Francesca’s Holdings Corp (NASDAQ: FRAN) is flying in the market today, trading at more than double yesterday’s close. This is great news for a stock that has been under pressure for some time.
Even after today’s gains, FRAN stock is trading just over $10 per share. It’s hard to imagine that just a year ago, the stock was trading at more than $70 per share.
Nonetheless, with the release of an earnings report, the company showed that the issue leading to the dramatic declines seen for more than a year is starting to reverse. Here’s what’s going on:
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FRAN Stock Rockets On Financial Results
For some time now Francesca’s Holdings has been dealing with declining sales. In fact, for several quarters, the company has reported double-digit comp sale declines. Of course, when sales decline at such a high rate, investors lose faith and look elsewhere for opportunities.
While sales did decline in the quarter, the decines showed the second quarter of slowing, boosting faith that FRAN is making a turn for the better and may make a comeback.
In the press release surrounding the financial results, the company said that net sales came in at $106 million. Moreover, comparable sales decreased by 5%.
Another important factor, earnings per share, proved exciting. Last year, the company generated $0.16 per share. This year, earnings for the quarter came in at $0.61 per share, showing compelling growth. Finally, adjusted earnings came in at $0.72 per share.
In a statement, Michael Prendergast, Interim CEO at FRAN, had the following to offer:
We are very pleased to see significant improvement in our comparable sales for the second quarter. After a long period of double digit comp sales declines we achieved considerable sequential improvement in our comp sales in each month within the quarter. Gross margin was impacted by aggressive markdowns on poor performing legacy products that we accelerated within the quarter. However, we saw strong and better than expected sell through on new merchandise.
Our merchant teams have done an excellent job of shifting back to a “read and react” buying and planning strategy, resulting in more nimble buying and planning processes. We believe effective implementation of this data analytic and customer demand strategy is driving a meaningful improvement in both boutique traffic and conversion during the second quarter. We realized material savings this quarter through a number of cost reduction initiatives that we have been executing since the beginning of fiscal 2019. In addition, we continue to make headway in optimizing our real estate portfolio. We are extremely pleased with our progress, which we believe is validating our go-forward turnaround strategy and look forward to driving continued positive momentum in the business.
The Opportunity Could Be Huge
Before we get into the long term opportunity, it’s important that you know what’s happening today. FRAN has been in the dumps for some time. As a result, it was heavily shorted.
Because of the positive news, the stock ticked up, leading to shorts facing losses. So, shorts started to abandon positions, leading to the massive gains seen today. There’s a good chance that this will correct at some point as traders take profits.
Nonetheless, there is a long-term opportunity here. Francesca’s Holdings has been working to reverse large sales declines for some time now. Moreover, the company has been working to cut down on expenses in order to deliver stronger earnings for investors.
It’s clear that these efforts are working. For two consecutive quarters, sales declines were in single digits. Not to mention, earnings are climbing. Sure, sales are still headed down, but it seems like a reversal to that trend is likely around the corner. Should we start to see positive sales growth in the quarters ahead, the opportunity here could be tremendous!
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