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Aggressive Growth

Shares of Francesca's Holdings Corporation (FRAN - Snapshot Report) have shot up 78.7% year-to-date and are now hovering close to the 52-week high of $37.09 attained on September 4. Earlier this month, the retail boutiques operator posted solid second-quarter fiscal 2012 results, wherein earnings per share improved 86.7% year over year to clinch a 16.7% positive earnings surprise.

Over the last 30 days, all 10 estimates for the current fiscal year were revised higher, underscoring its Zacks #1 Rank (Strong Buy). An effective merchandising strategy, strong results and an upbeat outlook provide the foundation for the long-term earnings growth projection of 27.5%.

Profit Surges, Guidance Up

Francesca's Holdings reported second-quarter fiscal 2012 earnings of 28 cents per share on September 4, surpassing the Zacks Consensus Estimate of 24 cents and jumping from last year’s 15 cents. The company has now topped the Zacks Consensus Estimate for three consecutive quarters with an average surprise of 13.2%.

Net sales of $76.4 million topped the Zacks Consensus Estimate of $71 million and spiked 49.1% from $51.2 million a year ago. Comparable boutique sales increased 20.7%.

Operating income grew 65.7% to $20.9 million, whereas operating margin expanded 274 basis points to 27.4%, reflecting selling, general and administrative expense leverage as well as gross margin improvement of 205 basis points to 54.8%.

Buoyed by a robust performance, Francesca's projected third quarter net sales between $70.5 million and $71.5 million. Comparable boutique sales are expected to increase in the low-double-digit range for the company, which plans to open 2 new boutiques. Earnings per share are expected at 21 cents to 22 cents in the third quarter.

For fiscal 2012, Francesca’s now envisions net sales between $290 million and $292 million with earnings per share at 96 cents to 98 cents. Earlier, management had guided sales between $280 million and $283 million, and earnings per share in the range of 89 cents to 91 cents. Management forecasts a low-double-digit comparable boutique sales increase and plans to open 76 new boutiques and an outlet boutique during the fiscal year.

Earnings Momentum Soars

The Zacks Consensus Estimate for fiscal 2012 rose 7.8% to 97 cents per share in the past 30 days, as all 10 estimates were revised higher. The current estimate implies year-over-year growth of 76.9%, and is at the mid-point of the guidance range.

For fiscal 2013, nine of 11 estimates were revised higher over the same timeframe, lifting the Zacks Consensus Estimate by 6.3% to $1.18 per share. The current estimate suggests year-over-year growth of 21.7%.

Premium Valuation

Francesca’s currently trades at a forward P/E of 30.94x, reflecting a 94.5% premium to the peer group average of 15.91x. Also, on a price-to-book basis, shares trade at 30.86x, a substantial premium to the peer group average of 0.92x. With respect to return on equity (ROE), the stock looks very attractive. It has a trailing 12-month ROE of 145.4%, which is substantially above its peer group average of 15.6%. This implies that the company reinvests its earnings more efficiently than its peer group.

A Look at the Chart

The 12-month EPS chart below indicates that the stock price has now started to correlate with the increasing trend in estimates. Currently, the stock price is in the range of $30.00–$32.00, and the consensus estimates for fiscal 2012 and fiscal 2013 are steadily moving upward. The year-to-date return for the stock is 78.7% compared with the S&P 500’s return of 14.1%.

Founded in 1999 and headquartered in Houston, Texas, Francesca’s Holdings Corporation operates a chain of retail boutiques under the francesca’s collections brand in the United States. It is a holding company and operates through its subsidiary Francesca’s Collections Inc. The company targets female customers and offers a diverse and uniquely balanced mix of high-quality, trend-right apparel, jewelry, accessories and gifts at attractive prices. Francesca’s Holdings, which competes with Urban Outfitters Inc. (URBN) and ANN Inc. (ANN), currently has a market cap of $1.32 billion.


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