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Why Francesca's Shares Got Crushed

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 women's clothing retailer Francesca's Holdings (NASDAQ: FRAN  ) plummeted 25% today after its quarterly results and outlook missed Wall Street expectations.

So what: The stock has slumped over the past year on rapidly slowing sales growth, and today's second-quarter miss -- EPS of $0.33 on sales of $89.6 million versus Wall Street at $0.35 and $94.5 million -- coupled with downbeat third-quarter guidance suggests that the trend isn't slowing. In fact, comparable sales for the quarter declined 1% while gross margin slipped 53 basis points over the year-ago period, reinforcing serious concerns over its competitive position going forward.

Now what: Management now sees current-quarter sales of $78 million to $80 million -- well below the consensus of $89.7 million -- and expects comparable sales to slip by 2%-5%. "While we are taking action to drive our performance, we anticipate that traffic trends will remain challenging," said CEO Neill Davis. "Overall, we are highly confident in our differentiated, fast growing, and highly profitable business model and we are steadfast in our efforts to deliver on our long-term growth objectives." With the stock now off nearly 50% from its 52-week highs and trading at a cheapish forward P/E of 11, now might even be a good time to buy into that long-term turnaround talk.

The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.

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Related Tickers

9/29/2016 4:00 PM
FRAN $15.28 Down -0.14 -0.91%
Francesca's Holdin… CAPS Rating: ***