Bear of the Day: Francesca's (FRAN)
Francesca's Holdings Corporation (FRAN) admitted recently it has gotten the trend wrong, but that's not the only thing impacting this Zacks Rank #5 (Strong Sell). It suffered direct impacts from Hurricane Harvey as well.
Francesca's is a woman's specialty retailer offering apparel, jewelry, gifts and accessories in its boutique stores. As of Sep 6, it had 692 boutiques in 47 states and the District of Columbia.
It also has an ecommerce web site at francescas.com.
A Beat in Q2 But Same Store Sales Fall
On Sep 6, it reported its second quarter results and beat the Zacks Consensus Estimate by a penny. Earnings were $0.20 versus the consensus of $0.19.
It had already previously announced preliminary results but earnings exceeded that preliminary expectations due to better than expected merchandise margins and SG&A expenses.
Same-store-sales, however, came in at the low-end of the expected range, falling 3% year over year. That was due to a decrease in boutique conversion rates. Last year's second quarter same-store-sales were flat.
Unfortunately, it also reported that August sales were soft due to "merchandising missteps." It was trying to get rid of its back-to-school inventory so that it could focus on the lucrative upcoming holiday season.
Hurricane Harvey Strikes a Blow
Francesca's is headquartered in Houston, Texas and it wasn't immune to impacts from Hurricane Harvey.
Its corporate headquarters, ecommerce fulfillment, distribution center, and approximately 40 boutiques were all directly impacted and had to shut down. Many of its employees suffered personal impacts as well.
As of Sep 5, it had re-opened its headquarters and all but one of its impacted boutiques but it expected it take a couple of weeks to normalize.
In addition, Hurricane Irma then followed on Harvey's heals, leading to business disruptions in Florida.
It's unclear how much of an impact it will have on the third quarter though.
Estimates Cut for Fiscal 2017 and Fiscal 2018
It's tough in the apparel retail business right now. One wrong step, like getting the trend of the season wrong, and it sets the company back.
Francesca's had made quite a turnaround in the last few years as it cut inventory and made management changes. It invested heavily in ecommerce, with a new web site and better product distribution.
However, since the earnings report, analysts have been cutting estimates on Francesca's for both this fiscal year and next fiscal year.
Earnings are expected to fall 26% this year to just $0.81. It made $1.09 last year.
Analysts are bearish on next year too. Fiscal 2018's Zacks Consensus Estimate has also fallen to $0.84 from $1.18 in the last month.
Shares At 5-Year Lows
There's no room for error in retail right now. Francesca's shares have taken a beating, down 60% year-to-date.
That makes them a relative bargain, at just 10x forward estimates.
But the soft August sales clearly have investors spooked. If you're looking to invest in a specialty apparel retailer, you might want to consider one of the bigger players like Gap Inc. (GPS). It has several brands that can help it over the bumps when it fails to hit the trends, including Old Navy and the popular Athleta.
Gap is a Zacks Rank #3 (Hold) stock.
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