March 23, 2016

francesca's® Reports Fourth Quarter and Fiscal Year 2015 Financial Results

  • Fourth quarter net sales increased 25% to $134.6 million
  • Fourth quarter comparable sales increased 11%
  • Fourth quarter diluted earnings per share was $0.35, exceeding the upper end of guidance

HOUSTON, March 23, 2016 (GLOBE NEWSWIRE) -- Francesca's Holdings Corporation (NASDAQ:FRAN) today reported financial results for the fourth quarter and fiscal year ended January 30, 2016.

Michael W. Barnes, Chairman, President, and CEO stated, "Our fourth quarter results exceeded our expectations across key metrics, illustrating that our near term initiatives are working well. We are particularly pleased with the sequential improvement in our apparel sales, which grew 35% during the fourth quarter, as well as with the performance in our non-apparel sales which increased 19%. As we look ahead to fiscal 2016, we remain confident that we are well-positioned to deliver healthy sales and earnings growth for the year. Overall, I continue to believe that the francesca's® brand has enormous untapped potential and we remain focused on maximizing this opportunity by enhancing our brand awareness and driving our top-line through the successful execution of our Vision 2020 plan. We are confident that the steps we are taking will drive consistent, long-term, profitable growth for francesca's®. I would like to take this opportunity to thank and congratulate each of our associates for their hard work in delivering an outstanding performance during fiscal 2015."

FOURTH QUARTER RESULTS

Net sales increased 25% to $134.6 million from $107.6 million in the prior year quarter. This increase was driven by an 11% increase in comparable sales during the fourth quarter as well as the opening of 83 boutiques during fiscal 2015. We opened three boutiques and closed six underperforming boutiques during the quarter bringing our total boutique count to 616 as of January 30, 2016

The increase in comparable sales was driven by increases in comparable transactions and average transaction value. Direct-to-consumer sales increased 38% to $6.1 million during the quarter compared to $4.4 million in the same period last year primarily due to increased conversion rate.

Gross profit, as a percentage of net sales, increased to 49.1% from 45.7% in the prior year quarter. This favorable variance included a 290 basis points higher merchandise margin and 50 basis points leverage in occupancy costs. The improvement in merchandise margin was primarily driven by reduced promotional activities during the quarter compared to last year.

Selling, general and administrative expenses ("SG&A") increased 9% to $42.0 million from $38.5 million in the prior year quarter. Adjusted SG&A(1) increased 22% to $41.3 million from $33.9 million in the prior year quarter. The increase in adjusted SG&A is primarily due to higher boutique and corporate payroll expenses to support the larger boutique base and sales growth as well as increased performance-based incentive bonus expenses over the prior year quarter.

Income from operations was $24.2 million, or 18.0% of net sales, compared to $10.7 million, or 10.0% of net sales, in the prior year quarter. Adjusted income from operations(1) was $24.8 million, or 18.4% of net sales, compared to $15.4 million, or 14.3% of net sales, in the prior year quarter. 

Our effective tax rate for the fourth quarter was 38.9% compared to 43.1% in the comparable prior year quarter. The prior year tax rate was impacted by the true-up of state income taxes for years prior to fiscal 2014. Excluding this adjustment, the effective tax rate for the fourth quarter last year was 38.1%.

Net income for the fourth quarter totaled $14.7 million, or $0.35 diluted earnings per share, compared to $6.0 million, or $0.14 diluted earnings per share, in the comparable prior year period. Adjusted net income(1) for the fourth quarter totaled $15.0 million, or $0.36 adjusted diluted earnings per share(1), compared to $8.8 million, or $0.21 adjusted diluted earnings per share(1), in the comparable prior year period. 

FULL YEAR RESULTS

Net sales increased 16% to $439.4 million in fiscal year 2015 compared to $377.5 million in fiscal year 2014. This year-over-year increase in sales is driven by a 3% increase in comparable sales as well as the new boutiques opened since the prior year end. Direct-to-consumer sales increased 18% versus the prior year due to increased conversion rate.

During fiscal year 2015, we opened 83 new boutiques and closed six underperforming boutiques.

Net income for fiscal year 2015 totaled $38.2 million, or $0.91 diluted earnings per share, compared to $32.1 million, or $0.76 diluted earnings per share. Adjusted net income(1) for fiscal year 2015 totaled $38.5 million, or $0.92 adjusted diluted earnings per share(1), compared to $35.0 million, or $0.83 adjusted diluted earnings per share(1), in fiscal year 2014.
________________________________________________________
(1) See Schedule 2 for a reconciliation of GAAP to non-GAAP measure.

BALANCE SHEET SUMMARY

Total cash and cash equivalents at year end were $56.2 million compared to $39.1 million at the prior year end. The Company had no debt outstanding under its revolving credit facility at year end.

The Company ended the year with $31.5 million of inventory on hand compared to $23.8 million at the prior year end. Average ending inventory per boutique increased by 16%. The increase in inventory is primarily due to the increase in the number of boutiques in operation in fiscal 2015 compared to fiscal 2014. Additionally, prior year inventory levels were at a historical low due to the disposal of certain slow moving inventory closer to year-end.

During the fourth quarter, the Company repurchased 910,000 shares of its common stock at a cost of $14.6 million, or an average of $16.07 per share. 

FIRST QUARTER AND FISCAL YEAR 2016 GUIDANCE

For the first quarter ending April 30, 2016, net sales are expected to be in the range of $108.0 million and $112.0 million; which assumes a mid-single digit increase in comparable sales compared to the prior year comparable sales decrease of 2%. The Company plans to open 20 to 25 new boutiques and close one to three underperforming boutiques during the first quarter. Diluted earnings per share are expected to be in the range of $0.17 to $0.20.

For the full year ending January 28, 2017, net sales are expected to be in the range of $474.0 million and $494.0 million; which assumes a low-single digit increase in comparable sales compared to a prior year comparable sales increase of 3%. The Company expects to open 50 to 60 new boutiques and close five to ten underperforming boutiques in fiscal year 2016 compared to 83 new boutiques opened and six boutiques closed in fiscal year 2015. Diluted earnings per share are expected to be in the range of $0.93 to $1.03 . The number of average diluted shares for the full year assumed in guidance is expected to be 40.2 million shares. The effective tax rate is estimated to be 38.1%.

Capital expenditures for fiscal year 2016 are expected to be in the range of $28.0 million to $31.0 million.

SHARE REPURCHASE PROGRAM

The Company's Board of Directors has authorized an additional $100 million share repurchase program to commence immediately. This authorization has no expiration date. This authorization is in addition to the Company's previously authorized $100 million share repurchase program (the "Previous Plan").  As of March 18, 2016, the approximate dollar value of shares that may yet be purchased under the Previous Plan is approximately $5.7 million

The specific timing and amount of the repurchases will be dependent on market conditions, securities law limitations and other factors. In connection with the repurchase program, the Company plans to conduct open market purchases, adopt one or more plans pursuant to the provisions of Rule 10b5-1, and such other strategies as would be appropriate under the circumstances, consistent with the Securities and Exchange Act of 1934.

Conference Call Information

A conference call to discuss the fourth quarter and fiscal year 2015 results is scheduled for March 23, 2016, at 8:30 a.m. ET. A live web cast of the conference call will be available in the investor relations section of the Company's website, www.francescas.com. In addition, a replay of the call will be available after the call and remain available until March 30, 2016. To access the telephone replay, listeners should dial 1-877-870-5176. The access code for the replay is 9148041. A replay of the web cast will also be available shortly after the call and will remain on the website for ninety days.

SEC Regulation G — Non-GAAP Information

This press release includes non-GAAP adjusted selling, general and administrative expenses, adjusted income from operations, adjusted net income and adjusted diluted earnings per share, each a non-GAAP financial measure. We have reconciled these non-GAAP financial measures with the most directly comparable GAAP financial measures on Schedule 2 of this release. We believe that these non-GAAP financial measures not only provide our management with comparable financial data for internal financial analysis but also provide meaningful supplemental information to investors. Specifically, these non-GAAP financial measures allow investors to better understand the performance of our business and facilitate a meaningful evaluation of our quarterly and fiscal year 2015 diluted earnings per share and actual results on a comparable basis with our quarterly and fiscal year 2014 results. These non-GAAP measures should be considered a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.

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; our ability to attract a sufficient number of customers to our boutiques or sell sufficient quantities of our merchandise through our direct-to-consumer business; our ability to successfully open and operate new boutiques each year; our ability to efficiently source and distribute additional merchandise quantities necessary to support our growth and; our ability to attract and integrate a new Chief Financial Officer. For additional information regarding these and other risks and uncertainties that could cause actual results to differ materially from those contained in our forward-looking statements, please refer to "Risk Factors" in our Annual Report on Form 10-K for the year ended January 31, 2015 filed with the Securities and Exchange Commission on March 27, 2015 and any risk factors contained in subsequent quarterly and annual reports we file with the SEC. We undertake no obligation to publicly update or revise any forward-looking statement.

About Francesca's Holdings Corporation

francesca's® is a growing specialty retailer which operates a nationwide-chain of boutiques providing customers a unique, fun and differentiated shopping experience. The merchandise assortment is a diverse and balanced mix of apparel, jewelry, accessories and gifts. Today francesca's® operates 626 boutiques in 48 states and the District of Columbia and also serves its customers through francescas.com. For additional information on francesca's®, please visit www.francescas.com.

Francesca's Holdings Corporation
Schedule 1
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts and Percentages)

 Thirteen Weeks Ended      
 January 30, 2016 January 31, 2015 Variance 
 In USD  As a % of Net Sales(1) In USD As a % of Net Sales(1) In USD % Basis Points 
Net sales$134,605   100.0% $107,644   100.0% $26,961   25%    -   
Cost of goods sold and occupancy costs   68,468   50.9%    58,398   54.3%    10,070   17%   (340) 
Gross profit   66,137   49.1%    49,246   45.7%   16,891   34%  340  
Selling, general and administrative expenses   41,965   31.2%    38,529   35.8%    3,436   9%   (460) 
Income from operations   24,172   18.0%  10,717    10.0%   13,455   126%  800  
Interest expense   (113)   (0.1)%    (116)  (0.1)%    3   (3)%    
Other expense   (60)  0.0%    (113)  (0.1)%    53   (47)%    10  
Income before income tax expense   23,999   17.8%   10,488   9.7%   13,511   129%    810  
Income tax expense   9,343   6.9%    4,517   4.2%    4,827   107%    270  
Net income$  14,656   10.9% $  5,971   5.5% $  8,685   145%    530  
(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$   0.35    $   0.14          
Weighted average diluted share count 41,391     42,298          
                        
Comparable sales change 11%  1%      
                       
 Fiscal Year Ended      
 January 30, 2016 January 31, 2015 Variance 
 In USD As a % of Net Sales In USD As a % of Net Sales In USD % Basis Points 
Net sales$439,377   100.0% $377,497   100.0% $61,880   16%    -   
Cost of goods sold and occupancy costs   229,673   52.3%   199,919   53.0%   29,754   15%    (70) 
Gross profit   209,704   47.7%   177,578   47.0%    32,126   18%    70  
Selling, general and administrative expenses  147,387   33.5%    124,804   33.1%   22,583   18%    50  
Income from operations   62,317   14.2%   52,774   14.0%    9,543   18%    20   
Interest expense   (457)  (0.1)%     (623)  (0.2)%    166   (27)%    10  
Other income (expense)   (151)  0.0%    88   0.0%    (239)  (272)%   (10) 
Income before income tax expense   61,709   14.0%    52,239   13.8%     9,470   18%    20   
Income tax expense   23,557   5.4%    20,131   5.3%    3,426   17%    -   
Net income$  38,152   8.7% $  32,108   8.5% $  6,044   19%    20  
(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$   0.91    $   0.76          
Weighted average diluted share count   42,117     42,380          
                       
Comparable sales change 3%  (5)%      
              


Francesca's Holdings Corporation
Schedule 2

Reconciliation of Adjusted SG&A, Adjusted Income from Operations, Adjusted Net Income
and Adjusted Diluted Earnings per Share to the Comparable GAAP Measure
(In Thousands, Except Per Share Amounts)

 Thirteen Weeks Ended
January 30, 2016
 Fiscal Year Ended
January 30, 2016
 SG&A Income from Operations Net Income Diluted Earnings per Share  Net Income Diluted Earnings per Share
GAAP Measure$41,965  $  24,172  $14,656  $  0.35   $38,152  $  0.91 
Abandonment of website development costs (1)(2)  636   636   393   0.01     393   0.01 
Adjusted non-GAAP measure$41,329  $  24,808  $15,049  $  0.36   $38,545  $  0.92 
             
Weighted average diluted share count       41,391      42,117 
            
(1)  Item was tax effected at the Company's effective tax rate of 38.2% for the fiscal year ended January 30, 2016
(2)  This relates to a non-cash impairment charge incurred in the fourth quarter of fiscal 2015 in connection with the abandonment of previously capitalized costs related to the development of our direct-to-consumer website.
 
 Thirteen Weeks Ended
January 31, 2015
 Fiscal Year Ended
January 31, 2015
 SG&A Income from Operations Net Income Diluted Earnings per Share  Net Income Diluted Earnings per Share
GAAP Measure$ 38,529  $   10,717  $  5,971  $  0.14   $32,108  $  0.76 
Abandonment of website development costs (3)(4) 2,470   2,470   1,519   0.04    1,519     0.04 
CEO transition costs (3)(5)  2,186   2,186   1,344   0.03    1,344     0.03 
Adjusted non-GAAP measure$ 33,873  $  15,373  $  8,834  $  0.21   $34,971  $   0.83 
             
Weighted average diluted share count       42,298      42,380 
             
(3)  Items were tax effected at the Company's effective tax rate of 38.5% for the fiscal year ended January 31, 2015
(4)  This relates to a non-cash impairment charge incurred in the fourth quarter of fiscal year 2014 in connection with the abandonment of previously capitalized costs related to the development of our direct-to-consumer website.  
(5)  This relates to CEO transition cost incurred in connection with the appointment of Michael Barnes and his transition to the position of our CEO in December 2014.  
 

Francesca's Holdings Corporation
Schedule 3
Consolidated Balance Sheets
(In thousands, except share amounts)

  January 30,  January 31, 
  2016  2015 
ASSETS        
Current assets:        
Cash and cash equivalents $56,224  $39,071 
Accounts receivable  9,580   12,279 
Inventories  31,541   23,801 
Deferred income taxes  6,411   4,858 
Prepaid expenses and other current assets  7,013    5,890 
Total current assets  110,769   85,899 
Property and equipment, net  77,894   74,095 
Deferred income taxes  3,847   3,642  
Other assets, net  1,067   1,909 
TOTAL ASSETS $ 193,577  $165,545 
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
Current liabilities:        
Accounts payable $14,305  $11,550 
Accrued liabilities  16,328   11,904 
Total current liabilities  30,633   23,454 
Landlord incentives and deferred rent  36,552   32,877 
Total liabilities  67,185   56,331 
Commitments and contingencies        
Stockholders' equity:        
Common stock-$.01 par value, 80.0 million shares authorized, 45.9 million and 45.5 million shares issued as of January 30, 2016 and January 31, 2015, respectively.  459    455 
Additional paid-in capital  107,693   105,498 
Retained earnings  101,556   63,404 
Treasury stock, at cost - 4.7 million and 3.2 million shares held at January 30, 2016 and January 31, 2015, respectively.  (83,316)  (60,143)
Total stockholders' equity  126,392   109,214 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $193,577  $165,545 
         

Francesca's Holdings Corporation
Schedule 4
Consolidated Statements of Cash Flows
(In thousands)

  Fiscal Year Ended 
  January 30,  January 31,  February 1, 
  2016  2015  2014 
Cash Flows Provided by Operating Activities:            
Net income $38,152  $ 32,108  $44,839 
Adjustments to reconcile net income to net cash provided by operating activities:             
Depreciation and amortization  16,816   13,151    10,054 
Stock-based compensation expense  2,932   2,668   3,781 
Excess tax benefit from stock-based compensation  (236)  (309)  (5,846)
Impairment charges  790   2,470   - 
Loss on disposal of assets  487   364   343 
Amortization of debt issuance costs  245   245   278 
Deferred income taxes  (3,226)  (1,600)  (1,014)
Changes in assets and liabilities:            
Accounts receivable  2,935   (2,986)  (634)
Inventories  (7,740)  813   (5,565)
Prepaid expenses and other assets  (524)  373    (2,021)
Accounts payable  4,137   (363)  551 
Accrued liabilities  4,424   2,081   (844)
Landlord incentives and deferred rent   3,675   5,429   5,356 
Net cash provided by operating activities  62,867   54,444   49,278 
             
Cash Flows Used in Investing Activities:            
Purchase of property and equipment  (24,276)  (24,255)  (24,633)
Other  12   13   98 
Net cash used in investing activities  (24,264)  (24,242)  (24,535)
             
Cash Flows Used in Financing Activities:            
Repurchases of common stock  (22,185)  (5,270)  (54,009)
Proceeds from the exercise of stock options  499   1,332   8,697 
Excess tax benefit from stock-based compensation  236   309   5,846 
Taxes paid related to net settlement of equity awards  -   -   (2,280)
Repayment of borrowings under the revolving credit facility  -   (25,000)   
Proceeds from borrowings under the revolving credit facility  -   -   25,000 
Payment of debt issuance costs  -   -   (376)
Net cash used in financing activities  (21,450)  (28,629)  (17,122)
             
Net increase in cash and cash equivalents  17,153   1,573   7,621 
Cash and cash equivalents, beginning of year  39,071   37,498   29,877 
Cash and cash equivalents, end of year $56,224   $39,071  $37,498 
             
Supplemental Disclosures of Cash Flow Information:            
Cash paid for income taxes $23,958  $24,088  $32,401 
Interest paid $190  $388  $293 
             

Francesca's Holdings Corporation
Schedule 5

Supplemental Information

Quarterly Sales by Merchandise Category

 Thirteen Weeks Ended Variance
 January 30, 2016  January 31, 2015 In Dollars %
 (in thousands, except percentages)
Apparel$53,434 $39,574 $13,860  35%
Jewelry 29,658  24,198  5,460  23%
Accessories 24,283  22,382  1,901  8%
Gifts 26,615  21,082  5,533  26%
Merchandise Sales 133,990  107,236  26,754  25%
Others(1) 615  408  207  51%
Net sales$134,605 $107,644 $26,961  25%
             

(1)        Includes gift card breakage income, shipping and change in return reserve.

Quarterly Comparable Transactions Results for Fiscal Year 2015

 Transactions(1)
 Average Transaction Value(2)
        
Q1 (5)%  3%
Q2 (3)%  (1)%
Q3 (1)%  5%
Q4 7%  4%
Fiscal year 0%  2%
        
  1. The number of comparable transactions (including merchandise and gift card purchases, returns and gift card redemptions) processed through our point-of-sale system for which a receipt was issued.
  2. Average transaction value is calculated by dividing total comparable sales by the number of comparable transactions during the period.

Quarterly Comparable Sales

 FY 2015 FY 2014 FY 2013
Q1 (2)%  (7)%  2%
Q2 (4)%  (7)%  (1)%
Q3 4%  (6)%  (3)%
Q4 11%  1%  (6)%
Fiscal year 3%  (5)%  (2)%
            

 

CONTACT:



ICR, Inc.Jean Fontana

646-277-1214



Company

Kate Venturina

832-494-2233

Kate.Venturina@francescas.com / IR@francescas.com

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Source: Francesca's Holdings Corporation

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