Francesca’s Holdings Corp (NASDAQ: FRAN) is running for the top in the market this morning, trading on gins in multiples. The gains come after the comapny reported its results for the first quarter, provided a business update, and set the stage for a strong second quarter.
While revenues were down 50% in the first quarter, due to the COVID-19 pandemic, there’s a very bright silver lining around the dark cloud. Here’s what you need to know:
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FRAN Stock Runs For The Top On Business Update
As mentioned above, the first quarter of 2020 wasn’t a great one for Francesca’s Holdings with sales down around 50%. However, there’s clear skies ahead, according to the business update provided by the company this morning.
As of July 17, 2020, FRAN has reopened 674 of its 702 botique locations across the country. The company said that these numbers reflect the re-closure of 22 locations in California. All open botiques now have mandatory mask requirements in place for associates and customers.
Moreover, the company paid back $2 million of outstanding borrowings under its Amended ABL Credit Agreement. As such, the combined outsanding balance is now $12.1 million. Cash sits at $18.8 million and past due vendor balances and lease payments have been brought up to date for all locations.
Moreover, FRAN said that the CARES act is expected to result in a $10.7 million income tax refund, which will be required to pay back outstanding debts under the Amended ABL Credit Agreement.
The big kicker here was second quarter guidance. The company said that it expects to report between $67 million and $71 million in Q2 revenues. This shows a bit of a recovery, with year over year declines sitting at between 16% and 11%, far better than Q1.
In a statement, Mr. Andrew Clarke, President and CEO at FRAN, had the following to offer:
Sales of reopened boutiques are trending within our expectations, with higher conversion largely offsetting lower traffic trends. With an increased focus on boutique promotions, as part of our phased reopening plans, we have cleared through the majority of our aged product, which we believe will place us in a better inventory position heading into the fall season.
While these promotions are resulting in meaningful gross margin pressure, our priority remains to ensure that we maintain disciplined inventory levels. The re-platforming and relaunching of our ecommerce site is on track for the fall season. Our iOS App is expected to launch in the next few weeks and our Android App is expected to launch this fall. In addition to better enabling our customers to shop wherever, whenever and however she chooses, the launch of our mobile app will enhance our ability to serve our customers where stores remain closed.
Looking ahead, while the situation remains fluid, with store re-closures taking place in certain states due to increased cases of COVID-19, we are focused on maximizing sales by controlling what is within our control. Our business model enables us to respond quickly to shifts in consumer demand so that we may manage our inventory flow to align with consumer demand.
That said, we expect the heightened promotional environment will continue, particularly in light of soft traffic trends. While we expect the retail environment to remain challenging as a result of uncertainty related to COVID-19, we believe we are on the right path forward.
Final Thoughts
The news released by Francesca’s Holdings today was overwhelmingly positive. While we expected that the COVID-19 pandemic would cause some pain for the company, and it did, the recovery seems to be taking place incredibly quickly.
Keep in mind, revenue was down 50% year over year in Q1, and is expected to only be down under 20% in Q2. That shows that the recovery is strong. Should this continue, the company is in for great times ahead.
Considering this news, FRAN stock is one to watch closely.
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