Zacks Investment Research downgraded
Francesca's Holdings Corp
) to a Zacks Rank #5 (Strong Sell) on Dec 26. Soft comps in the
third quarter of fiscal 2013 and a cut in fiscal guidance led to
Why the Downgrade?
On Dec 6, Francesca reported dismal third quarter of fiscal
2013 (ending Aug 3, 2013) results. Though earnings of 20 cents
per share were in line with the Zacks Consensus Estimate and
within management's expectation of 19 cents to 21 cents, it fell
16.6% year over year due to soft comps and weak margins.
Francesca's sales increased 11.0% year over year, but were
lower than prior-quarter sales growth of 17% due to
lower-than-expected comparable store sales (comps) during the
quarter, offset to an extent by boutique openings. Decent sales
in accessories, apparel and jewelry were partially offset by a
decline in gift items sales.
Comps, including direct-to-consumer (DTC) sales, decreased 3%
in the quarter as against a solid increase of 16.7% in the
prior-year quarter due to lower consumer traffic and lower
transactions. Excluding DTC sales, comps decreased 3% in the
current quarter. Comps decline was also within management's
expectation of a decline of 2% to 5%.
Gross margin shrank 190 basis points (bps) to 50.7% due to
lower merchandise margins caused by higher promotional spending.
Operating margin shrank 630 bps to 18.3%.
Management believes that the decline in traffic trends will
take a toll on the fourth quarter and will eventually impact
fiscal 2013 results. Though the company has taken initiatives to
drive the company's performance, these are expected to reap
benefits over the long term. Lower-than- expected sales have also
increased the company's inventory levels. The company thus needs
to work on its inventory levels and channelize them properly.
Following sluggish third quarter results, the company reduced
its guidance for fiscal 2013. The company now expects net sales
in the range of $338.2 million to $343.2 million for fiscal 2013,
compared with the prior range of $343.0 million to $349.5
million. Absence of strong trends in fashion tops, jewelry
offerings and the gift assortment has been responsible for lower
comps in the past few quarters and management expects the trend
to continue in the fourth quarter of fiscal 2013.
Comps are expected to be down by 1% to 3% in fiscal 2013,
lower than the previous expectation of flat to down 2%.
Francesca's also slashed its earnings outlook and now expects
earnings per share in the range of $1.03 to $1.07 compared with
the prior range of $1.10 to $1.16.
This specialty retailer witnessed sharp downward estimate
revisions after announcing its third quarter fiscal 2013 results.
Most of the estimates declined for the fourth quarter and fiscal
2013 over the past 30 days. The Zacks Consensus Estimate for the
fourth quarter decreased 20.6% and that for fiscal 2013 went down
6.2% over the last 30 days.
Other Stocks to Consider
Not all stocks are performing as poorly as Francesca's.
Better-ranked stocks in the consumer discretionary sector
Iconix Brand Group Inc.
Sequential Brands Group Inc
Deckers Outdoor Corp
). All of them hold a Zacks Rank #2 (Buy).
DECKERS OUTDOOR (DECK): Free Stock Analysis
FRANCESCAS HLDG (FRAN): Free Stock Analysis
ICONIX BRAND GP (ICON): Free Stock Analysis
SEQUENTIAL BRND (SQBG): Free Stock Analysis
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