• Net sales increased 4% to $119.7 million
  • Comparable sales decreased 3%
  • Diluted earnings per share were $0.20

HOUSTON, Sept. 06, 2017 (GLOBE NEWSWIRE) -- Francesca’s Holdings Corporation (NASDAQ:FRAN) today reported financial results for the second quarter ended July 29, 2017.  

Steve Lawrence, President and CEO, stated, “As we previously announced, our second quarter EPS exceeded our expectations as a result of better than expected merchandise margins and SG&A expenses. Comparable sales came in at the low-end of the expected range and further softened in August. We believe that the recent downturn in business is primarily reflective of merchandising missteps.  We are taking decisive actions to efficiently move through our back-to-school product and to get back on track as we turn the corner into the holiday season. Our core merchandising philosophy of surprising every guest, every time with a unique, trend-right assortment at a great value will continue to dictate our go-forward strategy. Moreover, we will remain highly disciplined in managing our inventory to ensure a constant flow of newness and swiftly move through slow-sellers.

“Hurricane Harvey had a devastating impact on south Texas and Louisiana. Our dedicated team has been resilient and, even though personally impacted, have worked hard to get us back up and running. Our corporate headquarters, ecommerce fulfilment, distribution center, approximately 40 boutiques and many team members located in Houston or neighboring areas were directly impacted by the storm. As of Tuesday, September 5th, we have fully re-opened our corporate facilities and all but one of our impacted boutiques.  The disruption to our supply chain is impacting all of our boutiques and we expect it to take a couple of weeks before things normalize. While there is a lot of work to be done, we have a talented and capable team who is firmly committed to taking the necessary steps to reinvigorate our merchandise assortments as well as work through the challenges created by Hurricane Harvey.”

SECOND QUARTER RESULTS

Net sales increased 4% to $119.7 million from $115.3 million in the comparable prior year quarter. This increase was due to the addition of 40 net new boutiques since the end of the second quarter last year. Comparable sales decreased 3% compared to the same period last year due to a decrease in boutique conversion rates. Prior year second quarter comparable sales were flat.  The Company opened 16 new boutiques and closed three boutiques during the quarter, bringing the total count to 692 at the end of the quarter.     

Gross profit, as a percent of net sales, decreased to 46.3% from 46.8% in the prior year quarter.  This was primarily due to deleveraging of occupancy costs as merchandise margin compared to last year was essentially flat. 

Selling, general and administrative expenses (“SG&A”) increased 18% to $43.5 million from $36.8 million in the prior year quarter. This increase was primarily due to higher boutique and corporate payroll, professional service fees, software, stock-based compensation and marketing expenses. Additionally, prior year SG&A included a $2.0 million net benefit in connection with the resignation of the Company’s previous Chairman, President and Chief Executive Officer.

Income from operations was $11.9 million, or 10.0% of net sales, compared to $17.1 million, or 14.9% of net sales, in the prior year quarter. 

BALANCE SHEET SUMMARY

Total cash and cash equivalents at the end of the second quarter were $33.3 million compared to $26.0 million at the end of the comparable prior year quarter.  During the second quarter, the Company repurchased 0.5 million shares of its common stock at a cost of $5.7 million.

The Company ended the quarter with $34.0 million of inventory on hand compared to $32.7 million at the end of the comparable prior year period.  Average ending inventory per boutique decreased by 2% compared to the comparable prior year period, as the Company continues to diligently control inventory through enhanced inventory management processes that began in the second quarter of 2016. 

THIRD QUARTER AND REVISED FISCAL YEAR 2017 GUIDANCE

For the third quarter ending October 28, 2017, net sales are expected to be in the range of $105 million to $109 million; assuming a comparable sales decrease in the mid- to high-teens compared to a 7% comparable sales increase in the prior year. The Company plans to open approximately 32 new boutiques and close one existing boutique during the third quarter.  Diluted earnings per share are expected to be in the range of $0.00 to $0.05.  This guidance includes the Company’s best estimate of the impact of Hurricane Harvey.

For the fiscal year ending February 3, 2018, net sales are now expected to be in the range of $481 million to $491 million; assuming a high-single digit decrease in comparable sales compared to the prior year increase of 2%. The Company expects to open approximately 60 to 65 boutiques and close approximately 8 to 10 boutiques in fiscal year 2017, compared to 64 new boutiques opened and nine boutiques closed in fiscal year 2016.  Diluted earnings per share are now expected to be in the range of $0.71 to $0.81 compared to the prior year of $1.09. The number of average diluted shares for the full year assumed in guidance is 36.5 million shares. The effective tax rate is estimated to be 38.3%.

Capital expenditures for fiscal year 2017 are expected to be in the range of $30 million to $33 million.

Conference Call Information

A conference call to discuss the second quarter results is scheduled for September 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 September 13, 2017. To access the telephone replay, listeners should dial 1-844-512-2921. The access code for the replay is 2728299. 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; our ability to efficiently source and distribute additional merchandise quantities necessary to support our growth; our ability to successfully attract, hire and integrate our next Chief Merchant and our ability to successfully rebound from the impact of Hurricane Harvey. 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 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® 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® operates approximately 692 boutiques in 47 states and the District of Columbia and also serves its customers through francescas.com. For additional information on francesca's®, 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 29, 2017 July 30, 2016 Variance
 In USD As a %
of Net Sales(1)		   In USD As a %
of Net Sales(1)		   In USD % Basis
Points
Net sales$  119,707  100.0% $  115,260  100.0% $  4,447  4%   -  
Cost of goods sold and occupancy costs   64,312  53.7%    61,323  53.2%    2,989  5% 50 
Gross profit   55,395  46.3%    53,937  46.8%    1,458  3% (50)
Selling, general and administrative expenses         43,456  36.3%    36,815  31.9%    6,641  18% 440 
Income from operations   11,939  10.0%    17,122  14.9%    (5,183) (30)% (490)
Interest expense   (110) (0.1)%    (113) (0.1)%    3  3%   -  
Other income   19  0.0%    39  0.0%    (20) (51)%   -  
Income before income tax expense   11,848  9.9%    17,048  14.8%    (5,200) (31)% (490)
Income tax expense   4,585  3.8%    6,457  5.6%    (1,872) (29)%  (180)
Net income$  7,263  6.1% $  10,591  9.2% $(3,328) (31)%  (310)
____________________    
(1)  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$  0.20    $  0.27         
Weighted average diluted share count   36,472       38,755         
              
Comparable sales    (3)%      0%       
              
              
 Twenty-Six Weeks Ended      
 July 29, 2017 July 30, 2016 Variance
 In USD As a %
of Net Sales		 In USD As a %
of Net Sales		 In USD % Basis
Points
Net sales$  227,396  100.0% $  221,373  100.0% $  6,023  3%   -  
Cost of goods sold and occupancy costs   123,317  54.2%    118,306  53.4%    5,011  4%   80 
Gross profit   104,079  45.8%    103,067  46.6%    1,012  1%   (80)
Selling, general and administrative expenses   84,934  37.4%    74,481  33.6%   10,453  14%   380 
Income from operations   19,145  8.4%    28,586  12.9%  (9,441) (33)% (450)
Interest expense   (223) (0.1)%    (222) (0.1)%    (1) -    -  
Other income   190  0.1%    39  0.0%    151  387%   10  
Income before income tax expense   19,112  8.4%    28,403  12.8%  (9,291) (33)% (440)
Income tax expense   7,516  3.3%    10,731  4.8%  (3,215) (30)%  (150)
Net income$  11,596  5.1% $  17,672  8.0% $(6,076) (34)%  (290)
____________________    
(1)  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$  0.32    $  0.45         
Weighted average diluted share count   36,811       39,580         
              
Comparable sales    (4)%      1%       


Francesca’s Holdings Corporation
Consolidated Balance Sheets
(In thousands, except share and per share amount)

    July 29,    2017  January 28, 2017    July 30,  
2016		 
ASSETS            
Current assets:            
Cash and cash equivalents $33,298  $53,202  $26,021 
Accounts receivable  18,416   5,605   10,791 
Inventories  34,036   23,958   32,667 
Deferred income taxes  -   8,487   6,728 
Prepaid expenses and other current assets  9,433   8,823   6,715 
Total current assets  95,183   100,075   82,922 
Property and equipment, net  83,956   80,484   80,225 
Deferred income taxes  16,009   6,978   4,640 
Other assets, net  3,138   2,056   1,296 
             
TOTAL ASSETS $198,286  $189,593  $169,083 
             
LIABILITIES AND STOCKHOLDERS’ EQUITY            
Current liabilities:            
Accounts payable $26,971  $9,205  $16,620 
Accrued liabilities  17,748   25,761   14,327 
Total current liabilities  44,719   34,966   30,947 
Landlord incentives and deferred rent  38,125   38,092   38,673 
Total liabilities  82,844   73,058   69,620 
             
Commitments and contingencies            
             
Stockholders’ equity:            
Common stock - $0.01 par value, 80.0 million shares authorized; 46.4 million, 46.1 million and 45.9 million shares issued at July 29, 2017, January 28, 2017 and July 30, 2016, respectively.  464   461   459 
Additional paid-in capital  111,405   109,008   106,916 
Retained earnings  155,080   143,557   119,228 
Treasury stock, at cost – 9.7 million, 8.5 million and 8.0 million shares at July 29, 2017, January 28, 2017 and July 30, 2016, respectively.  (151,507)  (136,491)  (127,140)
Total stockholders’ equity  115,442   116,535   99,463 
             
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $198,286  $189,593  $169,083 



Francesca’s Holdings Corporation
Consolidated Statements of Cash Flows
(In thousands)

  Twenty-Six Weeks Ended 
    July 29, 2017        July 30, 2016   
Cash Flows Provided by Operating Activities:        
Net income $11,596  $17,672 
Adjustments to reconcile net income to net cash provided by operating activities:                  
Depreciation and amortization  10,310   9,482 
Stock-based compensation expense  2,422   (857)
Excess tax benefit from stock-based compensation  -   (6)
Loss on disposal of assets  233   155 
Deferred income taxes  (497)  (1,315)
Impairment charges  100   - 
Changes in operating assets and liabilities:        
Accounts receivable  (12,538)  (1,205)
Inventories  (10,078)  (1,126)
Prepaid expenses and other assets  (1,978)  (55)
Accounts payable  16,864   2,599 
Accrued liabilities  (8,013)  (2,001)
Landlord incentives and deferred rent  33   2,121 
Net cash provided by operating activities  8,454   25,464 
         
Cash Flows Used in Investing Activities:        
Purchases of property and equipment  (12,890)  (11,149)
Other  -   8 
Net cash used in investing activities  (12,890)  (11,141)
         
Cash Flows Used in Financing Activities:        
Repurchases of common stock  (15,326)  (44,812)
Taxes paid related to net settlement of equity awards  (142)  - 
Proceeds from the exercise of stock options  -   280 
Excess tax benefit from stock-based compensation  -   6 
Net cash used in financing activities  (15,468)  (44,526)
         
Net decrease in cash and cash equivalents  (19,904)  (30,203)
Cash and cash equivalents, beginning of year  53,202   56,224 
Cash and cash equivalents, end of period $33,298  $26,021 
         
Supplemental Disclosures of Cash Flow Information:        
Cash paid for income taxes $23,742  $9,175 
Interest paid $97  $95 


Francesca’s Holdings Corporation
Supplemental Information

Quarterly Sales by Merchandise Category

 Thirteen Weeks Ended    
 July 29, 2017 July 30, 2016 Variance
 In USD As a %
   of Sales  		 In USD As a %
   of Sales  		   In Dollars   %
 (in thousands, except percentages)    
Apparel (1)$  65,396 54.6% $  62,367 54.1% $  3,029  5%
Jewelry   25,560 21.4%    25,368 22.0%    192  1%
Accessories (1)   14,735 12.3%    13,850 12.0%    885  6%
Gifts   12,836 10.7%    13,209 11.5%    (373) (3)%
Merchandise sales         118,527 99.0%    114,794 99.6%    3,733  3%
Others (2)   1,180 1.0%  466 0.4%    714  153%
 $  119,707 100.0% $  115,260 100.0% $  4,447  4%

_____________
(1)       In the first quarter of fiscal 2017, swimwear was reclassified out of accessories to apparel.  To facilitate comparability, prior year amounts were reclassified.
(2)       Includes gift card breakage income, shipping and change in return reserve.


Quarterly Comparable Sales

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


Boutique Count

 Twenty-Six Weeks Ended
July 29, 2017		   Fiscal Year Ended  
January 28, 2017		 Twenty-Six Weeks Ended
July 30, 2016		 
Number of boutiques open at the beginning of period      671 616 616 
Boutiques opened28 64 41 
Boutiques closed(7)  (9)  (5)
Number of boutiques open at the end of period692 671 652 
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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