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Francesca's Shares Drop Due to Drab Preliminary Q1 Results

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Francesca’s Holdings Corporation’s shares tumbled roughly 3% on Jun 18 as the company posted dismal preliminary numbers for first-quarter fiscal 2020. The apparel, jewelry, accessories and gifts specialty retailer posted net sales of $43.8 million, down 50% year over year. The decline was caused by temporary boutique closures owing to the coronavirus outbreak. Also, Francesca’s shut down eight boutiques permanently during the quarter, bringing the total tally to 703 as of the quarter-ennd.

Well, other consumer discretionary players like Deckers Outdoor (DECK - Free Report) , Skechers U.S.A. (SKX - Free Report) and NIKE, Inc. (NKE - Free Report) have also witnessed impacts from coronavirus-induced temporary store closures.

Meanwhile, Francesca’s gross loss came in at $2.9 million in the quarter. Notably, the company had posted gross profit of $30.3 million in the year-ago period. The downside can be attributed to decreased deleverage in occupancy expenses owing to reduced sales in the first quarter. Also, lower merchandise margin along with higher levels of inventory amid COVID-19 acted as a deterrent. Notably, the company’s average inventory per boutique as of May 2, 2020, was 11% higher when compared with the metric as of May 4, 2019.


During the first quarter, adjusted SG&A expenses contracted 34.3% to $25 million owing to lower employee salaries due to a temporary furlough of the workers. Moving on, the company’s net cash used in operating activities amounted to $8 million, significantly higher than the prior-year quarter.

Francesca’s cash and cash equivalence was nearly $21 million as of Jun 12, 2020, when compared with $14.3 million as on May 2. The uptick was a result of the company’s efforts to boost sales as well as clear its current inventory. Also, the company is committed toward curtailing costs excessively and managing cash flows effectively. Moreover, it has postponed vendor and rent payments.

With restrictions to check the spread of coronavirus being lifted gradually, Francesca’s has started reopening its boutiques, with 593 reopened as of Jun 12. However, most of these reopened boutiques have been running at limited capacity and reduced hours. Also, the company is on track with calling back furloughed corporate and boutique staff. Moreover, management is impressed with its solid ecommerce business along with impressive sales from reopened boutiques.

We note that shares of Francesca’s have lost 65.6% year to date compared with the industry’s decline of 4.1%.

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