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Francesca's Holdings Corporation$7.01$.131.89%

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 francesca’s(R) Exceeds Previous Guidance with Full Year EPS of $1.09, a 20% Increase Versus the Prior Year
   Tuesday, March 21, 2017 7:30:10 AM ET

-- Fourth quarter net sales increase 9% to $146.3 million

-- Fourth quarter diluted earnings per share were $0.39, an 11% increase versus the prior year

Francesca’s Holdings Corporation (FRAN ) today reported financial results for the fourth quarter and fiscal year ended January 28, 2017.

Steve Lawrence, President and CEO, stated, "We are pleased to deliver fourth quarter earnings per share above the high-end of our guidance and flat comparable sales. These comp results were achieved in a challenging retail environment where we were up against an 11% comparable sales increase in the fourth quarter of last year. We worked hard to improve our inventory management and ended the year with total inventories down 24% versus the prior year. This decrease was driven by disciplined receipt flows during the quarter coupled with both markdowns and mark-out-of-stock charges taken at year-end to ensure a clean transition into 2017. Looking ahead, we remain intently focused on invigorating the merchandise assortment, improving inventory management to ensure we maintain a consistent flow of new receipts, optimizing our real estate portfolio, creating an exceptional and personalized guest experience, and growing our ecommerce business. We will also continue to make strategic investments to ensure we have the infrastructure in place to achieve our long term growth objectives.’’

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

Net sales increased 9% to $146.3 million from $134.6 million in the comparable prior year quarter. This increase was due to the addition of 55 net new boutiques since the prior year period and a 42% increase in ecommerce sales driven by increased website traffic and conversion rate. Comparable sales were flat compared to the same period last year as the increase in average transaction value offset the decrease in transactions. The Company opened five new boutiques and closed three boutiques during the quarter, bringing the total count to 671 at the end of the quarter.

Gross profit, as a percent of net sales, decreased to 46.4% from 49.1% in the prior year quarter. This unfavorable variance was principally due to the Company’s strategic move to take accelerated markdowns in January, which included marking some merchandise out-of-stock at the end of the year, in order to enter fiscal year 2017 with clean inventories.

Selling, general and administrative expenses increased 6% to $44.3 million from $42.0 million in the prior year quarter. This increase was primarily due to higher boutique and corporate payroll to support the larger boutique base as well as increases in marketing and software costs, partially offset by lower impairment charges. The increase in marketing expense was due to the implementation of new marketing initiatives, while the higher software costs were due to continuing investments in technology and infrastructure.

Income from operations was $23.6 million, or 16.1% of net sales, compared to $24.2 million, or 18.0% of net sales, in the prior year quarter.

Net income for the fourth quarter was $14.6 million, or $0.39 diluted earnings per share, compared to $14.7 million, or $0.35 diluted earnings per share, in the comparable prior year period.

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

Net sales increased 11% to $487.2 million from $439.4 million in the comparable prior year. This increase was due a 2% increase in comparable sales as well as the addition of 55 net new boutiques since the prior year end. Ecommerce sales increased 42% driven by increased website traffic and conversion rate.

During fiscal year 2016, the Company opened 64 new boutiques and closed nine boutiques compared to 83 new boutiques opened and six boutiques closed in fiscal year 2015.

Net income for fiscal year 2016 totaled $42.0 million, or $1.09 diluted earnings per share, compared to $38.2 million, or $0.91 diluted earnings per share, in the prior year. Our results for fiscal year 2016 include a $2.0 million, or $0.03 per diluted share, net benefit associated with the previously announced resignation of the Company’s former Chairman, President and CEO.

<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 $53.2 million compared to $56.2 million at the end of the comparable prior year quarter. During the fourth quarter, the Company repurchased 298,000 shares of its common stock at a cost of $5.2 million, bringing the Company’s total year-to-date repurchases to 3,804,000 shares at a cost of $53.2 million.

The Company ended the quarter with $24.0 million of inventory on hand compared to $31.5 million at the end of the comparable prior year period. Average ending inventory per boutique decreased by 30% (14% decrease on a two-year stack basis) versus the comparable prior year period principally due to improved inventory management.

<span data-mce-style="text-decoration: underline;" style="text-decoration: underline;">FIRST QUARTER AND FISCAL YEAR 2017 GUIDANCE</span>

For the first quarter ending April 29, 2017, net sales are expected to be in the range of $111 million to $114 million; assuming comparable sales will be in the low single digit decrease to flat range compared to the prior year increase of 2%. The Company plans to open approximately 15 new boutiques and close approximately four existing boutiques during the first quarter. Diluted earnings per share are expected to be in the range of $0.12 to $0.16.

For the fiscal year ending February 3, 2018, net sales are expected to be in the range of $527 million to $543 million; assuming a flat to low-single digit increase in comparable sales compared to the prior year increase of 2%. The Company expects to open approximately 60 to 65 boutiques and close approximately 10 to 15 boutiques in fiscal year 2017, compared to 64 new boutiques opened and nine boutiques closed in fiscal year 2016. Diluted earnings per share are expected to be in the range of $1.11 to $1.21 compared to the prior year of $1.09. The number of average diluted shares for the full year assumed in guidance is 37.4 million shares. The effective tax rate is estimated to be 38%.

Capital expenditures for fiscal year 2017 are expected to be in the range of $28 million to $33 million.

Conference Call Information

A conference call to discuss the fourth quarter and fiscal year 2016 results is scheduled for March 21, 2017, at 8:30 a.m. ET. A live webcast of the conference call will be available in the investor relations section of the Company’s website, www.francescas.com. A replay of the call will be available after the conclusion of the call and remain available until March 28, 2017. To access the telephone replay, listeners should dial 1-844-512-2921. The access code for the replay is 4604086. 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 or changes in consumer environment, including changing expectations of service and experience in boutiques and online, and evolve our business model; 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 and distribute additional merchandise quantities necessary to support our growth. 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, as well as "Risk Factors" in our Annual Report on Form 10-K for the year ended January 28, 2017 that we will file with the SEC, and 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 approximately 671 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
                                             January 28, 2017                      January 30, 2016                      Variance
                                             In USD           As a % of Net Sales  In USD           As a % of Net Sales  In USD          %            Basis Points
Net sales                                    $     146,345    100.0     %          $     134,605    100.0     %          $     11,740    9     %      -
Cost of goods sold and occupancy costs             78,412     53.6      %                68,468     50.9      %                9,944     15    %      270
Gross profit                                       67,933     46.4      %                66,137     49.1      %                1,796     3     %      (270   )
Selling, general and administrative expenses       44,349     30.3      %                41,965     31.2      %                2,384     6     %      (90    )
Income from operations                             23,584     16.1      %                24,172     18.0      %                (588   )  (2    )%     (190   )
Interest expense                                   (111    )  (0.1      )%               (113    )  (0.1      )%               2         (2    )%     -
Other income (expense)                             29         0.0       %                (60     )  0.0       %                89        148   %      -
Income before income tax expense                   23,502     16.1      %                23,999     17.8      %                (497   )  (2    )%     (170   )
Income tax expense                                 8,867      6.1       %                9,343      6.9       %                (476   )  (5    )%     (80    )
Net income                                   $     14,635     10.0      %          $     14,656     10.9      %          $     (21    )  0     %      (90    )
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                   $     0.39                            $     0.35
Weighted average diluted share count               37,383                                41,391
Comparable sales change                            0                    %                11                   %
                                             Fiscal Year Ended
                                             January 28, 2017                      January 30, 2016                      Variance
                                             In USD           As a % of Net Sales  In USD           As a % of Net Sales  In USD          %            Basis Points
Net sales                                    $     487,188    100.0     %          $     439,377    100.0     %          $     47,811    11    %      -
Cost of goods sold and occupancy costs             258,561    53.1      %                229,673    52.3      %                28,888    13    %      80
Gross profit                                       228,627    46.9      %                209,704    47.7      %                18,923    9     %      (80    )
Selling, general and administrative expenses       160,702    33.0      %                147,387    33.5      %                13,315    9     %      (50    )
Income from operations                             67,925     13.9      %                62,317     14.2      %                5,608     9     %      (30    )
Interest expense                                   (464    )  (0.1      )%               (457    )  (0.1      )%               (7     )  (2    )%     -
Other income (expense)                             147        0.0       %                (151    )  0.0       %                298       197   %      -
Income before income tax expense                   67,608     13.9      %                61,709     14.0      %                5,899     10    %      (10    )
Income tax expense                                 25,607     5.3       %                23,557     5.4       %                2,050     9     %      (10    )
Net income                                   $     42,001     8.6       %          $     38,152     8.7       %          $     3,849     10    %      (10    )
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                   $     1.09                            $     0.91
Weighted average diluted share count               38,551                                42,117
Comparable sales change                            2                    %                3                    %
Francesca’s Holdings Corporation
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
                                                                                                                                                                     January 28,       January 30,
                                                                                                                                                                     2017              2016
ASSETS
Current assets:
Cash and cash equivalents                                                                                                                                            $     53,202      $     56,224
Accounts receivable                                                                                                                                                        5,605             9,580
Inventories                                                                                                                                                                23,958            31,541
Deferred income taxes                                                                                                                                                      8,487             6,411
Prepaid expenses and other current assets                                                                                                                                  8,823             7,013
Total current assets                                                                                                                                                       100,075           110,769
Property and equipment, net                                                                                                                                                80,484            77,894
Deferred income taxes                                                                                                                                                      6,978             3,847
Other assets, net                                                                                                                                                          2,056             1,067
TOTAL ASSETS                                                                                                                                                         $     189,593     $     193,577
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable                                                                                                                                                     $     9,205       $     14,305
Accrued liabilities                                                                                                                                                        25,761            16,328
Total current liabilities                                                                                                                                                  34,966            30,633
Landlord incentives and deferred rent                                                                                                                                      38,092            36,552
Total liabilities                                                                                                                                                          73,058            67,185
Commitments and contingencies
Stockholders’ equity:
Common stock-$.01 par value, 80.0 million shares authorized, 46.1 million and 45.9 million shares issued as of January 28, 2017 and January 30, 2016, respectively.        461               459
Additional paid-in capital                                                                                                                                                 109,008           107,693
Retained earnings                                                                                                                                                          143,557           101,556
Treasury stock, at cost - 8.5 million and 4.8 million shares held at January 28, 2017 and January 30, 2016, respectively.                                                  (136,491 )        (83,316 )
Total stockholders’ equity                                                                                                                                                 116,535           126,392
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                           $     189,593     $     193,577
Francesca’s Holdings Corporation
Consolidated Statements of Cash Flows
(In thousands)
                                                                                   Fiscal Year Ended
                                                                                   January 28,       January 30,       January 31,
                                                                                   2017              2016              2015
Cash Flows Provided by Operating Activities:
Net income                                                                         $     42,001      $     38,152      $     32,108
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization                                                            19,337            16,816            13,151
Stock-based compensation expense                                                         1,016             2,932             2,668
Excess tax benefit from stock-based compensation                                         (34     )         (236    )         (309    )
Impairment charges                                                                       141               790               2,470
Loss on disposal of assets                                                               407               487               364
Amortization of debt issuance costs                                                      245               245               245
Deferred income taxes                                                                    (5,411  )         (3,226  )         (1,600  )
Changes in assets and liabilities:
Accounts receivable                                                                      3,975             2,935             (2,986  )
Inventories                                                                              7,583             (7,740  )         813
Prepaid expenses and other assets                                                        (3,160  )         (524    )         373
Accounts payable                                                                         (4,936  )         4,137             (363    )
Accrued liabilities                                                                      9,467             4,424             2,081
Landlord incentives and deferred rent                                                    1,540             3,675             5,429
Net cash provided by operating activities                                                72,171            62,867            54,444
Cash Flows Used in Investing Activities:
Purchase of property and equipment                                                       (21,852 )         (24,276 )         (24,255 )
Other                                                                                    8                 12                13
Net cash used in investing activities                                                    (21,844 )         (24,264 )         (24,242 )
Cash Flows Used in Financing Activities:
Repurchases of common stock                                                              (53,853 )         (22,185 )         (5,270  )
Proceeds from the exercise of stock options                                              512               499               1,332
Excess tax benefit from stock-based compensation                                         34                236               309
Taxes paid related to net settlement of equity awards                                    (42     )         -                 -
Repayment of borrowings under the revolving credit facility                              -                 -                 (25,000 )
Net cash used in financing activities                                                    (53,349 )         (21,450 )         (28,629 )
Net increase in cash and cash equivalents                                                (3,022  )         17,153            1,573
Cash and cash equivalents, beginning of year                                             56,224            39,071            37,498
Cash and cash equivalents, end of year                                             $     53,202      $     56,224      $     39,071
Supplemental Disclosures of Cash Flow Information:
Cash paid for income taxes                                                         $     19,324      $     23,958      $     24,088
Interest paid                                                                      $     192         $     190         $     388

Francesca’s Holdings Corporation

Supplemental Information

Quarterly Sales by Merchandise Category
                  Thirteen Weeks Ended
                  January 28, 2017              January 30, 2016              Variance
                  In USD       As a % of Sales      In USD   As a % of Sales  In Dollars      %
                  (in thousands, except percentages)
Apparel           $   60,677   41.5    %        $   53,434   39.7    %        $   7,243       14  %
Jewelry               34,069   23.3    %            29,658   22.0    %            4,411       15  %
Accessories           24,865   17.0    %            24,283   18.0    %            582         2   %
Gifts                 25,834   17.6    %            26,615   19.8    %            (781   )    (3  )%
Merchandise sales     145,445  99.4    %            133,990  99.5    %            11,455      9   %
Others                900      0.6     %            615      0.5     %            285         46  %
Net sales         $   146,345  100.0   %        $   134,605  100.0   %        $   11,740      9   %
Includes gift card breakage income, shipping and change in return reserve.
Quarterly Comparable Sales
            FY 2016  FY 2015  FY 2014
Q1          2   %    (2  )%   (7  )%
Q2          0   %    (4  )%   (7  )%
Q3          7   %    4   %    (6  )%
Q4          0   %    11  %    1   %
Fiscal year 2   %    3   %    (5  )%
Boutique Count
                                                    Fiscal Year Ended    Fiscal Year Ended    Fiscal Year Ended
                                                    January 28, 2017     January 30, 2016     January 31, 2015
Number of boutiques open at the beginning of period 616                  539                  451
Boutiques opened                                    64                   83                   88
Boutiques closed                                    (9                )  (6                )  -
Number of boutiques open at the end of period       671                  616                  539
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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