Francesca's shares fall after analyst downgrade

Francesca's shares fall after downgrade by Goldman Sachs analyst

Associated Press

NEW YORK (AP) -- The roller coaster ride continued for investors at Francesca's Holdings after Goldman Sachs downgraded the company and shares tumbled 5 percent.

The clothing retailer earlier this week announced the departure of its president and chief operating officer. CEO Neill Davis will take over as president. The COO job won't be filled.

Goldman Sachs analyst Lindsay Drucker Mann issued a "sell" rating on the stock Wednesday, believing that recent challenges may be a reflection of longer-lasting structural issues at the company. Goldman previously rated the company as "neutral."

Drucker Mann says an accelerated growth strategy at Francesca's may have left it vulnerable to "mixed quality locations, cannibalization of existing stores, and organizational strain to support the larger scale."

Francesca's operates about 450 stores in 45 states.

The company reported a drop in third-quarter profit in December and cut its outlook for the fourth quarter, but in January it lifted the low end of its revenue forecasts. Shares surged 24 percent in one day on January 10. Shares in the 12 trading days since have fallen nine times, rising more than 4 percent Tuesday, before giving up those gains Wednesday.

Drucker Mann noted that the specialty apparel industry is highly volatile, with a fickle consumer and seasonal nature. Beyond such transient challenges, however, she noted that the industry is also prone to structural problems such as growing too fast.

That may the scenario at Francesca's, Drucker Mann said, given a steep drop in sales at stores open at least a year since mid-2012. The figure rose 21 percent in the second quarter of that year, but then the company guided to declines in the low-to-mid single digits in the fourth quarter of 2013.

A representative for Francesca's did not immediately respond to a request for comment.

The stock fell 5 percent to $19.32 in midday trading. It's been a wide trading range over the past 52 weeks, falling from a high of more than $32 in May, to a low of under $16 in December.

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