FRAN
$0.73
Francesca's
($.01)
(1.35%)
Earnings Details
3rd Quarter October 2018
Tuesday, December 11, 2018 7:30:00 AM
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Summary

Francesca's Reports In-line

Francesca's (FRAN) reported a 3rd Quarter October 2018 loss of $0.17 per share on revenue of $95.4 million. The consensus estimate was a loss of $0.18 per share on revenue of $94.9 million. The Earnings Whisper number was for a loss of $0.17 per share. Revenue fell 9.8% compared to the same quarter a year ago.

The company said it expects a fourth quarter loss of $0.14 to $0.07 per share on revenue of $118.0 million to $124.0 million. The current consensus estimate is for earnings of $0.20 per share on revenue of $126.1 million for the quarter ending January 31, 2019.

Francescas Holdings Corp operates a chain of retail boutiques selling apparel, jewelry, accessories and gifts.

Results
Reported Earnings
($0.17)
Earnings Whisper
($0.17)
Consensus Estimate
($0.18)
Reported Revenue
$95.4 Mil
Revenue Estimate
$94.9 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

francesca’s® Reports Third Quarter Fiscal Year 2018 Financial Results

  • Net sales decreased 10% to $95.4 million and comparable sales decreased 14%
  • Diluted loss per share was $0.47
  • Adjusted diluted loss per share was $0.17
  • Company recorded non-cash impairment charges of $14.4 million
  • Company revises fiscal 2018 guidance

HOUSTON, Dec. 11, 2018 (GLOBE NEWSWIRE) -- Francesca’s Holdings Corporation (Nasdaq: FRAN) today reported financial results for the third quarter ended November 3, 2018.  

Steve Lawrence, President and CEO, stated, “While we saw comparable sales declines start to narrow as we moved into the fourth quarter, we recognize the need to accelerate change and improve results faster. Our biggest challenge and focus is to drive improved traffic trends in brick and mortar.  We are stepping up our marketing efforts with increased investments in influencers, and digital and social media.  Our primary focus of this is to increase frequency of visits with existing guests through increased engagement, while winning back lapsed shoppers who have not purchased with us in the last six to twelve months.  We have also engaged with a consulting firm to help us drive traffic through a variety of merchandising initiatives including attention grabbing window displays and lease line presentations.” 

Mr. Lawrence continued, “As we navigate through these challenging trends, we remain focused on maintaining strong inventory disciplines, diligent expense management, and a healthy balance sheet. We are also evaluating our real estate portfolio to close underperformers. We believe the right long-term strategy for success is to have a strong ecommerce business which complements a vibrant brick and mortar footprint, and to accomplish this, we need to optimize our real estate portfolio.  We believe the actions we are taking will help stabilize our business and we will be able to move back to top line and bottom line growth while solidifying our unique position as the only national chain of boutiques.”

THIRD QUARTER RESULTS

Net sales decreased 10% to $95.4 million for the third quarter of 2018 from $105.8 million in the third quarter last year principally due to a 14% decrease in comparable sales. This follows an 18% decrease in comparable sales for the comparable prior year quarter. The decrease in comparable sales was primarily driven by the decline in boutique traffic. This decrease was partially offset by sales from 24 net new boutiques added since the same period last year. The Company did not open any new boutiques and closed four boutiques during the third quarter of 2018, bringing the total boutique count to 738 at the end of the quarter.    

Gross profit, as a percent of net sales, decreased to 35.3% for the third quarter of 2018 from 39.6% in the comparable prior year quarter. This unfavorable variance was due to deleveraging of occupancy costs as a result of lower sales as well as an increase in occupancy costs. The increase in occupancy costs was due to the increase in the number of boutiques in operation, higher average rent and related expenses driven by increased penetration of boutiques in high traffic centers, higher depreciation due to increased costs of new boutiques and remodels and costs associated with boutique remodels. These increases were partially offset by higher merchandise margins due to continuing improvements in our inventory management process resulting in lower inventory reserves.  The prior year’s third quarter included a back-to-school merchandise reserve expense of $2.6 million that did not occur in the current year.

Selling, general and administrative expenses increased 2% to $42.3 million for the third quarter of 2018 from $41.4 million in the third quarter last year primarily due to a $2.0 million increase in performance-based incentive compensation expenses as a result of the prior year expense reversal recorded in the third quarter of 2017. A similar reversal was recorded in the second quarter of the current year. Therefore, for the year-to-date periods, the performance-based incentive compensation expenses are comparable. This increase was partially offset by a $1.2 million decrease in selling expenses primarily due to labor efficiencies at the boutique level.

As previously disclosed, in the third quarter of 2018, the Company recognized non-cash asset impairment charges of $14.4 million mostly associated with 129 underperforming boutiques.  After tax, the non-cash asset impairment charges were $10.2 million or $0.29 per diluted share.

Loss from operations for the third quarter of 2018 was $23.1 million, or (24.2%) of net sales, compared to income from operations of $0.5 million, or 0.4% of net sales, in the comparable prior year quarter.  Excluding the asset impairment charges of $14.4 million, adjusted loss from operations for the third quarter of 2018 was $8.6 million, or (9.1%) of net sales.

The Company’s effective tax rate for the third quarter of 2018 was 29.3% compared to 45.0% in the comparable prior year quarter. The decrease in the effective tax rate versus the comparable prior year period was primarily due to the lower statutory federal corporate tax rate under the Tax Cuts and Jobs Act enacted in December 2017.

Net loss for the third quarter of 2018 was $16.2 million, or $0.47 diluted loss per share, compared to net income of $0.2 million, or $0.01 diluted earnings per share, in the comparable prior year quarter.  Excluding the non-cash asset impairment charges, adjusted net loss for the third quarter of 2018 was $6.0 million and adjusted diluted loss per share was $0.17.  This compares to diluted earnings per share of $0.01 for the third quarter of 2017.

BALANCE SHEET SUMMARY

Total cash and cash equivalents at the end of the third quarter of 2018 were $10.7 million compared to $19.0 million at the end of the comparable prior year quarter, with no debt outstanding at the end of the third quarter of 2018. Inventory on hand totaled $40.4 million at the end of the third quarter of 2018 compared to $38.8 million at the end of the comparable prior year quarter. Average ending inventory per boutique at the end of the third quarter of 2018 was down 6% versus the comparable prior year period, excluding the back-to-school merchandise reserve.

FOURTH QUARTER AND REVISED FISCAL YEAR 2018 GUIDANCE

For the fourth quarter ending February 2, 2019, net sales are now expected to be in the range of $118 million to $124 million, assuming a 15% to 10% decrease in comparable sales. The Company opened one new boutique, remodeled one existing boutique and plans to close 11 existing boutiques during the fourth quarter of 2018. The Company expects a diluted loss per share in the range of $0.14 to $0.07 for the fourth quarter of 2018.

For the fiscal year ending February 2, 2019, net sales are now expected to be in the range of $427 million to $433 million, assuming a mid- to low-teens decrease in comparable sales compared to the prior year net sales of $471.7 million in the same period last year. Excluding the $0.29 per diluted share, net of tax, asset impairment charges recognized in the third quarter of 2018, adjusted diluted loss per share for fiscal year 2018 is expected to be in the range of $0.41 to $0.34.

Capital expenditures for fiscal year 2018 are expected to be approximately $30 million. The Company expects to open 32 new boutiques, close 25 boutiques and refresh 81 boutiques in fiscal year 2018.

Conference Call Information

A conference call to discuss the third quarter fiscal year 2018 results is scheduled for December 11, 2018, at 8:30 a.m. ET. To participate in the call, please dial 1-866-548-4713 and passcode 9034161. To listen to a live webcast via the internet, please visit 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 18, 2018. To access the telephone replay, listeners should dial 844-512-2921. The access code for the replay is 9034161. A replay of the webcast 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 website; our ability to successfully open, refresh, operate and close boutiques each year, as necessary, to ensure an appropriate brick and mortar footprint; our ability to efficiently source, distribute additional merchandise quantities necessary to support our growth; 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 our forward-looking statements, please refer to "Risk Factors" in our Annual Report on Form 10-K for the year ended February 3, 2018 filed with the Securities and Exchange Commission (“SEC”) on March 28, 2018 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.

Non-GAAP Information

This press release includes non-GAAP adjusted loss from operations, adjusted net loss and adjusted diluted loss per share, which are non-GAAP financial measures. We have reconciled these non-GAAP financial measures with the most directly comparable GAAP financial measures both in the text above and the GAAP to Non-GAAP Reconciliation table below. The Company believes these non-GAAP financial measures not only provide our management with comparable financial data for internal financial analysis but also provide 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 our third quarter fiscal year 2018 loss from operations, net loss and diluted loss per share on a comparable basis with our fiscal year 2017 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 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 738 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.

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


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

  
 Thirteen Weeks Ended       
 November 3, 2018 October 28, 2017 Variance 
 In USD As a %
of Net
Sales(1)
 In USD As a %
of Net
Sales(1)
 In USD % Basis
Points
 
Net sales$  95,375  100.0%  $105,791  100.0%  $(10,416)  (10)%  -  
Cost of goods sold and occupancy costs 61,730  64.7%   63,931  60.4%   (2,201)  (3)%  430  
Gross profit 33,645  35.3%   41,860  39.6%   (8,215)  (20)%  (430)  
Selling, general and administrative expenses 42,286  44.3%   41,405  39.1%   881  2%  520  
Asset impairment charges 14,419  15.1%   -  0.0%   14,419  * (2)* (2)
(Loss) income from operations (23,060)  (24.2)%   455  0.4%   (23,515)  * (2)* (2)
Interest expense (51)  (0.1)%   (109)  (0.1)%   58  53%  -  
Other income 151  0.2%   88  0.1%   63  72%  10 (2)
(Loss) income before income tax (benefit) expense (22,960)  (24.1)%   434  0.4%   (23,394)  * (2)* (2)
Income tax (benefit) expense (6,737)  (7.1)%   195  0.2%   (6,932)  * (2)* (2)
Net (loss) income$  (16,223)  (17.0)%  $239  0.2%  $(16,462)  * (2)* (2)
___________________________________________
(1)
 Percentage totals or differences in the above table may not equal the sum or difference of the components due to rounding.
 
(2)  Not meaningful. 
               
Diluted (loss) earnings per share$  (0.47)    $  0.01          
Weighted average diluted share count   34,796       35,959          
Comparable sales change (14)%  (18)%       
               
 Thirty-Nine Weeks Ended       
 November 3, 2018 October 28, 2017 Variance 
 In USD As a %
of Net
Sales(1)
 In USD As a %
of Net
Sales(1)
 In USD % Basis
Points
 
Net sales$308,805  100.0%  $333,187  100.0%  $(24,382)  (7)%  -  
Cost of goods sold and occupancy costs 192,690  62.4%   187,249  56.2%   5,441  3%  620  
Gross profit 116,115  37.6%   145,938  43.8%   (29,823)  (20)%  (620)  
Selling, general and administrative expenses 128,298  41.5%   126,238  37.7%   2,060  2%  370  
Asset impairment charges 14,567  4.7%   100  0.2%   14,467  * (2)* (2)
(Loss) income from operations (26,750)  (8.7)%   19,600  5.9%   (46,350)  * (2)* (2)
Interest expense (280)  (0.1)%   (332)  (0.1)%   52  16%  -  
Other income 403  0.1%   278  0.1%   125  45%  -  
(Loss) income before income tax (benefit) expense (26,627)  (8.6)%   19,546  5.9%   (46,173)  * (2)* (2)
Income tax (benefit) expense (6,973)  (2.3)%   7,711  2.3%   (14,684)  * (2)* (2)
Net (loss) income$(19,654)  (6.4)%  $11,835  3.6%  $(31,489)  * (2)* (2)
_____________________________________
(1)  Percentage totals or differences in the above table may not equal the sum or difference of the components due to rounding.
 
(2)  Not meaningful. 
               
Diluted (loss) earnings per share$  (0.56)    $  0.32          
Weighted average diluted share count   34,803      36,525          
Comparable sales change (15)%  (9)%       
                     


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

  November 3,
2018
  February 3,
2018
  October 28,
2017
 
  (Unaudited)  (Audited)  (Unaudited) 
ASSETS            
Current assets:            
Cash and cash equivalents $10,720  $31,331  $19,020 
Accounts receivable  17,134   16,642   18,150 
Inventories  40,404   26,816   38,824 
Prepaid expenses and other current assets  10,854   9,714   10,179 
Total current assets  79,112   84,503   86,173 
Property and equipment, net  79,842   87,702   85,710 
Deferred income taxes  15,554   9,413   15,577 
Other assets, net  4,958   3,622   3,794 
             
TOTAL ASSETS $179,466  $185,240  $191,254 
             
LIABILITIES AND STOCKHOLDERS’ EQUITY            
Current liabilities:            
Accounts payable $37,436  $17,801  $28,239 
Accrued liabilities  12,264   14,654   12,848 
Total current liabilities  49,700   32,455   41,087 
Landlord incentives and deferred rent  34,997   38,337   38,327 
Total liabilities  84,697   70,792   79,414 
             
Commitments and contingencies            
             
Stockholders’ equity:            
Common stock - $0.01 par value, 80.0 million shares authorized; 47.3 million, 46.3 million and 46.4 million shares issued at November 3, 2018, February 3, 2018 and October 28, 2017, respectively.  473   463   464 
Additional paid-in capital  112,792   111,439   111,065 
Retained earnings  141,525   159,045   155,319 
Treasury stock, at cost – 11.1 million, 10.3 million and 10.2 million shares at November 3, 2018, February 3, 2018 and October 28, 2017, respectively.  (160,021)  (156,499)  (155,008)
Total stockholders’ equity  94,769   114,448   111,840 
             
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $179,466  $185,240  $191,254 
             


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

  Thirty-Nine Weeks Ended 
  November 3,
2018
  October 28,
2017
 
Cash Flows Provided by Operating Activities:        
Net (loss) income $(19,654) $11,835 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:        
Depreciation and amortization  18,742   15,749 
Stock-based compensation expense  1,440   2,082 
Loss on disposal of assets  633   565 
Deferred income taxes  (6,848)  (65)
Asset impairment charges  14,567   100 
Changes in operating assets and liabilities:        
Accounts receivable  (492)  (12,272)
Inventories  (13,588)  (14,866)
Prepaid expenses and other assets  (2,983)  (3,529)
Accounts payable  16,966   16,987 
Accrued liabilities  359   (12,913)
Landlord incentives and deferred rent  (3,340)  235 
Net cash provided by operating activities  5,802   3,908 
         
Cash Flows Used in Investing Activities:        
Purchases of property and equipment  (21,885)  (19,121)
Net cash used in investing activities  (21,885)  (19,121)
         
Cash Flows Used in Financing Activities:        
Repurchases of common stock  (3,980)  (18,827)
Taxes paid related to net settlement of equity awards  (77)  (142)
Payment of debt issuance costs  (471)  - 
Net cash used in financing activities  (4,528)  (18,969)
         
Net decrease in cash and cash equivalents  (20,611)  (34,182)
Cash and cash equivalents, beginning of year  31,331   53,202 
Cash and cash equivalents, end of period $10,720  $19,020 
         
Supplemental Disclosures of Cash Flow Information:        
Cash paid for income taxes $244  $23,806 
Interest paid $121  $144 
         


Francesca’s Holdings Corporation
Supplemental Information

Quarterly Sales by Merchandise Category

   Thirteen Weeks Ended  
  November 3, 2018 October 28, 2017 Variance
  In USD
 As a %
of Sales
  In USD As a %
of Sales
 In USD %
   
  (in thousands, except percentages)
Apparel 48,397 50.7%  $54,663 51.7%  $(6,266)(11)% 
Jewelry 22,855 24.0%   22,826 21.6%   29 0% 
Accessories 14,844 15.6%   15,360 14.5%   (516)(3)% 
Gifts 8,685 9.1%   10,922 10.3%   (2,237)(20)% 
Others(1) 594 0.6%   2,020 1.9%   (1,426)(71)% 
Net sales 95,375 100.0%  $105,791 100.0%  $(10,416)(10)% 
               

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


Quarterly Comparable Sales

   FY 2018 FY 2017 FY 2016
  Q1(16)% (5)% 2%
  Q2(13)% (3)% 0%
  Q3(14)% (18)% 7%
  Q4  (15)% 0%
  Fiscal year  (11)% 2%

Boutique Count

 Thirty-Nine
Weeks Ended

November 3, 2018
 Fiscal Year
Ended
February 3, 2018
 Thirty-Nine
Weeks Ended
October 28, 2017
 
Number of boutiques open at the beginning of period721 671 671 
Boutiques opened31 60 51 
Boutiques closed(14)(10)(8)
Number of boutiques open at the end of period738 721 714 



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

GAAP to Non-GAAP Reconciliation for the Thirteen Weeks Ended November 3, 2018

   GAAP
 Asset
Impairment
Charges(1)
 Non-GAAP Adjusted
   In USD As % of
Net Sales
 In USD In USD
 As % of
Net Sales
Loss from operations $(23,060) (24.2)%  $ 14,419 $(8,641) (9.1)% 
Income tax benefit (2) $ (6,737) (7.1)%  $4,231 $(2,506) (2.6)% 
Net loss $(16,223) (17.0)%  $10,188 $(6,035) (6.3)% 
Diluted loss per share $ (0.47)   $  0.29 $ (0.17)  

_______________     

(1)   During the thirteen weeks ended November 3, 2018, the Company recorded  non-cash asset impairment charges mostly associated with 129 underperforming boutiques for which the remaining carrying value of their assets are no longer expected to be recoverable.

(2)  The effective tax rate for the thirteen weeks ended November 3, 2018 of 29.3% was used to calculate the income tax impact.

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Source: Francesca's Holdings Corporation