Francesca’s Plummets 25% on Weak Earnings

by Alyssa Oursler | September 4, 2013 12:25 pm

Retail stock Francesca’s (FRAN[1]) is swimming against the current, plummeting nearly 25% as of midday on an otherwise positive Wednesday for the broader markets.

FRAN was falling on weak earnings, the latest such report from the retail sector. Francesca’s reported adjusted profits of 33 cents per share — an 18% increase year-over-year, but shy of analysts’ expectations for 35 cents.

The company cited softer-than-expected sales — which also fell short of estimates — as the reason for the miss, pinpointing lower traffic and lack of a dominant apparel trend.

To top it off, same-store sales fell 1%, partially because of tough year-over-year comparisons. In the second quarter of 2012, comps soared by 21%.

The even bigger reason investors can’t seem to get to the doors fast enough: FRAN management also lowered its outlook. While traffic trends picked up a bit last week, no clear direction has emerged and year-over-year comparisons remain difficult.

Now, third-quarter sales are expected to be between $78 million and $80 million — far below current estimates for nearly $90 million. That’s assuming a 2% to 5% decrease in comparable sales vs. last year’s increase of 17%. The result: Earnings per share between 19 cents and 21 cents, while analysts forecast 30 cents.

Things look bad for the full year — FRAN expects EPS between $1.10 and $1.16, while Wall Street was ready for an already-lowered $1.29.

The only ray of sunshine in today’s storm is that, thanks to its stock being halved in the past 52 weeks, Francesca’s is increasingly looking attractive on a valuation basis … assuming its growth gets back on track. After today’s decline, FRAN is trading for less than 12 times expected 2014 earnings, yet the retailer still is expected to grow earnings 20% annually for the next five years.

Even if you pare back 2014 expectations by 10% in the wake of this year’s lowered outlook, that leaves FRAN with a forward P/E of 13 — very reasonable considering lower growth rivals Urban Outfitters (URBN[2]) and Ann (ANN[3]) trade for respective multiples of 19 and 14, while specialty retailer Lululemon (LULU[4]), which is slated for similar growth, is going for 27 times forward earnings.

Still, it’s difficult enough to bottom-fish a flailing retailer. Considering retail stocks’ weakness across the board, a dip for FRAN right now might drag you further in the hole.

As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities. 

  1. FRAN:
  2. URBN:
  3. ANN:
  4. LULU:

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