December 10, 2019

francesca’s® Reports Third Quarter Fiscal Year 2019 Financial Results

  • Comparable sales increased 1%
  • Net sales were relatively flat at $95.5 million
  • Loss per share was $1.76 compared to $5.59 in the same period last year
  • Adjusted loss per share was $1.12 compared to $2.08 in the same period last year (see Non-GAAP Information below)

HOUSTON, Dec. 10, 2019 (GLOBE NEWSWIRE) -- Francesca’s Holdings Corporation (Nasdaq: FRAN) today reported financial results for the third quarter ended November 2, 2019. 

Michael Prendergast, Interim CEO, stated, “We were pleased with our third quarter results which reflect our progress in the execution of our turnaround plan. The strides we have made in building a foundation to execute a fast fashion model through a flatter and more nimble organization led to an inflection point in our comparable sales. We believe that the high single digit growth in conversion rate is a clear illustration that our merchandising strategy is resonating with our guests; however, this was largely offset by softer traffic trends. We have taken steps to reorganize our marketing and e-commerce teams in order to more effectively execute our strategies and we are encouraged by the early results of our initial website optimization and email strategy.  In addition, based on our inventory planning and analysis, we determined that we have operated with less than optimal inventory levels in recent years, and therefore, have increased our inventory to align more appropriately with our holiday season plans.”     

Mr. Prendergast continued, “Overall, we are highly encouraged by our results, which further increases our confidence that we are quickly moving in the right direction with our turnaround plan. We look forward to building on these successes and driving positive momentum in our business through the holiday season and beyond.”

THIRD QUARTER RESULTS

Net sales were relatively flat at $95.5 million in the third quarter of fiscal year 2019 compared to the prior year quarter.  Comparable sales increased 1% due to higher boutique conversion rate and an increase in average units sold per transaction.  This increase was offset by net sales associated with the net decrease in boutique count during the thirteen weeks ended November 2, 2019 compared to the same prior year quarter. The Company opened one new boutique and closed five underperforming boutiques during the third quarter, bringing its total boutique count to 714 at the end of the quarter.     

Gross profit, as a percent of net sales, increased to 39.3% from 35.3% in the prior year quarter.  The 400 basis points improvement in gross profit was primarily due to higher merchandise margins as a result of lower inventory reserve and less marked-out-of-stock charges. Additionally, occupancy costs decreased due to lower depreciation expense associated with boutiques impaired in fiscal year 2018 and prior year demolition costs associated with boutique remodels.

Selling, general and administrative (SG&A) expenses decreased 4% to $40.4 million from $42.3 million in the prior year quarter. Adjusted SG&A in the third quarter of fiscal 2019 was $39.7 million and excludes $0.4 million in other payroll costs associated with our turnaround plan and $0.3 million of net charges related to an employee departure. There were no non-GAAP adjustments for SG&A in the third quarter of fiscal 2018.

The $2.6 million decrease in adjusted SG&A in the third quarter of fiscal year 2019 versus the comparable prior year period was primarily due to a $1.6 million decrease in boutique payroll and supplies as well as a $1.4 million decrease in corporate payroll and related expenses associated with the Company’s cost reduction initiatives under the turnaround plan. These decreases were partially offset by a $0.6 million increase in short term incentive bonus expense.

Non-cash asset impairment charges totaled $1.4 million in the third quarter of fiscal year 2019 compared to $14.4 million in the comparable prior year quarter. The non-cash impairment charges in the third quarter of fiscal year 2019 were mostly related to the write down of operating lease right-of-use assets for four underperforming boutiques while the prior year impairment charges were mostly related to the write down of property and equipment for 129 underperforming boutiques. 

Loss from operations was $4.2 million compared to $23.1 million in the prior year quarter.  Excluding the $0.7 million of adjustments noted above for adjusted SG&A and the non-cash asset impairment charges for both periods, adjusted loss from operations in the third quarter of fiscal year 2019 was $2.2 million compared to adjusted loss from operations for the prior year quarter of $8.6 million.

Income tax expense was $0.4 million in the thirteen weeks ended November 2, 2019 compared to an income tax benefit of $6.7 million in the comparable prior year period.  The change in income tax expense (benefit) was due to the Company’s estimate of its annualized taxable income for fiscal year 2019, after consideration of net operating loss carryover, while the prior year income tax benefit was due to the Company being in a net loss position. The Company continues to provide a full valuation allowance on its net deferred tax assets.

Net loss for the third quarter was $5.1 million, or $1.76 loss per share, compared to a net loss of $16.2 million, or $5.59 loss per share, in the prior year quarter. Adjusted net loss for the third quarter of fiscal year 2019 was $3.3 million, or $1.12 adjusted loss per share compared to adjusted net loss for the prior year quarter of $6.0 million, or $2.08 adjusted loss per share.

Please see the reconciliation of adjusted SG&A, adjusted loss from operations, adjusted loss before income tax expense, adjusted income tax expense, 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 third quarter ended November 2, 2019 were $21.2 million compared to $10.7 million at the end of the comparable prior year quarter. On November 2, 2019, the Company had combined outstanding borrowings of $20.0 million and a combined borrowing base availability of $24.0 million under its Asset Based Revolving Credit Facility and Term Loan.

The Company ended the quarter with $48.0 million of inventory on hand compared to $40.4 million at the end of the comparable prior year period. Average ending inventory per boutique increased 23% as the Company accelerated inventory receipts in order to align our inventory levels with our holiday season plans.

CEO SEARCH UPDATE

The Board of Directors has hired an executive search firm to initiate a formal search for a permanent Chief Executive Officer. Michael Prendergast will remain interim Chief Executive Officer during this process and will continue to be engaged with the Company through a reasonable transition period once a new Chief Executive Officer is hired. 

Conference Call Information

A conference call to discuss the third quarter fiscal year 2019 results is scheduled for December 10, 2019 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 December 17, 2019. To access the telephone replay, listeners should dial 1-844-512-2921. The access code for the replay is 13696995. 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 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 may not be able to successfully execute its turnaround plan; the risk that the Company may not be able to successfully attract and integrate a new permanent 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 February 3, 2019 filed with the SEC on May 3, 2019 and any risk factors contained in subsequent quarterly and annual reports it files with the SEC. The Company undertakes no obligation to publicly update or revise any forward-looking statement.

Non-GAAP Information

This press release includes non-GAAP adjusted SG&A, adjusted loss from operations, adjusted loss before income tax expense, adjusted income tax expense, adjusted net loss, and adjusted loss 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 third quarter fiscal year 2019 SG&A, loss from operations, loss before income tax expense, income tax expense, net loss and loss per share on a comparable basis with the Company’s third quarter 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 Holdings Corporation

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® operated approximately 714 boutiques in 47 states throughout the United 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.

CONTACT:  
ICR, Inc. 
Jean Fontana 
646-277-1214
Company
Cindy Thomassee 832-494-2240
Kate Venturina 713-864-1358 ext. 1145
IR@francescas.com
   


                         

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

  Thirteen Weeks Ended
           
  November 2, 2019   November 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 $   95,503     100.0 %   $   95,375     100.0 %   $   128     0 %     -  
Cost of goods sold and occupancy costs   57,985     60.7 %     61,730     64.7 %     (3,745 )   (6 )%     (400 )
Gross profit   37,518     39.3 %     33,645     35.3 %     3,873     12 %     400  
Selling, general and administrative expenses   40,401     42.3 %     42,286     44.3 %     (1,885 )   (4 )%   (200 )
Asset impairment charges   1,356     1.4 %     14,419     15.1 %     (13,063 )   (91 )%   (1,370 )
Loss from operations   (4,239 )   (4.4 )%     (23,060 )   (24.2 )%     (18,821 )   (82 )%   (1,970 )
Interest expense     394     0.4 %       51     0.1 %     343     673 %   40  
Other expense (income)     107     0.1 %     (151 )   (0.2 )%     258     171 %   30  
Loss before income tax expense (benefit)   (4,740 )   (5.0 )%     (22,960 )   (24.1 )%     (18,220 )   (79 )%   (1,910 )
Income tax expense (benefit)     395     0.4 %     (6,737 )   (7.1 )%       7,132     106 %     750  
Net loss $   (5,135 )   (5.4 )%   $   (16,223 )   (17.0 )%   $ (11,088 )   (68 )%   (1,160 )
 
________________________
            (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* $   (1.76 )       $   (5.59 )                  
Weighted average share count*   2,910           2,900                    
Comparable sales change  1%
   (14)%             
                             
  Thirty-Nine Weeks Ended            
  November 2, 2019   November 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 $ 288,600     100.0 %   $ 308,805     100.0 %   $ (20,205 )   (7 )%   -  
Cost of goods sold and occupancy costs   180,252     62.5 %     192,690     62.4 %     (12,438 )   (6 )%   10  
Gross profit   108,348     37.5 %     116,115     37.6 %     (7,767 )   (7 )%   (10 )
Selling, general and administrative expenses   119,330     41.3 %     128,298     41.5 %     (8,968 )   (7 )%     (20 )
Asset impairment charges   1,545     0.5 %     14,567     4.7 %     (13,022 )   (89 )%   (420 )
Loss from operations   (12,527 )   (4.3 )%     (26,750 )   (8.7 )%     (14,223 )   (53 )%   (430 )
Interest expense     719     0.2 %       280     0.1 %     439     157 %   20  
Other income   (265 )   (0.1 )%     (403 )   (0.1 )%     (138 )   (34 )%   -  
Loss before income tax expense (benefit)   (12,981 )   (4.5 )%     (26,627 )   (8.6 )%     (13,646 )   (51 )%   (410 )
Income tax expense (benefit)     491     0.2 %     (6,973 )   (2.3 )%       7,464     107 %   240  
Net loss $ (13,472 )   (4.7 )%   $ (19,654 )   (6.4 )%   $   6,182     (31 )%   170  
 
________________________
            (1)
 Percentage totals or differences in the above table may not equal the sum or difference of the components due to rounding. 
                             
Loss earnings per share* $   (4.64 )       $   (6.78 )                  
Weighted average share count*     2,906            2,900                    
Comparable sales change  (6)%
   (15)%             

            *Reflects the 12-to-1 reverse stock split that became effective on July 1, 2019.



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

    November 2, 2019     February 2, 2019     November 3, 2018  
ASSETS                        
Current assets:                        
Cash and cash equivalents   $ 21,154     $ 20,103     $ 10,720  
Accounts receivable     5,292       16,309       17,134  
Inventories     47,983       30,478       40,404  
Prepaid expenses and other current assets     12,024       10,357       10,854  
Total current assets     86,453       77,247       79,112  
Operating lease right-of-use assets, net     227,204       -       -  
Property and equipment, net     56,653       71,207       79,842  
Deferred income taxes     -       -       15,554  
Other assets, net     3,471       4,588       4,958  
                         
TOTAL ASSETS   $ 373,781     $ 153,042     $ 179,466  
                         
LIABILITIES AND STOCKHOLDERS’ EQUITY                        
Current liabilities:                        
Accounts payable   $ 22,488     $ 24,330     $ 37,436  
Accrued liabilities     13,929       11,333       12,264  
Operating lease liabilities     48,845       -       -  
Total current liabilities     85,262       35,663       49,700  
Operating lease liabilities     211,123       -       -  
Landlord incentives and deferred rent     -       33,989       34,997  
Long-term debt     18,904       10,000       -  
Other liabilities     552       -       -  
Total liabilities     315,841       79,652       84,697  
                         
Commitments and contingencies                        
                         
Stockholders’ equity:                        
Common stock – $0.01 par value, 80.0 million shares authorized; 4.0 million, 3.9 million and 3.9 million issued at November 2, 2019, February 2, 2019 and November 3, 2018*     40       39       40  
Additional paid-in capital*     112,967       113,121       113,225  
Retained earnings     104,954       120,251       141,525  
Treasury stock, at cost – 0.9 million shares at each of November 2, 2019, February 2, 2019 and November 3, 2018*     (160,021 )     (160,021 )     (160,021 )
Total stockholders’ equity     57,940       73,390       94,769  
                         
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 373,781     $ 153,042     $ 179,466  

*Reflects the 12-to-1 reverse stock split that became effective on July 1, 2019.



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

    Thirty-Nine Weeks Ended  
    November 2, 2019     November 3, 2018  
Cash Flows (Used in) Provided by Operating Activities:                
Net loss   $ (13,472 )   $ (19,654 )
Adjustments to reconcile net loss to net cash provided by operating activities:                
Depreciation and amortization     16,698       18,742  
Stock-based compensation expense     403       1,440  
Loss on sale of assets     99       633  
Asset impairment charges     1,545       14,567  
Deferred income taxes     -       (6,848 )
Other     161       -  
Changes in operating assets and liabilities:                
Accounts receivable     11,017       (492 )
Inventories     (17,505 )     (13,588 )
Prepaid expenses and other assets     (1,566 )     (2,983 )
Accounts payable     257       16,966  
Accrued liabilities     2,596       359  
Operating lease right-of-use assets and lease liabilities, net     (4,449 )     -  
Landlord incentives and deferred rent     -       (3,340 )
Net cash (used in) provided by operating activities     (4,216 )     5,802  
                 
Cash Flows Used in Investing Activities:                
Purchases of property and equipment     (3,299 )     (21,885 )
Net cash used in investing activities     (3,299 )     (21,885 )
                 
Cash Flows Provided by (Used in) Financing Activities:                
Proceeds from borrowings under the revolving credit facility     15,000       -  
Proceeds from borrowings under the term loan     10,000       -  
Repayments of borrowings under the revolving credit facility     (15,000 )     -  
Payment of debt issuance costs     (1,434 )     (471 )
Taxes paid related to net settlement of equity awards     -       (77 )
Repurchases of common stock     -       (3,980 )
Net cash provided by (used in) financing activities     8,566       (4,528 )
                 
Net increase (decrease) in cash and cash equivalents     1,051       (20,611 )
Cash and cash equivalents, beginning of year     20,103       31,331  
Cash and cash equivalents, end of period   $ 21,154     $ 10,720  
                 
Supplemental Disclosures of Cash Flow Information:                
Cash (received) paid for income taxes   $ (8,747 )   $ 244  
Interest paid   $ 475     $ 121  
                 



Francesca’s Holdings Corporation
Supplemental Information

Quarterly Sales by Merchandise Category

  Thirteen Weeks Ended    
  November 2, 2019   November 3, 2018   Variance
  In USD   As a %
of Sales
  In USD   As a %
of Sales
  In Dollars   %
   
  (in thousands, except percentages)
Apparel $    46,523   48.7 %   $   48,397   50.7 %   $ (1,874 )   (4 )%
Jewelry   26,073   27.3 %     22,855   24.0 %     3,218     14 %
Accessories   15,147   15.9 %     14,844   15.6 %     303     2 %
Gifts   7,064   7.4 %     8,685   9.1 %     (1,621 )   (19 )%
Others(1)   696   0.7 %     594   0.6 %     102     17 %
Net sales $   95,503   100.0 %   $   95,375   100.0 %     128     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     (14)%   (15)%
Fiscal year     (14)%   (11)%

Boutique Count

  Thirty-Nine
Weeks Ended
   

Fiscal Year Ended
  Thirty-Nine
Weeks Ended
 
  November 2, 2019   February 2, 2019   November 3, 2018  
Number of boutiques open at the beginning of period 727   721   721  
Boutiques opened 5   32   31  
Boutiques closed (18 ) (26 ) (14 )
Number of boutiques open at the end of period 714   727   738  
             



Francesca’s Holdings Corporation
GAAP to Non-GAAP Reconciliation
(In Thousands, Except Per Share Amounts and Percentages)

Thirteen Weeks Ended November 2, 2019

  As
Reported

(GAAP)
  Other
Payroll
Costs(1)
  Net Charges
Related to
Employee
Departure(2)
  Asset
Impairment
Charges(3)
  Adjusted
(Non-GAAP)
SG&A $   40,401     $  (386 )   $    (301 )   $    -      $    39,714  
Loss from operations   (4,239 )     386       301       1,356       (2,196 )
Loss before income tax   (4,740 )     386       301       1,356       (2,697 )
Income tax expense(4)   395       32       25       113       565  
Net loss   (5,135 )     354       276       1,243       (3,262 )
Loss per share   (1.76 )     0.12       0.09       0.43       (1.12 )

  1. Consists of other payroll costs associated with our turnaround plan.
  2. Consists of net charges associated with an employee departure.
  3. Non-cash asset impairment charges mostly associated with the write down of operating lease right-of-use asset for four underperforming boutiques for which the remaining carrying value of their assets are no longer expected to be recoverable.
  4. The income tax impact of each adjustment was calculated using the effective income tax rate of 8.3% during the thirteen weeks ended November 2, 2019.


Thirteen Weeks Ended November 3, 2018

  As Reported
(GAAP)
Asset Impairment
Charges(1)
  Adjusted
(Non-GAAP)
Loss from operations $   (23,060 ) $   14,419   $   (8,641 )
Loss before income tax   (22,960 )   14,419     (8,541 )
Income tax benefit (2)    (6,737 )   4,231     (2,506 )
Net loss   (16,223 )   10,188     (6,035 )
Loss per share(3)    (5.59 )     3.51      (2.08 )


  1. Non-cash asset impairment charges mostly associated with the write down of property and equipment for 129 underperforming boutiques for which the remaining carrying value of their assets are no longer expected to be recoverable.
  2. The income tax impact of the adjustment was calculated using the effective income tax rate of 29.3% during the thirteen weeks ended November 3, 2018.
  3. Reflects the 12-to-1 reverse stock split that became effective on July 1, 2019.

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Source: Francesca's Holdings Corporation