Is Francesca's Holdings Set for a Turnaround?

In the consumer retail segment, the popular high-profile companies like Michael Kors Holdings (NYSE: KORS  ) and Coach (NYSE: COH  ) often draw the most attention from investors. However, small-cap companies like Francesca's Holdings (NASDAQ: FRAN  ) are worth considering from time to time.

A unique business
Francesca's Holdings operates as a domestic specialty boutique retailer. The company offers unique and limited supplies of clothing, jewelry, and accessories through its customer-centric boutique stores and e-commerce platform, francescas.com.

In this regard, the company is unlike major competitors like Michael Kors and Coach because it operates on a much smaller and more intimate scale. Whereas most major fashion retailers prefer to reach as many customers with their popular designs as possible, Francesca's is content to offer each consumer a chance to buy a relatively unique product for a limited time in an inviting setting.

A troublesome 2013
As unique as the shopping experience may be at Francesca's, the company did not perform too well in 2013. The company's shares were down over 25% last year as growth was sporadic. The company is projected to have grown its revenue 15.3% in 2013, but earnings per share came in at only a paltry 1.9%.

A turnaround may be coming soon
Shares of Francesca's Holdings popped approximately 20% a few days ago after management upped its guidance for the fourth quarter to the top portion of its previously stated range.

Management previously expected fourth quarter revenue to be in a range of $90-$95 million. Now it expects the last quarter's revenue to be more robust, in a new range of $93-$95 million. A main reason for the raised guidance is the company's improving same-store sales growth. Francesca's Holdings now expects same-store sales to decline only by mid-to-single digits instead of the previously anticipated range of 3%-8%.

Additionally, management expects earnings per share in the fourth quarter to be $0.27-$0.29, which is again at the higher end of the company's previously stated range of $0.25-$0.29 cents. 

Robust growth at value prices
Although shares of Francesca's Holdings have not performed well in 2013, that may change in 2014, as the company is projected to experience solid growth. The following is a breakdown of the company's growth compared to larger competitors Coach and Michael Kors: 

Company

Coach

Francesca's Holdings

Michael Kors

Revenue Growth 2014

0.2%

18.5%

24.8%

EPS Growth 2014

-7%

18.9%

23%

* Coach fiscal year ends in June, Michael Kors fiscal years ends in March

While not as robust as Michael Kors, Francesca's Holdings is expected to grow at very healthy levels in 2014. The company's revenue and earnings growth, each projected to be above 18%, is significantly better than that of Coach.

However, the most attractive part of Francesca's Holdings is the company's current valuation. The following is a breakdown of all three companies' trailing and forward P/E levels:

Company

Coach

Francesca's Holdings

Michael Kors

Trailing P/E

15.03

19.3

31.9

Forward P/E

14.8

16.9

22.03

While not the cheapest out of all listed companies, Francesca's Holdings valuation is attractive considering the company is projected to grow at robust rates in 2014. This indicates that the market has not yet priced in much of the company's future growth.

A unique opportunity
Francesca's Holdings is a small-cap company that is not currently liked by the majority of investors. However, in a market that has been on fire lately it also makes for an interesting turnaround play. If the company's growth can match the current estimates or exceed them, than Francesca's Holding is set to reward shareholders handsomely in 2014.

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