Francesca's Beats Again; CEO to Retire - Analyst Blog

By
A A A

Retail boutique company Francesca's Holdings Corporation ( FRAN ) reported a solid quarter and upped its outlook once again. Separately, the company announced that its current Chief Executive Officer (CEO) John De Meritt will retire at the end of 2012.

The second quarter fiscal 2012 (ended July 28) earnings per share of 28 cents beat the Zacks Consensus Estimate of 24 cents by almost 17%. Quarterly earnings jumped 87% from last year's adjusted earnings of 15 cents per share, driven by solid revenue and margin growth. Earnings also outpaced the company's guidance range of 22 cents - 23 cents.

Quarter in Detail

Net sales spiked 49.1% year over year to $76.4 million in the second quarter, handsomely beating the Zacks Consensus Estimate of $71 million. Sales also moved past the guidance range of $69 million - $71 million. Solid comps, new boutique openings and higher internet sales drove the top-line growth.

The comparable boutique sales increased 20.7% in the second quarter compared with the 5.4% rise in the year-ago quarter. The comparable boutique sales have now increased for thirteen straight quarters, driven primarily by increased transactions. The quarter's comparable boutique sales benefitted from solid consumer demand across all merchandise categories with jewelry being the strongest. The comp sales growth was within company expectations of increasing in the low-double-digit range.

Gross margins expanded 205 basis points to 54.8% mainly due to leveraging of occupancy costs. Operating margin expanded 274 basis points to 27.4% driven by higher gross margins and selling, general and administrative leverage.

Financials

Francesca's ended the second quarter with cash and cash equivalents of $7.3 million versus $8.2 million at the end of the first quarter.

Francesca's opened 30 new boutiques in the second quarter and ended with 357 boutiques in 44 states versus 279 boutiques in 41 states at the end of the second quarter of 2011.

Outlook

Francesca's expects third-quarter net sales in the range of $70.5 - $71.5 million. Comparable boutique sales are expected to increase in the low-double-digit range, as it plans to open 2 new boutiques. Adjusted earnings per share are expected to be in the range of 21 cents - 22 cents in the third quarter, representing a growth of 50%-57% over the prior-year quarter.

Following the solid first half results, Francesca's raised its expectations for the fiscal year 2012. For the full year, Francesca's now expects sales between $290.0 million to $292.0 million, up from the prior-guidance range of $280 million - $283 million. Adjusted earnings per share are expected to be between 96 cents-98 cents, up from the prior range of 89 cents to 91 cents. Comparable boutique sales are expected to increase in the low-double-digit range, higher than previous expectation of growth in the high single digits. The company plans to open about 76 new boutiques and one outlet boutique through the end of fiscal 2012. Effective tax rate is expected to be 40%, while capital expenditures are planned at approximately $20 million to $21 million.

Over the long term, the company expects to take its current boutique count from 357 to about 900 boutiques in the United States.

CEO Transition

The company announced that its existing Chief Executive Officer (CEO) John De Meritt has decided to retire, effective from December 31, 2012. Starting January 2013, he will be replaced by Neill P. Davis, who is serving currently as the President. The President's role has now been handed over to Theresa Backes, the current Chief Operating Officer.

Our View

Houston, Texas-based Francesca's is benefiting from a differentiated boutique set up, assorted and sophisticated merchandise offerings, a positive earnings surprise trend and a strong outlook. Francesca's differentiated business model has helped it to outperform the estimates quarter after quarter. 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 .

We currently have an Outperform recommendation on Francesca's. The stock carries a Zacks #2 Rank (a short-term 'Buy' rating).


 
FRANCESCAS HLDG (FRAN): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research



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 , Business , Stocks

Referenced Stocks: CEO , FRAN

Zacks.com

Zacks.com

More from Zacks.com:

Related Videos

Stocks

Referenced

100%
50%

Most Active by Volume

91,252,153
  • $13.78 ▼ 4.31%
68,133,496
  • $12.93 ▲ 6.77%
57,268,074
  • $46.13 ▲ 2.47%
43,432,023
  • $105.22 ▲ 0.37%
40,880,685
  • $13.46 ▲ 8.90%
40,712,405
  • $98.62 ▲ 0.82%
39,776,976
  • $16.72 ▲ 0.72%
34,688,871
  • $11.16 ▲ 3.05%
As of 10/24/2014, 04:15 PM

Find a Credit Card

Select a credit card product by:
Select an offer:
Search
Data Provided by BankRate.com