UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

  

 

 

FORM 8-K

 

 

  

CURRENT REPORT

 

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported): December 6, 2016

 

 

FRANCESCA’S HOLDINGS CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

    Delaware    
001-35239   (State or Other Jurisdiction of Incorporation)   20-8874704
(Commission File Number)       (I.R.S. Employer Identification No.)
         

8760 Clay Road,

Houston, Texas

     

 

77080

  (Address of Principal Executive Offices)       (Zip Code)

 

(713) 864-1358

(Registrant’s Telephone Number, Including Area Code)

 

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
   
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
   
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
   
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

 

Item 2.02.  Results of Operations and Financial Condition.

  

On December 6, 2016, Francesca’s Holdings Corporation (the “Company”) issued a press release announcing its consolidated financial results for the fiscal third quarter ended October 29, 2016. A copy of the press release is furnished as Exhibit 99.1 to this report. This information shall not be deemed “filed” for purposes of Section 18 of the Exchange Act of 1934, as amended, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

 

 

Item 9.01. Financial Statements and Exhibits.

 

99.1 Press Release issued by Francesca’s Holdings Corporation on December 6, 2016.

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

  FRANCESCA’S HOLDINGS CORPORATION
     
     
Date:   December 6, 2016 By: /s/ Kal Malik
    Kal Malik
    Chief Administrative Officer

  

 

 

 

EXHIBIT INDEX

 

Exhibit No.   Description
     
99.1   Press Release issued by Francesca’s Holdings Corporation on December 6, 2016.

  

 

 

 

 

 

 

Exhibit 99.1

 

 

 

francesca’s® Reports a 15% Net Sales and a 7% Comparable Sales Increase for the Third Quarter 2016 and Increases Full Year Guidance

 

·Diluted earnings per share were $0.26 for the third quarter compared to $0.16 last year, a 63% increase
·Company raises fiscal 2016 sales and diluted earnings per share outlook to $1.03 to $1.07

 

HOUSTON, TEXAS — December 6, 2016 — Francesca’s Holdings Corporation (NASDAQ: FRAN) today reported financial results for the third quarter ended October 29, 2016.

 

Steve Lawrence, President and CEO stated, “We are very pleased with our third quarter results, as we achieved double digit growth in sales and EPS exceeded our expectations. Our strong performance was the result of a 7% comparable sales increase as well as better than expected gross profit margin and operating margin. We had a good start to the quarter with a successful back-to-school season and the strong trends continued in September and October as our merchandise and boutique experience resonated well with our guests. Looking ahead, we will continue to execute on our strategic initiatives and believe we are well-positioned for a successful holiday season and beyond.”

 

THIRD QUARTER RESULTS

 

Net sales increased 15% to $119.5 million from $103.7 million in the comparable prior year quarter. This was due to a 7% increase in comparable sales primarily driven by an increase in the number of transactions both at boutiques and on-line as well as the addition of 50 net new boutiques since the prior year quarter. The Company opened 18 boutiques and closed one boutique during the quarter, bringing the total boutique count to 669 at the end of the quarter. Ecommerce comparable sales increased 47% to $5.7 million driven by increased website traffic and conversion rate.

 

Gross profit, as a percent of net sales, increased to 48.2% from 46.6% in the prior year quarter. This increase was attributable to 40 basis points of higher merchandise margin and 120 basis points of occupancy costs leverage. The increase in merchandise margin was mostly due to favorable mix change and lower markdowns compared to the prior year quarter.

 

Selling, general and administrative expenses increased 12% to $41.9 million from $37.3 million in the prior year quarter. This increase was primarily due to higher boutique and corporate payroll, professional fees, software costs and depreciation compared to the prior year quarter. The increase in boutique payroll was due to the larger boutique base while the remaining increases were due to investments in strategic initiatives, including technology and infrastructure.

 

Income from operations was $15.8 million, or 13.2% of net sales, compared to $11.1 million, or 10.7% of net sales, in the prior year quarter.

 

Diluted earnings per share was $0.26 for the quarter, a 63% increase over prior year’s third quarter diluted earnings per share of $0.16. Diluted earnings per share was also higher than the Company’s guidance of $0.16 to $0.19 due to the impact of higher sales and a better than expected gross margin rate as well as an approximately $0.03 per share favorable impact related to a shift in timing primarily of marketing and point-of-sale implementation expenses which the Company now expects to incur in the fourth quarter.

 

BALANCE SHEET SUMMARY

 

Total cash and cash equivalents at the end of the quarter were $24.7 million compared to $42.0 million at the end of the comparable prior year quarter. During the third quarter, the Company repurchased 263,000 shares of its common stock at a cost of $4.2 million, bringing the Company’s total year-to-date repurchases to 3,506,000 shares at a cost of $48.0 million.

 

The Company ended the quarter with $42.8 million of inventory on hand compared to $43.9 million at the end of the comparable prior year period. Average ending inventory per boutique decreased by 10% versus the comparable prior year period.

 

 

 

 

FOURTH QUARTER AND FISCAL YEAR 2016 GUIDANCE

 

For the fourth quarter ending January 28, 2017, net sales are expected to be in the range of $143 million to $148 million; assuming comparable sales will be in the low single digit decrease to low single digit increase range compared to the prior year increase of 11%. The Company plans to open five new boutiques and close three boutiques during the fourth quarter. Diluted earnings per share are expected to be in the range of $0.33 to $0.37 and includes approximately $0.03 of expense due to a timing shift from third quarter to fourth quarter.

 

For the full year ending January 28, 2017, the Company now expects net sales to be in the range of $484 million to $489 million; assuming a low-single digit increase in comparable sales compared to the prior year increase of 3%. The Company expects to open 64 boutiques and close nine boutiques in fiscal year 2016, compared to 83 new boutiques opened and six boutiques closed in fiscal year 2015. Diluted earnings per share are now expected to be in the range of $1.03 to $1.07 compared to the previous guidance of $0.96 to $1.03. This guidance includes a $0.03 per share benefit associated with the previously announced resignation of the Company’s former Chairman, President and Chief Executive Officer. The number of average diluted shares for the full year assumed in guidance is 38.6 million shares. The effective tax rate is estimated to be 37.9%.

 

Capital expenditures for fiscal year 2016 are expected to be in the range of $25.0 million to $28.0 million.

 

Conference Call Information

 

A conference call to discuss the third quarter fiscal year 2016 results is scheduled for December 6, 2016, at 8:30 a.m. ET. A live webcast of the conference call will be available in the investor relations section of our website, www.francescas.com. A replay of the call will be available after the conclusion of the call and remain available until December 13, 2016. To access the telephone replay, listeners should dial 1-877-870-5176. The access code for the replay is 6784722. 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; 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; and our ability to efficiently source and distribute additional merchandise quantities necessary to support our growth. 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 30, 2016 filed with the Securities and Exchange Commission (“SEC”) on March 25, 2016 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 674 boutiques in 48 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.                        Company
Jean Fontana                  Kelly Dilts 832-494-2236
646-277-1214                Kate Venturina 832-494-2233
  IR@francescas.com

 

 

 

 

Francesca’s Holdings Corporation

Consolidated Statements of Operations

(In Thousands, Except Per Share Amounts, Percentages and Basis Points)

 

   Thirteen Weeks Ended     
   October 29, 2016   October 31, 2015   Variance 
   In USD   As a % of Net Sales(1)   In USD   As a % of Net Sales(1)   In USD   %   Basis Points 
Net sales  $119,470    100.0%  $103,728    100.0%  $15,742    15%   - 
Cost of goods sold and occupancy costs   61,843    51.8%   55,362    53.4%   6,481    12%   (160)
Gross profit   57,627    48.2%   48,366    46.6%   9,261    19%   160 
Selling, general and administrative expenses   41,872    35.0%   37,286    35.9%   4,586    12%   (90)
Income from operations   15,755    13.2%   11,080    10.7%   4,675    42%   250 
Interest expense   (131)   (0.1)%   (122)   (0.1)%   (9)   (7)%   - 
Other income   79    0.1%   29    0.0%   50    172%   10 
Income before income tax expense   15,703    13.1%   10,987    10.6%   4,716    43%   250 
Income tax expense   6,009    5.0%   4,036    3.9%   1,973    49%   110 
Net income  $9,694    8.1%  $6,951    6.7%  $2,743    39%   140 

 

(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  $0.26        $0.16                     
Weighted average diluted share count   37,675         42,246                     
                                    
Comparable sales change   7%    4%                

 

 

   Thirty-Nine Weeks Ended     
   October 29, 2016   October 31, 2015   Variance 
   In USD   As a % of Net Sales(1)   In USD   As a % of Net Sales(1)   In USD   %   Basis Points 
Net sales  $340,843    100.0%  $304,772    100.0%  $36,071    12%   - 
Cost of goods sold and occupancy costs   180,149    52.9%   161,205    52.9%   18,944    12%   - 
Gross profit   160,694    47.1%   143,567    47.1%   17,127    12%   - 
Selling, general and administrative expenses   116,353    34.1%   105,422    34.6%   10,931    10%   (50)
Income from operations   44,341    13.0%   38,145    12.5%   6,196    16%   50 
Interest expense   (353)   (0.1)%   (344)   (0.1)%   (9)   (3)%   - 
Other income (expense)   118    0.0%   (91)   0.0%   209    230%   - 
Income before income tax expense   44,106    12.9%   37,710    12.4%   6,396    17%   50 
Income tax expense   16,740    4.9%   14,214    4.7%   2,526    18%   20 
Net income  $27,366    8.0%  $23,496    7.7%  $3,870    16%   30 

 

(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  $0.70        $0.55                     
Weighted average diluted share count   38,945         42,365                     
                                    
Comparable sales change   3%    (1)%                

  

 

 

 

Francesca’s Holdings Corporation

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

  

   October 29,   January 30,   October 31, 
   2016   2016   2015 
ASSETS               
Current assets:               
Cash and cash equivalents  $24,725   $56,224   $42,015 
Accounts receivable   8,218    9,580    8,683 
Inventories   42,774    31,541    43,885 
Deferred income taxes   5,709    6,411    5,737 
Prepaid expenses and other current assets   7,745    7,013    6,023 
Total current assets   89,171    110,769    106,343 
Property and equipment, net   82,992    77,894    79,017 
Deferred income taxes   4,425    3,847    6,659 
Other assets, net   1,370    1,067    1,656 
TOTAL ASSETS  $177,958   $193,577   $193,675 
                
LIABILITIES AND STOCKHOLDERS’ EQUITY               
Current liabilities:               
Accounts payable  $16,550   $14,305   $15,933 
Accrued liabilities   16,629    16,328    14,817 
Total current liabilities   33,179    30,633    30,750 
Landlord incentives and deferred rent   38,821    36,552    37,540 
Total liabilities   72,000    67,185    68,290 
                
Commitments and contingencies               
                
Stockholders’ equity:               
Common stock - $.01 par value, 80.0 million shares authorized; 46.1 million, 45.9 million and 45.5 million shares issued at October 29, 2016, January 30, 2016 and October 31, 2015, respectively.   461    459    455 
Additional paid-in capital   107,908    107,693    106,722 
Retained earnings   128,922    101,556    86,900 
Treasury stock, at cost – 8.3 million, 4.8 million and 3.8 million shares held at October 29, 2016, January 30, 2016 and October 31, 2015, respectively.   (131,333)   (83,316)   (68,692)
Total stockholders’ equity   105,958    126,392    125,385 
                
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $177,958   $193,577   $193,675 

 

 

 

  

Francesca’s Holdings Corporation

Consolidated Statements of Cash Flows

(In thousands)

 

   Thirty-Nine Weeks Ended 
   October 29, 2016   October 31, 2015 
Cash Flows Provided by Operating Activities:          
Net income  $27,366   $23,496 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   14,415    12,361 
Stock-based compensation expense   18    2,416 
Excess tax benefit from stock-based compensation   (2)   (81)
Impairment charges   66    - 
Loss on sale of assets   265    360 
Deferred income taxes   (81)   (5,374)
Changes in operating assets and liabilities:          
Accounts receivable   1,364    3,677 
Inventories   (11,233)   (20,084)
Prepaid expenses and other assets   (1,294)   (66)
Accounts payable   2,015    6,086 
Accrued liabilities   301    2,913 
Landlord incentives and deferred rent   2,269    4,663 
Net cash provided by operating activities   35,469    30,367 
           
Cash Flows Used in Investing Activities:          
Purchases of property and equipment   (18,666)   (19,850)
Other   8    12 
Net cash used in investing activities   (18,658)   (19,838)
           
Cash Flows Used in Financing Activities:          
Repurchases of common stock   (48,715)   (7,872)
Proceeds from the exercise of stock options   403    206 
Excess tax benefit from stock-based compensation   2    81 
Net cash used in financing activities   (48,310)   (7,585)
           
Net (decrease) increase in cash and cash equivalents   (31,499)   2,944 
Cash and cash equivalents, beginning of year   56,224    39,071 
Cash and cash equivalents, end of period  $24,725   $42,015 
           
Supplemental Disclosures of Cash Flow Information:          
Cash paid for income taxes  $13,014   $14,909 
Interest paid  $143   $142 

  

 

 

  

Francesca’s Holdings Corporation

Supplemental Information 

 

Quarterly Sales by Merchandise Category

 

   Thirteen Weeks Ended     
   October 29, 2016   October 31, 2015   Variance 
   In Dollars   As a % of Sales   In Dollars   As a % of Sales   In Dollars   % 
   (in thousands, except percentages) 
Apparel  $63,926    53.5%  $54,326    52.4%  $9,600    18%
Jewelry   26,143    21.9%   21,265    20.5%   4,878    23%
Accessories   17,433    14.6%   17,078    16.5%   355    2%
Gifts   11,638    9.7%   10,847    10.4%   791    7%
Merchandise sales   119,140    99.7%   103,516    99.8%   15,624    15%
Others(1)   330    0.3%   212    0.2%   118    56%
Net sales  $119,470    100.0%  $103,728    100.0%  $15,742    15%

 

(1)Includes gift card breakage income, shipping and change in return reserve.

 

 

Quarterly Comparable Sales

 

  FY 2016   FY 2015   FY 2014
Q1 2%   (2)%   (7)%
Q2 0%   (4)%   (7)%
Q3 7%   4%   (6)%
Q4     11%   1%
Fiscal year     3%   (5)%

 

 

Boutique Count

 

  

Thirty-Nine Weeks Ended

October 29, 2016

  

 

Fiscal Year Ended

January 30, 2016

  

Thirty-Nine Weeks Ended

October 31, 2015

 
Number of boutiques open at the beginning of period   616    539    539 
Boutiques opened   59    83    80 
Boutiques closed   (6)   (6)   - 
Number of boutiques open at the end of period   669    616    619