HOUSTON, March 27, 2018 (GLOBE NEWSWIRE) Francesca’s Holdings Corporation (Nasdaq:FRAN) today reported financial results for the fourth quarter and fiscal year ended February 3, 2018.  

Steve Lawrence, President and CEO, stated, “While 2017 was a challenging year for francesca’s, it was also a year where we put in place a number of strategic investments that we believe will serve as building blocks for our future. We have also strengthened our focus on the merchandising principles that drove our past success. In 2018, we believe that we will return to ‘surprising and delighting’ our guests with our improved merchandising assortment and boutique experience.  We expect that as our initiatives begin to take hold and we start to fully leverage the investments we made last year, we will see sequential quarter to quarter comparable sales improvement through the year.’’

FOURTH QUARTER RESULTS

Net sales decreased 5% to $138.5 million from $146.3 million in the comparable prior year quarter.  This decrease was due to a 15% decrease in comparable sales compared to flat in the comparable prior year quarter.  The decrease in comparable sales was primarily due to a decline in boutique conversion rate and traffic, as our merchandise did not resonate with our guests. This decrease was partially offset by the sales from 50 net new boutiques since the prior year quarter and $5 million in sales for the 53^rd week of fiscal year 2017. The Company opened nine new boutiques and closed two boutiques during the quarter, bringing the total boutique count to 721 at the end of the quarter.     

Gross profit, as a percent of net sales, decreased to 43.9% from 46.4% in the prior year quarter.  This unfavorable variance was principally due to 280 basis points deleveraging of occupancy costs, partially offset by 30 basis points increase in merchandise margin.   

Selling, general and administrative expenses increased 14% to $50.5 million from $44.3 million in the prior year quarter. This increase was primarily due to higher boutique and corporate payroll to support the larger boutique base and ecommerce operations, as well as increases in professional fees, software costs and marketing due to the continued investments in marketing, technology and infrastructure.  These increases were partially offset by lower performance-based incentive expenses.

Income from operations was $10.4 million, or 7.5% of net sales, compared to $23.6 million, or 16.1% of net sales, in the prior year quarter. 

The effective tax rate for the fourth quarter was 63.9% compared to 37.7% in the comparable prior year quarter. Income tax expense included a non-cash charge of $3.3 million, or $0.09 per diluted share, as a result of the remeasurement of the Company’s net deferred tax assets using the lower federal corporate income tax rate under the Tax Cuts and Jobs Act.

Net income for the fourth quarter was $3.7 million, or $0.10 diluted earnings per share, and, excluding the remeasurement of net deferred tax assets, adjusted net income was $7.1 million, or $0.20⁽¹⁾ adjusted diluted earnings per share.  This compares to prior year quarter net income of $14.6 million, or $0.39 diluted earnings per share.

⁽¹⁾ Diluted earnings per share components may not equal the sum due to rounding.

FULL YEAR RESULTS

Net sales decreased 3% to $471.7 million from $487.2 million in the prior year.  This decrease was due an 11% decrease in comparable sales compared to a 2% increase in the prior year. This decrease was partially offset by the sales from 50 net new boutiques since the prior year-end and $5 million in sales for the 53^rd week of fiscal year 2017. 

During fiscal year 2017, the Company opened 60 new boutiques and closed 10 boutiques compared to 64 new boutiques opened and nine boutiques closed during fiscal year 2016.

Net income for fiscal year 2017 totaled $15.6 million, or $0.43 diluted earnings per share, compared to $42.0 million, or $1.09 diluted earnings per share, in the prior year. 

Excluding the $3.3 million, or $0.09 per diluted share, charge related to the remeasurement of the Company’s net deferred tax assets, adjusted net income for fiscal year 2017 totaled $18.9 million, or adjusted diluted earnings per share of $0.52. This compares to prior year adjusted net income of $40.8 million, or adjusted diluted earnings per share of $1.06, which excludes the $2.0 million, or $0.03 per diluted share, net benefit in connection with the resignation of the Company’s former Chairman, President and CEO.

BALANCE SHEET SUMMARY

Total cash and cash equivalents at the end of the quarter were $31.3 million compared to $53.2 million at the end of the comparable prior year quarter and no debt.  During the fourth quarter, the Company repurchased 248,000 shares of its common stock at a cost of $1.5 million, bringing the Company’s total year-to-date repurchases to 1,861,000 shares at a cost of $20.0 million.

The Company ended the quarter with $26.8 million of inventory on hand compared to $24.0 million at the end of the comparable prior year period. Average ending inventory per boutique increased 4% versus the prior year period.  Prior year inventory levels were at an historic low as the Company marked inventory out-of-stock in order to implement the in-season clearance strategy. 

FIRST QUARTER AND FISCAL YEAR 2018 GUIDANCE

For the first quarter ending May 5, 2018, net sales are expected to be in the range of $100 million to $103 million, assuming a 13% to 15% decrease in comparable sales compared to the prior year decrease of 5%. The Company plans to open 20 to 25 new boutiques and close approximately 5 existing boutiques during the first quarter. Loss per share is expected to be in the range of ($0.10) to ($0.13).

For the fiscal year ending February 2, 2019, net sales are expected to be in the range of $485 million to $499 million; assuming a low-single digit decrease in comparable sales compared to the prior year decrease of 11%. The Company expects to open approximately 35 boutiques and close approximately 20 boutiques in fiscal year 2018, compared to 60 new boutiques opened and 10 boutiques closed in fiscal year 2017. Diluted earnings per share are expected to be in the range of $0.53 to $0.63 compared to prior year of $0.43.  This also compares to prior year adjusted diluted earnings per share of $0.52 which excludes the $3.3 million, or $0.09 per diluted share, charge related to the remeasurement of the Company’s deferred tax assets.  The number of average diluted shares for the full year assumed in guidance is 35.5 million shares. The effective tax rate is estimated to be 26% for 2018.

Capital expenditures for fiscal year 2018 are expected to be approximately $30 million.

Conference Call Information

A conference call to discuss the fourth quarter and fiscal year 2017 results is scheduled for March 27, 2018, 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 April 3, 2018. To access the telephone replay, listeners should dial 1-844-512-2921. The access code for the replay is 8258995. 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.

SEC Regulation G – Non-GAAP Information

This press release includes non-GAAP adjusted net income and adjusted diluted earnings per share, each a non-GAAP financial measure. The Company believes these non-GAAP financial measures not only provides our 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 our quarterly and fiscal year 2017 net income and diluted earnings per share on a comparable basis with our quarterly and fiscal year 2016 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 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 721 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

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