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Francesca's Holdings Corporation$7.05$.02.28%

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 francesca’s(R) Reports First Quarter Fiscal Year 2017 Financial Results
   Tuesday, June 06, 2017 7:30:20 AM ET

-- Net sales increase 1% to $107.7 million

-- Comparable sales decreased 5%

-- Diluted earnings per share were $0.12

Francesca’s Holdings Corporation (FRAN ) today reported financial results for the first quarter ended April 29, 2017.

Steve Lawrence, President and CEO, stated, "We were disappointed in our comparable sales performance, which was impacted by lower than expected boutique traffic and conversion rate. February and March sales were soft, primarily as a result of the later Easter, driving weaker than anticipated sales in full-price product. In spite of lower sales, our first quarter diluted EPS came in at the low end of our guidance due to better than expected merchandise margins and cost management. Since the beginning of April, sales trends have improved with the onset of warmer weather and the Easter shift."

Mr. Lawrence continued, "One of our focuses continues to be on strong inventory controls and we were pleased that we reduced average inventory per boutique by 15% and entered the second quarter with an improved mix of fresh merchandise. While our first quarter performance was not up to our expectations, we believe that an improving sales trend, coupled with current trend-right assortment, will position us to get back on track in the second quarter. We have begun to rollout our new POS which will give us much more robust omni-channel capabilities. Several other initiatives are starting to roll out later this year, such as our new loyalty program. We believe that these initiatives will help fuel sales in the second half of the year."

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

Net sales increased 1% to $107.7 million from $106.1 million in the comparable prior year quarter. This increase was due to the addition of 42 net new boutiques since the end of the first quarter last year. Comparable sales decreased 5% compared to an increase of 2% in the same period last year. The decrease in comparable sales was due to a decrease in boutique traffic and conversion rates. The Company opened 12 new boutiques and closed four boutiques during the quarter, bringing the total count to 679 at the end of the quarter.

Gross profit, as a percent of net sales, decreased to 45.2% from 46.3% in the prior year quarter. This unfavorable variance was principally due to deleveraging of occupancy costs as merchandise margin was up slightly compared to last year.

Selling, general and administrative expenses increased 10% to $41.3 million from $37.7 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.

Income from operations was $7.4 million, or 6.9% of net sales, compared to $11.5 million, or 10.8% of net sales, in the prior year quarter.

Our effective tax rate was 40.3% compared to 37.6% in the same prior year period. The increase in the Company’s effective tax rate was due to true up of prior year state taxes.

Net income for the first quarter was $4.3 million, or $0.12 diluted earnings per share, compared to $7.1 million, or $0.18 diluted earnings per share, in the comparable prior year period.

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

Total cash and cash equivalents at the end of the quarter were $48.1 million compared to $35.4 million at the end of the comparable prior year quarter. During the first quarter, the Company repurchased 609,000 shares of its common stock at a cost of $9.3 million.

The Company ended the quarter with $31.4 million of inventory on hand compared to $34.8 million at the end of the comparable prior year period. Average ending inventory per boutique decreased by 15% versus the comparable prior year period principally due to improved inventory management.

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

For the second quarter ending July 29, 2017, net sales are expected to be in the range of $120 million to $124 million; assuming a 3% decrease to a 1% increase in comparable sales compared to flat in the prior year. The Company plans to open approximately 18 new boutiques and close approximately six existing boutiques during the second quarter. Diluted earnings per share are expected to be in the range of $0.13 to $0.18.

For the fiscal year ending February 3, 2018, net sales are expected to be in the range of $518 million to $537 million; assuming a 2% decrease to a 2% 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 $1.07 to $1.17 compared to the prior year of $1.09 and prior guidance of $1.11 to $1.21. The number of average diluted shares for the full year assumed in guidance is 36.8 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 first quarter results is scheduled for June 6, 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 June 13, 2017. To access the telephone replay, listeners should dial 1-844-512-2921. The access code for the replay is 8256628. 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 28, 2017 filed with the Securities and Exchange Commission ("SEC") on March 22, 2017 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 679 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
                                             April 29, 2017                April 30, 2016                Variance
                                             In USD           As a         In USD           As a         In USD          %            Basis
                                                              % of Net                      % of Net                                  Points
                                                              Sales                         Sales
Net sales                                    $     107,689    100.0 %      $     106,113    100.0 %      $     1,576     1     %      -
Cost of goods sold and occupancy costs             59,006     54.8  %            56,983     53.7  %            2,023     4     %      110
Gross profit                                       48,683     45.2  %            49,130     46.3  %            (447   )  (1    )%     (110  )
Selling, general and administrative expenses       41,281     38.3  %            37,666     35.5  %            3,615     10    %      280
Income from operations                             7,402      6.9   %            11,464     10.8  %            (4,062 )  (35   )%     (390  )
Interest expense                                   (113    )  (0.1  )%           (109    )  (0.1  )%           (4     )  4     %      -
Other expense                                      (25     )  0.0   %            -          0.0   %            (25    )  n/a          -
Income before income tax expense                   7,264      6.7   %            11,355     10.7  %            (4,091 )  (36   )%     (400  )
Income tax expense                                 2,931      2.7   %            4,274      4.0   %            (1,343 )  (31   )%     (130  )
Net income                                   $     4,333      4.0   %      $     7,081      6.7   %      $     (2,748 )  (39   )%     (270  )
__________________________
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                   $     0.12                    $     0.18
Weighted average diluted share count               37,149                        40,400
Comparable sales change                            (5)%                          2%

Francesca’s Holdings Corporation

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

                                                                                                                                                                                                 April 29, 2017      January 28, 2017     April 30, 2016
ASSETS
Current assets:
Cash and cash equivalents                                                                                                                                                                        $       48,101      $        53,202      $       35,421
Accounts receivable                                                                                                                                                                                      8,145                5,605               13,316
Inventories                                                                                                                                                                                              31,365               23,958              34,799
Deferred income taxes                                                                                                                                                                                    -                    8,487               6,557
Prepaid expenses and other current assets                                                                                                                                                                9,479                8,823               6,649
Total current assets                                                                                                                                                                                     97,090               100,075             96,742
Property and equipment, net                                                                                                                                                                              81,577               80,484              79,056
Deferred income taxes                                                                                                                                                                                    15,859               6,978               4,333
Other assets, net                                                                                                                                                                                        2,896                2,056               1,155
TOTAL ASSETS                                                                                                                                                                                     $       197,422     $        189,593     $       181,286
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable                                                                                                                                                                                 $       21,305      $        9,205       $       11,174
Accrued liabilities                                                                                                                                                                                      25,085               25,761              14,858
Total current liabilities                                                                                                                                                                                46,390               34,966              26,032
Landlord incentives and deferred rent                                                                                                                                                                    38,261               38,092              37,531
Total liabilities                                                                                                                                                                                        84,651               73,058              63,563
Commitments and contingencies
Stockholders’ equity:
Common stock - $0.01 par value, 80.0 million shares authorized; 46.3 million, 46.1 million and 46.2 million shares issued at April 29, 2017, January 28, 2017 and April 30, 2016, respectively.          463                  461                 462
Additional paid-in capital                                                                                                                                                                               110,267              109,008             108,737
Retained earnings                                                                                                                                                                                        147,817              143,557             108,637
Treasury stock, at cost - 9.2 million, 8.5 million and 5.7 million shares at April 29, 2017, January 28, 2017 and April 30, 2016, respectively.                                                          (145,776 )           (136,491 )          (100,113 )
Total stockholders’ equity                                                                                                                                                                               112,771              116,535             117,723
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                                       $       197,422     $        189,593     $       181,286

Francesca’s Holdings Corporation

Consolidated Statements of Cash Flows

(In thousands)

                                                                                   Thirteen Weeks Ended
                                                                                   April 29, 2017    April 30, 2016
Cash Flows Provided by Operating Activities:
Net income                                                                         $    4,333        $       7,081
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization                                                           5,101                4,649
Stock-based compensation expense                                                        1,254                1,052
Excess tax benefit from stock-based compensation                                        -                    (22     )
Loss on sale of assets                                                                  110                  88
Deferred income taxes                                                                   (347   )             (838    )
Changes in operating assets and liabilities:
Accounts receivable                                                                     (2,540 )             (3,714  )
Inventories                                                                             (7,407 )             (3,258  )
Prepaid expenses and other assets                                                       (1,638 )             214
Accounts payable                                                                        10,341               (2,862  )
Accrued liabilities                                                                     (676   )             (1,470  )
Landlord incentives and deferred rent                                                   169                  979
Net cash provided by operating activities                                               8,700                1,899
Cash Flows Used in Investing Activities:
Purchases of property and equipment                                                     (4,634 )             (5,121  )
Other                                                                                   -                    4
Net cash used in investing activities                                                   (4,634 )             (5,117  )
Cash Flows Used in Financing Activities:
Repurchases of common stock                                                             (9,054 )             (17,785 )
Taxes paid related to net settlement of equity awards                                   (113   )             -
Proceeds from the exercise of stock options                                             -                    178
Excess tax benefit from stock-based compensation                                        -                    22
Net cash used in financing activities                                                   (9,167 )             (17,585 )
Net decrease in cash and cash equivalents                                               (5,101 )             (20,803 )
Cash and cash equivalents, beginning of year                                            53,202               56,224
Cash and cash equivalents, end of period                                           $    48,101       $       35,421
Supplemental Disclosures of Cash Flow Information:
Cash paid for income taxes                                                         $    73           $       6,653
Interest paid                                                                      $    49           $       47

Francesca’s Holdings Corporation

Supplemental Information

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

                  Thirteen Weeks Ended
                  April 29, 2017                   April 30, 2016                          Variance
                  In USD            As a %                In USD            As a %         In Dollars         %
                                    of Sales                                of Sales
                  (in thousands, except percentages)
Apparel           $      60,012     55.7   %              $      56,351     53.1   %              $ 3,661     6      %
Jewelry                  23,771     22.1   %                     24,062     22.7   %                (291   )  (1     )%
Accessories              13,981     13.0   %                     14,587     13.7   %                (606   )  (4     )%
Gifts                    11,115     10.3   %                     11,327     10.7   %                (212   )  (2     )%
Merchandise sales        108,879    101.1  %                     106,327    100.2  %                2,552     2      %
Others                   (1,190  )  (1.1   )%                    (214    )  (0.2   )%               (976   )  (456   )%
Net sales         $      107,689    100.0  %              $      106,113    100.0  %              $ 1,576     1      %
_____________________
In the first quarter of fiscal 2017, swimwear was reclassified out of accessories to apparel. To facilitate comparability, prior year amounts were reclassified.
Includes gift card breakage income, shipping and change in return reserve.

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

            FY 2017  FY 2016  FY 2015
Q1          (5  )%   2   %    (2  )%
Q2                   0   %    (4  )%
Q3                   7   %    4   %
Q4                   0   %    11  %
Fiscal year          2   %    3   %

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

                                                    Thirteen Weeks Ended   Fiscal Year Ended   Thirteen Weeks Ended
                                                    April 29, 2017         January 28, 2017    April 30, 2016
Number of boutiques open at the beginning of period 671                    616                 616
Boutiques opened                                    12                     64                  22
Boutiques closed                                    (4                   ) (9                ) (1                   )
Number of boutiques open at the end of period       679                    671                 637
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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