September 6, 2017

francesca’s® Reports Second Quarter Fiscal Year 2017 Financial Results

  • Net sales increased 4% to $119.7 million
  • Comparable sales decreased 3%
  • Diluted earnings per share were $0.20

HOUSTON, Sept. 06, 2017 (GLOBE NEWSWIRE) -- Francesca’s Holdings Corporation (NASDAQ:FRAN) today reported financial results for the second quarter ended July 29, 2017.  

Steve Lawrence, President and CEO, stated, “As we previously announced, our second quarter EPS exceeded our expectations as a result of better than expected merchandise margins and SG&A expenses. Comparable sales came in at the low-end of the expected range and further softened in August. We believe that the recent downturn in business is primarily reflective of merchandising missteps.  We are taking decisive actions to efficiently move through our back-to-school product and to get back on track as we turn the corner into the holiday season. Our core merchandising philosophy of surprising every guest, every time with a unique, trend-right assortment at a great value will continue to dictate our go-forward strategy. Moreover, we will remain highly disciplined in managing our inventory to ensure a constant flow of newness and swiftly move through slow-sellers.

“Hurricane Harvey had a devastating impact on south Texas and Louisiana. Our dedicated team has been resilient and, even though personally impacted, have worked hard to get us back up and running. Our corporate headquarters, ecommerce fulfilment, distribution center, approximately 40 boutiques and many team members located in Houston or neighboring areas were directly impacted by the storm. As of Tuesday, September 5th, we have fully re-opened our corporate facilities and all but one of our impacted boutiques.  The disruption to our supply chain is impacting all of our boutiques and we expect it to take a couple of weeks before things normalize. While there is a lot of work to be done, we have a talented and capable team who is firmly committed to taking the necessary steps to reinvigorate our merchandise assortments as well as work through the challenges created by Hurricane Harvey.”

SECOND QUARTER RESULTS

Net sales increased 4% to $119.7 million from $115.3 million in the comparable prior year quarter. This increase was due to the addition of 40 net new boutiques since the end of the second quarter last year. Comparable sales decreased 3% compared to the same period last year due to a decrease in boutique conversion rates. Prior year second quarter comparable sales were flat.  The Company opened 16 new boutiques and closed three boutiques during the quarter, bringing the total count to 692 at the end of the quarter.     

Gross profit, as a percent of net sales, decreased to 46.3% from 46.8% in the prior year quarter.  This was primarily due to deleveraging of occupancy costs as merchandise margin compared to last year was essentially flat. 

Selling, general and administrative expenses (“SG&A”) increased 18% to $43.5 million from $36.8 million in the prior year quarter. This increase was primarily due to higher boutique and corporate payroll, professional service fees, software, stock-based compensation and marketing expenses. Additionally, prior year SG&A included a $2.0 million net benefit in connection with the resignation of the Company’s previous Chairman, President and Chief Executive Officer.

Income from operations was $11.9 million, or 10.0% of net sales, compared to $17.1 million, or 14.9% of net sales, in the prior year quarter. 

BALANCE SHEET SUMMARY

Total cash and cash equivalents at the end of the second quarter were $33.3 million compared to $26.0 million at the end of the comparable prior year quarter.  During the second quarter, the Company repurchased 0.5 million shares of its common stock at a cost of $5.7 million.

The Company ended the quarter with $34.0 million of inventory on hand compared to $32.7 million at the end of the comparable prior year period.  Average ending inventory per boutique decreased by 2% compared to the comparable prior year period, as the Company continues to diligently control inventory through enhanced inventory management processes that began in the second quarter of 2016. 

THIRD QUARTER AND REVISED FISCAL YEAR 2017 GUIDANCE

For the third quarter ending October 28, 2017, net sales are expected to be in the range of $105 million to $109 million; assuming a comparable sales decrease in the mid- to high-teens compared to a 7% comparable sales increase in the prior year. The Company plans to open approximately 32 new boutiques and close one existing boutique during the third quarter.  Diluted earnings per share are expected to be in the range of $0.00 to $0.05.  This guidance includes the Company’s best estimate of the impact of Hurricane Harvey.

For the fiscal year ending February 3, 2018, net sales are now expected to be in the range of $481 million to $491 million; assuming a high-single digit decrease in comparable sales compared to the prior year increase of 2%. The Company expects to open approximately 60 to 65 boutiques and close approximately 8 to 10 boutiques in fiscal year 2017, compared to 64 new boutiques opened and nine boutiques closed in fiscal year 2016.  Diluted earnings per share are now expected to be in the range of $0.71 to $0.81 compared to the prior year of $1.09. The number of average diluted shares for the full year assumed in guidance is 36.5 million shares. The effective tax rate is estimated to be 38.3%.

Capital expenditures for fiscal year 2017 are expected to be in the range of $30 million to $33 million.

Conference Call Information

A conference call to discuss the second quarter results is scheduled for September 6, 2017, at 8:30 a.m. ET. A live webcast of the conference call will be available in the investor relations section of the Company’s website, www.francescas.com. A replay of the call will be available after the conclusion of the call and remain available until September 13, 2017. To access the telephone replay, listeners should dial 1-844-512-2921. The access code for the replay is 2728299. A replay of the web cast will also be available shortly after the conclusion of the call and will remain on the website for ninety days.

Forward-Looking Statements

Certain statements in this release are "forward-looking statements" made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Such forward-looking statements reflect our current expectations or beliefs concerning future events and are subject to various risks and uncertainties that may cause actual results to differ materially from those that we expected. These risks and uncertainties include, but are not limited to, the following: the risk that we cannot anticipate, identify and respond quickly to changing fashion trends and customer preferences or changes in consumer environment, including changing expectations of service and experience in boutiques and online, and evolve our business model; our ability to attract a sufficient number of customers to our boutiques or sell sufficient quantities of our merchandise through our ecommerce business; our ability to successfully open and operate new boutiques each year; our ability to efficiently source and distribute additional merchandise quantities necessary to support our growth; our ability to successfully attract, hire and integrate our next Chief Merchant and our ability to successfully rebound from the impact of Hurricane Harvey. For additional information regarding these and other risks and uncertainties that could cause actual results to differ materially from those contained in our forward-looking statements, please refer to "Risk Factors" in our Annual Report on Form 10-K for the year ended January 28, 2017 filed with the Securities and Exchange Commission on March 22, 2017 and any risk factors contained in subsequent quarterly and annual reports we file with the SEC. We undertake no obligation to publicly update or revise any forward-looking statement.

About Francesca's Holdings Corporation

francesca's® is a growing specialty retailer which operates a nationwide-chain of boutiques providing customers a unique, fun and personalized shopping experience.  The merchandise assortment is a diverse and balanced mix of apparel, jewelry, accessories and gifts. Today francesca's® operates approximately 692 boutiques in 47 states and the District of Columbia and also serves its customers through francescas.com. For additional information on francesca's®, please visit www.francescas.com.


Francesca’s Holdings Corporation
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts, Percentages and Basis Points)

  Thirteen Weeks Ended            
  July 29, 2017   July 30, 2016   Variance
  In USD   As a %
of Net Sales(1)
    In USD   As a %
of Net Sales(1)
    In USD   %   Basis
Points
Net sales $   119,707     100.0 %   $   115,260     100.0 %   $   4,447     4 %     -   
Cost of goods sold and occupancy costs     64,312     53.7 %       61,323     53.2 %       2,989     5 %   50  
Gross profit     55,395     46.3 %       53,937     46.8 %       1,458     3 %   (50 )
Selling, general and administrative expenses           43,456     36.3 %       36,815     31.9 %       6,641     18 %   440  
Income from operations     11,939     10.0 %       17,122     14.9 %       (5,183 )   (30 )%   (490 )
Interest expense     (110 )   (0.1 )%       (113 )   (0.1 )%       3     3 %     -   
Other income     19     0.0 %       39     0.0 %       (20 )   (51 )%     -   
Income before income tax expense     11,848     9.9 %       17,048     14.8 %       (5,200 )   (31 )%   (490 )
Income tax expense     4,585     3.8 %       6,457     5.6 %       (1,872 )   (29 )%    (180 )
Net income $   7,263     6.1 %   $   10,591     9.2 %   $ (3,328 )   (31 )%    (310 )
____________________        
(1)  Percentage totals or differences in the above table may not equal the sum or difference of the components due to rounding.        
                           
Diluted earnings per share $   0.20         $   0.27                  
Weighted average diluted share count     36,472             38,755                  
                           
Comparable sales         (3)%             0%              
                           
                           
  Twenty-Six Weeks Ended            
  July 29, 2017   July 30, 2016   Variance
  In USD   As a %
of Net Sales
  In USD   As a %
of Net Sales
  In USD   %   Basis
Points
Net sales $   227,396     100.0 %   $   221,373     100.0 %   $   6,023     3 %     -   
Cost of goods sold and occupancy costs     123,317     54.2 %       118,306     53.4 %       5,011     4 %     80  
Gross profit     104,079     45.8 %       103,067     46.6 %       1,012     1 %     (80 )
Selling, general and administrative expenses     84,934     37.4 %       74,481     33.6 %      10,453     14 %     380  
Income from operations     19,145     8.4 %       28,586     12.9 %     (9,441 )   (33 )%   (450 )
Interest expense     (223 )   (0.1 )%       (222 )   (0.1 )%       (1 )   -       -   
Other income     190     0.1 %       39     0.0 %       151     387 %     10   
Income before income tax expense     19,112     8.4 %       28,403     12.8 %     (9,291 )   (33 )%   (440 )
Income tax expense     7,516     3.3 %       10,731     4.8 %     (3,215 )   (30 )%    (150 )
Net income $   11,596     5.1 %   $   17,672     8.0 %   $ (6,076 )   (34 )%    (290 )
____________________        
(1)  Percentage totals or differences in the above table may not equal the sum or difference of the components due to rounding.        
                           
Diluted earnings per share $   0.32         $   0.45                  
Weighted average diluted share count     36,811             39,580                  
                           
Comparable sales         (4)%             1%              


Francesca’s Holdings Corporation
Consolidated Balance Sheets
(In thousands, except share and per share amount)

      July 29,    2017     January 28, 2017       July 30,  
2016
 
ASSETS                        
Current assets:                        
Cash and cash equivalents   $ 33,298     $ 53,202     $ 26,021  
Accounts receivable     18,416       5,605       10,791  
Inventories     34,036       23,958       32,667  
Deferred income taxes     -       8,487       6,728  
Prepaid expenses and other current assets     9,433       8,823       6,715  
Total current assets     95,183       100,075       82,922  
Property and equipment, net     83,956       80,484       80,225  
Deferred income taxes     16,009       6,978       4,640  
Other assets, net     3,138       2,056       1,296  
                         
TOTAL ASSETS   $ 198,286     $ 189,593     $ 169,083  
                         
LIABILITIES AND STOCKHOLDERS’ EQUITY                        
Current liabilities:                        
Accounts payable   $ 26,971     $ 9,205     $ 16,620  
Accrued liabilities     17,748       25,761       14,327  
Total current liabilities     44,719       34,966       30,947  
Landlord incentives and deferred rent     38,125       38,092       38,673  
Total liabilities     82,844       73,058       69,620  
                         
Commitments and contingencies                        
                         
Stockholders’ equity:                        
Common stock - $0.01 par value, 80.0 million shares authorized; 46.4 million, 46.1 million and 45.9 million shares issued at July 29, 2017, January 28, 2017 and July 30, 2016, respectively.     464       461       459  
Additional paid-in capital     111,405       109,008       106,916  
Retained earnings     155,080       143,557       119,228  
Treasury stock, at cost – 9.7 million, 8.5 million and 8.0 million shares at July 29, 2017, January 28, 2017 and July 30, 2016, respectively.     (151,507 )     (136,491 )     (127,140 )
Total stockholders’ equity     115,442       116,535       99,463  
                         
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 198,286     $ 189,593     $ 169,083  



Francesca’s Holdings Corporation
Consolidated Statements of Cash Flows
(In thousands)

    Twenty-Six Weeks Ended  
      July 29, 2017           July 30, 2016    
Cash Flows Provided by Operating Activities:                
Net income   $ 11,596     $ 17,672  
Adjustments to reconcile net income to net cash provided by operating activities:                          
Depreciation and amortization     10,310       9,482  
Stock-based compensation expense     2,422       (857 )
Excess tax benefit from stock-based compensation     -       (6 )
Loss on disposal of assets     233       155  
Deferred income taxes     (497 )     (1,315 )
Impairment charges     100       -  
Changes in operating assets and liabilities:                
Accounts receivable     (12,538 )     (1,205 )
Inventories     (10,078 )     (1,126 )
Prepaid expenses and other assets     (1,978 )     (55 )
Accounts payable     16,864       2,599  
Accrued liabilities     (8,013 )     (2,001 )
Landlord incentives and deferred rent     33       2,121  
Net cash provided by operating activities     8,454       25,464  
                 
Cash Flows Used in Investing Activities:                
Purchases of property and equipment     (12,890 )     (11,149 )
Other     -       8  
Net cash used in investing activities     (12,890 )     (11,141 )
                 
Cash Flows Used in Financing Activities:                
Repurchases of common stock     (15,326 )     (44,812 )
Taxes paid related to net settlement of equity awards     (142 )     -  
Proceeds from the exercise of stock options     -       280  
Excess tax benefit from stock-based compensation     -       6  
Net cash used in financing activities     (15,468 )     (44,526 )
                 
Net decrease in cash and cash equivalents     (19,904 )     (30,203 )
Cash and cash equivalents, beginning of year     53,202       56,224  
Cash and cash equivalents, end of period   $ 33,298     $ 26,021  
                 
Supplemental Disclosures of Cash Flow Information:                
Cash paid for income taxes   $ 23,742     $ 9,175  
Interest paid   $ 97     $ 95  


Francesca’s Holdings Corporation
Supplemental Information

Quarterly Sales by Merchandise Category

  Thirteen Weeks Ended        
  July 29, 2017   July 30, 2016   Variance
  In USD   As a %
   of Sales  
  In USD   As a %
   of Sales  
    In Dollars     %
  (in thousands, except percentages)        
Apparel (1) $   65,396   54.6 %   $   62,367   54.1 %   $   3,029     5 %
Jewelry     25,560   21.4 %       25,368   22.0 %       192     1 %
Accessories (1)     14,735   12.3 %       13,850   12.0 %       885     6 %
Gifts     12,836   10.7 %       13,209   11.5 %       (373 )   (3 )%
Merchandise sales           118,527   99.0 %       114,794   99.6 %       3,733     3 %
Others (2)     1,180   1.0 %     466   0.4 %       714     153 %
  $   119,707   100.0 %   $   115,260   100.0 %   $   4,447     4 %

_____________
(1)      
In the first quarter of fiscal 2017, swimwear was reclassified out of accessories to apparel.  To facilitate comparability, prior year amounts were reclassified.
(2)       Includes gift card breakage income, shipping and change in return reserve.


Quarterly Comparable Sales

     FY 2017        FY 2016        FY 2015  
Q1  (5 )%    2 %    (2 )%
Q2 (3 )%   0 %   (4 )%
Q3     7 %   4 %
Q4     0 %   11 %
Fiscal year           2 %   3 %


Boutique Count

  Twenty-Six Weeks Ended
July 29, 2017
    Fiscal Year Ended  
January 28, 2017
  Twenty-Six Weeks Ended
July 30, 2016
 
Number of boutiques open at the beginning of period       671   616   616  
Boutiques opened 28   64   41  
Boutiques closed (7 )   (9 )   (5 )
Number of boutiques open at the end of period 692   671   652  
CONTACT:
ICR, Inc.Jean Fontana
646-277-1214

Company
Kelly Dilts 832-494-2236
Kate Venturina 832-494-2233
IR@francescas.com

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Francesca's Holdings Corporation