Francesca’s Holdings Corporation (NASDAQ: FRAN) operates as an apparel boutique, which offers a wide range of accessories, clothing, jewelry, gifts, and more. As of February 2019, the company maintains 727 locations across 47 states and the District of Columbia. Shares of the women’s’ apparel boutique skyrocketed 101.55%, during trading on Tuesday, September 10, 2019. Over the past three months, Francesca’s Holdings has seen average daily volume of 286,850 shares. However, volume of 21.1 million shares or dollar volume of $219.44 million, exchanged hands during trading on Tuesday.

Shares of the Francesca’s Holdings surged on Tuesday, after the company reported second quarter earnings results for fiscal 2019. Net sales dropped 6% to $106 million, comparable sales dropped 5%. On the plus side, diluted earnings per share came in at $0.61 or $1.8 million, compared to $0.16 during the same time last year. Adjusted net income came in at $2.1 million or $0.72 per adjusted diluted earnings per share. “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,” noted interim CEO, Michael Prendergast.

Francesca’s Holdings Corporation Press Release:

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

Michael Prendergast, Interim CEO of Francesca’s Holdings, 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.

Conference Call Information

A conference call to discuss the second quarter fiscal year 2019 results is scheduled for September 10, 2019 at 8:30 a.m. ET. A live webcast of the conference call will be available in the investor relations section of the Company’s website, www.francescas.com. A replay of the call will be available after the conclusion of the call and remain available until September 17, 2019. To access the telephone replay, listeners should dial 1-844-512-2921. The access code for the replay is 13693991. A replay of the web cast will also be available shortly after the conclusion of the call and will remain on the website for ninety days.

Forward-Looking Statements

Certain statements in this release are “forward-looking statements” made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Such forward-looking statements reflect the Company’s current expectations or beliefs concerning future events and are subject to various risks and uncertainties that may cause actual results to differ materially from those that are expected. These risks and uncertainties include, but are not limited to, the following: the risk that the Company may not be able to successfully execute its turnaround plan; the risk that the Company may not be able to successfully integrate its Interim Chief Executive Officer and Chief Financial Officer, and attract and integrate a new Chief Executive Officer; the risk that the Company may not be able to identify suitably qualified and experienced candidates to add to its Board of Directors; the risk that the Company cannot anticipate, identify and respond quickly to changing fashion trends and customer preferences or changes in consumer environment, including changing expectations of service and experience in boutiques and online, and evolve its business model; the Company’s ability to attract a sufficient number of customers to its boutiques or sell sufficient quantities of its merchandise through its ecommerce website; the Company’s ability to successfully open, close, refresh, and operate our boutiques each year; the Company’s ability to efficiently source and distribute merchandise quantities necessary to support its operations; risks related to the Company’s ability to comply with the continued listing standards of the Nasdaq Global Select Market; and the impact of potential tariff increases or new tariffs. For additional information regarding these and other risks and uncertainties that could cause actual results to differ materially from those contained in the Company’s forward-looking statements, please refer to “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended February 3, 2019 filed with the SEC on May 3, 2019 and any risk factors contained in subsequent quarterly and annual reports it files with the SEC. The Company undertakes no obligation to publicly update or revise any forward-looking statement.

Non-GAAP Information

This press release includes non-GAAP 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 of which are non-GAAP financial measures. The Company believes these non-GAAP financial measures not only provides the Company’s management with comparable financial data for internal financial analysis but also provides meaningful supplemental information to investors. Specifically, these non-GAAP financial measures allow investors to better understand the performance of the business and facilitate a meaningful evaluation of the Company’s second quarter fiscal year 2019 SG&A, income from operations, income before income tax expense, income tax (benefit) expense, net income and diluted earnings per share on a comparable basis with the Company’s second quarter fiscal year 2018 results. These non-GAAP measures should be considered a supplement to, and not as a substitute for or superior to, financial measures calculated in accordance with GAAP.

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. For additional information on francesca’s®, please visit www.francescas.com.