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Francesca's Holdings Corporation$7.29($.05)(.68%)

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 francesca’s(R) Reports Second Quarter Fiscal Year 2016 Financial Results
   Wednesday, September 07, 2016 7:30:10 AM ET

-- Company raises full year sales and diluted earnings per share outlook

-- Net sales increased 9% to $115.3 million and comparable sales were flat compared to the same prior year period

-- Diluted earnings per share was $0.27 compared to $0.22 in the same period last year

-- Net sales and diluted earnings per share for the second quarter exceeded guidance

Francesca’s Holdings Corporation (FRAN ) today reported financial results for the second quarter ended July 30, 2016.

Richard Kunes, Interim Chairman, President, and CEO stated, "We are very pleased to have exceeded our sales and earnings expectations for the second quarter. Our compelling merchandise assortment and personalized guest experience resonated well with our customers despite the tough retail landscape and significant traffic decline we experienced early in the quarter. As we enter the third quarter, we are pleased with initial results as we successfully executed our targeted back-to-school programs. Looking ahead, we are encouraged by our trend-right merchandise assortment, ecommerce growth and favorable inventory position. Our in-boutique team is providing an exceptional guest experience and we are focused on expense management. With all of our strategic initiatives beginning to align, we believe we are on the path to deliver long-term, sustainable growth and profitability. With higher than expected second quarter sales and profitability as well as a favorable outlook for third quarter, we are increasing our full year diluted earnings per share guidance to $0.96 to $1.03."

<span data-mce-style="text-decoration: underline;" style="text-decoration: underline;">SECOND QUARTER RESULTS</span>

Net sales increased 9% to $115.3 million from $106.0 million in the comparable prior year period. This increase was due to the addition of 44 net new boutiques since the prior year period, and a 37% increase in ecommerce sales to $4.8 million driven by increased website traffic and conversion rate. Our total comparable sales were flat compared to the same period last year as the increase in transactions offset the decrease in average transaction value. We opened 19 new boutiques and closed four underperforming boutiques during the quarter bringing our total boutique count to 652 at the end of the quarter.

Gross profit, as a percentage of net sales, decreased to 46.8% from 47.4% in the prior year quarter. This decrease is attributable to 30 basis points of lower merchandise margin and 30 basis points deleveraging of occupancy costs. The decrease in merchandise margin was primarily attributable to a sales mix change to lower margin categories.

Selling, general and administrative expenses ("SG&A") increased 5% to $36.8 million from $35.1 million in the prior year quarter. The increase in SG&A is primarily due to increased corporate and boutique payroll, to support the larger boutique base and strategic initiatives, as well as an increase in marketing and depreciation expenses. The increase in marketing expense was due to implementation of new marketing initiatives, while the higher depreciation was due to continuing investments in technology and infrastructure. These changes were partially offset by a $2.0 million net benefit associated with the previously announced resignation of our prior Chairman, President and Chief Executive Officer, which consisted of $2.6 million reversal of previously accrued stock-based compensation expense related to the forfeiture of unvested awards and $0.6 million of professional expenses related to the search process.

Income from operations was $17.1 million, or 14.9% of net sales, compared to $15.2 million, or 14.3% of net sales, in the prior year quarter.

<span data-mce-style="text-decoration: underline;" style="text-decoration: underline;">BALANCE SHEET SUMMARY</span>

Total cash and cash equivalents at the end of the quarter were $26.0 million compared to $48.8 million at the end of the comparable prior year quarter. During the second quarter, we repurchased 2.3 million shares of our common stock at a cost of $27.0 million.

We ended the quarter with $32.7 million of inventory on hand compared to $33.6 million at the end of the comparable prior year period. Average ending inventory per boutique decreased by 9% versus the comparable prior year period.

<span data-mce-style="text-decoration: underline;" style="text-decoration: underline;">THIRD QUARTER AND FISCAL YEAR 2016 GUIDANCE</span>

For the third quarter ending October 29, 2016, net sales are expected to be in the range of $114 million to $118 million; assuming a mid-single digit increase in comparable sales compared to the prior year increase of 4%. The Company plans to open 14 to 20 new boutiques and close one to three boutiques during the third quarter. Diluted earnings per share are expected to be in the range of $0.16 to $0.19.

For the full year ending January 28, 2017, we now expect net sales to be in the range of $473 million to $488 million; assuming a low-single digit decrease to a low single-digit increase in comparable sales compared to the prior year increase of 3%. The Company expects to open 55 to 65 boutiques and close six to ten underperforming boutiques in fiscal year 2016 compared to 83 new boutiques opened and six boutiques closed in fiscal year 2015. Diluted earnings per share are now expected to be in the range of $0.96 to $1.03, which includes a $0.03 per share benefit associated with the previously announced resignation of our Chairman, President and Chief Executive Officer. The number of average diluted shares for the full year assumed in guidance is 38.6 million shares. The effective tax rate is estimated to be 37.8%.

Capital expenditures for fiscal year 2016 are expected to be in the range of $28.0 million to $31.0 million.

Conference Call Information

A conference call to discuss the second quarter fiscal year 2016 results is scheduled for September 7, 2016, at 8:30 a.m. ET. A live webcast of the conference call will be available in the investor relations section of our website, www.francescas.com. A replay of the call will be available after the conclusion of the call and remain available until September 14, 2016. To access the telephone replay, listeners should dial 1-877-870-5176. The access code for the replay is 8230219. A replay of the web cast will also be available shortly after the conclusion of the call and will remain on the website for ninety days.

Forward-Looking Statements

Certain statements in this release are "forward-looking statements" made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Such forward-looking statements reflect our current expectations or beliefs concerning future events and are subject to various risks and uncertainties that may cause actual results to differ materially from those that we expected. These risks and uncertainties include, but are not limited to, the following: the risk that we cannot anticipate, identify and respond quickly to changing fashion trends and customer preferences; our ability to attract a sufficient number of customers to our boutiques or sell sufficient quantities of our merchandise through our ecommerce business; our ability to successfully open and operate new boutiques each year; and our ability to efficiently source; distribute additional merchandise quantities necessary to support our growth; and our ability to attract and integrate a new President and Chief Executive Officer. For additional information regarding these and other risks and uncertainties that could cause actual results to differ materially from those contained in our forward-looking statements, please refer to "Risk Factors" in our Annual Report on Form 10-K for the year ended January 30, 2016 filed with the Securities and Exchange Commission ("SEC") on March 25, 2016 and our Quarterly Report on Form 10-Q for the quarter ended April 30, 2016 filed with the SEC on June 9, 2016, as well as any risk factors contained in subsequent quarterly and annual reports we file with the SEC. We undertake no obligation to publicly update or revise any forward-looking statement.

About Francesca’s Holdings Corporation

francesca’s(R) is a growing specialty retailer which operates a nationwide-chain of boutiques providing customers a unique, fun and personalized shopping experience. The merchandise assortment is a diverse and balanced mix of apparel, jewelry, accessories and gifts. Today francesca’s(R) operates 656 boutiques in 48 states and the District of Columbia and also serves its customers through francescas.com. For additional information on francesca’s(R), please visit www.francescas.com.

Francesca’s Holdings Corporation

Consolidated Statements of Operations

(In Thousands, Except Per Share Amounts, Percentages and Basis Points)

                                             Thirteen Weeks Ended
                                             July 30, 2016                        August 1, 2015                       Variance
                                             In USD               As a %          In USD               As a %          In USD          %            Basis
                                                                  of Net Sales                         of Net Sales                                 Points
Net sales                                    $    115,260             100.0 %     $    106,033             100.0 %     $   9,227           9   %        -
Cost of goods sold and occupancy costs            61,323              53.2  %          55,725              52.6  %         5,598           10  %        60
Gross profit                                      53,937              46.8  %          50,308              47.4  %         3,629           7   %        (60  )
Selling, general and administrative expenses      36,815              31.9  %          35,133              33.1  %         1,682           5   %        (120 )
Income from operations                            17,122              14.9  %          15,175              14.3  %         1,947           13  %        60
Interest expense                                  (113    )       (0.1) %              (112    )       (0.1) %             (1     )    (1) %            -
Other income (expense)                            39                  0.0   %          (54     )       (0.1) %             93              172 %        10
Income before income tax expense                  17,048              14.8  %          15,009              14.2  %         2,039           14  %        60
Income tax expense                                6,457               5.6   %          5,705               5.4   %         752             13  %        20
Net income                                   $    10,591              9.2   %     $    9,304               8.8   %     $   1,287           14  %        40
Percentage totals or differences in the above table may not equal the sum or difference of the components due to rounding.
Diluted earnings per share                   $    0.27                            $    0.22
Weighted average diluted share count              38,755                               42,433
Comparable sales change                                       0   %                                (4  )%
                                             Twenty-Six Weeks Ended
                                             July 30, 2016                        August 1, 2015                       Variance
                                             In USD               As a %          In USD               As a %          In USD          %            Basis
                                                                  of Net Sales                         of Net Sales                                 Points
Net sales                                    $    221,373             100.0 %     $    201,044             100.0 %     $   20,329          10  %        -
Cost of goods sold and occupancy costs            118,306             53.4  %          105,843             52.6  %         12,463          12  %        80
Gross profit                                      103,067             46.6  %          95,201              47.4  %         7,866           8   %        (80  )
Selling, general and administrative expenses      74,481              33.6  %          68,136              33.9  %         6,345           9   %        (30  )
Income from operations                            28,586              12.9  %          27,065              13.5  %         1,521           6   %        (60  )
Interest expense                                  (222    )       (0.1) %              (222    )       (0.1) %             -               -            -
Other income (expense)                            39                  0.0   %          (120    )       (0.1) %             159             132 %        10
Income before income tax expense                  28,403              12.8  %          26,723              13.3  %         1,680           6   %        (50  )
Income tax expense                                10,731              4.8   %          10,178              5.1   %         553             5   %        (30  )
Net income                                   $    17,672              8.0   %     $    16,545              8.2   %     $   1,127           7   %        (20  )
Percentage totals or differences in the above table may not equal the sum or difference of the components due to rounding.
Diluted earnings per share                   $    0.45                            $    0.39
Weighted average diluted share count              39,580                               42,425
Comparable sales change                                       1   %                                (3  )%

Francesca’s Holdings Corporation

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

                                                                                                                                                                                                July 30, 2016      January 30, 2016     August 1, 2015
ASSETS
Current assets:
Cash and cash equivalents                                                                                                                                                                       $      26,021      $        56,224      $       48,840
Accounts receivable                                                                                                                                                                                    10,791               9,580               9,061
Inventories                                                                                                                                                                                            32,667               31,541              33,642
Deferred income taxes                                                                                                                                                                                  6,728                6,411               5,537
Prepaid expenses and other current assets                                                                                                                                                              6,715                7,013               5,915
Total current assets                                                                                                                                                                                   82,922               110,769             102,995
Property and equipment, net                                                                                                                                                                            80,225               77,894              80,176
Deferred income taxes                                                                                                                                                                                  4,640                3,847               5,426
Other assets, net                                                                                                                                                                                      1,296                1,067               1,677
TOTAL ASSETS                                                                                                                                                                                    $      169,083     $        193,577     $       190,274
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable                                                                                                                                                                                $      16,620      $        14,305      $       13,301
Accrued liabilities                                                                                                                                                                                    14,327               16,328              13,465
Total current liabilities                                                                                                                                                                              30,947               30,633              26,766
Landlord incentives and deferred rent                                                                                                                                                                  38,673               36,552              37,404
Total liabilities                                                                                                                                                                                      69,620               67,185              64,170
Commitments and contingencies
Stockholders’ equity:
Common stock - $0.01 par value, 80.0 million shares authorized; 45.9 million, 45.9 million and 45.5 million shares issued at July 30, 2016, January 30, 2016 and August 1, 2015, respectively.         459                  459                 455
Additional paid-in capital                                                                                                                                                                             106,916              107,693             105,843
Retained earnings                                                                                                                                                                                      119,228              101,556             79,949
Treasury stock, at cost - 8.0 million, 4.8 million and 3.2 million shares at July 30, 2016, January 30, 2016 and August 1, 2015, respectively.                                                         (127,140 )           (83,316  )          (60,143 )
Total stockholders’ equity                                                                                                                                                                             99,463               126,392             126,104
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                                      $      169,083     $        193,577     $       190,274

Francesca’s Holdings Corporation

Consolidated Statements of Cash Flows

(In thousands)

                                                                                   Twenty-Six Weeks Ended
                                                                                   July 30, 2016       August 1, 2015
Cash Flows Provided by Operating Activities:
Net income                                                                         $      17,672       $       16,545
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization                                                             9,482                8,000
Stock-based compensation expense                                                          (857    )            1,591
Excess tax benefit from stock-based compensation                                          (6      )            (61     )
Loss on sale of assets                                                                    155                  282
Deferred income taxes                                                                     (1,315  )            (3,940  )
Changes in operating assets and liabilities:
Accounts receivable                                                                       (1,205  )            3,279
Inventories                                                                               (1,126  )            (9,841  )
Prepaid expenses and other assets                                                         (55     )            86
Accounts payable                                                                          2,599                2,466
Accrued liabilities                                                                       (2,001  )            1,561
Landlord incentives and deferred rent                                                     2,121                4,527
Net cash provided by operating activities                                                 25,464               24,495
Cash Flows Used in Investing Activities:
Purchases of property and equipment                                                       (11,149 )            (14,959 )
Other                                                                                     8                    3
Net cash used in investing activities                                                     (11,141 )            (14,956 )
Cash Flows (Used in) Provided by Financing Activities:
Proceeds from the exercise of stock options                                               280                  169
Excess tax benefit from stock-based compensation                                          6                    61
Repurchases of common stock                                                               (44,812 )            -
Net cash (used in) provided by financing activities                                       (44,526 )            230
Net (decrease) increase in cash and cash equivalents                                      (30,203 )            9,769
Cash and cash equivalents, beginning of year                                              56,224               39,071
Cash and cash equivalents, end of period                                           $      26,021       $       48,840
Supplemental Disclosures of Cash Flow Information:
Cash paid for income taxes                                                         $      9,175        $       8,335
Interest paid                                                                      $      95           $       94

Francesca’s Holdings Corporation

Supplemental Information

<span data-mce-style="text-decoration: underline;" style="text-decoration: underline;">Quarterly Sales by Merchandise Category</span>

                  Thirteen Weeks Ended        Variance
                  July 30,      August 1,     In Dollars        %
                  2016          2015
                  (in thousands, except percentages)
Apparel           $    61,081   $    56,441   $     4,640            8    %
Jewelry                25,368        23,442         1,926            8    %
Accessories            15,136        14,537         599              4    %
Gifts                  13,209        11,069         2,140            19   %
Merchandise Sales      114,794       105,489        9,305            9    %
Others                 466           544            (78   )          (14  )%
Net sales         $    115,260  $    106,033  $     9,227            9    %
Includes gift card breakage income, shipping and change in return reserve.

<span data-mce-style="text-decoration: underline;" style="text-decoration: underline;">Quarterly Comparable Sales</span>

            FY 2016   FY 2015   FY 2014
Q1             2  %      (2 )%     (7 )%
Q2             0  %      (4 )%     (7 )%
Q3                       4  %      (6 )%
Q4                       11 %      1  %
Fiscal year              3  %      (5 )%

<span data-mce-style="text-decoration: underline;" style="text-decoration: underline;">Boutique Count</span>

                                                    Twenty-Six      Fiscal Year        Twenty-Six
                                                    Weeks Ended     Ended              Weeks Ended
                                                    July 30, 2016   January 30, 2016   August 1, 2015
Number of boutiques open at the beginning of period 616             539                539
Boutiques added                                     41              83                 69
Boutiques closed                                    (5            ) (6               ) -
Number of boutiques open at the end of period       652             616                608
CONTACT:
ICR, Inc.
Jean Fontana
646-277-1214

Company
Kelly Dilts 832-494-2236
Kate Venturina 832-494-2233
IR@francescas.com

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