francesca’s® Reports Fourth Quarter and Fiscal Year 2019 Financial Results and Provides Update on COVID-19 Pandemic Response
- Fourth quarter net sales were flat at
$119.0 million and comparable sales increased 1% - Fourth quarter GAAP loss per share was
$3.97 - Fourth quarter adjusted loss per share was
$0.31 (see Non-GAAP Information below) - Material COVID-19 response measures to improve the Company’s liquidity underway
COVID-19 RESPONSE
As a result of the COVID-19 pandemic, the Company’s revenues, results of operations and cash flows have been materially adversely impacted which raises substantial doubt about its ability to continue as a going concern. In response, the Company is taking aggressive and prudent actions to reduce its expenses and defer payment of accounts payables and inventory purchases to preserve cash on hand. These actions include, but are not limited to:
- temporary furlough of substantially all corporate and boutique employees (for the duration of boutique closures at their location and subject to reduced staffing for a phase-in period upon reopening);
- base salary reductions for our senior leadership team;
- suspension of payment of all accounts payable other than those necessary to support our ecommerce business;
- deferring payment of rent at all of our boutiques, corporate headquarters and distribution facility, beginning in
April 2020 subject to discussion with our landlords;
- limiting current investments in our ecommerce to necessary website and supporting functions; and
- suspension of all capital expenditures.
Additionally, the Company borrowed
Waiver and Letter Agreement with Respect to Credit Facilities
On
FOURTH QUARTER RESULTS
Regarding fourth quarter results,
Net sales were relatively flat at
Gross profit as a percent of net sales decreased to 34.6% from 39.3% in the prior year quarter. This unfavorable variance was due to lower merchandise margins as a result of deeper markdowns and promotions during the holiday selling period as well as increased inventory reserves.
Selling, general and administrative (SG&A) expenses decreased
The
Non-cash asset impairment charges totaled
Loss from operations was
Income tax expense decreased
Net loss for the fourth quarter was
Please see the reconciliation of adjusted SG&A, adjusted loss from operations, adjusted net loss and adjusted loss per share, adjusted effective tax rate, 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 5% to
During fiscal year 2019, the Company opened 5 new boutiques and closed 21 boutiques compared to 32 new boutiques opened and 26 boutiques closed during fiscal year 2018.
Non-cash asset impairment charges totaled
Net loss for fiscal year 2019 totaled
Please see the reconciliation of adjusted net loss and adjusted 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 2019 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: risks arising from the COVID-19 pandemic, including the related impact on the Company’s liquidity, changes in commercial and consumer spending and economic conditions generally, the duration of government-mandated and voluntary shutdowns and the speed with which the Company’s boutiques can safely be reopened and its ecommerce and distribution facilities return to normal capacity and the level of customer demand following reopening; the Company’s ability to continue as a going concern; the Company’s ability to satisfy covenant requirements under its asset based revolving credit agreement and term loan credit agreement and make payments of principal and interest as they come due; the risk that the Company may not be able to successfully execute its turnaround plan; the risk that the Company may not be able to successfully integrate its new Chief Executive Officer, the risk that the Company may not be able to identify suitably qualified and experienced candidates to add to its Board of Directors; 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 ability to attract a sufficient number of customers to its boutiques or sell sufficient quantities of its merchandise through its ecommerce website; the Company’s ability to successfully open, close, refresh, and operate our boutiques each year; the Company’s ability to efficiently source and distribute merchandise quantities necessary to support its operations; 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 from operations, adjusted net loss, adjusted income tax expense, adjusted effective tax rate, and adjusted loss per share, each of which are non-GAAP financial measures. The Company believes these non-GAAP financial measures not only provide the Company’s 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 the business and facilitate a meaningful evaluation of the Company’s fourth quarter and fiscal year 2019 SG&A, loss from operations, net loss and loss per share, income tax expense and effective tax rate on a comparable basis with the Company’s fourth quarter and fiscal year 2018 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 today, francesca's® operates approximately 708 boutiques in 47 states and the
CONTACT: | |
Company | |
646-277-1214 | |
IR@francescas.com |
Francesca’s
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts, Percentages and Basis Points)
Thirteen Weeks Ended | |||||||||||||||||||||||
Variance | |||||||||||||||||||||||
In USD | As a % of |
In USD | As a % of |
In USD | % | Basis Points | |||||||||||||||||
Net sales | $ | 118,936 | 100.0 | % | $ | 119,310 | 100.0 | % | $ | (374 | ) | 0 | % | - | |||||||||
Cost of goods sold and occupancy costs | 77,748 | 65.4 | % | 72,429 | 60.7 | % | 5,319 | 7 | % | 470 | |||||||||||||
Gross profit | 41,188 | 34.6 | % | 46,881 | 39.3 | % | (5,693 | ) | (12 | )% | (470 | ) | |||||||||||
Selling, general and administrative expenses | 42,359 | 35.6 | % | 48,081 | 40.3 | % | (5,722 | ) | (12 | )% | (470 | ) | |||||||||||
Asset impairment charges | 10,315 | 8.7 | % | 5,555 | 4.7 | % | 4,760 | 86 | % | 400 | |||||||||||||
Loss from operations | (11,486 | ) | (9.7 | )% | (6,755 | ) | (5.7 | )% | 4,731 | 70 | % | 400 | |||||||||||
Interest expense | 485 | 0.4 | % | 146 | 0.1 | % | 339 | 232 | % | 30 | |||||||||||||
Other income | (57 | ) | 0.0 | % | (80 | ) | (0.1 | )% | (23 | ) | (29 | )% | - | ||||||||||
Loss before income tax expense | (11,914 | ) | (10.0 | )% | (6,821 | ) | (5.7 | )% | 5,093 | 75 | % | 430 | |||||||||||
Income tax (benefit) expense | (366 | ) | (0.3 | )% | 14,466 | 12.1 | % | (14,832 | ) | (103 | )% | (1,240 | ) | ||||||||||
Net loss | $ | (11,548 | ) | (9.7 | )% | $ | (21,287 | ) | (17.8 | )% | $ | (9,739 | ) | (46 | )% | (810 | ) | ||||||
(1) Percentage totals or differences in the above table may not equal the sum or difference of the components due to rounding. |
|||||||||||||||||||||||
Loss per share* | $ | (3.97 | ) | $ | (7.34 | ) | |||||||||||||||||
Weighted average share count* | 2,910 | 2,901 | |||||||||||||||||||||
Comparable sales change | 1% | (14)% | |||||||||||||||||||||
Fiscal Year Ended | |||||||||||||||||||||||
Variance | |||||||||||||||||||||||
In USD | As a % of |
In USD | As a % of |
In USD | % | Basis Points | |||||||||||||||||
Net sales | $ | 407,536 | 100.0 | % | $ | 428,115 | 100.0 | % | $ | (20,579 | ) | (5 | )% | - | |||||||||
Cost of goods sold and occupancy costs | 258,000 | 63.3 | % | 265,119 | 61.9 | % | (7,119 | ) | (3 | )% | 140 | ||||||||||||
Gross profit | 149,536 | 36.7 | % | 162,996 | 38.1 | % | (13,460 | ) | (8 | )% | (140 | ) | |||||||||||
Selling, general and administrative expenses | 161,689 | 39.7 | % | 176,379 | 41.2 | % | (14,690 | ) | (8 | )% | (150 | ) | |||||||||||
Asset impairment charges | 11,860 | 2.9 | % | 20,122 | 4.7 | % | (8,262 | ) | (41 | )% | (180 | ) | |||||||||||
Loss from operations | (24,013 | ) | (5.9 | )% | (33,505 | ) | (7.8 | )% | 9,492 | (28 | )% | (190 | ) | ||||||||||
Interest expense | 1,204 | 0.3 | % | 426 | 0.1 | % | 778 | 183 | % | 20 | |||||||||||||
Other income | (322 | ) | (0.1 | )% | (483 | ) | (0.1 | )% | (161 | ) | (33 | )% | - | ||||||||||
Loss before income tax expense | (24,895 | ) | (6.1 | )% | (33,448 | ) | (7.8 | )% | (8,553 | ) | (26 | )% | (170 | ) | |||||||||
Income tax expense | 125 | 0.0 | % | 7,493 | 1.8 | % | (7,368 | ) | (98 | )% | (170 | ) | |||||||||||
Net loss | $ | (25,020 | ) | (6.1 | )% | $ | (40,941 | ) | (9.6 | )% | $ | 15,921 | (39 | )% | (340 | ) | |||||||
(1) Percentage totals or differences in the above table may not equal the sum or difference of the components due to rounding. |
|||||||||||||||||||||||
Loss per share* | $ | (8.63 | ) | $ | (14.12 | ) | |||||||||||||||||
Weighted average share count* | 2,899 | 2,900 | |||||||||||||||||||||
Comparable sales change | (4)% | (14)% |
* Reflects the 12-to-1 reverse stock split that became effective on
Francesca’s
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
2020 | 2019 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 17,839 | $ | 20,103 | ||||
Accounts receivable | 3,743 | 16,309 | ||||||
Inventories | 31,636 | 30,478 | ||||||
Prepaid expenses and other current assets | 12,325 | 10,357 | ||||||
Total current assets | 65,543 | 77,247 | ||||||
Operating lease right-of-use assets, net | 208,503 | - | ||||||
Property and equipment, net | 51,469 | 71,207 | ||||||
Other assets, net | 3,093 | 4,588 | ||||||
TOTAL ASSETS | $ | 328,608 | $ | 153,042 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 10,823 | $ | 24,330 | ||||
Accrued liabilities | 12,410 | 11,333 | ||||||
Current portion of long-term debt, net | 8,936 | - | ||||||
Operating lease liabilities | 48,691 | - | ||||||
Total current liabilities | 80,860 | 35,663 | ||||||
Operating lease liabilities | 200,938 | - | ||||||
Landlord incentives and deferred rent | - | 33,989 | ||||||
Long term debt, net | - | 10,000 | ||||||
Other liabilities | 284 | - | ||||||
Total liabilities | 282,082 | 79,652 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ equity: | ||||||||
Common stock – |
40 | 39 | ||||||
Additional paid-in capital* | 113,101 | 113,121 | ||||||
Retained earnings | 93,406 | 120,251 | ||||||
(160,021 | ) | (160,021 | ) | |||||
Total stockholders’ equity | 46,526 | 73,390 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 328,608 | $ | 153,042 |
* Reflects the 12-to-1 reverse stock split that became effective on
Francesca’s
Consolidated Statements of Cash Flows
(In thousands)
Fiscal Year Ended | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
Cash Flows Provided by Operating Activities: | ||||||||||||
Net (loss) income | $ | (25,020 | ) | $ | (40,941 | ) | $ | 15,561 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 21,450 | 24,532 | 21,202 | |||||||||
Asset impairment charges | 11,860 | 20,122 | 258 | |||||||||
Non-cash lease expense | 46,353 | - | - | |||||||||
Stock-based compensation expense | 269 | 1,335 | 2,430 | |||||||||
Loss on disposal of assets | 135 | 761 | 733 | |||||||||
Amortization of debt issuance costs | 286 | 204 | 250 | |||||||||
Deferred income taxes | - | 8,706 | 6,099 | |||||||||
Other | 160 | - | - | |||||||||
Changes in assets and liabilities: | ||||||||||||
Accounts receivable | 10,644 | 246 | (10,764 | ) | ||||||||
Inventories | (1,159 | ) | (3,699 | ) | (2,858 | ) | ||||||
Prepaid expenses and other assets | (1,831 | ) | (2,566 | ) | (3,177 | ) | ||||||
Accounts payable | (11,611 | ) | 5,739 | 6,013 | ||||||||
Accrued liabilities | 1,077 | (558 | ) | (11,167 | ) | |||||||
Operating lease liabilities | (49,789 | ) | - | - | ||||||||
Landlord incentives and deferred rent | - | (4,348 | ) | 245 | ||||||||
Net cash provided by operating activities | 2,824 | 9,533 | 24,825 | |||||||||
Cash Flows Used in Investing Activities: | ||||||||||||
Purchase of property and equipment | (3,609 | ) | (26,199 | ) | (26,778 | ) | ||||||
Net cash used in investing activities | (3,609 | ) | (26,199 | ) | (26,778 | ) | ||||||
Cash Flows Used in Financing Activities: | ||||||||||||
Proceeds from borrowings under the asset based revolving credit facility | 15,000 | 10,000 | - | |||||||||
Proceeds from borrowings under the term loan | 10,000 | - | - | |||||||||
Repayments of borrowings under the asset based revolving credit facility | (25,000 | ) | - | - | ||||||||
Payment of debt issuance costs | (1,479 | ) | (505 | ) | - | |||||||
Repurchases of common stock | - | (3,980 | ) | (19,860 | ) | |||||||
Taxes paid related to net settlement of equity awards | - | (77 | ) | (154 | ) | |||||||
Proceeds from the exercise of stock options | - | - | 96 | |||||||||
Net cash (used in) provided by financing activities | (1,479 | ) | 5,438 | (19,918 | ) | |||||||
Net decrease in cash and cash equivalents | (2,264 | ) | (11,228 | ) | (21,871 | ) | ||||||
Cash and cash equivalents, beginning of year | 20,103 | 31,331 | 53,202 | |||||||||
Cash and cash equivalents, end of year | $ | 17,839 | $ | 20,103 | $ | 31,331 | ||||||
Supplemental Disclosures of Cash Flow Information: | ||||||||||||
Cash paid for income taxes | $ | (9,779 | ) | $ | 75 | $ | 24,163 | |||||
Interest paid | $ | 646 | $ | 209 | $ | 192 |
Francesca’s
Supplemental Information
Quarterly Sales by Merchandise Category
Thirteen Weeks Ended | |||||||||||||||||
Variance | |||||||||||||||||
In USD | As a % of Sales | In USD | As a % of Sales | In Dollars | % | ||||||||||||
(in thousands, except percentages) | |||||||||||||||||
Apparel | $ | 45,757 | 38.5 | % | $ | 45,998 | 38.5 | % | $ | (241 | ) | (1 | )% | ||||
Jewelry | 33,123 | 27.8 | % | 31,017 | 26.0 | % | 2,106 | 7 | % | ||||||||
Accessories | 20,532 | 17.3 | % | 21,710 | 18.2 | % | (1,178 | ) | (5 | )% | |||||||
Gifts | 17,836 | 15.0 | % | 19,184 | 16.1 | % | (1,348 | ) | (7 | )% | |||||||
Others(1) | 1,688 | 1.4 | % | 1,401 | 1.2 | % | 287 | 20 | % | ||||||||
Net sales | $ | 118,936 | 100.0 | % | $ | 119,310 | 100.0 | % | $ | (374 | ) | (0 | )% |
(1) Includes gift card breakage income, shipping and change in return reserve.
Quarterly Comparable Sales
FY 2019 | FY 2018 | FY 2017 | |||||||
Q1 | (13)% | (16)% | (5)% | ||||||
Q2 | (5)% | (13)% | (3)% | ||||||
Q3 | 1% | (14)% | (18)% | ||||||
Q4 | 1% | (14)% | (15)% | ||||||
Fiscal year | (4)% | (14)% | (11)% |
Boutique Count
Fiscal Year End | |||||||
Number of boutiques open at the beginning of period | 727 | 721 | 671 | ||||
Boutiques opened | 5 | 32 | 60 | ||||
Boutiques closed | (21 | ) | (26 | ) | (10 | ) | |
Number of boutiques open at the end of period | 711 | 727 | 721 |
Francesca’s
GAAP to Non-GAAP Reconciliation
(In Thousands, Except Per Share Amounts and Percentages)
Thirteen Weeks and Fiscal Year Ended
Thirteen Weeks Ended |
||||||||||||||||||||||
GAAP | Professional Fees (1) | Reversal of Stock-based Compensation (2) | Severance and Other Payroll Costs (3) | Asset Impairment Charges (4) | Non GAAP | |||||||||||||||||
SG&A | $ | 42,359 | $ | (448 | ) | $ | 229 | $ | (443 | ) | $ | - | $ | 41,697 | ||||||||
Loss from operations | (11,486 | ) | 448 | (229 | ) | 443 | 10,315 | (509 | ) | |||||||||||||
Income tax expense | (366 | ) | 14 | (7 | ) | 14 | 317 | 28 | ||||||||||||||
Net loss | (11,548 | ) | 434 | (222 | ) | 429 | 9,998 | (909 | ) | |||||||||||||
Loss per share(5) | (3.97 | ) | 0.15 | (0.08 | ) | 0.15 | 3.44 | (0.31 | ) | |||||||||||||
Fiscal Year Ended |
||||||||||||||||||||||
GAAP | Professional Fees (7) | Reversal of Stock-based Compensation (2) | Severance and Other Payroll Costs (3) | Asset Impairment Charges (4) | Non GAAP | |||||||||||||||||
SG&A | $ | 161,689 | $ | (1,842 | ) | $ | 1,052 | $ | (2,973 | ) | $ | - | $ | 157,926 | ||||||||
Loss from operations | (24,013 | ) | 1,842 | (1,052 | ) | 2,973 | 11,860 | (8,390 | ) | |||||||||||||
Income tax expense | 125 | 9 | (5 | ) | 15 | 60 | 204 | |||||||||||||||
Net loss | (25,020 | ) | 1,833 | (1,047 | ) | 2,958 | 11,800 | (9,476 | ) | |||||||||||||
Loss per share(5) | (8.63 | ) | 0.63 | (0.36 | ) | 1.02 | 4.07 | (3.26 | ) |
- For the thirteen weeks ended
February 1, 2020 , professional fees consists of search fees in connection with the hiring of the Company’s permanent Chief Executive Officer. For the fiscal year endedFebruary 1, 2020 , professional fees consists of consulting expenses associated with the Company’s review of strategic and financial alternatives as well as the implementation of the turnaround plan that commenced inJanuary 2019 , professional fees related to the previously disclosed reverse stock split and adoption of stockholder rights plan and search fees in connection with the hiring of the Company’s permanent Chief Executive Officer. - Reversal of stock-based compensation associated with certain employee departures.
- Consists of severance benefits and other payroll costs associated with the turnaround plan.
- The Company recorded
$10.3 million and$11.9 million of non-cash asset impairment charges for the thirteen weeks and fiscal year endedFebruary 1, 2020 , respectively, which were mostly associated with the write-down of operating lease right-of-use assets for 53 and 60 underperforming boutiques, respectively. - Reflects the 12-to-1 reverse stock split that became effective on
July 1, 2019 . 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)
Thirteen Weeks and Fiscal Year Ended
Thirteen Weeks Ended |
||||||||||||||||||||||
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 | ) | (238 | ) | |||||||||||||
Net loss | (21,287 | ) | 871 | (469 | ) | 3,400 | 17,115 | (370 | ) | |||||||||||||
Loss per share(6) | (7.34 | ) | 0.30 | (0.16 | ) | 1.17 | 5.86 | (0.13 | ) | |||||||||||||
Effective tax rate(5) | 212.1 | % | - | - | - | (250.9 | )% | (38.8 | )% | |||||||||||||
Fiscal Year Ended |
||||||||||||||||||||||
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 | ) | (3,623 | ) | |||||||||||||
Net loss | (40,941 | ) | 1,051 | (545 | ) | 14,327 | 17,115 | (8,993 | ) | |||||||||||||
Loss per share(6) | (14.12 | ) | 0.36 | (0.19 | ) | 4.94 | 5.90 | (3.11 | ) | |||||||||||||
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. - Reflects the 12-to-1 reverse stock split that became effective on
July 1, 2019 . Loss per share components may not equal the sum due to rounding.
Source: Francesca's Holdings Corporation