Zacks Investment Research downgraded
Francesca's Holdings Corp.
) to a Zacks Rank #5 (Strong Sell) on Jun 13, 2014 after the
company reported poor first-quarter fiscal 2014 results.
Why the Downgrade?
Francesca's witnessed sharp downward estimate revisions after
reporting disappointing results on Jun 10.
This specialty retailer reported earnings of 20 cents per share
in the first quarter, missing the Zacks Consensus Estimate and
declining from the prior-year quarter earnings by 9.1% and 16.7%,
respectively. The primary reason behind the weakness was lower
sales in the company's boutiques.
Francesca's' net sales of $85.4 million missed the Zacks
Consensus Estimate by 2.9% and were at the lower end of
management's expectation of $85.0 to $90.0 million. The
lower-than-expected sales resulted from lower comps in the
company's stores as 360 boutiques were full/partially closed during
February due to extreme weather conditions.
Comps, including direct-to-consumer sales, decreased 7% in the
quarter as against an increase of 2.0% in the prior-year quarter
due to lower consumer traffic and lower transactions. Inclement
weather in February that resulted in frequent store closures
throughout a large number of Southern, Northeast and Central
regions, particularly in the Gulf Coast, Mid-Atlantic, Northeast,
and New England areas impacted comps by 200 basis points (bps).
Moreover, lower sales for the first three months of calendar
year 2014 resulted in high level of inventory in the stores. As a
result, stores were unable to offer fresh stocks to customers,
thereby affecting transactions.
Weak Outlook for Second Quarter
Lower sales in the last two quarters raised Francesca's'
inventory levels. The company was unable to clear the inventory in
turn delaying spring season full-price selling.
Management plans to clear up the piling inventory in the second
quarter and expects net sales to range within $98 to $103 million.
Comps are expected to decline in a mid-to-single digit range in the
quarter versus worse than a shortfall of 1% in the comparable
quarter last year.
Most of analysts also revised their estimates downward in the
last seven days after weak first quarter fiscal 2014 results. As a
result Zacks Consensus Estimate for fiscal second quarter fiscal
2014 slipped 25% to 27 cents.
Other Stocks to Consider
Better-ranked stocks in the shoes and retail apparel sector
Iconix Brand Group Inc.
Rocky Brands Inc.
). All these stocks sport a Zacks Rank #2 (Buy).
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