Francesca's Downgraded to Strong Sell on Poor Q2 Results - Analyst Blog

Zacks Investment Research downgraded Francesca's Holdings Corp. (FRAN) to a Zacks Rank #5 (Strong Sell) on Sep 13 following disappointing second-quarter fiscal 2014  results announced last week.

Why the Downgrade?

Francesca's witnessed sharp downward estimate revisions after it reported disappointing second-quarter fiscal 2014 results on Sep 12.

Francesca's reported second-quarter earnings of 24 cents per share, missing the Zacks Consensus Estimate of 27 cents by 11.1%. Earnings also declined 27.3% from the year-ago results due to soft comps and weak margins.

Despite increasing 9% year over year to $97.3 million, net sales missed the Zacks Consensus Estimate by 2.7% and fell short of management's expected range of $98–$103 million due to lower-than-expected comps.

Gross margin shrank 670 basis points (bps) to 46.6% year over year due to a 500 bps decrease in merchandise margin and 170 bps higher fixed occupancy costs.

Management does not expect comps to improve in the second half of the year. For fiscal 2014, the company expects earnings per share in the range of 88 to 98 cents compared with $1.02 in fiscal 2013. (Read: Francesca's Misses on Q2 Earnings & Sales; Q3 Outlook Low)

Almost all the estimates for fiscal 2014 were revised downward following the weak second-quarter results. The Zacks Consensus Estimate for third-quarter 2014 slipped 23.1% to 20 cents per share from 26 cents over the last 7 days. For 2014, the Zacks Consensus Estimate slipped 9.3% to $1.17 per share over the same time frame.

Other Stocks to Consider

Some better-ranked stocks in the apparel industry worth considering are Carter's Inc. (CRI), Iconix Brand Group Inc. (ICON) and Rocky Brands Inc. (RCKY). All these stocks have a Zacks Rank #2 (Buy).