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Francesca's Soft Top-Line Performance Continues to Hurt Stock

Just two weeks to go for third-quarter fiscal 2018 results, Francesca's Holdings Corporation FRAN released its preliminary estimated financial numbers. Soft boutique traffic continued to linger during the third quarter as well. Further, the company has been witnessing dismal top line for quite a while now. A clear reflection of the same is visible in the stock’s performance.

We note that shares of this Zacks Rank #4 (Sell) company have crashed 65% compared with the industry’s decline of 13.5% in the past six months.

Preliminary Estimated Financial Results for Q3

Francesca's Holdings announced its preliminary estimated results, wherein net sales for the third quarter declined by 10% to $95 million from $106 million reported in the year-ago period. Prior to that, net sales dipped 6% and 7% in the second and first quarter, respectively. Notably, the declining comparable sales (comps) are hurting the top line.

Comps in the first and second quarter decreased by 16% and 13%, respectively, due to the decline in both boutique traffic and conversion rate. Again, in the third quarter, the metric slipped 14%, mainly due to traffic declines in the mid-teens.

Further, the company expects non-cash asset impairment regarding long-lived boutique assets to come in at roughly $15 million. Excluding non-cash asset impairment, Francesca's Holdings expects to incur adjusted loss in the range of 17-19 cents per share.

Following the release of preliminary estimated financial results, shares of the company plunged around 12% in after-market trading session on Nov 26. Management hinted that the company is grappling with lower traffic count and has failed to deliver desired results. Francesca's Holdings is scheduled to report third-quarter numbers on Dec 11.

No wonder, the company is focusing on enhancing traffic trends by improving marketing reach and top-line trends. Also, the company is emphasizing on reducing expenses, cash management and e-commerce growth. Management believes the company’s merchandising strategy, investment in omni-channel and reformatting its boutiques will help augment results.

However, we believe that such efforts will take time to yield favorable outcome and win back investors’ confidence in the stock. That said, the current dismal performance remains a concern for the company.

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