Francesca's to close at least 20 stores this year amid sales plunge

Dive Brief:

Francesca’s on Friday said it will shutter at least 20 stores this year and pause remodels until the company stabilizes its financial situation. The company swung to a net loss of $21.3 million in the fourth quarter from the prior year’s net income of $3.7 million, the company also said.
The apparel retailer’s net sales fell 14% to $119.3 million from $138.5 million in the year-ago quarter, as comparable sales also fell 14%, according to a company press release. 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. Gross profit, as a percent of net sales, fell to 39.3% from 43.9% in the prior year, due to 320 basis points deleveraging of occupancy costs from lower sales and higher occupancy costs (resulting from increases in rent and related expenses and a higher store count).
The company applied its recent tax refund of $8.5 million received April 22 to pay $5 million on its asset-based revolving credit facility, returning its outstanding balance to $10 million, CFO Kelly Dilts said on a Friday morning conference call. The company has some $13 million on hand as of Thursday, she also said. The company is looking for a "first in, last out" facility, targeting a loan of more than $10 million, and is working with law firm O’Melveny & Myers, unnamed sources told Debtwire Middle Market Restructuring Reporter Tanvi Acharya, according to an April 26 report emailed to Retail Dive. Dilts didn't immediatley return Retail Dive's request for comment on the Debtwire report.

Dive Insight:

Francesca's a week ago had already given investors a peek at its dire fourth quarter results, likely an effort to protect its share price, which edged down Friday morning from the 64 cents or so per share it had garnered most of the week.

That won't help the retailer regain its place on the Nasdaq exchange, which in February warned the retailer it will be delisted if it fails to meet the requirement to maintain a stock price of $1 per share for 30 consecutive business days. In order to regain compliance and continue trading on the marketplace, the company has 180 business days to bring that price up; otherwise, it would need to move to an exchange with less stringent rules.

Interim CEO Michael Prendergast on Friday reiterated that the company is "well positioned ... for profitable growth" and that negotiations with landlords are ongoing in an effort to bring some relief to its expense sheet and right-size a fleet that he said had been expanded without appropriate leadership to run stores well or enough discipline to manage leases. He expressed confidence in the boutiques' small formats, which are found mostly in malls.

He also said the company is sticking with a broad assortment of what he called on-trend merchandise, with "high-touch" customer service, but said in recent years that's been badly executed. The retailer is now working with vendors to speed up the supply chain, returning it to "fast-fashion principles," he said, which will entail new, advanced analytics. It's a curious model for a chain offering merchandise priced well above fast-fashion stalwarts like H&M, Zara and Forever 21.

There are other challenges. Costs have outpaced sales, and efforts are underway to reel them in, Prendergast also said, including laying off an undisclosed number of employees in the corporate office and store management. But such poor performance in the holiday quarter, which normally provides a retailer with a positive push for the year, doesn't bode well for those efforts. Full-year net sales fell 9% to $428.1 million from $471.7 million in the prior year, due to a 14% decline in comparable sales (on top of the 11% decrease in the prior year), reflecting declines in both boutique traffic and conversion rate, the company said. Fiscal year 2017 also was helped by some $5 million of sales in a 53rd week.

Slating 20 stores for closure, as executives indicated, seems conservative for a retailer that Dilts said Friday now runs 727 stores. Last year the company opened 32 new boutiques and closed 26, compared to 60 opened and 10 closed during fiscal 2017, according to its release.