Please ensure Javascript is enabled for purposes of website accessibility

Can Francesca's Keep Going After Last Week's 11% Pop?

By Rick Munarriz – Sep 12, 2016 at 9:14AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The "deep but shallow" apparel chain moves higher after posting well-received quarterly results. A Wall Street firm raises its price target on the stock.

Image source: Francesca's.

Some apparel retailers are holding up better than others. Shares of Francesca's Holdings (FRAN) soared 11% last week, moving higher after posting strong financial results, boosting its guidance, and receiving a bullish analyst update.

Net sales rose 9% to $115.3 million for its fiscal second quarter. The top-line growth was the result of 44 net new boutiques that have opened over the past year. Comps were actually flat, but that's not a bad thing given the negative store-level growth that some mall retailers have been sporting. Online sales soared 37%, but e-commerce only accounts for less than 5% of the 652-store chain's sales. It's not moving the needle just yet.

Gross profit margin contracted slightly, but that was more than offset on the way down the income statement through cost controls and a net benefit of $2 million that it scored after May's CEO departure resulted in the forfeiture of unvested stock awards. Earnings clocked in at $0.27 a share, ahead of both the $0.22 a share it posted a year earlier and the $0.18 a share that analysts were forecasting. It's the third quarter in a row that Francesca's has blown past Wall Street's profit targets.

Some fashions bounce back quicker than others

Investors threw Francesca's into the doghouse four months ago, after weak preliminary quarterly results and the resignation of its CEO triggered a couple of analyst downgrades. The stock shed 29% of its value that week, but it has gone on to claw its way back. Last week's move now finds the stock trading higher than it was before its mid-May sell-off. 

The retailer also boosted its guidance. It now sees $473 million to $488 million in revenue for the entire fiscal year, up from the $460 million to $480 million range it was forecasting in early June. A slight improvement to its comps outlook is nudging its guidance higher. It also sees profit per share of $0.96 to $1.03, up from its earlier outlook of $0.86 to $0.96.

Guidance is moving in the right direction, and at least one Wall Street pro liked what she heard. SunTrust analyst Pamela Quintiliano reiterated her Buy rating, raising her price target on the stock from $16 to $18. She sees the boutique operator's turnaround gaining traction.

That turnaround is still in its early stages. The boutique operator saw demand improve in June and July, the last two months of the fiscal quarter. Traffic was still negative, but comps still turned positive as customers spent more. Francesca's is taking baby steps in the right direction, but the key point there is that those steps are in the right direction.

Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Francescas Holdings Stock Quote
Francescas Holdings

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.