francesca’s® Provides Business Update and Second Quarter Outlook; Reports Final First Quarter Fiscal Year 2020 Financial Results
Francesca’s Holdings Corporation (Nasdaq: FRAN) reported a 50% drop in net sales to $43.8 million for Q1 2020, attributed mainly to COVID-19-related boutique closures. Despite this, ecommerce sales showed strength during the closures. The company incurred a net loss of $15.3 million, or $5.25 per share, while adjusting for non-cash impairments, the loss increased to $28.4 million or $9.73 per share. With 674 boutiques reopened, they are focusing on inventory management and aggressive promotions. Looking ahead, Q2 sales are projected between $67.0 million and $71.0 million, reflecting continued challenges.
- Strong ecommerce performance during boutique closures.
- Reopened 674 of 702 boutiques.
- Expecting a $10.7 million tax refund from the CARES Act.
- 50% decrease in net sales compared to Q1 2019.
- Net loss increased to $15.3 million, or $5.25 per share.
- Anticipates second quarter sales to decline by 11% to 16%.
HOUSTON, July 28, 2020 (GLOBE NEWSWIRE) -- Francesca’s Holdings Corporation (Nasdaq: FRAN) today provides a business update and reports financial results for the first quarter ended May 2, 2020.
Mr. Andrew Clarke, President and CEO, stated, “Sales of reopened boutiques are trending within our expectations, with higher conversion largely offsetting lower traffic trends. With an increased focus on boutique promotions, as part of our phased reopening plans, we have cleared through the majority of our aged product, which we believe will place us in a better inventory position heading into the fall season. While these promotions are resulting in meaningful gross margin pressure, our priority remains to ensure that we maintain disciplined inventory levels. The re-platforming and relaunching of our ecommerce site is on track for the fall season. Our iOS App is expected to launch in the next few weeks and our Android App is expected to launch this fall. In addition to better enabling our customers to shop wherever, whenever and however she chooses, the launch of our mobile app will enhance our ability to serve our customers where stores remain closed.”
Mr. Clarke continued, “Looking ahead, while the situation remains fluid, with store re-closures taking place in certain states due to increased cases of COVID-19, we are focused on maximizing sales by controlling what is within our control. Our business model enables us to respond quickly to shifts in consumer demand so that we may manage our inventory flow to align with consumer demand. That said, we expect the heightened promotional environment will continue, particularly in light of soft traffic trends. While we expect the retail environment to remain challenging as a result of uncertainty related to COVID-19, we believe we are on the right path forward.”
BUSINESS UPDATE
The following are business update highlights as of July 17, 2020:
- Reopened 674 of 702 boutiques although the majority of them are operating at reduced capacity and hours in accordance with local regulations. This reflects the re-closure of 22 boutiques in California;
- All reopened boutiques have adopted a mandatory mask requirement for associates and customers, irrespective of CDC and local authority guidelines;
- Repaid
$2.0 million of outstanding borrowings under the Company’s Amended ABL Credit Agreement bringing the combined outstanding balance to$12.1 million , net of$0.9 million debt issuance costs, and$0.5 million in combined borrowing availability under the Company’s credit facilities;
- Cash and cash equivalents of
$18.7 million following repayment of a portion of the outstanding borrowings under the Company’s Amended ABL Credit Agreement as well as payments of certain accounts payable and lease obligations;
- Merchandise and non-merchandise vendor accounts payables substantially current with past due balances paid and lease payments resumed on all locations for July 2020;
- Substantially completed negotiations with the Company’s landlords to abate or defer lease payments for the months of April, May and June 2020. While deferred payments have a minimal impact on GAAP straight-line lease expense, they are expected to have a positive impact on the Company’s cash flow in fiscal year 2020;
- Expects to receive a
$10.7 million income tax refund filed with the IRS related to the CARES Act. This tax refund is required to be used to pay down any then outstanding borrowings under the Company’s Amended ABL Credit Agreement.
- As previously disclosed and as a result of the COVID-19 pandemic and its effects on the Company’s business described above, the Company’s revenues, results of operations and cash flows continue to be materially adversely impacted which continues to raise substantial doubt about its ability to continue as a going concern.
SECOND QUARTER OUTLOOK
For the second quarter ending on August 1, 2020, net sales are expected to be in the range of
In light of the economic and business uncertainties caused by COVID-19, management may not provide quarterly or annual financial guidance in any future earnings release.
FIRST QUARTER RESULTS
Net sales decreased
Gross loss, as a percent of sales, was (6.6)% as compared to gross profit, as a percentage of sales, of
Selling, general and administrative (SG&A) expenses decreased
The
The Company recorded non-cash asset impairment charges of
Loss from operations was
Income tax benefit was
Net loss for the first quarter ended May 2, 2020 was
Please see the reconciliation of adjusted SG&A, adjusted loss from operations, adjusted net loss and adjusted loss 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.
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: risks arising from the COVID-19 pandemic, including the related impact on the Company’s liquidity, changes in commercial and consumer spending and economic conditions generally, the duration of government-mandated and voluntary shutdowns and the speed with which the Company’s boutiques can safely be reopened and its ecommerce and distribution facilities return to normal capacity and the level of customer demand following reopening; the Company’s ability to continue as a going concern; the Company’s ability to satisfy covenant requirements under its asset based revolving credit agreement and term loan credit agreement and make payments of principal and interest as they come due; the risk that the Company may not be able to successfully execute its turnaround plan; 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 its boutiques each year; the Company’s ability to efficiently source and distribute merchandise quantities necessary to support its operations; 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 2, 2020 filed with the Securities and Exchange Commission (“SEC”) on May 1, 2020 and any risk factors contained in subsequent quarterly, annual and other 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 loss from operations, adjusted net loss, and adjusted loss 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 first quarter fiscal year 2020 SG&A, loss from operations, net loss and loss per share on a comparable basis with the Company’s first quarter fiscal year 2019 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. Today, francesca's® operates approximately 702 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.
| CONTACT: | |
| ICR, Inc. | Company |
| Jean Fontana | Cindy Thomassee 832-494-2240 |
| 646-277-1214 | Kate Venturina 713-864-1358 ext. 1145 |
| IR@francescas.com |
Francesca’s Holdings Corporation
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts, Percentages and Basis Points)
| Thirteen Weeks Ended | |||||||||||||||||||||||||||||||
| May 2, 2020 | May 4, 2019 | Variance | |||||||||||||||||||||||||||||
| In USD | As a % of Net Sales (1) | In USD | As a % of Net Sales (1) | In USD | % | Basis Points | |||||||||||||||||||||||||
| (in thousands, except percentages and basis points) | |||||||||||||||||||||||||||||||
| Net sales | $ | 43,753 | 100.0 | % | $ | 87,125 | 100.0 | % | $ | (43,372 | ) | (50 | )% | - | |||||||||||||||||
| Cost of goods sold and occupancy costs | 46,624 | 106.6 | % | 56,798 | 65.2 | % | (10,174 | ) | (18 | )% | 4,140 | ||||||||||||||||||||
| Gross (loss) profit | (2,871 | ) | (6.6 | )% | 30,327 | 34.8 | % | (33,198 | ) | (109 | )% | (4,140 | ) | ||||||||||||||||||
| Selling, general and administrative expenses | 24,951 | 57.0 | % | 39,994 | 45.9 | % | (15,043 | ) | (38 | )% | 1,110 | ||||||||||||||||||||
| Asset impairment charges | 7,472 | 17.1 | % | - | - | 7,472 | 100 | % | 1,710 | ||||||||||||||||||||||
| Loss from operations | (35,294 | ) | (80.7 | )% | (9,667 | ) | (11.1 | )% | 25,627 | 265 | % | 6,960 | |||||||||||||||||||
| Interest expense | 429 | 1.0 | % | 173 | 0.2 | % | 256 | 148 | % | 80 | |||||||||||||||||||||
| Other income | (59 | ) | (0.1 | )% | (113 | ) | (0.1 | )% | (54 | ) | (48 | )% | - | ||||||||||||||||||
| Loss before income tax (benefit) expense | (35,664 | ) | (81.5 | )% | (9,727 | ) | (11.2 | )% | 25,937 | 267 | % | 7,030 | |||||||||||||||||||
| Income tax (benefit) expense | (20,322 | ) | (46.4 | )% | 422 | 0.5 | % | (20,744 | ) | (4,916 | )% | (4,690 | ) | ||||||||||||||||||
| Net loss | $ | (15,342 | ) | (35.1 | )% | $ | (10,149 | ) | (11.6 | )% | $ | 5,193 | 51 | % | 2,340 | ||||||||||||||||
| (1) Percentage totals or differences in the above table may not equal the sum or difference of the components due to rounding. | |||||||||||||||||||||||||||||||
| Loss per share* | $ | (5.25 | ) | $ | (3.50 | ) | |||||||||||||||||||||||||
| Weighted average basic and diluted share count* | 2,920 | 2,901 | |||||||||||||||||||||||||||||
| Comparable sales change** | (3)% | (13)% | |||||||||||||||||||||||||||||
* Reflects the 12-to-1 reverse stock split that became effective on July 1, 2019.
** Comparable sales for the thirteen weeks ended May 2, 2020 included boutique sales for the period February 2, 2020 through the full week prior to the individual mandated boutique closure date as of March 25, 2020 and ecommerce sales for the full thirteen weeks ended May 2, 2020.
Francesca’s Holdings Corporation
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
| May 2, 2020 | February 1, 2020 | May 4, 2019 | ||||||||||
| ASSETS | ||||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | $ | 14,324 | $ | 17,839 | $ | 17,462 | ||||||
| Accounts receivable | 14,481 | 3,743 | 7,581 | |||||||||
| Inventories | 34,768 | 31,636 | 32,201 | |||||||||
| Prepaid expenses and other current assets | 3,729 | 12,325 | 11,137 | |||||||||
| Total current assets | 67,302 | 65,543 | 68,381 | |||||||||
| Operating lease right-of-use assets, net | 196,226 | 208,503 | 230,881 | |||||||||
| Property and equipment, net | 47,302 | 51,469 | 66,881 | |||||||||
| Other assets, net | 12,381 | 3,093 | 4,201 | |||||||||
| TOTAL ASSETS | $ | 323,211 | $ | 328,608 | $ | 370,344 | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
| Current liabilities: | ||||||||||||
| Accounts payable | $ | 20,639 | $ | 10,823 | $ | 20,428 | ||||||
| Accrued liabilities | 8,741 | 12,410 | 13,290 | |||||||||
| Current portion of long-term debt | 14,041 | 8,936 | - | |||||||||
| Current portion of operating lease liabilities | 53,734 | 48,691 | 50,097 | |||||||||
| Total current liabilities | 97,155 | 80,860 | 83,815 | |||||||||
| Operating lease liabilities | 194,502 | 200,938 | 215,335 | |||||||||
| Long-term debt, net | - | - | 10,000 | |||||||||
| Other liabilities | 159 | 284 | 49 | |||||||||
| Total liabilities | $ | 291,816 | $ | 282,082 | $ | 309,199 | ||||||
| Commitments and contingencies | ||||||||||||
| Stockholders’ equity: | ||||||||||||
| Common stock - | 40 | 40 | 39 | |||||||||
| Additional paid-in capital* | 113,312 | 113,101 | 112,850 | |||||||||
| Retained earnings | 78,064 | 93,406 | 108,277 | |||||||||
| Treasury stock, at cost – 0.9 million shares at each of May 2, 2020, February 1, 2020 and May 4, 2019 | (160,021 | ) | (160,021 | ) | (160,021 | ) | ||||||
| Total stockholders’ equity | 31,395 | 46,526 | 61,145 | |||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 323,211 | $ | 328,608 | $ | 370,344 | ||||||
* Reflects the 12-to-1 reverse stock split that became effective on July 1, 2019.
Francesca’s Holdings Corporation
Consolidated Statements of Cash Flows
(In thousands)
| Thirteen Weeks Ended | ||||||||
| May 2, 2020 | May 4, 2019 | |||||||
| Cash Flows Provided by Operating Activities: | ||||||||
| Net loss | $ | (15,342 | ) | $ | (10,149 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 4,767 | 5,785 | ||||||
| Operating lease right-of-use asset amortization | 11,105 | 11,594 | ||||||
| Stock-based compensation expense | 86 | (222 | ) | |||||
| Loss on sale of assets | - | 102 | ||||||
| Impairment charges | 7,472 | - | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (10,737 | ) | 8,728 | |||||
| Inventories | (3,132 | ) | (1,723 | ) | ||||
| Prepaid expenses and other assets | (1,037 | ) | (818 | ) | ||||
| Accounts payable | 9,490 | (2,423 | ) | |||||
| Accrued liabilities | (3,670 | ) | 1,957 | |||||
| Operating lease right-of-use assets and lease liabilities, net | (7,036 | ) | (12,856 | ) | ||||
| Net cash used in operating activities | (8,034 | ) | (25 | ) | ||||
| Cash Flows Used in Investing Activities: | ||||||||
| Purchases of property and equipment | (481 | ) | (2,616 | ) | ||||
| Net cash used in investing activities | (481 | ) | (2,616 | ) | ||||
| Cash Flows Used in Financing Activities: | ||||||||
| Proceeds from borrowings under the revolving credit facility | 5,000 | 5,000 | ||||||
| Repayment of borrowings under the revolving credit facility | - | (5,000 | ) | |||||
| Net cash provided by financing activities | 5,000 | - | ||||||
| Net decrease in cash and cash equivalents | (3,515 | ) | (2,641 | ) | ||||
| Cash and cash equivalents, beginning of year | 17,839 | 20,103 | ||||||
| Cash and cash equivalents, end of period | $ | 14,324 | $ | 17,462 | ||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Cash received for income taxes | $ | - | $ | (8,669 | ) | |||
| Interest paid | $ | 279 | $ | 111 | ||||
Francesca’s Holdings Corporation
GAAP to Non-GAAP Reconciliation
(In Thousands, Except Per Share Amounts and Percentages)
| Thirteen Weeks Ended May 2, 2020 | |||||||||||||||
| As Reported (GAAP) | Asset Impairment Charges(1) | Net Operating Loss Carryback(2) | Adjusted (Non-GAAP) | ||||||||||||
| Loss from operations | $ | (35,294 | ) | $ | 7,472 | $ | - | $ | (27,822 | ) | |||||
| Income tax (benefit) expense(3) | (20,322 | ) | (37 | ) | 20,496 | 137 | |||||||||
| Net loss | (15,342 | ) | 7,435 | 20,496 | (28,403 | ) | |||||||||
| Loss per share (4)(5) | $ | (5.25 | ) | $ | 2.55 | $ | (7.02 | ) | $ | (9.73 | ) | ||||
| Effective tax rate | 57.0 | % | (57.5 | )% | 0.5 | % | |||||||||
(1) Non-cash asset impairment charges associated with the write down of operating lease right-of-use asset and property and equipment for underperforming boutiques.
(2) Income tax benefit recorded related to the provision under the CARES Act that allows the carryback of net losses to prior years.
(3) The income tax impact of each adjustment was calculated using the adjusted effective tax rate of
(4) The loss per share impact of each adjustment was calculated by dividing the net loss impact by the basic and diluted share count of 2,920,000.
(5) The sum of the components may not foot across due to rounding.
| Thirteen Weeks Ended May 4, 2019 | |||||||||||||||||||
| GAAP | Professional Fees (1) | Severance Benefits and Other Payroll Costs (2) | Reversal of Stock-based Compensation (3) | Adjusted (Non GAAP) | |||||||||||||||
| SG&A | $ | 39,994 | $ | (1,152 | ) | $ | (1,114 | ) | $ | 271 | $ | 37,999 | |||||||
| Loss from operations | (9,667 | ) | 1,152 | 1,114 | (271 | ) | (7,672 | ) | |||||||||||
| Income tax expense (benefit)(4) | 422 | 50 | 48 | (12 | ) | 508 | |||||||||||||
| Net loss | (10,149 | ) | 1,102 | 1,066 | (259 | ) | (8,240 | ) | |||||||||||
| Loss per share(5)(6) | $ | (3.50 | ) | $ | 0.38 | $ | 0.37 | $ | (0.09 | ) | $ | (2.84 | ) | ||||||
(1) Consists of consulting expenses associated with the Company’s review of strategic and financial alternatives as well as the implementation of the turnaround plan that commenced in January 2019.
(2) Consists of severance benefits and other payroll costs associated with the turnaround plan.
(3) Reversal of stock-based compensation associated with the departure of certain employees.
(4) The income tax impact of each adjustment was calculated using the effective tax rate of
(5) The loss per share impact of each adjustment was calculated by dividing the net loss impact by the basic and diluted share count of 2,901,000.
(6) The sum of the components may not foot across due to rounding.
FAQ
What were Francesca's Q1 2020 earnings results?
What is the forecast for Francesca's sales in Q2 2020?
How did COVID-19 impact Francesca's financial performance?
