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 10, 2019

 

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))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $.01 per share FRAN The Nasdaq Stock Market LLC
Purchase Rights of Series A Junior Participating Preferred Stock, par value $0.01 per share N/A The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

 

 

 

 

Item 2.02.Results of Operations and Financial Condition.

 

On December 10, 2019, Francesca’s Holdings Corporation (the “Company”) issued a press release announcing its consolidated financial results for the fiscal third quarter ended November 2, 2019. 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 Securities 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.

 

Exhibit

Description

99.1 Press Release issued by Francesca’s Holdings Corporation on December 10, 2019.

 

 

 

 

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 10, 2019 By: /s/ Cindy Thomassee  
    Cindy Thomassee  
    Executive Vice President and Chief Financial Officer  

 

 

 

Exhibit 99.1

 

 

 

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, TEXAS — December 10, 2019 — 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. Company
Jean Fontana Cindy Thomassee 832-494-2240
646-277-1214 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.