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Francesca's (FRAN) Beats on Q1 Earnings, Cuts FY15 View

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Francesca's Holdings Corp. posted earnings of 18 cents per share in the first quarter of fiscal 2016, beating the Zacks Consensus Estimate. Results improved 5.88% year over year and were within management's guided range of 17 cents to 20 cents.

Revenues & Margins

The specialty retailer of shoes and apparel reported net sales of $106.1 million, missing the Zacks Consensus Estimate of $107 million. It also missed management's expectation of $108.0 million to $112.0 million due to higher than expected declines in traffic and heightened promotions. Sales however increased 11.7% year over year, backed by 48 boutiques openings since the end of fourth-quarter fiscal 2015. The company launched 22 boutiques during the quarter.

Comps, including direct-to-consumer sales, rose 2%, as against a 2% decline in the year-ago quarter. Categories like dresses, shoes and gift and home were offset by weaker results in accessories. Comps included 38% gain in e-commerce category. The number of transactions increased both at the boutiques and on-line in the quarter but average transaction values were flat as higher units per transaction offset lower average unit retail. The jewelry segment reported the highest gain of 10% year over year driven by increased sales of bracelets and necklaces.

Gross margin contracted 100 basis points (bps) to 46.3% year over year due to a 30 bps increase in occupancy costs and 60 bps decrease in merchandise margin. Operating margin fell 170 bps to 10.8% due to a 14% rise in selling, general and administrative expenses from the previous year.

FRANCESCAS HLDG Price, Consensus and EPS Surprise

FRANCESCAS HLDG Price, Consensus and EPS Surprise | FRANCESCAS HLDG Quote

Second-Quarter 2016 Outlook

Net sales are expected in the range of $106–$110 million, a flat to 4% gain year over year. The guidance assumes a mid-single digit decrease in comparable sales compared to the prior year decrease of 4%. Earnings per share are projected in the band of 16 cents to 19 cents.

Fiscal 2016 Outlook

Francesca's lowered the outlook for fiscal 2016 to reflect weakness in the overall retail environment particularly in apparel with declines in traffic and heightened promotions. The company projects net sales in the range of $460–$480 million compared to $474–$494 million expected earlier. It expects comps to remain flat or decrease in low-single digits compared to the low-single digit increase projected earlier. The company reported comparable sales increase of 3% last fiscal. Earnings per share are estimated in the band of 86 cents to 96 cents compared to a range of 93 cents to $1.03 expected earlier.

Francesca's currently carries a Zacks Rank #4 (Sell).

Stocks to Consider

Better-ranked stocks in the shoes and apparel retail sector are Carter's, Inc. (CRI - Free Report) and Sequential Brands Group Inc. , both of which carry a Zacks Rank #2 (Buy). Another favorably ranked stock in the broader consumer discretionary sector is Carnival plc. (CUK - Free Report) with a Zacks Rank #2.

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