Incoming Francesca’s CEO Sees Continued Growth
Women bought colorful jewelry and other accessories to spruce up dated wardrobes, giving a second-quarter jolt to Francesca’s Holdings ( FRAN ). The chain of trendy clothing boutiques gave stronger guidance for the current quarter.
But the news was partially overshadowed by the announcement that CEO John De Meritt would step down at the end of the year. Neill Davis, president, will take over. Davis was hired away fromMen’s Wearhouse ( MW ) in July.
Shares closed up 2% to 36.07, but were down 4.6% after hours.
The company posted earnings of 28 cents per share, up 87% from a year ago and 4 cents better than analysts’ consensus estimate.
Revenue climbed 49% to $76.4 million, beating estimates of $71.19 million. Sales at stores open at least a year surged 20.7%, its 13th straight quarter of same-store gains.
“Increased transactions, that’s really been the driver for us for the last few quarters,” De Meritt said in a conference call with analysts.
The company said jewelry was its strongest category, though it didn’t break out sales figures for it.
“In a bad economy, people want to buy accessories because you can change the look of many outfits just by changing your necklace,” Mark Montagna, an Avondale Partners analyst, told IBD.
Francesca’s guided for adjusted Q3 EPS of 21 to 22 cents, with analysts forecasting 19 cents. For the full year it said to expect earnings of 96 to 98 cents vs. views for 91 cents. It guided for low-double-digit same-store sales growth.
The Houston-based chain operates about 350 Francesca’s Collections boutiques in 44 states, selling somewhat affordable, fashionable clothing and accessories. Its core audience are women age 18 to 35.
It sells trendy items, at affordable prices: colorful dresses for $44, boots for $58 and bright necklaces for $24.
The strategy is to go broad and shallow. It offers a wide array of items but limited quantities of each, creating a sense of scarcity and newness that keeps customers returning often, Montagna said.
Davis answered “all of the above,” when analysts asked whether he shared that vision for quick-turn merchandise and national expansion. He said the company could eventually reach 900 stores nationwide.
De Meritt, a co-founder who became CEO in 2007, said he was stepping down to pursue other interests, without elaborating.
“I’ve decided that the time is right for me to hand over the reins,” he told analysts.
Montagna suggested the transition might have been in the works for months with the potential for the top job being what allowed Francesca’s to win the “heavy hitter” away from Men’s Wearhouse.
Davis had 15 years with the men’s retailer, most recently as chief financial officer and executive vice president.
“Neill is a highly qualified and seasoned retail executive,” Greg Brenneman, nonexecutive chairman, said in a statement. “His experience in helping Men’s Wearhouse realize double-digit compound annual growth rates in sales and profitability during his 15-year tenure will be invaluable in the coming years.”
Francesca’s competitors are the White House/Black Market chain, owned byChico’s FAS ( CHS ), Ann Taylor, owned byAnn ( ANN ), Charlotte Russe, Brighton Collectibles andUrban Outfitter ‘s ( URBN ) Anthropologie chain.
It’s also up against the independent boutiques. Its roughly 1,400-square-foot stores are often located in trendy areas, such as New Orleans’ Magazine Street and Montana Avenue in Santa Monica, Calif. Over the last few years, the company has expanded into malls.
“What’s winning today is fashion, freshness, inventory turn and all at a value price. They have all of that,” Montagna said.
Retail has been one of the bright spots of an otherwise lackluster economy this past quarter.
Last month, Chico’s reported better-than-expected earnings and said it didn’t have to resort to margin-eroding discounts to clear shelf space for fall fashions.American Eagle Outfitters (AEO) outperformed on early back-to-school spending. Both raised their outlooks for the year.
And upscale fashion houseMichael Kors (KORS) also shrugged off the slow economy, beating last month and noting a still-growing luxury market globally.