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Can Francesca's Bounce Back After Last Week's 29% Plunge?

By Rick Munarriz - May 22, 2016 at 9:00AM

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The "deep but shallow" apparel chain receives a pair of analyst downgrades after its CEO bolts.

Image source: Francesca's.   

Putting the "boo" in boutique, Francesca's Holdings (FRAN) scared its investors last week. The apparel retailer's stock was Nasdaq's biggest loser, shedding 29% of its value after posting weak preliminary financials and the resignation of its CEO triggered a couple of analyst downgrades.

Francesca's revealed that comps inched 2% higher during its fiscal first quarter ending in April. That may not seem so bad at a time when many specialty retailers are failing to grow store traffic, but Francesca's guidance back in March was calling for comparable-store sales to climb in the mid-single digits. The outlook was initiated a little more than midway through the quarter, so trends must've soured last month.

The 616-store chain also announced that it earned $0.17 a share for the quarter. That's flat with last year's bottom-line showing, but Wall Street pros were holding out for more. Analysts were expecting net income of $0.20 a share.

Falling short would sting most companies, but the real dagger came from the surprising resignation of Michael Barnes as chairman, president, and CEO for personal reasons. It was a jolt for investors, since Barnes had signed on just 17 months ago. 

Wall Street goes window shopping

Wolfe Research and Jefferies downgraded the stock following the double shot of bad news. That's a pretty big deal, since Wolfe Research had upgraded Francesca's stock just last month. Wolfe Research's mid-April upgrade came on the conviction that momentum was in Francesca's corner after a hot holiday quarter, when comps soared 11%. That obviously isn't happening. Wolfe Research also felt that management was making all of the right moves to boost transactions and the size of transactions, but the revised comps paint a different picture.  

There seemed to be plenty of potential when Francesca's Holdings went public at $17 five years ago. The boutique operator's "deep but shallow" approach to stocking a limited amount of many different items makes it stand out from cookie-cutter mall chains. Shoppers know that if they see something they like, they need to snap it up right away, because when it sells out it's gone. Francesca's shoppers also know they're unlikely to run into someone wearing the same outfits. 

The market liked Barnes' arrival in late 2014. He was CEO at jewelry giant Signet before coming over. However, now he's gone, growth has slowed, and at least two analysts are cooling on the stock. Those are too many negative developments in a historically finicky retail niche, and the stock may have to wait until the next permanent CEO is announced to truly bounce back. 

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