Commentary: Francesca’s will remain one of the winners in the fashion space

Håkon Helgesen, analyst at GlobalData Retail, comments on Francesca’s fourth quarter and full year results:



Francesca's has ended a solid fiscal year with a good set of numbers. Despite being up against a tough comparative of 11% growth from last year, total sales rose by 9%. This was primarily the result of the opening of 55 new stores and a very strong e-commerce performance where sales increased by 42%.



The two slight downsides came from the same-store numbers, which were flat over the prior year, and from operating profit which declined by 2.4%. The latter is mostly the result of increased discounting activity towards the end of the quarter, something that damaged margins. As much as this is unfortunate, it does mean that Francesca's starts its new fiscal year with a relatively clean inventory position -- something that is essential for the clear presentation of new ranges in store.



Nevertheless, the results are impressive when set against a retail market where both overall demand and customer traffic were soft over the final quarter. We believe that this outperformance is down to a number of factors.



Foremost among these is Francesca's move to a fast-fashion model. While this is not on a par with a retailer like Zara, range refreshes are now more regular, with shorter runs of fashion products being produced. This both encourages shoppers to visit regularly and to buy immediately when they see something they like.



A nimbler approach to procurement has allowed Francesca's to quickly move in and out of high-performing and underperforming categories and styles. Although it does not entirely eliminate the need for markdowns -- as we saw this quarter -- it helps reduce the discounting and allows for a more disciplined approach to pricing.



The organization of the assortments into collections, with complementary pieces and accessories being merchandised together, has also helped to drive up transaction values. This has allowed categories like jewelry and handbags to perform well and has helped Francesca's push price points higher across these assortments.



Although stores are performing reasonably, e-commerce sales increased by 42%. In our view this is down to two factors. First, the ongoing investment in e-commerce which has made the website, and especially the mobile version, easier to navigate and shop: this pushed up traffic and conversion. We believe these investments have a little more runway, although their contribution to growth will become weaker.



Second, Francesca's has taken a prudent approach to the assortment it showcases online. Rather than simply replicating what is available in stores, it has determined what collections and pieces sell well online and has showcased these very effectively. It has also used online to extend the range available in stores. This both ensures that stores do not become overly cluttered and that there is sufficient difference between online and stores to ensure many customers visit and shop both.



Looking ahead, we maintain our view that Francesca's will remain one of the winners in the fashion space.