Why Francesca's Shares Sagged
Jun 6th 2013 1:45PM
Updated Jun 6th 2013 3:35PM
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Francesca's Holdings , a retailer of apparel, jewelry, and other accessories, dipped as much as 12% after it reported its first-quarter earnings results.
So what: For the quarter, Francesca's reported a 29% increase in revenue to $79 million as adjusted EPS rose to $0.26 from $0.20 in the year prior. However, same-store sales advanced by just 2%, signaling that most of the growth came from new store openings rather than existing stores. Wall Street had been looking for Francesca's to report $79.8 million in sales and EPS of $0.26, so it was a slight miss from a revenue perspective. Looking ahead, things didn't improve. For the full year, Francesca's is forecasting revenue of $365 million to $370 million and EPS of $1.27 to $1.30, both of which are below the current consensus of $376.5 million in sales and $1.32 in EPS. Furthermore, while the company guided to 4% to 5% comparable-store growth this year, it only anticipates 1% to 2% same-store sales growth in the second quarter.
Now what: There are so few moments where I get to say "I told you so!" but this is certainly one of them. I've seen high-growth retailers come and go for years and there simply isn't a formula to keep putting the right merchandise in front of the customer. No retailer can keep up for an extended period of time the torrid growth pace that Francesca's was putting up, and these recent figures seem more in line with its projected long-term growth rate. At 21 times the midpoint of this year's earnings forecast and with slowing same-store sales, I see no reason to be excited about its prospects in the interim.
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