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Francesca's Misses Earnings, Sales on Weak Comps - Analyst Blog
Francesca's Holdings Corp.'s ( FRAN ) earnings of 20 cents per share in the first quarter of 2014 missed the Zacks Consensus Estimate of 22 cents by 9.1%. It also fell 16.7% year over year due to soft comps and weak margins.
Results were at the lower end of management's guided range of 20 to 24 cents. Declining transactions within comparable boutiques lowered earnings during the quarter.
Revenues & Margins
The specialty retailer reported net sales of $85.4 million, missing the Zacks Consensus Estimate of $88 million by 2.9% as well as 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 the extreme weather conditions.
Moreover, lower sales for the first three months of calendar year 2014 resulted in high level of inventory in the stores. As a result, the stores were unable to present newer varieties to customers which in turn affected transactions at the stores. However, sales grew 8.0% from the year-ago level backed by 62 new boutiques opened during the quarter.
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).
Gross margin shrank 340 bps to 49.0% due to lower merchandise margins caused by de-leverage of occupancy cost. Operating margin shrank 640 bps to 16.4% due to weak gross margins, higher payroll and infrastructure expenses.
Fiscal Second-Quarter 2014 Outlook
Lower sales in the last two quarters have raised the company's inventory levels. The company was not able to clear the inventory and this resulted in delay of spring season full price selling.
Management plans to clear up the piling inventory in the upcoming quarter and expects net sales to range between $98 million and $103 million in the second quarter compared to $89.6 million in the prior year quarter. The guidance takes into consideration mid-to-single digit decline in comps during the quarter compared to a decline of 1% in the previous year.
The company expects to open 16 boutique stores in the quarter compared with 20 opened a year ago. Earnings per share are expected in the range of 24 to 29 cents for the second quarter compared to 33 cents in the prior year quarter.
Fiscal 2014 Outlook
Management expects conditions to improve in the second half of fiscal 2014 and sales to accelerate during the later part of the year. For fiscal 2014, the company expects net sales in the range of $387 to $399 million. Earnings per share are expected in the range of $1.05 to $1.17. The earnings guidance reflects management's plan to dispose off piling inventory which is expected to affect earnings negatively by 4 to 5 cents.
Other Stocks to Consider
Francesca's currently carries a Zacks Rank #3 (Hold). Other stocks in the shoes & relative apparel sector are Carter's Inc. ( CTRN ), Iconix Brand Group Inc. ( ICON ) and Rocky Brands Inc. ( RCKY ). All these stocks have a Zacks Rank #2 (Buy).
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