Shares of Francesca's Holdings Corp FRAN have risen around 5% since Dec 9 when the company reported third quarter fiscal 2015 results ending Oct 31.
This specialty retailer of women apparel products reported in line earnings of 16 cents per share. Earnings were higher than management’s expectation of 12 cents to 15 cents. However, it fell 5.9% year over year due to weak margins, partially offset by positive comps.
Francesca's sales increased 19% year over year to $103.7 million, beating the Zacks Consensus Estimate of $102 million. The growth was driven by an increase in comparable sales as well as the opening of 81 new boutiques since the comparable prior year quarter. Sales were higher than management’s expectation of $98 million to $101 million. During the quarter, the company opened 11 boutiques.
Comps, including direct-to-consumer (DTC) sales, increased 4% in the quarter compared witha 6% decline in comps in the prior-year quarter. Comps were also higher than management’s expected range of a low single digit decrease to flat comparable sales. Comps growth was driven by an increase in average transaction value compared with the prior year. Each of the merchandise categories posted double digit sales increase during the quarter, with apparel and accessories growing the most. DTC sales increased 12% to $3.8 million during the quarter.
Gross margin shrank 70 basis points (bps) to 46.6% due to lower merchandise margins as a result of charges related to the disposal of slow-moving merchandise and increased depreciation charges. Operating margin shrank 240 bps to 10.7% due to higher selling, general & administrative expenses related to higher boutique and corporate payroll expenses as well as increased performance-based incentive bonus expenses.
Other Financial Update
Cash and cash equivalents at the end of the quarter were $42.0 million compared with $48.8 million at the end of the preceding quarter.
During the third quarter, the company repurchased $0.67 million shares of its common stock for $8.5 million.
Guidance
Based on strong third quarter results and strong merchandising position across the apparel, jewelry and gift businesses, the company has increased sales and comparable sales guidance for the fiscal year.
Francesca has increased the lower end of its earnings guidance for fiscal 2015 and now expects it in the range of 86 to 88 cents per share compared with the previous guidance of 83 to 88 cents. The guidance now includes approximately 4 cents per share for team member bonuses that were not included in the prior guidance.
Net sales are expected to be in the range of $432.0 million and $435.0 million for fiscal 2015, higher than the prior guidance range of $416 million to $424 million. The company also expects flat to slightly positive comparable sales compared to prior year comparable sales decrease of 5%. The new comp sales guidance is also higher than the previous forecast of a low single digit decrease in comparable sales. The company expects to open 83 boutiques in fiscal 2015 compared with88 new boutiques opened in fiscal 2014.
Fourth Quarter
For the fourth quarter fiscal 2015, earnings are expected to be in the range of 31 to 33 cents per share. Net sales are expected in the range of $127.0 million to $130.0 million. The company expects a mid-single digit increase in comparable sales compared with the prior year comparable sales increase of 1%. The company expects to open 3 new boutiques and close 6 boutiques in the fourth quarter.
Francesca currently sports a Zacks Rank #1 (Strong Buy).
Other Stocks to Consider
Other well-positioned stocks in the retail-apparel industry include Abercrombie & Fitch Co. ANF, American Eagle Outfitters, Inc. AEO and Foot Locker, Inc. FL. While Abercrombie & Fitch and American Eagle sport a Zacks Rank #1, Foot Locker holds a Zacks Rank #2 (Buy).
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