HOUSTON, Sept. 10, 2019 (GLOBE NEWSWIRE) Francesca’s Holdings Corporation (Nasdaq: FRAN) today reported financial results for the second quarter ended August 3, 2019. 

Michael Prendergast, Interim CEO, stated, “We are very pleased to see significant improvement in our comparable sales for the second quarter. After a long period of double digit comp sales declines we achieved considerable sequential improvement in our comp sales in each month within the quarter. Gross margin was impacted by aggressive markdowns on poor performing legacy products that we accelerated within the quarter. However, we saw strong and better than expected sell through on new merchandise. Our merchant teams have done an excellent job of shifting back to a “read and react” buying and planning strategy, resulting in more nimble buying and planning processes. We believe effective implementation of this data analytic and customer demand strategy is driving a meaningful improvement in both boutique traffic and conversion during the second quarter.  We realized material savings this quarter through a number of cost reduction initiatives that we have been executing since the beginning of fiscal 2019.  In addition, we continue to make headway in optimizing our real estate portfolio. We are extremely pleased with our progress, which we believe is validating our go-forward turnaround strategy and look forward to driving continued positive momentum in the business.” 

SECOND QUARTER RESULTS

Net sales decreased 6% to $106.0 million from $113.0 million in the comparable prior year quarter due to a 5% decrease in comparable sales. The decrease in comparable sales was the result of lower average unit retail prices associated with deeper markdowns on legacy product.  This decrease was partially offset by higher boutique conversion rates and higher average units per transaction. The Company opened one new boutique and closed five boutiques during the second quarter, bringing its total boutique count to 718 at the end of the quarter.     

Gross profit, as a percent of net sales, decreased to 38.2% from 39.0% in the prior year quarter.  This unfavorable variance was due to lower merchandise margins as a result of deeper markdowns on legacy product and deleveraging of occupancy costs as a result of lower sales.

Selling, general and administrative (SG&A) expenses decreased 10% to $39.1 million from $43.3 million in the prior year quarter. Adjusted SG&A in the second quarter of fiscal 2019 was $38.7 million and excludes $0.5 million in other payroll costs associated with the Company’s turnaround plan, $0.3 million of professional fees incurred in connection with the Company’s previously announced reverse stock split and adoption of a shareholder rights plan, and $0.3 million of stock-based compensation reversal associated with the departure of the Company’s former Chief Financial Officer. There were no non-GAAP adjustments for SG&A in the second quarter of fiscal 2018.

The $4.6 million decrease in adjusted SG&A in the second quarter of fiscal year 2019 versus the comparable prior year period was primarily due to a $2.5 million decrease in boutique payroll and supplies associated with the Company’s cost reduction initiatives under the turnaround plan. Additionally, corporate payroll and related expenses decreased $0.9 million primarily due to the lower headcount as a result of the February 2019 workforce reduction, marketing expenses decreased $0.4 million, and asset write-off charges related to boutique remodels decreased $0.3 million.

Income from operations was $1.4 million compared to $0.8 million in the prior year quarter.  Excluding the adjustments noted above for adjusted SG&A, adjusted income from operations in the second quarter of fiscal year 2019 was $1.8 million. There were no non-GAAP adjustments for income from operations in the second quarter of fiscal 2018.

The Company’s income tax benefit was $0.3 million in the second quarter of this year compared to an income tax expense of $0.4 million in the comparable prior year quarter. The income tax benefit recognized in the second quarter was based on the Company’s revised estimate of its annualized taxable income for fiscal year 2019.   

Net income for the second quarter was $1.8 million, or $0.61 diluted earnings per share, compared to $0.5 million, or $0.16 diluted earnings per share, in the prior year quarter. Adjusted net income for the second quarter of fiscal year 2019 was $2.1 million, or $0.72 adjusted diluted earnings per share. There were no non-GAAP adjustments for net income or diluted earnings per share in the second quarter of fiscal 2018.

Please see the reconciliation of adjusted SG&A, adjusted income from operations, adjusted income before income tax expense, adjusted income tax (benefit) expense, adjusted net income, and adjusted diluted earnings per share, each a non-GAAP financial measure, to the most directly comparable GAAP financial measure provided in the tables at the end of this press release.

BALANCE SHEET SUMMARY

Total cash and cash equivalents at the end of the second quarter ended August 3, 2019 were $22.0 million compared to $23.4 million at the end of the comparable prior year quarter.  On August 3, 2019, the Company had $10.0 million outstanding borrowings under its Asset Based Revolving Credit Facility (the “ABL”).

As previously disclosed, the Company entered into a Term Loan Credit Agreement (the “Term Loan”) with Tiger Finance, LLC for an aggregate term loan of $10.0 million which matures on August 13, 2022. The proceeds from this Term Loan were used to pay the $10.0 million outstanding under the Company’s existing ABL. As of August 31, 2019, the combined borrowing base availability under the Company’s ABL and Term Loan was $16.3 million.

The Company ended the quarter with $30.9 million of inventory on hand compared to $31.9 million at the end of the comparable prior year period. Average ending inventory per boutique was flat at $43,000 versus the comparable prior year period.

About Francesca's Holdings Corporation

francesca's® is a specialty retailer which operates a nationwide-chain of boutiques providing customers a unique, fun and personalized shopping experience. The merchandise assortment is a diverse and balanced mix of apparel, jewelry, accessories and gifts. As of September 10, 2019, francesca's® operated approximately 719 boutiques in 47 states throughout the United States and the District of Columbia and also serves its customers through francescas.com. 

Francesca’s Holdings Corporation

Consolidated Statements of Operations
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