francesca’s® Reports Fourth Quarter and Fiscal Year 2018 Financial Results
- Fourth quarter net sales decreased 14% to
$119.3 million and comparable sales decreased 14% - Fourth quarter diluted loss per share was
$0.61 - Fourth quarter adjusted diluted loss per share was
$0.01 (see Non-GAAP Information below) - Company recorded a non-cash charge of
$17.1 million associated with establishing a tax valuation allowance at fiscal 2018 year-end - Company recorded a non-cash asset impairment charges of
$5.6 million in the fourth quarter
FOURTH QUARTER RESULTS
Net sales decreased 14% to
Gross profit, as a percent of net sales, decreased to 39.3% from 43.9% in the prior year quarter. This unfavorable variance was principally due to 320 basis points deleveraging of occupancy costs as a result of lower sales, as well as an increase in occupancy costs. The increase in occupancy costs was the result of a higher boutique count and an increase in average rent and related expenses driven by increased penetration of boutiques in high traffic centers. Additionally, merchandise margins were lower by 150 basis points due to increased markdowns and average unit cost partially offset by lower marked-out-of-stock charges and inventory reserves.
Selling, general and administrative (SG&A) expenses decreased 4% to
During the fourth quarter, the Company recognized
Loss from operations was
Income tax expense for the fourth quarter of fiscal year 2018 included a non-cash charge of
Net loss for the fourth quarter was
Please see the reconciliation of adjusted SG&A, adjusted loss from operations, adjusted effective tax rate, adjusted net loss and adjusted diluted loss per share, each a non-GAAP financial measure, to the most directly comparable GAAP financial measure provided in the tables at the end of this press release.
FULL YEAR RESULTS
Net sales decreased 9% to
During fiscal year 2018, the Company opened 32 new boutiques and closed 26 boutiques compared to 60 new boutiques opened and 10 boutiques closed during fiscal year 2017.
The Company recognized
The Company recognized
Net loss for fiscal year 2018 totaled
Please see the reconciliation of adjusted net loss and adjusted diluted loss per share, each a non-GAAP financial measure, to the most directly comparable GAAP financial measure provided in the tables at the end of this press release.
BALANCE SHEET SUMMARY
Total cash and cash equivalents at the end of the year were
The Company ended the quarter with
Conference Call Information
A conference call to discuss the fourth quarter and fiscal year 2018 results is scheduled for
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 the Company’s 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 are expected. These risks and uncertainties include, but are not limited to, the following: the risk that the Company does not realize the anticipated benefits of its turnaround plan and the Company experiences unanticipated costs related to the plan; the risk that the Company’s previously disclosed exploration of strategic and financial alternatives may not result in any transaction or alternative that enhances value; the risk that the Company may not be able to successfully integrate its Interim Chief Executive Officer and attract and integrate a new Chief Executive Officer; the risk that the Company 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 its business model; the Company’s merchandise planning and buying policies and processes do not lead to merchandise offerings that resonate with customers; the Company’s ability to attract a sufficient number of customers to the Company’s boutiques or sell sufficient quantities of its merchandise through its ecommerce website; the Company’s ability to successfully open, close, refresh and operate boutiques each year, as necessary, to ensure an appropriate brick and mortar footprint; the Company is unable to reduce its real estate lease cost structure or increase boutique productivity; the Company’s ability to efficiently source and distribute merchandise quantities necessary to support its business needs; and the impact of potential tariff increases or new tariffs. For additional information regarding these and other risks and uncertainties that could cause actual results to differ materially from those contained in the Company’s forward-looking statements, please refer to "Risk Factors" in the Company’s Annual Report on Form 10-K for the year ended
Non-GAAP Information
This press release includes non-GAAP adjusted SG&A, adjusted (loss) income from operations, adjusted net income, adjusted income tax expense, adjusted effective tax rate, and adjusted diluted (loss) earnings per share, each of which are non-GAAP financial measures. The Company believes these non-GAAP financial measures not only provides the Company’s management with comparable financial data for internal financial analysis but also provides meaningful supplemental information to investors. Specifically, these non-GAAP financial measures allow investors to better understand the performance of the business and facilitate a meaningful evaluation of the Company’s fourth quarter and fiscal year 2018 SG&A, (loss) income from operations, net income and diluted (loss) earnings per share, adjusted income tax expense and effective tax rate on a comparable basis with the Company’s fourth quarter and fiscal year 2017 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.
About
francesca's® is a 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
CONTACT:
ICR, Inc.
Jean Fontana
646-277-1214
Company
IR@francescas.com
Francesca’s
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts, Percentages and Basis Points)
Thirteen Weeks Ended | ||||||||||||||||||||||||
February 2, 2019 | February 3, 2018 | Variance | ||||||||||||||||||||||
In USD | As a % of Net Sales(1) |
In USD | As a % of Net Sales(1) |
In USD | % | Basis Points |
||||||||||||||||||
Net sales | $ | 119,310 | 100.0 | % | $ | 138,491 | 100.0 | % | $ | (19,181 | ) | (14 | )% | - | ||||||||||
Cost of goods sold and occupancy costs | 72,429 | 60.7 | % | 77,666 | 56.1 | % | (5,237 | ) | (7 | )% | 460 | |||||||||||||
Gross profit | 46,881 | 39.3 | % | 60,825 | 43.9 | % | (13,944 | ) | (23 | )% | (460 | ) | ||||||||||||
Selling, general and administrative expenses | 48,081 | 40.3 | % | 50,305 | 36.3 | % | (2,224 | ) | (4 | )% | 400 | |||||||||||||
Asset impairment charges | 5,555 | 4.7 | % | 158 | 0.1 | % | 5,397 | * | (2) | * | (2) | |||||||||||||
(Loss) income from operations | (6,755 | ) | (5.7 | )% | 10,362 | 7.5 | % | (17,117 | ) | * | (2) | * | (2) | |||||||||||
Interest expense | (146 | ) | (0.1 | )% | (120 | ) | (0.1 | )% | 26 | 22 | % | - | ||||||||||||
Other income | 80 | 0.1 | % | 68 | 0.0 | % | 12 | 18 | % | - | ||||||||||||||
Income before income tax (benefit) expense | (6,821 | ) | (5.7 | )% | 10,310 | 7.4 | % | (17,131 | ) | * | (2) | * | (2) | |||||||||||
Income tax (benefit) expense | 14,466 | 12.1 | % | 6,584 | 4.8 | % | 7,882 | * | (2) | * | (2) | |||||||||||||
Net (loss) income | $ | (21,287 | ) | (17.8 | )% | $ | 3,726 | 2.7 | % | $ | (25,013 | ) | * | (2) | * | (2) | ||||||||
|
||||||||||||||||||||||||
Diluted earnings per share | $ | (0.61 | ) | $ | 0.10 | |||||||||||||||||||
Weighted average diluted share count | 34,809 | 35,642 | ||||||||||||||||||||||
Comparable sales change | -14% | -15% | ||||||||||||||||||||||
Fiscal Year Ended | ||||||||||||||||||||||||
February 2, 2019 | February 3, 2018 | Variance | ||||||||||||||||||||||
In USD | As a % of Net Sales |
In USD | As a % of Net Sales |
In USD | % | Basis Points |
||||||||||||||||||
Net sales | $ | 428,115 | 100.0 | % | $ | 471,678 | 100.0 | % | $ | (43,564 | ) | (9 | )% | - | ||||||||||
Cost of goods sold and occupancy costs | 265,119 | 61.9 | % | 264,915 | 56.2 | % | 204 | 0 | % | 580 | ||||||||||||||
Gross profit | 162,996 | 38.1 | % | 206,763 | 43.8 | % | (43,767 | ) | (21 | )% | (580 | ) | ||||||||||||
Selling, general and administrative expenses | 176,379 | 41.2 | % | 176,543 | 37.4 | % | (164 | ) | 0 | % | 380 | |||||||||||||
Asset impairment charges | 20,122 | 4.7 | % | 258 | 0.1 | % | 19,864 | * | (2) | * | (2) | |||||||||||||
(Loss) income from operations | (33,505 | ) | (7.8 | )% | 29,962 | 6.4 | % | (63,467 | ) | * | (2) | * | (2) | |||||||||||
Interest expense | (426 | ) | (0.1 | )% | (452 | ) | (0.1 | )% | (26 | ) | (6 | )% | - | |||||||||||
Other income | 483 | 0.1 | % | 346 | 0.1 | % | 137 | 40 | % | - | ||||||||||||||
Income before income tax (benefit) expense | (33,448 | ) | (7.8 | )% | 29,856 | 6.3 | % | (63,304 | ) | * | (2) | * | (2) | |||||||||||
Income tax (benefit) expense | 7,493 | 1.8 | % | 14,295 | 3.0 | % | (6,802 | ) | * | (2) | * | (2) | ||||||||||||
Net (loss) income | $ | (40,941 | ) | (9.6 | )% | $ | 15,561 | 3.3 | % | $ | (56,502 | ) | * | (2) | * | (2) | ||||||||
|
||||||||||||||||||||||||
Diluted earnings per share | $ | (1.18 | ) | $ | 0.43 | |||||||||||||||||||
Weighted average diluted share count | 34,805 | 36,300 | ||||||||||||||||||||||
Comparable sales change | -14% | -11% | ||||||||||||||||||||||
Francesca’s
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
February 2, | February 3, | |||||||
2019 | 2018 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 20,103 | $ | 31,331 | ||||
Accounts receivable | 16,309 | 16,642 | ||||||
Inventories | 30,478 | 26,816 | ||||||
Prepaid expenses and other current assets | 10,357 | 9,714 | ||||||
Total current assets | 77,247 | 84,503 | ||||||
Property and equipment, net | 71,207 | 87,702 | ||||||
Deferred income taxes | - | 9,413 | ||||||
Other assets, net | 4,588 | 3,622 | ||||||
TOTAL ASSETS | $ | 153,042 | $ | 185,240 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 24,330 | $ | 17,801 | ||||
Accrued liabilities | 11,333 | 14,654 | ||||||
Total current liabilities | 35,663 | 32,455 | ||||||
Landlord incentives and deferred rent | 33,989 | 38,337 | ||||||
Long term debt | 10,000 | - | ||||||
Total liabilities | 79,652 | 70,792 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ equity: | ||||||||
Common stock-$.01 par value, 80.0 million shares authorized, 46.7 million and 46.3 million shares issued as of February 2, 2019 and February 3, 2018, respectively. | 467 | 463 | ||||||
Additional paid-in capital | 112,693 | 111,439 | ||||||
Retained earnings | 120,251 | 159,045 | ||||||
Treasury stock, at cost – 11.1 million and 10.3 million shares held at February 2, 2019 and February 3, 2018, respectively. | (160,021 | ) | (156,499 | ) | ||||
Total stockholders’ equity | 73,390 | 114,448 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 153,042 | $ | 185,240 | ||||
Francesca’s
Consolidated Statements of Cash Flows
(In thousands)
Fiscal Year Ended | ||||||||||||
February 2, | February 3, | January 28, | ||||||||||
2019 | 2018 | 2017 | ||||||||||
Cash Flows Provided by Operating Activities: | ||||||||||||
Net (loss) income | $ | (40,941 | ) | $ | 15,561 | $ | 42,001 | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 24,532 | 21,202 | 19,337 | |||||||||
Stock-based compensation expense | 1,335 | 2,430 | 1,016 | |||||||||
Excess tax benefit from stock-based compensation | - | - | (34 | ) | ||||||||
Asset impairment charges | 20,122 | 258 | 141 | |||||||||
Loss on disposal of assets | 761 | 733 | 407 | |||||||||
Amortization of debt issuance costs | 204 | 250 | 245 | |||||||||
Deferred income taxes | 8,706 | 6,099 | (5,411 | ) | ||||||||
Changes in assets and liabilities: | ||||||||||||
Accounts receivable | 246 | (10,764 | ) | 3,975 | ||||||||
Inventories | (3,699 | ) | (2,858 | ) | 7,583 | |||||||
Prepaid expenses and other assets | (2,566 | ) | (3,177 | ) | (3,160 | ) | ||||||
Accounts payable | 5,739 | 6,013 | (4,936 | ) | ||||||||
Accrued liabilities | (558 | ) | (11,167 | ) | 9,467 | |||||||
Landlord incentives and deferred rent | (4,348 | ) | 245 | 1,540 | ||||||||
Net cash provided by operating activities | 9,533 | 24,825 | 72,171 | |||||||||
Cash Flows Used in Investing Activities: | ||||||||||||
Purchase of property and equipment | (26,199 | ) | (26,778 | ) | (21,852 | ) | ||||||
Other | - | - | 8 | |||||||||
Net cash used in investing activities | (26,199 | ) | (26,778 | ) | (21,844 | ) | ||||||
Cash Flows Used in Financing Activities: | ||||||||||||
Proceeds from borrowings under revolving credit facility | 10,000 | - | - | |||||||||
Repurchases of common stock | (3,980 | ) | (19,860 | ) | (53,853 | ) | ||||||
Payment of debt issuance costs | (505 | ) | - | - | ||||||||
Taxes paid related to net settlement of equity awards | (77 | ) | (154 | ) | (42 | ) | ||||||
Proceeds from the exercise of stock options | - | 96 | 512 | |||||||||
Excess tax benefit from stock-based compensation | - | - | 34 | |||||||||
Net cash used in financing activities | 5,438 | (19,918 | ) | (53,349 | ) | |||||||
Net decrease in cash and cash equivalents | (11,228 | ) | (21,871 | ) | (3,022 | ) | ||||||
Cash and cash equivalents, beginning of year | 31,331 | 53,202 | 56,224 | |||||||||
Cash and cash equivalents, end of year | $ | 20,103 | $ | 31,331 | $ | 53,202 | ||||||
Supplemental Disclosures of Cash Flow Information: | ||||||||||||
Cash paid for income taxes | $ | 75 | $ | 24,163 | $ | 19,324 | ||||||
Interest paid | $ | 209 | $ | 192 | $ | 192 |
Francesca’s
Supplemental Information
Quarterly Sales by Merchandise Category
Thirteen Weeks Ended | |||||||||||||||||
February 2, 2019 | February 3, 2018 | Variance | |||||||||||||||
In USD | As a % of Sales |
In USD | As a % of Sales |
In Dollars | % | ||||||||||||
(in thousands, except percentages) | |||||||||||||||||
Apparel | 45,998 | 38.5 | % | 54,977 | 39.7 | % | (8,979 | ) | (16 | )% | |||||||
Jewelry | 31,017 | 26.0 | % | 32,481 | 23.5 | % | (1,464 | ) | (5 | )% | |||||||
Accessories | 21,710 | 18.2 | % | 24,928 | 18.0 | % | (3,218 | ) | (13 | )% | |||||||
Gifts | 19,184 | 16.1 | % | 24,412 | 17.6 | % | (5,228 | ) | (21 | )% | |||||||
Others(1) | 1,401 | 1.2 | % | 1,693 | 1.2 | % | (292 | ) | (17 | )% | |||||||
Net sales | 119,310 | 100.0 | % | 138,491 | 100.0 | % | (19,181 | ) | (14 | )% |
(1) Includes gift card breakage income, shipping and change in return reserve.
Quarterly Comparable Sales
FY 2018 | FY 2017 | FY 2016 | ||||||
Q1 | (16 | )% | (5 | )% | 2 | % | ||
Q2 | (13 | )% | (3 | )% | 0 | % | ||
Q3 | (14 | )% | (18 | )% | 7 | % | ||
Q4 | (14 | )% | (15 | )% | 0 | % | ||
Fiscal year | (14 | )% | (11 | )% | 2 | % |
Boutique Count
Fiscal Year Ended | ||||||
February 2, 2019 | February 3, 2018 | January 28, 2017 | ||||
Number of boutiques open at the beginning of period period | 721 | 671 | 616 | |||
Boutiques opened | 32 | 60 | 64 | |||
Boutiques closed | (26 | ) | (10 | ) | (9 | ) |
Number of boutiques open at the end of period | 727 | 721 | 671 | |||
Francesca’s
GAAP to Non-GAAP Reconciliation
(In Thousands, Except Per Share Amounts and Percentages)
Thirteen Weeks and Fiscal Year Ended
Thirteen Weeks Ended February 2, 2019 | |||||||||||||||||||||||
GAAP | Professional Fees (1) |
Reversal of Stock-based Compensation (2) |
Asset Impairment Charges (3) |
Valuation Allowance(4) |
Non GAAP | ||||||||||||||||||
SG&A | $ | 48,081 | $ | (1,424 | ) | $ | 766 | $ | - | $ | - | $ | 47,423 | ||||||||||
Loss from operations | (6,755 | ) | 1,424 | (766 | ) | 5,555 | - | (542 | ) | ||||||||||||||
Income tax expense | 14,466 | (553 | ) | 297 | (2,155 | ) | 17,115 | (29,170 | ) | ||||||||||||||
Net loss | (21,287 | ) | 871 | (469 | ) | 3,400 | 17,115 | (370 | ) | ||||||||||||||
Diluted loss per share(6) | (0.61 | ) | 0.03 | (0.01 | ) | 0.10 | 0.49 | (0.01 | ) | ||||||||||||||
Effective tax rate(5) | 212.1 | % | - | - | - | (250.9 | )% | (38.8 | )% | ||||||||||||||
Fiscal Year Ended February 2, 2019 | |||||||||||||||||||||||
GAAP | Professional Fees (1) |
Reversal of Stock-based Compensation (2) |
Asset Impairment Charges (3) |
Valuation Allowance(4) |
Non GAAP | ||||||||||||||||||
SG&A | $ | 176,379 | $ | (1,476 | ) | $ | 766 | $ | - | $ | - | $ | 175,669 | ||||||||||
Loss from operations | (33,505 | ) | 1,476 | (766 | ) | 20,122 | - | (12,673 | ) | ||||||||||||||
Income tax expense | 7,493 | (425 | ) | 221 | (5,795 | ) | 17,115 | (18,609 | ) | ||||||||||||||
Net loss | (40,941 | ) | 1,051 | (545 | ) | 14,327 | 17,115 | (8,993 | ) | ||||||||||||||
Diluted loss per share(6) | (1.18 | ) | 0.03 | (0.02 | ) | 0.41 | 0.49 | (0.26 | ) | ||||||||||||||
Effective tax rate(5) | 22.4 | % | (51.2 | )% | (28.8 | )% |
- Consists of professional fees associated with the Company’s review of strategic and financial alternatives and turnaround plan that commenced in
January 2019 . - Reversal of stock-based compensation associated with the resignation of the former Chief Executive Officer in
February 2019 . - The Company recorded
$5.6 million and$20.1 million of non-cash asset impairment charges for the thirteen weeks and fiscal year endedFebruary 2, 2019 , respectively, associated with 24 and 153 underperforming boutiques, respectively, for which the remaining, or a portion of the remaining, net book value of their respective assets are no longer expected to be recoverable. Additionally, the impairment charges for the thirteen weeks and fiscal year endedFebruary 2, 2019 included$2.9 million and$4.9 million charge, respectively, associated with the write-off of boutique furniture, fixtures and supplies that are no longer intended to be uses as a result of postponing new boutique openings and remodels for future periods. - The Company recorded
$17.1 million non-cash charge associated with the recognition of a valuation allowance on its net deferred tax assets. - Calculated by dividing income tax expense by the GAAP loss before income tax expense of
$6.8 million and$33.4 million in the thirteen weeks and fiscal year endedFebruary 2, 2019 , respectively. - Diluted loss per share components may not equal the sum due to rounding.
Francesca’s
GAAP to Non-GAAP Reconciliation
(In Thousands, Except Per Share Amounts and Percentages)
Fourteen Weeks and Fiscal Year Ended
Fourteen Weeks Ended February 3, 2018 | ||||||||
GAAP | Remeasurement of Net Deferred Tax Asset(1) | Non GAAP | ||||||
Income tax expense | 6,584 | (3,339 | ) | 3,245 | ||||
Net income | 3,726 | 3,339 | 7,065 | |||||
Diluted earnings per share(2) | 0.10 | 0.09 | 0.20 | |||||
Effective tax rate(3) | 63.9 | % | (32.4 | )% | 31.5 | % | ||
Fiscal Year Ended February 3, 2018 | ||||||||
GAAP | Remeasurement of Net Deferred Tax Asset | Non GAAP | ||||||
Income tax expense | 14,295 | (3,339 | ) | 10,956 | ||||
Net income | 15,561 | 3,339 | 18,900 | |||||
Diluted earnings per share(2) | 0.43 | 0.09 | 0.52 | |||||
Effective tax rate(3) | 47.9 | % | (11.2 | )% | 36.7 | % |
- The Company recorded a non-cash charge as a result of the remeasurement of the Company’s net deferred tax assets using the lower federal corporate income tax rate under the Tax Cuts and Jobs Act enacted in
December 2017 . - Diluted earnings per share components may not equal the sum due to rounding.
- Calculated by dividing income tax expense by the GAAP income before income tax expense of
$10.3 million and$29.9 million in the fourteen weeks and fiscal year endedFebruary 3, 2018 .
Source: Francesca's Holdings Corporation