HOUSTON, June 21, 2019 – Francesca’s Holdings Corporation (FRAN) recently stated that net sales reduced 14% to $119.30M from $138.50M in the comparable prior year quarter. The fourth quarter of fiscal year 2017 included about $5.00M of sales for the 53rd week. The net sales decline in the fourth quarter of 2018 reflects a 14% decrease in comparable sales because of a decline in boutique traffic and a lower conversion rate. The Company opened one new boutique and closed 12 boutiques during the fourth quarter, bringing the total boutique count to 727 at the end of the quarter.
Selling, general and administrative (SG&A) expenses reduced 4% to $48.10M from $50.30M in the prior year quarter. Adjusted SG&A was $47.40M and excludes $1.40M of professional fees associated with the Company’s review of planned and financial alternatives and the turnaround plan that started in January 2019 and $0.80M of stock-based compensation reversal associated with the resignation of the Company’s former Chief Executive Officer in February 2019. The decrease in adjusted SG&A as compared to the comparable prior year period was because of a $3.10M decrease in payroll and related expenses as a result of labor efficiencies gained at the boutique level, lower accrued severance and additional payroll expenses for the 53rd week of fiscal year 2017.
During the fourth quarter, the Company recognized $5.60M of non-cash asset impairment charges. Of the total amount, $2.70M was associated with the impairment of boutique assets for 24 underperforming boutiques for which the remaining, or a portion of the remaining, net book value of their assets are no longer expected to be recoverable. The remaining $2.90M was related to the write-off of boutique furniture, fixtures and supplies that are no longer intended to be used as a result of the Company postponing new boutique openings and remodels in future periods.
Loss from operations was $6.80M contrast to income from operations of $10.40M in the prior year quarter. Excluding the professional fees, reversal of stock-based compensation and asset impairment charges, adjusted loss from operations was $0.60M.
Income tax expense for the fourth quarter of fiscal year 2018 included a non-cash charge of $17.10M associated with the valuation allowance offered on the Company’s net deferred tax assets resulting in an effective tax rate of 212.1%. This valuation allowance was recorded in fiscal year 2018 because it was concluded that it is more likely than not that certain deferred tax assets will not be realized. Income tax expense in the fourth quarter of fiscal year 2017 included a non-cash charge of $3.30M in connection with the remeasurement of the Company’s net deferred tax assets using the lower federal corporate income tax rate under the Tax Cuts and Jobs Act resulting in an effective tax rate of 63.9%. Excluding the valuation allowance and remeasurement of net deferred tax assets, the adjusted effective tax rate in the fourth quarter of fiscal year 2018 was 38.8% contrast to 31.5% in the comparable prior year quarter.
Net loss for the fourth quarter was $21.30M, or $0.61 diluted loss per share, contrast to prior year quarter net income of $3.70M, or $0.10 diluted earnings per share. Adjusted net loss for the fourth quarter was $0.40M, or $0.01 adjusted diluted loss per share contrast to adjusted net income of $7.10M, or $0.20 adjusted diluted earnings per share, in the comparable prior year quarter.
FULL YEAR RESULTS
Net sales reduced 9% to $428.10M from $471.70M in the prior year. This decrease was because of a 14% decrease in comparable sales contrast to an 11% decrease in the prior year because of the declines in both boutique traffic and conversion rate. In Addition To, fiscal year 2017 included about $5.00M of sales for the 53rdweek. During fiscal year 2018, the Company opened 32 new boutiques and closed 26 boutiques contrast to 60 new boutiques opened and 10 boutiques closed during fiscal year 2017.
The Company recognized $20.10M of non-cash asset impairment charges mainly associated with the impairment of boutique assets for 153 underperforming boutiques for which the remaining, or a portion of the remaining, net book value of their assets are no longer expected to be recoverable.
The Company recognized $17.10M of valuation allowance on the Company’s net deferred tax assets.
Net loss for fiscal year 2018 totaled $40.90M, or $1.18 diluted loss per share, contrast to net income of $15.60M, or $0.43 diluted earnings per share, in the prior year. Adjusted net loss for fiscal year 2018 was $9.00M, or $0.26 adjusted diluted loss per share contrast to adjusted net income of $18.90M, or $0.52 adjusted diluted earnings per share for fiscal year 2017.
BALANCE SHEET SUMMARY
Total cash and cash equivalents at the end of the year were $20.10M contrast to $31.30M at the end of the comparable prior year. The Company had $10.00M outstanding borrowings under its asset based revolving credit facility at the end of the fiscal 2018 and, as revealed in a previous release, borrowed an additional $5.00M during the first quarter of fiscal 2019. The Company had no debt at the end fiscal 2017. The Company estimates that, as of May 2, 2019, estimated cash and cash equivalents were about $13.00M. Included in the cash balance estimate is an income tax refund of $8.50M received on April 22, 2019. Moreover, the estimated cash balance reflects a $50M payment on the Asset Based Revolving Credit Facility bringing the outstanding balance back down to $10.00M with an estimated $14.60M in additional availability.
The Company ended the quarter with $30.50M of inventory on hand contrast to $26.80M at the end of the comparable prior year period. Excluding $3.70M of inventory reserve for product that was eventually marked out of stock, average ending inventory per boutique was flat as compared to the prior year period.
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