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Bear of the Day

Francesca’s Holdings (FRAN - Snapshot Report), Zacks Rank #5 (Strong Sell), is a women’s apparel retailer which recently reported disappointing profits.  The company posted earnings per share of $0.33 in the quarter ending July against a Zacks Consensus Estimate of $0.35.  The company also provided weak guidance for FY Q3 (October) and the Zacks Consensus estimate for Q3 tumbled $0.10 to $.20 in the wake of the report.  Estimates have also declined for FY 2014 and FY 2015 by $0.18 and $0.25 to $1.12 and $1.33 respectively over the past thirty days.  The stock gapped sharply lower after its September 4th earnings release.

The graphic shows the loss of profit momentum.  It suggests profits need to turn higher to bring in signficant buying. 

Sales below plan:

Francesca’s reported below plan sales and gross margin pressure.  Weak traffic and poor sales in the gift category weighed on results.   Same store sales have contracted three straight quarters and operating margins have declined compared to a year ago four straight quarters.  The CEO indicated that there were improved traffic trends in late August, but no clear direction had emerged.  The statements provide caution on the outlook.  The dim view has compressed the forward price to earnings ratio from over 30.0 to 15.5.  Women’s apparel is a competitive space and being reflected in the multiple.

The positive:

The company did announce a $100 mln repurchase program which suggests management is constructive on future operations.  

Alternatives:

Those who want exposure to the apparel industry may want to focus on companies which have a stronger outlook for earnings.  Citi Trends (CTRN) is a Zacks Rank #1 (Strong Buy) which sells urban fashion in the South and Southeast.  Its FY 2014 and FY 2015 EPS estimates have risen $.04 to $.00 and $.03 to $0.34 respectively over the past thirty days.  The stock has traded in a steady uptrend reflecting the positive view on business prospects. 

A second choice may rest in Destination Maternity (DEST) – a Zacks Rank #2 (Buy). EPS estimates are flat for this name over the past 30 days, but the profit outlook for the next two fiscal years has stepped higher in recent months.  The stock is knocking at the door of its 52-week high at $31.44 and movement over this level could spark some momentum buyers.

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