June 9, 2016

francesca's® Reports First Quarter Fiscal Year 2016 Financial Results

  • Net sales increased 12% to $106.1 million
  • Comparable sales increased 2%, including an ecommerce comparable sales increase of 38%
  • Diluted earnings per share was $0.18

HOUSTON, June 09, 2016 (GLOBE NEWSWIRE) -- Francesca's Holdings Corporation (NASDAQ:FRAN) today reported financial results for the first quarter ended April 30, 2016.

Richard Kunes, Interim Chairman, President, and CEO stated, "We delivered diluted earnings per share of $0.18, which was within our guidance range, despite lower than expected sales results particularly around Easter."

Commenting on the second quarter and full year 2016 outlook, Mr. Kunes noted that, "We continue to see weakness in the overall retail environment particularly in apparel with declines in traffic and heightened promotions. Our second quarter and updated full year guidance reflects this recent trend and our assumption that the environment will not further deteriorate in the back half of the year.  We remain committed to our Vision 2020 plan as our executive team continues to focus on enhancing brand awareness, delivering a compelling merchandise offering and developing our ecommerce strategy, while continuing to provide a unique and exceptional guest experience in our boutiques.  We will maintain our focus on conversion, inventory management and expense control while always maintaining our goal of achieving long-term, profitable, sustainable growth."

FIRST QUARTER RESULTS

Net sales increased 12% to $106.1 million from $95.0 million in the comparable prior year period.  This increase was due to a 2% increase in comparable sales driven by an increase in the number of transactions both at the boutiques and on-line as well as the opening of 48 net new boutiques since the comparable prior year period.  We opened 22 new boutiques and closed one underperforming boutique during the quarter bringing our total boutique count to 637 as of April 30, 2016.  Ecommerce comparable sales increased 38% to $5.2 million driven by increased website traffic and conversion rates.

Gross profit, as a percentage of net sales, decreased to 46.3% from 47.3% in the prior year quarter.  This decrease is attributable to 60 basis points decrease in merchandise margin and 30 basis points deleveraging of occupancy costs.  The decrease in merchandise margin was due to increased clearance activity and sales mix changes during the quarter compared to the same period last year.

Selling, general and administrative expenses ("SG&A") increased 14% to $37.7 million from $33.0 million in the prior year quarter. The increase in SG&A expenses is primarily due to increased corporate and boutique payroll expense to support the larger boutique base and strategic initiatives.  Additionally, stock-based compensation expense increased compared to last year in connection with the performance-based restricted stock awarded to executives and certain key employees in March 2016 aligning incentive compensation with the Vision 2020 plan.  Professional fees were also higher in support of various strategic and operational initiatives.

Income from operations was $11.5 million, or 10.8% of net sales, compared to $11.9 million, or 12.5% of net sales, in the prior year quarter.

BALANCE SHEET SUMMARY

Total cash and cash equivalents at the end of the quarter were $35.4 million compared to $46.1 million at the end of the comparable prior year quarter.

We ended the quarter with $34.8 million of inventory on hand compared to $31.4 million at the comparable prior year period.  Average ending inventory per boutique increased by 2% versus the comparable prior year period.

During the first quarter, we repurchased approximately 925,000 shares of our common stock at a cost of $16.8 million.  Subsequent to the end of the quarter through May 31, 2016, we repurchased an additional 728,000 shares of our common stock at a cost of $9.5 million.

SECOND QUARTER AND FISCAL YEAR 2016 GUIDANCE

For the second quarter ending July 30, 2016, net sales are expected to be in the range of $106 million to $110 million; assuming a mid-single digit decrease in comparable sales compared to the prior year decrease of 4%. The Company plans to open 15 to 20 new boutiques and close one to five boutiques during the second quarter. Diluted earnings per share are expected to be in the range of $0.16 to $0.19, which includes a $0.04 per share impact as the result of the reversal of previously accrued stock-based compensation expense related to the forfeiture of unvested awards granted to our previous Chairman, President and Chief Executive Officer who resigned on May 15, 2016.

For the full year ending January 28, 2017, we now expect net sales to be in the range of $460 million to $480 million; assuming a flat to a low-single digit decrease in comparable sales compared to a prior year comparable sales increase of 3%. The Company expects to open 50 to 60 boutiques and close five to ten underperforming boutiques in fiscal year 2016 compared to 83 new boutiques opened and six boutiques closed in fiscal year 2015.  Diluted earnings per share are now expected to be in the range of $0.86 to $0.96, which includes a $0.04 per share impact as the result of the reversal of previously accrued stock-based compensation expense related to the forfeiture of unvested awards granted to our previous Chairman, President and Chief Executive Officer who resigned on May 15, 2016.  The number of average diluted shares for the full year assumed in guidance is expected to be 39.6 million shares and reflects share repurchases through May 31, 2016. The effective tax rate is estimated to be 37.8%.

Capital expenditures for fiscal year 2016 are expected to be in the range of $28 million to $31 million.

Conference Call Information

A conference call to discuss the first quarter fiscal year 2016 results is scheduled for June 9, 2016, at 8:30 a.m. ET. A live webcast of the conference call will be available in the investor relations section of our website, www.francescas.com. A replay of the call will be available after the conclusion of the call and remain available until June 16, 2016. To access the telephone replay, listeners should dial 1-877-870-5176. The access code for the replay is 4229996. 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 our 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 we expected. These risks and uncertainties include, but are not limited to, the following: the risk that we cannot anticipate, identify and respond quickly to changing fashion trends and customer preferences; our ability to attract a sufficient number of customers to our boutiques or sell sufficient quantities of our merchandise through our ecommerce business; our ability to successfully open and operate new boutiques each year; and our ability to efficiently source; distribute additional merchandise quantities necessary to support our growth; and our ability to attract and integrate a new President and Chief Executive Officer. For additional information regarding these and other risks and uncertainties that could cause actual results to differ materially from those contained in our forward-looking statements, please refer to "Risk Factors" in our Annual Report on Form 10-K for the year ended January 30, 2016 filed with the Securities and Exchange Commission ("SEC") on March 25, 2016 and any risk factors contained in subsequent quarterly and annual reports we file with the SEC. We undertake no obligation to publicly update or revise any forward-looking statement.

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 and home.  Today francesca's® operates 646 boutiques in 48 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
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts and Percentages)

 Thirteen Weeks Ended
       
 April 30, 2016 May 2, 2015  Variance
 In USD As a % of Net Sales(1) In USD As a % of Net Sales(1) In USD % Basis Points
Net sales$106,113   100.0% $95,011   100.0% $11,102   12%  - 
Cost of goods sold and occupancy costs 56,983   53.7%  50,118   52.7%  6,865    14%  100 
Gross profit 49,130   46.3%  44,893   47.3%  4,237    9%  (100)
Selling, general and administrative expenses 37,666   35.5%  33,003   34.7%  4,663   14%  80 
Income from operations 11,464   10.8%  11,890   12.5%  (426)  (4)%  (170)
Interest expense (109)  (0.1)%  (110)  (0.1)%  1   1%  - 
Other income -   0.0%  (66)  (0.1)%  66   100%  10 
Income before income tax expense 11,355    10.7%  11,714   12.3%  (359)  (3)%  (160)
Income tax expense 4,274   4.0%  4,473   4.7%  (199)  (4)%  (70)
Net income$7,081    6.7% $7,241   7.6% $(160)  (2)%  (90)
(1)  Percentage totals or differences in the above table may not equal the sum or difference of the components due to rounding. 
              
Diluted earnings per share$0.18    $0.17         
Weighted average diluted share count 40,400     42,418         
               
Comparable sales change     2%          (2)%              




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

  April 30, 2016  January 30, 2016   May 2, 2015 
ASSETS            
Current assets:            
Cash and cash equivalents $35,421  $56,224  $46,119 
Accounts receivable  13,316   9,580   11,858 
Inventories  34,799   31,541   31,395 
Deferred income taxes  6,557   6,411   5,288 
Prepaid expenses and other current assets  6,649   7,013   5,547 
Total current assets  96,742   110,769    100,207 
Property and equipment, net  79,056   77,894   77,114 
Deferred income taxes  4,333   3,847   3,623 
Other assets, net  1,155   1,067   1,731 
             
TOTAL ASSETS $ 181,286  $193,577  $182,675 
             
LIABILITIES AND STOCKHOLDERS' EQUITY            
Current liabilities:            
Accounts payable $11,174  $14,305  $16,280 
Accrued liabilities  14,858   16,328   13,699 
Total current liabilities  26,032   30,633   29,979 
Landlord incentives and deferred rent   37,531   36,552   36,739 
Total liabilities  63,563   67,185   66,718 
             
Commitments and contingencies            
             
Stockholders' equity:            
Common stock - $.01 par value, 80.0 million shares authorized; 46.2 million, 45.9 million and 45.5 million shares issued at April 30, 2016, January 30, 2016 and May 2, 2015, respectively.  462   459    455 
Additional paid-in capital  108,737   107,693   105,000 
Retained earnings  108,637   101,556   70,645 
Treasury stock, at cost - 5.7 million, 4.8 million and 3.2 million shares held at each of April 30, 2016, January 30, 2016 and May 2, 2015, respectively.  (100,113)  (83,316)   (60,143)
Total stockholders' equity  117,723   126,392   115,957 
             
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $181,286  $193,577  $182,675 




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

  Thirteen Weeks Ended 
  April 30, 2016  May 2, 2015 
Cash Flows Provided by Operating Activities:        
Net income $7,081  $7,241 
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization  4,649   3,822 
Stock-based compensation expense  1,052   793 
Excess tax benefit from stock-based compensation  (22)  (64)
Loss on sale of assets  88   128 
Deferred income taxes  (838)  (1,875)
Changes in operating assets and liabilities:        
Accounts receivable  (3,714)  485 
Inventories  (3,258)  (7,594)
Prepaid expenses and other assets  214   460 
Accounts payable  (2,862)  6,543 
Accrued liabilities  (1,470)  1,795 
Landlord incentive and deferred rent  979    3,862 
Net cash provided by operating activities  1,899   15,596 
         
Cash Flows Used in Investing Activities:        
Purchase of property and equipment  (5,121)  (8,721)
Others   4   - 
Net cash used in investing activities  (5,117)  (8,721)
         
Cash Flows (Used in) Provided by Financing Activities:        
Proceeds from the exercise of stock options  178   109 
Excess tax benefit from stock-based compensation  22   64 
Repurchases of common stock  (17,785)  - 
Net cash (used in) provided by financing activities  (17,585)  173 
         
Net (decrease) increase in cash and cash equivalents  (20,803)  7,048 
Cash and cash equivalents, beginning of year  56,224   39,071 
Cash and cash equivalents, end of period $35,421  $46,119 
         
Supplemental Disclosures of Cash Flow Information:         
Cash paid for income taxes $6,653  $1,763 
Interest paid $47  $47 




Francesca's Holdings Corporation
Supplemental Information

Quarterly Sales by Merchandise Category

 Thirteen Weeks Ended Variance
 April 30, 2016  May 2, 2015 In Dollars %
 (in thousands, except percentages)
Apparel$ 54,892  $ 48,170  $6,722  14%
Jewelry  24,062    21,972   2,090  10%
Accessories  16,046    15,379   667  4%
Gifts and home  11,327    9,837   1,490  15%
Merchandise Sales  106,327    95,358   10,969  12%
Others(1)  (214)   (347)   133  38%
Net sales$ 106,113  $ 95,011  $11,102  12%

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

Quarterly Comparable Sales

 FY 2016 FY 2015 FY 2014
Q1 2%  (2)%  (7)%
Q2   (4)%  (7)%
Q3   4%  (6)%
Q4   11%  1%
Fiscal year   3%  (5)%
          
CONTACT:



ICR, Inc.

Jean Fontana

646-277-1214



Company

Kelly Dilts

832-494-2236

kelly.dilts@francescas.com / IR@francescas.com

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Source: Francesca's Holdings Corporation

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