Francesca's (FRAN 3.95, -1.93, -32.85%) sits at all-time lows at the
moment, lower by 33% on Tuesday after this morning’s second quarter results and
guidance disappointed across the board.
The boutique apparel, jewelry, and accesories retailer’s second quarter missed on both the top and bottom lines with earnings per share (EPS) of $0.01 on revenue declines of about 5.6% to $113.03 mln due partly to a worse-than-expected 13% decrease in comparable sales. This follows a 3% decrease in comparable sales for the prior year quarter.
Francesca’s highlighted that the decline in comparable sales was primarily due to a decline in boutique traffic and conversion rate, although conversion did improve sequentially from month-to-month during the quarter. Comparable sales declines were partially offset by sales from 50 net new boutiques added since the same period last year. The company opened four new boutiques and closed six boutiques during the quarter, bringing the total boutique count to 742 at the end of the quarter.
Gross profit, as a percent of net sales, decreased to 39.0% from 46.3% year/year. This unfavorable variance was due to a decrease in merchandise margin and higher occupancy costs. Merchandise margin decreased versus last year due to higher markdowns and marked-out-of-stock charges as a result of Francesca’s in-season clearance strategy and in order to transition the boutiques to their new merchandising direction.
Inventory on hand totaled $31.9 mln at the end of the second quarter compared to $34.0 mln at the end of the comparable prior year quarter. Average ending inventory per boutique decreased 13% versus the comparable prior year period as the company continues to diligently control inventory through enhanced inventory management processes.
As if the disappointing Q2 results weren’t enough, Francesca’s third quarter and fiscal year 2019 guidance wasn’t up to snuff either. Specifically, the company sees worse than expected Q3 net sales in the range of $105-110 mln, assuming a comparable sales decrease of 3-8% compared to the prior year decrease of 18%. The company expects a diluted loss per share of $0.03 to a diluted earnings per share of $0.02.
Francesca’s also drastically lowered its FY19 diluted EPS guidance, now expecting $0.15-0.25 vs the prior outlook which was for $0.53-0.56. Management also expects net sales to be in the range of $453-463 mln, down from the previous $485-499 mln expectation; assuming a comparable sales decrease of 8-10%, worse than previous guidance which called for a low-single digit decline, compared to the prior year decrease of 11% in comparable sales.
All told, today's move takes FRAN to worse than -40% YTD vs the broader retail sector's (XRT 52.14, +0.28, +0.54%) 14.5% gains on the year.
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