Francesca's Holdings - Aggressive Growth

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Francesca's Holdings Corporation ( FRAN ) reported robust fiscal first-quarter 2012 earnings on June 7, which sent shares of the retail boutique company soaring by nearly 28.7% and helped it become a Zacks #1 Rank (Strong Buy) stock on June 9, 2012. FRAN is benefiting from a differentiated boutique set up, assorted and sophisticated merchandise offerings, a positive earnings surprise trend and a strong outlook.

Upbeat First Quarter

Francesca's Holdings reported fiscal first-quarter 2012 earnings per share of 20 cents, beating the Zacks Consensus Estimate by 11.1%. Quarterly earnings exactly doubled last year's 10 cents per share.

Net sales spiked 48.6% year over year to $61.3 million, while it recorded a modest upside from the Zacks Consensus Estimate of $60 million. Sales improvement was largely driven by a 15.5% increase in comparable boutique sales in the first quarter of 2012, against a 14.7% increase in the year-ago quarter. Operating income grew 74.1% to $14.7 million, whereas operating margin expanded 350 basis points to 23.9% on account of selling, general and administrative expense leverage as well as gross margin expansion.

Francesca's differentiated business model helped the company kick start 2012. The success of the company's boutique format lies in its highly effective broad and shallow merchandising strategy that enables it to cater to the changing customer preferences. Looking ahead, the company expects to take its current boutique base from 327 locations in 43 states as of April 28, 2012 to about 900 boutiques in the United States over time.

Guidance Drives Estimates

Buoyed by a strong fiscal first-quarter performance, Francesca's guided its second-quarter net sales in the range of $69.0 - $71.0 million. Comparable boutique sales are expected to increase in the low-double-digit range, as it plans to open 29 new boutiques. Earnings per share are expected to be in the range of 22 cents - 23 cents in the second quarter.

For the full year, Francesca's guided sales between $280 million and $283 million, adjusted earnings per share at 89 cents to 91 cents, and comparable boutique sales in the high single digits.

The Zacks Consensus Estimates for fiscal 2012 and 2013 have increased 11.1% to 90 cents and 7.8% to $1.10, respectively, in the last 30 days. The estimate for 2012 is at the higher end of the company's guidance range.

Reasonable Valuation

Francesca's currently trades at a forward P/E of 31.81x, implying a 211.6% premium to the peer group average of 10.21x. The company currently has a PEG ratio of 1.1 times, a premium of 10% to the benchmark of 1 for a value stock.

However, the stock also looks attractive given a trailing 12-month ROE of 217.0%, which is substantially higher than the peer group average of 10.2%.

Chart

The chart below shows a positive price movement over the past six months. The year-to-date return for the stock is 70.5% compared with the S&P 500's return of only 4.1%. The performance of the stock currently rides on strong quarterly results as well as solid future projections.

Company Description

Founded in 1999 and headquartered in Houston, Texas, Francesca's Holdings Corporation operates a chain of retail boutiques under the francesca's collections brand in the United States. The company is a holding company and operates through its subsidiary Francesca's Collections Inc. The company targets female customers offering a diverse and uniquely balanced mix of high-quality, trend-right apparel, jewelry, accessories and gifts at attractive prices. As of April 28, 2012, it operated 327 boutiques in 43 states. Among others, the company competes with Urban Outfitters Inc. ( URBN ) and ANN Inc. ( ANN ).


 
FRANCESCAS HLDG (FRAN): Free Stock Analysis Report
 
FRANCESCAS HLDG (FRAN): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

Referenced Stocks: FRAN

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