Why Francesca's Holdings Corp. Shares Plunged Today

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 retail boutique chain Francesca's Holdings (NASDAQ: FRAN  ) sank 13% today after its quarterly results and outlook disappointed Wall Street.

So what: The stock has plummeted over the past year on signs of slowing growth, and today's Q2 results -- EPS of $0.20 missed the consensus by $0.02 on a revenue increase of just 8% -- coupled with downbeat guidance only reinforce that trend. In fact, gross margin during the quarter fell 340 basis points to 49% while comparable-store sales decreased 7%, suggesting that Francesca's competitive position continues to weaken rapidly.

Now what: Management now sees full-year 2015 EPS of $1.05-$1.17 on revenue of $387 million-$399 million, down from its prior view of $1.16-$1.31 and $391 million-$409 million. "Our customer loves newness and our plans to dispose of slow moving inventory are targeted to accelerate the flow of new merchandise into our boutiques," said President and CEO Neill Davis. "We are focused on delivering improved results through the back half of 2014 driven by disciplined inventory management, meeting customer expectations, as well as ongoing customer engagement initiatives." Given Francesca's worrisome operating trends and deteriorating competitive moat, however, I'd wait for a much wider margin of safety before betting on that turnaround talk.

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