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Francesca’s Holdings Corp (FRAN) Shares Fall to 11-Month Low on Earnings Miss and Lower Guidance

InvestorPlace Staff

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Francesca’s Holdings Corp (NASDAQ:FRAN) missed fiscal Q1 profit and sales expectations and gave investors little to be hopeful for in management’s outlook. FRAN stock is down almost 15% this morning in premarket trading.

FRAN

Net profit for the three months ending April 29 fell to $4.3 million, or 12 cents a share, versus $7.1 million, or 18 cents a share, in the same period a year ago. The EPS consensus was 14 cents. Sales eked out a 1% increase to $107.7 million from $106.1 million, but short of a consensus of $113.2 million. Improved sales in April failed to compensate for weak numbers in February and March. Same-store sales declined 5%, driven by a decline in boutique traffic and conversion rates. Estimates were for only a 0.5% decline.

Houston, Texas-based Francesca’s caters to 18-35 year-old fashion conscious, female customers. In what has become a familiar refrain during the current earnings season in the retailing sector, management pointed to the one-two punch of lower traffic and a later Easter this year.

“We were disappointed in our comparable sales performance, which was impacted by lower than expected boutique traffic and conversion rate,” Steve Lawrence, president and CEO, said in a company press release. “February and March sales were soft, primarily as a result of the later Easter, driving weaker than anticipated sales in full-price product. In spite of lower sales, our first quarter diluted EPS came in at the low end of our guidance due to better than expected merchandise margins and cost management. Since the beginning of April, sales trends have improved with the onset of warmer weather and the Easter shift.”

As  John Jagerson, editor of SlingShot Trader, wrote here last week, “Investors care about retail spending because most of U.S. gross domestic product is derived through consumption. Consumer spending is a measure of economic health and corporate profits. A decline in the growth rate of consumer spending (or even a contraction) is a precursor to recessions. For those reasons, the declines in some big retail stocks has put traders on edge this quarter.”

Sales are now expected to be in a range of $120 million to $124 million for fiscal Q2, compared to a consensus forecast of $126.2 million, while same-store sales guidance in a range of down 3% to up 1% compares with a consensus of up 1.5%. Francesca’s expects to open approximately 60 to 65 stores and close approximately 10 to 15 in fiscal year 2017, compared to 64 new locations opened and nine closed in fiscal year 2016.

FRAN stock had already lost 33% of its value this year as of yesterday’s market close. Shares have not been this low since early July 2016. Peers have fared worse, with Express, Inc. (NYSE:EXPR) down 39% and Urban Outfitters, Inc. (NASDAQ:URBN) down 35% in the same period.

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