Retail boutique company
Francesca's Holdings Corporation
) 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.
Francesca's ended the second quarter with cash and cash
equivalents of $7.3 million versus $8.2 million at the end of the
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.
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
Over the long term, the company expects to take its current
boutique count from 357 to about 900 boutiques in the United
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
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
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