholly
owned domestic subsidiaries. In addition, the Credit Agreement requires the Loan Parties to maintain a minimum ratio of (i) EBITDAR
(as defined in the Credit Agreement) minus unfinanced capital expenditures (as defined in the Credit Agreement), to (ii) fixed
charges of 1.00 to 1.00 during periods when availability (as defined in the Credit Agreement) is less than $6.0 million (or has
recently been less than $6.0 million as further specified in the Credit Agreement) (such ratio, the “Fixed Charge Coverage
Ratio”). As of August 4, 2018, our borrowing availability was more than $6.0 million, resulting in the elimination of the
fixed charge coverage ratio requirement.
Borrowings under the Credit Agreement bear
interest at a rate equal to an applicable margin plus, at the option of the Borrowers, either (a) in the case of base rate borrowings,
a rate equal to the highest of (1) the prime rate of JPMorgan Chase Bank, N.A., (2) the federal funds rate plus 1/2 of 1.00%, and
(3) LIBOR for an interest period of one month plus 1.00% (subject to a 0.0% LIBOR floor), provided that that the interest rate
for base rate borrowings (including the addition of the applicable margin) shall be no less than 1.50% per annum, or (b) in the
case of LIBOR borrowings, a rate equal to the LIBOR for the interest period relevant to such borrowing subject to a 0.00% floor.
The applicable margin for borrowings under the Credit Agreement ranges from -0.50% to 0.00% per annum with respect to base rate
borrowings and from 1.25% to 1.75% per annum with respect to LIBOR borrowings, in each case based upon the achievement of specified
levels of the Fixed Charge Coverage Ratio. The Credit Agreement also requires the Borrowers to pay a commitment fee for the unused
portion of the revolving credit facility of 0.20% per annum.
The Credit Agreement contains customary
affirmative and negative covenants, including limitations, subject to customary exceptions, on the ability of the Company and its
subsidiaries to (i) incur additional debt; (ii) create liens; (iii) make certain investments, acquisitions, loans and advances;
(iv) sell assets; (v) pay dividends or make distributions or make other restricted payments; (vi) prepay other indebtedness; (vii)
engage in mergers or consolidations; (viii) change the business conducted by the Company and its subsidiaries; (ix) engage in certain
transactions with affiliates; (x) enter into agreements that restrict dividends from subsidiaries or the ability of subsidiaries
to grant liens upon their assets; and (xi) amend certain charter documents and material agreements governing subordinated and junior
indebtedness.
The Credit Agreement also contains customary events of default,
including: (i) failure to pay principal, interest, fees or other amounts under the Credit Agreement when due taking into account
any applicable grace period; (ii) any representation or warranty proving to have been materially incorrect when made or deemed
made; (iii) a cross default with respect to other material indebtedness; (iv) bankruptcy and insolvency events; (v) unsatisfied
material final judgments; (vi) a “change of control”; (vii) certain defaults under the Employee Retirement Income Security
Act of 1974; (viii) the invalidity or impairment of any loan document or any security interest; and (ix) breach of covenants in
the Credit Agreement and other loan documents.
In connection with the Credit Agreement,
the Company incurred $0.5 million of debt issuance costs during the twenty-six weeks ended August 4, 2018, which is being amortized
over the term of the facility.
Share Repurchase Program
For information regarding our share repurchase program, please
refer to Note 7 to our unaudited consolidated financial statements included in Part I of this report, which is incorporated herein
by reference.
Critical Accounting Policies
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues, and expenses, as well as the related disclosures of contingent assets and liabilities
at the date of the financial statements. A summary of the Company’s significant accounting policies is included in Note 1
to the Company’s annual consolidated financial statements included in the Company’s Annual Report on Form 10-K for
the fiscal year ended February 3, 2018.
Certain of the Company’s accounting policies and estimates
are considered critical, as these policies and estimates are the most important to the depiction of the Company’s consolidated
financial statements and require significant, difficult, or complex judgments, often about the effect of matters that are inherently
uncertain. Such policies are summarized in the “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” section of our Annual Report on Form 10-K for the fiscal year ended February 3, 2018. As of August 4, 2018,
there were no significant changes to any of our critical accounting policies and estimates as disclosed in our Annual Report on
Form 10-K for the fiscal year ended February 3, 2018.
Recent Accounting Pronouncements
For information regarding recent accounting pronouncements,
please refer to Note 1 to our unaudited consolidated financial statements included in Part I of this Report, which is incorporated
herein by reference.
Contractual Obligations
There were no significant changes to our contractual obligations
and commercial commitments as disclosed in our Annual Report on Form 10-K for the fiscal year ended February 3, 2018, other than
those which occur in the normal course of business.
Off Balance Sheet Arrangements
We are not party to any off balance sheet arrangements.