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Francesca's navigates through challenging retail environment


Francesca's saw improvement in sales trends for its apparel, accessories and gift categories in the second quarter of 2014. But these were offset by weak jewelry sales, which took a bite out of the retailer’s gross profit.

Gross profit, as a percentage of net sales, decreased to 46.6%, thanks in part to slow-moving inventory, increased markdowns and promotional activities. The company reported net income of $10.3 million, or $0.24 diluted earnings per share, for the quarter, down from $14.6 million, or $0.33 diluted earnings per share, for the second quarter of 2013.

Net sales for the quarter were $97.3 million, a 9% increase from $89.6 million in the prior-year quarter, and driven primarily by 90 new boutiques opened since the end of the second quarter last year. During the quarter, the company opened 13 new boutiques bringing its year-to-date total to 75 new boutiques and a total boutique count to 526 at quarter end.

Total apparel sales increased 14%, accessories sales increased 14%, and gift sales increased 25%. These gains were offset by a 12% decrease in jewelry sales, which contributed 6 percentage points of the total company comparable sales decrease of 7%.

Direct-to-consumer sales increased 98% versus the prior year quarter, building on the momentum generated in the first quarter when sales improved 84% over the comparable period of the prior year.

"We are making progress in reversing the negative trends in jewelry as reflected in improved performance of new merchandise in late July and August,” said CEO Neill P. Davis. “We expect the improving sales trend that started at the end of the second quarter to continue through the third quarter as jewelry sales continue to strengthen, and our customers increasingly respond to our seasonal gift and apparel assortments. Our balance sheet remains strong giving us the ability to continue to open new boutiques which are meeting our expectations of paybacks under one year while investing in the infrastructure to support our growth. Our business model remains strong and we have a significant opportunity to continue to drive improvements in sales and profits. I want to thank our team members for their hard work and dedicated service to our customers."

Looking ahead to the third quarter ending Nov. 1, net sales are expected to be between $87 million and $92 million assuming a mid- to low-single digit decrease in comparable sales. This compares to the prior year comparable sales decrease of 3% versus the third quarter of 2012. The company plans to open 13 new boutiques during the third quarter as compared to 10 boutiques opened during the prior year quarter. Diluted earnings per share are expected to be in the range of $0.17 to $0.22.

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