francesca's® Reports Third Quarter Fiscal Year 2019 Financial Results

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  • Comparable sales increased 1%
  • Net sales were relatively flat at $95.5 million
  • Loss per share was $1.76 compared to $5.59 in the same period last year
  • Adjusted loss per share was $1.12 compared to $2.08 in the same period last year (see Non-GAAP Information below)

HOUSTON, Dec. 10, 2019 (GLOBE NEWSWIRE) -- Francesca's Holdings Corporation FRAN today reported financial results for the third quarter ended November 2, 2019. 

Michael Prendergast, Interim CEO, stated, "We were pleased with our third quarter results which reflect our progress in the execution of our turnaround plan. The strides we have made in building a foundation to execute a fast fashion model through a flatter and more nimble organization led to an inflection point in our comparable sales. We believe that the high single digit growth in conversion rate is a clear illustration that our merchandising strategy is resonating with our guests; however, this was largely offset by softer traffic trends. We have taken steps to reorganize our marketing and e-commerce teams in order to more effectively execute our strategies and we are encouraged by the early results of our initial website optimization and email strategy.  In addition, based on our inventory planning and analysis, we determined that we have operated with less than optimal inventory levels in recent years, and therefore, have increased our inventory to align more appropriately with our holiday season plans."     

Mr. Prendergast continued, "Overall, we are highly encouraged by our results, which further increases our confidence that we are quickly moving in the right direction with our turnaround plan. We look forward to building on these successes and driving positive momentum in our business through the holiday season and beyond."

THIRD QUARTER RESULTS

Net sales were relatively flat at $95.5 million in the third quarter of fiscal year 2019 compared to the prior year quarter.  Comparable sales increased 1% due to higher boutique conversion rate and an increase in average units sold per transaction.  This increase was offset by net sales associated with the net decrease in boutique count during the thirteen weeks ended November 2, 2019 compared to the same prior year quarter. The Company opened one new boutique and closed five underperforming boutiques during the third quarter, bringing its total boutique count to 714 at the end of the quarter.     

Gross profit, as a percent of net sales, increased to 39.3% from 35.3% in the prior year quarter.  The 400 basis points improvement in gross profit was primarily due to higher merchandise margins as a result of lower inventory reserve and less marked-out-of-stock charges. Additionally, occupancy costs decreased due to lower depreciation expense associated with boutiques impaired in fiscal year 2018 and prior year demolition costs associated with boutique remodels.

Selling, general and administrative (SG&A) expenses decreased 4% to $40.4 million from $42.3 million in the prior year quarter. Adjusted SG&A in the third quarter of fiscal 2019 was $39.7 million and excludes $0.4 million in other payroll costs associated with our turnaround plan and $0.3 million of net charges related to an employee departure. There were no non-GAAP adjustments for SG&A in the third quarter of fiscal 2018.

The $2.6 million decrease in adjusted SG&A in the third quarter of fiscal year 2019 versus the comparable prior year period was primarily due to a $1.6 million decrease in boutique payroll and supplies as well as a $1.4 million decrease in corporate payroll and related expenses associated with the Company's cost reduction initiatives under the turnaround plan. These decreases were partially offset by a $0.6 million increase in short term incentive bonus expense.

Non-cash asset impairment charges totaled $1.4 million in the third quarter of fiscal year 2019 compared to $14.4 million in the comparable prior year quarter. The non-cash impairment charges in the third quarter of fiscal year 2019 were mostly related to the write down of operating lease right-of-use assets for four underperforming boutiques while the prior year impairment charges were mostly related to the write down of property and equipment for 129 underperforming boutiques. 

Loss from operations was $4.2 million compared to $23.1 million in the prior year quarter.  Excluding the $0.7 million of adjustments noted above for adjusted SG&A and the non-cash asset impairment charges for both periods, adjusted loss from operations in the third quarter of fiscal year 2019 was $2.2 million compared to adjusted loss from operations for the prior year quarter of $8.6 million.

Income tax expense was $0.4 million in the thirteen weeks ended November 2, 2019 compared to an income tax benefit of $6.7 million in the comparable prior year period.  The change in income tax expense (benefit) was due to the Company's estimate of its annualized taxable income for fiscal year 2019, after consideration of net operating loss carryover, while the prior year income tax benefit was due to the Company being in a net loss position. The Company continues to provide a full valuation allowance on its net deferred tax assets.

Net loss for the third quarter was $5.1 million, or $1.76 loss per share, compared to a net loss of $16.2 million, or $5.59 loss per share, in the prior year quarter. Adjusted net loss for the third quarter of fiscal year 2019 was $3.3 million, or $1.12 adjusted loss per share compared to adjusted net loss for the prior year quarter of $6.0 million, or $2.08 adjusted loss per share.

Please see the reconciliation of adjusted SG&A, adjusted loss from operations, adjusted loss before income tax expense, adjusted income tax expense, adjusted net loss, and adjusted loss per share, each a non-GAAP financial measure, to the most directly comparable GAAP financial measure provided in the tables at the end of this press release.

BALANCE SHEET SUMMARY

Total cash and cash equivalents at the end of the third quarter ended November 2, 2019 were $21.2 million compared to $10.7 million at the end of the comparable prior year quarter. On November 2, 2019, the Company had combined outstanding borrowings of $20.0 million and a combined borrowing base availability of $24.0 million under its Asset Based Revolving Credit Facility and Term Loan.

The Company ended the quarter with $48.0 million of inventory on hand compared to $40.4 million at the end of the comparable prior year period. Average ending inventory per boutique increased 23% as the Company accelerated inventory receipts in order to align our inventory levels with our holiday season plans.

CEO SEARCH UPDATE

The Board of Directors has hired an executive search firm to initiate a formal search for a permanent Chief Executive Officer. Michael Prendergast will remain interim Chief Executive Officer during this process and will continue to be engaged with the Company through a reasonable transition period once a new Chief Executive Officer is hired. 

Conference Call Information

A conference call to discuss the third quarter fiscal year 2019 results is scheduled for December 10, 2019 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 December 17, 2019. To access the telephone replay, listeners should dial 1-844-512-2921. The access code for the replay is 13696995. 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 the Company's 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 are expected. These risks and uncertainties include, but are not limited to, the following: the risk that the Company may not be able to successfully execute its turnaround plan; the risk that the Company may not be able to successfully attract and integrate a new permanent Chief Executive Officer; the risk that the Company may not be able to identify suitably qualified and experienced candidates to add to its Board of Directors; the risk that the Company 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 its business model; the Company's ability to attract a sufficient number of customers to its boutiques or sell sufficient quantities of its merchandise through its ecommerce website; the Company's ability to successfully open, close, refresh, and operate our boutiques each year; the Company's ability to efficiently source and distribute merchandise quantities necessary to support its operations; and the impact of potential tariff increases or new tariffs. For additional information regarding these and other risks and uncertainties that could cause actual results to differ materially from those contained in the Company's forward-looking statements, please refer to "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended February 3, 2019 filed with the SEC on May 3, 2019 and any risk factors contained in subsequent quarterly and annual reports it files with the SEC. The Company undertakes no obligation to publicly update or revise any forward-looking statement.

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Non-GAAP Information

This press release includes non-GAAP adjusted SG&A, adjusted loss from operations, adjusted loss before income tax expense, adjusted income tax expense, adjusted net loss, and adjusted loss per share, each of which are non-GAAP financial measures. The Company believes these non-GAAP financial measures not only provides the Company's management with comparable financial data for internal financial analysis but also provides meaningful supplemental information to investors. Specifically, these non-GAAP financial measures allow investors to better understand the performance of the business and facilitate a meaningful evaluation of the Company's third quarter fiscal year 2019 SG&A, loss from operations, loss before income tax expense, income tax expense, net loss and loss per share on a comparable basis with the Company's third quarter fiscal year 2018 results. These non-GAAP measures should be considered a supplement to, and not as a substitute for or superior to, financial measures calculated in accordance with GAAP.

About Francesca's Holdings Corporation

francesca's® is a 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. As of today, francesca's® operated approximately 714 boutiques in 47 states throughout the United 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.

CONTACT: 
ICR, Inc. 
Jean Fontana 
646-277-1214
Company
Cindy Thomassee 832-494-2240
Kate Venturina 713-864-1358 ext. 1145
IR@francescas.com
  


                         

Francesca's Holdings Corporation
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts, Percentages and Basis Points)

 Thirteen Weeks Ended
      
 November 2, 2019 November 3, 2018
 Variance 
 In USD As a %
of Net
Sales(1)
 In USD As a %
of Net
Sales(1)
  In USD % Basis
Points
Net sales$  95,503  100.0% $  95,375  100.0% $  128  0%   - 
Cost of goods sold and occupancy costs 57,985  60.7%  61,730  64.7%  (3,745) (6)%   (400)
Gross profit 37,518  39.3%  33,645  35.3%  3,873  12%   400 
Selling, general and administrative expenses 40,401  42.3%  42,286  44.3%  (1,885) (4)% (200)
Asset impairment charges 1,356  1.4%  14,419  15.1%  (13,063) (91)% (1,370)
Loss from operations (4,239) (4.4)%  (23,060) (24.2)%  (18,821) (82)% (1,970)
Interest expense   394  0.4%    51  0.1%  343  673% 40 
Other expense (income)   107  0.1%  (151) (0.2)%  258  171% 30 
Loss before income tax expense (benefit) (4,740) (5.0)%  (22,960) (24.1)%  (18,220) (79)% (1,910)
Income tax expense (benefit)   395  0.4%  (6,737) (7.1)%    7,132  106%   750 
Net loss$  (5,135) (5.4)% $  (16,223) (17.0)% $(11,088) (68)% (1,160)
 
________________________
            (1)
 Percentage totals or differences in the above table may not equal the sum or difference of the components due to rounding. 
                        
Loss per share*$  (1.76)   $  (5.59)         
Weighted average share count* 2,910     2,900          
Comparable sales change 1%
  (14)%       
               
 Thirty-Nine Weeks Ended      
 November 2, 2019 November 3, 2018 Variance
 In USD As a %
of Net
Sales(1)
 In USD As a %
of Net
Sales(1)
  In USD % Basis
Points
Net sales$288,600  100.0% $308,805  100.0% $(20,205) (7)% - 
Cost of goods sold and occupancy costs 180,252  62.5%  192,690  62.4%  (12,438) (6)% 10 
Gross profit 108,348  37.5%  116,115  37.6%  (7,767) (7)% (10)
Selling, general and administrative expenses 119,330  41.3%  128,298  41.5%  (8,968) (7)%   (20)
Asset impairment charges 1,545  0.5%  14,567  4.7%  (13,022) (89)% (420)
Loss from operations (12,527) (4.3)%  (26,750) (8.7)%  (14,223) (53)% (430)
Interest expense   719  0.2%    280  0.1%  439  157% 20 
Other income (265) (0.1)%  (403) (0.1)%  (138) (34)% - 
Loss before income tax expense (benefit) (12,981) (4.5)%  (26,627) (8.6)%  (13,646) (51)% (410)
Income tax expense (benefit)   491  0.2%  (6,973) (2.3)%    7,464  107% 240 
Net loss$(13,472) (4.7)% $(19,654) (6.4)% $  6,182  (31)% 170 
 
________________________
            (1)
 Percentage totals or differences in the above table may not equal the sum or difference of the components due to rounding. 
               
Loss earnings per share*$  (4.64)   $  (6.78)         
Weighted average share count*   2,906      2,900          
Comparable sales change (6)%
  (15)%       

            *Reflects the 12-to-1 reverse stock split that became effective on July 1, 2019.



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

  November 2, 2019  February 2, 2019  November 3, 2018 
ASSETS            
Current assets:            
Cash and cash equivalents $21,154  $20,103  $10,720 
Accounts receivable  5,292   16,309   17,134 
Inventories  47,983   30,478   40,404 
Prepaid expenses and other current assets  12,024   10,357   10,854 
Total current assets  86,453   77,247   79,112 
Operating lease right-of-use assets, net  227,204   -   - 
Property and equipment, net  56,653   71,207   79,842 
Deferred income taxes  -   -   15,554 
Other assets, net  3,471   4,588   4,958 
             
TOTAL ASSETS $373,781  $153,042  $179,466 
             
LIABILITIES AND STOCKHOLDERS' EQUITY            
Current liabilities:            
Accounts payable $22,488  $24,330  $37,436 
Accrued liabilities  13,929   11,333   12,264 
Operating lease liabilities  48,845   -   - 
Total current liabilities  85,262   35,663   49,700 
Operating lease liabilities  211,123   -   - 
Landlord incentives and deferred rent  -   33,989   34,997 
Long-term debt  18,904   10,000   - 
Other liabilities  552   -   - 
Total liabilities  315,841   79,652   84,697 
             
Commitments and contingencies            
             
Stockholders' equity:            
Common stock – $0.01 par value, 80.0 million shares authorized; 4.0 million, 3.9 million and 3.9 million issued at November 2, 2019, February 2, 2019 and November 3, 2018*  40   39   40 
Additional paid-in capital*  112,967   113,121   113,225 
Retained earnings  104,954   120,251   141,525 
Treasury stock, at cost – 0.9 million shares at each of November 2, 2019, February 2, 2019 and November 3, 2018*  (160,021)  (160,021)  (160,021)
Total stockholders' equity  57,940   73,390   94,769 
             
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $373,781  $153,042  $179,466 

*Reflects the 12-to-1 reverse stock split that became effective on July 1, 2019.



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

  Thirty-Nine Weeks Ended 
  November 2, 2019  November 3, 2018 
Cash Flows (Used in) Provided by Operating Activities:        
Net loss $(13,472) $(19,654)
Adjustments to reconcile net loss to net cash provided by operating activities:        
Depreciation and amortization  16,698   18,742 
Stock-based compensation expense  403   1,440 
Loss on sale of assets  99   633 
Asset impairment charges  1,545   14,567 
Deferred income taxes  -   (6,848)
Other  161   - 
Changes in operating assets and liabilities:        
Accounts receivable  11,017   (492)
Inventories  (17,505)  (13,588)
Prepaid expenses and other assets  (1,566)  (2,983)
Accounts payable  257   16,966 
Accrued liabilities  2,596   359 
Operating lease right-of-use assets and lease liabilities, net  (4,449)  - 
Landlord incentives and deferred rent  -   (3,340)
Net cash (used in) provided by operating activities  (4,216)  5,802 
         
Cash Flows Used in Investing Activities:        
Purchases of property and equipment  (3,299)  (21,885)
Net cash used in investing activities  (3,299)  (21,885)
         
Cash Flows Provided by (Used in) Financing Activities:        
Proceeds from borrowings under the revolving credit facility  15,000   - 
Proceeds from borrowings under the term loan  10,000   - 
Repayments of borrowings under the revolving credit facility  (15,000)  - 
Payment of debt issuance costs  (1,434)  (471)
Taxes paid related to net settlement of equity awards  -   (77)
Repurchases of common stock  -   (3,980)
Net cash provided by (used in) financing activities  8,566   (4,528)
         
Net increase (decrease) in cash and cash equivalents  1,051   (20,611)
Cash and cash equivalents, beginning of year  20,103   31,331 
Cash and cash equivalents, end of period $21,154  $10,720 
         
Supplemental Disclosures of Cash Flow Information:        
Cash (received) paid for income taxes $(8,747) $244 
Interest paid $475  $121 
         



Francesca's Holdings Corporation
Supplemental Information

Quarterly Sales by Merchandise Category

 Thirteen Weeks Ended  
 November 2, 2019 November 3, 2018 Variance
 In USD As a %
of Sales
 In USD As a %
of Sales
 In Dollars %
  
 (in thousands, except percentages)
Apparel$   46,523 48.7% $  48,397 50.7% $(1,874) (4)%
Jewelry 26,073 27.3%  22,855 24.0%  3,218  14%
Accessories 15,147 15.9%  14,844 15.6%  303  2%
Gifts 7,064 7.4%  8,685 9.1%  (1,621) (19)%
Others(1) 696 0.7%  594 0.6%  102  17%
Net sales$  95,503 100.0% $  95,375 100.0%  128  0%

(1)       Includes gift card breakage income, shipping and change in return reserve.

Quarterly Comparable Sales                                                                                                                   

 FY 2019 FY 2018 FY 2017
Q1(13)% (16)% (5)%
Q2(5)% (13)% (3)%
Q31% (14)% (18)%
Q4  (14)% (15)%
Fiscal year  (14)% (11)%

Boutique Count

 Thirty-Nine
Weeks Ended
  

Fiscal Year Ended
 Thirty-Nine
Weeks Ended
 
 November 2, 2019 February 2, 2019 November 3, 2018 
Number of boutiques open at the beginning of period727 721 721 
Boutiques opened5 32 31 
Boutiques closed(18)(26)(14)
Number of boutiques open at the end of period714 727 738 
       



Francesca's Holdings Corporation
GAAP to Non-GAAP Reconciliation
(In Thousands, Except Per Share Amounts and Percentages)

Thirteen Weeks Ended November 2, 2019

 As
Reported

(GAAP)
 Other
Payroll
Costs(1)
 Net Charges
Related to
Employee
Departure(2)
 Asset
Impairment
Charges(3)
 Adjusted
(Non-GAAP)
SG&A$  40,401  $ (386) $   (301) $   -   $   39,714 
Loss from operations (4,239)  386   301   1,356   (2,196)
Loss before income tax (4,740)  386   301   1,356   (2,697)
Income tax expense(4) 395   32   25   113   565 
Net loss (5,135)  354   276   1,243   (3,262)
Loss per share (1.76)  0.12   0.09   0.43   (1.12)
  1. Consists of other payroll costs associated with our turnaround plan.
  2. Consists of net charges associated with an employee departure.
  3. Non-cash asset impairment charges mostly associated with the write down of operating lease right-of-use asset for four underperforming boutiques for which the remaining carrying value of their assets are no longer expected to be recoverable.
  4. The income tax impact of each adjustment was calculated using the effective income tax rate of 8.3% during the thirteen weeks ended November 2, 2019.


Thirteen Weeks Ended November 3, 2018

 As Reported
(GAAP)
Asset Impairment
Charges(1)
 Adjusted
(Non-GAAP)
Loss from operations$  (23,060)$  14,419 $  (8,641)
Loss before income tax (22,960) 14,419  (8,541)
Income tax benefit (2)  (6,737) 4,231  (2,506)
Net loss (16,223) 10,188  (6,035)
Loss per share(3)  (5.59)   3.51   (2.08)
  1. Non-cash asset impairment charges mostly associated with the write down of property and equipment for 129 underperforming boutiques for which the remaining carrying value of their assets are no longer expected to be recoverable.
  2. The income tax impact of the adjustment was calculated using the effective income tax rate of 29.3% during the thirteen weeks ended November 3, 2018.
  3. Reflects the 12-to-1 reverse stock split that became effective on July 1, 2019.

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