- Fourth quarter net sales increased 17% to $107.6 million
- Fourth quarter comparable sales increased 1%
- Fourth quarter adjusted diluted earnings per share was $0.21
- Opened 88 boutiques in fiscal year 2014
HOUSTON, March 25, 2015 (GLOBE NEWSWIRE) -- Francesca's Holdings Corporation (Nasdaq:FRAN) today reported financial results for the fourth quarter and fiscal year ended January 31, 2015.
Michael W. Barnes, Chairman, President, and CEO stated, "We were pleased to have delivered fourth quarter earnings results in line with our expectations. Our customers responded favorably to our gift and accessories assortments and we saw sequential sales improvement in our jewelry business from the third quarter to the fourth quarter. We also disposed of excess inventory during the quarter which resulted in a gross margin decline that was consistent with our previous guidance."
Looking forward to the first quarter and full year 2015 outlook, Mr. Barnes noted that, "We believe we have an opportunity to improve our sales trends as fiscal 2015 progresses, although we will be thoughtful in our approach to managing our business. Our primary goal is to improve comparable sales performance with continued strength in our non-apparel categories and improved performance in our apparel business as our team works to identify the latest fashion apparel trends and bring them to francesca's. The direct-to-consumer business continued to grow at a healthy double digit pace and we believe that it will be a strong performer during fiscal 2015. We entered the quarter in a clean inventory position and we are planning it appropriately for the upcoming year. I believe it will take some time to turn some of the apparel trends we saw in the fourth quarter and early first quarter but we are optimistic about our long term potential. We are also pleased with the strong performance of the boutiques opened during fiscal 2014 and we expect to open a similar number in fiscal 2015. Finally, I want to thank all of our associates for their hard work during 2014 and their continued dedication as we look forward to driving long term success at francesca's."
FOURTH QUARTER RESULTS
Net sales for the thirteen weeks ended January 31, 2015 increased 17% to $107.6 million from $92.1 million in the prior year quarter. This increase was driven by 88 new boutiques opened since the prior year quarter and a 1% increase in comparable sales. Direct-to-consumer sales increased 42% versus the prior year quarter primarily due to increased traffic.
Gross profit, as a percentage of net sales, decreased to 45.7% from 50.6% in the prior year quarter. This unfavorable variance included a 430 basis points decrease in merchandise margin due to the disposal of certain slow-moving merchandise at a net cost of $1.8 million (170 basis points point as a percentage of net sales), increased markdowns and promotional activities as well as a merchandise mix change to the lower margin categories in the current year quarter as compared to the prior year quarter. The remaining change is attributable to deleveraging of fixed occupancy costs.
Adjusted selling, general and administrative expenses(1) ("SG&A") increased 23% to $33.9 million from $27.7 million in the prior year quarter. The increase in adjusted SG&A is primarily due to higher boutique and corporate payroll expenses to support the larger boutique base and sales growth.
Adjusted income from operations(1) was $15.4 million, or 14.3% of net sales, compared to $18.9 million, or 20.5% of net sales, in the prior year quarter.
Our effective tax rate for the fourth quarter was 43.1% resulting from a true-up of prior year state income taxes. Excluding this adjustment, our effective tax rate for the quarter was 38.1%.
Adjusted net income(1) for the fourth quarter totaled $8.8 million, or $0.21 adjusted diluted earnings per share(1), compared to $11.4 million, or $0.27 adjusted diluted earnings per share(1), in the comparable prior year period.
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(1) For the fourth quarter of fiscal year 2014, adjusted SG&A, adjusted income from operations, adjusted net income and adjusted diluted earnings per share exclude charges related to the transition to a new CEO amounting to $2.2 million ($1.3 million net of tax), or $0.03 earnings per diluted share, and non-cash impairment charge in connection with the abandonment of previously capitalized costs related to the development of our website amounting to $2.5 million ($1.5 million net of tax), or $0.04 earnings per diluted share. For the fourth quarter of fiscal year 2013, adjusted SG&A, adjustment income from operations, adjusted net income and adjusted diluted earnings per share exclude charges related to severance and litigation amounting to $1.3 million ($0.8 million net of tax), or $0.02 diluted earnings per share.
FULL YEAR RESULTS
Net sales increased 11% to $377.5 million in fiscal year 2014 compared to $340.3 million in fiscal year 2013. This year-over-year increase in sales is driven by 88 new boutiques opened since the prior year end partially offset by a 5% decrease in comparable sales. Direct-to-consumer sales increased 64% versus the prior year due to increased traffic.
We opened 88 boutiques during the year bringing our boutique count to 539 as of year-end.
Adjusted net income for fiscal year 2014 totaled $35.0 million, or $0.83 adjusted diluted earnings per share, compared to $46.2 million, or $1.05 adjusted diluted earnings per share, in fiscal year 2013. For fiscal year 2014, adjusted net income and adjusted diluted earnings per share exclude charges in connection with the appointment of a new CEO amounting to $2.2 million ($1.3 million net of tax), or $0.03 earnings per diluted share and non-cash impairment charge of $2.5 million ($1.5 million net of tax), or $0.04 earnings per diluted share. For fiscal year 2013, adjusted net income and adjusted diluted earnings per share exclude secondary offering expenses amounting to $0.6 million ($0.6 net of tax), or $0.01 diluted earnings per share, and charges related to severance and litigation amounting to $1.3 million ($0.8 million net of tax), or $0.02 earnings per diluted share.
BALANCE SHEET SUMMARY
Total cash and cash equivalents at year end were $39.1 million compared to $37.5 million at the prior year end. The Company had no debt outstanding under its revolving credit facility at year end.
The Company ended the year with $23.8 million of inventory on hand compared to $24.6 million at the prior year end. Additionally, average ending inventory per boutique decreased by 19%. The decrease in inventory is due to improved inventory management, which included disposal of certain slow-moving merchandise.
FIRST QUARTER AND FISCAL YEAR 2015 GUIDANCE
For the first quarter ending May 2, 2015, net sales are expected to be in the range of $93.0 million and $96.0 million; which assumes a low single digit decrease in comparable sales compared to the prior year comparable sales decrease of 7%. The Company plans to open 51 new boutiques during the first quarter. Diluted earnings per share are expected to be in the range of $0.15 to $0.18.
For the full year ending January 30, 2016, net sales are expected to be in the range of $412.0 million and $424.0 million; which assumes a flat to a low single digit decrease in comparable sales compared to a prior year comparable sales decrease of 5%. The Company expects to open 85 boutiques in fiscal year 2015 compared to 88 new boutiques opened in fiscal year 2014. Diluted earnings per share are expected to be in the range of $0.81 to $0.90. The number of average diluted shares for the full year assumed in guidance is expected to be 42.4 million shares. The effective tax rate is estimated to be 38.1%.
Capital expenditures for fiscal year 2015 are expected to be in the range of $30.0 million to $32.0 million.
Conference Call Information
A conference call to discuss the fourth quarter and fiscal year 2014 results is scheduled for March 25, 2015, at 8:30 a.m. ET. A live web cast of the conference call will be available in the investor relations section of the Company's website, www.francescas.com. In addition, a replay of the call will be available after the call and remain available until April 1, 2015. To access the telephone replay, listeners should dial 1-877-870-5176. The access code for the replay is 2008821. A replay of the web cast will also be available shortly after the call and will remain on the website for ninety days.
SEC Regulation G — Non-GAAP Information
This press release includes non-GAAP adjusted selling, general and administrative expenses, adjusted income from operations, adjusted net income and adjusted diluted earnings per share, each a non-GAAP financial measure. We have reconciled these non-GAAP financial measures with the most directly comparable GAAP financial measures in the text above. We believe that these non-GAAP financial measures not only provide our management with comparable financial data for internal financial analysis but also provide meaningful supplemental information to investors. Specifically, these non-GAAP financial measures allow investors to better understand the performance of our business and facilitate a meaningful evaluation of our quarterly and fiscal year 2014 diluted earnings per share and actual results on a comparable basis with our quarterly and fiscal year 2013 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.
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 we expected. These risks and uncertainties include, but are not limited to, the following: the risk that we cannot anticipate, identify and respond quickly to changing fashion trends and customer preferences; our ability to attract a sufficient number of customers to our boutiques or sell sufficient quantities of our merchandise through our direct-to-consumer business; our ability to successfully open and operate new boutiques each year; and our ability to efficiently source and distribute additional merchandise quantities necessary to support our growth. Additional information regarding these and other risks and uncertainties that could cause actual results to differ materially from those contained in our forward-looking statements, please refer to "Risk Factors" in our Annual Report on Form 10-K for the year ended February 1, 2014 filed with the Securities and Exchange Commission on March 28, 2014 and any risk factors contained in subsequent quarterly and annual reports we file with the SEC. We undertake no obligation to publicly update or revise any forward- looking statement. Financial schedules are attached to this release.
About Francesca's Holdings Corporation
francesca's® is a growing specialty retailer with retail locations designed and merchandised to feel like independently owned, upscale boutiques providing customers a fun and differentiated shopping experience. The merchandise assortment is a diverse and balanced mix of apparel, jewelry, accessories and gifts. Today francesca's® operates 571 boutiques in 47 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.
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Francesca's Holdings Corporation Consolidated Statements of Operations (In Thousands, Except Per Share Amounts and Percentages) |
|||||||
| Thirteen Weeks Ended | |||||||
| January 31, 2015 | February 1, 2014 | Variance | |||||
|
In USD |
As a % of Net Sales(1) |
In USD |
As a % of Net Sales(1) |
In USD |
% |
Basis Points(1) |
|
| Net sales | $ 107,644 | 100.0 % | $ 92,140 | 100.0 % | $ 15,504 | 17 % | -- |
| Cost of goods sold and occupancy costs | 58,398 | 54.3 % | 45,560 | 49.4 % | 12,838 | 28 % | 490 |
| Gross profit | 49,246 | 45.7 % | 46,580 | 50.6 % | 2,666 | 6 % | (490) |
| Selling, general and administrative expenses | 38,529 | 35.8 % | 28,995 | 31.5 % | 9,534 | 33 % | 430 |
| Income from operations | 10,717 | 10.0 % | 17,585 | 19.1 % | (6,868) | (39)% | (910) |
| Interest expense | (116) | (0.1)% | (226) | (0.2)% | 110 | (49)% | 10 |
| Other income | (113) | (0.1)% | 81 | 0.1 % | (194) | (240)% | (20) |
| Income before income tax expense | 10,488 | 9.7 % | 17,440 | 18.9 % | (6,952) | (40)% | (920) |
| Income tax expense | 4,517 | 4.2 % | 6,828 | 7.4 % | (2,311) | (34)% | (320) |
| Net income | $ 5,971 | 5.5 % | $ 10,612 | 11.5 % | $ (4,641) | (44)% | (600) |
| (1) Percentage totals or differences in the above table may not equal the sum or difference of the components due to rounding. | |||||||
| Diluted earnings per share | $ 0.14 | $ 0.25 | |||||
| Weighted average diluted share count | 42,298 | 42,687 | |||||
| Comparable sales change | 1% | (6)% | |||||
| Fiscal Year Ended | |||||||
| January 31, 2015 | February 1, 2014 | Variance | |||||
|
In USD |
As a % of Net Sales |
In USD |
As a % of Net Sales |
In USD |
% |
Basis Points(1) |
|
| Net sales | $ 377,497 | 100.0 % | $ 340,325 | 100.0 % | $ 37,172 | 11 % | -- |
| Cost of goods sold and occupancy costs | 199,919 | 53.0 % | 164,260 | 48.3 % | 35,659 | 22 % | 470 |
| Gross profit | 177,578 | 47.0 % | 176,065 | 51.7 % | 1,513 | 1 % | (470) |
| Selling, general and administrative expenses | 124,804 | 33.1 % | 101,795 | 29.9 % | 23,009 | 23 % | 320 |
| Income from operations | 52,774 | 14.0 % | 74,270 | 21.8 % | (21,496) | (29)% | (780) |
| Interest expense | (623) | (0.2)% | (588) | (0.2)% | (35) | 6 % | -- |
| Other income | 88 | 0.0 % | 208 | 0.1 % | (120) | (58)% | (10) |
| Income before income tax expense | 52,239 | 13.8 % | 73,890 | 21.7 % | (21,651) | (29)% | (790) |
| Income tax expense | 20,131 | 5.3 % | 29,051 | 8.5 % | (8,920) | (31)% | (320) |
| Net income | $ 32,108 | 8.5 % | $ 44,839 | 13.2 % | $ (12,731) | (28)% | (470) |
| (1) Percentage totals or differences in the above table may not equal the sum or difference of the components due to rounding. | |||||||
| Diluted earnings per share | $ 0.76 | $ 1.02 | |||||
| Weighted average diluted share count | 42,380 | 44,123 | |||||
| Comparable sales change | (5)% | (2)% | |||||
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Francesca's Holdings Corporation Consolidated Balance Sheets (In thousands, except share amounts) |
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| January 31, | February 1, | |
| 2015 | 2014 | |
| ASSETS | ||
| Current assets: | ||
| Cash and cash equivalents | $ 39,071 | $ 37,498 |
| Accounts receivable | 12,279 | 8,984 |
| Inventories | 23,801 | 24,614 |
| Deferred income taxes | 4,858 | 4,565 |
| Prepaid expenses and other current assets | 5,890 | 6,764 |
| Total current assets | 85,899 | 82,425 |
| Property and equipment, net | 74,095 | 64,131 |
| Deferred income taxes | 3,642 | 2,335 |
| Other assets, net | 1,909 | 1,654 |
| TOTAL ASSETS | $ 165,545 | $ 150,545 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||
| Current liabilities: | ||
| Accounts payable | $ 11,550 | $ 10,207 |
| Accrued liabilities | 11,904 | 9,823 |
| Total current liabilities | 23,454 | 20,030 |
| Landlord incentives and deferred rent | 32,877 | 27,448 |
| Long-term debt | -- | 25,000 |
| Total liabilities | 56,331 | 72,478 |
| Commitments and contingencies | ||
| Stockholders' equity: | ||
| Common stock--$.01 par value, 80.0 million shares authorized, 45.5 million and 45.2 million shares issued as of January 31, 2015 and February 1, 2014, respectively. | 455 | 452 |
| Additional paid-in capital | 105,498 | 101,192 |
| Retained earnings | 63,404 | 31,296 |
| Treasury stock, at cost – 3.2 million and 2.9 million shares held at January 31, 2015 and February 1, 2014, respectively. | (60,143) | (54,873) |
| Total stockholders' equity | 109,214 | 78,067 |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 165,545 | $ 150,545 |
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Francesca's Holdings Corporation Consolidated Statements of Cash Flows (In thousands) |
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| Fiscal Year Ended | |||
| January 31, | February 1, | February 2, | |
| 2015 | 2014 | 2013 | |
| Cash Flows Provided by Operating Activities: | |||
| Net income | $ 32,108 | $ 44,839 | $ 47,061 |
| Adjustments to reconcile net income to net cash provided by operating activities: | |||
| Depreciation and amortization | 13,151 | 10,054 | 7,151 |
| Stock-based compensation expense | 2,668 | 3,781 | 3,599 |
| Excess tax benefit from stock-based compensation | (309) | (5,846) | (2,296) |
| Impairment charges | 2,470 | -- | -- |
| Loss on disposal of assets | 364 | 343 | 188 |
| Inventory write-off | 3,831 | -- | -- |
| Amortization of debt issuance costs | 245 | 278 | 299 |
| Deferred income taxes | (1,600) | (1,014) | (2,559) |
| Changes in assets and liabilities: | |||
| Accounts receivables | (2,986) | (634) | (70) |
| Inventories | (3,018) | (5,565) | (4,587) |
| Prepaid expenses and other assets | 373 | (2,021) | (1,512) |
| Accounts payable | (363) | 551 | (547) |
| Accrued liabilities | 2,081 | (844) | 3,069 |
| Landlord incentive and deferred rent | 5,429 | 5,356 | 7,203 |
| Net cash provided by operating activities | 54,444 | 49,278 | 56,999 |
| Cash Flows Used in Investing Activities: | |||
| Purchase of property and equipment | (24,255) | (24,633) | (23,663) |
| Other | 13 | 98 | -- |
| Net cash used in investing activities | (24,242) | (24,535) | (23,663) |
| Cash Flows Used in Financing Activities: | |||
| Repayment of borrowings under the revolving credit facility | (25,000) | (22,000) | |
| Proceeds from borrowings under the revolving credit facility | -- | 25,000 | -- |
| Repurchases of common stock | (5,270) | (54,009) | -- |
| Payment of debt issuance costs | -- | (376) | -- |
| Proceeds from the exercise of stock options | 1,332 | 8,697 | 2,199 |
| Taxes paid related to net settlement of equity awards | -- | (2,280) | -- |
| Excess tax benefit from stock-based compensation | 309 | 5,846 | 2,296 |
| Net cash used in financing activities | (28,629) | (17,122) | (17,505) |
| Net increase in cash and cash equivalents | 1,573 | 7,621 | 15,831 |
| Cash and cash equivalents, beginning of year | 37,498 | 29,877 | 14,046 |
| Cash and cash equivalents, end of year | $ 39,071 | $ 37,498 | $ 29,877 |
| Supplemental Disclosures of Cash Flow Information: | |||
| Cash paid for income taxes | $ 24,088 | $ 32,401 | $ 32,405 |
| Interest paid | 388 | 293 | 448 |
Francesca's Holdings Corporation
Supplemental Information
Quarterly Sales by Merchandise Category
| Thirteen Weeks Ended | Variance | |||
| January 31, 2015 | February 1, 2014 | In Dollars | % | |
| (in thousands, except percentages) | ||||
| Apparel | $ 39,574 | $ 36,881 | $ 2,693 | 7% |
| Jewelry | 24,198 | 21,422 | 2,776 | 13% |
| Accessories | 22,382 | 17,369 | 5,013 | 29% |
| Gifts | 21,082 | 16,232 | 4,850 | 30% |
| Merchandise Sales | 107,236 | 91,904 | 15,332 | 17% |
| Others(1) | 408 | 236 | 172 | 73% |
| Net sales | $ 107,644 | $ 92,140 | $ 15,504 | 17% |
| (1) Includes gift card breakage income, shipping and change in return reserve. | ||||
Quarterly Comparable Transactions Results for Fiscal Year 2014
| Transactions(1) | Average Transaction Value(2) | ||
| Q1 | (7)% | 0% | |
| Q2 | (7)% | 0% | |
| Q3 | (6)% | 0% | |
| Q4 | 1% | 0% | |
| (1) The number of comparable transactions (including merchandise and gift card purchases, returns and gift card redemptions) processed through our point-of-sale system for which a receipt was issued. | |||
| (2) Average transaction value is calculated by dividing total comparable sales by the number of comparable transactions during the period. | |||
Quarterly Comparable Sales
| FY 2012(1)(2) | FY 2013(2) | FY 2014 | |
| Q1 | 16% | 2 % | (7)% |
| Q2 | 21% | (1)% | (7)% |
| Q3 | 17% | (3)% | (6)% |
| Q4 | 10% | (6)% | 1% |
| Fiscal year | 16% | (2)% | (5)% |
| (1) Beginning in the first quarter of fiscal year 2013, comparable sales results include our direct-to-consumer sales. To facilitate comparability with the prior year period, prior year comparable sales results was recalculated and now includes direct-to-consumer sales results. | |||
| (2) The 53rd week in fiscal 2012 caused a one-week shift in our 2013 fiscal calendar, resulting in the first quarter of fiscal year 2013 being later by one week relative to the quarter-ending date in fiscal year 2012 ("retail calendar shift"). Our reported comparable sales results for fiscal 2012 were adjusted for this retail calendar shift. Additionally, sales in the 53rd week of fiscal year 2012 were excluded from comparable sales. | |||