Francesca's Holdings (
) lures shoppers with constant fashion newness. Each store
carries a broad selection, but limited quantities to create an
urgency to buy.
Francesca's Holdings may not set the trends for women's
fashions. But the retailer sure knows how to follow them.
Rather than hustle to line shelves with the latest styles from
the catwalk, the operator of women's clothing and accessories
boutiques identifies mainstream fashion trends, sources them from
hundreds of U.S.-based vendors and has them delivered to its
Francesca's also typically buys merchandise for delivery no
more than 90 days out, an approach that enables it to source
products on close to a real-time basis.
Buying goods so close to need has been a big advantage for
Francesca's, says Avondale Partners analyst Mark Montagna.
"This enables them to be incredibly accurate on fashion," he
That's an important attribute for a retailer like Francesca's.
Its Francesca's Collections boutiques cater to a tough crowd,
fashion-conscious women age 18 to 35. Roughly half of the product
mix in each store is clothing, with the rest in jewelry and
The Houston-based retailer uses a merchandising strategy that
helps it stay on top of fast-changing customer demands.
Each boutique carries a broad selection, but limited
quantities of each style. Francesca's delivers new merchandise to
its boutiques five days a week.
This approach allows Francesca's to turn its inventory quickly
and bring in a steady flow of fresh goods. It also reduces the
risk of fashion misses because of the limited depth in any one
style, said Chief Executive John De Meritt on the first-quarter
By constantly changing inventory, Francesca's prompts
customers to "buy it now," says Montagna. The constant newness
helps drive traffic into the stores.
This strategy has served Francesca's well. Since making its
market debut last July 22, sales have been up by double-digits.
First-quarter sales rose 49% to $61.3 million. Profits were up
100% to 20 cents a share, topping views. Same-store sales popped
a hefty 15.5% vs. a year earlier.
"We attribute our continued success to our highly effective
broad and shallow merchandising strategy that enables a nimble
response to changes in customer demand," De Meritt said in a
statement announcing results.
Wedbush Securities analyst Betty Chen says in the first
quarter, Francesca's benefited from having the right merchandise
in stores. It also got a lift from warm weather and some colorful
fashion trends and its "compelling price-value proposition"
continued to work in its favor.
The company's 50-50 mix between clothes and jewelry and other
accessories has also worked to its advantage, she adds. The
balanced lineup allows Francesca's to appeal to a broad group of
customers. While the clothes might fit a certain age group, women
of all ages can buy the jewelry and other accessories sold in its
boutiques. The balanced mix also allows Francesca's to have a
highly profitable business, she adds, since jewelry and
accessories are high-margin products.
Francesca's has been outperforming the broader apparel retail
space in terms of same-store sales growth for the past year, says
Ken Perkins, president of Retail Metrics.
"Francesca's is a unique niche player, and that's a good space
to be in," he said.
He says its merchandise and the boutique feel to its stores
help differentiate it from other apparel chains.
"That should be a good thing as they move forward, as long as
they put attractive products in their stores," he said.
Francesca's is a relatively small chain, but it's growing fast.
It had 327 boutiques in 43 states at the end of the first
quarter. It plans to add 75 new stores each year and believes it
has the potential to eventually have a total of 900.
Last month, it opened its first outlet store in its home base
of Houston. Management will closely monitor the performance of
the outlet to evaluate the viability of this venue as an
additional growth opportunity, says De Meritt.
Analysts polled by Thomson Reuters expect full-year earnings
for fiscal 2012 to rise 55% to 90 cents a share. They expect a
23% jump in 2013.
But like other retailers, Francesca's faces head winds.
Consumer sentiment is at a low for 2012, job creation has been
soft, and wage gains for the majority of consumers are
nonexistent, said Perkins.
Back To School
"There really aren't any catalysts to spend until we get into
back-to-school," he adds. "And I think back-to-school will be
very much driven by needs-based purchases and retailers will have
to be very promotional to drive traffic. Still, Perkins says
Francesca's is positioned to perform well, "provided they get the
merchandise right, which they've been doing."
Another plus: Francesca's caters to a more affluent, higher
income consumer, who has more discretionary income available to
spend, he adds.
"I continue to believe they've been very trend right, and the
stores continue to experience positive traffic and conversion,"
said Chen, who has an "outperform" rating on Francesca's
Francesca's scored a nice win with the appointment of Neill
Davis to the newly created role of president effective Aug. 6.
Davis, who's served 15 years in senior executive posts, was most
recently chief financial officer atMen's Wearhouse (
Chen says Davis will be an important addition to the
"They have added another very experienced executive with
significant retail background to the talent at the company," Chen
said. "And he is very well respected by the investment