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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, Dec. 06, 2016 (GLOBE NEWSWIRE) -- 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.

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 EndedFiscal Year EndedThirty-Nine Weeks Ended
October 29, 2016January 30, 2016October 31, 2015
Number of boutiques open at the beginning of period616 539 539
Boutiques opened59 83 80
Boutiques closed(6)(6)-
Number of boutiques open at the end of period669 616 619

CONTACT: ICR, Inc. Jean Fontana 646-277-1214 Company Kelly Dilts 832-494-2236 Kate Venturina 832-494-2233 IR@francescas.com

Source:Francesca's Holdings Corporation