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Francesca’s to close at least 20 stores in 2019 amid Q4 loss, sales dive

Francesca’s Holdings Corp.’s downward spiral continued in the fourth quarter as the retailer swung to a loss amid a 14% drop in revenue.

On a call with investors, Francesca's executives said the company will close at least 20 stores this year and put a hold on remodels until its financial situation stabilizes. (In fiscal 2018, the company opened 32 stores and closed 26, giving it a total of 727 locations.) In January, the struggling apparel and accessories retailer announced it was exploring strategic alternatives, including a potential sale of the company and a financing or refinancing.

In a statement released with fourth quarter earnings, interim CEO Michael Prendergast, who was appointed to the role in February following the departure of Steve Lawrence, said Francesca’s was taking steps to optimize its real estate, through selective store closures and lease renegotiations, and focusing on additional cost reductions.

Francesca’s reported a net loss of $21.2 million, or loss per share of $0.61, for the quarter ended Feb. 2, compared to net income of $3.7 million in the year-ago period. Adjusted loss per share was $0.01.

Net sales decreased 14% to $119.3 million in the quarter. Same-store sales fell 14% amid a decline in store traffic and a lower online conversion rate. (The fourth quarter of fiscal year 2017 included approximately $5.0 million of sales for the 53rd week.) Merchandise margins declined by 150 basis points due to increased markdowns and average unit cost, partially offset by lower marked-out-of-stock charges and inventory reserves.

For the year, Francesca’s reported a loss of $40.9 million, or $1.18 per share, compared to net income of $15.6 million, or $0.43 diluted earnings per share, in the prior year. Revenue fell 9% to $428.1 million.

Despite the poor quarterly and yearly results, Prendergast sounded a hopeful note with regards to the future.

“While sales for the fourth quarter were in-line with our expectations, adjusted diluted loss per share was better than anticipated reflecting some of the early work that has been done around expense management,” he said. “Over the last three months we have done an abundance of work, evaluating all areas of the business and developing a strategic turnaround plan that we believe will return the company to longer-term positive sales, cash flow and operating income performance.”

Prendergast added that the company’s first priority in fiscal 2019 is to transition its merchandising process to enable a demand-based, fast-fashion business model. The chain is also simplifying its promotional strategy.

“Looking ahead, we will continue to move swiftly to develop a strong foundation and implement operational disciplines that will enable improved performance across all financial metrics,” he said.
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