However, there are some clear blemishes as it relates to both the Q4 report and its guidance. First, its 8.7% revenue growth for the quarter was its lowest growth rate in at least nine quarters. Its comparable sales were flat due to mark-downs and mark-out-of-stock charges, illustrating the challenging retail market it is operating in. So, its revenue growth was completely driven by the addition of 55 net new stores (total of 671) since the prior year period and a 42% increase in e-commerce sales. Of course, there are costs associated with opening new stores, so, it is highly preferable if a decent portion of growth is being generated from existing stores. But, in the current environment, FRAN is certainly not alone as many brick-and-mortar retailers are struggling to pull in customers.
These aforementioned mark-downs also caused its gross margin to decline to 46.4% from 49.1% as it looked to clean out inventory. Consequently, operating income fell by 2% year/year to $23.6 million. On the positive side, FRAN's cash flow from operations increased by 15% to $72.2 million.
FRAN's guidance is indicative of the current challenges in the retail sector. For 1Q18, it issued downside EPS and revenue guidance of $0.12-$0.16 vs. the $0.21 consensus, and, $111-$114 million vs. the $117.4 million consensus. It also guided fo comps to be down low single digits to flat. Clearly not a bullish outlook, but, so far, investors seem willing to look past its Q1 outlook and focus more on its FY18 guidance. There, FRAN issued inline EPS and revenue guidance of $1.11-$1.21 and $527-$533 million. The company sees comps improving to flat to up low single digits while it also expects to open 60-65 more boutiques. With this guidance, it appears FRAN is expecting conditions to improve later in the year. Also, investors might be mindful of the fact that FRAN has consistently outperformed initial expectations.
All in all, there were some good and encouraging aspects to the report. Coupled with low expectations heading into the print, the stock was positioned for a decent pop. More broadly speaking, FRAN's results and guidance illustrate that the retail sector is still challenging and that growth is difficult to come by.