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francesca’s® Reports Second Quarter Fiscal Year 2017 Financial Results

  • Net sales increased 4% to $119.7 million
  • Comparable sales decreased 3%
  • Diluted earnings per share were $0.20

HOUSTON, Sept. 06, 2017 (GLOBE NEWSWIRE) -- Francesca’s Holdings Corporation (NASDAQ:FRAN) today reported financial results for the second quarter ended July 29, 2017.

Steve Lawrence, President and CEO, stated, “As we previously announced, our second quarter EPS exceeded our expectations as a result of better than expected merchandise margins and SG&A expenses. Comparable sales came in at the low-end of the expected range and further softened in August. We believe that the recent downturn in business is primarily reflective of merchandising missteps. We are taking decisive actions to efficiently move through our back-to-school product and to get back on track as we turn the corner into the holiday season. Our core merchandising philosophy of surprising every guest, every time with a unique, trend-right assortment at a great value will continue to dictate our go-forward strategy. Moreover, we will remain highly disciplined in managing our inventory to ensure a constant flow of newness and swiftly move through slow-sellers.

“Hurricane Harvey had a devastating impact on south Texas and Louisiana. Our dedicated team has been resilient and, even though personally impacted, have worked hard to get us back up and running. Our corporate headquarters, ecommerce fulfilment, distribution center, approximately 40 boutiques and many team members located in Houston or neighboring areas were directly impacted by the storm. As of Tuesday, September 5th, we have fully re-opened our corporate facilities and all but one of our impacted boutiques. The disruption to our supply chain is impacting all of our boutiques and we expect it to take a couple of weeks before things normalize. While there is a lot of work to be done, we have a talented and capable team who is firmly committed to taking the necessary steps to reinvigorate our merchandise assortments as well as work through the challenges created by Hurricane Harvey.”

SECOND QUARTER RESULTS

Net sales increased 4% to $119.7 million from $115.3 million in the comparable prior year quarter. This increase was due to the addition of 40 net new boutiques since the end of the second quarter last year. Comparable sales decreased 3% compared to the same period last year due to a decrease in boutique conversion rates. Prior year second quarter comparable sales were flat. The Company opened 16 new boutiques and closed three boutiques during the quarter, bringing the total count to 692 at the end of the quarter.

Gross profit, as a percent of net sales, decreased to 46.3% from 46.8% in the prior year quarter. This was primarily due to deleveraging of occupancy costs as merchandise margin compared to last year was essentially flat.

Selling, general and administrative expenses (“SG&A”) increased 18% to $43.5 million from $36.8 million in the prior year quarter. This increase was primarily due to higher boutique and corporate payroll, professional service fees, software, stock-based compensation and marketing expenses. Additionally, prior year SG&A included a $2.0 million net benefit in connection with the resignation of the Company’s previous Chairman, President and Chief Executive Officer.

Income from operations was $11.9 million, or 10.0% of net sales, compared to $17.1 million, or 14.9% of net sales, in the prior year quarter.

BALANCE SHEET SUMMARY

Total cash and cash equivalents at the end of the second quarter were $33.3 million compared to $26.0 million at the end of the comparable prior year quarter. During the second quarter, the Company repurchased 0.5 million shares of its common stock at a cost of $5.7 million.

The Company ended the quarter with $34.0 million of inventory on hand compared to $32.7 million at the end of the comparable prior year period. Average ending inventory per boutique decreased by 2% compared to the comparable prior year period, as the Company continues to diligently control inventory through enhanced inventory management processes that began in the second quarter of 2016.

THIRD QUARTER AND REVISED FISCAL YEAR 2017 GUIDANCE

For the third quarter ending October 28, 2017, net sales are expected to be in the range of $105 million to $109 million; assuming a comparable sales decrease in the mid- to high-teens compared to a 7% comparable sales increase in the prior year. The Company plans to open approximately 32 new boutiques and close one existing boutique during the third quarter. Diluted earnings per share are expected to be in the range of $0.00 to $0.05. This guidance includes the Company’s best estimate of the impact of Hurricane Harvey.

For the fiscal year ending February 3, 2018, net sales are now expected to be in the range of $481 million to $491 million; assuming a high-single digit decrease in comparable sales compared to the prior year increase of 2%. The Company expects to open approximately 60 to 65 boutiques and close approximately 8 to 10 boutiques in fiscal year 2017, compared to 64 new boutiques opened and nine boutiques closed in fiscal year 2016. Diluted earnings per share are now expected to be in the range of $0.71 to $0.81 compared to the prior year of $1.09. The number of average diluted shares for the full year assumed in guidance is 36.5 million shares. The effective tax rate is estimated to be 38.3%.

Capital expenditures for fiscal year 2017 are expected to be in the range of $30 million to $33 million.

Conference Call Information

A conference call to discuss the second quarter results is scheduled for September 6, 2017, 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 September 13, 2017. To access the telephone replay, listeners should dial 1-844-512-2921. The access code for the replay is 2728299. 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 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 business; our ability to successfully open and operate new boutiques each year; our ability to efficiently source and distribute additional merchandise quantities necessary to support our growth; our ability to successfully attract, hire and integrate our next Chief Merchant and our ability to successfully rebound from the impact of Hurricane Harvey. 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 28, 2017 filed with the Securities and Exchange Commission on March 22, 2017 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 approximately 692 boutiques in 47 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
July 29, 2017 July 30, 2016 Variance
In USD As a %
of Net Sales(1)
In USD As a %
of Net Sales(1)
In USD % Basis
Points
Net sales$ 119,707 100.0% $ 115,260 100.0% $ 4,447 4% -
Cost of goods sold and occupancy costs 64,312 53.7% 61,323 53.2% 2,989 5% 50
Gross profit 55,395 46.3% 53,937 46.8% 1,458 3% (50)
Selling, general and administrative expenses 43,456 36.3% 36,815 31.9% 6,641 18% 440
Income from operations 11,939 10.0% 17,122 14.9% (5,183) (30)% (490)
Interest expense (110) (0.1)% (113) (0.1)% 3 3% -
Other income 19 0.0% 39 0.0% (20) (51)% -
Income before income tax expense 11,848 9.9% 17,048 14.8% (5,200) (31)% (490)
Income tax expense 4,585 3.8% 6,457 5.6% (1,872) (29)% (180)
Net income$ 7,263 6.1% $ 10,591 9.2% $(3,328) (31)% (310)
____________________
(1) Percentage totals or differences in the above table may not equal the sum or difference of the components due to rounding.
Diluted earnings per share$ 0.20 $ 0.27
Weighted average diluted share count 36,472 38,755
Comparable sales (3)% 0%
Twenty-Six Weeks Ended
July 29, 2017 July 30, 2016 Variance
In USD As a %
of Net Sales
In USD As a %
of Net Sales
In USD % Basis
Points
Net sales$ 227,396 100.0% $ 221,373 100.0% $ 6,023 3% -
Cost of goods sold and occupancy costs 123,317 54.2% 118,306 53.4% 5,011 4% 80
Gross profit 104,079 45.8% 103,067 46.6% 1,012 1% (80)
Selling, general and administrative expenses 84,934 37.4% 74,481 33.6% 10,453 14% 380
Income from operations 19,145 8.4% 28,586 12.9% (9,441) (33)% (450)
Interest expense (223) (0.1)% (222) (0.1)% (1) - -
Other income 190 0.1% 39 0.0% 151 387% 10
Income before income tax expense 19,112 8.4% 28,403 12.8% (9,291) (33)% (440)
Income tax expense 7,516 3.3% 10,731 4.8% (3,215) (30)% (150)
Net income$ 11,596 5.1% $ 17,672 8.0% $(6,076) (34)% (290)
____________________
(1) Percentage totals or differences in the above table may not equal the sum or difference of the components due to rounding.
Diluted earnings per share$ 0.32 $ 0.45
Weighted average diluted share count 36,811 39,580
Comparable sales (4)% 1%


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

July 29, 2017 January 28, 2017 July 30,
2016
ASSETS
Current assets:
Cash and cash equivalents $33,298 $53,202 $26,021
Accounts receivable 18,416 5,605 10,791
Inventories 34,036 23,958 32,667
Deferred income taxes - 8,487 6,728
Prepaid expenses and other current assets 9,433 8,823 6,715
Total current assets 95,183 100,075 82,922
Property and equipment, net 83,956 80,484 80,225
Deferred income taxes 16,009 6,978 4,640
Other assets, net 3,138 2,056 1,296
TOTAL ASSETS $198,286 $189,593 $169,083
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $26,971 $9,205 $16,620
Accrued liabilities 17,748 25,761 14,327
Total current liabilities 44,719 34,966 30,947
Landlord incentives and deferred rent 38,125 38,092 38,673
Total liabilities 82,844 73,058 69,620
Commitments and contingencies
Stockholders’ equity:
Common stock - $0.01 par value, 80.0 million shares authorized; 46.4 million, 46.1 million and 45.9 million shares issued at July 29, 2017, January 28, 2017 and July 30, 2016, respectively. 464 461 459
Additional paid-in capital 111,405 109,008 106,916
Retained earnings 155,080 143,557 119,228
Treasury stock, at cost – 9.7 million, 8.5 million and 8.0 million shares at July 29, 2017, January 28, 2017 and July 30, 2016, respectively. (151,507) (136,491) (127,140)
Total stockholders’ equity 115,442 116,535 99,463
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $198,286 $189,593 $169,083



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

Twenty-Six Weeks Ended
July 29, 2017 July 30, 2016
Cash Flows Provided by Operating Activities:
Net income $11,596 $17,672
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 10,310 9,482
Stock-based compensation expense 2,422 (857)
Excess tax benefit from stock-based compensation - (6)
Loss on disposal of assets 233 155
Deferred income taxes (497) (1,315)
Impairment charges 100 -
Changes in operating assets and liabilities:
Accounts receivable (12,538) (1,205)
Inventories (10,078) (1,126)
Prepaid expenses and other assets (1,978) (55)
Accounts payable 16,864 2,599
Accrued liabilities (8,013) (2,001)
Landlord incentives and deferred rent 33 2,121
Net cash provided by operating activities 8,454 25,464
Cash Flows Used in Investing Activities:
Purchases of property and equipment (12,890) (11,149)
Other - 8
Net cash used in investing activities (12,890) (11,141)
Cash Flows Used in Financing Activities:
Repurchases of common stock (15,326) (44,812)
Taxes paid related to net settlement of equity awards (142) -
Proceeds from the exercise of stock options - 280
Excess tax benefit from stock-based compensation - 6
Net cash used in financing activities (15,468) (44,526)
Net decrease in cash and cash equivalents (19,904) (30,203)
Cash and cash equivalents, beginning of year 53,202 56,224
Cash and cash equivalents, end of period $33,298 $26,021
Supplemental Disclosures of Cash Flow Information:
Cash paid for income taxes $23,742 $9,175
Interest paid $97 $95


Francesca’s Holdings Corporation
Supplemental Information

Quarterly Sales by Merchandise Category

Thirteen Weeks Ended
July 29, 2017 July 30, 2016 Variance
In USD As a %
of Sales
In USD As a %
of Sales
In Dollars %
(in thousands, except percentages)
Apparel (1)$ 65,396 54.6% $ 62,367 54.1% $ 3,029 5%
Jewelry 25,560 21.4% 25,368 22.0% 192 1%
Accessories (1) 14,735 12.3% 13,850 12.0% 885 6%
Gifts 12,836 10.7% 13,209 11.5% (373) (3)%
Merchandise sales 118,527 99.0% 114,794 99.6% 3,733 3%
Others (2) 1,180 1.0% 466 0.4% 714 153%
$ 119,707 100.0% $ 115,260 100.0% $ 4,447 4%

_____________
(1)
In the first quarter of fiscal 2017, swimwear was reclassified out of accessories to apparel. To facilitate comparability, prior year amounts were reclassified.
(2) Includes gift card breakage income, shipping and change in return reserve.


Quarterly Comparable Sales

FY 2017 FY 2016 FY 2015
Q1 (5)% 2% (2)%
Q2(3)% 0% (4)%
Q3 7% 4%
Q4 0% 11%
Fiscal year 2% 3%


Boutique Count

Twenty-Six Weeks Ended
July 29, 2017
Fiscal Year Ended
January 28, 2017
Twenty-Six Weeks Ended
July 30, 2016
Number of boutiques open at the beginning of period 671 616 616
Boutiques opened28 64 41
Boutiques closed(7) (9) (5)
Number of boutiques open at the end of period692 671 652

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