Francesca's Holdings Corp
) reported earnings of 33 cents per share in the second quarter
of 2013, missing the Zacks Consensus Estimate of 35 cents by
5.7%. Reported earnings were also management's expectation of 35
cents to 36 cents due to soft sales and weak margins.
Earnings of this specialty retailer, however, grew 18% year
Francesca's reported net sales of $89.6 million, missing the
Zacks Consensus Estimate of $94 by 4.7%. Sales were also below
management's expectation of $94.5 million to $95.5 million due to
lower-than-expected comparable sales growth (comps). Sales,
however, increased 17.0% year over year. Francesca's jewelry
business did well during the quarter but was offset by weakness
in the gifts category.
Comps, including direct-to-consumer (DTC) sales, decreased 1%
in the second quarter as against a solid increase of 21% in the
prior-year quarter due to lower consumer traffic, lower
transactions and the lack of fashionable apparels. Excluding
direct-to-consumer sales, comps decreased 3% in the current
Comps were also below management's expectation of an increase
of 1% to 2% for the quarter. Gross margin shrank 150 basis points
(bps) to 53.3% due to lower merchandise margins caused by higher
Other Financial Updates
Francesca exited the second quarter of fiscal 2013 with cash
and cash equivalents of $39.5 million compared with $7.3 million
at the prior-quarter end. The company had no long-term debt at
the end of the quarter.
Total inventories increased 32% over the prior year quarter as
a result of lower sales in the second half of the quarter. For
the third quarter of 2013, Francesca has plans to reduce
inventory purchases and better align inventory to future
The company's board has also authorized a new share repurchase
program of $100 million in the quarter.
Fiscal 2013 Outlook Slashed
Following sluggish results, the company has reduced its
guidance for fiscal 2013. Francesca now expects net sales in the
range of $343.0 million to $349.5 million for fiscal 2013,
compared with the prior range of $365.0 million to $370.0
Comps are expected to be flat to down 2% in fiscal 2013, lower
than the previous expectation of 4% to 5%. Francesca also slashed
its earnings outlook and now expects earnings per share in the
range of $1.10 to $1.16 per share compared with the prior range
of $1.27 to $1.30 per share.
Third Quarter Fiscal 2013 Outlook
In the third quarter, Francesca's expects net sales to range
between $78.0 million and $80.0 million. Comps are expected to
decline in the range of 2% to 5%. The company expects to open 11
new boutique stores in the quarter. Earnings per share are
expected in the range of 19 cents to 21 cents for the third
Management believes that decline in traffic trends will take a
toll on the third quarter and will eventually impact full year
2013 results. Though the company has taken initiatives to drive
the company's performance, these are expected to reap fruits over
the long term. These initiatives include leveraging the DTC
channel, strengthening visual presentations in boutiques and
additional infrastructure improvements. The company will also
need to work on its inventory levels and channelize them
Francesca's currently carries a Zacks Rank #4 (Sell). Other
stocks in the consumer discretionary sector that are worth
Skechers USA Inc
Iconix Brand Group Inc.
Brown Shoe Company Inc.
). While Skechers holds a Zacks Rank #1 (Strong Buy), Iconix and
Brown Shoe hold a Zacks Rank #2 (Buy).
BROWN SHOE CO (BWS): Free Stock Analysis
FRANCESCAS HLDG (FRAN): Free Stock Analysis
ICONIX BRAND GP (ICON): Free Stock Analysis
SKECHERS USA-A (SKX): Free Stock Analysis
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