francesca’s® Reports Second Quarter Fiscal Year 2018 Financial Results
- Net sales decreased 6% to
$113 million and comparable sales decreased 13% - Diluted earnings per share was
$0.01 - Company revises full year sales and EPS guidance
Mr. Lawrence continued, “While we did not see the positive inflection in our results that we had hoped for, I strongly believe that the steps we are taking in resetting our merchandising strategy, investing in our omni-channel and reformatting our stores to better showcase our product, were the right decisions for the business. In addition, we are taking action to drive improved traffic trends through a number of marketing initiatives. That said, as we see the progress in our business coming at a more measured pace, we are reducing our annual guidance. I am proud of the team’s hard work and dedication and look forward to building upon our efforts to get our business back on track to deliver sustainable long-term sales and profitability growth.”
SECOND QUARTER RESULTS
Net sales decreased 6% to
Gross profit, as a percent of net sales, decreased to 39.0% from 46.3% in the comparable prior year quarter. This unfavorable variance was due to the decrease in merchandise margin and higher occupancy costs. Merchandise margin decreased versus last year due to higher markdowns and marked-out-of-stock charges as a result of our in-season clearance strategy and in order to transition the boutiques to our new merchandising direction. Occupancy costs increased versus last year primarily due to the increased number of boutiques, higher rent and related expenses driven by increased penetration of boutiques in high traffic centers, and higher depreciation as a result of increased new boutique and remodel costs. Additionally, occupancy costs deleveraged significantly versus last year as a result of lower sales.
Selling, general and administrative expenses decreased 1% to
Income from operations was
The Company’s effective tax rate for the quarter was 44.6% compared to 38.7% in the comparable prior year quarter. The increase in the Company’s effective tax rate was due to additional expense recognized related to the vesting of certain stock-based awards partially offset by the lower corporate tax rate under the Tax Cuts and Jobs Act enacted in
Net income for the second quarter was
BALANCE SHEET SUMMARY
Total cash and cash equivalents at the end of the quarter were
THIRD QUARTER AND REVISED FISCAL YEAR 2018 GUIDANCE
For the third quarter ending
For the fiscal year ending
Capital expenditures for fiscal year 2018 are still expected to be approximately
Conference Call Information
A conference call to discuss the second quarter 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 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 website; our ability to successfully open, refresh and operate new boutiques each year; our ability to efficiently source, distribute additional merchandise quantities necessary to support our growth; 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 our forward-looking statements, please refer to "Risk Factors" in our Annual Report on Form 10-K for the year ended
Non-GAAP Information
This press release includes non-GAAP adjusted diluted earnings per share, a non-GAAP financial measure. The Company believes this non-GAAP financial measure not only provides our management with comparable financial data for internal financial analysis but also provides meaningful supplemental information to investors. Specifically, this non-GAAP financial measure allows investors to better understand the performance of the business and facilitate a meaningful evaluation of our fiscal year 2017 diluted earnings per share on a comparable basis with our expected fiscal year 2018 results. This non-GAAP measure 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 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 742 boutiques in 47 states and the
CONTACT: | |
ICR, Inc. Jean Fontana 646-277-1214 |
Company Kelly Dilts 832-494-2236 Kate Venturina 832-494-2233 IR@francescas.com |
Francesca’s
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts, Percentages and Basis Points)
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 |
|||||||||||||||||
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. | |||||||||||||||||||||||
Diluted earnings per share | $ | 0.01 | $ | 0.20 | |||||||||||||||||||
Weighted average diluted share count | 35,020 | 36,472 | |||||||||||||||||||||
Comparable sales change | (13)% | (3)% |
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 |
|||||||||||||||||
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. |
|||||||||||||||||||||||
Diluted (loss) earnings per share | $ | (0.10 | ) | $ | 0.32 | ||||||||||||||||||
Weighted average diluted share count | 34,807 | 36,811 | |||||||||||||||||||||
Comparable sales change | (15)% |
(4)% |
Francesca’s
Consolidated Balance Sheets
(In thousands, except share and per 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 |
Francesca’s
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 |
Francesca’s
Supplemental Information
Quarterly Sales by Merchandise Category
Thirteen Weeks Ended | ||||||||||||||||
August 4, 2018 | July 29, 2017 | Variance | ||||||||||||||
In USD | As a % of Sales |
In USD | As a % of Sales |
In USD | % | |||||||||||
(in thousands, except percentages) |
||||||||||||||||
Apparel | 56,807 | 50.3 | % | $ | 65,396 | 54.6 | % | $ | (8,589 | ) | (13 | )% | ||||
Jewelry | 26,984 | 23.9 | % | 25,560 | 21.4 | % | 1,424 | 6 | % | |||||||
Accessories | 17,181 | 15.2 | % | 14,735 | 12.3 | % | 2,446 | 17 | % | |||||||
Gifts | 11,337 | 10.0 | % | 12,836 | 10.7 | % | (1,499 | ) | (12 | )% | ||||||
Merchandise sales | 112,309 | 99.4 | % | 118,527 | 99.0 | % | (6,218 | ) | (5 | )% | ||||||
Others(1) | 716 | 0.6 | % | 1,180 | 1.0 | % | (464 | ) | (39 | )% | ||||||
Net sales | 113,025 | 100.0 | % | $ | 119,707 | 100.0 | % | $ | (6,682 | ) | (6 | )% | ||||
(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 | (18 | )% | 7 | % | ||||
Q4 | (15 | )% | 0 | % | ||||
Fiscal year | (11 | )% | 2 | % |
Boutique Count
Twenty-Six Weeks Ended August 4, 2018 |
Fiscal Year Ended February 3, 2018 |
Twenty-Six Weeks Ended July 29, 2017 |
||||||
Number of boutiques open at the beginning of period period | 721 | 671 | 671 | |||||
Boutiques opened | 31 | 60 | 28 | |||||
Boutiques closed | (10 | ) | (10 | ) | (7 | ) | ||
Number of boutiques open at the end of period | 742 | 721 | 692 |
Source: Francesca's Holdings Corporation