Zacks Investment Research downgraded
Francesca's Holdings Corp
) to a Zacks Rank #5 (Strong Sell) on Sep 6. Disappointing second
quarter fiscal 2013 results and a cut in the fiscal guidance led
to the downgrade.
Why the Downgrade?
On Sep 4, Francesca reported dismal second quarter of fiscal
2013 (ending Aug 3, 2013) results. Though earnings of 33 cents
per share grew 18% year over year, it missed the Zacks Consensus
Estimate by 5.7% and also lagged management's expectation of 35
cents to 36 cents due to soft sales and weak margins.
Francesca's sales increased 17.0% year over year as growth in
the jewelry business was offset by weakness in the gifts
category. Sales not only missed the Zacks Consensus Estimate by
4.7% but were also below management's expectation due to
lower-than-expected comparable sales growth (comps).
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 a lack of preferred fashions. Excluding
direct-to-consumer sales, comps decreased 3% in the current
quarter. 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 promotional
Management believes that the decline in traffic trends will
take a toll on the third 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 second quarter results, the company 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
lower than prior expectations 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.
This specialty retailer witnessed sharp downward estimate
revisions after announcing its second quarter fiscal 2013
results. All the estimates declined for the third quarter and
fiscal 2013 over the past 7 days. The Zacks Consensus Estimate
for the third quarter decreased 33.3% and that for fiscal 2013
went down 13.8% over the last 7 days.
Other Stocks to Consider
Not all stocks are performing as poorly as Francesca's. Other
consumer discretionary sector stocks that are worth considering
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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